Crystallex: Units Offer Is Not a Good Sign

Junior mining company Crystallex (KRY) announced a public offering of units. According to the press release, the company “plans to use the net proceeds from the financing to develop the Las Cristinas Project, for debt service and for general corporate purposes.”

As longtime readers know, I was once bullish on Crystallex, but soured on the stock after the long-anticipated environmental permit never materialized. That was several months ago, and the company still has not received the environmental permit.

I firmly believe that if the permit was forthcoming, Crystallex would do everything in its power to avoid a dilutive financing at these low levels. Thursday’s announcement suggests that Crystallex remains in the same position it was one month, six months, and a year ago — burning cash and praying that one day Hugo Chavez will deliver the permit. Until that happens, I will avoid Crystallex. Hope is not an investment thesis.

DISCLOSURE: No position.

Comments

[Fred Roth:]

Microcap Speculator,
My first take on the share issue was similar to yours. One things confuses me though. $60 million is not chump change. Who is buying up this share issue? Is it a potential suitor? Is it senior management? The answer to this question may be quite enlightening as to the future of Crystallex and Las Cristinas. Disclosure: Long KRY.

2008 Jan 28 07:52 PM

[Microcap Sp...:]

Fred, you bring up an interesting point. If you look at the short form prospectus -- available on sedar.com because KRY is a Canadian company -- it looks like the underwriters are purchasing the shares for distribution to retail investors. In other words, I see no indication that a notable private investor or insider is taking a stake.

2008 Jan 31 11:21 AM

[UserThunder...:]

I followed this one for years but never had the nerve to buy shares.

Feb 24 03:54 PM