Fun with Warrants

About a year ago I bought a small quantity of Orezone (ORE.WT)$0.80 warrants. They expire on the 29th of this month. The shares are trading at $1.32, the warrants are currently trading at $0.54. My dilemma, I paid $0.64 for my warrants.

My logic in buying the warrants was that there was a good chance Orezone (ORE.T) would go on a run. Its Bombore gold deposit in Burkina Faso was moving towards production a year ago. Now it is in production with Q4 2022 results being reported. 22,258 ounces of gold for the quarter with 12,975 in December as the mining and milling dropped into their groove.

All in all, I think my logic and research on Orezone was right. But here is where the larger forces of the market kick in. Orezone was trading for $1.80 last February. So all of the excellent work by CEO Patrick Downey and his team, the fact that commercial production has been achieved, the fact that the company’s cash position is over 9 million dollars, has been largely ignored by the market.

The reality is that when ORE hit its high in February, gold was up over $2000 an ounce. Gold has fallen back to its current price of $1875 but, over the year, it dropped below $1700 an ounce. To no one’s very great surprise, ORE shares were down with the price of gold and are taking a while to recover.

My choices with the warrants are a) sell and take a small loss, b) exercise and put a bit more money into what I believe is a well-managed, successful gold producer. I’m not a gold bug, however I am pretty convinced that gold is going to break over $2000 in the relatively near future. So I am leaning towards exercise.

What will likely tip the balance is that my warrants are held in my TFSA. If I take the small loss I can’t write it off. But I do have contribution room to put funds into the TFSA to pay for the exercise.

My own view is that if gold firms, leave aside “goes for a run”, ORE is very well positioned to produce a steady stream of gold. In the last quarter of 2022, the company actually had “free cash flow”. I suspect Orezone will have a lot more free cash flow as its production processes are fine-tuned and the price of gold rises.

So, now my mission is to find a broker at my bank brokerage who actually understands how to exercise a warrant. Wish me luck.

[Disclaimer: This is not investment advice. I am not an investment professional. I am down about 30% at the moment on my overall portfolio. I will write about companies that I hold. I will disclose any holdings. Do your own due diligence. Do it hard. Call the CEO.

I currently own warrants for Orezone which I intend to exercise but which I may sell at any time.]