MHM: If It Was Such A Good Announcement Why Did The Price Go Down?

I have just posted my thoughts on the MHM US site selection and incentive announcement below. I do however, want to talk about the share price movement, because at the moment it appears as though it will close at around $1 or down almost 10%, and some of you may be wondering why I can call the announcement positive when the price goes down so much.

Well a couple of days ago I posted my thoughts on the upcoming announcement and in that post I said that it was quite good that the share price had not risen too much. At the time it was around the $1.00 - 1.04 mark and I felt that if is could hold that level it would mean that there was not too much “short term money” coming into the stock. Everything was looking good on that front until yesterday when some strong afternoon buying pushed the share price up 7.39% to $1.09. As a result there was probably an element of “buy the rumour, sell the fact” taking place today.

But what else happened? Well the most obvious thing is the US and Euro markets taking another dive, but on a company level I think the announcement failed to “excite” short term holders. And really these are the people who would be pushing the price up on a day like today because most long term holders are already set and/or are happy to accumulate over time (not just on one day). I do however want to clarify the word “excite”. Just because it wasn’t exciting for short term holders, does not mean that it was not positive. I just think it told us/the market what we had already expected.

In my earlier post I listed a couple of things that could have resulted in some “excitement” and a spike in the share price. These included:

1.   Any solid confirmation of financing or that no capital raising would be required.

2.   Anything that mentions a second plant or a potential upgrade to plant one happening in the future.

3.   If the value of the cash/land/contra incentives exceed more than 10% of the plant construction cost (i.e. >$2m).

4.    Any other incentives that may provide cheap financing or long term tax benefits (10 years plus).

These were not predictions, but information, that if mentioned, could have put some fire under the share price today. If we review the list we didn’t get any mention of financing, the announcement hinted at expansion but didn’t confirm it and incentives at the moment equate to less than 10%. We did however come close to number four, because the tax incentive does apply over a ten year period.

Without getting many of these big, new statements it was likely that the share price performance would have been muted even on a green day for the ASX. Those who hold for the long term know the strength of this announcement and should not worry too much about the performance of one day’s trade in my opinion. Once news is released on the financing and construction timeframe I expect the share price will start to march on again.