Standard Lithium is raising money and diluting shareholders, but it’s the right move.
Shares of Standard Lithium (SLI -23.01%) plunged 27.9% on Friday as of 11:43 a.m. ET.
Standard Lithium operates a significant lithium mining project across East Texas and Arkansas. The company’s stock has recently benefited from the government’s renewed focus on enhancing domestic sources of critical materials.
In late September, the Department of Energy announced it would take a 5% equity stake in Standard Lithium’s peer, Lithium Americas. This news led to a surge in stock prices for both Standard Lithium and other miners of critical materials.
However, Standard Lithium is now leveraging this stock surge to sell additional equity to fund its operations.
Standard Lithium sells $130 million in stock
Last night, Standard Lithium announced it would sell nearly 30 million shares at $4.35 per share, raising approximately $130 million.
Given that Standard Lithium’s stock closed the previous day at $5.39 per share, this sale represents a significant discount. Interestingly, following today’s drop, the stock now trades below even the discounted price offered to underwriters’ clients.
Shareholders shouldn’t be surprised by this dilution through an equity raise. Despite holding potentially valuable leases, the company reported only $33 million in cash on its balance sheet at the end of the second quarter. Additionally, Standard Lithium is in a “pre-commercial” phase, which also means it is “pre-revenue.” Therefore, it was highly likely that the company would need to raise funds to support its mining operations at some point.
The recent stock rally provided an excellent opportunity to do just that, allowing the company to raise capital without incurring debt.
Image source: Getty Images.
Standard Lithium is another highly valued strategic asset
The Trump administration is actively seeking to enhance the U.S.-based supply of critical materials to reduce reliance on China. Standard Lithium is among several speculative plays on critical minerals that have seen significant price increases this year.
While it may be wise to include some of these stocks with strategic assets in your portfolio, many have surged based on non-fundamental factors. Consequently, they pose higher risks at these elevated valuations, as demonstrated by Standard Lithium’s recent performance.
Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
