Penny shares are certainly not for the faint-hearted. Typically, their prices are very volatile due to the small nature of the underlying businesses. However, Premier African Minerals (LSE:PREM) is starting to rise above its competitors. Following a tough six years, the penny stock has turned things around. It is now up an impressive 100% year to date.
Investors are excited by this metals producer. But is this momentum likely to fade away? Or could I be looking at the early stages of the next mining giant?
A volatile company timeline
Premier African Minerals debuted on the London Stock Exchange in December 2012. The company set out to start a tungsten mining operation covering 1800 hectares. It hoped the operation would be low cost due to excellent nearby infrastructure.
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The share price began to tumble until August 2013 when an independent mining study showed strong potential for the tungsten site. This caused the penny stock to shoot up by over 340% in a single week.
The company then reported it was “on-time and on-budget” for its first production in early June 2015.
In June 2015, the Premier African Minerals share price peaked at its all-time high of 3.5p.
The company then began to dilute its shareholders by issuing more shares and expanding its losses with its “next-in-line project”, the Zulu lithium mine, as its next venture.
This was catalysed by complications with Zimbabwe’s National Indigenisation and Economic Empowerment Fund (NIEEF) which drove the tungsten mines out of production in 2019.
Zulu lithium project’s success
The downfall of the tungsten site drove the Premier African Minerals share price to staggering lows of just 0.2p in 2019.
Since the start of 2022, the share price has risen from 0.18p to 0.37p as I write.
A £1,000 investment at the start of 2022 would have bought over 555,000 shares in the company, which would now be worth double the original investment.
Redirecting efforts towards lithium has paid off. The company announced in June this year that it will begin shipping spodumene concentrate from its mine in Zimbabwe to China by March 2023. This followed the signing of a deal with Suzhou TA&A.
The future of lithium
I think it looks like it will be an exciting time ahead for Premier African Minerals shareholders.
China appears to be behind a global acquisition spree for early-stage lithium mining projects. The country accounts for 65% of battery production, of which lithium is a core element. However, China’s access to lithium deposits is limited.
With the demand for electric cars on the rise, it’s no wonder China is so keen to fuel the growth of global lithium mining production to ramp up battery manufacturing capacity.
I think Premier African Minerals is a strong contender to land more attractive deals with China in the future with its proven ability to raise capital.
However, its ability to meet production targets and overcome regulatory hurdles is less proven. Investing in Premier African Minerals certainly comes with significant risk. But having held its shares since 2018, I am tempted to increase my position even now.
I will be keeping a close eye on this penny stock, eager to see how its future unfolds.
