Equity Financing for Junior Mining Company
If, for instance, Mogat Mines is capitalized at five million shares, and one million shares are pooled or placed in escrow or the vendor’s interest, the treasury will contain four million shares the company can sell to raise funds. A financial or brokerage firm is commissioned to sell the shares to its clients in what is called an initial underwriting.
The firm usually does this by buying the four million shares, then issuing a prospectus to its clients, This is a written document which includes all the financial and technical details of the company and its properties. The prospectus allows the company to apply for a listing on a public stock exchange, where the investors can trade their stock.
In Canada, mining companies typically seek listings on one of the country’s four major exchanges: Vancouver, Alberta, Toronto and Montreal. Junior companies often graduate from one of the smaller exchanges to Toronto, which today is widely considered to be the mining finance capital of the world. Foreign mining companies also seek listings on Canadian exchanges. In the U.S., junior companies typically list on NASDAQ, before graduating to the senior board in New York City.
Now, if all of the vendor shares, or any substantial part of them, were to appear on the market with out warning or control, the underwriter would be severely handicapped in his attempts to sell the shares, for which he has put badly needed funds into the ABC treasury. This is why the vendor shares are held in escrow – to protect the underwriter.
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