Amara Mining: Initial Share Price Reaction In Line

On 15 March, Edison published a report in which we reiterated our estimate of 1.8Moz of additional resources at Yaoure (based on drill results), which had the potential to add 5c (3p) to Amara’s (Amara Mining.L) share price. On Monday 25 March, Amara Mining formally announced a sulphide resource at Yaoure of 2.0Moz (at a 0.8g/t cut-off), or 2.7Moz (at a 0.5g/t cut-off), 83% of which is in the ‘inferred’ category, representing an uplift of 1.8Moz (at 0.8g/t cut-off) and 2.4Moz (at a comparable 0.5g/t cut-off). Note that on the basis of a US$1,500/oz gold price, Amara has made the more conservative 0.8g/t cut-off its preferred estimate. The overall discovery cost was US$7.93/oz. Initial metallurgical test-work indicates that the ore is non-refractory and a Preliminary Economic Assessment (PEA) of the project is scheduled for Q413. After the upgrade, Edison calculates that Amara’s enterprise value equates to a mere US$11.75 per attributable resource ounce (vs a global average of US$108/oz).

Initial share price reaction in line…
In the immediate aftermath of the announcement, Amara’s shares traded up c 2p until the gold price fell away in the late afternoon, suggesting that London investors were prepared to accord Yaoure’s additional resources 48% of their value based on a global average cost of discovery of ‘inferred’ ounces of US$7.16/oz. This is consistent with London investors’ known aversion to ‘inferred’ ounces. However, converting the ‘inferred’ resource to ‘indicated’ would add an additional 7cps (attributable) to Amara’s valuation (at its currently ‘discounted’ level) less drilling costs.

More to come?
The area drilled has an across-strike width of 1.1km and an along strike length of 1.5km, but remains open both along strike and at depth. Moreover, the current mineral resource estimate is contained within 40% of the total mineralised volume drilled to date. Considering this additional data, Edison estimates that the total resource encompassed by the existing drilling could be 2.95Moz contained within 56.0Mt of ore. Edison estimates that the addition of a further 0.9Moz of resource at Yaoure (with categorisation pro-rata to that currently existing) should add 3.5c (attributable) to Amara’s valuation (at its currently ‘discounted’ rate), but probably would add 1.7c (at an additional 48% discount, as per the paragraph above). Upgrading an additional 0.8Moz from the ‘inferred’ category to the ‘indicated’ category would add an additional 3.2c to Amara’s valuation (less drilling costs). In the light of these developments, Edison is leaving its fundamental valuation unchanged at US$2.26 (£1.49) per share. Changes are likely on the publication of the Baomahun feasibility study and the Yaoure PEA.

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