News Snippet: Premier African Minerals

Premier African Minerals yesterday announced to the market that it has concluded its acquisition of a controlling interest in Mozambique-based TCT Industrias Florestais Limitada (“TCT IF”), which owns a substantial limestone deposit located on rail in the Sofala Province of Mozambique. Total consideration payable for the controlling stake amounts US$2.1 million (£1,735,000). It’s a shame that the deal couldn’t be concluded before the recent devaluation of the pound, as the deal is effectively 10% more expense than it otherwise could have been, but that certainly isn’t the fault of PREM.

 

In my last article I expressed concern at Premier’s spending patterns. It remains to be seen whether this is a prudent move, but the company is positive that this investment remains a good one, with TCT IF being self sustaining, and expecting to contribute to the company’s cash flow in 2017.

Further highlights from the RNS include:

  • Early test-work and import replacement opportunities supported by local demand for lime for cement production, agricultural and many other important applications including aggregates, assures the market for low capital cost industrial scale production.
  • Revenue and infrastructure from existing forestry operations expected to significantly reduce exploration and development costs of the deposit
  • TCT IF’s limestone deposit covers 27 km²
  • The Tete/Beira rail link, complete with 3-line siding, runs adjacent to the northern boundary of the property.

 

Yesterday’s news shouldn’t come as too much surprise to investors as the deal was originally announced in April. Those expressing concerns about funding will also be relieved to note that the company clearly planned ahead, with PREM signed a subscription agreement with Darwin Strategic Limited for a gross value of up to £3,500,000 ($4,582,000) through the issue of up to 140 new Loan Notes. The company described the purpose of the loan notes as to provide additional general working capital for the Company, and to support the exploration and development activities at the Zulu Lithium and Tantalum project. Perhaps the company should have specifically stated that it was to conclude this acquisition also, but I suppose it’s by the by. The point is, no further dilution is on the cards just yet, provided spending has reduced from that seen in the last set of results. Payment for TCT IF is over a period of upto 275 days, reducing the immediate financial shock on PREM.

I can’t escape the feeling that PREM is stretching itself and needs to deliver positive results to investors sooner rather than later, and remove its reliance on Darwin Strategic Limited for funding to allow for a sustained share price rise. Perhaps when further updates are announced on the RHA Tungsten mine I’ll revise my position, but for now I’ll wait and see, as per my oriignal Research Note;

 

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