Crowflight Minerals Inc. (TSE:CML) (PINK:CMLGF) has emerged debt free from its commitment to King Place Enterprises Limited, sending the share price flying on high volume.
$11.3 million worth of notes were converted at $0.0437 per share – at a 25% discount to the average CML share price for the week ended March 21, 2011. 258.8 million shares were issued with the consent of shareholders, adding to the already outstanding 1.24 billion.
King Place, along with their affiliated entity Hebei Wenfeng Industrial Group Limited, will remain the majority shareholders, controlling 37.6% of the CML’s shares.
Despite the sound announcement of debt retirement, the company’s balance sheet barely returned to a similar state it was in mid 2010. This means the changes in underlying fundamentals don’t point in the direction of improvement but rather depict a successful, though short term, evasion of deterioration.
Crowflight is struggling to cover the quarterly losses and is forced to constantly issue new equity or debt to stay in the game. This practice is harmful for shareholders, resulting in dilution and general share structure instability.
Essentially, a step back in time doesn’t really hold true for the share price. Since mid 2010, the company already diluted shareholders by 112%, not counting the recently announced notes conversion. Such a rapid increase in outstanding shares is sure to keep the stock price down.
