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Why the EHR Resources share price stormed 20% higher today

The EHR Resources Ltd (ASX: EHX) share price closed 20% higher today at 12 cents on the back of a strongly supported capital raising.

EHR is a mineral resources exploration company with an increasing focus on diamond exploration and project development.

Just this month, the company announced an earn-in agreement over a diamond project in Nunavat, Canada, as well as an exploration alliance agreement with a privately-owned company focused on diamond exploration in Botswana. 

EHR Resources also owns 625 mineral claims located in northern Quebec through its wholly-owned subsidiary Nanuk Diamonds, and an 18% interest in the La Victoria Gold-Silver Project in Peru.

Details of the capital raising

This morning, EHR announced it has received commitments for a $10 million institutional placement. New shares will be issued at 9.6 cents per share, which represents a 4% discount to EHR’s last closing price of 10 cents.

On top of the institutional placement, EHR will also conduct a share purchase plan (SPP) to raise up to an additional $2 million. New shares under the SPP will be issued at the same price as the placement.

The funds raised will be used to meet expenditures on existing projects, for potential incremental transactions in line with the company’s strategy, and for general working capital.

Commenting on the capital raising, managing director Peter Ravenscroft said:

“EHR has made very good progress since adding a focus on diamonds to its mineral resource project strategy, and the capital raising positions the Company to meaningfully progress the projects we have acquired.”

“Importantly, a raising of this size allows us to fully focus on adding value to our existing investments, while also strengthening the Company’s position with regards to other potential project acquisitions,” Mr Ravenscroft added.

Recent developments

At the beginning of the month on 2 June, EHR announced it had secured an option agreement with North Arrow Minerals to earn a 40% interest in the Nuajaat diamond project in Canada.

In return for the interest, EHR will fund a C$5.6 million preliminary bulk sample of 1,500 to 2,000 tonnes to be extracted in 2021. The project represents the largest underdeveloped diamond property in Canada not under the control of a major mining company.

EHR Resources followed up this announcement with another diamond-related ASX release on 9 June. It revealed it had entered into a diamond exploration agreement with Diamond Exploration Strategies, a privately-owned company with diamond licenses in Botswana.

Under the terms of the alliance, EHR will provide funding of US$1.5 million over three years to finance exploration activities. In return, EHR will earn 50% ownership of any discoveries made.

The alliance is initially over five areas that have existing prospecting licenses, but extends to cover other prospective areas of Botswana that may be identified.

The EHR Resources share price closed at 12 cents today, taking the company’s current market capitalisation to around $17 million. If you’d rather invest in much larger and more liquid companies, check out the top ASX growth shares in the free report below.

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Motley Fool contributor Cathryn Goh has no position in any of the stocks mentioned. 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 Scott Phillips.

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