Here’s why the Western Areas (ASX:WSA) share price is sinking today

The Western Areas Ltd (ASX:WSA) share price is sinking on Wednesday after raising $75 million from institutional investors at an 8.1% discount…

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The Western Areas Ltd (ASX: WSA) share price has returned from its trading halt and is sinking on Wednesday.

At the time of writing, the nickel producer’s shares are down 13% to $2.03.

Why is the Western Areas share price sinking today?

The Western Areas share price has come under pressure today after it announced the successful completion of its institutional placement.

According to the release, the company has raised $85 million via a fully underwritten placement at $2.15 per share. This represents an 8.1% discount to its last close price.

But despite receiving strong support from existing and new investors, including high-quality domestic and offshore institutions, the placement was undertaken at the floor price.

This will also be the same price that shareholders are offered shares via a non-underwritten share purchase plan to raise a further $15 million. Though, with the Western Areas share price trading below this level, unless there’s a big improvement, demand may not be strong for its share purchase plan.

Why is Western Areas raising funds?

Proceeds from the placement and share purchase plan will be used to complete the Odysseus development, advance organic growth projects at Forrestania and Cosmos, and continue exploration activities.

In respect to Odysseus, management notes that the equity raising provides funding for mine development capital expenditure, with development progressing on schedule and first concentrate production targeted in mid FY 2023.

This operation will be a big boost to its production output once it is in steady state production. Management expects Odysseus to deliver 14,600 tonnes of nickel in concentrate per annum.

This compares to its FY 2021 production guidance of 16,000 to 17,000 tonnes of nickel in concentrate.

Western Areas’s Managing Director, Dan Lougher, commented: “The Placement has been overwhelmingly supported by a range of domestic and international institutional investors which we see as vindication of the bright prospects for Western Areas. We are looking forward to advancing the development of the long-life, low cost Odysseus underground mine towards scheduled production in mid FY23 and believe our landholdings provide significant brownfield exploration potential.”

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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