Sandfire Resources NL [ASX:SFR] shares have incurred a staggering drop of over 6% within the first few hours of today’s trading. At time of writing, shares are trading at $7.26.
This comes as a shock after the mid-tier mining company’s notable 8.5% climb yesterday, following the release of impressive FY18 financial results.
Sandfire announced a net profit increase of 59% from 2017 figures, and share prices responded accordingly.
The last announcement
A few hours after the financial results were released, the ASX also announced the granting of a waiver for Sandfire’s strategic investment and partnership with Adriatic Metals.
Adriatic Metals plc [ASX:ADT], recently listed on the ASX, is a zinc polymetallic explorer who is committed to the developed of their 100% owned high-grade zinc Vares Project in Bosnia and Herzegovina. Teaming up with Sandfire, one of the leading copper producers in Australia, and 100% owner the high-grade copper-gold mine, DeGrussa, was a logical choice for both parties.
Adriatic CEO Geraint Harris said of the partnership:
‘Securing a high-quality partner with world leading expertise in the exploration and development of base metals projects, is a strong endorsement to the quality and potential of Adriatic’s portfolio following an exhaustive period of due diligence.’
On 1 May 2018, Sandfire obtained a 7.7% interest in Adriatic Metals, investing $2 million in shares.
The recently announced waiver grants the Anti-Dilution Right to Sandfire regarding their cornerstone investment. This means regardless of any new rounds of financing Adriatic undergoes, and no matter how many additional shares they issue, Sandfire’s stake in the company will never drop below that 7.7%.
So why the overnight share price drop?
Well, part of this anti-dilution is that Sandfire’s potential interest in Adriatic Metals is somewhat capped.
In fact, one of the clauses of the waiver indicates that ‘The Anti-Dilution Right lapses on…Sandfire’s relevant interest in the Company’s securities increasing to above 19.99% on an undiluted basis’.
More importantly, this anti-dilution arrangement could suggest that Sandfire are not completely confident in this partnership. As the waiver helps Sandfire retain the 7.7% interest despite performance highs or lows by Adriatic, it acts a sort of investment security net for the company.
Today, Adriatic shares are also down trending, which could also be contributing to Sandfire’s significant drop in value.
What this means for Sandfire
Even as I am writing, the Sandfire share price is slowly creeping back up.
While such a massive decrease in less than 24 hours is concerning, the promising figures from their FY18 results ensure the company is capable of achieving significant growth in the future.
This being said, the change in global demand of metal resources may also be future spanner in the works for any mining-based company.
As always, only time will tell of the future of this company.
For Money Morning
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