(By Balaseshan) CIBC World Markets Inc. analyst Ian Macqueen downgraded his rating of Sterling Resources Ltd. (CVE: SLG) to "sector performer" from "sector outperformer" and lowered his price target to $1.50 from $1.90.
SLG announced a marketed offering of common shares, which will be priced in the context of the market. Management hopes to raise up to $45 million in aggregate gross proceeds. Macqueen is assuming that SLG will issue 50 million shares at a price of $0.90/share for net proceeds of $41.65 million.
SLG recently announced a partial sale of its offshore Romanian lands to ExxonMobil and OMV Petrom for $29.25 million plus $48.75 million in contingent payments. The analyst expected a December closing to resolve short-term funding issues allowing time for SLG to conduct further asset sales and farm-outs.
[Related -Dividend Roundup: MMC, SLG, WDR, SPRD, SCHL, GSBC]
SLG has long focused on expanding its assets and not its balance sheet, Macqueen noted. Funding has been a longstanding problem for SLG and will continue to be a problem without further asset sales and farm-outs. A series of delays at the non-op Breagh Field has put the company in a tenuous position.
The analyst believes the financing will be highly dilutive, hence downgrading the stock. SLG has good assets but is not in a financial position to advance them to production. Refocusing on its balance sheet will allow it to advance its best projects.
The brokerage lowered 2013 cash flow per share estimate to $0.17 from $0.21.
SLG is trading down 10.13 percent at $0.710 on Thursday.