Golden Minerals (AUMN), which began to recover from the low price it had reached in May, announced an equity financing on Friday September 14th. By raising nearly $37 million, AUMN will be able to acquire the equipment necessary to expand the production of the two mills from 850 tons per day (tpd) to 1,150 tpd and greatly enhance cash flow.

For months, management pursued asset sales involving their non-producing properties in Mexico and South America. However, following the afore-mentioned year-long deterioration in this sector, fair valuations were difficult to obtain. Thus, management decided that the best course of action to raise this capital involved the recently-improving equity market.

AUMN raised $29.5 million through a “bought deal” whereby Wells Fargo Bank agreed to purchase 5.5 million units (1 share plus ½ warrants to purchase additional stock at $8.42/sh. for 5 years). This assures AUMN of receiving the capital without the uncertainty surrounding a “best efforts” offering whereby the issuing firm is vulnerable to conditions in the marketplace. Sentient Group, AUMN’s largest shareholder, also acquired an additional $7.4 million of the issued units, maintaining their 20% position in the company.

After rallying this week to $7/sh., AUMN closed below $6/sh. Friday following the announced offering. This immediate downward pressure is typical because many hedge funds receiving the offered units will immediately sell the stock at a slight premium to the offer price ($5.75) and capture a “free” ½ warrant. With a mammoth volume of 4.6 million shares traded Friday, I suspect much of the offering was immediately sold into the market. However, as the metals continue to rally, AUMN should resume its recovery very soon. 3Q production will be announced by mid-October and with the successful (albeit delayed) transfer of equipment from Argentina to Valardena, Mexico, production and cash flow should improve over 2Q.

Like many of you, there is a part of me that wishes they had waited till the price was higher. However, this management team is risk-averse when it comes to their cash position. I raise the question, "what if JPM attacked gold/silver on the COMEX again this coming week or the following week, and the stock fell back below $6 without the financing? Management saw an opportunity to raise this critical $37 million involving the combination of a "bought" deal with WF and the endorsement of Sentient Group. Those that vehemently complain about this deal underestimate the critical necessity to raise this money before year end. I always suspected they would have a difficult time selling Zecatecas at a fair price in this lousy environment.

What's disappointing is the nature of today's equity offerings. Rather than market and sell the units to institutions that either already own AUMN and wish to add to their position, or institutional prospects that express a new interest in the company, these shares were more likely sold to the despicable hedge funds that merely flip the shares for a small gain (20 cents/sh. and a 1/2 wt). I suspect that Friday's 4.6 million share sales were probably gobbled up by the hedge fund(s) that are short 3.7 million shares (official), and with this non-professional approach by WF, there's no way to prevent it. I hope I'm wrong and the official short report Sept. 30th (2 reports away since a sale on 9/14 doesn't settle until 9/19) shows the maintenance of a continually high short position. However, I'll be surprised if it isn't greatly reduced.

Silverbull50