Avalon seeks $5 million
Rare earth mineral company raising more funds
Karen K. Ho
Northern News Services
Saturday, May 2, 2015
TORONTO
Mineral development company Avalon Rare Metals (TSX:AVL) has announced a public offering of $5 million.
Don Bubar, president and CEO of Avalon Rare Earth Metals, speaks at the NWT Chamber of Commerce's conference and annual general meeting in Yelllowknife on April 16. Avalon is now seeking to raise $5 million through a public offering. - Karen K. Ho/NNSL photo
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President and CEO Don Bubar said the funding announcement was made so the company could top up its treasury, enabling it have enough capital to fund work planned for this year, including its Nechalacho project at Thor Lake. "We needed to raise about that amount of money to be able to budget for the next 12 months or so," he told News/North.
Bubar said there was renewed interest in rare earths due to a recent 60 Minutes episode on the commodity, announcements coming out of China that highlight the country's monopoly over the resource, as well as the heavy requirement for the material in new technology.
"I guess investors are starting to be reminded that there is still a factor," he said. "There might be another day for rare earth equities to recover some of the valuation they had in the past."
At its peak in April 2011, shares of Avalon Rare Earth Metals hit a price of $9.25 per share.
However, for this public offering, Avalon is offering a combination of units, priced at 34 cents, and flow-through shares, priced at 39 cents. The units consist of a common share, as well as half of one non-transferable common-share purchase warrant. This would entitle the holder to buy a common share of Avalon for 42.5 cents per share for the 18 months after the warrants are issued.
According to the TSX, the stock hit a five-day high of 47.5 cents soon after the opening bell, the morning of April 28 - the day before the funding announcement. This was more than twice the company's 52-week low of 21 cents per share from Dec. 10 of last year. However, the stock closed on April 28 at 36 cents, a significant drop of 19.1 per cent in one day.
When it came to this surge in trading activity, Bubar guessed that it was because there had been a lot of recent discussion on rare earths as well as a recommendation from former banker Jay Taylor in his widely-read investment newsletter.
"Sometimes it'll put the stock on investor radar screens, they'll watch it for a bit and if they see an uptick on volume that might be the catalyst to buy some," he explained.
Bubar attributed the movement on April 28 to a liquidity event that followed a private placement of flow-through shares in December of last year where investors are subject to a four-month hold period, which expired late last week.
"A whole bunch of stock just came into a tradeable form," he said. "Those investors would have been in the money. Those guys took advantage of it."
Bubar said the company chose to do a public offering this time instead of a private placement because they could avoid the same hold period associated with the process.
"It just makes it easier to market the deal," he said. "It just gave us a flexibility in the marketplace."
And as to why Avalon chose the amount of $5 million, Bubar said it was with respect to existing shareholders, many of whom entered at higher prices and have expressed concern over the share-price dropping.
"We're trying to find that balance in keeping the company adequately funded, while not excessively diluting the existing shareholders," said Bubar.
Shares of Avalon closed at 32 cents per share, by press time - half of its 52-week high of 64 cents per share that was reached on May 2 of last year.
Fundraising for the $5 million is being done through both the TSX and the New York Stock Exchange, where Avalon's shares are listed. The public offering is expected to close on or before May 12.
