This lithium miner will be on watch today…
The post Why the Pilbara Minerals (ASX:PLS) share price is on watch today appeared first on The Motley Fool Australia. –
The Pilbara Minerals Ltd (ASX: PLS) share price will be one to watch today.
This follows the release of an announcement by the lithium producer after the market close yesterday.
Why is the Pilbara Minerals share price on watch?
The Pilbara Minerals share price will be on watch on Wednesday following the release of an announcement after the market close. That announcement relates to the deal the company made with the Altura Loan Noteholders in respect to its acquisition of the Altura Lithium Project (now known as the Ngungaju Plant).
Having made an upfront cash payment of US$155 million in January to acquire the project, Pilbara Minerals recently agreed a deal to settle the deferred consideration through the issue of shares.
According to the announcement, Pilbara Minerals has now issued the first tranche of 32,670,451 shares to the former Altura Loan Noteholders. Based on the current Pilbara Minerals share price, this equates to ~$72 million in shares.
A similarly sized second tranche of shares will be issued following the approval of shareholders at a general meeting expected to be held in September 2021.
Why could this impact its shares?
There are a couple of reasons why this news could impact the Pilbara Minerals share price.
The first is through dilution. Issuing almost 33 million shares increases its share count and dilutes existing shareholders. Though, shareholders will need to decide whether the dilution is better than the company using cash or borrowing to make this payment.
The second reason this could impact the Pilbara Minerals share price is that there is no escrow period on these shares. This means that the former Altura Loan Noteholders could immediately sell the shares on-market if they wanted to.
This number of Pilbara Minerals shares is close to the average that is traded each day. This could put significant pressure on the sell side should the noteholders decide to cash in straight away.
Though, it is worth acknowledging that, given the company’s bright prospects, they could also be planning to stick around for the long term.
Pilbara Minerals shares are up a remarkable 152% in 2021
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.