Sometimes a company only has the best intentions, but messes up in the process. That’s what happened with Oroco Resource Corp (OCO.V) last week. The company announced in one press release it was issuing 6.85 million options at C$2.05 while cancelling almost 4.5M existing options (strike price unknown).
Upon checking with the company and after seeing the insider filings it became clear the cancelled options had an exercise price of in excess of C$3, so cancelling those and issuing new options with an exercise price about a third lower is just bad form. Notwithstanding the fact the exercise price of the new options was in excess of 30% above the share price of that moment.
As it turns out, the company had good intentions, but the execution left a lot to be desired. In March 2020, Oroco cancelled 1.5 million options at C$0.075, at a time when the share price was trading about 4 times higher. A noble thing to do as Oroco’s management wanted to re-issue the options at a higher exercise price but neglected to do so before the share price started to rally.
If Oroco really wanted to screw the shareholders, it wouldn’t even have had to cancel the C$3.15 options. As the total amount of outstanding options is way below the 10% of the outstanding share count, there was no requirement to cancel existing options in order to issue new, lower-priced options. If Oroco really wanted to keep this under the radar, it could easily just have issue the new options while keeping the ‘old’ options outstanding (or cancel them anyway in a few months and hide it in the MD&A). Poor execution on Oroco’s part, but not loathsome.
So while seeing C$3.15 options being cancelled while new lower-priced options are issued leaves a bad aftertaste, the bigger picture is slightly different. In fact, if the share price would reach C$3 again, the 1.5M options at C$0.075 which were cancelled in 2020 would have been more valuable than the 4.5M options that are currently re-issued at C$2.05 (a premium to the current share price but also a 20% premium to the recent private placement price). So this isn’t a case of self-enrichment but a case of poor judgment. If they would have issued themselves the 1.5M options at, say, C$0.50 in 2020 when the original options were cancelled, everything would have been fine and there wouldn’t have been any public outrage.
Instead, the perception is pretty bad right now for an issue that could very easily have been avoided.
Disclosure: The author has a small long position in Oroco. Oroco is a sponsor of the website. Please read our disclaimer.
