written by reader Sandstorm warrants

By Anonymous Questions, March 16, 2014

I have quite a lot of Sandstorm 2014 April 23rd expiry. Warrants.
they are currently losing against what I paid for them. I don`t expect personal advice, but just to know what choices there are with ANY warrant up to and including stated date.

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Travis Johnson, Stock Gumshoe
March 17, 2014 9:49 pm

With most warrants, the two choices are that you can sell them, or you can exercise them. If you’re a Canadian and hold the warrants on the Canadian exchange, you can probably exercise them … if you’re a foreign investor you probably cannot, at least not easily, so you most likely would have to sell them. They’ll be bought at close to real value by someone who could then exercise them — since they expire next month there is no real time value left in the warrants, they’re worth what they would be worth to someone who wants to exercise the warrants today, plus or minus a touch of optionality for the possibility that Sandstorm will rise or fall in the two remaining months before expiration.

For Sandstorm, the warrants are listed with exercise details here: http://sandstormgold.com/investors/warrant_info/

The basic math for this first warrant tranche, the one that expires in April, is that you can buy a share for five warrants plus $3 (it was one warrant plus 60 cents a few years ago when the warrants were created, but that changed when the stock consolidated 5 shares into one to get a US listing).

So if you go by the stock price of $6.45 at the close today (going by the US listing, since the warrant is exercised in US$ terms — the $3 is US, not Canadian) that would mean that you take off the $3 because that’s what you’d have to pay to exercise, then you divide the remainder by 5 because it would take five warrants to get one SAND share.

By that math, the five warrants are then worth $3.45, so each one is worth 69 cents. They last traded at 71 cents, though trading can be quite thin, so if you wish to sell you might have to be either patient (during which time the stock price could move up or down) or settle for a somewhat worse price to close them out quickly. If SAND drops to $5.25, for example, each warrant would be worth 45 cents … if it climbs to $7.50, each warrant would be worth 90 cents…. you get the idea, the leverage is pretty substantial, particularly because SAND has been very volatile during gold’s recent recovery, and as long as the stock price remains over $3 the warrants are worth something. Over the last three months the stock has recovered from $4 to $6.80 before dropping back down slightly — I very much wish I could tell you whether the stock will rise or fall between now and April 23, but I can’t.

But if you own them, like any warrants they require action on your part — you have to do something with the warrants. It’s possible that your broker will pester you about them, but warrants — unlike the way most brokers treat stock options — can expire unexercised and lose all their value if you do nothing.

The warrants might be worth fifty cents or a dollar on April 23, but if you fail to sell or exercise them — and for many investors, your broker can’t exercise these for you and won’t sell them without your consent — they are worth nothing on April 24. Do something with them, and if you’re Canadian and mean to exercise them don’t wait until the very last day, call your broker about it beforehand.

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