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Australian Bauxite Ltd shares tumble 8%: Should you sell?

Australian Bauxite Ltd (ASX: ABZ) has been going flat strap recently.

In a very short period of time, they’ve achieved full funding for their project, had it approved, and are all set to commence production from December this year.

Capitalising on this success, management recently entered the company into a trading halt to take advantage of high share prices and raise capital for further expansion.

12.5 million shares were issued to ‘sophisticated and/or professional’ investors at the price of $0.30, raising an additional $3.75 million that will be put towards ‘aggressive development and exploration programs in NSW and Queensland.’

It’s a sound strategy and one that is likely to reap benefits for shareholders as exploration and development of additional tenements can now continue in parallel with the Tasmanian mining operations rather than having to wait for funds to accumulate.

The news was initially received positively by shareholders, and shares traded up to $0.34 before falling to $0.295 in today’s trade.

It’s uncertain exactly what might have caused the fall, with no major changes to the commodity price of aluminium and no further company announcements.

I’m of the opinion that it’s just one of the risks associated with low-volume shares like ABX.

I personally own the better part of 10,000 shares which – if we assume this is an average parcel – given today’s volume of 106,255 shares traded, means that as little as 10 people or fewer may have decided now was a good time to sell their shares.

Just to clarify, I use the size of my shareholding for illustration only – I haven’t sold any ABX shares and nor do I intend to.

Potential reasons behind the decision to sell at lower prices could be myriad, and I prefer to save my crystal ball for the bigger questions, like is the worst finally over for Australia’s oil companies?

If you’re a believer in bauxite, with no major changes to the company’s outlook apart from a more rapid development of additional tenements, Australian Bauxite continues to look like a winner and I think prices of under $0.30 will prove to be quite attractive.

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Motley Fool contributor Sean O'Neill owns shares in Australian Bauxite.

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