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Gold/Mining/Energy : Gold and Silver Juniors, Mid-tiers and Producers
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To: Tommaso who wrote (66823)8/23/2009 10:07:43 PM
From: orkrious2 Recommendations  Read Replies (3) of 78412
 
7.5% dilution of NGD.

From Lance Lewis:

As for why NGD declined 6 percent, that slide came on the back of NGD doing a stock issuance this morning (which was a bought deal at CA$3.75) and amounted to a 7 percent dilution in exchange for CA$100 mln in cash. The question is why this deal was done given that its recent merger should allow the company to internally finance the building of its New Afton mine?

Here’s what I suspect is going on… We noted a couple weeks ago that NGD’s recent outperformance was probably due to the fact that Xstrata was receiving offers from Chinese companies to buy its interest in NGD’s El Morro project in Chile. Unlike Xstrata, which is cash-poor, the presumption is that the Chinese could fund their 91 percent of the required $2.5 bln capex, leaving NGD to come up with $225 mln for its portion of the capex. It’s just an educated guess on my part, but my suspicion is that NGD is raising this money in order to have the cash necessary to fund its initial capex commitment for El Morro, which means the company also thinks a deal will soon be done with Xstrata.

So, while I never like to be diluted by an offering like this (even though it was tiny at just 7%), if the company is raising money for its portion of the El Morro capex, that’s actually a good thing, because it means that El Morro could be close to being purchased from Xstrata and therefore that much closer to actually being built as well.
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