Mining minnowAmur Minerals(LSE: AMC) is charging higher today after the company announcedthe signing of a Financial Advisory Agreement with the Russian Governments Far East and Baikal Region Development Fund.
TheFar East and Baikal Region Development Fund was established by the Russian government to stimulate economic development in the east of the country. Amurs flagship Kun-Manie project is located in the east of Russia, close to the border with China.
This is without a doubt an extremely significant development for Amur. Thecollaboration agreement allows Amur to work in partnership with the regional Development Fund in attracting financing for its Kun-Manie project from across Asia.
Commenting on the deal,Alexei Chekunkov, CEO of the Development Fund said:
Amur Minerals boasts a world-class team and an exceptional asset. Strategically located in proximity to the worlds most dynamic economies, the Company presents a robust investment case.
Robin Young, CEO of Amur Minerals Corporation, commented:
Sign-off of this Financial Advisory Agreement provides Amur with substantial momentum as we shift from exploration to preproduction development. It not only confirms Russias commitment todevelopmentof the Far East through both Russian derived funding and that of foreign sources but also provides additional support and backing to our existing shareholders.
Multiple benefits
There are several reasons why todays news from Amur is a game-changing development for the company.
Firstly, the company now has access to a network of financial advisors across Asia, which will help Amur attract financing for theKun-Manie project from investors across the region. Secondly, Amurs inclusionin the Development Fund shows that the Russian governmentsupports, and is willing to assist the companys development. And thirdly, in addition to providing new potential sources of capital, the Development Fund can deploy federal financing earmarked for infrastructure development.
As Amur is facing a potentially crippling bill of more than $300m just to construct the access road to itsKun-Manie project, the possibility of additional infrastructure financing from the Development Fund is a welcome relief for the company.
Risks remain
The signing of this deal with the Development Fund could give Amur access to a broad range of financing options for the development of itsKun-Manie project. However, the company is still years away from initial production.
And for thisreason, Amur remains a high-risk play.
That said, Amur is edging closer to production every day.The companys Kun-Manie mine is a world-class asset, with a net present value between $0.71bn and $1.44bn. But the biggest problem facing Amur is the fact that the company has to raise the cash needed to fund the construction of Kun-Manie. Construction costs are estimated to be $1.4bn over a two-year period. Collaboration with the Development Fund should improve Amurs chances of locking in funding for theproject,but its all a question of time.
Amur had less than $2m in the bank at the end of 2014, so the companys survival really does depend on its ability to unlock additional financing. Management has stated that the group has enough cash to keep the lights on until 2016, but I wouldnt rule out placings ora rightsissue in the near-future.
The bottom line
Overall, it remains difficult to place a value on Amurs shares and judge if theyre overvalued or not at present. Although, its 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.