As we previously discussed, Spruce Ridge Resources (TSXV: SHL) has a Record Date on July 6, 2020 for a stock dividend of 2.5 million shares of Canada Nickel Corp (TSXV: CNC). The news release to that effect came out on June 23, 2020 (last Tuesday).
As of the close on Friday, remarkably, Spruce Ridge had a market capitalization of $7,939,000, even though the company owns $10,600,000 worth of Canada Nickel Corporation shares currently.
For the purposes of this article, we are putting aside the lengthy technical conversations that one could have regarding the quality of each company’s mining assets and drill programs, let alone the macro questions one might consider on copper, gold and nickel. The focus of this piece pertains to the dynamics of the dividend for the short term trader.
Any way you slice it, that is a heck of a dividend Spruce Ridge is giving. But one has to ask a number of questions before acting on it – or not acting on it. As always at The Deep Dive, we try not to put our fingers on the Scales of Justice – i.e. you must decide for yourself what action is right for you.
Pertinent questions:
1. What do the stock charts of the two companies look like over the last several months?
2. Will Canada Nickel Corp.’s price hold?
Canada Nickel has been on a roller coaster for the month of June, as the chart above demonstrates. On Friday, it closed up 17 cents to a buck on 513,000 shares of volume. The volume followed news earlier in the week of the company drilling 306 metres of 0.42% nickel. More drill results are expected to come from their Crawford Nickel-Cobalt-Palladium Project in the near term.
3. Will the Spruce Ridge stock price go up with sustained buying, or will it stay put?
The stock price has been quite consistent, excepting for a short price and volume spike on the day the dividend was announced. Spruce Ridge has traded for the most part in the 5 cent to 7 cent range over the last two months and closed on Friday up 7 cents on 118 cents of volume.
4. Was Spruce Ridge’s share dividend of Canada Nickel Corp already “baked” into the Spruce Ridge stock price?
See above. The short of it is that the company saw a small price spike on the date of announcement but has since returned to its typical range of trading. However, as with any dividend, the company will be reducing its assets by providing the dividend to shareholders.
5. Are there more Canada Nickel Corp share dividends coming from Spruce Ridge?
Unknown. We do know, though, that Spruce Ridge will still have 8.1 million shares of Canada Nickel after the share distribution, enabling the company to still capture the benefits of further potentially positive assay results from Canada Nickel.
6. Would Spruce Ridge shareholders exercise warrants in order to take down shares and receive the Canada Nickel Corp. stock dividend?
Presumably. The benefit of this is that it will place further funds into Spruce Ridge’s treasury, allowing for it to conduct further exploration on its numerous current projects, such as the recent drill program the company announced for its Newfoundland copper project.
There are other good questions one can ask for this scenario, but hopefully this has given you a good start to your own due diligence.
Spruce Ridge will be providing a dividend of one Canada Nickel Corp share for every 45.36 common shares held of Spruce Ridge. The dividend will be provided to shareholders as of the close of business on July 6, with the Canada Nickel Shares being issued on September 1, 2020. Based on the closing price of both issuers on Friday, it currently equates to a one-time dividend yield of approximately 31.4%.
Note: There are only 6 business days of trading until the Record Date for this stock dividend.
FULL DISCLOSURE: Spruce Ridge Resources is a client of Canacom Group, the parent company of The Deep Dive. The author has been compensated to cover Spruce Ridge Resources on The Deep Dive, with The Deep Dive having full editorial control. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security.
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31.4%of nothing is still nothing