Premier African Minerals (LON: PREM) is down 7% on the announcement of the AGM date. Which is a bit of an odd reaction to a perfectly standard announcement but there we are. That AGM is unlikely to really tell us very much about the one and only truly important thing that will affect the company's share price going forward - what is Canmax going to do? Because Canmax has PREM entirely over a barrel. How much of the flesh Canmax intends to take off the back of Premier African is thus the determining factor for the future value of PREM.
As we pointed out before about Premier African it is, in one sense and purely technically, bankrupt already. The reason why is one of those details of how the lithium market works. Once the lithium deposit has been confirmed it is normal that the money to actually mine it comes from one of the lithium processors. They put in the capital to develop - in return they get an offtake contract. They get first dibs on the production and usually a nice discount on the price. In this manner the capital costs of the mine itself (but not the exploration nor proof) get funded by future production. It's a fine system. But it does leave the miner open to a problem - what if they fail to meet quality, volume or time deadlines and standards?
Which is what has just happened to Premier African. They're late delivering lithium concentrate. Therefore the entire contract is up for negotiation again - because Canmax is, a a result of the delay, able to demand its money back. That money that is now in the mine itself and not in cash.
Premier African Minerals share price from London Stock Exchange
This is all a bit of a shame of course for PREM has managed to get an African lithium mine actually into production in a record time. Arguably it should be worth a great deal more than it's current £200 million. But there's no certainty that it's going to remain owning that mine - or perhaps that there won't be some terrible change in contractual terms. There has been this announcement: “Canmax and Premier are in advanced discussions pertaining to an addendum to the Agreement to allow for the following: Adjustment in the pricing mechanism” That really could mean anything, couldn't it? A significant compression of PREM's margins would be expected of course, given who has the whip hand here. But how significant? “ Canmax have confirmed that their intention is to continue to support Premier and not to terminate the Agreement providing that an addendum between the parties is entered into on or before 25 June 2023.”
There is, as they say, a certain pressure here. Canmax can bankrupt Premier African if the new contracts and terms are not to its liking. So, how much of the pie do we expect Premier African to be left with? Nope, we don't know either but that's the thing to worry about.
