1) In February this year junior copper explorer Coro Mining (COP.to) announced its intention to buy a working mine in Chile from private hands called "Cerro Negro", the ticket price being $38m.
2) After the DD period (everything seemed OK to the company) and working with Dundee Corp., it raised an initial $3m for working capital and transaction purposes in late August.
3) The second tranche of the necessary financing was to place 8m shares at $1.50 a pop (with a 1/2 warrant attached) for $12m proceeds.
4) As the market turned, COP.to got an extension on the time limit for the deal (to October 3rd) and dropped the placement price to 12m shares at $1.00 to raise the same amount.
5) Today COP.to threw in the towel and said that it was dropping the purchase due to market conditions, credit market and copper prices.
Or in other words, COP.to has a serious amount on egg on face. We can bullet point the basic mistakes made by management
- Copper prices didn't suddenly get unstrong in August. As a reminder, this was the time that spot copper was fighting its losing battle with the $3.50/lb level after dropping quickly from $4 (it was well documented here). Spot copper broke down at the end of that month and you know the rest.
- Just a quick look at the price chart above shows that a $1.50/share placement was really pushing the window at the offer time. To begin with, the stock had seldom traded at or above that level. And when the original deal was announced August 22nd COP.to hadn't closed at $1.50 for nigh on a month (July 25th, to be exact).
- So when the placement was re-priced a month later there was nothing else to say than "these dudes are desperate for the money."
- Then the words used by CEO Alan Stephens on September 26th (the day the repricing was announced) must have come back to haunt him as he watched his company's share price dissolve today. He said, "Given the current market environment, the need to be able to establish ourselves as a copper producer is paramount...."
- So when COP.to today announced that it wasn't going to be a copper producer for a long while to come, the stock dropped from $0.90 to $0.50. It was trading at $1.11 last Friday.
You can call the COP.to saga bad luck if you like, but there's a whole swathe of names on the BoD that won't be getting support the next time round due to the way they overextended on this deal. If the whole market is screaming "preservation of capital" to you and a cash poor company wants to buck the trend....well....see what the result can be above.
Disclosure: Never owned COP.to, never will.