Why is the AVZ (ASX:AVZ) share price crashing 15% today?

AVZ's shares are sinking on Friday…

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The AVZ Minerals Ltd (ASX: AVZ) share price is back from its trading halt and sinking notably lower.

At the time of writing, the lithium explorer's shares are down 15% to 54.5 cents.

Why is the AVZ Minerals share price sinking?

The AVZ Minerals share price has come under pressure today after the company completed its institutional placement.

According to the release, AVZ has received firm commitments to raise $75 million (before costs) at a 22% discount of 50 cents per new share. Approximately 85% of the funds were raised from global institutions, with the balance coming from existing sophisticated shareholders. This includes cornerstone investor Suzhou CATH Energy Technologies.

Management highlights that the capital raising will allow the AVZ Board to efficiently progress towards a Final Investment Decision (FID) for the commencement of project development at the Manono Lithium Project in the Democratic Republic of the Congo.

In addition, management notes that it will provide foundation support for AVZ's longer term strategic vision to vertically integrate via further investments into downstream lithium processing opportunities.

An important milestone

AVZ Minerals' Managing Director, Nigel Ferguson, believes this is an important milestone for the company.

He commented: "This capital raising marks an important milestone in our journey to develop the Manono Project which strengthens the financial position of the Company and will assist to keep the Project timeline within reach, despite the award of our Mining Licence taking longer than we had previously anticipated."

Speaking of which, Mr Ferguson remains confident that the company will receive its licence.

He explained: "We are in close consultation with the DRC Government authorities that are undertaking the Mining Licence assessment and are confident of delivering a favorable outcome for all stakeholders – most importantly the people of the DRC and our shareholders."

Finally, the company also feels that the capital raising has de-risked things meaningfully and positions it well for financing discussions.

"Such a significant cash injection further de-risks the Company during a time where increased market volatility is apparent and global economic uncertainty still remains. The placement also assists our financing discussions, providing capital for up-front debt finance establishment costs and ensuring minimum liquidity requirements are met which provides AVZ with a solid foundation to negotiate favourable terms," Mr Ferguson added.

The AVZ share price is up 220% in 2021 despite today's decline.

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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