Why Encounter Resources Ltd Jumped Today

At the time of writing, shares of Encounter Resources Ltd [ASX:TKM] are up by 70%, to 6.8 cents per share. The share price jumped nearly 100% to hit 8 cents earlier in the day.

Why did Encounter Resources Ltd shares do this?

The company welcomed $2.5 billion-capped Independence Group NL [ASX:IGO] as a new major shareholder and partner in advancing the Yeneena Copper-Cobalt project in the Paterson Province, Western Australia.

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What now for Encounter Resources Ltd?

The share price reacted strongly to the favourable news:encounter resources graph commsec

Encounter Resources has been in a rocky downtrend from its high of 10 cents in December last year. Today’s jump was a refreshing break for investors. That said, the share price is trading at resistance of 7 cents.

It might hold around there…or a tad higher.

Independence Group subscribed to a placement of 24 million ordinary shares at a price of 7.5 cents. That’s a 60% premium to 20 trading day VWAP, raising the company $1.8 million. The best news: Encounter said it will use ― at least ― 80% of the funds to explore Yeneena.

Furthermore, prior to 1 March 2020, Independence Group can farm into the project and spend up to $15 million to earn a 70% interest in Yeneena. Put differently, Independence Group can assess the numbers over the next year and a half, before really contributing to the drill program. So, if the numbers don’t stack up, IGO can walk away.

The bottom line: Despite the 70% jump in the share price today, the overall deal isn’t amazing for shareholders in the long run ― they could lose 70% of a potential world-class resource. That said, the company is cashed up and ready to drill. If the company taps the big one, shareholders could make a fortune in the short term!

Jason Stevenson,
Resources Analyst, Markets & Money

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Jason Stevenson is Markets & Money’s resource analyst. He shares over a decade’s worth of investing and trading experience across resource stocks and commodity futures and options. He originally studied accounting and finance at Curtin University, where he was awarded a first-class honours degree. His professional background stems across high-net-worth, top tier accounting (corporate finance, tax and auditing), and sell-side equities research. Before joining the team at Markets and Money, Jason worked at boutique firms which advised fund managers and high-net-worth clients on where to invest. Whether it’s gold, crude oil, copper or an obscure metal like vanadium, you can rely on an in-depth analysis in Markets and Money. Jason also brings you extensive macro, political and geopolitical analysis from around the world. He leaves no stone unturned when it comes to telling the truth. Jason is also the lead analyst of Gold Stock Trader, a premium service for investors serious about precious metal stocks. Websites and financial e-letters Jason writes for:


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