Why is the Firefinch share price crashing 66% today?

Firefinch shares are ending the week deep in the red…

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A man holds his head and look in horror at a betting slip, indicating share price drop on the ASX market

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Key points

  • Firefinch shares are crashing on Friday morning
  • The gold and lithium explorer's shares have hit a 52-week low after plunging 66%
  • This has been driven by its upcoming lithium demerger

The Firefinch Ltd (ASX: FFX) share price has been one of the worst performers on the Australian share market on Friday.

In early trade, the gold and lithium explorer’s shares were down as much as 66% to a 52-week low of 32 cents.

The Firefinch share price has since rebounded a touch but remains down 58% at 40 cents.

Why is the Firefinch share price crashing?

The good news for shareholders is that the sell down of the Firefinch share price today isn’t because something bad has happened.

Today’s decline is due to the company following in the footsteps of BHP Group Ltd (ASX: BHP) by undertaking a demerger.

This morning, the company’s shares traded ex-dividend for the in-specie dividend relating to this demerger.

On this occasion, that in-specie dividend relates to shares in the soon-to-be-listed Leo Lithium (ASX: LLL). Eligible Firefinch shareholders will be receiving 1 Leo Lithium share for every 1.4 Firefinch shares they own.

What is Leo Lithium?

Leo Lithium is the owner of 50% of the Goulamina Lithium Project in Mali. This is one of the world’s largest undeveloped high quality spodumene deposits.

In partnership with Chinese giant, Ganfeng, Leo Lithium has commenced initial development activities to bring the Goulamina Lithium Project into production.

Ganfeng has contributed US$130 million in equity funding to the joint venture and will either procure up to US$64 million in external debt, or provide US$40 million of debt itself to fund development of Stage 1 of the project.

Leo Lithium is being led by Simon Hay, who was previously the CEO of Galaxy Resources prior to its merger with Orocobre, which became Allkem Ltd (ASX: AKE).

Leo Lithium shares are scheduled to commence trade later this month on 23 June 2022.

Motley Fool contributor James Mickleboro has positions in Allkem Limited. 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 Scott Phillips.

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