Here's why the Galaxy Resources (ASX:GXY) share price is in a trading halt

The Galaxy Resources Limited (ASX: GXY) share price is in a trading halt whilst it undertakes a $161 million equity raising…

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The Galaxy Resources Limited (ASX: GXY) share price has been an impressive performer this month.

Since the start of November, the lithium miner's shares have stormed 43% higher.

However, the Galaxy share price won't be extending this incredible run on Wednesday after it requested a trading halt.

Why is the Galaxy share price in a trading halt?

This morning the company has decided to take advantage of this strong share price rise and undertake an equity raising.

Galaxy has announced that it is aiming to raise a total of $161 million from investors. This comprises a fully underwritten $111 million institutional placement and a $50 million fully underwritten 1 for 14 pro-rata accelerated non-renounceable entitlement offer.

According to the release, the company is raising the funds at $1.70 per new share, which represents a 15% discount to its last close price of $2.00.

Why is Galaxy raising funds?

Given that Galaxy already had a significant cash balance, investors will no doubt be wondering why it has launched its equity raising.

The release explains that the proceeds from the offer will be applied to Sal de Vida Stage 1 and fund pre-development activities to progress James Bay to a construction ready status.

Management notes that the successful completion of the offer would deliver funding certainty in order for it to continue with the Sal de Vida Stage 1 capital program and meet previously stated development timelines, mitigating pricing uncertainty of alternative funding routes arising from COVID-19.

Upon completion, Galaxy's balance sheet will be further strengthened with pro-forma cash and financial assets to increase from US$102 million (as of 1 November 2020) to US$219 million (before offer costs).

Galaxy's CEO, Simon Hay, commented: "This Equity Financing provides Galaxy with an enhanced level of certainty to commit to execute and develop Sal de Vida into a successful, lowest-quartile cost lithium brine operation. Securing this funding for Stage 1 would allow us to confidently proceed into the early works phase, contract long lead items and complete pond construction in 2021 during the weather window."

"With EV demand continuing to rise in Europe and North America, we will also accelerate James Bay to a construction ready status as these regions seek to localise raw materials supply and/or build-out lithium chemicals capacity. We will utilise these funds to advance and execute the development of our world-class assets and ultimately seek to contribute to supplying the expected global demand surge in lithium," he concluded.

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Motley Fool contributor James Mickleboro owns shares of Galaxy Resources Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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