Not Every Investment Works Out

Adrian Day

There’s a point when it comes time to exit, says money manager Adrian Day, who discusses a long-time holding that he is selling.

It’s time to pull the plug on Miranda Gold Corp. (MAD:TSX.V) and salvage what we can. The company has announced an equity placement, accompanied by a share rollback. This follows another placement in March when it issued about 27.5 million shares, representing approximately 45% dilution. Now it plans to raise another C$1.5 million, representing a further 28% dilution. This continues a pattern of ongoing, massive dilution that has helped drive the stock price down.

In 2012, Miranda had 53.6 million shares outstanding. Now, six years later, it has 132 million with another 60 million planned (see below), meaning if this placement completes as announced, the share count will have exploded over 250% in six years. And it’s not certain that the company will be able to complete the placement as announced.

Messed up financing

We won’t go into the painful details of the saga of the earlier raise. Suffice it to say that when the company announced it had closed on its C$1.5 million raise, trumpeting the participation of board members and management, it failed to announce that the board had voted itself and management bonuses in order to participate in the placement. So the company did not actually raise anywhere close to C$1.5 million, and thus needs to return to the market just six months later.

It now looks as though this new financing may not complete as announced. Miranda initially announced the placement, within an hour after announcing a deal with Newmont, priced at 4 cents. The Newmont deal pushed the price up to as high as 4.5 cents, but by the end of the day, it was quoted at 3 x 3.5, and it has slid since then.

So, less than two weeks later, the price of the offering was slashed to 2.5 cents. But that was still an aggressive price; the stock closed that day at 1.5 x 2 cents. Most recent trades have been at 1 1/2 cents. So there may have to be another “adjustment” in the terms. No surprise to anyone, the company announced a 1-for-10 share consolidation in conjunction with the offering. Typically, when there is a share consolidation, the share price slides.

Let’s sell now, before the share consolidation, and before another change in the price of the equity financing. There seems only further downside in the weeks ahead.

Adrian Day, London-born and a graduate of the London School of Economics, heads the money management firm Adrian Day Asset Management, where he manages discretionary accounts in both global and resource areas. Day is also sub-adviser to the EuroPacific Gold Fund (EPGFX). His latest book is “Investing in Resources: How to Profit from the Outsized Potential and Avoid the Risks.”

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Disclosure:

1) Adrian Day: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: None. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this article: None. Funds controlled by Adrian Day Asset Management hold shares of the following companies mentioned in this article: Miranda Gold. I determined which companies would be included in this article based on my research and understanding of the sector.

2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.

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