How do you take a mineral exploration company or mining company public on the OTCBB?

There are several ways to take a company public in the mining and exploration sector. This is a blog and opinion of someone who is not a lawyer, this is not legal advice, however we do provide contacts to someone who can advise you in this field. Read the article and decide if you would like the contact information.

File an S1 and 15c211

The process of writing an S1 for a mineral exploration company is fairly straight forward. The exploration company must have an option for or ownership of a mineral title, lease, patent, or other such terms used. The mineral property should have prospective work or historical data available in order to articulate the reason for exploring the ground. If you are a mining company, refer to Industry Guide 7 as per the property description and requirement.

The exploration companies Directors and field operations individuals are best to already be on contract for shares in the company or for future payment upon the raising of funds or going public process.

It is important to have a professional team and good property. People have gone public with less, however, when filing from scratch, within this sector companies have shown patterns of paying attention to these details since there have been a historically large amount of exploration companies that have not been able to explore due to property inconsistencies and management.

The S1 is initially drafted based on the summary of the property, the business plan, the directors, the use of proceeds, issuances, and financials. The document is prepared within a 3-4 week period depending on the history of the company or the individuals involved. The readiness of documentation is essential, as it will have to be passed by an auditor.

The S1 and audit on the company initiated the offering document which enables the company to begin raising funds. During this time period, the company would likely designate its transfer agent and market maker for filing the 15c211. Once the shareholders have been brought into the company, and the 15c211 is filed, the Company goes through the comments by FINRA.

Important notes for the FINRA stages are the history of the directors, the transactions and documents, agreements, proof of funds being delivered to the company for subscription, the subscription accepted by the company, the appropriate filings and exemptions of which shares had been sold, the merits of the property so far as the documents that represent the data, the competency of the person or company who did it, and the timeframe.

The structure needs to be simplified to the requirements of what is trying to be achieved by going public. If the company doesn’t have clear objectives and explanations for contracts and transactions, the S1 will likely remain in commenting until the objectives are clear and answered. After the commenting period, the company would be given a symbol.

Strictly speaking, this effort cannot be done alone and requires the use of a securities lawyer, a competent auditor, and a competent market marker.

(If you require recommendations for Auditors, Securities Lawyers, and competent market makers, contact info@otclistings.com)

Perform a Reverse Merger

Typically speaking if you are a person with a mineral claim, mineral exploration company, or in mining, it is best to merge with a company that is in the same field. In the event that a suitable company is not located within your field, you can merge with a company and file a change of business. Quite extensive filing of documentation in a prospectus/form 10/S1 style information needs to be put in a filing, such as a 14c or super 8k. The reason is that by merging with a company and making changes to what the company does or operates as signifies the equivalent of a public offering or IPO, any issuance of shares needs to have the appropriate description and documentation attached to it to reflect this.

Through various case law, the dominating factor is that one should not issue shares unless one has made all the filings and disclaimers to the public with full transparency. Collecting funds for subscriptions without these disclosures or an exemption to do so, would increase the overall liability to the issuer and its Directors.

Initially the process of going public via reverse merger is not as straight forward as it may have been two or even one year ago. Firstly, if you are looking to go public the candidate company to reverse merger into should not have:

–       Any offerings or sale of shares during any time of which it could have been deemed a shell that are purported now to be free trading by the company owner

–       The Lawyer who represents the company should have a clean record, and you may want to contact the Bar/Legal Society to ensure there are no current investigations or complaints pertaining to the lawyer

–       The market maker needs to have a clean record, if they have been reprimanded in the past, the details will be available through FINRA, and thus, you will ensure the company remains trading in the future if you do your due diligence on the market maker. A condition of taking over the company may be that it has more than one market maker

–       That there are no liabilities, and that the party presenting the candidate company for take-over for equity also take the liabilities on personally that have not been disclosed or other than what had been disclosed

–       Read carefully the articles and by-laws, understand the power of the directors, shareholders, and ensure the minutes clearly state the voting in and resignation of all Directors (Even though in some cases there have been forgeries which have caused several companies and individuals shame, it is not as often, and thus, its just a precaution to ensure it is all there.) Ensure you have a clause in the merger agreement that applies a penalty if the representing party to the transaction cannot come up with documentation or answers from regulatory parties at a rate of $1,000 per day.

–       Don’t go near companies whereby the company has been under investigation by ANY global regulatory body, of which any Director or past Director has been under investigation by ANY global regulatory body,  or whereby there has been any cease trade, sanction, or otherwise.

–       Being in the same industry, and truly completing a merger is also an important success factor, as for the days of turning a Gumball Factory into an Online Dating website faded with the last batch of “shell” peddlers who face jail time for fraud and misrepresentation during the times they issued shares.

–       Ensure there are board minutes on all discussions, and that thorough thought by both sides is documented and contemplated. Make sure material submissions are protected by Non-Disclosure and Privacy Agreements with black-out or no-trades on information.

–       Ensure the agreement includes black-out periods at the discretion of the incoming asset to all affiliates and or related parties to the transaction for the period of up to 2 years and for any length of time during that length of time. Otherwise, companies may find themselves open to third party reselling and IPO definitions. IPO/Resell definitions combined with possible shell designation could be dreadful. Most mergers happen where by the owner of the public company tries to sell shares during the merger, do your best to avoid this by using black-out clauses.

–       Ensure all corporate documents are provided and that the wording of the document is “a complete set of all documents in the history of the company” and not just in the possession of the current Directors or presenting candidate. Sometimes the fact that people don’t designate that its the companies complete files historically, individuals have been able to simply say “it was the complete copy of documents … in my possession.” Wording is important, and so are the documents. Apply penalties for missing documents.

–       Compare transactions with the documents, transfer records, auditor comments and filings, combined with multiple questions aimed at the Directors themselves. Ensure that further certification of the documents is completed by the parties involved. The certification at least ensures that if any document was forged or altered in any way, it was their certification on that date, and could not be pawned off into a goose chase of who’s who.

–       If you enter into a letter of intent, ensure it is non-binding, and any exchange of funds in advance of closing needs to be documents by both parties. I highly recommend not transferring any funds prior to closing, many unsavory characters have possed as Lawyer trusts over the years and have stolen the funds.

–       Consider the acceptable amount of dilution for yourself and then times that number by two. That is likely what you are facing due to the “lack of market” that the candidate company has, even a little bit of trading feels like a ton of bricks.

–       Public company candidate companies may or may not just do an equity transaction, a cash component is often asked for to also purchase on controlling and hold out shareholders for cash. Be aware, that the market price for near complete ownership is around $300,000 USD with very little equity given up, to almost no cash and just equity. The going price of control per se are between $500,000 and $300,000 in assets or cash. However, one should never consider a “shell”, but rather look for candidate companies for a reverse merger with existing businesses. If you believe a company to be a shell, you need to report this appropriately. The stronger the merging company, the better.

–       Access top-notch securities attorneys to complete the entire process from due diligence, executing the agreements, the merger, and super 8k. To do so, contact info@otclistings.com

–       In order to close a merger transaction, your company must have two years of audited financial statements prepared in accordance with GAAP, and quarterlies. There statements are filed within the 8k.

–       The best way to receive shares is in a share per share value issued for control. Getting them any other way requires careful advice of an attorney to ensure no laws are being circumvented.

Last but not least… you merge and become a fully reporting, trading, OTCBB Listing.

IF YOU ARE INTERESTED IN MERGING WITH A PUBLIC COMPANY OR PURCHASING A PUBLIC CORPORATION TO GO PUBLIC CONTACT INFO@OTCLISTINGS.COM

A great source of OTCBB shells and or merger candidates, OTCBB lawyers and accountants, OTCBB Market Makers and Transfer Agents, and knowledge, contact info@otclistings.com

Mark Bragg, Editor

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