What happened
Shares of The Metals Company (NASDAQ: TMC) are making huge gains in Monday's trading. The company's stock was up 21.8% as of 10:30 a.m. ET, according to data from S&P Global Market Intelligence.
The Metals Company published second-quarter earnings information and outlined plans to raise funding through a new direct stock offering before the market opened this morning. The deep-sea-mining specialist posted a net loss of $14.1 million in Q2, working out to a net loss of $0.05 per share in the period. But the company is on track to see an injection of new capital thanks to a new deal that's thrilling Wall Street.
So what
The Metals Company has announced that it's raising $27 million in cash through a new direct stock offering. The sale is set to take place at a price of $2 per share, working out to an 82% premium compared to where the stock was priced before the announcement and a roughly 47% premium based on its current share price.
The purchase is led by TMC's largest shareholder, ERAS Capital, as well as Allseas, and several institutional investors. Adding another bullish signal, the purchasers also received warrant coverage as part of the deal.
Now what
For every two shares of common stock purchased, the buyers in the direct offering received one stock warrant that allows them to purchase an additional share of Class A common stock at $3. The deal includes a call provision that would allow the company to repurchase the warrants at the 30-day weighted volume price if the stock price goes above $6.50 per share -- a target that suggests potentially massive upside potential. Even better, the deal also includes an anti-dilution provision that resets the exercise price for the warrants to lower levels if TMC issues stock below $2 per share.
With The Metals Company selling stock at prices well above current levels and issuing warrants on terms that flash bullish signals, it's not surprising that investors are pouring into the stock today. On the other hand, there's still not much visibility on the company's forward business performance, and investors should conduct a more thorough analysis before going all in on the stock.
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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
