Excellent post, retail investors are at a disadvantage.And at...

Excellent post, retail investors are at a disadvantage.

And at the moment, the funding model for junior explorers just doesn’t really work. Companies are forced to go to the brokers, who demand a 20% discount on the market price, plus a fee, to pass the shares onto their ‘sophisticated’ clients.

These clients then sell the shares almost immediately on any minor gain. The register grows without enough of an increase in the share price. The brokers wait to be approached again 6-9 months later for the same chat with the issuer, on the same terms, with the same consequences.

How can issuers break out of this cycle? One way is spectacular drill results, which give the company some pricing and negotiating leverage in the capital raise process. Maybe there is a placement to longer term, professional money, plus a rights issue for existing investors, that minimises the amounts needed from the brokers. In an ideal world, they get nothing.

Obviously it’s hard to get into this situation, although Spartan have managed it.

Another way to sideline the brokers is to focus on more direct marketing to retail investors (especially existing shareholders) with a story that appeals more specifically to them (rather than the flip-and-run approach of the brokers). Few companies seem to have the time and inclination to do this, however.

A third option is that there is so much interest in the sector that greater flows of retail investment become much more of a possibility. Maybe that might happen if the impact of the rising gold price starts to wash over the junior explorers. So far that’s not been happening.

Another scenario is that companies find ways of monetising their existing assets to fund future exploration efforts. This is what I would like Warriedar to be signalling more - that they can generate cash flow themselves in the foreseeable future, which will limit the dilution and deadening effect of cap raisings.

in the meantime, companies like Warriedar probably will need to go back to the brokers to raise capital. They are a necessary evil. But what we need the company to do is to find ways of maximising the price of these raises and minimising the issuance.

And at the very least there should also be provisions for rights issues to existing investors at the same terms as any placements. If not, why would retail investors bother with risking their own capital? As a minimum, this is something that all retail investors can make clear to company bosses - we expect to be included in capital raisings at the same terms as others.

Overall, I don’t expect things will get much fairer for retail investors. The cards are stacked against us. However, we only need one or two big winning hands to make putting up with most of the crap worthwhile financially. That’s the beauty, and the problem, of the situation...