Oroco Resource Corp (OCO.V) announced on Wednesday it closed a C$15.5M private placement priced at C$1.20 with each unit consisting of one common share and ½ of a warrant with each full warrant allowing the warrant holder to acquire an additional share of Oroco at C$1.60 during a 24 month period (until December 2022).
Although the discount to the share price when the placement was announced appears to be steep, investors should keep in mind this placement was initiated several weeks ago when the share price was still much lower. Fortunately Oroco was smart enough to request the exchange to grant price protection so it could continue the placement based on the original terms. And with the C$15.5M in extra cash inflow (and the existing cash in the bank), Oroco should now be fully funded to complete its path towards earning a 81% stake in Santo Tomas.
With the share price trading close to C$2 and considering the company currently has 185M shares outstanding (and increasing as about a dozen million warrants are in the money), one could say Oroco is getting a little bit pricey. We have also seen some insider sales in the past few weeks and it perhaps isn’t a bad idea to take some money off the table. Anyone who invested in March is sitting on a gain exceeding 500%, and at some point it just makes sense to protect the principal investment. The copper price has been on a tear and although we believe in a strong copper price and the demand for copper, a correction from the current levels of C$1.86 isn’t unlikely.
Going back to Oroco’s case. Even if one bought at C$0.50, the share price is now trading roughly 4 times higher and selling just 1/4th of the position means investors can recoup their original investment and let their ‘free shares’ run. Some would argue you are giving up more upside, and that could be a fair comment, but if by selling a small portion of a position you can protect your original investment and still have the majority of your position to take advantage of the upside potential, it is perhaps something to consider.
Yes, Oroco is a sponsor of this website, but that doesn’t mean we can’t speak our minds and can’t call it as we see it. Oroco no longer is the bargain it was just nine months ago and we don’t know what the future will bring (six months from now, Oroco could be either below C$1, above C$3 or somewhere in between, we simply don’t know). Yes, we believe in copper. Yes, we believe in Oroco being able to convert the historical resource into a compliant resource and perhaps show additional upside potential. We believe in the story as a whole, but that doesn’t mean one should keep his/her blinders on. One of the most difficult aspects with investing isn’t buying, it’s selling.
And there’s nothing wrong with taking your original investment out and buy yourself a nice and well-deserved Christmas present while letting the ‘free shares’ run. And remember, no matter how much you like a project or a company, never ever fall in love with it.
Disclosure: The author has a long position in Oroco but has taken profits off the table in the past few months. Oroco is a sponsor of the website. The author has earned a finders fee from Oroco within the past 12 months. Please read our disclaimer.