Development and Production

Supposing now that our exploration program has found an important mine. Production is justified at a rate of 1,500 tonnes per day. Morty Mines may still have a million shares in the treasury, and maybe a small cash balance. But it is now faced with the problem of raising something like $60 million for the construction of a principal mine and mill.

Morty Mines is not an investment that is as risky anymore; it has ore in the ground and a good oportunity of making money. This gives the company more ways to finance the development of the mine.

In rare instances, it is very possible to raise a substantial part of the money the company needs by selling the million shares remaining in the Morty treasury. Market conditions and patterns of investor behavior at the time have a chance of being such that the sale of these shares, together with a bond or debenture issue, may fit the bill. There are yet other possibilities: for example, it may be possible to join equity with debt financing.

Often, nonetheless, it will be necessary to create a quantious number of new shares. The simplest way to do this is to organize the company again. In this case, a new company, New Morty Mines Corp., will be formed. It will have its own share capital structure and its own identity separate from that of its forerunner. The property and assets of Morty Mines will be transferred to New Morty Mines in exchange for some agreed portion of the New Morty shares, to be distributed among the equity holders of the older company. These shares in turn may also be pooled or placed in escrow in the same way and for the same reasons described previously.

New Morty Mines then sets out to vend its shares through an underwriter. If our example is as good as we set out to make it, New Morty will be able to raise the necessary funds to bring its find into production.