It's lithium capital raising season: 4 juniors tap into investors to speed up exploration

Lithium has been one of few sectors that managed to withstand the brutal market selloff on Wednesday.

There were even a few names that managed to reverse steep losses and close in positive territory while the ASX 200 nosedived -2.58%.

As lithium stocks rally into near-term if not all-time highs, a few small-to-mid cap names are pulling out the at times dreaded capital raising card.

Recent lithium capital raisings

Source: Company announcements | Table: Market Index

Why now?

Companies want to raise capital when their share price is high: Several small cap lithium explorers have rallied more than 100% from June lows. If the said company's market cap has doubled from $100m to $200m, a hypothetical $20m raise is proportionately smaller after the re-rate. That's why you see a lot of small cap companies release good news followed by a capital raise.

The money is there: If lithium is outperforming the market and able to reverse steep losses on Wednesday, it suggests that capital continues to flow into the hot sector. In late August, Macquarie upgraded its earnings forecasts for most large cap producers including Pilbara Minerals (ASX: PLS) and Allkem (ASX: AKE).

Moving expeditiously: Several small caps are aggressively exploring for lithium and trying to progress key economic studies. In the end of the day, explorers are unprofitable companies and will continue to require funding through the several phases of exploration, studies and project construction.

What's interesting

Generally speaking, capital raisings tend to weigh on share price performance given its dilutive effects and the discount applied to new shares.

Lithium Power resumed trading on Friday, 9 September after the $25m raise that issued new shares at 60 cents, a 13.7% discount to its last close.

The company's shares closed -6.5% lower on that Friday. But just two days later, powered its way back up to pre-raise levels.

Lithium Power chart (Source: TradingView)

The story is the same for Lithium Energy, which raised $15m at $1.00 a share or an 18.5% discount to its last close. It resumed trading on Thursday, and its shares staged a V-shaped intraday bounce from -8% to 12.5% by noon.

Lithium Energy chart (Source: TradingView)

Quite clearly, the raises have been very well received.