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Rick-UK

07/27/11 4:41 PM

#160001 RE: ShortonCash #159992

Hi ShortonCash. There are only a small number of different ways that companies can raise cash...

1. Borrow it from a bank and pay it back over an agree amount of time at an agreed rate of interest

2. Issue shares (common or preferred stock) and either sell them to existing shareholders (rights issue) or to one or more specific investors (private placement)

3. Use profits from business activities

4. Form a new company and raise capital in that company using methods 1. to 3. above

There may be a few others as well but these are the most common. Banks generally won't lend to a company without seeing definite income to pay them back, or unless there's some kind of asset that can be put up as collateral. Junior explorers do not expect profits until they sell a property or (usually after many years) bring a property into production and sell the minerals. So that leaves issuing shares or bonds.

The most common method of raising capital is a private placement. They agree certain rules (eg how many shares will be bought, what price the investor will pay, over what time period the purchase will be made and so on). Of course, an investor will be looking for a discount because otherwise they would just buy on the market like anyone else. So the investor usually gets a discount off the current price in return for their guarantee to buy the agreed quantity.