Why the Mandrake Resources (ASX:MAN) share price is sinking 6%

It's been a disappointing day for the mining company's shares…

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The Mandrake Resources Ltd (ASX: MAN) share price is having a woeful day following an update on its capital raise.

During mid-afternoon trade, the mineral exploration and development company's shares are down 6.25% to 22.5 cents.

What did Mandrake announce?

Investors are scrambling to sell Mandrake Resources shares as the company is set to dilute existing shareholder value.

According to its release, the mining outfit announced it has $12 million in firm commitments by a way of placement. The offer saw strong demand from both institutional and sophisticated investors.

In total, 60 million new ordinary shares will be issued at a price of 20 apiece to each participating investor. This represents a discount of around 12.3% to the 15-day volume weighted average price (VWAP).

Mandrake Resources will use its existing placement capacity to create the new shares. Under listing rule 7.1, this allows up to 15% of its total shares to be issued without shareholder approval. The company will use an extension to the listing rule (7.1A) to issue the remaining shares with the additional 10% capacity.

The proceeds of the placement will see Mandrake Resources commence an immediate drilling program of the Newleyine PGE-Ni-Cu target. In addition, the company will conduct a geological and geophysical assessment of the area.

Mandrake Resources will also use the funds to undertake a further reverse circulation (RC) drilling at the Berinka Au-Ag-Cu project. This is expected to begin around July or August of this year.

It is expected the placement offer shares will be settled and allotted to investor portfolios sometime around 17 June 2021.

Mandrake Resources managing director, James Allchurch said:

We are pleased to welcome new institutional and sophisticated investors to the shareholder register. The strong response received for this capital raise reflects the potential for our portfolio of assets, in particular the imminent drilling campaign at the Newleyine project.

About the Mandrake Resources share price

The Mandrake Resources share price has been one of the best performers on the ASX, rocketing over 900% in the past 12 months. The company's shares have soared on the back of positive investor sentiment, particularly in the commodity of copper.

Mandrake Resources commands a market capitalisation of roughly $81 million, with approximately 363 million shares currently on its registry.

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. 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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