Not many people appreciate the relevant of small percentage to gross sales in a high volume business. In a business where the sales is a $100,000, a share of 20% is equivalent to a net profit of 20,000. In a high volume business of sales of $1,000,000, a 4% on gross sales is equivalent to 40,000. If both companies have a paid up capital of $500,000, the return of capital of the company with a share of 20% net profit will have a return of capital of 4% whilst the later company with a reward of 4% of gross profit will have a return of capital of 8% because of volume sales. The former type of companies relate to contract for labor, services companies etc. The later are more applicable to bulk commodities and cash/fast turn over type of business.
Whilst Rangold has a good deal because all this ore is at their door steps and it solves their problem of high fixed costs which have to be dealt with, to BGS the 4% on gross ales is equivalent to a net profit of about 8-10%, which respectively is a relatively good return. It is a win, win position for both companies as BGS can do without further drilling, building of a haul road and other expenses. BGS will now concentrate solely on its lithium business and Koting in the future.
BGS Price at posting:
30.5¢ Sentiment: Buy Disclosure: Held
