Silver Lake Resources Limited (ASX: SLR) saw its shares tank more than 14% today, after raising capital at 60 cents from institutional investors.
As I write, shares are trading below that price, at around 58 cents.
The gold miner has taken the tough decision to place its Murchison mining area on care and maintenance, and it looks like it needed the cash urgently. Silver Lake raised $39 million, of which $12 million will be used to place Murchison on care & maintenance, mainly through redundancies and site contract restructuring.
Another $24 million will be used on growth capital at its main mining area, Mount Monger, with the remainder used for general working capital.
What was disappointing was the new shares were offered to new and existing institutional investors at a 11% discount to the last traded price, and no share purchase plan was offered to retail investors.
At the same time, Silver Lake has written down the value of Murchison through asset impairments of $43 million, which contributed to the company reporting a net loss of $47 million for the six months to December 2013.
The good news is that net tangible assets represented 69 cents per share at the end of December, and before the capital raising.
After producing 61,000 ounces of gold in the last quarter, Silver Lake is forecasting to produce 160 to 170,000 ounces in the 2014 full year, at an all in sustaining cash cost of A$1,016 an ounce.
By comparison, the current gold price is A$1,487 an ounce, thanks to the Aussie dollar trading at around 90 US cents.
Silver Lake says its short term strategy is to maximise its cash flow to strengthen its balance sheet. The company has previously taken measures to cut costs and safeguard itself from falling gold prices.
The company also has a number of joint ventures (JV) including with Newcrest Mining (ASX: NCM), Troy Resources (ASX: TRY) and Alacer Gold (ASX: AQG) as well as some other smaller JVs – which gives the company options should the gold price continue its ascent.
Foolish takeaway
With management holding 6.4% of the company (prior to raising), no debt and shares trading at close to the value of net tangible assets, I'll be hanging onto my shares in the company for now.
