AVZ Share Price Sinks 9.5% on Quarterly Update (ASX:AVZ)

The AVZ Minerals Ltd [ASX:AVZ] share price fell today after the release of its June quarterly.

The lithium stock was trading for 19 cents at time of writing.

ASX AVZ - AVZ Share Price ChartSource: Tradingview.com

AVZ Minerals, which focuses on developing its Manono Lithium Project in the Democratic Republic of Congo, released results for its June quarter.

The miner’s financial results reminded investors just how important AVZ’s July $40 million placement was for its financial viability.

Less than a quarter of funding left

One of the biggest takeaways from AVZ’s June release was its strained cash position prior to the $40 million cash injection.

At the end of June, the miner had less than a quarter of funding available. If its cash position didn’t change, it was set to run out of money in less than three months.

How did it come to that?

While AVZ recorded a modest cash operating loss of $155,000 for the quarter, it recorded a $3.42 million net loss from its investing activities on the back of $3.35 million in exploration and evaluation costs.

That was a substantial cash drain for a firm that started the quarter with $5.97 million in cash and cash equivalents.

AVZ ended the quarter with $2.48 million in cash.

If its total outgoings for that quarter — $3.5 million — were similar to its next quarter, AVZ would not have had the cash to cover it.

Timely capital raise

Just days after the end of the precarious June quarter, AVZ received ‘strong support’ from institutional, sophisticated, and professional investors for a $40 million placement.

307,692,308 new shares were issued at a price of 13 cents per share. The placement shares were settled on 6 July.

AVZ will use the cash injection to raise its stake in the Manono Project from 60% to 75%.

It will also earmark the proceeds for project finance negotiations, working capital, and a ‘contingency cost buffer.

DFS update delayed

In a further potential explanation for today’s sharp market reaction, AVZ explained that the optimised DFS update — previously slated for release this month — was deferred by AVZ’s board.

For reference, last week, AVZ released an operational update, which included news on the company’s optimised definitive feasibility study (DFS).

There, AVZ said the DFS update ‘will be released following its completion and final sign off by the Board, which is anticipated in the coming weeks.

An attached indicative timetable showed the DFS was scheduled for late July 2021.

Today, however, AVZ Managing Director Nigel Ferguson explained the ‘Board has decided to defer the document release as it undergoes further internal reviews ahead of a decision regarding the award of the Mining Licence.’

No further details were provided as to when the DFS update will be released.

AVZ share price outlook

Bullish investors may point out that today’s significant share price fall is more than offset by AVZ’s gains in the last 12 months, which come to more than 240%.

However, year to date, AVZ shares are up only 11%. In the same time, the ASX 200 is up 12%.

The run-up in AVZ shares has evidently stalled. But that’s unsurprising.

After all, AVZ’s share price went from 9 cents in late December 2020 to 22 cents in mid-January 2021.

Such gains usually mean plenty is already priced in.

AVZ trading largely sideways since its 52-week high in January may simply suggest the stock hasn’t done much the market hasn’t already anticipated.

That’s why the deferred DFS update could have worried some investors. Scheduled for a late July 2021 release, the update is now deferred without a concrete timeline.

If you’re researching lithium stock investments and want more information or ideas, then I’d recommend reading Money Morning’s free 2021 lithium report.

If you’re keen for more reading, this report on energy disruption is also a great resource. It goes through finding promising energy stocks and discusses why the energy market is ripe for massive disruption.

Regards,

Lachlann Tierney,

For Money Morning

PS: In this new report, Money Morning’s Ryan Dinse reveals why he is convinced that lithium is going to rebound in 2021. Get the FREE Report


Lachlann Tierney is an Analyst for Money Morning and has been investing for nearly a decade. With a Masters of Science from the London School of Economics, he brings a sound understanding of global markets to his writing. Lachlann is interested in emerging technologies, energy solutions and helping people invest their money wisely. Recently he has been working with Ryan Dinse. Lachlann is involved in two publications:


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