All About Private Placements - Part I

That's usually the case. Sometimes there will be offerings that don't require an investor or a speculator to be accredited, but those are different types of offerings, and you'll want to check with the company, to ask about the specific type of offering that they have. So that's the first hurdle.

There are other hurdles that a person should consider and they have to do with participation amounts and also third-party processing fees. My experience is that it's usually between $300 to $600—the third-party processing fees, not including a brokerage commission costs—that a person may encounter if they participate in a private placement.

So if you're considering an investment or a speculation in something and your hurdle is $300 to $600 just to process it, and let's say another 1% or 2% as a brokerage commission cost of the market value of the investment, and you're thinking about it for $5,000 or $10,000—I mean really, if it's $5,000 or less, and you're putting up 10–15% of your capital just to play, in most cases, I think that's pretty unreasonable. But if you increase the amount to US$10,000–15,000 or larger, then that fraction is smaller as a percentage of your capital and maybe it's more considerable.

So you'll get your technical requirement, in terms of being financially qualified and the specific type of offering that the company is making available to the market. You have your financial requirement, your qualifications there, and then outside of that it's just jumping through the hoops, if you will, on completing the paperwork and moving the paperwork around the various parties.

Maurice Jackson: When is a good time to buy?

Tekoa Da Silva: Boy, that's such a good question. I think there's probably two answers. The first one is anytime is a good time to buy, depending on the terms, the deal and the quality of the company—because you may have a really good company, which maybe is composed of two basic things, like a management team as well as the collection of assets or income streams and such. And you just might come across a good deal. So anytime it could be a good time, I think, in that sense, when looking at quality in terms.

But the second answer I think is really dependent on the cost of capital market conditions. I always interpreted a stock market up or down as just thinking about it as stocks going up and stocks going down. But, there is this phrase that our good friend and, I think, mutual mentor Mr. Rick Rule taught us, which is, "the cost of capital." And now I come to interpret stock markets moving up or down as being the cost of capital, either declining or increasing.

When you have dropping stock prices, you have an increase in cost of capital, the seesaw. . .and then when you have surging share pricing, you have a dropping of cost of capital for the issuers.

So ideally, a buffet—a feast, if you will—is usually during the market context, in which you have an absolute liquidation. Where there's a panic, [there's] a shortage of capital across an entire sector or an entire market. And when we're looking at the context of resource markets, natural resource exploration or development-stage companies are generally non-income producing companies. So they live on, let's say, blocks of capital that may be between nine to 18 months, where every time they do a private placement, they're simply buying time to continue their business activities.

If you have a period of, let's say 2008–2009, during that market crash, coinciding with a period of a small exploration company, if the corporate treasurer [is] running down toward two, three, four months of capital remaining in the bank, that's an ideal context to be a capital provider, to a host of companies that are in that circumstance.

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Disclosure: I or members of my family own shares of Novo Resources.

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