On 26 February, Amur Minerals Corp (LON:A7L) announced the long-awaited results of its updated pre-feasibility study (PFS) into its Kun-Manie project in Russia’s Far East. In contrast to previous studies, the PFS considered just two options, namely a toll smelt option and a low-grade matte option, and dispensed with the high-grade matte and refinery options. Detailed financial models are not yet available. However, both considered a 6Mtpa mining operation and results are comparable to those published by Edison in our note, Cobalt-plated nickel, published on 16 April 2018.
Good comparability to earlier estimates
Amur’s updated PFS on the toll smelt option calculated an NPV10 of US$614.5m and an IRR of 29.3% at a nickel price of US$8.00/lb (US$17,640/t) cf a spot price at the time of writing of US$5.88/lb (US$12,975/t). That compares with an Edison calculated NPV10 of US$398.0m at a nickel price of US$7.50/lb in April 2018 or US$533.7m at US$8.00/lb Ni. Its updated PFS on the low-grade matte option calculated an NPV10 of US$987.4m and an IRR of 34.7% at US$8.00/lb, which compares with an Edison calculated NPV10 of US$822.2m at US$7.50/lb Ni or US$967.2m at US$8.00/lb Ni. Initial capex for the toll smelt option is estimated at US$570.4m cf US$541.8m in our comparable model. For the low-grade matte option, it is US$695.0m cf our US$660.0m. C1 cash costs were estimated to be US$3.87/lb and US$2.34/lb for the toll smelt and low-grade matte scenarios, respectively, putting both in the second lowest-cost quartile globally.
Valuation: 8.7–22.5cps cf a share price of 4.4c
In our report, Gold stars and Black holes: Analysing the discount: From resource to sanction, published in January 2019, we calculated that, excluding outliers, the average value of companies with projects at PFS stage is 9.9% of attributable NPV, with a range between -15.4% and 51.3%. On the basis of Amur’s published NPVs (at US$8.00/lb Ni), this would imply a valuation for the company of US$60.8m (or 8.7c/share) based on the toll smelt option, or US$97.8m (or 14.0c/share), based on the low-grade matte option. However, given the relationship between valuations and IRRs seen in our report, coupled with both scenarios’ high IRRs, these percentages could increase to 13.0% for the toll smelt option and 15.9% for the low-grade matte option, implying valuations of US$79.9m (or 11.4c/share) and US$157.0m (or 22.5c/share), respectively. These compare with valuations calculated in our April 2018 note of 15c and 27c respectively, based on a 10% discount rate applied to forecast dividends (although these were calculated at a nickel price of US$7.50/lb and assumed equity dilution at a 4.4p share price). Note that our detailed valuations will be updated as soon as practicably possible.
Business description
Amur Minerals is an exploration and development company focused on base metal projects in Russia’s Far East. The company’s principal asset is the Kun-Manie nickel sulphide deposit in the Amur Oblast, comprising over a million tonnes of contained nickel in at least five deposits.
