Join our community of smart investors

The paradox of options

Atalaya Mining (ATYM) is a Cyprus-domiciled company, quoted on Aim, that produces copper in Spain. Two executives each sold over £1mn-worth of shares in February, which featured on the Director Deals page of this magazine. It’s easy to assume that this indicated a loss of confidence by insiders. But did it?

The sales were linked to market-based share options, which give executives the right to buy their company shares at a future date at the share price when each option was granted.  This means they have a built-in performance condition – they only have value if the share price goes up.  They’re 'options' because participants can choose whether or not to buy them, and they suit companies that need to invest all the cash they can muster for future growth.

Atalaya had negative cash flows for years while its mine and processing plant were developed, and in 2017 Cesar Sanchez, Atalaya’s chief financial officer, was granted an option when the share price was 144p.  Three more were granted to him in the following years at prices of 201.5p, 147.5p and 309p, and in total, he had 650,000 shares under option.  Atalaya has been in profit since 2020, and to exercise these four options earlier this year, he had to find £1.25mn.  The share price at the time was 440p, and to fund the purchase, he simultaneously sold 300,000 shares, which raised £1.3mn.  His purchase fixed a taxable gain of about £1.6mn, and left him owning 350,000 shares – so far from indicating a loss of confidence, here was a director’s sale flagging an increased stake in his company. 

To continue reading...
Join our Community of Smart Investors
  • Independent full-length company analysis
  • Actionable investment ideas and recommendations
  • Expert investment tools and data
  • Stock screens from Algy Hall
Have an account? Sign in