Making Money from Rights Offerings

Peregrine Diamonds “Rights” (PGD.RT)

Canada has recently made it much easier for junior mining companies to do rights offerings. There is a way you can position yourself for a very nice upside. To avoid too much theory, let me explain how you can position yourself for a low-risk, high-reward situation using a case study.

When a company announces rights offering, they keep the exercise price of the rights at a significant discount to the current share price. This is done to increase the chances that the rights are exercised. The rights also trade. Still many retail investors forget to either sell their rights or exercise them. This is where your opportunity is.

On 10th July 2017, Peregrine Diamonds (PGD) announced that it would do a rights offering with the exercise price of C$0.10. When PGD opened for trading, it fell as investors expected a likely fall in the share price in the future because of increased issuance of shares. PGD should recover once the rights offering is over. This is about 12% likely upside.  

The rights (PGD.RT) are currently trading and can be bought for C$0.01. You need to exercise 3.3 rights to get a share. This means that the investment in rights that go into exercising is C$0.033. The exercise price is C$0.10. This means that you can effectively buy PGD for $0.133. The current share price is C$0.15. This provides you an upside of 13%.

Now, the real fun is when I buy a very limited number of rights, say, 10,000. This would cost me C$100 plus commission. A very interesting thing you can then do is to ask for over-allocation of shares. Remember that many retail investors will forget or procrastinate calling their brokers to exercise their rights. Any unused rights can be used by other rights owners. Over-allocation that you can get in PGD’s rights offerings, offers you–based on the current share price–a 50% upside.  

The above three statements in bold show the upside that rights offerings might offer you at minimal risks. In PGD rights offering your upside is between 13% and 50% based on the current share price; and the share price will likely go up once the offering is closed, say, by 12%.

Of course, one should always have an understanding the underlying value. As it stands, I am happy to buy a very small number of rights and will try to make money from over-allocation that I will be applying for.

On other matters:

I was recently interviewed by my friend Jonathan Roth about North Korea:

Finally, the next Capitalism & Morality seminar will be held on 21st July 2018. The program is still being set, but those who register now can get a ticket for C$130. Also, if you use coupon code SPECIAL10, you can get a 10% discount.

Warm regards,

Jayant Bhandari

Associate: Rajni Bala

 

Disclaimer: All information found here, including any ideas, opinions, views, predictions, forecasts, commentaries, suggestions, or stock picks, expressed or implied herein, are for informational, entertainment or educational purposes only and should not be construed as personal investment advice. While the information provided is believed to be accurate, it may include errors or inaccuracies. The sole purpose of these musings is to show my thinking process when analyzing a stock, not to provide any recommendation. I will not and cannot be held liable for any actions you take as a result of anything you read here. Conduct your own due diligence, or consult a licensed financial advisor or broker before making any and all investment decisions. Any investments, trades, speculations, or decisions made on the basis of any information found on this site, expressed or implied herein, are committed at your own risk, financial or otherwise.

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