Back in December last year, I took the fortuitous step of completely selling out of gold miner Kingsgate Consolidated Ltd (ASX: KCN).
At the time, I wrote in my notes on the reason for the sale, "Lost faith in the company, getting out before it has to raise capital and share price gets smashed".
Well, my decision now appears prescient, when this week Kingsgate unleashed a massive capital raising of up to $59.2 million at a whopping 22.5% discount to the last closing price of $1.29.
$14.7 million was raised in an institutional placement at $1.00 per share, and a further $44.8 million is being raised via an unfair 3 for 8 non-renounceable rights issue. Kingsgate hopes to raise $31.3 million of that from retail shareholders. If you ever had any doubt that this company treats retail investors as second-class citizens, this capital raising is it.
And it's unlikely to be the last either, with Kingsgate requiring an estimated $140 million to develop its Nueva Esperanza silver/gold mine in Chile.
I'm glad I got out when I did.
Another company which seems to have little regard for its retail shareholders is infrastructure & environmental services company Cardno Limited (ASX: CDD). The company announced on 17 March that it was acquiring the PPI Group of companies based in Texas for US$145 million. Cardno raised $50 million via an institutional placement to new and existing institutional shareholders at $6.10 per share, a 5.1% discount to the last closing price. No share purchase plan was announced, leaving retail shareholders out in the cold. Needless to say perhaps, but my view on Cardno has turned negative.
Then today, we have Phoenix Gold Ltd (ASX: PXG) raising $7.8 million in a placement to institutional investors, and a 1 for 3 non-renounceable rights issue to raise $10.4 million from existing shareholders. New shares were issued at 13 cents a share, a 10.3% discount to the last closing price. Still, any retail investors in Phoenix Gold are really speculating on the company's future, given it has no projects up and running yet. Those shareholders are likely to be asked to fork out more in future.
Foolish takeaway
Many companies, investment banks and their advisers are treating retail shareholders with contempt. As we have repeatedly stated, the fairest way of raising new equity capital is via a pro-rata renounceable rights issue, with Corporate Travel Management Ltd's (ASX: CTD) raising in November 2013 an example.
