Companies with good stories have been able to raise money on Aim throughout the year – provided they already have a quote.
By the end of the year secondary fundraisings will be comfortably ahead of £4bn, trouncing the amount raised in 2008. It will still be a long way below the £9.6bn raised in 2007, but it indicates that the worst is over for the junior market.
Nevertheless, the quality of innovation necessary for all small companies struggling to grow in a recession has not been restricted to their business models. Their powers of invention have also been extended to the method of raising funds.
For example, Futuragene earlier this month carried out what could be described as a DIY placing. The company, a specialist in plant cell modification, did not involve its broker in the sales process.
“We found the investors,” says Stanley Hirsch, chief executive, of himself and chairman Mark Pritchard. “We had the contacts and were able to move more rapidly – and we incurred no broker fees. As a result, the gross proceeds are almost completely net proceeds.”
The board considered a general offer to existing shareholders through a rights or other pre-emptive issue to be inappropriate because of “the significant additional costs that would be incurred and the delay that would be caused by the production and approval of a prospectus”.
Instead the company placed 6m shares at 50p each with several new shareholders, raising £3m. The placing brought in a substantial new shareholder – Hartford Growth (Trading) Fund, which now has a 5 per cent stake. The shares closed on Thursday up 3.8p at 70.75p.
The company has made a loss for the past five years and is expected to report further losses this year and next. However, interest is growing in its technologies, which genetically modify plants.
Shortly after the fundraising it announced a licensing agreement with Bayer CropScience for exclusive rights on producing drought-resistant cotton. On Wednesday it was granted a Chinese patent for its drought tolerance gene.
The company is already co-operating with the Chinese Academy of Forestry on the use of the gene in poplar trees. Mr Hirsch says that poplar can be used to help coal-fired power stations reduce consumption of the fossil fuel.
Alongside the placing, the company issued 6m warrants, also at 50p a share, exercisable in the first two weeks of December next year. A shareholder meeting next month is expected to approve the warrants, which should bring in another £3m. According to Mr Hirsch, it will then have sufficient funds to take it through to its maiden profits in 2011.
If the recent stream of good news continues, the warrant holders will be well in the money in 12 months’ time.
Ascot’s golden edge
It is even more difficult to raise money on Plus Markets. However, the spirit of enterprise is just as evident there in the shape of Ascot Mining, a minnow that is making forward sales of gold to fund operations.
The practice is more prevalent among giant mining corporations. But given the performance of gold over the past 12 months, it should come as no surprise that there is no shortage of takers for Ascot’s 20 per cent discount to the market price.
Ascot floated on Plus early last year, raising £1.3m at 35p a share. Its ambition is to consolidate and revive gold concessions in Costa Rica. Many of the mines are owned by families and small syndicates with no access to funds.
The company’s first mill began operations in September. It is expected to build quickly to production of more than 20,000 ounces a year, and has so far sold forward 2,000 ounces. Its cost of production is running at about $425 an ounce, compared with the closing price on Thursday of $1,114 an ounce.
Another 2,000 ounces are expected to be sold forward. With the gold price at its current level, that makes a lot more sense than diluting shareholders further.
Healthy new year
In the first 11 months of the year 29 companies were admitted to Aim, if reverses, introductions and transfers are included. So far this year there have been 23 companies admitted to Plus.
However, Plus is down to 188 companies, so it is proportionately doing much better than Aim. The test next year will be whether it is able to retain the newcomers.
But perhaps the name of the latest recruit, which joins Pluson Friday, bodes well for the small cap arena. A purveyor of aids for the less mobile, it is called HealthyDays.