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After doubling, what’s next for the Premier African Minerals (PREM) share price?

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop

It’s not uncommon to see large moves in small-cap stocks. Still, a doubling in price over a year is a strong performance that deserves some attention. That’s the case I found when I reviewed the Premier African Minerals (LSE:PREM) share price. So what’s the story here?

Core business operations

The business is “currently developing a portfolio of strategic metals and mineral projects located across Africa”.

The majority of the focus is on two projects. One is the RHA Tungsten Mine and the other is the Zulu Lithium and Tantalum Project in Zimbabwe.

I’m sure ears prick up whenever the lithium project is mentioned, given the huge interest in this area over the past year or so. The commercial uses for lithium are large, notably in the batteries of electric vehicles. As such, demand for sourcing lithium is increasing, as is the price of it.

In a recent update on the Zulu site, the CEO commented that “we continue to see good intersections within the main spodumene rich pegmatite that are both encouraging for the long term and supportive of our decision to commence operations.”

Even though I’m not an expert on pegmatite (who is?), the tone of the report was very upbeat.

Stock price flying high

Naturally, the positive reports coming from Africa are helping to boost the share price. More than this, I feel the stock is being elevated by forward-looking investors anticipating revenue potential. After all, the website cites that the Zulu project is “potentially the largest undeveloped lithium bearing pegmatite in Zimbabwe”.

Since the first drilling programme began in 2016, it has been a long road to getting a commissioning date for Q1 2023. Yet a lot of the hard work has been done. If the company can extract the potential from the location, it could be hugely profitable.

Granted, the business had zero revenue as of the H1 2022 report. A risk I always note with these companies is that funding isn’t infinite, and the company will have to generate cash at some point in order to remain in business.

However, the Zulu project is coming in under budget and is fully funded. This impresses me and is another reason why I feel investors are happy to buy the stock.

My thoughts from here

After doubling in the past year, I feel much of the direction in 2023 will depend on progress at Zulu. This will put a huge amount of pressure on project updates when they’re released.

With a market cap of £150m and net assets (as of June 2022) of £20m, I do worry about the potential for a sharp correction on any bad news.

For high-risk investors who believe something big could happen here, I do understand why a small investment could be justified. But I won’t be investing.

The post After doubling, what’s next for the Premier African Minerals (PREM) share price? appeared first on The Motley Fool UK.

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Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.