Goldgroup Mining (GORO -5.73%) is tapping investors for a new round of capital, and Mr. Market wasn't happy about this. After the company announced the measure on Wednesday morning, its stock fell underwater and largely stayed there, ending the day nearly 6% down in price.
20.5 million factors to consider
Goldgroup is floating up to 20.5 million-plus "units" at a price of $3.65 apiece. The units consist of one common share of the issuer and one-half of a warrant to purchase that equity.
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This should result in gross proceeds of around $75 million, although the company added that this could be upsized if demand is sufficient. The units will be sold in a private placement directed to institutional investors, and the issue is anticipated to close on or about Sept. 30.
Goldgroup wrote in the press release trumpeting the issue that it would use the proceeds of the flotation for working capital purposes. It specifically mentioned that this includes advancing its portfolio of mining and development projects. The company added that it might also deploy the funds for acquisitions of property or other assets.
NYSEMKT: GORO
Key Data Points
The specter of dilution
Precious metals stocks have been on something of an upswing since their mid-summer valleys, largely due to a rebound in prices. So it seems Goldgroup is taking advantage of this to raise more capital. Yet that $3.65 per-unit price was notably below Tuesday's closing stock price. Also, the warrants-loaded issue could be rather dilutive, given the company's $491 million market cap.
Ultimately, stocks like Goldgroup are mainly dependent on the prices of their chosen metal(s), and on that basis, I wouldn't be bullish on the company. I feel that the Federal Reserve will raise its rates, if anything, and higher rates tend to decrease demand for non-interest-bearing assets like gold and silver.
