Premier African Minerals (LSE:PREM) is a mining company whose share price has been on fire recently. Over the last 12 months, the stock price increased from 0.06p to 0.35p today. Yet, most of this growth occurred in the past week. And seeing an almost 500% rise in the space of a week makes the PREM share price definitely worth looking into, I feel.
So why did the share price surge? Will it continue to do so? And should I be adding the stock to my growth portfolio? Let’s take a look.
A mining company in distress?
As previously stated, Premier African Minerals is a mining business. It digs up tungsten from the ground. But in 2019 that’s not what happened. Due to a complication with Zimbabwe’s National Indigenisation and Economic Empowerment Fund (NIEEF), PREM’s tungsten mine became fully impaired. In other words, it’s currently non-operational, and the management team said it will remain that way until the matter with the NIEEF is resolved.
Consequently, the business generated no revenue in 2019, and the mine is still non-functional today. Needless to say, this isn’t exactly good news. So why did the share price suddenly start climbing?
It seems that PREM finally caught a break and was granted a three-year Exclusive Prospecting Order (EPO) in Zimbabwe. This agreement enables the firm to begin exploring a large area of land that is expected to contain up to 80 million tonnes of lithium oxide — an essential ingredient for electric vehicle batteries.
Given the limited supply and rising demand for the metal, this presents a fantastic opportunity for PREM and its share price. But let’s not get ahead of ourselves here.
The risks are high
The EPO is an exploration license only. Its purpose is to allow mining companies to find suitable sites to start digging in the future. As it stands, PREM doesn’t have any active mines, and its new lithium sites will take a good couple of years before becoming active.
During that time, many things can go wrong. Its tungsten operation (or lack thereof) is proof of that. Developing new mining sites and maintaining existing ones is an expensive process. PREM is not currently generating any revenue and has less than $40,000 of cash on its balance sheet. So the business is entirely dependent on outside funding that may not be available in the future.
What’s more, the mining industry worldwide is subject to numerous regulations designed to protect workers’ safety, the environment, and local economies. However, Zimbabwe is not the most politically stable country, exposing PREM to the risk of sudden regulatory change that may significantly impact its share price.
PREM share price: time to buy?
Securing the EPO is undoubtedly a good development for the firm. It most definitely adds more value to the business, and over the long term, could be a catalyst for the share price to keep on climbing.
But with no revenue, plenty of expenses, and a long road ahead to becoming profitable, the risks are exceptionally high, in my opinion. Personally, I think the rise in PREM’s share price is a bit premature. Therefore, I won’t be adding the stock to my portfolio today.