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How Junior Mining Companies Hit the Reset Button

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How Junior Mining Companies Hit the Reset Button

How Junior Mining Companies Hit the Reset Button

Special thanks to Dajin Resources for sponsoring.

There is a saying in junior mining that “a rising tide floats all boats”. Basically what this implies is that when the market is doing well, all speculative companies benefit from a booming market at the same time. In other words, an investor can hold a position in any of these companies and receive a payoff.

However, what they don’t tell you is that a falling tide can make it a pretty rocky environment for even many of the best boats and navigators. In this type of environment, many companies can face dire circumstances in which they may need to get creative to survive. This is analogous to our current situation where junior mining stocks have been in a bear market for over four years.

If push comes to shove and a company’s situation becomes troubling enough, one answer is to hit the “reset” button. Management teams that cannot raise money may use this type of solution to rejig their share structure, pay off debt obligations, and eventually reposition their company to raise money again.

How does this work? First, the troubled company would roll back the stock such that multiple shares would be exchanged for one new share (for example, a 6:1 rollback would mean 6 old shares are turned into 1 new share). Note that such a rollback also changes the stock price by the same ratio, so a $0.01 stock would then be trading at $0.06.

Then, the company would issue new stock to settle any debt that is on the books and then raise money again. Ultimately, in order to be successful at any of this, the company needs to also shift their direction in some meaningful way. Changing the management team, switching focuses, or acquiring a new project may be ways to give a company new life.

While it is never fun to admit defeat for management teams or investors, ultimately this “reset” button is something that is a unique part of this sector and for good reason. It gives a clean slate, and creates a share structure and situation which can possibly be turned around.

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Chart of the Week

The Unparalleled Explosion in Cryptocurrencies

In 12 months, the number of cryptocurrencies worth >$1mm has soared by 468%. Meanwhile, the total value of all currencies together has skyrocketed by 1,466%.

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The Unparalleled Explosion in Cryptocurrencies

Over 300 new coins reached $1mm market cap in 2017

The Chart of the Week is a weekly Visual Capitalist feature on Fridays.

After the massive Bitcoin price surge in November 2013, the popularity of launching new cryptocurrencies took off along with it.

In fact, if you go back at historical snapshots around that time, you’ll see that there were literally hundreds of new coins available to mine and buy. Here’s one from November 2014 – a time when there were only 32 coins that were worth more than $1 million in market cap, and 354 coins that were worth less than $50,000, usually trading for tiny fractions of a cent.

It seems like everyone and their dog were launching cryptocurrencies back then, even if they were a longshot to materialize into anything.

Then vs. Now

Fast forward to today, and things haven’t changed much – many people and companies are still launching new cryptocurrencies through a mechanism known as an ICO (Initial Coin Offering).

Cryptocurrency ICO activity
The only difference?

Today, there is real money at play, and in 12 months the number of cryptocurrencies worth >$1 million has soared by 468%. Meanwhile, the total value of all currencies together has skyrocketed by 1,466%.

Cryptocurrency is so hot, in fact, that raising money through ICOs has become more effective than traditional early-stage angel and VC funding.

Funds raised by ICOs vs. early-stage VCs

For the long-time advocates of Bitcoin and other cryptocurrencies, it is now their moment in the sun.

And with this ICO activity and a wealth of opportunities emerging, a new breed of Bitcoin millionaire has been born. Like the wealthy tech founders that exit and give back to their local startup ecosystems, these new digital tycoons are using their newfound wealth to invest in upstart crypto projects that show potential – ultimately, further enhancing the ecosystem.

Out of the Woodwork

Of course, whenever there is a massive surge in prices and speculation, there are two other players that tend to come out of the woodwork.

One is of the scammer and shyster variety, and certainly crypto-fueled scams are a concern for everyone else in the broader ecosystem.

Perhaps even a bigger threat, however, are the regulators – and in recent weeks the SEC has voiced concerns about ICO “pump and dump” schemes, while Canadian authorities have clearly stated that “most ICOs need oversight”.

Cryptocurrency ICO activity

With the market exploding with hundreds of new cryptocurrencies and the total value reaching $177 billion, a new series of questions has emerged: what risk do ICO scams ultimately have on market? And, could misguided regulation disrupt the momentum of the crypto boom?

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The Billion Dollar Startup Club

The billion dollar startup club is an exclusive group of companies worldwide that have reached over $1B+ valuations from venture capitalists.

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The Billion Dollar Startup Club

The Billion Dollar Startup Club

The Wall Street Journal has released a standalone interactive infographic that allows you to read through all 73 companies valued at over $1 billion dollars (USD) in detail based by country, time of last raise, and other useful details. It looks like it will be constantly updated as well based on new raises and valuations, so it is definitely a link worth bookmarking.

We do have one issue with it though – it seems that they have missed some of Canadian “narwhals” that are valued at over $1 billion dollars. It is true that some of them are bordering on this valuation, but definitely Hootsuite and Slack are missing from the graphic. Hootsuite and Slack both reached the $1 billion plateau last fall.

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