It has been a rewarding few years for shareholders in Premier African Minerals (LSE: PREM). Its shares had soared by 280% in the past five years until the market close yesterday (28 September), meaning shareholders in the miner more than tripled their money during that period.
But since April, the shares have plummeted.
Could the company’s interim results published today (29 September) provide investors with any useful clues about the outlook for the business and what that might mean for its share price?
Potential cash generation ahead
The chief executive opened the results by saying he believed “this will be the last time that I potentially report Interim Results that do not include details of cash generative operations.”
That sounds an upbeat note about where the business might be this time next year. If the miner does indeed start to generate sizeable cashflows, today’s share price might yet turn out to be a bargain.
Also on a positive note, the company said that the past month has been “encouraging” and after restarting operations this month, it expects to meet its production targets for November.
The company then plans to install a new mill over Christmas that will allow it to ramp up production from the start of next year.
A loss of $7.5m was reported for the period.
Where next from here?
The company believes it can start to generate revenue later this year.
But if production is delayed, the business may need to raise more money. Indeed, at the end of June, net cash and cash equivalents were less than a quarter of a million dollars. In the period since then, Premier African has raised more funds.
Last month, it announced the issue of new shares, raising cash but diluting existing shareholders. I see a risk of further dilution if more Premier African Minerals shares are issued to raise additional funds.
Meanwhile, the lack of operating cashflows continues to pose a risk to the ability of the company to stay afloat. It included the following warning in its interim results.
“If the Company is unable to obtain additional finance for the Group’s working capital and capital expenditure requirements, a material uncertainty may exist which could cast significant doubt on the ability of the Group to continue as a going concern”.
In other words, if production does not happen when hoped – which is not an unusual event in Africa where the firm’s mining operations are located – then the business may not be able to survive if it cannot raise more money.
High risk
That risk alone is enough to put me off buying Premier African Minerals shares, no matter what potential reward I see if production starts on schedule.
And the company has a large concentration of risk in a small number of operations located in a politically volatile region.
It has been shoring up its finances but until commercial production and significant cash generation begins there is an ongoing risk that it could run out of money, or further dilute shareholders.
For now, I will not be touching Premier African Minerals shares with a bargepole.
