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April 28, 2009

I Hate Reverse Stock Splits
by Dudley Baker

I started to title this piece, 'These Guys Are Killing Us'.

Where I am coming from is that over the last eight months or so many of the junior mining companies have required additional financing to meet current requirements. In better times and at substantially higher prices, the raising of additional monies and the issuance of more shares and warrants could have been accepted, at least reluctantly, by shareholders.

Unfortunately, we all know what has happened to the shares prices of the juniors over the last eight months. So many of these companies are literally selling for pennies but many are still in need of capital, meaning they need to sell more shares and warrants usually via private placements at these depressed prices or worse. Seems also that many of the placements are being made at a 20% discount to the current share prices, thus making a bad situation even worse

A company's share structure consequently becomes larger and larger and thus the probability grows of a roll-back in the shares. This really is a reverse stock split, meaning current shareholders receive fewer shares than they currently own. For example, if xyz gold company has 150 million shares outstanding and the current price is C$0.02, they may choose to do a roll-back say a 1 for 10. Shareholders would then have 1/10 the number of shares and the share to C$0.20.

Frankly, I hate to see roll backs because inevitably the share price continues to decline. Actually I have been known to sell shares on the news of a roll back and then repurchase them at lower prices in a few weeks or months, assuming I still like the company.

If we could only get a major rally in the juniors it would take a lot of pressure off and at least if additional funds were needed they could be raised at substantially higher prices and with fewer shares being issued.

With my large portfolio of shares and warrants there are naturally a few such companies in the situation described above. So far, I have continued to hold the shares for different reasons, i.e., management, good properties, etc., with the strong belief the companies will survive and eventually their shares will be sold at substantially higher prices. But a rally soon would be great!

And we think it is coming very soon.

For those readers not familiar with our services; Precious Metals Warrants is an online database of warrants trading on the natural resource sector in the United States and Canada. Visit us soon for more information on warrants and the markets.

Dudley Pierce Baker
Guadalajara/Ajijic, Mexico
PreciousMetalsWarrants
InsidersInsights

Dudley Pierce Baker is the owner and editor of Precious Metals Warrants and Insiders Insights. Articles are written by Dudley Baker along with contributing editors, Arnold Bock of Mendoza, Argentina and Lorimer Wilson of Toronto, Canada. PreciousMetalsWarrants provides an online subscription database for all warrants trading on junior mining and natural resource companies in the United States and Canada and a free weekly newsletter. InsidersInsights alerts subscribers when corporate insiders of a limited number of junior mining and natural resource companies are buying and selling.

Disclaimer/Disclosure Statement: Neither PreciousMetalsWarrants.com or InsidersInsights.com is not an investment advisor and any reference to specific securities does not constitute a recommendation thereof. The opinions expressed herein are the express personal opinions of Dudley Baker. Neither the information, nor the opinions expressed should be construed as a solicitation to buy any securities mentioned in this Service. Examples given are only intended to make investors aware of the potential rewards of investing in Warrants. Investors are recommended to obtain the advice of a qualified investment advisor before entering into any transactions involving stocks or Warrants.

Copyright © 2005-2009 Dudley Baker

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