With Red Eagle (R.to) trading at or under 35c this morning, the market is basically saying that a 50c warrant with a five year shelf life is worthless. As Spock would point out, that is illogical Captain.
Maybe it’s because the market doubts the problems announced today are not repairable. If so, once the company explains further and/or gets the backing of the bigger holders of R.to this stock moves back up.
Or maybe it’s because rights offerings are rare in Canada and not understood. If so, this stock moves back up.
As it stands today and speaking as a R.to shareholder, I will be taking up my rights fully. It’s a no–brainer, free money trade. But the people who really win are those that can get in now and buy the stock and the right at this morning’s price.
PS: I implied it in one of the above points but just to answer in public a mail received subsequently, of course if R.to cannot fix its problems the stock is worth precisely zero. The debt on the books says that. In fact, paying down some of that financial liability is surely why R wants to raise $30m more than it needs for the repairs. In short, the company needs to convince the market and with the stock now trading at 30c, that’s not a given.