This ASX mining share just crashed 37%. Here's why

Investors have turned sour on this small-cap mining share…

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Key points

  • Kalium Lakes shares are plummeting almost 37% after the company released details of its capital raise
  • The company is offering a heavily discounted offer to institutional and retail investors
  • Kalium Lakes is hoping to raise a total of $30 million to fund its Beyondie Sulphate of Potash Mine

The Kalium Lakes Ltd (ASX: KLL) share price is having a day to forget.

This comes after the mineral exploration share provided investors with an update on its latest capital raising efforts.

At the time of writing, Kalium Lakes shares are down 36.96% to 5.8 cents apiece.

In comparison, the All Ordinaries Index (ASX: XAO) is hovering 0.38% lower at 7,353.40 points.

Why is the Kalium Lakes share price in a freefall?

Investors are scrambling to sell Kalium Lakes shares as the company prepares to dilute existing shareholder value.

According to its release, Kalium Lakes has received firm commitments to raise $22 million through a two-tranche placement.

The offer consists of a first tranche of up to 177.3 million new shares to raise up to approximately $7.1 million. This will be utilised under Kalium Lakes' existing placement capacity.

The second tranche is a conditional placement of up to 372.7 million new shares to raise approximately $14.9 million. The tranche is subject to shareholder approval at the company's general meeting to be held in late September 2022.

The issue price for the placement will be 4 cents per share, which represents a 56.5% discount to the closing price of 9.2 cents on 9 August.

In addition, Kalium Lakes will offer all existing eligible shareholders the opportunity to participate through a share purchase plan (SPP).

The offer aims to raise up to $8 million and will be offered at the same price as the two-tranche placement.

Notably, Kalium Lakes' largest shareholder, Greenstone Resources, has committed to take up to $8 million under the placement. The private equity fund has approximately 19.6% of the shares currently on issue. With this investment, its holdings will bump up to a maximum of 24.9% post the capital raising.

Furthermore, Kalium Lakes co-founder and director Brent Smoothy will opt in to buy $2 million under the placement.

The proceeds will be used to fund additional working capital during the ramp-up of Kalium Lakes' Beyondie Sulphate of Potash Mine in Western Australia. Management is targeting an initial production run-rate of 80,000 tonnes per annum by the first quarter of 2023.

The company also successfully negotiated the terms of a debt restructure with its two senior lenders.

What did management say?

Kalium Lakes CEO Len Jubber commented:

We are pleased to have successfully undertaken the debt restructure and received firm commitments for the necessary additional equity injection.

This places the business in a position to now deliver on the targeted ramp-up profile at Beyondie, commencing with the full restart of the SOP process plant in September. I would like to thank our financiers and major shareholders for their support in this process, as well as welcome all new shareholders to the Kalium register.

After today's heavy falls, the Kalium Lake share price has lost 69% over the past 12 months and is down 55% in 2022.

Motley Fool contributor Aaron Teboneras 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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