Report author: Yang Zhe Date of writing: June 15, 2009

Does Jiangxi Copper warrant have investment value? As of the closing on June 12, the negative premium rate of Jiangxi Copper Warrants was -9.08%, the price was 3.059 yuan, and the positive share price was 30.44 yuan. Based on the exercise price of 15.44 yuan and the exercise ratio of 1:0.25, the current intrinsic value of Jiangxi Copper Warrants was 3.75 yuan. The price of warrants consists of intrinsic value and time value. The expiration date of Jiangxi Copper Warrants is October 9, 2010, which is the latest warrant to expire in the two cities at present. There is more than one year before the expiration date. In addition to the time value, the price of Jiangxi Copper Warrants should be more than 3.75 yuan. To ensure investment safety, we first only consider the intrinsic value of warrants.

If you are optimistic in the long run Jiangxi Copper Trend: Buying Jiangxi Copper Warrants at the current price can enjoy two parts of income, one part of which is the income brought by negative premium, and the other part is the leverage income brought by the rise of positive shares. However, if the positive shares fall, due to the high leverage ratio of Jiangxi Copper's warrants, the decline speed of the warrants still makes the investment risky compared with the margin of safety brought by this negative premium. According to the calculation, if Jiangxi Copper fell by 9%, the current margin of safety of the warrants would be completely eliminated. If the price of the equity shares continued to fall, the intrinsic value of the warrants would fall faster for every one percentage point drop. When the equity shares fell by 13%, the warrant price should fall by nearly 10% from the current 3.059 yuan. When the equity shares fell by 20%, the warrants should fall by 27%.

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