Mvelaphanda stocks take a knock ahead of share iss
Resources Correspondent
MVELAPHANDA Resources' share price dropped by as much as 21% during trade yesterday as investors sold shares ahead of the R1bn to R1,5bn share issue announced on Tuesday.
To fund its R4,1bn transaction to buy a 15% stake in Gold Fields SA assets, Mvela plans to issue new shares as well as secure debt finance.
"Investors know Mvela will be coming to them asking them to pick up more shares. If that is the case, investors will sell now and get an increased stake more cheaply," said Leon Esterhuizen, a gold analyst at Investec.
Investors would also sell some of their stock now on the assumption that Mvela's share price would weaken ahead of the share issue, which would dilute the value of the company's stock.
"Indications are that it would have to at least double the equity on issue," said Esterhuizen.
Mvela has about 69-million shares on issue and to raise R1,5bn at a share price of R20, it would have to increase the number of shares on issue to about 75-million shares.
The company's share price closed down 4,43% at R20,50 yesterday.
Esterhuizen said the stock would be under consistent pressure until the issue was completed and this may mean that more stock would have to be issued to raise the capital necessary to fund the deal.
The transaction for the company in the long-term looks to be positive for Mvela. It will get access to cash flows through its stake in the world's fourth-largest gold company.
This is tempered by the debt the company will have to take on to complete the deal.
"It is a call on the gold price. If you believe the gold price is not going to fly then Mvela paid a full price for something that may go down from here," said Esterhuizen.
Gold Fields' share price closed 2,14% up yesterday at R93,45.
Cazenove, an investment bank, raised its recommendation on the company to "longterm buy" from "hold".
Analysts said the only possible negative for Gold Fields that could come from the deal was the extent to which it might have to back Mvela's debt with its balance sheet.
Jun 12 2003 07:15:05:000AM Julie Bain Business Day 1st Edition
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