RE: RE: Retail Investor BluesAccording to SIRCOOP …“ the drill bit needs funding”. This is very true.
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As stated towards the end of this post…. “One way to raise new equity without diluting voting control is to give warrants to all the existing shareholders equally.”
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This sounds like a good idea (depending on a realistic exercise price for the warrant….note that as long as the stock price remains below the warrant price, then it would not get exercised…& the company would not receive any funding. With flow-through & non flow-through private placements the company would receive funding (a lot sooner …almost immediately) through the issuance of capital shares which generally have a hold period….any warrants included in the private placement provide an inducement to participate ).
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the following is an excellent commentary by Jason Hommel dated December 5, 2006 (reference Silver Stock Report )
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“The Blessing and Curse of Flow-Through Shares”
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Below….some exerpts.
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“Flow through shares are issued by Canadian exploration companies to Canadian investors in private placements, when the companies issue stock to raise money. The money raised must be spent on drilling exploration (not underground drilling).
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There are several tax incentives for Canadian investors who buy flow through shares, because the Canadian government is trying to stimulate the mining sector. But like most things governments do, there is a drawback. The tax incentives are quite large, and they add up quickly. If a flow through share costs $1, it really may only cost the Canadian investor about $.41!
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Source:
https://www.goldencapital.com/flowt/traditional.pdf
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The reason is that there is a 29% Federal Canadian income tax reduction, plus a 15% tax incentive, plus about a 15% Provincial/Territorial personal income tax reduction.”
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“The hold times on flow through shares is typically 4 months, and I know that 4 months after a large flow through financing, we will likely see a dip in share pries. Why?
The program gives Canadians who buy flow through shares the incentive to buy stock at $1, but sell at anywhere above $.41, and consider it a "profit" -- because otherwise, they would have paid all those taxes. Thus, the Canadian flow through shares are quickly sold, as they "flow through" directly to the market place, often at a substantial discount.
This is the blessing, and curse, of flow through shares. They generally create a wonderful buying opportunity.
The big problem is that there is no upward buying pressure when flow through shares are issued. Big money can buy into a stock without moving the price up. However, when the shares come free trading, the stock price gets hammered downward.
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Companies who issue flow through shares can thus end up with much lower stock prices as a result.”
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Complete commentary can be viewed on link below.
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https://www.silverstockreport.com/
Scroll down past the free newsletter note….then to “all articles (archive)” then scroll down to commentary dated December 5, 2006
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Stock dilution:
Stock dilution is a general term that results from the issue of additional common shares by a company. This increase in common shares of a stock can result from
a secondary market offering, (flow-through & non flow-through private placements}
employees exercising stock options,
or by conversion of convertible bonds, preferred shares or warrants into stock.
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This dilution can shift fundamental positions of the stock such as
ownership percentage,
voting control,
earnings per share,
or the value of individual shares.
A broader definition specifies dilution as any event that reduces an investor's stock price below the initial purchase price.
Control dilution describes the reduction in ownership percentage or loss of a controlling share of an investment's stock. Many venture capital contracts contain an anti-dilution provision in favor of the original investors, to protect their equity investments.
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One way to raise new equity without diluting voting control is to give warrants to all the existing shareholders equally. They can choose to put more money in the company, or else lose ownership percentage. When employee options threaten to dilute the ownership of a control group, the company can use cash to buy back the shares issued.
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https://en.wikipedia.org/wiki/Stock_dilution
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Another side-note:
Common shares of a company can be used to option or buy a property…..this also can result in dilution.
NYTKZ