Why the shares of lithium miner Avz Minerals Ltd are sinking lower today

The Avz Minerals Ltd (ASX: AVZ) share price has been one of the worst performers on the market on Monday after emerging from a trading halt.

At the time of writing the lithium-focused mineral exploration company’s shares are down 9% to 27.2 cents.

What happened?

Following its positive drilling update last week which revealed a thicker than anticipated pegmatite at its Manono Project in the Democratic Republic of the Congo, AVZ Minerals has raised $15 million to fund its planned phase 2 drilling and pre-feasibility programs.

The company has raised the money through a North American institutional investor via the placement of 60 million shares at 25 cents apiece.

As well as this initial placement, the institutional investor has 30 million attaching options exercisable within 24 months at 30.5 cents each. This will be worth up to an additional $9.15 million to the company should they all be exercised.

The current phase 1 drilling program is expected to be completed by the middle of the second quarter of 2018, along with the definition of a mineral resource estimate. After which, the funds raised will be used to move onto the phase 2 drilling program.

Executive Chairman Klaus Eckhof appears pleased with the capital raising and believes it will allow the company to work aggressively towards advancing the development of the project. Which is vitally important in my opinion, given that existing and potential Chinese partners are waiting for the project to advance before making further commitments.

Should you invest?

I have been very impressed with the early drilling results from Manono and look forward to the revealing of its mineral resource estimate in the near future. This should help investors better value the company and judge whether its shares are a buy or not.

But until that is available, I would suggest investors sit this one out and consider lithium miners that are already producing the metal. This includes Galaxy Resources Limited (ASX: GXY), Mineral Resources Limited (ASX: MIN) and Orocobre Limited (ASX: ORE). Though, it is worth remembering that these are all high risk investments.

So, if the lithium miners are too high risk for you but you're looking for strong future returns, then look no further than these high-flying mid-cap shares with bucketloads of growth potential.

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Motley Fool contributor James Mickleboro owns shares of Galaxy Resources Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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