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Premier African Minerals shares touch 52-week low after Zulu lithium mine update

Premier African Minerals shares revisited 52-week closing lows on Tuesday after the group issued an update on its Zulu lithium operations in Zimbabwe.

The company released assay data from trench and drill hole surveys which revealed the presence of potentially economically viable mineralisations, but nothing that alters the current investment case materially.

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Premier African Minerals shares were trading down 8.5% to 0.215p at the time of writing.

Although Premier released a raft of assay data, investors will be more concerned about the progress of existing mining operations at Zulu and the progress of installing a new mill.

The company is subject to production targets and penalties should these targets not be met. The first of these targets has been missed and meeting future targets is reliant on the successful installation of a new mill, and the production of lithium at the required 6% grade.

Premier has recently said the mine can produce lithium at the required grade, but substantial uncertainties remain around when the plant will be up and running to process ore.

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Today’s announcement did little to address these concerns and the drop in the share price can be attributed to uncertainty around mining facilities and how much more Premier African Minerals shareholders will be diluted by funding rounds before production ramps up.

The Premier African Minerals CEO, George Roach, provided a longer than usual comment on the current state of affairs at the Zulu project and when the company expects the mine to start generating revenues:

“Those surface trench and drill hole results originating from the Southeast pegmatite, represent very good potential for this pegmatite that is adjacent but discrete from the main mining and pit developments underway at present. More important is that geological logging indicates that the lithium mineralisation in this pegmatite is almost exclusively spodumene. For reference purposes, a grade of 1% Li2O when the mineralisation is all spodumene, is the equivalent of 12.5% of the ore body being made up of the mineral spodumene. Test work in our laboratory at Zulu has consistently confirmed that Zulu is able to produce SC6 at acceptable grades from a contained spodumene content in the ore body as low as 4%, representing a potential economic cut-off grade as low as 0.37% Li2O when the contained mineral is spodumene.

By way of general update, civils associated with the thickener and new mill installation are substantially complete and first materials are now at site with further loads on route. The new mill is expected to be the last component to be positioned at Zulu late in January 2024 with anticipated restart of operations as early in February as possible and the Board believes as previously reported that the Company is still on track to target revenue generating production by late-February 2024.

Mining operations are now well developed, and we anticipate no issues associated with ore delivery to Run of Mine pad in future. Whilst mining operations are a major cash cost at present, the future benefit when operations are underway at much reduced stripping ratios will more than offset this cost in the future.

Preliminary indications from the Company’s internal budget (which has not been independently verified) at this time model an average mine gate cost of the order of $800 per ton for SC6 for the first 12 months, and which discounts any technical grade spodumene produced and sold and any sale of any lepidolite and other mica-rich concentrates or future tantalum production.”

If these costs are achieved, the mine will operate profitably. However, the question is whether these cost forecasts will be met and how much more cash Premier needs to get there.

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