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It doesn't happen often, but occasionally a penny stock explodes in a short period and generates fabulous returns for investors.
Premium African Minerals (LSE: PREM) is a small lithium stock that some investors find interesting. The company has a diverse portfolio of projects, including lithium and tantalum in Zimbabwe and gold in Mozambique.
Could this be the next millionaire? Let's delve into.
What happened?
This has been an incredibly volatile stock. It's down 81% in just under a year and still up 85% over a five-year period.
Why has the stock plunged recently? Simply put, repeated operational setbacks and cash burn issues.
Premier had hoped to bring its wholly owned Zulu Lithium pilot plant online in the first half of 2023. However, that did not happen.
As the firm said in its annual report published last June: “In September 2022 we begin construction. In February 2023 we put elements of the plant into operation. At the end of March/beginning of April 2023 we saw the production of the first concentrates. Maybe all of this was too good to pass without a few setbacks..”
Yes it was. One problem was not being able to secure the supply of a chemical substance to make the concentrate. Consequently, the firm said it had “It is clear that the efficient operation of the entire plant is impossible..”
But it was still on track to begin trading later in 2023 and had raised $14.8 million during 2022.
Always tomorrow
In September, CEO George Roach said: “I believe this will be the last time I report interim results that do not include details of cash-generating operations.“
It was targeting November shipments for its Zulu project. Operating losses in the six months through June were $7.1 million, he reported.
In early December, the company returned and said it hoped to finally begin production in February 2024.
We are in April and there is still no lithium or income. But he has managed to raise another 3 million dollars.
Are we there yet?
On April 10, George Roach commented: “Premier believes we are now in the home stretch with commissioning the operation of the Zulu plant… Premier hopes to finally get this plant up and running..”
He went on to describe it as “atortuous journey” until now. A fair comment, I would say.
Regardless, while the plant has demonstrated that it can produce the desired grade of materials, there are now operational challenges that affect consistency and recovery rates.
But this apparentlywill be rectified in the coming weeks“. So revenue could finally be close.
Where next?
As for becoming a millionaire, I would need the shares to rise 50 times after a £20,000 investment. Or 20 times after £50,000. Although theoretically possible, I think it is unlikely.
Then again, my horse bet (Mr. Incredible) just finished the riderless Grand National, so I'm not very good at announcing this sort of thing.
Would you invest in this penny stock before earning income? No, I wouldn't, as things are. I have no idea if Premier will be successful and how much more money it will need to raise to achieve this.
However, the stock will surely rise Yeah these latest operational challenges are resolved. They will not? And lithium demand should be strong in the long term due to the green transition.
