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On Friday morning, I wrote about a stock, and it went up 73% that day from 11
cents to 19 cents/share.
http://silverstockreport.com/2011/emgold.html
Please be careful. I know the stock is a good deal. However, at
the present time, I recommend that nobody bid more than 20 cents/share
for the stock. There are several reasons.
The most important reason is that the company needs to raise money, up to
$125 million. Paradoxically, it can get harder to raise money if the
share price goes too high, too fast, for several reasons.
First, great investment opportunities are great when the price is low.
When the price is much higher, the investment returns are less. So,
just as you don't like paying too much for the stock when you buy it on the
open market from an online broker, so also, neither do big money investors
want to pay too much when they buy stock directly from the company. In
other words, if you, my readers, bid the stock price too high, too soon,
without letting the company raise money, it's self defeating, because we
don't want our shares to have no more value than a ponzi scheme if the
company is not fully funded, permitted, and ready to begin mining.
Getting fully funded is crucial to enable the stock price to grow
from $1 to $10/share!
Second, the company has to raise up to $125 million. Typically, the
largest investors come on board last, when most of the risk has been removed
from the project; but they also expect to obtain a large percentage ownership
of the project, too. And that big money is needed if the project is to
move forward and generate profits for all the shareholders.
In other words, it's hard for a $300 million market cap company with only $5
million raised so far, to raise $100 million, but it's easier for a $100
million market cap company, with $50 million already raised, to raise
$100 million, because in the latter case, the last investors end up owning
1/2 of the company or more, instead of only 1/4 of the company. The
point is that a good rule of thumb is that a development company
should have about half as much cash on hand as the market cap.
In this case, Emgold is just finishing up a $1 million private placement, at
10 cents per share. But Emgold has 38 million shares out; and now, at 19
cents, has a market cap of about $7 million. So, the company
should not only finish their current private placement, but also, the company
should immediately open up a new one, and raise about $2.5 to $3 million at a
new, higher price, of about 80% of the current share price, or about 15 cents
per share.
It can be a problem if the stock price runs up too fast, because then it
might be harder to raise the needed funds to continue the development of the
project, on which, ultimately, all of our profits depend.
Also, consider the share volume spike: The share trading volume has
recently averaged about 100,000 shares per day. Yesterday, there were
1.1 million shares traded, 11 times as much as normal. I suppose that
was due to my article's promotion of the facts of the company. But
let's consider their current private placement of $1 million at 10
cents. That will be 10 million shares issued, and another 10 million
warrants at 14 cents. That means that 20 million shares will come
freely trading in about 4 months to the day after the placement is
closed. So, 4 months from now, the stock might take a dip in price, as
those investors might want to try to lock in profits. So, if you want
to buy stock, mark your calendars for about 4 months from now, and be
patient!
Learn from my own example. I purchased Emgold over a period of about 3
weeks. It took that long to accumulate 1.2 million shares without
pushing up the share price, and I bought between 8 cents and 12 cents per
share. Then, I waited about another 5 weeks, before
writing yesterday's article, because I wanted to be sure that the
immediate bankruptcy risk was removed from the company, to be prudent, before
promoting to a wider audience, everyone reading this.
Additionally, if the company begins raising $3 million at 15 cents/share now,
as they should, then that will be another 20 million shares, and maybe
another 10-20 million warrants that will come freely trading 4 months after
that next placement closes. And when that stock is ready to
trade, that might also cause the stock price to move down.
They key for the company, to maintain continued and successful fund
raising, is to ramp up promotion at the times when that stock comes
free, so that upward momentum of the stock price keeps people interested,
rather than discouraged.
Big money likes to see investment interest from smaller traders. But
bigger money is generally much more cautious, and they will do far more
methodical research to make sure of the soundness of the investment
opportunity.
Also, if the stock price is too volatile, that also makes it hard for the
company, and investors, to figure out what to do. People begin to
wildly speculate that permits are being denied, rather than doing real
research or contacting the company to see what is really going on.
A wildly changing stock price can scare off the big money investors that we
want to ultimately attract.
One of the worst things that could happen now, is if another successful
promoter found out about Emgold, and began promoting it too aggressively,
before the company is able to appropriately scale up and raise funds at
gradually increasing price levels. If you are such a an online
promoter, please choose another stock; there are many to choose from.
Here's an example of what I did wrong in the past.
Canadian
Zinc--Silver Potential Oct 23, 2003
The price moved up over ten times, from 14 cents to $1.80/share, in
just a few months! That was partly my fault, when I didn't know how
crucial it was for companies to raise money at appropriate steps.
I also didn't realize that I engaged in "over promotion" by writing
about stocks on the internet. See, about 5 years later, the stock price
collapsed down to 20 cents again, barely above the 15 cents it was back in
2003, partly because the company never raised all the money they needed to
start production, and investors get tired of waiting, but also, because all
mining stocks were hit hard in 2008. So, if you lost money in that
stock, please consider this my official apology.
http://finance.yahoo.com/q/bc?s=CZN.TO+Basic+...hart&t=my
Look at the price spike from 2003, below, and the dip by 2004-5:
After I learned my lesson, I was much more cautious about this next stock,
General Moly, back in 2006:
target="_blank" http://finance.yahoo.com/q/bc?s=GMO+Basic+...hart&t=my
See the price spike up in Jan, 2006? My fault. I wrote again, in
Spring of 2007.
Will this
stock rise from $2 to $100/share? Jan 7, 2006
GMO
Vindication! March 26, 2007
GMO went from about $1/share to $11/share, but still, there was that nasty
down draft of 2008-2009 that hit this stock, too. Again, be careful.
Emgold has just as good of a chance to rise in price from 10 cents to
$1/share over the next 4 to 12 months. The problem will be if they
only raise about $30 million in that timeframe; as it won't be enough, and
the stock price would start to take a beating, making it harder to raise the
funds to start mining.
Remember what happened to Sterling Mining from 2003 to 2007 or so.
Their stock went up ten to twenty times after they acquired the Sunshine Mine
in Idaho. They raised funds. Silver prices were rising.
They got overconfident. They started a new shaft. Then, they ran
out of funds and went bankrupt. (Long story short.)
Silver also is volatile, and changes in price wildly. In the case of
silver, I believe that the master manipulators who change the prices at the
COMEX, make silver prices wild on purpose, to scare people away from owning
it.
Remember, the key point about silver vs. stocks. Stocks can go bankrupt
and go to zero. Silver never can. Silver's main risk on the
other hand, is simply that it can be stolen. But the bigger risk in
silver is that 99% of investors fail to take delivery of their silver, and
thus, they end up putting money with companies who never go out and buy the
silver for them in the first place, and that kind of silver is
guaranteed to be subject to counter party default risk, which is the
risk that the custodian goes bankrupt.
Get a vault. Order silver from us. It may be volatile like the
penny stocks, but silver's the real deal.&nb target="_blank"sp; www.jhmint.com
I own Emgold stock, and nobody has paid me to write about Emgold. I'll
earn money only if the stock price goes up.
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