Amur Minerals: New Funding Should Support Company Plans

Amur (AMC.L) has raised £5.2m by way of a subscription by new and existing shareholders for a total of 71.7m shares (17% of shares in issue) at 7.25p (a 6.5% discount to the previous close). Of this, £5.0m follows the pattern of previous equity swap agreements with Lanstead Partners, which have proved successful in continuing to fund Amur’s exploration of its growing Kun-Manie nickel resource while it progresses its mining licence to approval with the Russian authorities. As a result of a modified structure to this agreement, a £1m up-front payment is to be paid to Amur, which will comfortably fund at least its current Kubuk drill programme.

Lanstead agreements should support Amur’s plans
We assume Amur spends US$1.5m on exploration in FY13. Management has stated that its drilling cost is c US$40/m, due to its drill rig being owner-operated. Hence the cost of its newly expanded 5,000m Kubuk drill campaign would be c US$200,000. Amur drilled a total of 7,200m across the whole of Kun-Manie in FY12 and we expect it to drill a comparable total meterage in FY13, resulting in a potential FY13 drilling cost of only US$288,000. With a £1m upfront payment to be made to Amur, we consider this sufficient funding to complete at least its Kubuk drill programme. The remaining £4m (US$6.1m) of the agreement could potentially pay out £167,000 (US$255,000) per month (subject to Amur’s share price maintaining the benchmark price of 9.67p). Even if it only achieves a proportion of that monthly funding, this Lanstead agreement should provide Amur with the ability to update its resource and reserve statements, the Kun-Manie economic model and its mine schedule to reflect higher grade areas identified since the 2007 PFS.

Updated resources and reserves to follow SRK visit
SRK Consulting is due to visit Kun-Manie shortly to verify Amur’s exploration procedures. Once completed SRK should be able to sign-off on its resource and reserve estimates, allowing Amur to shortly announce these to the market.

Valuation: Unchanged, forecasts reflect FY12 results
We have updated our forecasts for FY12 financial results. Amur reported a loss of US$3.6m, resulting predominantly from G&A costs of US$1.8m and a US$1.8m finance expense charge relating to its pre-existing Lanstead agreement. We reiterate our previous estimate of this project’s value of US$394m equating to 60p per share (accounting for the additional shares, and using a US$20,000/t Ni price and 10% discount rate). This was primarily based on the old 2007 SRK Consulting pre-feasibility study, which will now be revised in light of the new exploration results.

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