Why did the Arafura share price plunge 19% today?

The mineral exporer emerged from a trading halt this morning.

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Key points

  • The Arafura Resources share price shed 17% after coming out of a trading halt today
  • The mineral explorer announced details of a $41.5 million capital raise
  • Despite today's plunge, the company's share price is up 34% in 2022 so far

The Arafura Resources Limited (ASX: ARU) share price crashed after the company emerged from a trading halt this morning. 

The mineral explorer’s shares are currently trading for 27.5 cents a share, down 14.06%. Earlier today, they hit an intraday low of 26 cents a share — an 18.75% fall.

The selloff puts the company’s losses for the week at more than 21%.

Arafura also announced the details of a capital raise this morning. Let’s check the details.

What did Arafura Resources announce? 

Arafura Resources shares were frozen on Wednesday 3 August pending its capital raising announcement. Today the company announced a $41.5 million placement of 156.7 million new fully paid ordinary shares.

Shares will sell for $0.265 each at a discount of 17.2% to the closing price on 2 August. They’ll be available on or around 12 August.

In addition to the new issue, the company will also allow investors to purchase new free attaching stock options. The total value of options proposed is $78.4 million with an issuance date of 25 August.

The new options will have an exercise price of $0.34 with an expiry date 18 months from the date of issue. The company is offering one free attaching option for every two new shares purchased. Arafura Resources intends to lodge a prospectus with ASIC for the options on or around 22 August.

What the funds will be used for?

Arafura Resources said it will use the funds to increase the company’s capacity to secure neodymium oxide as part of its Nolans project. Neodymium oxide is a rare earth material used in the production of motors for electric vehicles as well as other applications.

The capital will also help speed up progress in completing the Nolans project. Some activities include launching the tendering for new construction contracts and for front-end engineering, as well as for general working capital purposes.

Share price snapshot

Despite this week’s slump, the Arafura Resources share price is up 34% year to date and 109% over the last 12 months.

That’s well above the S&P/ASX 200 Index‘s loss of 6% so far in 2022 and a 7% loss in the past year.

The company has a current market capitalisation of around $443 million.

Motley Fool contributor Matthew Farley 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 Scott Phillips

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