An Introduction to Funding

When evaluating a company, the first thing that I look at is the funding. I look up the ticker. I look at how big the company is. I look at how many shares are out, the share price and its cash position. It's fundamental to consider the size of a company, how well-established and how mature it is.

A feature of the resource market is that it's easy to create a company, it is easy to get going, but it's much harder to survive and to thrive.

The smaller companies have got greater rewards associated with them as it's much easier to get a USD$5M company to increase in value to USD$50M, than it is to get a USD$50M company up to USD$500M. You're more likely to get your 10-bagger on a small company, but equally, there's a much greater chance that a smaller company won't thrive. You're going to have more failures, but the few successes you do have will be the bigger reward. It’s a classic risk-reward analysis.

On the funding episode, we will cover:

• How dilution happens
• The cash flow of junior companies
• How they get financed
• How the management pay themselves
• Typical capital structures
• How brokers work with them
• The compromises and the promises that the smaller companies need to make to institutional investors, private equity and high-net-worth individuals.
• How deals are made
• The bargains that have to be made in order to get to the next stage and how to avoid this
• How some companies can self-fund

An absolutely crucial first step is to look at how is a company evolving. That's for the very junior end of the spectrum, then when one goes through to a more mature company, how is it going to fund the next stage? Where has it got to in terms of its market capital development?

For example, how can a company with a market capitalization of USD$100M, but with a CAPEX requirement of USD$500M-$1Bn for its project navigate that step? What options are available to that company? What are the risks? All of these aspects will be covered in the episode on funding.