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It’s
The Most Wonderful Time of the Year
(It’s
not Christmas yet, but gifts are everywhere)
As
a long term investor, I love this time of year. Volumes dry
up, investors’ interest weakens, and opportunities are
to be had. Once in awhile you’ll get margin calls kicking
in and panic selling kicks in. It’s amazing how quickly
bids disappear when this begins and how frightful investors
become.
But
isn’t the golden rule of investing, Buy Low and Sell High?
Well
then, just take a quick look at this chart of the HUI index
from the last 3 years.
In each case, the low for the entire year happened between the
middle of
May through to July.
This
also appears especially true for my favourite company, Endeavour
Mining Capital(EDV-TSX)History says that buying during these
three months of the year gives you a higher chance of keeping
our average cost lower than investors buying the other 9 months
of the year.
Endeavour
Mining Capital(EDV-TSX) is a pure play on the resource market
and offers a very unique way to invest in juniors without exposing
your portfolio to the risks of investing in individual companies.
Endeavour Mining Capital brings capital, people and projects
together and has built some of the most successful mid-tier
mining companies we have seen this cycle.
The
company’s business model has always excited me – my
last review on it
- “Warrants on top of Warrants” - talks about the
huge leverage that Endeavour offers from the warrants they receive
for putting their money in so early.
But
recently the company announced a transaction which I believe
should revalue the stock. In a $100M deal, it merged with the
private company that created it: Endeavour Financial (EF). This
creates a true merchant bank and should allow the market to
re-value its shares as such. Previously Endeavour was seen as
a holdings company, and traded at a discount to book value.
True merchant banks – with fees and operational revenues
– trade at 2-3 times book in Canada, and 8-12 times book
in the U.S. If you take a peak at the chart I presented in the
last article, you’ll see where its’ comparables lie
and it appears that EDV is grossly undervalued compared to its
peers – almost by half!
The
market won’t be revalued overnight as the deal doesn’t
close until mid-August. But from now until then I believe the
company will talk to institutions and majority shareholders
to get their votes on the transaction. I’m hoping that
when the deal is approved, the lift off can begin. Timing could
be right for some bottom picking during this typical seasonal
low.
And
seeing as warrants are our business, I’ll delve into the
valuations below.
Here
are the particulars on the EDV warrants:
Canadian
Symbol: EDV.wt
U.S. Symbol: EDVWF
Expiration date: 10 November 2008
Exercise price: C$5.50
Closing
price of common shares – 27 June 2007 C$9.63
Closing price of warrants - 27 June 2007 C$4.70
Current intrinsic value of the warrants C$4.13
Using
the Black-Scholes formula for pricing of options, the value
of the warrants are fairly priced with the current market price
at $4.70 and the B-S fair price at $4.60.
As
investors we want to purchase those warrants which are fairly
priced or under priced, but what we really want to know is how
will the warrant perform as the common shares rise? So, we present
you will our warrant leverage calculator and we can see below
what the warrants will sell for at 3 different price points
for the common shares:
What
the above table reflects is that investors believing the common
shares will appreciate to the above price targets on or before
the expiration of the warrants (10- Nov-2008) should purchase
the warrants in lieu of the common shares. The warrants will
generate an approximate 2 times the return over investing in
the common shares.
Conclusion:
The
charts are clear. History says Christmas comes in May-June for
buy and hold investors – and they are the ones who make
the most money. This remains a bull market for metals, and we
are just witnessing the annual summer correction. Pick your
favourite company and buy when there is blood on the streets
like the last few days. If you want extreme leverage –
look to see if the Company has tradable warrants.
Endeavour
Mining Capital warrants (EDV.WT – TSX), being highly leveraged
in a secular bull market, is my first choice. The underlying
stock is highly profitable, pays a dividend and managed by the
smartest brain trusts in the mining world. The potential for
revaluation by the market due to the announced merger offers
is an extra present under the tree for investors.
Time
to go pick up some gifts.
Dudley
Pierce Baker is the owner/editor of Precious Metals Warrants,
a market data service which provides you with the details on
all mining & energy companies with warrants trading on the
U. S. and Canadian Exchanges. As new warrants are listed for
trading we alert you via an e-mail blast. You are provided with
links to the companies’ websites, links to quotes and charts,
tips for placing orders and much, much more.We do not make any
specific recommendations in our service. We do the work for
you and provide you with the knowledge, trading tips and the
confidence in placing your orders.
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Disclosure/Disclaimer Statement
PreciousMetalsWarrants.com is not an investment advisor and any reference to specific securities does not constitute a recommendation thereof. Neither the information, nor the opinions expressed should be construed as a solicitation to buy any securities mentioned in this Service. Examples given are only intended to make investors aware of the potential rewards of investing in Warrants. Investors are recommended to obtain the advice of a qualified investment advisor before entering into any transactions involving stocks or Warrants.
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