Premier African Minerals has announced a substantial equity issue to settle a longstanding liability with China Zenith Capital Ltd., which sued Premier for the payment of a success fee related to a deal with its partner Canmax.
The AIM-listed mining company has issued 2 billion new ordinary shares to address its £1.38 million liability to China Zenith Capital Ltd. The newly issued “Settlement Shares” will be held in trust for China Zenith Capital and gradually sold under orderly market conditions.
The issue of shares was previously agreed upon by shareholders at a recent general meeting and announced to the market.
The proceeds from these sales will be used to pay down the debt. Should the share sales fall short of covering the full liability, Premier will have to either issue additional shares or use its cash reserves to settle any remaining balance. Interestingly, Premier will benefit if the share sales exceed the debt amount, as the company will retain any surplus.
With Premier African Minerals’ Zulu lithium project showing little sign of producing meaningful amounts of lithium, Premier African Minerals is being backed into a corner and has turned to the issue of its own stock as a means of paying its suppliers and settling debt. While this settles debts and protects the company’s limited cash reserves, it acts as a constant weight on shareholder value creation.
We have yet to learn of Canmax’s plans to take action under the terms of their offtake agreement. Premier has missed a series of targets and is racking up significant penalties under the agreement. Failure to meet these penalties could result in Canmax taking an ownership stake in the Zulu project.