Emergent Metals Corp (EGMCF)

[gmoneypenny]

Jason Hommel's EGMCF followup note (I believe in his first statement below, he meant to say "On Wednesday morning"):

Be Careful with Emgold Stock
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.