Update: Allied Nevada Prices Its Offering At A 38% Discount

| About: Allied Nevada (ANV)
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Summary

Allied Nevada has announced it is raising more cash at a 38% discount.

This isn’t a surprise as I noted in my previous update that the company was running on fumes.

The new shares and cheap warrants will obviously create an additional overhang and will result in a lower fair value per share.

Allied Nevada Gold (NYSEMKT:ANV) has done exactly what I was warning for in my previous update. After seeing the company had some issues with the recovery of the gold ore and a slower than expected mining rate resulting in a balance sheet which deteriorated further, I expressed my 'fear' that another equity dilution was around the corner. And indeed, just a few days after the negative production update, Allied Nevada has announced it is raising more cash.

It has appointed Wainwright as lead placement agent in the USA and Canaccord as placement agent in Canada to conduct a private placement. The units will be priced at $1 and will consist of one common share and one half of a warrant. Each full warrant will entitle the holder to acquire another share of Allied Nevada Gold at $1.10 for a period of five years. The pricing of the share issue happens at a 38% discount and was very likely necessary to find interested buyers. Additionally, the cheap warrant for a very long period was probably also needed as additional 'sweetener'. The expected gross proceeds will be $21.5M (with net proceeds expected to be around $20M). This isn't that much and it looks like the ANV team thinks it will be able to raise more money at a higher share price in the future. Additionally, I can imagine some people could be incentivized to exercise warrants at $1.10 to add more cash to the treasury.

Allied Nevada just bought itself some more time but had to offer a 38% discount to attract investors. This dilution is a necessary evil as the company was running on fumes. I'm looking forward to see Allied Nevada's guidance for 2015 and its plan of action to further improve its operational efficiency and financial situation.

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