Why did this ASX All Ords stock just crash 24%?

What is weighing down this lithium stock today? Let's find out.

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The Galan Lithium Ltd (ASX: GLN) share price is having a very tough start to the week.

At one stage, the ASX All Ords lithium stock was down 24% to a 52-week low of 22 cents.

Its shares have since recovered slightly but remain down by over 18% at 23.7 cents.

Why is this ASX All Ords stock crashing?

The catalyst for this decline has been the company receiving firm commitments for an equity raising of $14 million to institutional, sophisticated, and professional investors.

According to the release, these funds will be raised at 23 cents per new share, which represents a 20.7% discount to where the ASX All Ords share last traded.

In addition, participants under the placement will receive one new unlisted option for every two shares subscribed. The new options will have an exercise price of 35 cents each and have an expiry date of two years from their issue date. However, the new options will be issued subject to shareholder approval at a general meeting to be held in early to mid-July 2024.

Why is it raising funds?

Management notes that the equity raising will provide working capital headroom and financial flexibility for the ongoing development of the Hombre Muerto West (HMW) Phase 1 construction. This is whilst it finalises negotiations of alternative funding solutions, which includes debt and prepayment facilities that will enable the completion of HMW Phase 1.

HMW is a ~16 km by 1-5 km region on the west coast of Hombre Muerto Salar neighbouring Arcadium Lithium (ASX: LTM) to the east. It is currently comprised of twenty one mining tenements. The company highlights that geophysics and drilling at HMW demonstrated significant potential of a deep basin.

A binding offtake and financing agreement (pending due diligence) for Phase 1 production has been signed with Glencore plc. (LSE: GLEN). In March 2024 an updated mineral resource estimate was delivered totalling 7.9Mt of LCE @ 883mg/l Li.

The ASX All Ords' lithium stock's managing director, Juan Pablo Vargas de la Vega, was very pleased with the outcome of the capital raising. He commented:

We are delighted with the support for the Placement and welcome a number of new investors to the register. In addition, on behalf of the Board of Directors, I would like to thank our shareholders for their ongoing support. Funds raised from the Placement will allow the Company to further progress negotiations to complete the already advanced development of its 100% owned Hombre Muerto West lithium brine project in Argentina. We look forward to putting investors funds to work.

Motley Fool contributor James Mickleboro owns Arcadium Lithium shares. 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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