Cline Mining Corp. (TSE:CMK
) (PINK:CLNMF) collapsed this week after the company decided to raise additional funds despite the dilution to shareholders.
CMK collapsed following the already formed downtrend that's been in play since early April. The stock started the week with a large scale decline and gapped down on Tuesday; it lost 17% this week already.
Investors mainly jumped the ship, causing 8% decline in a day, after a $75 million equity offering was announced. Following the terms of this fundraising, 27.28 thousand shares will be sold on a bought deal basis at $2.75 per share. The price on the market hasn't been this low in 2011, thus the appropriate correction occurred.
Over allotment option also allows for the offered amount to increase another 4 million shares, and puts the gross offering price at $86.2 million. The deal is scheduled to close around June 7, 2011 but still needs approval from the Toronto Stock Exchange.
Another reason for the adverse share price reaction is the dilution this sale will cause to shareholders. This offering might cause up to 18.1% dilution to the current share count, adding to the 96% dilution recorded over the last year.
The money will be used to complete the development of New Elk coal mine as well as for general corporate purposes.