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Premier African overcoming operational issues at RHA

Last updated: 11:21 22 Aug 2016 BST, First published: 11:13 22 Aug 2016 BST

Pound notes
Grades at RHA have been extremely variable

Premier African Minerals Ltd (LON:PREM) said more sampling needs to be performed at the RHA tungsten project in Zimbabwe as grades have shown extreme variability.

As the company announced a convertible loan note agreement to raise funds to tide it over, it said grades at RHA range from sub-economic levels to an eye-popping 300 kilograms (kg) per ton over a short strike distance, which may make the application of normal geo-statistical methodologies unreliable.

Ore from underground operations fed through the plant has returned a head grade greater than 4kg per ton and a recovery of up to 70% of the contained metal. Concentrate produced is at grades of up to 65%.

The target throughput at the plant is 8,000 tons per month at a grade of 6kg per ton and a recovery of 80% of contained wolframite.

As part of the optimisation process, the company has opted to replace its six millimetre (mm) panels with larger 10mm panels, which should be installed by the end of the month.

The plant is expected to achieve its design throughput rate during September 2016.

The company said the final decisions in regard to the re-establishment of open pit operations and further development of the X-ray transmission upgrade process will follow release of the updated resource.

George Roach, chief executive officer (CEO) of Premier, said that “the combination of improved crushing circuits and higher grade ore from underground mining operations has seen a significant increase in the concentrate grade being produced.”

“Wolframite concentrate shipments are expected to resume in September,” he added.

Meanwhile, surface operations at Zulu – regarded as the largest potential undeveloped pegmatite (coarse-grained igneous rock) in Zimbabwe – have brought the project to a state where it is ready to be drilled, and negotiations with a drilling contractor are underway.

As for the company’s proposed acquisition of a 52% stake in Mozambique-based TCT Industrias Florestas, the owner of a substantial limestone deposit, the company is close to completing due diligence and the deal should close within 30 days.

On the financing front, Premier has signed a convertible loan notes subscription agreement with Darwin Strategic to raise £3.5mln.

There will be up to 140 loan notes, each with a redemption (par) value of £25,000, though Premier will only receive £22,500 when each note is issued. The interest rate is 16% a year.

The loan notes will redeem after a period of 12 months from the date of the subscription agreement, unless otherwise repaid or converted.

The net proceeds from the loan notes will be used to provide general working capital for the company, and to support the exploration and development activities at the Zulu lithium and tantalum project in particular.

"This loan instrument removes any short term funding issues the company may have faced as RHA is fully optimised and ensures the rapid development of the exploration activities at the Zulu exploration tenements,” CEO George Roach said.

“This financing instrument means that there may be no dilution for shareholders due to the opportunity to repay the debt and hence avoid equity conversion. Whilst no future occurrence can be guaranteed, with, inter alia, an anticipated liquidity event from Circum, developments at RHA and the anticipated closing of the Mozambique acquisition there are reasonable prospects that repayments will be made rather than equity conversions,” Roach assured.

Premier owns two million shares in Circum Minerals, the owner of the Danakil potash project in Ethiopia.

“It is worth noting that failure to meet a repayment when due will not constitute an event of default, but rather a trigger, allowing the note holders the right to convert the notes,” Roach advised.

“The RHA Tungsten Mine is overcoming some of the operational issues and seems to be improving recovery rates; however APT [ammonium para-tungstate] prices continue to languish around the level the mine requires to be profitable. The variability in underground ore grades will present a challenge to grade control as well as for resource estimation purposes and may make it difficult to provide consistent feed to the plant,” suggested John Meyer, at mining research boutique SP Angel.

Meyer said he would prefer the company to “fix up” the tungsten mine and then use the cash flow from that to finance the exploration rather than raise money for the latter through the loan note facility.

At Northland Capital Partners, analyst Dr Ryan Long said the potential cash flow from its operations (RHA and Catapu) and a liquidity event for its interest in Circum could give the company the funds required to repay the loan notes to Darwin, thus reducing potential dilution to shareholders.

Yuen Low, of the company’s house broker Shore Capital, said that despite the current non-optimal setup, underground ore fed through the plant returned a head grade greater than 4kg per ton and a recovery of up to 70% of contained metal into concentrates grading up to 65%.

“For context, target throughput at 8ktpm [thousand tons per month] calls for a grade of 6kg/t and 80% recovery, which the new screens will hopefully allow to be met. Encouragingly, according to PREM, sensitivities indicate that RHA is profitable when recovery is at 70% and the APT price is US$180/mtu [metric ton unit],” Low observed.

Shares in Premier were down 27% at 0.474p in early trading.

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