"We would have had to pay a lot more if the SP was a lot higher and be no better off."
Well, sorry, but the numbers for existing shareholders as a result of the SPP are terrible. If you participate in the SPP you'll get to offset some of the fall in the value of your shares. If you don't you'll see the value of your shares fall even more and also be diluted.
On 4 March the share price closed at 14 cents. And there was a big sell order that came in took the price down to 13.5 cents. I was quite surprised as I had a buy order that I had put in a a couple of days before that I had forgotten about and got filled..........my bad.
A few days before that the EKA share price had hit 17 cents.
So along comes the SPP and at 10 cents is a whopping 40% lower than the recent high and 29% under the close before the trading halt.
At 12 cents a share here are numbers:
1. All shareholders have lost 29% of their value on their existing holding just prior to the SPP.
2. We'll 'make' a whole 2 cents a share (if the share price remains at 12 cents after the SPP........) on 1/6th of our holdings which hardly offsets the huge fall in value of the other shares being held.
3. The math for a 100,000 shares being held (you can adjust the numbers for greater or fewer shares):
Value before SPP:
100,000 shares * 14 cents = $14,000
Allocation:
16,667 shares at 10 cents: $1667.00
Total Holding: 116,667 shares
Total investment: $15,667 ($14,000 plus the SPP cost of $1667)
Value at 12 cents after SPP allocation:
(116,667 shares * 12 cents) = $14,000.04
Outcome:
The total value of your holding is now the same as the day before the SPP announcement IF the share price stays at 12 cents. You are down bu only $1667. Thanks EKA!!!
If the share price falls below 12 cents you'll be worse off. To get to break even and see no fall in the value of total investment/holding you'll need to see a market price of 13.5 cents per share to be any better off than before the SPP was announced.
In addition and what most people forget is that for the SPP to have any real effect for shareholders, the money has to be used to increase the value/production/reserves of the company by MORE than 15% or the result is that overall the company and shareholders are worse off.
The ONLY thing that can be said about this SPP is that all shareholders are hit equally if they take up the offer. If they don't then the underwriters make their % and a few cents on the shares that they buy.
Lastly, the timing of the offer is strange. Why undertake an offering in the middle of a drilling campaign and wait until the results were known? A higher share price would have meant fewer shares needed to be sold and the shareholders would have been better off.......(Assuming that the results were good.....)
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