Integra Mining

Integra Mining announced it would raise $25m by issuing new equity at 29c a share. The capital raised will be used to fully repay an $8.5m loan and to fund further drilling.

Just before the capital raising Integra had $12m in cash, low debt and was expected to generate $50-60m in operating cashflow this year. So why raise capital? Mechanical problems will result in higher cost production in the short term and, as costs this quarter soar to $1,400 an ounce, operating cashflow will fall. In most cases, lower operating cashflows would simply result in a delay to the drilling schedule. Not this time. With reserves of less than 500,000 ounces, Integra has to find more ore to feed its processing facilities. To extend today’s mine life of six years, Integra can’t afford to put down the drill bit just yet.

This capital raising has more to do with the company’s skinny reserve position than with too much debt. That should be easy to correct; drilling results have been outstanding, indicating there is more gold to be counted. An underground pit is already being trialled and, if successful, will add fresh ore to production. Cash costs should fall back to $750 an ounce next year, but average costs for 2013, at $850 an ounce, will still be higher than expected. While the price has fallen 20% since 19 Jun 12 (Hold - $0.41), we’d prefer to see confirmation that operational niggles have been sorted out before upgrading the stock. We’ll reinstate the recommendation guide after the next production update. For now, HOLD.