Australian Stock Exchange: Crazy Rights-Offerings
eCobalt Solutions (ECS)
Yukon Mining Alliance and Government of Yukon jointly run a yearly trip of analysts and investors to Yukon. We went with them this year and visited eight projects. It was very well-organized and gave us a good feel for the geography and mineral endowment of Yukon. As usual, if we decide to invest in any of those companies, we will mention them here.
We want to talk about some of the crazy things companies can do to destroy shareholder-value with full-acceptance of the Australian Stock Exchange:
- Marindi Metals (MZN.ASX) is making a Rights offering at A$0.001 (0.1 cents). Before this announcement, MZN was trading at A$0.002. Now, of course, it makes no sense for investors to buy in the open market, as investors would rather participate in the offering. Unfortunately, non-Australians will likely not be able to participate, which might mean that such shareholders will lose 33% of their upside for no good reason, and 50% if they sell now. Australians, of course, have no choice but to buy into the offering, that is if they don’t want to lose 33% upside. When I see companies acting contrary to the interests of the shareholders, I have a moral problem financing them, but in this case, investors have been cornered with full-participation of ASX, and have no choice but to pay up.
- De Grey Mining (DEG.ASX): DEG is also making a Rights offering at a similar discount. Most investors outside Australia will not be able to participate. Again, should ASX allow a situation in which non-Australian shareholders are short-changed, and the locals are forced to pay up?
In both the above cases, the underwriters stand to make ~6% in commission and the right to acquire the un-allocated shares at a significant discount. What a cool “business” model!
eCobalt (ECS; C$0.27) is merging with Jervois Mining, which trades in Canada and Australia. There is a nice arbitrage upside in owning ECS. As is usually the case, expect ECS to fall tomorrow, which will likely be its last day of trading. I will look for C$0.25 or lower to accumulate ECS.
Finally, we have Jeff Deist (president of the Mises Institute) and John Hunt (co-author of the Druglord) as additions to our speakers for the next Capitalism & Morality, which will be held on 3rd August 2019. Make sure to book your ticket if you haven’t already.
Associate: Rajni Bala
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