***Brief update 9/6/2023***
Hi PREM investors, I’m writing this up with a two year old in one hand who wants to go to the beach, so will be making this brief. Standard stuff: not advice, high risk, don’t invest more than you are prepared to lose etc.
Those who follow my work will have seen my view on the recent offtake agreement proposal RNS, so will quickly look at today’s AGM resolution.
So - let’s get to it.
AGM notes
The only thing you need to know is that mambo wemugodhi wants the right, BUT NOT THE OBIGATION, to issue an additional 4 billion shares (17.5% of current shares in issue) if needed.
This means they may never be issued.
Will they be needed? Unlikely in my view, but not impossible. As investors know, this will hinge on a new deal with Canmax that gives PREM new short-term funding paid back by future Spodumene production, and then the lithium hydroxide revenue split further up the supply chain.
When the deal is signed, then all will be well.
There are multiple ways to interpret this request, but the simplest (and I’m a keen fan of Occam’s Razor), is that Roach is simply applying good governance. You have to cover for all eventualities, and if Canmax walk away the alternative funding solutions would be a disaster in this scenario.
Not only would we need to find a new partner - which I am sure we would but would take time - but we would also need to pay back the prepayment within 90 days+ interest.
Indeed, PREM notes that ‘it is therefore of the utmost importance that Shareholders vote in favour of the Resolutions.’
ATM, PREM thinks a deal can be inked by 25 June, just before the AGM. It remains ‘fully committed to reaching a commercially acceptable addendum’ and that the ‘preferred means of dealing with funding requirements and obligations at the Zulu Project under the Agreement is through an a commercially acceptable addendum with Canmax.’
You could argue that George is using the AGM as leverage - saying he can go elsewhere if needed. I don’t think this is the case. The working relationship has remained strong, and Canmax want that sweet, sweet lithium supply for reasons laid out below.
It’s just that as CEO he has a legal requirement to act in the best long-term interests of the company, and this doesn’t always mean in the short-term interests of the share price.
Of course, the devil of any agreement is in the detail, and it’s not entirely clear who will benefit most from the new agreement being done behind closed doors. Investors don’t know what deal Canmax has with Ford, what Canmax’s profit margins or costs are regarding lithium hydroxide processing, whether the deal will now change to lithium delivered at mine given the shared costs…..
But the bottom line is that PREM needs cash and Canmax needs spodumene. The likelihood of there not being a deal remains slim in my view.
The only other thought I’ve had is that these new shares are being created for Canmax to take a larger stake in the company as part of the deal, or else an as-yet unknown outside investor.
Oh yeah, apparently we’re targeting much higher production in 2024, though with the standard delays I’d take that with a pinch of salt. The STARK figures seem far more concrete.
When the additional pre-payment cash lands, we’re back to 1p.
See you in a week or two.
Now where did I put that towel?
***Update***28/5/2023***
To start with, the standard boilerplate disclaimer- not advice, high risk, make sure you diversify etc. I mean all of these by the way - I am a PREM proponent, but this is still AIM, and I am not infallible :)
Also, this will be my last PREM update for some time. We now have the timeline and unless something major happens, the next interesting time will be December when production ramps up.
Unless there’s a disaster - Zimbabwe nationalises lithium production, an earthquake destroys the plant, a scientist develops a nickel-based EV battery which renders lithium obsolete - I won’t sell.
I don’t really care where the share price goes between now and then. This is a long-term investment for me.
So let’s get to it.
After spending several hours stressing about my workload next week, I decided instead to spend the day at the beach with the children rather than get ahead. Now I’m procrastinating here.
I was chatting with a colleague in Australia on Canmax (formerly Suzhou) because after I mentioned the recent Canmax-Ford deal on Twitter, it occurred to me that many of you won’t know everything I know.
This colleague, let’s call him ‘Steve,’ noted that I spend all day piecing together (among other things) the developing global battery metals supply chain, and that a few thousand PREM investors hyper-focused on our little plant in the backend of the Zimbabwean bush might be missing the bigger picture.
This isn’t because retail investors are uninformed - it’s just a reality that market research is my full time job. You lot are generally going to work 45 hours a week plus commute.
Meanwhile, I’ve spent years covering blue chips and penny stocks across the UK, US, Australia and Japan, and this historical knowledge is what others might be lacking.
Now to start with, there is no 100% guarantee that Canmax won’t walk away. I can’t give that, and until there is further clarity, it does add some extra risk. Please don’t get suckered into thinking that this CATL-backed multi-billion-dollar company can’t walk away, because it can.
But I really don’t think that it will. Here’s why.
Canmax factlets
This is a really brief snapshot - I could easily write a solid 100,000 words on Canmax and its JV partners - but I’m doing my best to keep it condensed. And I’m not taking responsibility for accuracy as you are only getting a small part of the wider picture.
It’s complex on purpose, because the Chinese have designed it to be almost impossible to understand. You wouldn’t believe the bullshit they do to obfuscate ownership.
Let’s break it down.
In 2018, CATL, Canmax, and Tianyuan Group found a new JV called Yibin Tianyi Lithium.
Canmax now owns 75% of the JV.
CATL owns 1.4% of Canmax.
Therefore, this company which is variously called Yibin, Yibin Tianyi, Chinese Yibin, Tianyi China, Yibin Lithium etc, is actually Canmax, formerly Suzhou, wearing a fake beard and a hat.
It then spent two years quietly maneuvering in Australia, Africa, and South America.
The first real major announcement came on Christmas Eve 2020, to ensure that nobody in the West would report on it as everyone has the week off until New Year’s.
It commissioned an upgraded 20ktpy lithium hydroxide plant in Yibin, Sichuan province, with a total capacity target of 100ktpy by 2025. The JV had already signed a 5-year offtake agreement with Pilbara Minerals - yes that Pilbara Minerals - to take up to 75ktpy of spodumene concentrate, starting in 2020 and ending in 2025. Note that CATL has now offloaded its shares in Pilbara, suggesting it plans to not need the production from 2025 onwards.
This JV also owned a 9% stake in AVZ Minerals (since diluted to 6.7% but still the largest shareholder), an ASX-listed miner with ‘rights’ to the Manono deposit in DROC. There is a massive legal battle that has been dragging on for a year about the rights to the project as it is by some measures the best quality, largest lithium deposit in the world.
I covered it for a client last year - please Google my name followed by AVZ. As an aside, these shares were suspended from the exchange last month for non-compliance under listing rule 17.3.1 leaving shareholders trapped in the stock. AVZ also faces cleansing notice issues, questions over its financing, a major lawsuit, and the withdrawal of the mining license in January.
AVZ is currently refusing to answer all questions asked by the Australian regulator about the dispute. I suspect a deal is being done behind closed doors, but regardless, AVZ was worth $4.6 billion in April 2022, and will soar far beyond this if all ends well.
But right now, it’s currently dead in the water, and production is going nowhere fast.
That’s a problem for Canmax.
Regardless of how the legal wrangling winds up, Canmax will end up with 24% of the Manono project, but the wrangle has delayed spodumene production that it was relying on to deliver.
The fight is with fellow Chinese lithium processor Ganfeng - yep, that Ganfeng - who announced it was developing a 50ktpy lithium hydroxide plant just before Yibin, alongside Guangxi Tianyuan (25ktpy) and Yahua Lithium (20ktpy). There isn’t enough raw lithium for current capacity, let alone anticipated future demand.
Essentially, Canmax fucked up. It fucked up bad. Rumblings about the AVZ disaster had started in March 2022, despite AVZ’s share price rocket, and were officially confirmed in early May 2022.
Guess when Canmax decided to get on board with PREM? 8 March 2022.
Further considerations
In March 2021, Yibin Tianyi Lithium extended a $15 million zero-interest loan to Pilbara Minerals as a form of unsecured prepayment (where have we seen this elsewhere?), a further investment on top of a prior commitment made by CATL alone which had bought 8.5% of Pilbara in 2019 for AU$55 million.
The cash was used to upgrade the Pilgangoora Plant 1 in Western Australia to be able to deliver an extra between 30,000 and 50,000 tpa of spod, with the extra boost yielding Yibin an additional 40,000 tonnes a year in addition to an pre-existing five-year agreement of 75,000 tonnes a year.
In September 2021, Yibin Tianyi Lithium announced a $385 million new facility with a designed capacity of 60,000 t/yr for hydroxide, to be developed in two phases of 30,000 t/yr each, with production set to launch by the end of 2024.
Remember, it had already launched the 20k plant in September 2020, and started producing at another 25k plant in late 2021. Full processing of all plants should come online by June 2024, with full capacity of of 100,000tpa, 160,000tpa if you include Meishan.
In a circulated shareholder letter, Canmax noted that it could meet client demand through ‘existing lithium resources,’ PREM, Global Lithium in AUS, QX Resources in AUS, and Pulserate.
These ‘existing sources’ are Pilbara, AMG Lithium, and AVZ.
They didn’t list them because AVZ isn’t going to start producing for literally years now. It might even face collapse.
China is also divesting from Pilbara as CATL has sold its shares and sent the SP tanking - Pilbara will not forgive this. Why sell shares in Pilbara? I suspect it’s to cut more ties to Australia before a Chinese move on Taiwan to reduce the coming economic damage.
Regardless, from 2025 Pilbara will own any new negotiation when the current offtake agreement expires, as it already has billions in cash and demand will have soared.
Potential Chinese offtake partners will fight even harder with each other for supply, already happening as evidenced by Pilbara’s monthly online auction where they already are. Then there’s the AUS decarbonisation effort to consider.
AMG is German-listed with operations in Brazil, and Europe has promised to phase out ICE cars in the 2030s. AMG’s flagship, the Mibra Mine, is supplying Canmax for now.
But the current plan is to develop its own lithium concentrate facility to establish a conversion plant for processing lithium concentrate to technical-grade lithium salts, and then to send all production to Germany. It’s literally written on their website.
In essence, Canmax’s three largest suppliers are gone by 2024-25 just as their massively expensive plants turn on.
But what about their other potential suppliers?
Global Lithium? Exploring two resources. That’s it.
QX Resources? Exploratory only.
Pulserate? 84 lithium claims covering 10,000 hectares, conducting exploration currently, but nowhere near producing, and not even a whiff of a plant. Where? In ZIMBABWE! But miles from fucking anywhere.
It ain’t abandoning PREM if it’s sticking in Zim with someone else. Add in the $1 billion investment by other Chinese companies into Zimbabwe mines- another essay could be done on that alone.
On 8 February 2022, Canmax announced it was issuing new shares to raise RMB 4.6 billion. Why? To help build its plants, buyout the 7% stake in Tianyi owned by Tianyuan Group, and for working capital.
Its Sichuan subsidiary (with another stupid codename) commenced the construction of one of the pre-planned lithium hydroxide plants on 2 May 2022, and we signed the PREM deal only weeks earlier. This one plant has a total investment of RMB2.5 billion.
The bottom line
Canmax signed its deal with Ford last month. Tesla announces that it will allow Fords to use its superchargers. ZULU lithium is going to be charged by Tesla.
The Ford deal sees Canmax promise to supply Ford with 72,500 tons of lithium hydroxide between January 2025 and December 2027 with Ford allowed the option to extend the supply agreement until December 2029. The first three years’ are currently worth $3.9 billion to Canmax.
But Canmax might not have any fucking lithium to supply its plants to deliver in 2025.
The company is presenting at the 2023 World EV &ES Battery Conference in Yibin between 8 June and 11 June.
Yibin (what’s the name of that JV again?) accounts for circa 15.5% of Chinese battery production and saw its industrial output increase by 45% in 2022, and this is expected to increase by another 100% in 2023.
During last year’s conference, 48 battery metals and EV projects were agreed worth $13.9 billion. CATL founder Robin Zeng envisages that Yibin will soon be the most important battery production base in Southwest China.
While I can’t verify this independently, it appears that Canmax recently raised a hell of a lot of cash for something big. Those of you clued in, please comment with any evidence either here or on Twitter.
Here’s the bottom line.
Canmax knew the timeline it gave PREM was impossible. You don’t switch on a virgin plant like a lego playset. It’s simply desperate for supply. Just not now.
George hopes to settle the matter by EOD on 30 May. Canmax needs this lithium from 2025 as other sources dry up - it actually isn’t a problem until then.
But it’s a big fucking problem thereafter.
And they know it.
PS: If Canmax go insane for some reason and fuck off, the other Chinese investors in Zimbabwe will take over, or Piedmont which was relying on ALL’s delayed and short-attacked Ghanian Ewoyaa project to start producing, will happily cough up $50 million.
It invested $102 million in ALL in 2021 and has got nowhere. PREM has already started production inside of a year since first investment from Canmax.
That’s a steal.
I am an investor and also proponent of ALL - but at PREM, we’re in the endgame now.
As the philosopher Tallahassee once said:
‘Time to nut up or shut up.’
***END UPDATE***
Here are my thoughts on today’s RNS. Note that I am sober, and taking time out of client work during the standard working day.
Feel appropriately grateful :)
As ever, this is not advice. I’m addressing those of you who are invested in Premier African Minerals - if that’s not you, this update won’t mean much so feel free so read something else.
Let’s break it down.
The short term mindset of many PREM investors is like that of a pouty child. ZULU is widely regarded as one of the most significant lithium deposits in the world. It’s been visited by a billionaire investor. It’s geographically close to some of the top selling lithium mines in Zimbabwe.
And production has started.
So - and I cannot stress this enough - calm the fuck down. You knew what you were getting into. This is high risk, high reward territory - and if you can’t tolerate huge leaps and falls, you will go nowhere.
Comparisons have been made to Pilbara Minerals before, so let me make this plain. I was there Gandalf. I was there 3000 years ago (March 2019), when PLS started production and was covering them long before. I still cover Pilbara, for a certain red-branded CFD provider, and today all anyone can say is how they wished they invested in the early days.
You know what happened in those early days?
PLS started production at AU$0.66 in March 2019. A year later it was changing hands for AU$0.15 (a pesky pandemic notwithstanding).
Did I sell? Did I fuck.
If you can’t tolerate these wild swings, go home. AIM is not the place for you. Find a lovely FTSE 100 dividend ETF, pair it with a NASDAQ 100 capital growth tracker, chuck in some gold, and call it a day.
There’s nothing wrong with this - it’s very close to how I structure my SIPP. You can’t expect 1000% returns with no risk. It just doesn’t happen.
The RNS is positive.
I was very clear that getting ZULU from virgin bush to fully optimised plant was a huge achievement. I also noted many times that there will be delays. There always, always are.
So let’s actually READ the RNS. You know, reading? That thing you do where the squiggles on the screen form into ideas and concepts in your brain.
It’s like talking to a group of Year 5s doing comprehension tests in preparation for their SATS. But I’m going to condescending, because it’s clear many of you need smaller words.
‘The process plant is fully commissioned and capable of producing concentrate…Production of concentrate to 30 June 2023 will be 1,376 tons and production for July and August will be 1,137 tons per month, increasing to 2,359 tons in September, 3,577 tons in October 2023 and 4,471 tons from 1 December 2023.’
We’re producing.
‘At present concentrate prices and production at these current levels to the end of August, the Company expects Zulu to operate profitably.’
We’re turning a profit.
‘The modifications include the upgrade of screening, relocation of the mill and addition of cyclones to remove correctly sized material to the floatation plant. Premier understands that the costs associated with this remedial action will be met by the plant supplier, and we will work with them to ensure that the plant achieves nameplate throughput expeditiously.’
STARK will pay for the optimisation.
‘CanMax may elect to cancel the Marketing and Pre-Payment Agreement and require that the prepayment plus interest is settled within 90 days following notice. Canmax has always been supportive of Premier, and we continue to engage with them and look forward to first shipment in June 2023.’
CanMax may walk away. But they won’t. Even if they do, there’s a dozen suitors knocking at the door. The relationship will be fine. I expect they will negotiate a higher percentage of production, and for longer.
‘The Company has previously advised that the delays had caused our cash to be constrained. Recent exercise of options and issue of remaining shares free from pre-emptive rights by way of direct placement, has provided interim relief to this position. Alternative further funding may need to be sought if there are any further significant shipment delays.’
With a now realistic timeframe, there should be no need for further funding.
Just calm down
We need the EPO license - this will come shortly before the election in July/August. The current President will want decent PR fresh in people’s minds. Remember, you have high inflation and a never-ending COL crisis in Zimbabwe.
We also need the RUS - but this will be some time.
But we have the production numbers and we have sorted the funding issue.
What investors have is an incredibly valuable asset. Those running now don’t deserve the profits that will come in time. They were never going to hold.
I want you to look - really look at the chart from September 2019 onwards when I made my first investment. Do you think it was easy holding from 0.14p to 0.05p? From 0.31p to 0.19p? From 1p to 0.63p now?
It’s not. But AIM - and the markets in general - isn’t like Primary school. Here, there are the winners, and then there are the losers.
As ever, I say this from a position of high financial resilience and a Brobdingnagian risk attitude. And as ever, this is not advice. DYOR.
PREM was and remains high risk.
The question is this:
Who’s sitting in the winner’s circle with me in 2025?
George needs to stop giving out information to any old tom dick or harry that asks, this was heavily sold down from 1p by a few in the know (Probably a select few in the TG boiler room group that constantly call him and email him for snippets of information like desperate excitable little children) information should be given in an RNS or a properly organised Q&A like yesterday and thats it, even $$ shouldn't be privy to any information no matter what his percentage. Anyway a small delay in production numbers is no big deal and expected with a new plant, did anyone actually expect the plant to be switched on and instantly go to full capacity!
I've got 8,000,000 shares and I'm mot selling as I'm still in decent profit zone. The problem here isn't what you've said, it's whether we believe the new 'made up' numbers. We've believed many things we've been told and many haven't happened. So it boils down to Trust and Timescales. Make your choice.