Relentless selling The possible culprit for the relentless selling is the share issuance of January 31, 2014, which could be considered a very detrimental act for Alabama Graphite’s share price:
“The Company issued 30,714,285 units (the “Units”) at a price of $0.07 per Unit to raise gross proceeds of Cdn$2,150,000. Each Unit is comprised of: (i) one common share of the Company (a “Unit Share”); and (ii) one common share purchase warrant (a “Unit Warrant”) of the Company, with each Unit Warrant
entitling the holder to purchase one common share of the Company at an exercise price of Cdn$0.10 until
January 31, 2017 (the “Unit Warrant Expiry Date”), provided that if the closing price of the Company’s
common shares on the Canadian Securities Exchange is Cdn$0.20 or greater per common share during
any twenty (20) consecutive trading day period at any time (the “Triggering Event”), the Unit Warrants
will expire, at the sole discretion of the Company, at 4:00 p.m. (Vancouver time) on the 30th day after the
date on which the Company provides notice of such fact to the holder thereof, which notice must be
provided within 30 days of the first occurrence of a Triggering Event”
67 entities (persons and companies) participated in this share issue:
https://thecse.com/sites/default/files/filings/2014_01_31_14_20_18_ALP_Form_9_Final_Amended_-_Brokered_Private_Placement.pdf
Assume I was invited to participate in this share issuance (I was not!), then each share bought was $0.07.
Assume I sold it for $0.19. My profit is $0.12. As a Canadian citizen I am due a capital gains tax of 50% and with my tax rate of 50% the total capital gains tax is 25% or $0.03 in this case. Selling 1 share gives me 0.19-0.03=$0.16, for which I use 1 warrant to purchase 1 share ALP and have $0.06 pure profit (a non-Canadian investor probably keeps $0.09 pure profit).
If I had bought 100,000 shares giving me 100,000 warrants and sold them for $0.19 and used 100,000 warrants to purchase 100,000 new shares, my interest in the company stays at the same level and I have a pure profit of $6,000. My initial outlay was $7,000, so my final amount of 100,000 shares cost me only $1,000 or 1 cent per share. (A non-Canadian would have free shares plus a profit of $2,000!).
Doing the same calculation for a sale of $0.11 per share with a capital gains tax of $0.01 gives me no benefit at all and a very meagre profit for a non-Canadian. For a non-capital-gains investor this is $0.105.
This means that in the period January 31, 2014 - January 31, 2017 a $0.105 share price is the lowest price you can expect, unless other selling for other reasons occur.
Smart investors have made use of this exchange program before the warrants expiry date of January 31 2017 and were able to reduce the purchasing price of their shares to next to nothing. I call this the “warranty game”.
It is my surmise that several entities sell their very cheap shares at this moment to have funds available to jump in the next share issue which is predicted before the end of this year by Mr. Baxter and hope to repeat this warranty game at the detriment of the long-time investors.