Investment Comment Corona warrants deserve close look

Two recent events may be causing some of our readers to take a closer look at the warrants being offered by Corona Corp. (TSE). Those events are the merger of Corona’s five predecessor companies (International Corona Resources, Royex Gold Mining Corp., Lacana Mining Corp., Mascot Gold Mines and Galveston Resources) as well as the recent decision by an Ontario Supreme Court judge to refuse LAC Mineral’s application for a retrial of a trial that saw the Williams gold mine in Hemlo, Ont., awarded to Corona.

By far the most eye-catching of these are the Corona 1990 warrants, created at the time of amalgamation (on June 30, 1988), of which 15.1 million are outstanding. Each warrant will buy one Corona Corp. Class A subordinate voting share at $12 up to June 30, 1990.

At the time of amalgamation, shareholders of International Corona automatically received one 1990 warrant for every six shares held; Royex shareholders received one for every 13 shares held; and Galveston shareholders, one for every 23 shares held.

These are essentially “lawsuit warrants” in that they were created because it was felt that investors in International Corona, Royex and Galveston might be losing some upside potential in the event of a final resolution of the Hemlo lawsuit in Corona’s favor.

If the mine is turned over to Corona and LAC has no further recourse, the price of Corona shares will almost certainly increase in value; some brokers are predicting an increase as high as 50%, which isn’t hard to envisage when you consider that Corona would receive from the Williams mine 225,000 oz of gold this year and 275,000 oz in 1989.

Now, to use Royex as an example, after the amalgamation, one share of that company became worth 0.61 shares of Corona. So people who would have bought shares of Royex as a separate entity may have lost some upside potential (assuming the Supreme Court of Canada rules in favor of Corona) as a result of the amalgamation.

The 1990 warrants are intended, then, as a form of compensation. They have a 2-year life from the time of amalgamation because Corona expects the lawsuit to be resolved before June 30, 1990.

The value of these warrants really depends on two important, yet unknown, factors: 1) whether the Supreme Court of Canada supports the lower court’s refusal of LAC’s final appeal over the Williams mine, and 2) whether the price of gold will remain around (or, better yet, surpass) the current $400(US)-per- oz range.

The other three warrants being marketed are minuscule by comparison, carrying comparatively smaller floats.

One Royex 1992 warrant (of which, 1.96 million are outstanding) will buy 0.61 of a Corona Corp. Class A subordinate voting share for $7.50, up to April 30, 1992.

One International Corona 1996 warrant (of which 1.67 million are outstanding) will buy one Corona Corp. Series D first preference share on Sept 30, 1989, or five Corona Corp. Class A subordinate voting shares at any time up to Sept 30, 1996.

One PezCorona Gold Corp. warrant (of which two million are outstanding) will buy five Class A subordinate voting shares of Corona Corp. for $7 to March 30, 1990.