One of the areas within renewable energy that I’m optimistic about is lithium. The role this metal plays in batteries for electric vehicles means that companies involved in producing it could perform very well going forward. One company that has caught my eye is Premier African Minerals (LSE:PREM). The stock has jumped almost 8% today, trading close to the 52-week high. So what’s driving this move in the Premier African Minerals share price?
A business snapshot
The company talks about a “long history of project discovery, acquisition and development across Africa” as part of the business biography. It has two main projects at the moment, namely the RHA Tungsten mine and the Zulu Lithium and Tantalum area.
Like most exploratory and mining businesses, revenue is hard to come by until the firm strikes ‘gold’ and manages to extract and sell a precious metal or other form of commodity. This is true with Premier African Minerals. The half-year results released at the end of September show $0 in revenue, matching the $0 from the same period in 2021.
With sizeable operating expenses, it posted a loss of $4.89m for the six-month period. Due to robust cash balances of over $10m, the company does have a good net asset position. This is one factor that enables it to continue to trade and supports the share price valuation. The market capitalisation is currently $123.05m.
Strong rally in the Premier African Minerals share price
Given the nature of the firm, share price movements are often based on speculation that the business is close to having a major breakthrough. Given the fact that the jump today pushes the one-month return to 37% and the one-year return to 144%, it’s clear that momentum is building.
Part of this is due to the success of the lithium project. An update released just a couple of weeks ago highlighted that “all indications point to the mineralisation being almost exclusively spodumene with little to no petalite and equally low contained micaceous mineralisation carrying any lithium.”
I’m no expert here, but spodumene is a mineral that is a key source of lithium. So the upbeat message from the pilot plant results is that the mineralisation samples are positive. The share price move higher in recent weeks suggests to me that investors are buying quickly ahead of further positive updates.
Another reason why I think the stock has performed well in 2022 is the rising demand for lithium. The push towards electric vehicles will drive demand for lithium, not just right now, but for years to come. Lithium carbonate prices in China have over tripled in the past year. Therefore, there’s a natural correlation to the value of what Premier African Minerals is hoping to extract.
The big dilemma is whether or not I should invest now. I’ll be honest, I’ve seen many companies like this over my years of investing. It’s a binary outcome. If the project yields rich results, I’d generate some serious returns. Yet if nothing materialises, I’d be stuck holding shares in a business with $0 in revenue.
I acknowledge that this stock has the potential to rocket higher over the next year. Yet it’s just too high-risk for me to consider at the moment.
