The Arafura Rare Earths Ltd (ASX: ARU) share price has returned to trade with a thud on Thursday.
In morning trade, the rare earths developer's shares are down 13% to 16.5 cents.
Why is the Arafura share price crashing?
The catalyst for this weakness has been news that Arafura has received firm commitments for a fully underwritten institutional placement.
According to the release, the company is raising $20 million through a two-tranche institutional placement at an issue price of $0.16 per share. This represents a 15.8% discount to where the Arafura share price last traded.
The company notes that the placement was well supported, with high levels of institutional participation. This included leading investor groups domestically and abroad. In fact, demand was so strong, it led to the decision to launch a two-tranche deal.
Tranche one of the placement will utilise the company's existing placement capacity under ASX Listing Rule 7.1. This will raise approximately $14.2 million from investors. Whereas tranche two, which will be subject to shareholder approval, will raise approximately $5.8 million.
Settlement of tranche two of the placement is expected to occur on 6 September 2024, subject to shareholder approval being obtained.
But it won't stop there. In addition to the placement, Arafura is offering all eligible existing shareholders the opportunity to apply for new shares through a share purchase plan (SPP).
The company is aiming to raise a $7 million (before costs) through the SPP, with the ability to accept oversubscriptions of up to $3 million. The SPP will be undertaken at the same price as the institutional placement.
Why is Arafura raising funds?
The company advised that the funds raised will support the advancement of the company's funding initiatives and be utilised for activities necessary to support critical path activities and compliance. In addition, they will be used to progress improvement ideas that reduce capital, schedule, and risk.
Arafura's managing director, Darryl Cuzzubbo, commented:
The two-tranche placement demonstrates the strong support for Arafura and the Nolans project underpinned by the updated robust project economics that were released earlier this week. Coupled with the SPP, this capital raising will provide us with the additional financial runway to work towards securing the equity capital required to fully fund the Nolans Project.
The company advised that it remains focused on the completion of the equity component of the funding requirements for Nolans (and offtake activities) by the end of 2024.
The Arafura share price is down 47% since this time last year.
