Is Premier African Minerals the best penny stock to buy for 2024?

Premier African Minerals stock saw a boom and bust in 2023. But it looks like cash generation could be tantalizingly close.

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Some lithium shares spiked in 2023, but they’ve fallen back a fair bit. And it makes me wonder if Premier African Minerals (LSE: PREM) might be one stock to buy now.

The company has its finger in the lithium business, in high demand for batteries these days. And it also has interests in tungsten, tantalum, and other rare earth elements in Africa.

It’s not just a lithium-only punt, so there’s a bit of safety from that.

Share price

Now, the share price is well under a penny, at just 0.23p at the time of writing. And that usually sounds a note of caution.

But I do think we’re seeing some interest again in 2024, even after last year’s climb came to nothing. The shares reached 1.04p a year ago, so we’re looking at a 12-month fall of 17%.

Still, even with last year’s mini boom and bust, the price is still up 135% in the past five years. Growth share investors often need to buckle up for a bumpy ride.

Where’s the cash?

The main problem so far has been a lack of profit. In fact, the most notable thing in the firm’s accounts for the past few years has been a lack of cash flow.

In its interim report in September 2023, Premier recorded a net fall in cash of $9.4m. It was still very much in the cash-burn phase. And that can often go on a lot longer than early investors hope.

But I see a good chance that 2024 could mark a turning point.

With that first-half update, CEO George Roach said: “I believe this will be the last time that I potentially report Interim Results that do not include details of cash generative operations.

Lithium operations

So, I don’t think we should hope for too much when we see FY23 results. But what’s 2024 looking like so far?

Well, the firm’s March update on its Zulu Lithium Plant operations outlined a number of problems, with further delays. Premier is taking over direct operation of the plant now. And it also kicked out the firm behind the design.

The CEO, while admitting these have been disappointing developments, said: “Premier does believe this is a major turning point and we look forward providing further updates from Zulu.

What next?

The share price has declined since that downbeat update. But the demand for lithium is there. And the firm assures us that the suppliers behind its plant development are still on board.

But how much longer will the cash burn go on? How much more cash will Premier need before profits arrive, and what dilution could shareholders suffer? I can’t answer those questions.

This is a penny stock that I think could start to see a turnaround this year. Then again, I’ve thought that about similar stocks before and been proved wrong.

So, I’m convinced there’s lithium promise here, and we could see a higher share price by the end of the year. But the risk is too high for me to buy.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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