How would U the Investor Grade FCOIs FCO MANAGEMENT Respectful of the Share Holder??
Note how FCO has diluted our shares BIG TIME ?
Note how they grant stock options to each other with of porformance?
The Finance Cycle
Another factor that is given very little consideration is how a company gets its financing. How a company is financed can make all the difference to a company’s survival and the returns shareholders can expect to earn on their investments. Junior exploration companies entail a high degree of risk. Very few juniors ever end up becoming a mine. Statistically the chances of a junior exploration company turning into a profitable mine are 1 in a 2,000. Because of this high degree of risk, it becomes enormously expensive for a junior mining company to get initial financing. The risk involved in actually finding and developing ounces are enormous. Obviously, a company acquiring an existing deposit, where there are known reserves, is less riskier than a company that is starting from scratch and hoping to make a discovery.
Most initial stage financings are done at what I call "usurious" rates. The brokerage firm will charge the company an 8 percent commission and legal fees. In addition to upfront commissions, the brokerage firm will also demand 20% in broker shares. Since most initial financings are issued with warrants, the brokerage firm may get an additional 10-20 percent in the form of warrants that accompany each share. In effect, the brokerage firm may get the equivalent of 30, 40, or 50% of the offering in shares and commissions. This usurious form of compensation is highly dilutive to the founders and management of the company as well as the shareholders. Over the course of several financing cycles, the junior companies becomes overly diluted and find it difficult to attain success. An example below illustrates this point over a three-stage financing cycle.
Danger of Dilution
As mentioned above, the more dilutive the share structure, the lower the price of the stock. If a company is acquired on the basis of ounces, the fewer number of shares the better. This is because the total purchase price of the company will be made on the basis of ounces. That purchase price will have to be divided by the number of fully diluted shares. It boils down to simple arithmetic. The fewer the amount of shares given a fixed set of ounces, the higher price per share in a takeover. The higher the amount of shares, the lower the takeover price per share.
Keeping shareholder dilution to a minimum can impact investment returns in a major way. Companies should either negotiate better terms from the start with their brokerage firm or renegotiate the terms as the project is developed and the risks are removed from the property. It is better to negotiate fair and equitable terms from the start. If that can’t be done, the company should try and break away and secure better terms from an investment bank, fund managers, or large private investor/shareholders. This is possible if the project is economical or if the property has been drilled enough to remove most of the geological and metallurgy risks. The other possibility is the depth and reputation of management. An experienced, proven, and reputable management team can often negotiate favorable terms right out of the gate when going public.