Why the Galaxy Resources (ASX:GXY) share price is tumbling lower today

The Galaxy Resources Limited (ASX:GXY) share price is has returned from its trading halt and is tumbling lower on Thursday…

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Cut outs of cogs and machinery with chemical symbol for lithium

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The Galaxy Resources Limited (ASX: GXY) share price has ended its winning streak and is dropping lower today.

At the time of writing, the lithium miner’s shares are down 3.5% to $1.93.

Why is the Galaxy share price tumbling lower?

This morning the company’s shares returned from a trading halt after successfully completing its fully underwritten institutional placement and entitlement offer.

According to the release, Galaxy raised a total of $124 million from institutional investors at $1.70 per new share. This represents a 15% discount to its last close price of $2.00.

Galaxy received significant demand during the institutional offer bookbuild from high-quality, eligible existing and new institutional investors located in Australia and internationally. It revealed a take-up by eligible existing institutional shareholders of approximately 92%.

It will now push ahead with its fully underwritten retail entitlement offer to raise a further ~$37 million. This will bring the total raised to $161 million.

Upon completion, Galaxy’s balance sheet will be strengthened with pro-forma cash and financial assets to increase from US$102 million (as of 1 November 2020) to US$219 million (before offer costs).

Why is Galaxy raising funds?

Management advised that the proceeds from the offer will be applied to Sal de Vida Stage 1 and fund pre-development activities to progress James Bay to a construction ready status.

Galaxy’s CEO, Simon Hay, commented: “We are delighted by the strong response we have received for the Equity Financing from a broad range of high quality, domestic and international institutions which we believe, underlines the quality of our asset portfolio. Securing these funds is an important milestone for Galaxy as we seek to commit to execute and develop Sal de Vida into a successful, lowest-quartile cost lithium brine operation.”

“The Equity Financing proceeds will also be used to accelerate James Bay to a construction ready status which Galaxy believes is timely given the project’s high-grade nature and location, positioning Galaxy to take advantage of the expected growth in electric vehicle demand in Europe and North America,” he concluded.

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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 Scott Phillips.

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