Junior Resource F-Factor eludes Vultures just in time for a Santa Claus Rally?
Flashback to Tuesday evening where I had a meeting with two directors of a couple of junior resource companies on Bay St. It was during a second beer when one disclosed, “I haven’t paid myself since 2012.” The other responded with, “well, I haven’t paid myself for the last year.” Insert a tweet I received on Thursday from @tonyalfidi in response to the market trending sideways commentary I made last week and where’s the M&A action and he wrote: “Many large miners seem to be waiting for juniors to go bankrupt, so they can buy projects and not companies.”
Well it’s a little hard to go bankrupt it seems when your burn rate doesn’t exist. In fact, I have no idea what’s going on here, but heck working for free may explain why the forecasted 80% of the TSX Venture companies we were told were running out of cash over a year ago, (most) are still standing.
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Shot an email to one friend in London this afternoon with the hope that he could explain how this works. He basically reminded me why no one is quitting. It starts with “O”, he started — and “it’s called options, and no one wants to lose them.” So if a Director on one of these companies quits, they not only lose the cash they are owed, they lose their options. So I guess the premise is, keep your role as a CEO or Director and say nothing because if you quit, then the recovery of anything becomes nothing. This said, my friend did send an addendum that most of these option packages needed to be renegotiated or indeed, they are worthless.
This morning, I upset a friend in Asia when I asked him “is anyone really paying you right now?” Yes, I asked the unforgiveable question but I was on quest to understand why companies with virtually no cash are still alive, and why M&A numbers are not where one would imagine they should be given many of their sub-nominal cash positions. The catalyst for this line of questioning was raised when he referenced one of his Board positions. Just happened to have had a conversation with this IR professional in January at the Cambridge House Show when he disclosed that he had not been paid for months – and that was almost 12 months ago. “Honestly Trace, I am working for free.” he said, “and I just don’t know how much longer I can take this.” For the record, he managed somehow – as he is still there….working for free. My friend in Asia, on the other hand — strongly asserted on his end of the conversation, “I will get paid…when the money comes in”.
Wow, as a former investment banker, I can assure you that this is one helluva a high risk proposition, and it seems to be one that I am hearing more and more of. Had a glass of wine with another friend on Thursday night and she also revealed, that several members of their office group were also subscribing to the “give it away for free” formula or the F-factor as I have been calling it…
Have we lost our mind? Or are we betting we are at the bottom of the market or are we on some hippie groove train set to nowhere? Seriously, what do you really call this? Call it good old fashioned ingenuity, but the capitalists and analysts along the way seemingly forgot the survival of the fittest variable in their anticipation of a collapse and a vulture feeding frenzy – and the F-Factor, if our friends like Jeff Phillips who predicted the Santa Claus Rally that we literally just posted from our friends at Rivkin seems to be occurring based on market action are right: their efforts may not be for naught.
Here’s to Alessandro Bruno’s piece we are publishing in the AM on how the downward pressure on oil & gas will drive manufacturing north, and in turn – impact the demand on industrial minerals. Another sign that 2015 may be the turnaround year that too many people literally bet their homes on…and yes, a turnaround is my wish for Santa this holiday season…
Wishing all of our readers, a very special holiday season. Note: InvestorIntel pays all of our columnists, and we would like to thank our members as they make this possible.
An accomplished entrepreneur and corporate finance professional, Tracy Weslosky is the CEO for InvestorIntel Corp. and the VP of Business Development for Bellotti Capital Partners ... <Read more about Tracy Weslosky>