Everyone is looking for solutions to this crisis.
One of the popular ones is the concept of a rollback; theoretically, if you roll back a company you end up with less shares and more value per share. So if you had 100m share at 5 cents per share outstanding and you did a 10x roll back, you end up with 10m shares at 50 cents per share. Do that a couple of times with a $2-4m raise each time and the original shareholders own 10% of the company (maybe). Rollbacks rarely work and the reason is simple: usually, they are used as a bandaid over a heart that needs a quad bypass.
I agree that we have 500 zombie companies, but to fix the share structure without fixing the core problems of the company is a waste of time.
Core issues companies should fix first, or have a plan to fix before they roll back:
- Corporate burn rate: reduce the burn rate; office space is not helping find world-class resources, nor are lawyers, accountants, or IR budgets, Slash all of that to a minimum and focus on the core issue (finding economic ore bodies).
- Lack of focus: find projects you are passionate about and sell the rest of them to someone else. There won’t be the same amount of money in the future, so focus, focus, focus
- People: find the right ones and fire the wrong ones; a great team of five people can out-work a lousy team of twenty.
- Planning: spend twice as much time on planning vs. executing.
If you have a plan, a project, a team that makes sense, a corporate burn rate that you can manage and 200m shares outstanding, then roll back the company. I think at that point it is an OK thing to do, but if you are going to roll back the company to avoid fixing the other issues, you are just doing more damage to your shareholder base.
At some point, maybe we should just sit down and mourn the dead and the fallen — have a roaring wake. The dogs are dragging down the whole market and, frankly, groups that have one to two strong companies and three to four DOA companies should just kill the DOA ones and focus on the strong companies.
I am not opposed to rollbacks, but if the CEO is still sitting in first class and not using upgrades and/or staying at the Royal York when there’s no cash to explore, then a rollback is not going to save anything.