Ernesto's PP - What it meansErnest's PP on Sep 7 raises questions in my mind.
First, I should say that I've had a certain outlook about how the Copper Fox organization works. You could visualize it as being like a baseball team. Elmer's the coach and the pitcher. Mike's our catcher. Jason's on first base, and the nice lady in the office is on second. David Macdonald is our shortstop. And Ernesto? Why he's our star player, because he's our Designated Hitter. And boy, can he whack that ball. When it's the bottom of the 9th, and we're trailing 4 to 2 and the bases are loaded, a cheer goes up from the Copper Fox benches when we see that Ernesto is marching to the plate. He swings his bat and -- KA BOOM -- he slugs that ball out of the park, and the shorts run for cover and it's another great victory for Team Copper Fox.
Yeah, that's a whimsical way of describing how I've usually seen things. When the chips are down, we can always count on Ernesto. When Elmer needs money, Ernesto pulls out his cheque book. When the shareholders are discouraged, Ernesto will buy another whack of shares and the price will shoot up 10 cents for a day or two, and we'll all cheer ERNESTO! ERNESTO! -- he's saved the day again!
But the recent private placements have got me reconsidering this.
But before I explain, please put on your Imagination Caps, and come with me on a Thought Experiment.
Most of you, like me, are ordinary retail investors, meaning that we can't buy private placements. But let's pretend that Elmer got an exemption, such that he was allowed to offer a private placement that any of us could participate in.
Now, let's roll back the clock and pretend that today is September 7. This morning, the stock opened at a price of $1.69 (if only we could turn back the clock !!). Stick with me here -- pretend that the stock opened this morning at $1.69, and then Elmer makes an announcement. He's selling Units, and any of us can buy them. Each Unit consists of one share of Copper Fox, plus 2 Warrants, and each Warrant allows us to buy another share of Copper Fox, for up to one year, at a price of $2.75 per share. Each Unit will sell for a price of $1.80.
So, on these terms, would you have bought those Units? Of course you would have. So would I. Nearly all of the longs on this board would have eagerly bought units with those terms. Why? Because of the Warrants. Most of us believed that the stock was grossly undervalued, and that the price would soon go back to the 52 Week High, and that before long we'd be bought out for $5, $7, $11, maybe more. So, for mere pennies we could buy Warrants that would soon be In-The-Money and thus become very valuable.
And, if this had happened, the sale of all those units would have sent a strong signal to the market that there's lots of investors who feel that the price will soon go back above $2.75.
But look at Ernesto's private placement. He didn't pay a premium. On the contrary, Elmer gave him a discount of 19 cents to buy more shares. And on top of this, he received a pile of Warrants for free. And the exercise price of the Warrants he received was only $1.75 -- just 6 cents out of the money. That's not exactly a huge statement of insider confidence.
What does this mean?
Well, I don't know. I can only speculate.
Perhaps Ernesto is not as bullish about Copper Fox as some of us are. Maybe he was not too sure whether the price is going to go up in the next few months, so he had to be offered some rather generous terms before he would commit more money to this company. Or perhaps he's giving a signal that he's not ready to simply stand up to the plate every time Copper Fox needs a hand -- rather, he's an independent investor who saw a good opportunity in 2009, but is thinking of cashing it in fairly soon. I posted some thoughts about that yesterday:
https://www.stockhouse.com/Bullboards/MessageDetail.aspx?s=CUU&t=LIST&m=30234561&l=0&pd=0&r=0
What do the rest of you think about this?