I bought into Mandalay a few months after they had the accident at their Chilean mine, which was their 3rd most important producing resource; in that accident, the mine was flooded and two miners were killed. The stock price had been cut in more than half, at 30 cents (equivalent to 3 dollars today, after they had a reverse split a few years back); I figured it was on sale and a good bargain. Over the next year it kept going down and down (bear in mind that they had other producing assets) and bottomed at 5 cents (50 cents today). The company barely avoided bankruptcy, I averaged down, and was lucky to get out with a decent but not great profit. Looking back, here are some of the things I didn't consider:
- debt leverage: it's a shock to a company to have an expensive situation occur which at the same time reduces its ability to service debt
- credibility: at exactly the same time money is needed, credibility is lost. The management team that is going to need funding is the same management team that oversaw the disastrous loss of their ability to generate cash. (note: this is catastrophic)
- risk: what happened once can happen twice. Due diligence becomes a lot more diligent. The money that is borrowed comes with a lot more conditions, and there is a lot less left over for shareholders.
And the thing about Victoria is they have no other asset -- Mandalay almost went under when its least important mine flooded.