Premier African Minerals: State of the Union

As production once again comes promisingly closer, it’s time to assess the wider picture.

In 2023, I published seven articles on Premier African Minerals on InvestingStrategy (and many more indirectly linked), spoke on various podcasts, and even helped the plant developer — Stark Resources — launch a new strategy designed to engage more clients.

On that last note, I terminated my freelance agreement with Stark in November due to professional differences with the company’s leadership. I’ll leave it at that — though will note that I engaged with several exceptional individuals at the company in the brief time we worked together.

Here’s the titles from 2023:

• Chinese buyout: Understanding the Mindset
• What Needs to Happen Next
• Dissecting an RNS
• Classic FTSE AIM Case Study
• Deal or No Deal
• The Sting in The Tail
• What’s Going On?

There’s a reasonable chance you read these pieces throughout the year, and the titles alone tell quite a story. My last article was on 6 November and so I will need to cover some ground to get everything back up to speed but for the tl;dr among you: there’s good news and there’s bad news.

For new investors, you could do worse than read through these — I also have an occasional Substack newsletter and now Telegram Group — where there are more informal updates.

Let’s dive in.

Premier African Minerals: the road from November

When last I covered PREM, there were four clear issues to address:

• Ore sorter issues
• Instrumentation and material flow challenges
• Overall plant performance
• The delivery of competent grade to the plant

There was a looming question mark over whether November’s delivery would be made after CEO George Roach said the deadline would be comfortably met.

Spoiler alert: it wasn’t.

Now straight off the bat, there is some good news. Canmax has elected not to ‘punish’ PREM for late delivery because, again, their number one concern is spodumene delivery and putting the company under financial pressure is not going to make this happen faster. Instead, the Chinese major seems to have been lenient (while carefully neglecting to inform its own investors) and allowed PREM to use the cash it had on hand to attempt to get to production.

It’s worth noting that Canmax visited the Zulu site in the week before the delayed delivery RNS, so they will have known before investors that delivery wasn’t going to happen (and remember they are a large shareholder with a board member).

So, to updates:

14 November 2023

PREM tells investors that it is ‘considering’ (this means decided with Canmax for those who don’t speak RNS) ‘an early cessation of current plant operations with the longer-term goal of production at design capacity not being unnecessarily delayed.’

This was due to it ‘proving impossible to construct the civil works required for the new mill at the same time as continuing with present operations’ — at the time, the new ball mill was projected to arrive in December 2023 with full production to commence in January 2024.

While the RHA Tungsten mill had helped see a steady improvement in concentrates being generated alongside helping with optimisation, the company made the decision to make no shipments in November or December 2023 — and warned that Canmax had the various options as mentioned in previous RNSs.

As above, the Chinese chose not to be obstructive — though I am certain they are claiming the relevant interest on the amount left unpaid. This does make sense; Canmax wants 4,000 tons per month, and it seems the contract was deliberately designed so that PREM can ‘make up’ for missed 1,000 ton deliveries with one future shipment — in the knowledge that the plant will either deliver 4,000 tons or 0 tons, this makes sense.

At the same time, the company advised investors that ‘current mining and pit development operations will continue as will exploration in the wider EPO region,’ — or in other words, they would spend the downtime getting to the non-weathered ore needed to produce SC6.

There was also a Q&A announcement, but I ignored it as I could not see how anything of value could be noted at the time.

20 November 2023

Fast forward a week, and PREM noted that plant operations were partially suspended (this is RNS for stopped completely), to allow the 55tph ball mill civils to be constructed.

However, the XRT sorters and UV sorters were being allowed to continue to run (somehow while the rest of the plant was offline) as they needed to be ‘fully commissioned and optimised’ further — remember these sorters are needed to get to SC6 grade, and the specific mention suggests the OEMs were on site to sort them.

On the other hand, all the compromises needed for lower tonnages to be fed through the temporary ball mill were to be removed, and the company also planned to take advantage of the shutdown to repair any issues.

Again, PREM stressed that ‘mining operations will continue, intended to enlarge the pit envelope and allow for better selective mining and the avoidance of waste rock contaminating the ore feed to the plant.’ In other words, this further confirms the suspected ROM ore issue, and that the company needed to dig deeper to fix it.

Remember, there has been thousands and thousands of metres of drilling — the lithium is definitely there, but the pit envelope had not reached quality ore by this time.

PREM also noted that it might consider reprocessing previously contaminated concentrates, and while they seem to have decided not to bother, I suspect this decision will be revisited when the plant is operational.

Positively, the business noted that grades seen at the onsite lab produced from ROM ore ‘when the contaminants not associated with pegmatite material are removed’ met offtake partner requirements. I’ll translate again, lab grades reconfirm SC6 grade potential. However, getting these grades from the plant required pit development (better ore) and sorter optimisation.

7 December 2023

PREM moves the 55tph ball mill installation to late January/early February 2024 — remember the mill was meant to arrive in December previously. There’s a lesson there in how time works in Africa.

Regardless, Roach noted that ‘with these upgrades at Zulu, we expect to rectify the most significant of the deficiencies in the original plant design… ensure that spodumene floated meets specifications and to limit contamination of waste material (and in particular talc) that was not previously removed in the sorting process. Talc contamination that constituted the major concern originated from Serpentinite that should have been removed in the ore sorting process.’

If Talc was the issue, then this should have been removed by the ore sorters (particularly the XRT sorters) and suggests that the RHA Tungsten ball mill was working as planned to 2,000tpm, but that material fed in through the sorters was too contaminated to generate SC6.

At this point, it’s clear two main issues needed to be sorted: ore quality and the sorters. These were two of the issues from my early November article — though it seems installation of the RHA mill allowed the other general issues to be resolved — and PREM expected no delays to civil construction.

Again, PREM noted that ‘repeated test work’ meant that ‘SC6 production is now within our grasp.’ But investors also got some specific news: the on-site lab could produce a 5.7% Li20 grade from unsorted material, and a world-leading 7.4% grade ‘when hand sorting is used to simulate the effect of properly functioning ore sorters.’

Of course, even with the wages as they are in Zimbabwe, hand sorting is a bit slow when you need 4,000 tons of material per month — while the 5.7% lab grade is a given, without mention of whether contaminants remain.

However, Canmax had also ‘not called for payment related to the delayed delivery. In this regard, no further statement is anticipated.’ As above, this statement means PREM is not about to go into legal/financial meltdown — I have consistently argued that Canmax would not walk away — and that its priority is spodumene delivery from January 2025 as its other sources run out of contract.

Conversely, it does need to see evidence that production will start eventually.

11 December 2023

Oh joy, another raise. However, this one was expected — with the company raising £2.4 million (before expenses) at a 0.23p issue price — but with the carrot of Zulu planned to be producing in February 2024. Still an ambitious target, but one that had not slipped this time.

PREM also issued close to 800 million shares representing £2 million to Goddard (the open pit mining contractor) to settle invoices. Again this was expected, and shares were issued at 0.26p — and this practice is set to continue to when ‘when commercial shipments begin at Zulu in Q1 of 2024.’

Ignore the 20-day lock-up period; these are meaningless.

Roach noted that ‘the subscription and the contractor settlement should see Zulu through to production in February 2024. We are deeply encouraged that the subscription was taken up by two institutional investors with one of the investors having supported the Company previously.’

I am relatively confident that this was Canmax (though the share register should be updated to reflect this), and the company does not want to announce this support to its own shareholders who do not grasp that supply, not control, is the most important factor.

9 January 2024

Fast forward a month and an RNS and photos start to land. The civils are ‘largely complete,’ with first materials arriving. The new mill will be the last upgrade needed and will be at Zulu late in January, with operations restarting in early February — ‘as soon as possible.’ Further, PREM announced that the Board believes as previously reported that the Company is still on track to target revenue generating production by late-February 2024.’

It also believed production would start about a year ago, so perhaps take that one with a pinch of salt. For context, the Nomad Beaumont Cornish issued a legal disclaimer towards the end of the RNS — and if this particular Nomad wants some protection, then you really do need to do some RNS translation.

The good news is that PREM now anticipates ‘no issues associated with ore delivery to Run of Mine pad in future.’ This is very good news, as it leaves just the sorters as a potential issue which has not been reported as resolved. The company also noted that future reduced stripping ratios will benefit the company but that mining operations are a ‘major cash cost at present.’

I’ll translate — George needs more shares. I know this isn’t a popular thing to state outright, but here’s the thing: you get the mill in at the end of January. The company is — if you take the 11 December RNS at face value — funded to the end of February. If the mill goes in and production starts in early February, there needs to be no issues, no delays at all to get production up and running.

This is too risky for a public company, and especially one that has seen several delays already. There will be a need to call an EGM as Roach is out of shares — but perhaps he might try to wait until the first 1,000 tons are shipped to do this — with payment at gate. There needs to be a cash (or share) buffer regardless, and the key question is how many shares are asked for.

2 billion? Production is imminent/ongoing, but invoices need to be paid and financing needs to be bridged. Substantially more and it will send the message to the market that more delays are inbound.

Of course, you could ask a HNWI to get involved — or seek a royalty agreement or put some of the asset up against a loan — but PREM has got through with 100% of Zulu and giving it up for the sake of a small raise, having got this far, seems superfluous.

The remaining issue is the sorters — while rumours are swirling about colour sorters etc — the reality is that this last remaining issue has not been resolved, because if it had been investors would have been informed. The good news is that PREM has the rest of the month to get the problem sorted.

Assuming the sorters start sorting, the new ball mill works, and the plant is sufficiently optimised, and the ore quality is now sound, and there are no border delays, and Canmax remain friendly, and Mars is aligned with Jupiter, then February *could* see Premier African Minerals make its first delivery of SC6 to Canmax.

It’s worth noting that while more expensive than comparable WA operators, PREM also remarked that non-independently verified internal budget modelling brings an average mine gate cost to the order of $800 per ton for SC6 for the first 12 months of operation — not including lepidolite, mica, or tantalum production.

Despite the tanking lithium price, this means the company should be profitable at production — and spodumene prices are widely expected to pick up towards the end of the year and then start rising to a fair level.

The bottom line

George was adamant with Mark Fairbairn (StockBox) at Resourcing Tomorrow that he was ‘just two months away.’ This was in response to a question (I suspect many have asked) concerning speculation that PREM could seek a JV with Canmax based on the prepayment amount plus interest to date, and the $200 million valuation put on the Zulu assets within the reformed post-Force Majeure contract.

However, he also said that the November deadline would be met ‘comfortably’ and contaminants issues ensured this did not happen. An RNS stating that the sorters are fixed would bring significantly more investor confidence to the table — as the mill and thickener is old, proven tech — while the UV laser sorter in particular is a world-first.

There are some other key factors to mention: the 9 January RNS also noted that the Southeast pegmatite, circa 350m from the mining pit had a ‘lithium mineralisation in this pegmatite almost exclusively spodumene’ and cited a grade as low as 0.37% being viable to create SC6. The attached assay results are also promising.

Then there’s the Li3 question. Who’s bought the other 50% of Mutare? I speculate Chengxin, which owns the adjacent Sabi Star mine whose lithium strike runs through the Mutare claims, though Canmax has been rumoured, as has various wealthy associates of GR from the Uramin days. It wouldn’t surprise me if it was just PREM given the low cost — but this is another catalyst for down the line.

Some other factors to consider: Zimbabwe’s new budget both mentioned Zulu and plans to invest directly in lithium projects in the country. It also mentioned that lithium companies need to submit plans to take lithium to hydroxide levels — but PREM has Canmax on its side — and the Chinese are building these plants already. Remember, Canmax and CATL are in a JV together so this is not a big concern.

The other thing to remember is that PREM’s deal with Canmax involves a lithium hydroxide profit share, which will likely be based on long-term contracts with Ford that Canmax signed during the lithium boom. This makes the profit margins better than first appears.

But while there’s always uncertainty, I think a little perspective is important. While there has been some significant dilution, PREM issued 500 million shares at 0.2p in July 2021 for £1 million to help further understand Zulu.

At the time, it was to all intents and purposes a patch of ground. Now there’s a new plant, and thousands of metres more drilling, and a profit sharing deal with a Chinese major — on the verge of production — and the share price is again at 0.2p.

Could there be one more small placing? Yes.

Is the price now attractive? Also yes.

But had the company gone down the DFS route, it would still be drilling holes. And remember, if it all goes wrong, the worst-case scenario is that on 1 April 2025 Canmax will receive the outstanding amount of its circa $35 million pre-payment as a direct interest in Zulu based on the project valuation of $200 million. Add in some fairly hefty interest, and Canmax would probably take on a 25% share of the project at $50 million, leaving PREM with roughly 75%.

But production in a few weeks and a buyout shortly after is also a valid possible outcome.

This article has been prepared for information purposes only by Charles Archer. It does not constitute advice, and no party accepts any liability for either accuracy or for investing decisions made using the information provided.

Further, it is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.