@Noobtrader1To raise operating capital (ie cash to fund the...

@Noobtrader1

To raise operating capital (ie cash to fund the recently completed Phase 1 and Phase 2 drilling), MDI have issued Entitlement Offers to existing shareholders. Those offers have allowed shareholders to buy additional shares, at a discount to the market price, on a pro rata basis. For each new share the shareholder bought they were also issued an option, which they could exercise up to the option expiry date.

So for example, in December last year MDI made an entitlement offer to shareholders so they could raise about $2.3M. The offer allowed shareholders at the time to buy one new share for every two existing shares they held (ie a 1:2 pro rata basis).

For each new share they bought, they also got one option, which the shareholder can convert into common stock by paying a further $0.0077 per option; but those options have an expiry period (31 January 2022).

If you were lucky enough to participate in those entitlement offers and you had a bunch of $0.0077 options you can apply to MDI to have them converted to shares (ie exercise your options), pay your $0.0077 per option, then sell the converted shares on market at the current market price.

As part of their remuneration package, MDIs directors have also been issued options. The idea behind issuing options to staff is to encourage certain performance goals over the long term, and it reduces the amount of cash the company needs to find to compensate staff. Again, those options can be exercised before the expiry period and the shares sold on market.

Converting options to shares means MDI need to register and declare the conversion by paying a fee to the ASX and making an announcement. Appendix 2A is issued as part of that process, which indicates how the securities are being issued.

In this case we had the conversion of approx 80M options into shares, netting MDI about $612K in cash that they can use for the Feasibility Study and further drilling of Shillington Gap.

The holders of those converted options can now sell the shares on market (if they want to) or hold them and sell them at any point in time. Good arrangement for those shareholders who had the foresight to take up the entitlement offer.

The exercise of options is a positive sign. Firstly, it means people are able to make a profit on their previous investment by exercising their option rights. Ultimately this is an investment and those holders have the right to make money. Secondly, it injects additional cash into the business that MDI can use without having to borrow and go into debt.

For disclosure, I don’t own any MDI options, and I don’t resent those who do.

The real world is calling. If you want to do more research there’s a heap of stuff online. The ASX education centre is worth a look for unbiased, free information.

As always, DYOR and GLTAH