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is Premier African worth buying for its stake in Circum Minerals alone?

Premier African, trading at less than 0.04p a share, has a stake in potash project developer Circum that is worth roughly 1.82p a share, Shore Capital calculates.

Potash producer
The smaller Dallol project nearby was recently funded on an assumed valuation of US$200mln

Broker Shore Capital reckons Premier African Minerals’ (LON:PREM) stake in Circum Minerals exceeds the value the market is placing on the Aim company’s shares.

Premier has a 2% interest in Circum Minerals, which yesterday issued a statement about its wholly-owned Danakil potash project in Ethiopia and revealed it had enlisted Morgan Stanley to help find a strategic partner for Circum or “find a liquidity alternative”.

“Whilst current events in Ethiopia may have slowed the process, Circum continues to engage with interested parties and also contemplates a possible flotation on an appropriate exchange,” the potash project developer’s statement said.

The current events Circum referred to relate to the six-month state of emergency declared in Ethiopia following a wave of violent protests in the Oromia and Amhara Region.

Using figures provided by Premier, Shore has been doing a bit of back-of-the-envelope calculating. Premier recently disclosed that Yara International’s much smaller Dallol project to the south of Danakil was recently funded on a valuation of US$200mln.

According to Premier African, which owns 2mln Circum shares, applying this valuation to Danakil is equivalent US$2 per Circum share, and it believes that Circum would likely achieve “a significantly higher value on its much bigger project”.

“Based on Danakil’s post-tax NPV [net present value], we simplistically calculate that PREM’s interest could be worth c.US$42mln or £34.3mln; based on current shares in issue, this is roughly 1.82p per [Premier] share. There is potential for multiple phases to be constructed, and we are expecting a scoping study on roughly doubling production to 5Mtpa [million tonnes per annum] expected to be completed later in 2016. If just two phases were built, simple multiplication would suggest a value of £68.5mln or 3.63p/share. In any case, we note that just the Phase 1 value alone already exceeds PREM’s current share price,” Premier’s house broker said.

Premier’s shares currently trade at 0.0366p.

Quick facts: Premier African Minerals Ltd

Price: 0.141 GBX

AIM:PREM
Market: AIM
Market Cap: £15.52 m
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