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Strike (ASX:STX) share price freefalls 9% on capital raising efforts

falling asx share price represented by business man wearing box on his head with a sad, crying face on it
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The Strike Energy Ltd (ASX: STX) share price has come out of a trading halt today following the company’s successful placement. While Strike is pleased with the latest capital raising efforts, its shares have plummeted 9.33% to 34 cents.

Let’s take a closer look and see what Strike updated the ASX with.

Why is the Strike share price in negative territory?

A major catalyst for Strike shares sinking could be investor concerns about the impending dilution of shares.

According to its release, Strike advised it has received binding commitments from an array of institutions to raise $75 million. The strongly supported placement primarily came from local and international institutions, as well as other professional and sophisticated investors.

The placement will see 250 million new ordinary shares created at an issue price of 30 cents apiece. Strike will use its existing placement capacity under listing rule 7.1. This allows up to 15% of its shares to be issued without shareholder approval. The new shares will rank equally with Strike’s existing ordinary shares.

Strike recently announced a share purchase plan (SSP) to raise up to $5 million from eligible shareholders. The issue price was listed as the same offered in the placement.

Together, the company is seeking to raise $80 million (before transaction costs) to fund its transformation strategy. In addition, Strike is also allocating $10 million of its existing cash, further boosting funding reserves.

The proceeds will be used to delivered a number of strategic objectives, that include:

  • project construction of Phase 1 of the Greater Erregulla project at West Erregulla
  • gas resource addition in the Erregulla region via the 2D major seismic campaign and drilling of South Erregulla
  • geothermal testing for the proposed Mid-West Geothermal pilot
  • progressing the pre-FID milestones for the Project Haber proposed fertiliser development
  • general working capital and corporate purposes.

Both the placement and the SPP’s new shares are expected to be allotted on Friday 23 April 2021.

Management commentary

Strike managing director Stuart Nicholls commented:

This highly successful capital raise, that attracted exceptionally strong demand, is an acknowledgment of the unique investment opportunity that is Strike as the company commences its transition to a fully integrated energy, renewable power and fertiliser company.

This raising marks the first time in 18-months since the discovery of West Erregulla that the Company has sort to raise capital from the equity markets. It also comes at a more than 30% premium to the last raise, which indicates the speed and quality of project delivery by the Company in the intervening period.

About the Strike share price

Over the past 12 months, the Strike share price has jumped more than 180%, and is up 30% year-to-date. The company’s shares recently reached an all-time high of 39.5 cents before being hit hard today.

Based on valuation grounds, Strike commands a market capitalisation of roughly $645.8 million, with 1.7 billion shares on issue.

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Motley Fool contributor Aaron Teboneras 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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