Firefinch (ASX:FFX) share price sinks 7% amid $25m cap raise

The company’s shares are having a woeful start to the week…

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The Firefinch Ltd (ASX: FFX) share price is deep in negative territory today. This comes after the lithium developer announced its intention to open up a share purchase plan (SPP) to eligible investors.

At the time of writing, Firefinch shares are fetching for 60 cents apiece, down 7.69%. Despite the significant drop, its shares are still up more than 250% for the year.

Share purchase plan details

Investors are selling Firefinch shares after the company opened an invitation to retail shareholders to participate in its SPP.

On 28 June 2021, Firefinch had been unable to undertake a SPP concurrent with the placement conducted earlier that month. This was due to the requirements by ASIC in which one SPP may be offered in a 12-month period. The last SPP performed from Firefinch occurred in late October 2020.

Under the new SPP, investors can apply to buy a parcel of the company’s shares for 58 cents each. The terms offered represent a 10.8% discount to the last closing price of 65 cents a pop on 22 October. This is also a 10.8% discount to the 5-day volume-weighted average price before the SPP was announced.

Investors can apply for a maximum application amount of $30,000. Further details are set to be provided in the offer booklet on 1 November.

Firefinch is seeking to raise a total of $25 million (before costs) through the SPP, issuing 43.1 million shares.

In addition, shareholders who hold their shares at the record date will also be entitled to the planned distribution of Leo Lithium shares. There is no extra cost to shareholders to receive the proposed allocation. It is expected that Leo Lithium will demerge sometime in early 2022.

What are the funds being used for?

The proceeds raised from the SPP will be used towards funding a number of company initiatives. This includes the following:

  • Ongoing ramp-up and development activities at the Morila Gold Project to allow commencement of open pit mining.
  • Continuation of exploration, resource development and expansion drilling at the Morila Super Pit to build on Firefinch’s recent drilling success.
  • The recommencement of drilling at the Goulamina Lithium Project aimed at both converting Inferred resources to Indicated, and
  • General working capital to meet overheads, including supporting the planned demerger of Leo, and costs of the SPP.

The closing date for the SPP will be 19 November. The new shares will be issued on 26 November, with the following Monday available for trading.

Firefinch share price snapshot

Over the last 12 months, Firefinch shares have accelerated, posting strong gains of 260%. Year-to-date has been just as impressive, up by almost 250% after investor sentiment heated up in the industry.

Based on today’s price, Firefinch commands a market capitalisation of around $602 million with approximately 926 million shares on hand.

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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned.

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