GCM Resources (LON: GCM) shares are down 35% on the announcement and completion of a rights issue. This will come as something of a disappointment to those who were hoping to ride the recently rising share price - but then that's the way junior mining companies work. They eat capital, so, when capital can be raised they issue more shares so they've more capital to eat. It's just the way the sector works. It's only after a mine is actually open and shipping product that mining companies start to return money to shareholders.
The specifics here are of that share issue: “ GCM Resources plc (LON: GCM) (the "Company" or "GCM"), an AIM quoted mining and energy company, is pleased to announce that it has successfully placed 20,000,000 new ordinary shares of 1 pence each (the "Placing Shares") with institutional and professional investors at a price of 2.5 pence per share (the "Issue Price") via an accelerated bookbuild (the "Placing"). The Placing has raised gross proceeds of £0.5 million.” Well, as we say, pre-production mining companies eat capital. So there will be capital raises along the way to production. Here, this is direct to professional investors, there is no associated rights offer to the shareholder base.
GCM Resources share price from London Stock Exchange
Given this need for continued infusions of capital a junior miner will take pretty much any excuse it can get to issue more shares. As we can see in that chart the share price rose some 50% recently. On these grounds: “GCM Resources plc, an AIM quoted mining and energy company, notes the recent increase in its share price over the previous 3 days and is aware of reports in Bangladesh concerning coal supply shortages and significant power load shedding in Bangladesh. It also notes significant associated commentary within Bangladesh on a suggested move towards developing and extracting coal from its own domestic mines, rather than rely predominantly on imported coal.” Well, yes, possible that this newspaper's reporting contributed to that. As GCM's business model is to mine and provide coal in Bangladesh that could be taken as a reason to bid up the shares.
But as we say, non-producing miners are always hungry for capital. So, if there's a possibility to raise more they do. If rumour pushes up the price of a would be coal producer in Bangladesh then it's likely that more shares will be issued.
This is something we need to grasp about junior miners. They're on the stock market in order to raise capital. Significant price surges often will be accompanied by capital raises - which means that prices rises often tend not to run on, but to reverse.