Why the Peak Resources (ASX:PEK) share price is sinking 14% on Friday

This mining share is under significant pressure on Friday…

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The Peak Resources Ltd (ASX: PEK) share price has returned from its trading halt and is sinking on Friday.

In morning trade, the rare earths producer’s shares have fallen 14.5% to 9.4 cents.

Why is the Peak Resources share price sinking?

The catalyst for the weakness in the Peak Resources share price on Friday has been the announcement of the completion of its placement to institutional, sophisticated and professional investors.

According to the release, the company has received commitments to raise approximately $30 million through a two-tranche placement.

Tranche one comprises the placement of 226.8 million shares at 9 cents per share to raise $20.4 million. This represents an 18.2% discount to the Peak Resources share price prior to its trading halt.

Tranche two comprises the placement of 106.4 million shares to raise a further $9.6 million at the same price. This remains subject to shareholder approval

In addition to this, the company will seek to raise a further $4 million via a share purchase plan. This will be undertaken at the placement price of 9 cents per new share.

Why is Peak Resources raising funds?

The proceeds will be used to progress the development of the Ngualla Project and the Teesside Refinery, including offtake and financing arrangements. It also intends to expand its technical and marketing team, and repay the ANRF Royalty Facility in full.

In respect to the latter, the repayment of the ANRF Royalty Facility and accrued interest will cost approximately US$10 million. It will result in the termination of a 2% life-of-mine gross revenue royalty and the release of related security arrangements.

Management notes that the termination of the royalty and related security arrangements enables Peak to fulfil its commitment to transfer the Ngualla Project Special Mining Licence into a newly registered Tanzanian company. That company will be jointly owned by Peak (84%) and the Tanzanian Government (16%).

It feels this enhances shareholders’ exposure to the Ngualla Rare Earth Project and better positions the project to secure attractive long term financing.

Peak Resources’ Managing Director, Bardin Davis, said: “We are delighted to be welcoming new Australian and international institutional investors on to our register. The placement will support Peak as it progresses offtake, funding and development milestones for the Ngualla Project and the Teesside Refinery.”

“The termination of the life-of-mine royalty further de-risks the financing of the Ngualla Project and provides shareholders with increased exposure to earnings from the project and the potential upside in rare earth prices. A combination of lower project outflows and the removal of security arrangements will also better position the project to secure attractive long-term project and export financing support,” he added.

The Peak Resources share price is still up over 30% since the start of the year despite today’s decline.

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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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