Two gold companies show equity not always raised under ideal circumstances

As things have materialized, the share price of Detour has rebounded (the shares closed Monday at $ 10.17, up 16% from the $ 8.75 issue price) but not so in the case of Colossus which closed Monday at $ 1.60 or the same as the issue price. Detour is set to start large-scale production at its northern Ontario mine over the summer while Colossus is developing the Serra Pelada gold mine in Brazil.

For Colossus, whose share price one year back was between $ 3 and $ 4, the equity financing was the most normal it has done over the past two years. Financial innovation has tended to be its key. For instance:

— September 2012. It raised US$ 75-million from NYDSE-listed Sandstorm Gold under a plan to sell refined precious metals (platinum, palladium and gold) over the life-of-mine. In effect Colossus sold 35% of its platinum and palladium and 1.5% of its gold output forward.

Aside from the upfront US$ 75-million deposit, Colossus also received ongoing payments for each ounce of metal delivered. From Colossus’s perspective, the financing represented an attractive source of capital, as well as providing “the remaining funding required for the construction and ramp up of production,” at its Brazilian property. But the financing wasn’t so attractive to Sandstorm that there will still be enough commodity exposure to shareholders of Colossus.

— November 2011. Colossus raised $ 86.3-million from the sale of units. Each unit, which had a term of five years, consisted of $ 1,000 gold-linked note gold-linked notes plus 60 warrants. The interest rate on the notes was variable in the range of 6% to 13% but dependent on the price of gold. The warrants have an $ 8.50 strike price.

One week after OPB Finance Trust raised $ 250-million, another pension fund is gearing to raise additional debt capital. The talk is that OMERS Realty Corp. is having a road show this week. Normally a road show is held prior to a new issue. OMERS Realty last borrowed in 2012, garnering $ 210-million at 3.04% for five years and $ 210-million at 3.666% for 10 years.

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