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Dudley Baker

Dudley Baker

Dudley Pierce Baker is the founder and editor of Common Stock Warrants and its predecessor, Precious Metals Warrants and a 1967 graduate of St. Mary’s…

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I Hate Reverse Stock Splits

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.

 

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