Here’s why the Seafarms (ASX:SFG) share price is plunging 8% today

Tuesday isn’t a good day for the aquaculture company…

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The Seafarms Group Ltd (ASX: SFG) share price is plummeting today following news of a budget blowout.

The aquaculture company broke its trading halt this morning when it announced the cost of the first stage of its Project Sea Dragon has increased by as much as 49%.

As can be expected, the market has reacted poorly to today’s news from Seafarms.

At the time of writing, the Seafarms share price is 5.2 cents, 8.77% lower than its previous close.

However, that’s better than its intraday low of 4.8 cents. Then, it was sporting a 15% drop.

Let’s take a closer look at the project’s increased cost estimates.

Seafarms’ budget blowout

The Seafarms share price is sliding after the company announced the expected cost of its Project Sea Dragon’s stage 1a has soared by as much as $135 million.

Sea Dragon is a proposed, large-scale, prawn aquaculture project being developed in various sites across northern Australia to supply high-quality prawns to export markets.

Last time the company updated the market on the project’s costs, it outlined it expected to spend $275 million to $290 million for its first stage.

Today, that estimate has increased to between $370 million and $410 million.

The company has once more flagged that it will need additional equity funding to finish the project’s first stage.

However, Seafarms made it clear the original estimate didn’t include contingencies or escalation. The company also believes the true cost will be at the lower end of the new range.

Additionally, Seafarms has given another $17 million worth of work to the head contractor of the Legune section of the project in the Northern Territory. Canstruct was originally contracted to provide $78 million worth of work.

The extra funds will cover the project’s jetty hardstands, roads, and quarry services.

Of the construction works now awarded to Canstruct, the price, in aggregate, is within 8% of company’s budget estimates. That represents around 54% of the capex required at the Legune site.

Further, Canstruct is only authorised to do $57 million worth of work so costs remain within the limits of the company’s recent capital raise.

Seafarms is also making progress with its construction debt facility. Agreements for construction facilities of between $100 million and $150 million and between $15 million and $35 million of working capital are targeted for the final quarter of 2021.

Finally, the company’s experiencing some construction delays at the project’s Exmouth and Bynoe sites. It’s also keeping an eye on the incoming wet season and COVID-19-related border closures, which could cause more delays.

Seafarm share price snapshot

Today’s dip has added to Seafarms’ recent struggles on the ASX.

The company’s share price has fallen 38% since the start of 2021. It is also 51% lower than it was this time last year.

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Motley Fool contributor Brooke Cooper 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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