NEWS

(Photo: Philstar)

Merkado Barkada | The Philippine Star | April 12, 2022 9:00AM

Manila Mining [MA/MAB 0.01], the copper-gold resource exploration company owned by Felipe Yap, is looking to raise P519 million through a stock rights offering (SRO) priced at P0.01/share, with an entitlement ratio of 1 SRO share per 5 existing MA (or MAB) shares already owned.

The preliminary prospectus puts the Ex-date on April 26, with the offer period running from May 16 through May 20.

There is no listing date yet, as MA will pay the required 25% of the increase in authorized capital stock (ACS) required to conduct this SRO using the proceeds of the SRO itself.

According to the prospectus, MA will only apply to the SEC for its ACS raise 15 days after the end of the offer period.

MA said that F. Yap Securities and Felipe Yap will purchase their own allocations under the SRO, and any allocations that were not taken up by the existing shareholders during the process.

The SRO’s underwriter, Penta Capital, has committed to take up any SRO shares that F. Yap Securities and Felipe Yap are unable to cover.

The proceeds will be split between further exploration of the Placer Project, in Surigao del Norte (62%), settling various payables (20%), and salaries (16%).

MA has not had any mining operations for over two decades and has lost nearly P100 million over the past five fiscal years.

MA’s subsidiary, Kalayaan Copper-Gold Resources (KCGR), owns the rights to the project that MA plans to explore with the proceeds, but MA is not the only shareholder of KCGR; Philex [PX 5.34 0.19%] owns a 5% stake in KCGR, and through an agreement signed in 2011, has the option to increase its stake in KCGR to 60% by paying for pre-development expenses and any feasibility studies.

MA itself admits that these funds will be used to merely explore the rights that it holds, that there are no imminent plans for MA to resume mining operations, and that additional capital may be needed in the future to actually do anything with the information that it gains as a result of the findings that will be funded by this SRO.

MB BOTTOM-LINE

On the one hand, this is exactly the kind of transaction that the concept of the stock market was created to facilitate; a small company is looking to raise money to do something and is willing to trade a piece of the company in exchange for the funding to do that something.

On the other hand, though, anyone looking to get in on this transaction should make sure they’ve got their eyes so wide-open that it hurts.

The company hasn’t done any real mining for more than 20 years. It can’t self-fund the exploration of its own rights, so it needs to raise the money to conduct that exploration by doing an SRO like this, or by the “Farm-In” agreement with PX.

The SRO money will only fund another round of drill tests, and if they find anything, they’ll probably need to do another round of money raising to do further testing or develop a mine to take advantage of the opportunity.

Even if they do find something, there’s no guarantee that commodity prices will still be as sky-high as they are now.

Even if the prices of gold and copper were the same or higher, that’s all the more reason for PX to exercise its option to increase its stake in KCGR from 5 to 60%, and reduce MA to being just a minority shareholder.

I know that sounds negative, but all I’m saying here is that it’s easy to look at the price (P0.01/share) and day-dream a world where MA identifies a throbbing vein of gold and copper, but losing 50% on a stock priced at P0.01 works the same as losing 50% on a stock priced at P10.00, and nothing about this timeline (from the SEC application to the end-point development of a mine) seems like it will be quick.

MA should absolutely be able to sell these shares. They aren’t doing anything (that I know of) in bad faith. It’s just important to know how this SRO offering differs from other SRO offerings that we’ve seen.

Source: The Philippine Star