Australian Mines Share Price Tumbles Despite Million Dollar Off-Take

The share price of Australian Mines Limited [ASX:AUZ] has continued its downward trend from yesterday, tumbling a further 2.56%, now trading at 3.8 cents per share.

Australian Mines was formed in 2001 with nickel exploration and production as its initial focus. The company is now involved in the exploration and production of cobalt and nickel with several projects located throughout Australia.

What’s happened to Australian Mines Share Price?

Early last year Australian Mines and South Korean electric vehicle battery manufacturer, SK Innovation, signed a binding off-take agreement to purchase cobalt and nickel form AUZ’s Sconi project.

Under the agreement, SK Innovation will purchase 100% of the battery-grade cobalt sulphate and nickel sulphate from the Sconi mines for an initial seven-year period, with an option to extend the agreement for a further six years.

According to a feasibility study released by AUZ, the agreement equates to revenue of $512 million per year in average annual sales of cobalt sulphate and nickel sulphate.

Today, the company released an update on the agreement.

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As part of the off-take, SK Innovation was entitled to a buyer discount on the base price of the agreement, provided they purchased 669 million Australian Mines ordinary shares at $0.12 per share by 20 February 2019.

The company announced today that SK Innovation had decided not to purchase AUZ shares and will instead pay full price.

The decision to forego the purchase seems to have indicated that SK Innovation believe AUZ shares are not worth the premium.

A decision which has seemingly resonated with investors, seeing the share price continue to dip.

Whats next for Australian Mines?

Despite SK Innovation’s decision to forego the discount, the agreement is binding and will go ahead as planned — for now.

Australian Mines likely offered the share purchase as a way to raise much needed funds to continue further development of their projects.

While some investors will no doubt be pleased to see their holdings diluted by a 669 million share placement, it should not come as a surprise if AUZ announce a capital raising scheme in the coming days or weeks.

At the end of 2018, AUZ reported it had about $0.5 million cash on hand along with approximately $2.45 million in R&D rebates and GST refunds.

With the Sconi project not scheduled to begin production until 2021, and the agreement to supply 90% of SK Innovation’s total cobalt requirements, AUZ will likely need to raise funds to ensure production begins.


Ryan Clarkson-Ledward,
For Money Morning

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Ryan Clarkson-Ledward is an Editor at Money Morning.

Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects.

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