If I understood public financing and how the stock market works I would not be listening to Yanni and typing this. I roughly know the steps in establishing and financing a public company but haven’t a clue as to how stock is bought and sold at ever increasing prices. You, dear reader, as an mining company builder may already know much more about this than I. 

Public companies are regulated by securities commissions and have to be invited to join stock exchanges and thus be subject to another set of regulations. Complying with all these regulations costs money and it is best to hire the services of a very good securities lawyer. There are traps set everywhere and one doesn’t want to stumble into any of them or life can take a nasty turn. Think Martha Stewart or Bernie Ebbers. So one must be clear on the costs and obligations of a public company prior to making this decision. It is a viable and popular route to take but it has its downsides.

Public companies are financed by you and a bunch of your friends throwing $100,000 or so into a kitty, hiring a lawyer and starting off. This money is called seed capital and it is eventually paid back with company stock priced quite low (say 10 cents). When the company is formed more investors are invited in and they are given stock at a higher price (say 20 cents). With this money all the registration is done and a broker is invited to help raise the money required for the project at a higher price yet (say 30 cents). Getting on the exchange will cost $25,000 and a prospectus will likely be written so that prospective shareholders can have their stock free-trading. Getting to the point of having money in the bank and the company trading is a 6 month process. Sometimes it takes less time but not very often. Note that the cheap stock is escrowed and not tradable for a period of time up to 3 years. If the money is raised by a private placement from a registered investor (high net worth individual) then their stock will also be escrowed for about 4 months. 

The broker then raises the required money and takes from 5% to 10% of it as his commission and also expects to receive up to 10% of the stock issued as a gift so he can “help out in the market”. This means he will sell his stock immediately putting downward pressure on the stock price. It may not seem fair but that is how the game is played. So now the mining company has its money and the investors have their stock so it is show time for the company. This is a good discipline for sphincter control because now you and the other shareholders watch everything the company does and will often comment if things don’t go well. This is the real joy of the public company - interacting with shareholders. 

If the company is already established then the money is raised and stock is issued just as described above. In this case the company must define the stock price at which the money is to be raised. The broker will be pushing for a lower stock price so that he gets more stock and the company will be pushing for a higher price so that not as much stock is issued to dilute the company. Finally an agreement is reached and the money is raised - usually. Sometimes the brokers can’t complete what they promised to do and then the company is in a fine mess. 

So the advantage of the public company financing is that the debt is paid with shares and there is sufficient regulation in place that the company must be honest in raising the money which gives the shareholders a fighting chance to make some money - especially those shareholders who know all about the mining industry from reading this website. Shameless self-promotion is not necessarily a sin.