Breakwater Resources could be a grand slam investment

This is the follow-up to my earlier article “Breakwater Resources’ Warrant: Too Good to be True?” regarding the merit of investing the warrant of this micro-cap mining company. What can I say, other than that I was dead wrong in my assessment of the buying opportunity it presented. It has turned out to be a grand slam of an investment rather than the possible bunt I suspected.

This Warrant is Special
Breakwater Resources (BWR.wt.A) is a micro-cap company ($134 million) that mines zinc (65%), copper (11%) and more or less equal parts gold, silver and lead from mines in North, Central and South America. They had just listed an attractively priced warrant that would not expire until April 9, 2014 (a five-year term). I thought that was most impressive given that, of the 100 or so natural resource companies with warrants, only 4% have a term of five years or more, 8% have a term of four years or more and 20% have a life of three years or more. The aforementioned information was sourced from preciousmetalswarrants.com, which provides the most comprehensive database of natural resource companies (gold, silver, uranium, copper, zinc, and diamond mining; oil and gas operations, etc.) with warrants trading on the Canadian and U.S. stock exchanges.

The Advantage of Long-term Warrants
Warrants, as you probably know, give the holder the right, but not the obligation, to purchase the common shares of the company at a specific price within a specific time period after which, if not exercised, they expire worthless.

As such, long-term warrants are imperative these days given the current fiscal and economic environment, the considerable amount of time needed for a company to benefit from an improved credit environment, a higher stock market, an increase in the price of zinc, copper, gold bullion, silver and lead and renewed strength in the Canadian dollar. All these conditions are necessary to ensure that a company has a good chance of a profitable future and, as such, a much higher stock price and warrant price.

Major Return on Investment
In the “Too Good to be True?” article I conveyed my assessment of the reasons ‘why’ and the reasons ‘why not’ for investing in the warrant at that particular time. The ‘why not’ reasons (15 in all) out-weighed the few ‘why yes’ reasons, in my opinion, causing me to conclude that it would be prudent to wait and assess the extent to which the underwriters exercised their option to buy up their allotment of warrants (which expired on May 8, 2009) before making my purchase decision. That decision has caused me thousands of dollars in paper profits but the more I analyze these warrants the more I realize an investment in them will likely generate a major return on my investment.

Favorable Future Prospects
I had assumed that if the underwriters did not exercise their right to buy up a sizeable portion of their maximum allowable allotment of warrants it would indicate a lack of faith in the long-term prospects of BWR which is currently suffering from a dramatic decline in the price of its primary product (zinc), a lack of available credit, an extremely depressed stock price, a reduction in mining operations and unprofitable operations. If, on the other hand, they did buy up much or all of their allotment of available warrants it would be an endorsement by apparent insiders who would surely know more than me about BWR’s future prospects. Well, the proof is in the pudding, as they say.

A Grand Slam Investment
I had concluded my original article by saying “Perhaps I’m crazy not to take advantage now of the Breakwater warrant’s very attractive price relative to the exercise price and its long-term duration but to do so might prove to be a ‘bunt’ as opposed to the ‘grand slam’ I am looking for.” I guess I’m crazy. This warrant issue has proven to be a ‘grand slam’ home run if ever there was one.

Risk versus Opportunity
It goes without saying that every investor must evaluate the risks and opportunities associated with one’s investments and on the day of my original article I perceived more risk than opportunity. My associate at preciousmetalswarrants.com, Dudley Baker, however, assessed the situation differently than me and bought the warrants that same day at a price of $0.065. Interestingly, Dudley saw opportunity while I saw risk.

A 1-Month Return of 208%
The warrant was issued on April 9 at $0.06. On the last day of the underwriters’ buy-in date of May 8, the volume popped up by almost 500% and the price rose 46% to $0.185, representing a one-month increase of 208%.

Leverage Favors These Warrants
From the above I can only conclude that those in the know are of the firm opinion that BWR has the distinct potential of again escalating rapidly in price as it did over the two-year period from July 15/’05 to July 19/’07 when it appreciated 923% from $0.35 to $3.58. A similar 923% increase in the stock from the April 9/’09 price of $0.11 would put the stock at $1.13. As such, were I to buy the warrant at $0.185 and the stock were to indeed rise to $1.13 within the next 59 months I would realize 1.6 times more profit by investing in the warrant.

That is what warrant investing is all about. It’s leverage. Why settle for a potential 276.67% return in the common stock from today’s price when you would realize a potential 448.6% return by investing in the company’s warrants? What if the stock only goes up another 67% to only $0.50? By investing in the warrant, your investment would still go up 1.6 times more than were you to invest in the stock instead -- that is, a 108.1% return vs. a 66.67% return. If you believe in the long-term prospects of a company with warrants and the company provides a long-term warrant there is no question what you should do to realize maximum returns on the dollars invested.

Lorimer Wilson is an economic/market analyst and commentator who has written numerous articles on the major economic and financial crises (past, present and impending) of our times, investing in times of crisis, commodities, warrants, market timing and other investment philosophies. He is a Contributing Editor and Director of Marketing to www.preciousmetalswarrants.com and Contributing Analyst to Oxbury Research. He can be contacted at lorimer [dot] wilson [at] live [dot] com.

This is the follow-up to my earlier article “Breakwater Resources’ Warrant: Too Good to be True?” regarding the merit of investing the warrant of this micro-cap mining company. What can I say, other than that I was dead wrong in my assessment of the buying opportunity it presented. It has turned out to be a grand slam of an investment rather than the possible bunt I suspected.

This Warrant is Special
Breakwater Resources (BWR.wt.A) is a micro-cap company ($134 million) that mines zinc (65%), copper (11%) and more or less equal parts gold, silver and lead from mines in North, Central and South America. They had just listed an attractively priced warrant that would not expire until April 9, 2014 (a five-year term). I thought that was most impressive given that, of the 100 or so natural resource companies with warrants, only 4% have a term of five years or more, 8% have a term of four years or more and 20% have a life of three years or more. The aforementioned information was sourced from preciousmetalswarrants.com, which provides the most comprehensive database of natural resource companies (gold, silver, uranium, copper, zinc, and diamond mining; oil and gas operations, etc.) with warrants trading on the Canadian and U.S. stock exchanges.

The Advantage of Long-term Warrants
Warrants, as you probably know, give the holder the right, but not the obligation, to purchase the common shares of the company at a specific price within a specific time period after which, if not exercised, they expire worthless.

As such, long-term warrants are imperative these days given the current fiscal and economic environment, the considerable amount of time needed for a company to benefit from an improved credit environment, a higher stock market, an increase in the price of zinc, copper, gold bullion, silver and lead and renewed strength in the Canadian dollar. All these conditions are necessary to ensure that a company has a good chance of a profitable future and, as such, a much higher stock price and warrant price.

Major Return on Investment
In the “Too Good to be True?” article I conveyed my assessment of the reasons ‘why’ and the reasons ‘why not’ for investing in the warrant at that particular time. The ‘why not’ reasons (15 in all) out-weighed the few ‘why yes’ reasons, in my opinion, causing me to conclude that it would be prudent to wait and assess the extent to which the underwriters exercised their option to buy up their allotment of warrants (which expired on May 8, 2009) before making my purchase decision. That decision has caused me thousands of dollars in paper profits but the more I analyze these warrants the more I realize an investment in them will likely generate a major return on my investment.

Favorable Future Prospects
I had assumed that if the underwriters did not exercise their right to buy up a sizeable portion of their maximum allowable allotment of warrants it would indicate a lack of faith in the long-term prospects of BWR which is currently suffering from a dramatic decline in the price of its primary product (zinc), a lack of available credit, an extremely depressed stock price, a reduction in mining operations and unprofitable operations. If, on the other hand, they did buy up much or all of their allotment of available warrants it would be an endorsement by apparent insiders who would surely know more than me about BWR’s future prospects. Well, the proof is in the pudding, as they say.

A Grand Slam Investment
I had concluded my original article by saying “Perhaps I’m crazy not to take advantage now of the Breakwater warrant’s very attractive price relative to the exercise price and its long-term duration but to do so might prove to be a ‘bunt’ as opposed to the ‘grand slam’ I am looking for.” I guess I’m crazy. This warrant issue has proven to be a ‘grand slam’ home run if ever there was one.

Risk versus Opportunity
It goes without saying that every investor must evaluate the risks and opportunities associated with one’s investments and on the day of my original article I perceived more risk than opportunity. My associate at preciousmetalswarrants.com, Dudley Baker, however, assessed the situation differently than me and bought the warrants that same day at a price of $0.065. Interestingly, Dudley saw opportunity while I saw risk.

A 1-Month Return of 208%
The warrant was issued on April 9 at $0.06. On the last day of the underwriters’ buy-in date of May 8, the volume popped up by almost 500% and the price rose 46% to $0.185, representing a one-month increase of 208%.

Leverage Favors These Warrants
From the above I can only conclude that those in the know are of the firm opinion that BWR has the distinct potential of again escalating rapidly in price as it did over the two-year period from July 15/’05 to July 19/’07 when it appreciated 923% from $0.35 to $3.58. A similar 923% increase in the stock from the April 9/’09 price of $0.11 would put the stock at $1.13. As such, were I to buy the warrant at $0.185 and the stock were to indeed rise to $1.13 within the next 59 months I would realize 1.6 times more profit by investing in the warrant.

That is what warrant investing is all about. It’s leverage. Why settle for a potential 276.67% return in the common stock from today’s price when you would realize a potential 448.6% return by investing in the company’s warrants? What if the stock only goes up another 67% to only $0.50? By investing in the warrant, your investment would still go up 1.6 times more than were you to invest in the stock instead -- that is, a 108.1% return vs. a 66.67% return. If you believe in the long-term prospects of a company with warrants and the company provides a long-term warrant there is no question what you should do to realize maximum returns on the dollars invested.

Lorimer Wilson is an economic/market analyst and commentator who has written numerous articles on the major economic and financial crises (past, present and impending) of our times, investing in times of crisis, commodities, warrants, market timing and other investment philosophies. He is a Contributing Editor and Director of Marketing to www.preciousmetalswarrants.com and Contributing Analyst to Oxbury Research. He can be contacted at lorimer [dot] wilson [at] live [dot] com.