Premier African Minerals (LON: PREM) (OTCPK: PRMMF) shares are down 17% again. PREM's share price fall comes as it becomes apparent quite what a bind the company is in. They're not actually bankrupt, not as yet they're not, but it does become difficult to see how they're not going to be at some point really soon.
As we've said before about PREM: “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've also said, they're in trouble because of this booboo at Premier African: “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.
And yes, we've talked about Canmax too: “The Zulu lithium operation has its little problems, yes it does. But it's also true that it's a decent enough asset and one that should be worth a substantial amount of money. The problem for PREM shares is that the company is just so, so, screwed by the agreement with Canmax. It is entirely true that is Canmax were to play very nice then Premier African would be worth a goodly amount of money. But since Canmax has Premier right over a barrel - in the gimp mask, as in Pulp Fiction - why should Canmax play nice?”
This has now all gone through a force majeure declaration, negotiations have got nowhere and it's likely off to arbitration in Singapore. Yes, the mine is still being worked upon, production might well start and so on. But.
Premier African Minerals share price from London Stock Exchange
We've one more problem: “Premiers' cash reserves remain constrained, and this has been exacerbated following rejection of the special resolution proposed to shareholders at the Company's Annual General Meeting ("AGM") to disapply pre-emption rights, as announced on 26 June 2023.” So they're going to have another try and resolving that.
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. So the real surprise is that Premier African is still valued at over £100 million. Seems a bit steep for a company with such problems.
