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Gold/Mining/Energy : Precious and Base Metal Investing -- Ignore unavailable to you. Want to Upgrade?

To: tyc:> who wrote (8149)	2/26/2003 9:06:03 PM
From: LLCF	Read Replies (1) \| Respond to of 39344

<This is the same point we discussed before. AEM and AGE are one and the same company. It doesn't make sense that the assets are getting more valuable in one country and not the other. > No it doesn't make sense, and it doesn't. The case sighted was one in which the underlying security was priced in $CD but the strike price was in $US. These warrants are floated and are popular in Europe, I dont' know if that is the case here. Let's do an example: 1.) The Wheaton warrants are a case where everything is based in $CD [strike p, underlying], and THEN they happen to trade in the US. That is why is is false to think that the exchange rate would have an effect on the stock but not the warrants. Everything is just going to trade the way it would trade in Toronto divided by the exchange rate. 2.) The case I sighted would be where the company actually had a warrant that had a strike price based in $US NOT $CD. So let's look at numbers: Stock in Toronto = $CD40 Stock in NY = $CD40 X .5 = $US20 [example] Now let's say there are 2 warrants based on the : Warrant A has a strike price of $CD40 Warrant B has a strike price of $US20 [In Europe these warrants are structured for the investor... perhaps the investor wanted Warrant B for currency exposure purposes] The strike prices appear identical NOW, but since one is actually contractually written to be $US, where the other $CD... the REAL DIFFERENCE IS EXCHANGE RATE EXPOSURE, NOT THE VALUE OF THE COMPANIES BUSINESS. Now, let's assume the stock price in Toronto remains the same... so the US price would remain the same [Toronto X exchange rate] UNLESS the exchange rate moved... so lets say the exchange rate goes to parity: $US=$CD With stock price in Toronto unchanged, the stock price in New York has doubled to $US40 in $US terms, and remained the same in $CD terms. Warrant A is worth the same amount of money minus time decay. Warrant B has blasted $20 in the money and increased many fold in both $US terms AND $CD TERMS!!! Let's say it started to to cost $US2, and is now worth $US20, in $CD terms it went from $CD1 to $CD20! An easy way to think of this is to imagine that LEAPS were listed on a Canadian NYSE stock, based on the US shares traded on the NYSE, and NOT based on the Toronto price. Again, you would see the stock rally to $40 from $20 on the currency move while it sat @ $40 in Toronto... the options trade on the CBOE, or AMEX would pay off nicely while Toronto sat twiddling their thumbs watching their options decay away. Now, all that said, my suspicion is that this is all simply "Warrants 405" [we're definitely past 101 or 201!] and the poster may have been in error about the strike price being $US19 and hence fluctuating in $CD. Note the Wheaton warrants are exactly "plain vanilla": everything contractually priced in $CD which is why Tomasso was in error worrying about Currency risk in those. I am interested now how these actually work. DAK