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.
What now for Encounter Resources Ltd?
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!
Resources Analyst, Markets & Money
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