What happened

Shares of McEwen Mining (NYSE:MUX) stumbled on Wednesday, falling more than 12% by 10:45 a.m. EST. Weighing on the gold mining stock was the pricing of a public stock offering.

So what

McEwen Mining announced that it had priced a public offering of 37.75 million units, which consist of one share of stock and one warrant to buy a share of common stock in the future. The company priced the offering at $1.325 per unit, raising $50 million in total, with each warrant exercisable to buy the stock at $1.7225 per share over the next five years. That deal price is well below where shares have traded recently. This discount, as well as the dilution from all the new stock, is weighing on the share price today.

A red chart line moving down with gold nuggets in the background.

Image source: Getty Images.

The company, however, needs the cash to continue advancing its current mining projects and exploration projects. McEwen Mining, for example, plans to begin the development of its Gold Bar South mine in the U.S. later next year. Meanwhile, it has several other prospects in the pipeline, including Los Azules in Argentina, which is a massive copper, gold, and silver deposit that could cost up to $2.4 billion to develop.

Now what

Smaller miners like McEwen need to continually raise outside capital to help fund development projects. While these stock sales dilute existing investors and can weigh on the stock price in the near term, they provide them with the funds needed to expand. That can pay off over the long term if the miner can successfully invest that capital in a high-return, low-cost mine.

McEwen, however, has a spotty history of creating value for investors. Because of that, those interested in profiting from gold might want to consider buying one of these top gold mining stocks instead.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.