Premier African Minerals Limited (LON:PREM) has increased its holding in a company developing an Ethiopian potash project worth US$2.8bn.
Premier’s deal may on the face of it look modest – it is has acquired a 1% stake in Circum Minerals for US$1.36mln. But it says it now has a “meaningful” 5.2% interest in the company.
WATCH: Premier African takes bigger slice of Circum
The vendor was Sabona Investment who was paid in shares.
Circum, meanwhile, is developing the Danakil potash project in Ethiopia, which has a definitive feasibility study.
That detailed document on the economics of the deposit calculates its net present value to be US$2.8bn, while its internal rate of return is put at 29%.
Closer look at Premier portfolio
Chief executive George Roach said Circum represented a “substantial” addition to its asset base.
He also confirmed the company is reviewing possible partnerships for, or the possible sale of its TCTIF forestry interest in Mozambique as part of a closer look at the Premier portfolio.
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It has appointed Bara Consulting to conduct a preliminary economic assessment of Zulu lithium and tantalum project in Zimbabwe.
And the firm is commissioning an independent review of the shaft systems and underground development at the RHA tungsten mine in Zimbabwe.
“I look forward to report on these matters in the near future," said Roach in a statement.
Savvy deal?
Shore Capital makes some excellent points about the Circum deal.
It points out that Yara Dallol’s much smaller deposit Dallol deposit to the south of Danakil is valued at US$200mln.
Taking that figure as a conservative benchmark, then Circum’s shares would be worth US$2 each (indeed the company’s last placement was carried out at that price). Premier bought in at US$1.50.
And as Shore points out: “It believed that Circum would likely ‘achieve a significantly higher value on its much bigger project’, which is also expected to be one of the lowest-cost potash producers in the world.”
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The potential roadblock to a quick development of Dankil is the estimated US$2.3bn capex required – meaning the project is a likely one for the big boys.
But there is some confidence a deal of some sorts can be done: “Premier has previously alluded that it expects eventually to benefit from “a significant liquidity and profit event” in relation to its Circum holding.”
The shares, up over 50% in the year to date, succumbed to profit-taking today, down 10%, or 0.05p to 0.42p in late afternoon trading.
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