It doesn’t happen often, but occasionally a penny stock explodes higher over a short period and makes investors fabulous returns.
Premier African Minerals (LSE: PREM) is a small lithium stock that some investors find exciting. The firm has a diverse portfolio of projects, including lithium and tantalum in Zimbabwe, and gold in Mozambique.
Could this be the next millionaire-maker? Let’s dig in.
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What’s been going on?
This has been an incredibly volatile stock. It’s down 81% in just under a year yet is still up 85% over a five-year period.
Why has the stock crashed recently? Repeated operational setbacks and cash-burn issues, in a nutshell.
Premier had hoped to get its wholly-owned Zulu Lithium pilot plant up and running in the first half of 2023. However, that didn’t happen.
As the firm said in its annual report published last June: “In September 2022 we broke ground. In February 2023 we ran elements of the plant. In late March/early April 2023 we saw first concentrates produced. Perhaps this was all just too good to be without some setbacks.”
Yep, it was. One issue was not being able to secure the supply of a chemical substance to make the concentrate. Consequently, the firm said it had “become clear that efficient running of the overall plant is impossible.”
But it was still on track to start operations later in 2023 and had raised $14.8m during 2022.
Always tomorrow
In September, 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.“
It was targeting November shipments from its Zulu project. Operating losses in the six months to June were $7.1m, it reported.
In early December, the firm came back and said it was hoping to finally start production in February 2024.
We’re now in April and there is still no lithium or revenue. But it has managed to raise another $3m.
Are we there yet?
On 10 April, George Roach commented: “Premier believes we are now in the home stretch with commissioning the Zulu plant operation… Premier looks forward to finally getting this plant over the line.”
He went on to describe it as a “tortuous journey” so far. A fair comment, I’d say.
Anyway, while the plant has demonstrated it can produce the desired grade of materials, there are now operational challenges affecting consistency and recovery rates.
But this will apparently “be rectified in the coming weeks“. So revenue could finally, possibly, be near.
Where next?
As for becoming a millionaire, I’d need the shares to go up 50 times following a £20k investment. Or 20 times after £50k. While theoretically possible, I think that’s unlikely.
Then again, my horse bet (Mr Incredible) just ended the Grand National without a rider, so I’m not very good at calling these types of things.
Would I invest in this pre-revenue penny stock? No, I wouldn’t, as things stand. I have no idea whether Premier will succeed and how much more cash it will need to raise to do so.
Yet the shares will surely head higher if these latest operational challenges are resolved. Won’t they? And lithium demand should be strong long term due to the green transition.
