Amara Mining: Valuation Broadly Maintained

In August 2012, Edison wrote a report on Amara Mining (CFG.TO) in which we estimated a resource at Yaoure of 1.8Moz from the 42 holes drilled at that time on the north-south structures. Since then, Amara has announced the results of an additional 45 new holes plus 11 deepened holes. At this stage Edison has not increased its resource estimate as a result of the additional drilling, although our confidence in our estimate has increased. We also recognise the potential for material growth in the resource in the longer term. Edison estimates that an initial resource of 1.8Moz at Yaoure (expected in Q1 or early Q213) has the potential to add 5 US cents (3p) to AMA’s share price and in the medium to long term perhaps as much as 13c (subject to investment).

Sega exploration to add 0.3Moz
In addition to its drilling at Yaoure, Amara has released the results of 114 holes at the Sampella, Touli, KNW and Bangasilla prospects, among others. Using the same ‘tabular’ methodology as at Yaoure, Edison estimates a combined resource at these four prospects of c 0.3Moz, with a potential near-term value to AMA of 1.5c/share, but with the potential to add 17c/share (12c/share in 2013 money terms) for each year of life that they add to Sega operations beyond 2016.

Valuation: Broadly maintained
Below 50p Amara’s shares are trading at their cheapest level in over 10 years (with the exception of the onset of the global financial crisis in 2008/09) despite the company having successfully brought Kalsaka into profitable production in 2009. Moreover, at just US$17.22 per resource ounce, its enterprise value is at only a modest premium to the global average cost of discovery of a 4.2Moz resource base. It is also trading at a 45% discount to Edison’s estimated end-December 2012 book value of US$1.01 per share. A resource update for Yaoure is scheduled for Q113/early Q213, which Edison estimates could be worth up to 5c (3p) per share immediately, after which the results of the feasibility study at Baomahun are expected to be released. Drilling at Sega could also be worth an additional 1.5c/share (as above). In combination with its other assets (see Exhibit 10 on page 9), this results in an overall valuation of US$2.26 (£1.51), based on maximum potential distributions to shareholders as a result of the successful execution of the existing Kalsaka/Sega and Baomahun mine plans.

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