Tuesday, May 17, 2016

Richmont Mines - It Looks Like The Management Wants To Capitalize On High Share Prices

Yesterday Richmont Mines announced it wanted to issue 2.99 million shares at a price of C$10.4 a share for gross proceeds of C$31.1 million (together with the over-allotment option). In my opinion, Richmont does not need this money so the additional dilution is unfavorable for current shareholders.

Let me discuss this matter a little bit deeper.

Below you will find the company's 2016 Capital Guidance: 

                               source: Richmont presentation (slide 18)

According to that table, in 2016 the company will need C$75.9 million for its capital expenditures.

At the end of 1Q 2016 Richmont had C$61.2 million in cash and C$11.7 million in debt so it had roughly C$49.5 million in net cash. 

Now, in 1Q 2016 Richmont generated cash flow from operations of C$21.2 million (excluding working capital issues). It means that, assuming no change in gold prices, in 2016 the company should make around C$84.8 million in cash flow from operations. What is more, even at much higher 2016 gold production Richmont does not need the additional working capital  - due to its excellent financial standing the company has negative working capital (in other words, Richmont is financed by its suppliers as far as working capital is concerned).

Summarizing - after summing up the annual cash flow from operations (C$84.8 million) and net cash of C$49.5 million we find that the company's liquid assets should stand at around C$134.3 million throughout the year. It is much more than the company's projected capital expenditures of C$75.9 million.

So the question is - why did the management take this decision? Well, most recently the company's shares went strongly up. It looks like Richmont wants to capitalize on these high share prices without any reason. Just for case...

1 comment:

  1. Stock closed above $10.40 pricing which is good. Dilution is only about 5%. Could make RIC a better buy out candidate. Any thoughts on that?