Re: KZL - Kagara Zinc capital raising
Hi guys,
Im not terribly savvy in this issue but maybe someone can help me out.
As the previous post says the average price in the last week or two was like 1.14 or something like that and is now .75 at weeks end.
Am I looking at this the right way? Say I were take up the offer by friday and then in the next day of trading they were say 0.90c you would almost instantly make a 50% gain from buying them @ .60c .
Again am I looking at this correct?
Cheers
You are correct. The discount is the incentive to entice investors to stump up the much needed funding. This has some fairly predictable outcomes if you take a moment to study the chart over the last couple of weeks.
Following the trading halt and announcement, the sp was immediately sold down to 0.90 on huge volume. Everyone has their reasons but, for some it would have been a mixture of reaction to the depth of discount and the volume of funds sought and hence the amount to be stumped up to take advantage of it. For others it may have looked like an opportunity to trade out and buy back lower before record date. Whatever the case there were plenty of others willing to buy in before the offer went ex.
Following the record date, the next phase sets in as (a) some players take their profit knowing that they are buying replacement shares at 0.60 (and in some cases need to free up the funds to participate), and (b) others being aware of this sell pressure anticipate the drop and trade the trend. We also had a bit of general down-draft in the market. End result is that following the ex-date we open at 0.84, slide down to 0.65'ish and then start to recover to our last close at 0.745. Maybe this continues to trend up, or maybe we experience another wave of sell pressure when the issue comes through.
Now none of this tells you what a KZL share is really worth. It is only giving you an understanding of how the market reacted to the share offer. For an understanding of the value of a KZL share you would have to look at all the fundamentals - quantity and grade of reserves, cost of production, outlook for their commodities, balance sheet strength, quality of management, offtake arrangements, growth opportunities, etc, etc, etc. Only then can you make an assessment of value and where you think this might go in these still fairly uncertain times.
In the extreme uncertainty of late last year they looked like roadkill and had a sp to match this outlook. This discount started to ease as the survival prospects became more encouraging (metals price increases, equity injections from substantial shareholders, Mungana IPO plans, general market rally, Lounge lizard agreement with WSA). When this cap raise is done they will have balance sheet strength and some good development prospects. Where the underlying value goes from here largely depends on sustainability of metals prices. Where the sp goes from week to week is probably another matter altogether.
For the record, I am a born and bred, unrelenting, and unapologetic optimist so you should discount my views accordingly...