Premier African Minerals (LON: PREM) shares are up 10% this morning. PREM shares are up on the news that they’ve got the concentrator sorted and are back to mining and will be producing soon enough. Which is great. We’ve, all along, agreed that there’s lithium at the Zulu Project, that Premier Africa - for the moment - owns it and that at current global lithium prices this will be profitable. Which isn’t our point at all, for that “at the moment” is the thing we think is in question.
The problem is that the terms of the financing contract were breached. As we’ve said about Premier African: “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.” We don;t see how they get out of this bind.
The base problem is that they accepted advance payment. That’s normal in lithium mining, a processor of the lithium concentrate advances the cash to build the concentrate plant. They then gain a preferential price on concentrate shipped to them. That’s just the structure of spodumene mining these days. However, Premier African failed to deliver material on time. So, that prepayment then becomes repayable - but of course the cash is in the concentrate plant, not a bank account. In theory that mining subsidiary is therefore bust and Canmax, the contractual partner, essentially gets to have the mine.
Now, yes, there’s a lot that lawyers can do and so on but that base situation does seem, to us, to apply.
Premier African Minerals share price from Google Finance
We also don’t really see any way out. As we’ve said about PREM: “This is the grand problem at Premier African: “What PREM is saying there is that as a result of not being able to meet the terms of the offtake contract therefore Canmax can demand that capital payment back. This may or may not make PREM go bust but it would almost certainly mean Zulu no longer belonged to Premier. Which would be bad, obviously. “
We have actually been reading all of the corporate releases. Or perhaps we’ve missed one along the way. Yes, there have been capital raises for Premier but nowhere near enough to solve this problem. We’ve just not seen an announcement that states that the Canmax problem is solved. Therefore we assume that it isn’t as yet.
