Premier African Minerals shares were weaker on Wednesday as investors continued to digest the terms of the new lithium offtake agreement with Canmax.
Premier African Minerals shares closed down 12% yesterday and were down a further 8% at the time of writing on Wednesday.
The new agreement avoids the worst-case scenario after Canmax issued a termination notice, but the terms of the new agreement put significant pressure on Zulu’s production.
Premier African Minerals have agreed to a series of production targets that, if not met, could see Premier African Minerals make penalty payments of up to $4m per month from June 2024.
Should Premier African Minerals not meet production targets of 1,000 tonnes per month on a monthly average rolling basis, Canmax is entitled to charge interest of up to 12% and be issued new shares in Premier African Minerals.
If the production targets are not met, or Premier African Minerals fails to make settlement payments by the long stop date of 1st April 2025, Canmax has the right to take a direct interest in the Zulu project at a valuation of $200m, should Canmax not elect to take to new shares in Premier African Minerals.
Under the revenue-sharing terms of the new agreement, Canmax shall receive 25% of gross lithium sales from 1st November 2023 until 30th May 2024. From 1st June 2023 and until the Advance Purchase Amount plus accrued interest has been settled, Canmax will receive 50% of all lithium sale gross proceeds due to Premier.
The long and short of it is should Premier African Minerals fail to meet production targets, Canmax can impose crippling penalties on Premier African Minerals, which will erode shareholder value.
Canmax could take $1.5m in new shares in Premier African Minerals from November this year if they do not produce 1,000 tonnes monthly.
The move lower in Premier African Minerals shares over the past two trading sessions may represent investor confidence in their ability to meet the required production targets.
The Zulu plant is currently being upgraded and the company says it should be ready to meet the November deadline.
Premier African Minerals have bought themselves time, but long-term shareholder value creation hinges on ramping up production in the short term. The pressure is on.
