NEW YORK (TheStreet) -- Turquoise Hill Resources (TRQ - Get Report) has lost a quarter of its value on Wednesday, after a rights issue as part of a $2.4 billion securities offering began trading on a when-issued basis. The when-issued sale allows trading of more than 1 million additional shares before they are formally issued on Dec. 6.
The rights offering has doubled the number of Turquoise Hill shares outstanding. According to the company's SEC filing, each shareholder is entitled to receive one right for each common share held.
The Vancouver-based miner said in a statement it plans to use capital raised to repay Rio Tinto (RIO) for the $600 million bridge facility owed, as well as amounts outstanding on its $1.8 billion interim funding facility. Remaining funds will be invested into its joint project with Rio, the Oyu Tolgoi mine in Mongolia. Financing of the mine had been delayed after negotiations with the Mongolian government made little progress.
By mid-afternoon, shares had dropped 24.6% to $3.30. Year to date, the miner has plummeted 56.6%. Meanwhile, Rio Tinto gained 2.2% to $53.55 on Wednesday.
TheStreet Ratings team rates Turquoise Hill Resources as a Sell with a ratings score of D. The team has this to say about their recommendation:
"We rate Turquoise Hill Resources (TRQ) a SELL. This is driven by a few notable weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its weak operating cash flow and generally disappointing historical performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Net operating cash flow has decreased to -$197.89 million or 32.85% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, Turquoise Hill Resources has marginally lower results.
- TRQ's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 47.09%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Metals & Mining industry and the overall market on the basis of return on equity, Turquoise Hill Resources underperformed against that of the industry average and is significantly less than that of the S&P 500.
- The current debt-to-equity ratio, 0.32, is low and is below the industry average, implying that there has been successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.05 is very weak and demonstrates a lack of ability to pay short-term obligations.
- Turquoise Hill Resources reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. During the past fiscal year, Turquoise Hill Resources continued to lose money by earning -51 cents a share vs. -89 cents a share in the prior year.
- You can view the full analysis from the report here: TRQ Ratings Report