10th Jun 2016 08:57
LONDON (Alliance News) - Miner Premier African Minerals PLC Friday said it expects operating conditions to improve in the second half of this year as it continues to address several issues at its flagship project and mitigate risk by venturing out into other investments and assets.
The tungsten miner operating the RHA project in Zimbabwe managed to generate a nominal amount of maiden revenue in 2015, but its pretax loss ballooned to USD7.9 million from only USD537,000 in 2014 due to a rise in costs.
The company did not book any cost of sales in 2014 but USD1.6 million worth during 2015 and depreciation costs rose to USD714,000 from USD10,000, whilst impairments also increased to USD844,000 from USD137,000.
Administrative costs experienced a small drop in the year, but Premier African Minerals also booked gains worth around USD2.9 million last year that were not repeated in 2015 and reported higher finance costs totalling USD1.7 million in 2015 compared to USD16,000 last year.
Operationally, 2015 was a significant year for the business as the progression at the RHA project transformed the business from an exploration firm to a development and mining company.
"The past year saw a great deal of time devoted to developments at RHA, which extended into the earlier part of 2016. However, in the last few months we have looked to continue to diversify company revenue streams to mitigate risks associated with mineral exploration and development projects," said Premier African Minerals.
The company also holds a 2.0% stake in Circum Minerals Ltd, a company that is developing a potash project in Ethiopia which has a current net present value after tax of USD2.10 billion. Based on Circum's most recent private placement of shares, Premier African Mineral's stake in the business is worth around USD4.0 million.
To put that into perspective, Premier African Minerals itself has a market capitalisation of around GBP13.2 million, equal to about USD19.1 million.
Since the end of 2015, Premier African Minerals has signed a binding memorandum of understanding to acquire a controlling 52% stake in TCT Industrias Florestais Ltd, which owns a limestone deposit in Mozambique and a forestry division that will deliver immediate revenue as soon as the deal closes.
"Combined with expected positive operational cash flow at RHA and an anticipated liquidity event from Circum, the investment in TCT should make Premier less dependent on direct equity placements to finance operations in the near future," said Premier African Minerals.
Premier African Minerals has moved to mitigate risk by diversyfying its assets and investments because of the problems faced at RHA during 2015. Grades from the open pit operation failed to impress and forced the company to suspend operations in early November.
Since then, the company has been evaluating its options but said initial test work has shown it is possible for the material within the open pit to be upgraded which could deliver a profitable operation.
Bulk testing at RHA is expected to conclude this month, and then a final decision will be made about what to do with the open pit. The plant has faced its own problems since inception, but the company expects the required modifications to be completed by the supplier of the plant by July 6, it said.
Notably, the longer term plan at RHA has always been focused on an underground operation, and the miner said tonnage from the underground element of the mine will build to 9,000 tonnes per month from this month onwards.
Like many miners, Premier African Minerals has been reducing costs. However, due to the issues at RHA, the company was under pressure cost-wise because it could not meet initial projected costs of production, making cost-cutting vital to building a profitable operation.
However, with costs declining and commodity prices rising, Premier African Minerals believes the future profitability of RHA will significantly improve as it continues to address the numerous ongoing issues at the project.
"Despite the difficulties we have experienced, I look forward to general improvements in operating conditions and the development of cash generative subsidiaries, particularly in the third and fourth quarters of 2016," said Executive Chairman and Chief Executive George Roach.
Premier African Minerals is also progressing earlier stage projects in Africa, specifically the Zulu lithium asset in Zimbabwe.
Premier African Mineral shares were down 3.9% to 0.673 pence per share on Friday morning.
By Joshua Warner; [email protected]; @JoshAlliance
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