Why the AVZ (ASX:AVZ) share price is sinking 8% today

This lithium explorer is ending the week deep in the red…

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The AVZ Minerals Ltd (ASX: AVZ) share price has returned from its trading halt and is sinking.

In morning trade, the lithium explorer’s shares are down 8% to 14.7 cents.

Why is the AVZ Minerals share price is sinking?

The AVZ Minerals share price has come under pressure on Friday after it announced the outcome of an institutional placement.

According to the release, the company has received firm commitments for a placement to raise $40 million from sophisticated, professional, and institutional investors. Management notes that the placement was heavily oversubscribed, allowing the AVZ Board to increase it by $10 million more than previously sought.

Among the investors were high-quality institutions from Australia and North America, including a European-based physical energy commodities merchant.

The funds were raised at an issue price of $0.13 per share, which represents a sizeable discount of 18.8% to the last closing price.

Why is AVZ raising funds?

These funds will be used to accelerate the advancement of the Tier 1 Manono Lithium and Tin Project in the Democratic Republic of the Congo. This includes progressing towards a final investment decision (FID) for the commencement of project development.

In addition, the company intends to use some of the funds to increase its interest in the project to 75% from 60%.

AVZ’s Managing Director, Nigel Ferguson, said: “The capital raising marks an important milestone in our journey to develop the Manono Project, providing AVZ with the required funds to increase the Company’s stake in the Project and secures the necessary working capital to commence the early capital works program.”

“Increasing AVZ’s equity stake to 75% of the Manono Project adds significant value to AVZ shareholders, including the possible option to attract strategic cornerstone equity partners at the project level, which will assist to de-risk and potentially accelerate Manono’s development.”

“The placement also assists our financing discussions, providing capital for up-front debt finance establishment costs, ensuring minimum liquidity requirements are met, whilst providing debt financiers with confidence from seeing a transition to a larger, supportive non-retail shareholder base, providing AVZ with a solid foundation from which to negotiate favourable terms,” he added.

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Motley Fool contributor James Mickleboro 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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