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Update: Allied Nevada Proposes Common Stock And Warrant Offering
Summary
- Allied Nevada is proposing the issuance of common stocks and warrants on the public market to raise money.
- This is a smart move as the company has a huge debt burden and a very low cash balance.
- I'd still avoid shares here.
Allied Nevada (NYSEMKT:ANV) has announced a proposed public offering of common stock and warrants. The company expects the offering to price before 9:30 a.m. EST on Dec. 9, 2014. However, the offering is subject to market conditions and there was no mention of the potential size of the offering.
ANV data by YCharts
In a previous article on Allied Nevada, I argued the stock is a strong sell as the company is being weighed down by a heavy debt burden close to $500 million and lower gold prices. Recent earnings show the company is in serious trouble, as the company reported a net loss of $62.4 million, with total cash and equivalents of just $5.8 million. Even worse, recent production guidance from the company lowered expected production by 10,000 to 20,000 ounces of gold, with the company claiming it has just $1.3 million in cash and $12.8 million available on a credit facility.
I think Allied Nevada is making the right move here by proposing the issuance of common shares and warrants. If the company can successfully issue 50 million shares of stock at a current share price of $1.40, it would increase its cash balance to $70+ million while raising its common share count from 104.4 million to 154.4 million. I'd actually prefer the company to raise even more capital, perhaps issuing 75-100 million shares of stock if it could. This would net the company $100+ million and ensure its obligations will be fulfilled in the foreseeable future. So at 200 million shares outstanding, Allied Nevada would have roughly $140 million cash in the bank with existing shareholders diluted by 50%. This looks to be the company's only choice.
I'd still recommend avoiding shares here for a few reasons. First, there's no guarantee Allied Nevada will even raise this amount of equity, and two, this doesn't solve the issue that Allied Nevada still has close to $500 million in debt, with principal and interest payments costing the company $41 million for the first nine months of 2014, according to financial statements. It simply would buy the company more time, but doesn't solve the issue that the company is losing money each quarter, with the company's cash position decreasing by $75.6 million this year so far and $7.8 million last quarter. I'm keeping an eye on the company and I hope it can raise enough money to survive, but I remain skeptical.