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Premier African's potash stake worth more than market cap says broker

Published: 00:37 08 May 2015 AEST

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Premier African Minerals' (LON:PREM) residual stake in potash group Circum may be worth more than its current market value, according to house broker Shore Capital.

The group sold its stake in the Danakil project in Ethiopia to Circum last year in return for around US$5mln in cash and two million shares, a 2.15% stake.

Circum has now published the first results of an exploration programme at Danakil, which is 600km from the port facility of Tadjoura, Djibouti.

The Mineral Resource Estimate, based on drilling 35% of the licence area to a depth of 400 metres and compliant with the Canadian standard NI 43-101, is 4.2bn tonnes of measured, indicated and inferred resources.

A geological estimate over the remainder of the licence, however, suggests there is an additional 7-9bn tonnes to a depth of approximately 800 metres, with the total overall possibly as much as 13bn tonnes.

These are huge numbers, said Shore, and just based on the forecast 2.75mln tonnes of annual production in phase one implies a mine life of more than 100 years.

Ex-mine cash costs are expected to be around US$75-100/t (tonne) and US$110-150/t for the two types of potash at the deposit, which are among the lowest in the industry, said Stephen Dattels, Circum's chairman, adding that Danakil had the potential to change the dynamics of the potash industry.

A definitive feasibility study will be published in July with Circum currently finishing a US$30mln private placing to help fund both that and the first phase of development. 

Using a simple cash flow model, Shore estimates the after tax NPV (net present value) for Phase 1 is US$0.75bn, which, before any dilution from the ongoing placing would value Premier's stake in Circum at £10.5mln or 1.95p per share.

But this also does not allow for any possible further development upside.

“We note that just our conservative ‘first mine’ value alone exceeds Premier’s current share price,” Shore added.

Premier sold its stake in Danakil to concentrate on the RHA tungsten mine in Zimbabwe, where first production is expected next month.

In January, Premier said it was considering a sale of its Circum stake later in the year.

Shares rose 1.5% to 1.73p.

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