Zulu Lithium JV Agreement

All things considered I’m in little doubt we’re about to witness a step change in PREMs fortune and hopefully it's share price shortly.

I believe the step change will come as a result of entering into a JV agreement with a suitable partner on Zulu's lithium. There are a number of unmistakable indicators telling us it’s likely once DD has been completed.

To be clear I believe the agreement will be on just the old license area which is currently the subject of the DFS and not on other areas. Well not yet anyway, I’m sure GR will want to “keep his powder dry” on those pending further exploration and analysis. Viz;-

George Roach PREMs CEO is quoted as reporting to the markets on 14th December 2021.

“I have made reference to a number of ongoing negotiations intended to secure funding for the balance of the DFS underway at Zulu, against a small disposal of a direct interest in the project and assurance of mine build and off-take finance. Due diligence is being undertaken by more than one capable potential off-take partner.

As much as Premier is under due diligence, so too are those seeking to conclude an off-take agreement with us. Although progress is good in my CV, there is no certainty of outcome until final agreements are concluded and that is not the case at this time."

Looking at similar agreements recently entered into in the space I'm taking from GR’s statement that we're going to be hearing about a JV not only to finance the rest of the DFS but also to build the follow-on mine all in exchange for a % of it.



I see the finance for the rest of the DFS as slightly irrelevant as it’s likely to be just a cash down payment of the overall deal. I can see an overall JV being done on a 50/50 basis.
 
Given the small placing @ 0.16p and the likelihood that some payments may now be called for on Pro-forma is just one indication that PREM is on the cusp of entering into such an agreement.

If I’m right the agreement will be transformational for PREM, and not just in financial terms but more importantly in terms of leadership, experience and skills. 

The market is sure to see there’s a very significant likelihood that a mine will be built and the JV having the skills and the wherewithal to build it! It will also be seen that it puts PREM in a position that it shouldn't need to keep coming to the market to raise cash anywhere near as often as it has if ever at all.

As I say, the DFS currently being carried out is confined to what was the original licensed area before the Exclusive Prospecting Order (EPO) was granted. That area is 350 hectares.

By granting the EPO earlier this year PREM was awarded a much larger area under a new license. The new area encompasses the original. But it is over 57 times larger. It measures a staggering 20,200 hectares which is over 85 square miles, or as previously pointed out the equivalent of 20,000 rugby pitches!


To my mind the original area compared to the new one is akin to just one square on a chess board or a postage stamp on an A4 envelope.

Look back to 2017 and consider the Scoping Study was out on just a small part of the original area back in 2017 and you get some sense of proportions. It was based on a short length of just one of many Pegmatite strikes there.

Nevertheless, the short length of strike was assessed to contain 20.1 million tonnes of Pegmatite containing Li2O at a grade 1.06% under the SAMREC code. Approximately two-thirds of which was Spodumene and one third was Petalite. It was PREMs first and still is it’s only bankable position on Zulu albeit updated now.

After the necessary work for the Scoping Study was completed, the drilling campaign continued across the remaining area. But this time to  do no more than delineate the extent of the Pegmatite.It was not SAMREC compliant.

It was in this campaign that much higher grades were discovered in the so-called step out zones. Those zones together with farm fields that couldn't be accessed are now being incorporated in the DFS. One core was found to contain a high grade of over 4% Li2O which is truly exceptional if you recall.

By the time the exploration drilling had finished in 2017, a reasonable estimate of the Pegmatite resource was said to be between 80 million tonnes and 160 million tonnes. So  4x to 8x more than the Scoping Study but incredibly less than 2% of the whole of the  new license area awarded! All very encouraging to say the least. .





Zulu is often benchmarked against Pilbara’s lithium mine in Australia given it’s similar grades. Its Pilbara's ore body is said to be one of the largest hard rock lithium deposits in the world. But I think there’s every chance that Zulu could  surpass it.

Pilbara’s mine is about three years ahead of Zulu and  in production now. It's current resource is 230mt's @ 1.20% Li2O or something like that. Its original mining plan was to produce over 320kt’s of SC6 (Spodumene Concentrate >6%) from a Run Of Mine (ROM) of 2mt's/annum of Spodumene bearing Pegmatite  giving the mine a Life Of Mine (LOM) of over 20 years. Pilbara's well on with it now I believe.

All very interesting. As is the fact that Zulu’s Lithium is higher quality than Pilbara. Zulu’s has a very low iron content which sets it above Pilbara's and indeed most of its piers.

Pilbara’s mine is massive and highly profitable producing SC6 in those quantities at today's prices by any measure. It and other similar lithium mines are generating ROI’s (Return On Investments) never thought possible.  

Pilbara's Market Cap is now a staggering A$9bn or $6bn generated from its production of 320kt’s/ annum of SC6 and its potential the markets are seeing. It’s p/e ratio by the way is over 40!

So typically if we consider the first mine on Zulu having a ROM of say 2mt’s/annum of Spodumene bearing Pegmatite this is what the calculator looks like using an earrings metric method. 1.25% is the grade I’ve used and 85% is the Metallurgical Recovery.

2.0mt's X 1.25% gr X 85%mr = 0.20mts or 200kt's  Li2O.

200kt's Li2O ÷ 6% = 333kt's/annum SC6

333kt's SC6 @ $2,500/t  = $830m annual revenue and I would suggest $650m net profit after tax and royalties.  



If we assume then that Zulu’s p/e ratio is going to be a miserly 8 that would give the mine a Market Cap of $5.2bn which would be $2.6bn net to PREM in a 50/50 JV.  Let's not forget Pilbara's p/e ratio is over 40.

$2.6bn at today's exchange rate is £1.9bn or thereabouts and with no more than 25bn shares in issue the math tells us we’re looking at a share price of 7.5p when the mine is operating in an optimised as steady state sometime in 2025.

With fundamentals that good I think it would be reasonable to anticipate a share price of 1.0 - 1.5p assuming we have a good DFS and with finance to build the mine in place even in a 50/50 JV agreement in Zimbabwe. All on a DCF (Discounted Cash Flow) basis with a high ROI.

If all that’s right and we come full circle it follows that we are on the brink of a step change JV agreement which could easily see the share price run up to 0.50p if not more very quickly on its announcement.

Zulu will have many options going forward. I doubt very much a single mine having the metrics will be the end of it. Nowhere near in fact. I believe we could be looking at a lithium resource that could support the equivalent of six like mines if not more. With a little vision I can see we may need to use road trains on a dedicated road at some point or even a rail link.

I’m not ruling out a Carbonate production unit either and although I’ve not focused on it there’s Petalite and other minerals such as Tantalum to consider too.

Perhaps last but not least we would be naive to think that gold mining will not feature at some point. We’re in the Greenstone Belt which is known to have some of the highest near surface grades of Au on earth after all.

IMHO as always and best wishes to you all in 2022.