RE:RE:RE:RE:Full Potentialninja123 wrote: thinking about this some more .. what does the current short position look like? given how far away we are from the strike price (deep in the money) i suspect that some % of these warrants are hedged vs. delivery .. .
Personally I don’t think that there is any material warrant hedging here at all. A warrant hedge mainly consists of a long position in a warrant and a short position in the underlying common stock. Currently Largo’s short position = merely 230K while there are 88.5M warrants exercisable in 2-3 months with a strike price of C$0.29. The majority of these warrants were acquired by Arias via cheap PP when Largo desperately needed to raise new funds during the hard time of 2015-2016.
I believe that Arias /smart money will exercise their warrants on the cashless option basis.
Number of warrants exercisable in Q1-21 = 88.5M
Strike price = C$0.29
Normally (without the cashless option) when exercising their warrants the owners must give to Largo ~C$25.6M (= $0.29 x 88.5M w) in exchange for 88.5M new common shares issued by the company.
Under the cashless option they don’t have to give a dime to Largo in return for receiving a smaller number of new common shares. A number smaller than 88.5M. How many shares smaller? It would depend on share price at the time of the exercise.
Let’s assume that the sp at the time of exercise = C$1.00. In this scenario Largo instead of taking in C$25.6M in cash would issue 25.6M less common shares for a total of 62.9M (= 88.5M - 25.6M).or approximately a 11.15% dilution.
So the lower the sp at the time of exercise the lower the dilution. And Largo always has the option to buy back them all.
The cashless option also eliminates the need for the owner to sell part of their newly acquired shares to recuperate the money (C$25.6M) they have to give to Largo for the conversion.
Furthermore as the majority of the warrants are owned by Arias, it will not be to his benefits to immediately flood the market with his new shares