Why are Lake Resources shares crashing 20% on Tuesday?

This lithium share is having a tough session on Tuesday. What's going on?

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Lake Resources N.L. (ASX: LKE) shares have returned from their trading halt and crashed deep into the red.

In morning trade, the lithium developer's shares are down 20% to 9.2 cents.

Why are Lake Resources shares crashing?

Investors have been selling the company's shares this morning after it announced the completion of an institutional placement.

According to the release, the company has received firm commitments to raise $15 million at 7 cents per new share. This represents a whopping 39.1% discount to where Lake Resources shares last traded.

Management advised that the placement received strong support from offshore and domestic institutional and sophisticated investors, leading to the introduction of new high-quality investors to its register.

The company will now seek to raise a further $5 million from retail investors through a share purchase plan (SPP) at the same offer price.

Why is it raising funds?

These funds will be used to keep the lights on at Lake Resources while it aims to complete its ongoing strategic partnership process. This process is expected to conclude in the second half of the year. The company explains:

The Offer enhances Lake's balance sheet by providing additional working capital and financial flexibility during the strategic partnership selection process for Kachi. Lake is actively conducting outreach to a wide array of potential strategic partners including car and battery manufacturers, lithium producers, oil and gas companies, sovereign wealth funds and private equity. The strategic partnership process is scheduled to conclude in the second half of the year.

Lake's CEO, David Dickson, adds:

We are pleased with the level of support shown for Lake from both existing and new shareholders. The equity raising will provide funding capacity to support the delivery of the strategic partnership process. We are pleased to offer our existing retail shareholders the ability to participate in the capital raising via the SPP.

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 Scott Phillips.

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