Equity Financing

If, for example, Morty Mines is capitalized at five million shares, and one million shares are pooled or placed in escrow for the interest of the vendors, 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 most of the time 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 permits the company to apply for a listing on a stock exchange which is public, where the investors can trade their stock.

In Canada, mining companies typically look for listings on one of the country's four principal exchanges: Vancouver, Alberta, Toronto and Montreal. Junior companies generally graduate from one of the smaller exchanges to Toronto, which nowadays is widely considered to be the mining finance capital of the world. Foreign mining companies also look for listings on Canadian exchanges. In the United States, junior companies typically list on NASDAQ, before graduating to the senior board in the city of New York.

Now, if all of the vendor shares, or any substantial part of them, were to show up on the market without control or warning, the underwriter would be severely handicapped in his attempts to sell the shares, for which he has put badly needed funds into the Morty treasury. This is why the vendor shares are held in escrow – to protect the underwriter.