Coolabah (ASX: CBH) shares are up 30% today on the announcement of a lithium deal. To be funded, in part, by a share issuance. The deal looks interesting at least - but what's unusual is that the issuance of more stock has been greeted with that share price rise. Clearly, investors think that it's a very good deal. Whether they're right or not is another matter but they do, obviously, think that it's a good set of moves to make.
The specific idea is that Coolabah will take over a couple of prospective lithium areas in Canada. That idea is explained here. The properties are near, beside, areas that are known to host substantial spodumene reserves; Canada's a good mining jurisdiction, the infrastructure is in place in that developed nation and so on. There's also a strong political desire to have more North American lithium production for national security reasons and so on. It's all very early days, these are prospective deposits that have to be explored and tested before there's any proof there's anything there. But the price to risk ratio is seen as interesting.
Coolabah Metals share price from ASX.
However, then we get to the other side of the ledger. Given this stage of development there is no possibility of debt financing. Simply because there is no asset against which debt can be secured. So all and everything has to be done with shareholder capital. Which means that to do anything there's going to be an issue of new shares. Which is exactly what has happened. But here's the thing - normally new stock gets sold at a discount to old stock. That's just the way it works. But Coolabah was able to get this new issue away at a - very slight - premium to the extant share price. Fractions of a cent but still a premium. So, there's no overhang of stock, all is already placed and paid for. Effectively, those who bought in at this 10 cents are convinced that the Canadian deal is a jolly good idea. And if they think so then so perhaps should the rest of us - and thus the share price rise.
