Tiger tumbles on capital raising

Tiger Resources (TGS) tumbled in late afternoon trade to retest this year’s low after the stock came out of a trading halt.

The copper miner jumped at a chance to raise capital on the back of its strong share price performance over the past year and sold new shares to sophisticated and professional investors at 34 cents a share, an 8.1% discount to Tiger’s last closing price.

The stock was trading 12% lower at 32.5 cents at 2.12pm AEST with management announcing it raised $US18.7 million through a share placement and secured a $US25 million offtake prepayment debt facility that attracts an interest rate of 4.1%.

Retail shareholders will miss out on the discounted share sale and the impact of the fresh capital injection shaves 10 cents off my valuation of the stock. The new price target for Tiger is 50 cents. I am still anticipating first dividend in 2015 with a 1.73 cents a share distribution. This puts the yield at 5.3%, which climbs to 10% in 2016 (Tiger’s financial year ends in December).

The capital raising was announced a day after my report on Tiger was published, but the move makes financial and operational sense and I am sticking with my “buy” recommendation on the stock.

Management will use $US21 million of the nearly $44 million raised to bring forward expansion of the Kipoi project in the Democratic Republic of Congo (DRC) that I had expected in 2015 and 2016.

It is prudent to undertake some of the work at this time because the equipment and contractors are onsite as they have just completed the first phase of the solvent-extraction and electro-winning (SXEW) plant. Having the work done early will remove the risk of unexpected delays and costs down the track.

The early capital work also makes sense because it will shave around $US10 million off costs for 2014 and 2015 with the construction of a conveyor belt and upgrades to the mine’s power infrastructure.

Around $US10 million of the new capital will be given as a loan to Societe de Exploitation de Kipoi (SEK) to buy out the DRC government’s 5% interest in the Kipoi project as outlined in the country’s mining code. SEK is the operator of Kipoi and Tiger Resources owns 60% of the entity with the remainder owned by a Congolese government company.

The remaining cash from the placement and debt facility will be used for working capital purposes.

You can see the upgraded financials for Tiger here.