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How raising capital reduces market capitalization

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Highly counter-intuitive, yet that ‘s exactly what happens more than once. We shed our light at the latest capital raise of McEwen Mining, closed little over a week ago.

Mixed fortunes for McEwen Mining as they missed guidance on their 2019Q3 production volume and needed to swallow a quarterly loss. However exploration results at their Black Fox mine and Grey Fox extension, acquired last year from the failing Primero Mining, continue to impress. The geological potential of this Canadian property near Timmins is far beyond what was known to exist as the property was acquired.
However with operations running less than smoothly, the exploration budget cannot rely on cash flow. Hence the rationale for raising an extra $50M. As the operation was announced, McEwen Mining was quoting at $1.52, down from a 52 weeks intraday high of $2.14. As gold peaked in August, many miners were rallying, while the recent slide of the yellow metal also turned miners south again. Both poor operational results and explorations successes were known well in advance of the start of the capital raise on Nov 20 and it was successfully closed by Nov 22.
The low pricing of the offer at $1.325 however caused the shares to slide. Moreover, since every new share includes half a warrant with a conversion price of $1.7225 (well below where MUX quoted even by late October) the shares were to slide below the price of the offering.
The offering added 37.75 M or little over 10% of the existing number of shares which now has surpassed 400M, for a total market capitalization of $452.31M. Immediately before the operation, the 362.46 M shares at $1.52 implied a market capitalization of about $551M. Raising $50M fresh capital effectively made market capitalization plummet by over $98M or almost 18%. The shares also made a fresh 52 weeks low.

Mc Ewen Mining share price over the last year

It always requires some time for investors to return to their senses. Currently gold well below $1500 seems to delay investor awareness.


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