So what’s going on with the Premier African Minerals (LSE: PREM) share price? It’s up more than 450% in the past five years.
Penny stock
But it’s still a penny stock, and by a long way. Never mind priced at less than a pound, this one is less than a penny. Well, only just. The price stands at 0.99p, as I write.
At check on the long term though shows the shares are well down on their peak of 2015. So it does look like we’ve had an early boom and bust here. So what’s the fuss?
Well, it’s all about lithium. The rare metal is in great demand for batteries, now the electric vehicle market looks set to soar.
It’s about lithium
Premier digs for other metals too, namely tungsten and tantalum. But it’s the lithium from its Zulu project in Zimbabwe that’s most caught the eye of the market.
The firm posts frequent updates, but it’s mostly techie mining talk told us that “we are encountering less weathered ore than was originally anticipated and seeing an ore body that is conforming to the predicted internal geological mining model“. That, it seems, is a good thing.
But when I look at a stock like this, I want to hear about cash. And, right now, that’s where I see the main risk.
What about cash?
The firm also told us that “cash flow is constrained at Zulu, this is expected to be short term and Premier will implement applicable financing measures to deal with this in the lead up to first revenues from sale of concentrates in the coming weeks“.
So it seems that’s what’s behind the share price gains of the past few weeks. Investors are waiting for two key events — first revenue from these lithium sales, and some sort of new finance.
As we often see with mineral exploration firms like this, there’s no profit here yet.
Positive assay
It does look like the lithium deposits at Zulu could be substantial. Assay (product quality testing) results posted in February were upbeat. And they led the company to start with its large-scale pilot plant.
But how much new cash will Premier need? That’s the big unknown, and it makes it very hard to value the shares right now. We just can’t know how much dilution of the stock there might be by the time we see some cash flow.
So I’m torn. I think the lack of cash makes for a lot of risk. But the outlook for that Zulu lithium does seem to be good.
Biggest in Zimbabwe?
The firm says Zulu is “potentially the largest undeveloped lithium bearing pegmatite in Zimbabwe“. So is that lot? How much of the stuff does Zimbabwe have? I just don’t know what it means.
I can’t quantify any of this. And as I don’t buy stocks that I don’t understand, I’ll pass on this one. But for those who know the business, maybe it could be a no-brainer buy now.
I’ll watch the news in the months ahead though, for sure.
