PREM shares have remained flat after massively positive PR coverage. Here’s why.
For those of you following my coverage of Premier African Minerals since mid-2019 — whether invested or not, you should have a fairly good idea of what the company’s crown jewel is, and how far CEO George Roach and associates STARK have come in the space of a single year to develop the Zulu Lithium Project from bush and scrubland to functional plant.
I’ve covered mining companies across the US, Africa, and Australia in depth for years, and this development alone is a seriously impressive feat.
It’s hard to overstate just how inspiring this is — and for the duration, CEO George Roach has maintained 100% ownership of one of the most promising lithium projects in the world. And he’s now delivered some of the best PR a FTSE AIM company has ever seen through StockBox’s four-day visit.
Tuesday comes, the market opens, and what does the share price do? Nothing. Diddly squat.
There are some good reasons why. Let’s dive in.
PREM: new information acquired
To start with, it’s probably helpful to summarise the key findings made by StockBox on its visit. I can’t get every single detail as this would be fairly overwhelming, but in summary:
- loads of SC6 bagged live on air
- pressed first spodumene cake
- the first shipment expected to be within seven to 10 days
- an ongoing full schedule is expected within a fortnight
- pilot plant was reclarified as simply ‘the plant’
- plant design means upgrades and enlargement are very easy
- the ore body was described variously as excellent, wonderful, and exemplary
- Roach hopes to consider paying dividends in the medium term
- Presidential visit imminent
- President’s secretary was on site and seemed pleased
- Zimbabwe Mining Minister Chitando on-site last week
- EPO license very close to being granted with no problems expected
- government and local people extremely happy with development
- consistently 400+ employees on-site
- 24 hour shift operation
- 50,000 tonnes per annum currently possible, an increase to 200,000tpa possible in time
- ore is being supplied by third parties for PREM to process
- 10-15 year mine life expected at Zulu, perhaps longer
- new sites constantly being drilled
- RUS expected relatively soon with masses of data already collected
- RUS is not a priority, instead plant optimisation and revenue generation
- professional PREM documentary being developed
- PREM has negotiated with STARK to develop the plant further or expand to a second
- STARK plant the first to target Spodumene with XRT sorters and UV (so 0% cut-off grade)
- funding perhaps the only short-term problem
Please accept my apologies if there is something key that I have missed — this list is from notes I have been making throughout the visit, and there may be elements that I have already taken for granted.
One thing that is close to my heart is that local people are clearly being well taken care of. Zimbabwe has low employment, a 140% base interest rate, and 87.6% inflation. 77% of transactions are currently conducted in US Dollars as the economy is so volatile.
For context, inflation in July 2020 was 737%, and it peaked at 89,700,000,000,000,000,000,000% in November 2008. That’s not a typo.
PREM is building housing and bringing in jobs and foreign currency — this is very much wanted, and workers are smiling for genuine reasons. There will be huge competition for future jobs on offer.
I think it would hard for even the most die-hard PREM sceptic to say that this coverage has not been extremely positive. However, while I had hoped for serious share price movement, I also knew that this was unlikely. That’s because while we may have some excellent footage, there are some concrete factors that need to be addressed before the next move up.
PREM: what investors need to see next
Imagine that you are billionaire multi-billionaire Chinese super investor Pei Zenzhue — who visited the site on 12 January. Forget about that? I haven’t.
Before you commit to spending a king’s ransom, you need to do your due diligence. I’ve talked before about the possibility of a Chinese buyout, including previous times when investments saw the Chinese get burned. Please read this analysis, as it is pretty in-depth and took some time to compose.
Three issues need to be sorted out before an offer can be contemplated:
1. Short-term funding
Officially, the RNS from 27 April states that ‘cashflow is constrained at Zulu, this is expected to be short term and Premier will implement applicable financing measures to deal with this in the lead up to first revenues from sale of concentrates in the coming weeks. Further near-term updates will follow.’
Partner Canmax (formerly Suzhou) is charging 3.5% interest on the prepayment of $34,644,385 from the 1 April 2023 until the product is ‘supplied’ after missing the 31 March deadline. There’s a hard deadline of 30 May 2023, after which Canmax can terminate the 2022 agreement.
Of course, Canmax is wildly unlikely to walk away from Zulu — and I also consider it likely that it will waive the interest as a gesture of good faith once production ramps up.
In the live interview, Mark asked ‘Do you need to raise funds, or will you be okay?’
Our CEO responded (not exact words) with ‘if there’s a requirement to fund an interim gap of a month or whatever it might be — I don’t see that necessarily as being anywhere close to the same level of significance attached to what it would have had three years ago.’
The board has been clear — and from a strategic standpoint this is absolutely imperative — that Zulu needs to remain 100% owned. There are options (treasury stock) available to cover short-term costs, and I don’t think that a placement can be issued without calling an AGM and shareholder approval.
It is likely that there may be an extension to the Canmax loan, a loan from the Zimbabwe state, or even a standard bank loan. Even if PREM could issue more shares, it would probably cause significant investor disquiet for a relatively small sum.
To be clear, this amount is literally meaningless in the wider context. But until sorted, it will continue to undermine any upwards share price movement.
2. Production numbers
Investors now know that the plant is switched on, that spodumene is being produced and bagged up, and that first deliveries/sales are imminent. But Roach’s giddy hopes to get up to 50,000tpa in short order, and then to perhaps 200,000tpa over the next few years is currently just ambition.
It seems perfectly possible to me, but what investors need to see is a month of solid, profitable production, with exact figures. We then need to see production start to rise to meet this 50,000tpa ambition. This may take several months, perhaps longer.
I’ve already noted that new plants tend to come ready-made with ‘spanners in the works,’ and fully expect that optimisation and enlargement will come with several minor issues.
Those of you with short memories might have forgotten the RNS of 29 March — ‘an error on the part of the plant designers led to a late change in reagent dosing and reagent requirements. This and a combination of late delivery of certain components of the floatation system of the plant, a severe wet season in Zimbabwe and the continued issues of slow import clearance of essential plant at Beitbridge’ caused the initial production delay.
Any wrinkles — and I’ve covered mining long enough to know there will be some — will need to be smoothed out.
3. Concrete RUS and wider EPO licence
These are the two crucial RNSs holding back the floodgates. First is an updated Resource Upgrade Statement — Roach is very enthusiastic about the data received so far, but any would-be buyer needs concrete details. If the RUS is as good as I expect, the SP could rocket. But it’s worth noting that this is not the current priority — the CEO wants production running smoothly first.
Second is a fully granted, signed wider EPO licence which covers the entire Zulu claims. This is an absolutely monstrous land area, and while it appears that this is 95% likely to happen very soon, there can be no guarantees until this RNS lands.
To be clear, I am confident that both the RUS and EPO documents will come, but I am also certain that no buyout offer will be forthcoming until both are in the company’s possession. I also know many investors aren’t prepared to increase their holdings until this happens — and this is not unreasonable.
Also — and I’ve made this point before — these things will take some time. Roach has done the impossible with development so far, so deserves some patience.
The buyout question
I have compared PREM to Pilbara Minerals in the past — another lithium miner I covered all the way to its current dizzy heights.
I was therefore not surprised to hear the CEO being asked to compare PREM’s potential to the ASX-listed major, which is currently worth AU$14 billion. Specifically, whether it could get to half this valuation. At the moment, this is all conjecture because I strongly believe that a buyout is coming long before PREM reaches anywhere near this number.
Again, I’ve made the case for the buyout already. But as a reminder, the 29 March RNS noted that ‘Premier has received a number of requests from other mining companies already well established in Zimbabwe to discuss our intentions in regard to the future of Zulu for either future offtake and/or direct equity investment into Zulu.’
Discussions with multiple interested parties are ongoing, and Canmax is involved as is Pei Zenzhue. And there’s then the handful of Chinese companies already pumping over $1 billion of capex into the country after buying out every likely claim.
Investors scratching their heads over why the share price hasn’t moved can point to the three main points above. But the thing to understand is this — you were already in. You own shares, and it makes no sense to buy more at 1p after watching the StockBox reports. Why would you? You could have bought for less at any point over the past year.
My view is that the StockBox visit wasn’t designed to please current investors or bring more retail interest onboard. Premier African Minerals is already one of the most high-volume stocks on AIM.
Instead, it’s a professionally conducted sales pitch aimed at potential buyers in an auction for PREM’s crown jewel.
My view is that George will fix the short-term funding issue, sign off the RUS and EPO licence, and get some quality production numbers. Then he’ll open up the auction house.
First bid — 3p.
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.