Amur ventures into Iron Ore

Amur Minerals (AMC) is a company I have followed for a long time. The investment proposition to date has been its nickel and copper sulphide Kun-Manie project in far east Russia.

Many who follow me know that I am bullish on nickel due to anticipated demand driven by the stainless steel and EV battery sectors. I currently have an investment in Horizonte Minerals and you can read my research note here where I have also penned down my thoughts on the nickel market.

I was originally invested in Amur prior to the company being awarded the mining license (this was a long awaited event) and when the award came (and in a slightly more buoyant market), the company share price rose to 40p/s.

At the time this was a big win for me and I took some healthy profit.

As can be seen today, the company share price has come off significantly and is a good example of how the AIM market in particular trades largely on sentiment and forward catalysts.

This however was not the only reason for share price decline, the company have previously issued a number CLN’s to raise funds (yuk!). Shareholders have had a rough ride due to this and its one thing that has kept me away despite what is actually a very attractive project. That said there is no escape for junior miners, they have to raise cash somehow but its critical they keep overheads low early on.

The company now seem to be taking a different stance and have paid off remaining CLN’s which is good news and will attract investors back especially with access to a new cash flow source (more in a bit), I suspect the recent appointment of Adam Habib a financing specialist has factored heavily in this, appointment details here

So my blog is to cover off the new and pretty exciting news just announced but before I do it’s worth noting that the Kun-Manie project is nickel and copper sulphide with a larger nickel resource but the main attraction is nickel sulphide being class 1 premium nickel. This is perfect for EV batteries and will be low cost high margin. Notably class 1 nickel trades at a premium to LME nickel.

With 1.1m tonnes of contained nickel and 320k tonnes of contained copper this is a globally significant, large project and one in my opinion could certainly attract a larger player, we’ve seen what’s happened with Eurasia Mining! Should nickel start moving back to recent highs and beyond both AMC and HZM are obvious targets in my opinion.

One other outlier which I wont dwell on too much that provides nickel sulphide exposure is a nano-cap company called URU Metals. You’ll get mixed views on this company from investors but the aim of the game is to find value and at its current market cap I reckon there is a speculative trade to be had given the Zebedelia asset is nickel sulphide and pretty large – I’ve taken a speculative trade in this one based on value gap but good luck trying to buy as it’s highly illiquid with a low free float!

So the AMC news…

AMC have just announced that they have negotiated an investment into an Iron Ore project in Australia. The investment as I mentioned before will essentially give Amur access to near-term cash flow and future long-term upside. Iron Ore itself has experienced a significant move upwards recently so the deal could well have been struck at the right time.

The investment is by way of a convertible (secured) bond issued by Nathan River Resources (NRR), the mine operator who have recently been granted approval to resume mining (see here) totalling $5m but get this, it’s a joint investment with Glencore International AG who will also be investing $1.5m in the bond also.

The bond is coupon paying to the tune of 14% but can be converted into NRR shares anytime up to maturity with a minimum resulting 17% equity stake.

Transaction highlights as follows:

  • Iron Ore mine located in Northern Territories, Australia
  • 446 million tonnes of high grade iron ore (JORC)
  • 194,000 tonnes of stockpile available to ship with the first shipment expected to commence in [October 2020]
  • Pit-to-port infrastructure already in place
  • Co-investment with Glencore International AG
  • Offtake agreement negotiated with Glencore International AG

The 194,000 tonnes of stockpile at todays Iron Ore prices would produce in the order of $13.5m EBITDA (17% to AMC if converted). The longer-term upside will clearly come from the overall mining operation split into two stages.

The raise AMC have completed covers investment in the bond (and resultant 17% equity stake) and also provides significant capital for the further work programme on Kun-Manie where the company anticipate delivering the TEO (Russian DFS) by the end of 2020.

The deal looks good to me and well risk managed, if anything goes wrong the investment is secured and AMC can convert to equity at will. The fact a major such as Glencore has got involved can only increase confidence.

For transparency, I have participated in the raise and since bought on market. I like the fact that Amur have diversified their portfolio and looked for near-term cash flow, something that may become increasingly important through the remainder of the year if capital markets tighten.

There should be plenty of news flow feeding through on both projects and as I said before Amur could well see itself being a target given progress on Kun-Manie which sits literally on the door-step of China. AMC is certainly a retail favourite and I’d expect a fair bit of interest developing in the light of nickel, copper and iron ore back-drop and the general M&A environment hotting up!

Disclaimer

Research Notes and Blogs prepared by @TheMoneySponge. These should not be taken as investment advice and accuracy in statements cannot be guaranteed. These are to assist other researchers who may wish to research further and serve as a starting point. I may hold a position in the company 

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