Small-cap minerAmur Minerals(LSE: AMC) has seen its share price slump by around 50% during the past two weeks, after rising by as much as 250% in five-and-a-half months to 12 June.
And as the saying goes, the time to buy is when theres blood on the streets so, do Amurs recent declines present an opportunity to buy? Or should investors sell up ahead of further declines?
At theend of May, when Amurs shares were trading at 20p,I wrote that it was difficult to value Amurwithout an appropriate valuation assessment of the companysworld-class Kun-Manie mine.
Additionally, there were other uncertainties ahead. At the time, it was unclear as to how Amur would find the cash to begin development of the project.
A month after I wrote the above article, Amur released itsforward-looking operational blueprint for Kun-Manie mining project. Initial projections look extremely promising.
The net present value for the mine is estimated to bebetween $0.71bn and $1.44bn. Initialconstruction costs will be in the region of $1.4bn over a two-year period. Its estimated thatKun-Manie will have an operating cost of$34.86 peroretonne.
This estimate makes the economics of the project look highly attractive. However, the current estimate is 74% higher than the operating cost of $20 per ore tonne initiallyanticipatedduring 2007. I wouldnt rule out further cost increases as the project progresses.
Unfortunately, there are still plenty of questions that Amurs management needs toprovide the answers to before the company can push ahead. For example, Amur needs to provide details on how the project will be financed.
Amur reported a cash balance of$1.4m at the end of 2014, which is only enough to keep the lights on for around six months based on historic cash burn figures. During 2014, Amur burned through just under $2.8m in cash.
Moreover, before Amur can begin the construction of a mine atKun-Manie, the company is going to have to construct a permanent access road to the project.The road to the nearest suitable rail line, would cost an estimated $312m and stretch across 320km.
And as I wrote before,with a market cap. of only 93m, Amur is facing the prospect of taking on a near-crippling amount of debt just to fund the construction of the access road.
With this being the case, Amurs only realistic option is to seek a partner forKun-Manie, but even this option will taketimeto organise.
Amur still needs to conduct further metallurgical testing at the Kun-Manie project to determine the exact quality of thereserves. Its unlikely that any potential partner will come forward to work with Amur before this stage of exploration is complete.
The bottom line
Overall, it remains difficult to place a value on 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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