Over the past 12 months,Amur Minerals(LSE: AMC) shares have risen by a staggering 580% on a wave of good news.
These gains have accelerated over the past month. Since the end of April, Amurs shares have jumped by around 55%.
But has Amur got ahead of itself?
The company is still in its development stage, and thereis plenty of work to do before Amur starts to generate cash. Have the companys shares risen too far too fast?
Approval received
Amurs gains over the past month have been driven by the approvalof the companys Detailed Exploration and Mine Production Licencefor its Kun-Manie project in the Far East of Russia.
In many respects, this approval surprised many analysts. The Russian licencingsystem is notoriously difficult to navigate especially for a small Western company.
TheKun Maine project is considered to be a world-class nickel/polymetallic project due to its size and resource base. The companys newly approved 36 square km license for the project is valid untilDecember 2034, giving the group plenty of time to extract a sizeable amount of resource from the prospect.
To complete the licencing, all that remains is for Amur tocompensate the Russian Government with a one-time payment of approximately $480,000.
Plenty of work to be done
Theres still plenty of work to be done before Amur can begin production at its Kun-Manie project.
TheDetailed Exploration and Mine Production Licence was granted with caveats that need to be fulfilled.
These include:
- The approval ofdetailed exploration plans by theappropriate agencies.
- Additionalwork related to metallurgy and engineering studies to be compiled in a final feasibility study to be approved by the State Reserves Committee.
- Amursdetailed exploration plan, whichestablishes the basic parameters and volumes of work for the next phase of development. Once again, this plan will need to be approved by the regional authorities.
Basic access
AmursKun-Manie project really is in its early stages of production.
Indeed, while management waits for certain approvals, the company is weighing up its options for building a permanent access road to the project.
The road, to the nearest suitable rail line, would cost an estimated $312m and stretchacross 320km. If this option isnt viable in the near term, Amur is contemplating leasing a Zeppelin to fly equipment to theKun-Manie prospect.
Funding issues
Ultimately, Amur will have to build a permanent access road. Unfortunately, the cost of the road highlights the financial hurdles Amur is facing.
With a market cap. of only 86m, Amur is facing the prospect of taking on a near-crippling amount of debt just to fund the construction of the access road.
Still, theres no doubt that the scale of the world-classKun-Manie project could attract another partner with deeper pockets than Amur. Moreover, Amur could be acquired by a larger peer thats looking to get its hands on a quality asset at a low price.
The bottom line
All in all, Amur has a long way to go before itsKun-Manie mine is operational, and the company starts generating cash.
Andwith this being the case, it’s difficult to value Amur’s shares and judge if they’re overvalued or not at present. Although it’s clear that there are plenty of risks ahead.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
