I am sure most of you have seen the Just Ask George show on taking a company public. If you are considering taking your company public or you are now a public company there are many elements to consider about how to exploit the tools available to form capital within the boundaries of the public company markets.
Santa Fe Gold Corporation Was Faced With an Unusual Situation
As you know I consult with many companies both public and privately held. Most recently one of my clients Santa Fe Gold Corporation (OTCBB:SFEG) was faced with a unusual situation that involved equipment financing. However during the evaluative process, I uncovered a host of challenges that faced the company. There was a need to re-architect the company’s balance sheet, obtain more flexible asset based financing and overall, lower the cost of money. One of the points I make in the Just Ask George show I referenced earlier, is that it is important to always reflect the correct value of the company stock so that you can in fact use the tools available to you in order to form capital. This takes time and a ton of effort. If the value of the stock is too low then the company can experience excessive dilution when using the stock of the company as the source of forming capital.
Santa Fe Gold Corporation’s Stock Value Does Not Reflect the Company’s True Value
In the case of Santa Fe Gold Corporation the value of the stock clearly does not reflect the true value of the company. Currently at an all-time low it appears to be one quarter of a value more representative of the company’s market value. Now I am not a stock broker nor am I making a recommendation to buy SFEG, only your investment advisor can do that, however this is a clear example of how a low stock value can adversely affect the use of a public company’s stock to capitalize the business for legitimate business purposes. Everything I said in the Just Ask George show on this subject is holding true to course here. If Santa Fe Gold Corporation uses its stock at this time to form new capital, the dilution would be too great. Yet the company, a producing gold mine with a large production precious metal mill fully operational, and a public company no less, with solid management is in a quagmire. Use the stock and suffer excessive dilution. Don’t use the stock and thus not be able to expand operations and grow revenues. So what is the solution? You must take a step by step approach.
A Step by Step Approach to a Solution
First the company needs to lower the cost of its credit facilities. Second it must put additional equipment to work to drive gold and silver production even higher. Then it must tell its current shareholders the entire story and promote the stock price to a more realistic value. Then it must infuse short term capital to shore up operations and production while the company takes on the much larger task of re-architecting the entire balance sheet. Most recently I consulted with the company during formation of a $2,000,000 infusion. That money will see to the latter. I am also advising the company on the original charge of acquiring additional equipment which deals with driving production and revenues. If all goes as planned over a reasonable term of time Santa Fe Gold Corporation will look, walk and talk like a new company. But again this will take time and a good deal of effort with all hands on deck.
So what is the lesson to be learned? Well I first suggest you watch my show on Just Ask George on this subject. Then I suggest you carefully examine this situation. You will find the lesson is in the fact that all facets of corporate finance become exponentially more complicated when you are a public company. As captain of a public company and at the helm, there are a kaleidoscope of considerations and elements that can affect a public company attempting to form new capital. It is a very complicated task. Captains beware. Running and financing a public company is not for the faint of heart.
( George Lovato Jr. and BHCL are not investment advisors. Investment advice can only be provided by licensed investment advisors. The subject matter herein is for informational purposes only and not to be considered investment advice of any kind. This blog is part of an ongoing blog and video series of Just Ask George. This blog is not investment advice.)