a managing directors comments on a raising

This is an interesting post#3217357 by Dacata on the PLV thread. It is a reply to a question about their recent raising by Tony Schoer, the MD of Pluton Resources.


Below is Tony's response to my questions posted in the previous thread regarding today's announcement.

Posted with Tony's permission of course.

"The planning and timing of a capital raising takes some effort. We were watching our cash balance and had timed a capital raising for on, or about, the commencement of drilling on Irvine (which is today). Why this date? Under normal circumstances it would be fair to assume that interest in PLV would be at it’s highest on the day of drilling and probably the share price would be close to its highs. Unfortunately the collapse over the past couple of weeks (and the general market over the past few months) for companies our size and in our sector has been dramatic. Just look at PLV’s iron ore peers, all have been slaughtered.

The reason we, as a Board, could not put the raising off any longer was because there is no surety that the price will go higher in the short term, we are spending large amounts of cash on Irvine, and we have contracts in place that must be able to be paid otherwise the Company would technically be trading whilst insolvent, which is against the law.

We considered either a placement or a rights issue however the advice we received was that a rights issue in the current market may not be supported.

Dacata, you may have supported it, so might JD and Columbia and others, however if our institutional shareholders that own so much of the company didn’t support it then the rights issue would fail and, presuming we didn’t have it underwritten at a very high premium, then we would not have enough cash for the remainder of the Irvine project. In fact, probably the only way we could have got a rights issue over the line would be to discount it dramatically.

The placement was made only to a few current institutional investors. There were many others who did not want to participate because of the market. In fact some of the selling has been by intuitional shareholders selling down because of redemptions. It doesn’t mean they don’t like the stock, it means they must sell a portion of their holdings as people take their cash out of the funds. It was clear to me that a rights issue without large institutional support would fail at this time.

So what we did was bite the bullet and do a small raising at close to the current market price (the price of PLV was $1.35 at the time) to a few institutions that could either buy PLV for the first time, or top up their holdings. We kept it low to minimise the dilution on current shareholders and frankly because I hate raising money in this type of market. However I hope you realise from what I have written that we had little choice to do a small raising.

Could we have done it earlier this year at a higher price? Of course we could have, hindsight is a wonderful thing, but we didn’t need the money then and our approach of picking a date to maximise the price was sound. Pity my crystal ball could see as far as the NY Stock Exchange!

Anyway, I can assure you we didn’t just go out and raise money without thinking of the price we were raising at, or our shareholders. I do understand your dismay however I hope you can see that what we did was out of necessity and that we aimed top keep the dilution as minimal as possible."