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Premier African continues to fail to deliver

By Gary Newman | Sunday 7 January 2018


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.


There was a time when Premier African Minerals (PREM) looked to have genuine potential, but in the few years since then it has consistently disappointed investors and is now trading at a fraction of the share price it once hit.

On the website of this mining company it states: ‘The company is managed by a dedicated team of professionals which have a strong track record of project development and value creation.’

But I think that many investors here would beg to differ, given the share price performance in recent years and the fact that the shares are now trading at just 0.24p to buy, following bad news relating to its only actual producing project.

The update on its 49% owned RHA tungsten project in Zimbabwe on December 12 seemed to be quite upbeat on the face of it, talking about encouraging plant performance, and also suggesting that any further capital expenditure would be in the form of a bridging loan to RHA whilst awaiting payment for the tungsten concentrate being produced.

Although I must admit that I was under the impression that all concentrate was attributable to Premier, until the $20 million or so it is owed for solely funding all the work and equipment – with no contribution from the 51% owner, the National Indigenisation and Economic Empowerment Fund – has been repaid from that.

It all looked a little less positive though on January 2 when the company issued an RNS stating that RHA hadn’t achieved its guidance of profitable production during December, but that operations were continuing and revised guidance would be issued.

So investors were understandably somewhat shocked when just three days later the company released a further RNS saying that production at the mine will be suspended.

This is due to a need for further capital to support the project, along with a decision by Premier not to invest anything further in it. This means that an alternative source of funds will be required, and an agreement will need to be reached with NIEEF as to the future of the project.

All of that is obviously bad news, especially given the past repeated failures with regards to this project, which was always seen as a way of turning a profit and financing its other operations.

At the same time it announced the problems with RHA, it also revealed that it is planning to list its Zulu lithium and tantalum project separately in London.

This got investors excited as it was also stated that they would keep a ‘substantial’ part of the new company, through their investment in Premier shares. But just how substantial that share remains to be seen, as any new listing will need to raise finance at the same time, not only to pay all the costs associated with a listing, but also to fund working capital. This would likely come via an equity raise, and the amount of potential dilution will depend on the initial valuation that the new company gains.

I will also be very interested to see who the directors are of this new outfit, especially if they are collecting a sizeable salary – if Premier CEO George Roach is one of them then I can’t see investors in this company reacting very well to that, given his performance to date!

I also have to wonder why a separate listing is needed – other than to generate plenty of fees for the brokers and directors – as if the project is that good, then surely Premier could easily secure funding for it, without the need for a costly listing and all the associated annual PLC expenses.

Thus far Zulu does look interesting, and Zimbabwe is well known for the mineral, but it is still very early days and a lot of work is still needed to determine just how good the pegmatite there is – there have been plenty of other companies that have shown good initial results and then things have stalled with regards progress towards actually extracting any lithium.

Premier also has an investment in a private company called Circum, which owns the Danakil potash project in Ethiopia, which is considered to be one of the largest in the world. The company owns roughly 4.1 million shares, which are valued at circa $6 million – based on the most recent purchases at $1.50 per share.

The biggest problem for Premier would be liquidating these shares at a reasonable price should it wish to, and with initial development capital for the project standing at $2.3 billion, I would suspect that its share would be significantly diluted along the way to production.

It does have a number of other projects and investments, but nothing anywhere near as significant as the ones I have already mentioned, in terms of the current market cap of around £15 million.

When it comes to how much money Premier has left in the bank it is hard to gauge – it did raise £3.5 million back in October, but the bulk of that was used to repay loan notes and equity swap agreements (from the fundraising at the end of July), along with funding work that has already taken place at RHA, and a preliminary economic assessment of Zulu.

A month or so later, on November 20 the company raised a further £1 million – again through PrimaryBid, which tends to suggest the City wasn’t interested – and typically burns through around $1.5 million every six months in admin expenses. Without knowing exactly what has been spent on the projects it is impossible to gauge what it currently has in the bank, and we will probably have to await the next set of financial results for that to become clearer – barring any fundraising activity in the meantime.

Although some of the assets here could potentially have value, I wouldn’t be rushing to invest until the future direction of the company, and all the details associated with that, becomes much clearer. Even then, there would have to have been a lot of positive developments to tempt me at anywhere near the current share price.

 

 


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