Amara Mining: Shares At Only Modest Premium To Cost Of Discovery

After three reported quarters and with production figures for Q4 already known, there were few surprises in Amara Mining's (AMA.L) FY12 results. Excluding a one-off, non-cash exceptional charge of US$4.4m, basic EPS for the full year was 2.56c (vs Edison’s expectation of 2.58c), while implied Q4 basic EPS was 0.18c (vs 0.21c expected). Of more significance, however, was AMA’s control of operating costs, which look to have declined 9.6% on a unit basis between Q3 and Q4, and its increase in resources.


Shares at only modest premium to cost of discovery
In return for its exploration budget of c US$25m in FY12, Amara increased its resource base by 1.6Moz to 6.1Moz on a gross basis, and by 1.4Moz to 5.8Moz on an attributable basis (excluding the Sega acquisition). This puts AMA shares on a resource multiple of just US$11.24/oz, compared to a global average for producers and explorers of US$108/oz. Stated alternatively, at global average costs of discovery, it would cost a company US$56.7m simply to define Amara’s attributable resource of 5.8Moz in the ratio 3 ‘measured’ to 56 ‘indicated’ to 41 ‘inferred’. It would cost US$60.0m to define a resource of 6.1Moz in the same proportions.

Yaoure +0.91Moz ? +2.5Moz ?
Given the drilling already completed, Edison estimates that the total resource inventory at Yaoure could be 2.95Moz compared to the 2.04Moz currently defined (at a cut-off grade of 0.8g/t). Including future step-out drilling however, management believes that the final Yaoure mineral resource inventory could be as much as 4-5Moz. In the light of Amara’s share price reaction to the Yaoure resource upgrade in March, Edison estimates that the addition of a further 2.5Moz to resources at Yaoure (with categorisation pro-rata to that currently existing) could add an immediate 9.7c/share (attributable) to Amara’s valuation but probably would add 4.7c/share (less incremental drilling costs).

Valuation: Shares at cheapest for a decade
Below 50p Amara 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. It is also trading at a 52% discount to year-end book value of US$0.96 per share. Given current mining and cost schedules, Edison estimates a value for Amara of US$2.12 (£1.40) per share, based on the maximum potential stream of dividends payable to investors as a result of the execution of the Kalsaka, Sega and Baomahun mine plans. Including other assets, the valuation is US$2.24 (£1.48).

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