Personal Finance

Why Alamos Gold Stock Tumbled 13% on Thursday

Gold nugget
Gold nugget

Image source: Getty Images.

What happened

Alamos Gold (NYSE: AGI) stock dropped nearly 13% in early Thursday trading, and as of 11:30 a.m. EST, was still down 10.4%.

So what

Yesterday, Alamos announced a plan to flood the market with 31.45 million common shares of stock sold to a "syndicate of underwriters" at an offer price of $7.95 per share. Adding an overallotment option permitting the underwriters to buy more at that price, if they so desire, could increase the size of the secondary offering to 36.16 million shares, raising as much as $288 million for Alamos.

The downside: Added to Alamos's 267.1 million shares already outstanding, this would result in about a 14.4% dilution of existing shareholders.

Now what

Investors don't seem to like the deal, and are bidding below Alamos' offer price for shares on the open market today. (The share price is currently at $7.51.) That doesn't necessarily make a lot of sense, however. According to Alamos, it plans to take the money raised from this share offering, combine it with the $287 million in cash it already has on hand, and pay off its entire $315 million in high-interest debt -- and still have $200 million in cash and equivalents left over to help fund its operations.

That seems to me a perfectly reasonable use of the share proceeds, and certainly not a bad enough reason to explain existing investors wanting to sell Alamos shares for less than new investors are paying to acquire new Alamos shares. (Again, $7.51 is less than $7.95, so existing investors are accepting less money than new investors are signing up to pay for Alamos shares.)

While I'm not really a big fan of unprofitable gold miners myself, I do suspect that investors in this particular gold miner are overreacting to today's news.

10 stocks we like better than Alamos Gold

When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor , has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Alamos Gold wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of January 4, 2017

Rich Smith has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story


Other Topics


Latest Personal Finance Videos

The Motley Fool

Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

Learn More