capital raising - the party pooper

With most traders having fun trading FGE (some obviously not given the zero sum gain nature of the stock market), it would appear that most people aren't worried about the party stopping.

However, based on FGE's parlous financial position, it's a question of when, not if, they need to do a capital raising. Based on the write downs, they probably need to raise at least $50 million plus the cash payable to ANZ. Given the ANZ warrants are struck at a 1 cent exercise price, this equates to $20 million at the current price.

Assuming a discounted new issue price at circa $1, you could be looking at a cap raise of 70 million shares at $1 to raise $70 million gross, or $50 million net after paying broker fees and ANZ.This equates to 80% of the stock currently on issue (87 million shares).

To all the longs out there, just be wary that every equity markets capital raiser will be banging on FGE's door recommending a capital raise, with something likely post mid-January when the insto equity fund managers are back at work. If you're long at these levels, be mindful of what a large discounted raising would do to the price.

I don't hold a position, but hate seeing uneducated traders buying on momentum and not fundamentals. This company needs to undertake a large capital raising as it will not generate enough internal profit to bolster its balance sheet. This company will need to offer a significant discount to get the amount of new stock sold.

Caveat Emptor to the longs, and deep pockets to the shorts, but the party pooper is coming.