WA Kaolin’s $7M Capital Raise Highlights Pressure to Deliver on Profitability Targets

• Fully underwritten accelerated non-renounceable entitlement offer to raise A$7 million
• Offer price set at A$0.04 per share, a 42.9% discount to last close
• Major shareholders committed A$2.6 million in accelerated rights and A$2.2 million in sub-underwriting
• Successful classifier project upgrade achieved finer grades, higher production rates, and improved yield
• Operations streamlined to target positive EBITDA at circa 50% of nameplate capacity

Capital Raise to Accelerate Growth

WA Kaolin Limited (ASX: WAK) has announced a fully underwritten Accelerated Non-Renounceable Entitlement Offer (ANREO) to raise approximately A$7 million. The capital raising is designed to provide the company with the necessary working capital to ramp up sales and move towards cash flow positivity at its Wickepin kaolin project in Western Australia.

The offer price of A$0.04 per new share represents a significant discount of 42.9% to the company’s last closing price of A$0.07, reflecting the company’s need to incentivize participation and secure funding promptly. Eligible shareholders will receive one new share for every three shares held, along with one free attaching option for every two new shares subscribed, exercisable at A$0.09 until June 2027.

Strong Support from Major Shareholders

The entitlement offer has garnered strong backing from WA Kaolin’s major shareholders, who have committed A$2.6 million in accelerated entitlements and an additional A$2.2 million in sub-underwriting support for the retail portion of the offer. Notably, Scientific Management Associates, holding 13.1% of the company, has committed to fully subscribing to its retail entitlement of approximately A$920,000.

Canaccord Genuity is acting as the underwriter for the offer, with Leeuwin Wealth and JP Equity Partners serving as co-managers and corporate advisors, ensuring a robust syndicate to support the capital raise.

Operational Milestone: Classifier Project Success

WA Kaolin’s recent classifier project upgrade, announced in January 2025, has exceeded expectations by achieving all three key objectives: producing finer kaolin grades, increasing production rates, and improving yield. This technical success is pivotal, enabling the company to access new markets such as fiberglass, paint, paper, and ceramics, and to enhance its competitive positioning.

Managing Director Alf Baker highlighted the significance of this milestone, emphasizing the company’s readiness to capitalize on these advancements to build sales momentum and profitability. The streamlined operations at the Wickepin project are now calibrated to operate at approximately 50% of nameplate capacity, targeting positive EBITDA generation.

Use of Funds and Outlook

The proceeds from the entitlement offer will be allocated primarily towards market and product development (A$1.8 million), working capital including inventory and debtors (A$3.4 million combined), plant improvements and safety (A$0.5 million), and offer costs (A$0.3 million). This allocation underscores the company’s focus on scaling production and sales while maintaining operational efficiency.

With the entitlement offer expected to close by early March 2025, WA Kaolin is positioning itself for a critical growth phase. The company’s ability to convert technical success into commercial outcomes will be closely watched by investors, especially as it seeks to transition from development to sustained cash flow generation.

Bottom Line?

WA Kaolin’s $7 million raise sets the stage for a pivotal sales ramp-up, but execution risks remain as it targets profitability.

Questions in the middle?

• Will WA Kaolin successfully convert its classifier project improvements into sustained sales growth?
• How will the market react to the significant discount in the entitlement offer price?
• What are the risks if the company fails to achieve positive EBITDA at the targeted production levels?