There are a number of my favourite stocks having rights issues at the moment. There are a number of things to note about these issues:
1. MIL Resources (MGK.ASX) - The company remains good value in the medium to long term. They are having an issue which is diluting of existing shareholders in two respects - it was at a low price, and its a sizeable issue. Understand however that the issue price at a huge discount, effectively makes it a combination of a rights issue and a bonus issue. The implication is that the stock you bought into at 3c is going to be worth 2.7c to you after considering the issue if you hold it until the record date, which I think is the 16th March 2011. These are renounceable rights, so they will trade on the market. The rights are underwritten, which also means there will be some pressure upon the stock after the rights issue, as many underwriters, and this seems like a small group who are likely to have limited financing resources, will dump the stock. The underwriter can be expected to support the stock above 2.8c (technical support) until the record date, and perhaps as long as the rights still trade. Given the size of the issue, I am expecting a lot of volatility, so I have been a seller. In the last 2 weeks I was a little suspicious of an issue, as there was support, but all off-screen buyers picking off sellers. I'm uncertain about the prospect of future results. I'm inclined to think it will be several months before we see results from more trenching, and they will need to build roads and drill pads for drilling...which has probably been contingent upon these funds. There is of course still the prospect of a JV partner. Maybe prospective JV partners are waiting until some holes have been drilled.
2. Union Resources (UCL.ASX) - This company is having an issue as well - at 1.2c. I just bought back in at 1.3c, though my particular interest is the gold stocks, I like this stock, as the fertiliser project has a lot of appeal. I think this stock will hold 1.2-1.3c.
3. Azure Mining (AZS.ASX) - They are having an issue - this will be a temporary setback. Its a minor capital raising, and I do expect they will recover when results from their main project are released. I think the extra capital is needed for the manganese project, which looks good. This stock has good support in the low 9c.
Vital Metals are not having an issue to my knowledge, though one can expect drilling results soon. The stock has sunk back in the meantime from 18c to 13c today. This I think will be a support level.
P.S. Check dates indicated as I didn't.
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