Vancouver – News that Skye Resources (SKR-T) is planning to kickstart development of its Fenix nickel project in Guatemala by raising at least $80 million from an equity offering, sent the company’s stock price tumbling 12% Wednesday.
Skye shares, which traded as high as $18.20 in August amid expectations of a rich takeover bid, fell $1.31 to $10.51 in Toronto after the company said it has hired an underwriting syndicate in connection with the planned offering.
The move prompted one analyst, who follows the company, to say he was disappointed that Sky hadn’t moved to tap the equity market sooner, when the stock was trading at much higher levels.
“I can’t understand what the thinking is behind waiting,” said Jacob Willoughby, analyst at Paradigm Capital in Toronto. “People who bought in at $12 and $13 are bearing the brunt of what has happened,” he said.
At yesterday’s close, the stock is down 38% from a week ago when Skye dashed speculation that its two biggest shareholders BHP Billiton (BHP-N) and Brazil’s Companhia Vale do Rio Doce (CVRD) (RIO-N) would launch a takeover bid.
Expectations of a takeover were dampened on Nov. 14 when the company said it has not received any takeover proposals. Skye Chief Executive Officer Ian Austin added further clarification by saying he wished he hadn’t been required to follow the advice of lawyers by disclosing in August that his company was considering alternatives, including the possible sale or merger of Skye.
In a published report, Mr. Austin said the resulting rally in the value of the stock may have scuttled a possible transaction.
Meanwhile, having pledged to go it alone in developing the Fenix mine, Skye said it plans to raise at least $80 million from a unit offering, comprised of a common share and one half of a common share purchase warrant.
That isn’t nearly enough to fund a new nickel mine that is expected to cost at least US$755 million to develope.
As a result, analysts expect the company to use part of the offering proceeds as a downpayment for key components of the mine, such as a coal-fired power plant.
Under a share-purchase master agreement, CVRD can participate in the offering to maintain its 12% equity stake in Skye. The Brazilian giant must exercise this right within 24 hours after being notified of the specific terms of the financing.
Skye said TD Securities will act as lead underwriter in a financing syndicate that includes BMO Nesbitt Burns, CIBC World Markets, Paradigm Capital, National Bank Financial and Orion Securities.
Mr. Willoughby is confident that the syndicate will have no trouble in placing the shares. “It’s just a question of price,” he said.
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