Premier African Minerals (LON: PREM) (OTCPK: PRMMF) shares are up 5% in London this morning. Which is odd to us as we read the latest news release as being bad news, not good.
That news is that: “The Board is pleased to report that these discussions, which remain ongoing, are at an advanced stage and have been constructive. The Board's expectation is that there is a common understanding between the parties and they are close to a satisfactory resolution.” Well, yes, we have our doubts about that but it's this which contains, to us, the bad news: “Spodumene concentrates produced to date contain in the region of 50% spodumene as determined by XRD analysis, but also up to 30% in mica minerals that cause a dilution of the spodumene grade. With improvements through ongoing optimisation and a refloating of concentrates produced to date, we expect that the plant will produce spodumene to SC6 grade as we have already demonstrated in our on-site laboratory.” That is, the plant doesn't actually work. At least, not yet the plant doesn't work. And to us that is bad news.
As we've said before about Premier African: “So here's where PREM is. They owe that prepayment back to Canmax. They don't have it. Initial spudumene concentrate production won't be enough to raise that cash. They can't issue stock to a trade buyer to raise the cash because of the preemption rights. The only possibilities are that Camnax decides to play nice - and why should they? - or a rights issue to the current shareholder base. Which would have to be deeply discounted and thus horribly dilutive. There just doesn't seem to be much of a way out of this.
Premier African Minerals share price from Google Finance
We've looked at PREM and the Canmax problem before. They took prepayment (normal in lithium mining) to build that plant. They had to deliver material by a certain time under that contract. They haven't. So, the prepayment is due back to Canmax but Premier doesn't have it - it's in that plant that doesn't work.
As we've agreed all along it might well be possible to fic the plant, deliver material and so please Canmax. But that requires Canmax agreeing to that change. And why should they? They're the leading creditor, if Premier goes under then they're the prime buyer of the mine at a discount. The only way out of this that we can possible see is that the plant works, lithium concentrate is being produced and either the revenue pays Canmax or some other buyer arrives and offers current equity a better deal than nothing.
But if the plant doesn't work we don't see that either.
Sure, Canmax might be nice about it all but why should they?