Tambourah Metals (ASX: TMB) has killed off its recent share price rise by issuing more shares. That’s the way these things work, if there’s more of something around then the price of that thing is likely to decline. So, a company issues more shares, each share is going to be worth less. Well, probably it is.
So, Tambourah has had a run of interesting events, the share price has risen. At which point TMB kills off the share price rise by issuing more shares. As to the good things at Tambourah: “However, it's very common at this stage in mining to not sell a claim for actual cash. Instead, sell an interest in a claim, yes, but the payment comes in the buyer undertaking that exploration work and also paying for it. And that's what Tambourah is doing here. SQM spends $1.5 million on checking for lithium, they then get 50% of the project as a whole. Spend another $1.5 million and earn another 20% (obviously, you only spend the second amount when the first exploration makes it look worthwhile, equally obviously the project is worth more at that point because it looks more worthwhile).
The net effect of this is that Tambourah isn't going to - well, not for this reason at least, the cost of exploration at Julimar - have a rights issue to pay for that more work. Shareholders can therefore relax while also knowing that world best engineers will be doing that further exploration work.” Since we said that then the Tambourah price rose another 50% and the temptation to gain more cash just couldn’t be resisted.
Tambourah Metals share price from Google Finance
That announcement from Tambourah: “WA-focused critical minerals explorer, Tambourah Metals Limited (ASX:TMB), is pleased to advise that it has secured firm commitments to raise a total of $2.5 million (before costs) through the issue of 10,638,298 shares (‘New Shares’) at an issue price of $0.235 per share (the ‘Placement'). The Placement saw strong interest from domestic and international sophisticated and professional investors, with demand significantly exceeding shares available under the placement.
In addition to the Placement, the Company intends to offer eligible existing TMB shareholders the opportunity to participate in a non-underwritten share purchase plan to target a further $1.2 million (‘SPP’).”
So, logically, the share price drops back to somewhere just above that rights issue price.
Something we’ve got to keep in mind about exploration stage mining companies. They live by spending shareholder capital - our money. So, when the share price jumps and there’s an opportunity to raise more money they may well do that. The implication of which is that exploration stage junior mining companies have something of a cap on their share price - the level at which they think it would be a good idea to issue more shares and so raise more of our cash.
