Gediminas Jasionis
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Is It Time to Swing Trade Reunion Gold Corporation (CVE:RGD) (PINK:RGDFF)?

by Gediminas Jasionis Apr 26, 2011
rgd_chart.pngReunion Gold Corporation (CVE:RGD) (PINK:RGDFF) failed to move pass the important resistance despite the recent large scale funding announcement.

RGD share price failed to pass above the $2.00 resistance after shortly poking out for two days. The trading volume was and remains minuscule, which shows no commitment from traders. The reason behind this lack of interest can be associated with the overinflated market cap. More than $280 million in market valuation is more than five times the net tangible worth. An exploration-stage company with no revenues simply cannot support this overvaluation for long. The usual range for pre-production mining companies is around 2.

With the unwrapping share price drop, support at around $1.65-$1.70 can be used for swing trading right now.

The recent stock price run was supported by the announcement of a $40.25 million bought deal financing. 23 million shares were sold at 1.75 per share. This is both good and bad news, as dilution is one of the biggest problems with such a large scale funding deals.

reunion_logo.jpgRGD had 140 million shares outstanding prior to the funding, so dilution will be around 16.4%. Furthermore, underwriters also received a warrant to purchase up to 690 thousand shares at 1.75, which became a very attractive opportunity with the recent share price jumps.

The $40 million received by Reunion will be used to cover development expenses on Matthews Ridge property, which includes resources definition drilling, metallurgical studies, technical studies as well as general corporate needs.

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