Duane and Dan, I can't say I know all the details, but anyone can put 2+2 together.
Effective April 20th of last year the company did a financing (private placement) brokered by Yorkton and Canaccord. The placement allowed for 3,000,000 shares and warrants for another 1,500,000 shares for a total possible 4,500,000 shares. Then there was (I believe) the standard finders fee to the brokerages for 10% of the original amount, so another 450,000 shares for a grand total of 4,950,000 shares.
You'll have to guess as to how much of that private placement Yorkton and Canaccord actually took down themselves and how much they actually "placed privately", I don't have that information. But suffice it to say that the brokerages don't make money by sitting on their shares, they are wholesale distributors who's job it is to move paper out the door. Since April 20th, Yorkton and Canaccord have sold (net) approximately 1,450,000 shares into the market up to today. Again, you'll have to estimate how much they might have left (personally I don't think it's too much).
Two things to be aware of ...
First, I don't think you'll see the price drop (much) below $1.50. That's the break even point on the original shares from the private placement. Here's how that works. The shares were $2.25 each, with ½ warrant attached to each share. So for the price of two shares (2 x $2.25) you could get a total of three shares. Three shares at $1.50 each equals the original $4.50 paid for the two private placement shares. So right now Yorkton and Canaccord are dumping shares into the market, but they only make money if they sell those shares at $1.50 or higher. Of course the shares sold at prices higher than $1.50 give them a profit, which in turn gives them a little safety blanket allowing them to sell slightly lower now, but every sale below $1.50 is coming off their bottom line.
Second, I think you'll see the selling stop no later than the end of April (or earlier if they run out of shares), right around the expected time of IWM's AGM. The reason for this is that the warrants expire April 20th 1999. So these guys are under pressure to dump now before the warrant expiry date. This selling pressure is obviously forcing prices down a bit, but it will stop.
Lastly, if anyone doesn't like this situation, they can do one of two things ... sell their shares and walk away from the company or buy the hell out of them at prices between $1.50 and $1.70. Let's face it, it's supply and demand ... right now there is more supply than demand, but if everyone started buying, then demand (and consequently prices) would go up, so take those profits from BII and ARP and plow them into IWM.
One last thing to remember ... just because Canaccord is dumping shares now, doesn't mean their 12 month target price on the stock is bogus. The fact is that Canaccord is not in the business of holding paper waiting for a profit. Their job is to sell paper, thereby taking smaller profits now rather than larger profits later. Our job as investors is to assume the risk now from Canaccord and (hopefully) be paid later on for taking that risk.
*Disclaimer*
The author currently holds a "long" position in IWM. He may add to or reduce his position at anytime without prior notice. None of the above is intended as a solicitation to buy or sell shares in any public company, as the author is not licensed to do so in any of the ten provinces. Furthermore the author has been know to drink heavily while at the same time taking cold medication and operating heavy machinery. He often refuses to be held responsible for his actions and will occasionally lie to avoid those responsibilities. Your mileage may vary. |
