At time of writing, the share price of AVZ Minerals Limited [ASX:AVZ] is up 8.7%, trading at 5.0 cents per share.
It’s been a disappointing year for the stock:
The latest news out of AVZ Minerals is with regards to its share purchase plan (SPP). There are some intriguing details contained in the prospectus.
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AVZ Minerals’ share purchase plan prospectus released
As we have covered previously, the SPP will take place at a 20% discount of VWAP (volume weighted average price).
This factor may have encouraged certain shareholders to enter the market.
AVZ Minerals also provided further detail as to what they will do with capital raise. The breakdown is as follows:
As the feasibility study was the stated aim of the capital raise, it has been allocated 20.66% of the total funds, with 22.27% going to site costs.
‘In the event the Company raises less than the $5,000,000 under the Top-Up Placement and less than $10,000,000 under the SPP Offer (the SPP Offer is underwritten to $5,000,000 by Patersons Securities Limited), the Company will scale back its proposed use of funds with resource drilling to be reduced significantly and all funds raised will be used towards completing the Company’s feasibility study. Other expenses will be scaled back on a pro-rata basis, with the exception of the expenses of the Offers which will remain unchanged.’
So in many ways the feasibility study still has pride of place, should the SPP be undersubscribed.
As stated in the prospectus, AVZ Minerals is attempting to increase cash reserves by $13,971,716, so investors may be looking for major shareholders to get involved in the SPP.
In relation to this, Section 8.5 of the prospectus states that the Directors, ‘Messrs Ferguson, Johnston, Brans and Loando or their related entities, being Eligible Shareholders, intend to take up their SPP Entitlements.’
The opening date of the SPP Offer is Monday, 4 February.
Will AVZ Minerals’ share price continue to recover?
As the prospectus notes, ‘The Securities the subject of this Prospectus should be considered highly speculative.’
So in essence, even the company admits the SPP is somewhat of a hail-Mary.
That being said, the sheer size of their resource is impressive.
If the SPP is successful and the feasibility study is done, the company will likely still need to secure additional funds to launch the mine (spodumene mines are generally quite capital intensive). This could take place via an offtake agreement or joint venture arrangement if all goes according to plan.
Not helping matters is recent violence and political instability in the Democratic Republic of Congo — so local regulatory/security issues may be encountered as well.
It is also worth noting that lithium prices are yet to recover to previous highs.
These are just a few things worth considering for potential participants in the AVZ Minerals SPP.
For Money Morning