Dilution vs. Vacation







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When the market is weak, management is given a choice: play golf, go to Hawaii, and spend time with the wife/husband and kids, or raise very expensive money, stay busy, and drive the project forward.

Junior mining projects are a series of real options. Real options are like a never-ending Blackjack deck where you have three choices: hit (raise money), stay (wait and see the dealer’s hand), or you can get up from the table, go play golf, try to repair your marriage, and spend time with your kids who hate you. The pile of rocks you so love will still be there when you get back.

When the market starts to crater, most CEOs panic when the rational thing to do is go on vacation. Wealth gets destroyed when CEOs raise cheap money in bad markets to do nothing. So many times we see companies bleeding to death from small, painfully expensive financings that cannot progress the project in any meaningful way.

The fear is if you put exploration on hold due to market conditions, the market will interpret it as you putting exploration on hold because of geological conditions. A company must clearly explain to stakeholders that when the market is dead, expensive programs should be shut down quickly, cash conserved, and time spent on planning the next steps.

We have seen too many good projects destroyed because of a few poorly timed financings that wiped out all shareholder value created over years of good work. Major companies suspend projects all the time and don’t get punished. If you have a resource, it will still be around in nine months. Unless you have an option that’s expiring or an opportunity that needs to be grasped immediately or else you lose the property, don’t raise money in a panicked market.


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