Alba Minerals Resources (LON: ALBA) shares were up 50% yesterday. Today ALBA shares are down 23%. No, it's not that small Welsh gold mines rose in value that much yesterday then fell again today. It's that Alba Minerals decided to use yesterday's rise as a trigger for raising more capital. Which is, when we think about it, fair enough. For the very reason that Alba Minerals is on the stock market is so sa to be able to raise the capital to go mining.
Yesterday's news in ALBA: “Alba Mineral Resources (LON: ALBA) shares are up 50% on Tuesday. ALBA shares have risen on the back of the company's announcement of gaining dewatering licences.” Alba are re-opening that small gold mine in Wales. The first part of re-opening a mine is to drain it of all the water that has accumulated - hey, a mine is a hole in the ground after all - since it was last mined. You can't do that until you've got the permit to dewater. So, yesterday's news was an important step along the way to being able to produce gold again. Thus the 50% share price rise.
But then this at Alba Minerals: “Alba Mineral Resources plc (AIM: ALBA) is pleased to announce that it has raised £750,000 (before expenses) through the issue of 600 million new ordinary shares at a price of 0.125 pence per ordinary share (the "Placing"), conditional on the admission of such new ordinary shares to trading on AIM ("Admission").” Yes, ever so slightly annoying as it crashes the share price again. But then it's also to be expected.
Alba Mineral Resources share price from London Stock Exchange
A junior mining company, one not producing yet, simply eats capital. But no one funds a mine from exploration right through to production. There are too many stages at which the idea or project can fail for that. So, what is done is to fund to the next stage of potential failure. If that little test is passed then yes, the share price will rise. Because that little test has now been passed and the project is less risky as a result.
But that share price rise - as at Alba - is also when to raise the money to work along to the next little test that must be passed. Which is exactly what has happened at Alba Minerals here. That dewatering permit was a test stage. Pass that the company's worth more, fail it and it's worth near nothing. So, having just passed the test is the right time to raise more capital.
This happens a lot with junior miners - therefore the warning is to understand that there will be continual capital raises along the way - be prepared.
