What De Gray Mining’s $100 Million Cap Raise Means for the Share Price

What De Gray Mining’s $100 Million Cap Raise Means for the Share Price

Shares trading in De Grey Mining Ltd [ASX:DEG] have been in a trading halt since last Wednesday, pending details of its latest round of equity raising.

This morning the gold explorer announced details of its planned $100 million capital raise.

It has been an exceptional year for the DEG share price, posting a year-on-year return of over 2,500%.

With the company to be emitted on to the ASX 300 next week, DEG has become one of Australia’s premier gold stocks.

ASX DEG Share Price Chart

Source: Tradingview

Is De Grey searching for a higher gear?

The announcement of DEG’s capital raise might come as a surprise to some.

As detailed in their quarterly cashflow report in June, DEG was thought to have just over four quarters of funding available.

Meaning, if outgoing cash is kept constant, DEG will now be funded for just over 20 quarters.

Which seems excessive for an explorer.

In my opinion, it could mean DEG is looking to ramp up exploration ahead of its maiden resource estimate next year.

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DEG said it will issue approximately 83.4 million shares priced at $1.20 per share to raise $100 million before costs.

A 16.4% discount to the last traded share price and a 1% premium to the 10-day volume-weighted average price.

De Grey laid out a summary of its planned use for the new funds.

ASX DEG - De Grey Mining Capital Raise Plans

Source: De Grey Mining

The share placement was largely supported by institutional investors that included many Australian funds and global precious metals funds.

What does this mean for the share price?

With any capital raise, the preceding share price action is up to the sentiment of investors — even though this dilutes the holdings of existing shareholders.

In my book, I think we could see the DEG share price push higher when they return to trade tomorrow.

The institutional investor interest is a positive sign.

Major shareholder DGO Gold Ltd [ASX:DGO] has committed to invest a further $12 million.

Which will result in a holding of 15.8% at completion.

Non-executive director Peter Hood has also committed to a further investment of $360,000.

And insider buying can certainly be a positive sign when it comes to mineral exploration.

It signals confidence in the company’s prospects.

DEG has five drilling rigs in operation at Hemi and another drilling rig operating in the Greater Hemi area.

The new funds will allow this extension and definition drilling to continue well into 2021.

With the recent discoveries of the Falcon zone and new lode within the Crow zone, there is now considerable scope to further grow and upgrade the mineralisation footprint.

And with Australia poised to surpass China as the undisputed global leader in gold exploration, mining and production, there could be even more upside potential for stocks like DEG. In her latest report, gold expert Shae Russell breaks down what Australia becoming the new gold ‘epicentre’ means for gold and your Aussie gold stocks. Click here to download the free report.

Kind regards,

Lachlann Tierney

For The Daily Reckoning Australia