points to ponderThoughts to ponder.
One of the main purposes of junior exchanges is to allow a small company to bring its qualifying project to the public markets. Tier 1 qualifications and associated costs are much less onerous than the higher levels. These lower listing maintenance requirements permit a start up company to finance its venture project without expending a disproportionate amount of its treasury outside of its project. More extensive legal and accounting requirements and higher exchange and listing fees are necessary as a company moves up the listings levels. Therefore such qualified companies may have the opportunity to use most of the money raised during its early financing arrangements, directly on their projects.
These types of companies generally have little or no cash flow and rely on the more speculative investors to provide the required funding. These people are the ones who are willing to take the risks necessary in order to determine the success or failure of such a project. This is venture capital.
Check on the TSX website for complete, accurate information and due diligence. It is there for all who wish to use it.
Risks and rewards are sometimes the motivating factors of any such investment and the ratio of risk to reward is determined by several elements. Of these, I find that the most important to me are, the location and neighbourhood of the project, the experience and track record of management, other companies which may be working in the project area, partners, if any, in the project, and level of funding attained by management to date. The last one defines the company’s ability to complete the first phases of exploration.
The price of the shares is also determined by several key factors such as: Supply and demand, enthusiasm of investors for the project, involvement of large investment groups or houses, promotion and likelihoods of success, risk modifiers such as proximity to other developed resources.
In my own experience I have found that if these factors are favourable the investment risk is usually reduced. In most of these types of investments however, you always have the unknowns such as global events, local politics or others things that are out of the control of companies or investors. These risks factors also aid in determining the price at which shares will trade generally.
The tier at which a company trades is normally appropriate for that company. It is not a contest to see who can move higher, there is no status attached to other tiers. It is for a purpose. Also, there are considerable reasons why share prices are what they are. With VST coming through tax loss selling with minimal down turn and with the demand for the shares relatively strong, I see it as well priced in here and with reason to head higher in the New Year.
While it is true that the specific area in which VST is licensed had minimal work done prior to the acquisition by VST, the area of the project is in one of the most oil rich regions in the world. Therefore, imo, it has substantial value as a speculative investment.
I see the risks reduced substantially by proximity to other known oil deposits. Further, there are now many key factors of the area that are known. These factors include comparative geology, structure and topographic keys compared to known oil deposits. The subsequent phases of electronic testing and seismic mapping have established several target areas for drilling. I see this as key because as they have established targets with key features comparative to other known oil discoveries in the area, the risks have reduced again somewhat further. There is now a lot of information on the area that was not previously known therefore the risk of failure, although still there, is generally reduced.
All of the information briefly touched upon here is available on VST’s website for Due diligence.
To say that VST has nothing and therefore the value of the shares is too high has obviously been discounted by the market. There is now a library of data on VST’s license area which was developed out of venture capital. This being so, the first test of the company’s project has succeeded and we are now on to the next. Similar success in the next phase will tell us whether or not their established target formations contain oil. But at least we now have targets.
Just a bunch of my thoughts to ponder, most of which I already pondered before making my investment decision; please do your own due diligence as always.
Miner