Joel’s Resource Report – Amur Minerals #AMC

Joel’s Resource Report – Amur Minerals #AMC

On Friday I decided to run a mini competition on Twitter – whichever company was requested/liked the most, I’d cover. Amur Minerals was the winner.

Amur Minerals (AMC) is an AIM listed exploration company with mining rights over the Kun-Manie nickel copper sulphide project within the Amur Oblast in Far East Russia.

It’s a company I did look at recently, but my very brief analysis screened it out as I’m not keen on relatively high capex projects (harder to finance). This is personal preference rather than being a problem per se. For this article I will take a fresh look at the company.

History

Most resources companies in the market are unsuccessful, and taking a look at Amur Minerals over the past 5 years gives an indication as to the value delivered by the company. At a price of 1.75 pence, it currently has a market cap of £24 million:

(Source: Google)

I’ve had a quick look back at RNS’s from five years ago. The interim results from 2015 are entitled “License awarded. Debt-free. Profitable. Cash reserves of US$8.3 million”.

Robin Young, CEO stated at the time:

The first half of 2015 saw the achievement of a major milestone for the Company with the award of the Production Licence.  There remains a substantial amount of work as we continue to advance Kun-Manie from exploration to pre-production, but with Russia’s commitment to the development of the Far East and the dedication of our own staff, we have great opportunity to progress from a pure explorer to become a nickel sector player. We thank the shareholders for their continued support and perseverance.”

What’s happened historically is perhaps irrelevant but it’s interesting to me to look at where the company has come from.

The project

Amur have released PFS results:

(Source: Amur Minerals)

The economics are supported by good transportation and access to customers:

(Source: Amur Minerals)

Capital Network’s analyst recently discussed the project. One highlight for me was that the company’s new focus is on open pit mining which should make the project cheaper to develop and more profitable.

Recent Excitement/New Project

On August 25th, Amur announced that they’d raised £6.1 million via a placing.

The proceeds were in part used to subscribe for $4.67 million in secured convertible loan notes (CLN’s) in Nathan River Resources, which owns the Roper Bar Iron Ore Project in Australia.

The CLN’s have the following terms:

  • 14% coupon paid quarterly
  • Convertible after 3 years to 19% of the equity of NRR for Amur (based upon current issued share capital of NRR)

A 14% coupon means that Amur should receive $650k for the next three years – this will hopefully cover corporate overheads over the next three years.

Robin Young, CEO has stated that “the current near production status allows for a rapid resumption of the production and shipping of Direct Shipping Ore as substantial stockpiles of high-quality iron ore are currently ready for loading and transport to the Chinese market.”

The profitability is difficult to predict; however, output in stage 1 is stated at 1.5-1.8 Mtpa (million tons per annum) for the first year.

  • 1.5 Mtpa at $100 each (current iron ore price $124) = $150 million

I’ve taken $100 as an average which I think is sensible given iron ore prices are quite hot at the moment.

Costs have not been disclosed but assuming 50$ per tonne would leave $75 million EBITDA.

Assuming the iron ore price remains elevated, everything goes to plan and Nathan River Resources becomes listed, Amur’s 19% stake could be worth in excess of $100 million. The rationale for this is that the project should trade on elevated multiples due to Australia being a great mining jurisdiction.

Adam Habib was interviewed for Proactive upon the announcement of the deal:

(Source: Proactive)

How Amur can unlock the Kun-Manie project
  • Utilise dividends or sell down Nathan River Resources stake in the future

Given the recent raise, I expect that Amur is funded for the foreseeable future. If the investment into Nathan River Resources is successful, there’s the possibility of substantial dividends or selling the stake to help minimize equity dilution.

Amur needs $570 million dollars to develop their project. Projects with a circa 30% IRR might have a debt/equity split of 70/30. This would mean that Amur need $171 million dollars. If Amur were able to monetize Nathan River Resources at around $100m I expect that market cap would re-rate to at least cash in the bank. Existing shareholders would’ve then made about 300% and would experience less than 100% dilution to bring the project into production.

Other options which I believe are viable given the strategic nature of the project include:

  • Selling a net smelter royalty on the project
  • Bringing in a medium to large JV partner
  • Selling a portion of the Kun-Manie mine
  • Sell the entire project – if a major decides they want a strategic asset, they could offer £240m. They’d get a great project at a circa 50% discount to NPV and Amur shareholders would make ten times.
Future Milestones

(Source: Amur minerals. Note: a TEO is a Russian technical study.)

I’m still not a huge fan of projects with capex in the hundreds of millions. But I’ll be keeping an eye of for the new feasibility study. Either way, by acquiring a stake in Nathan River Resources, Amur have a pathway to project development. And if everything plays out as hoped, the upside would be multiples of the current share price.

Having re-analysed the company, I can see a pathway to future production and value creation. It will be interesting to see where the company goes!

Till next week!

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