Shares in Amur Minerals Corporation (LSE: AMC) soared by as much as 23% in early trade today as the company released its forward looking operational blueprint for its Kun-Manie nickel and copper mining project.
The Net Present Value (NPV) for the Kun-Manie mine, a measure of profitability for the project, is projected to be between $0.71 billion and $1.44 billion. Although potentially hugely profitable, the mine is estimated to require initial construction costs of $1.38 billion over a two year period.
The company is in a healthy net cash position, with cash reserves of $1.39 million at the end of 2014. Amur Minerals has enough cash to fund the start of the pre-production assessment phase, but nowhere near enough to fund the initial construction costs for its massive project. Finding new partners will likely substantially dilute its stake in the mine, but the company is also likely to be handsomely rewarded.
With deteriorating relations between Russia and the West, negative investor sentiment with Russia could make it more difficult to find potential partners for the Kun-Manie project, which is located in the Far East of Russia. But, Kun-Manie is one of the 20 largest nickel copper sulphide projects in the world, and further exploration potential could mean that its reserves could be even greater.
Kun-Manie has an estimated operating cost per ore tonne of $34.86 per ore tonne, which makes it highly competitive with existing nickel mining projects around the world. The scale and low cash operating costs expected for the project should make the mine a particularly attractive investment opportunity for diversified mining giants and state-owned natural resource companies.
Although primarily a nickel mine, the location also has substantial deposits of copper, platinum and palladium. The attractive fundamental outlooks for nickel and copper prices is another positive, as supply disruptions from ageing mines should mean that demand growth will outstrip supply growth in the medium term. With rising average costs of production because of mine depletions, the price of these two base metals should improve from today’s low levels.
To some extent, the mine’s operational blueprint already takes into account a recovery in the nickel price. Its NPV calculations assume that long-term nickel prices will be between $7.50 and $9.50 per pound, which is well above today’s $5.70. It is very difficult to predict future commodity prices, but it could be useful to remember that at its peak in 2007, nickel prices soared to above $20 per pound.
Amur Minerals also released its full-year results today, which showed its loss before tax narrow to $1.36 million, from $3.83 million last year. This was thanks to a reduction in finance expenses, and a one-off benefit from a positive fair value movement on derivative financial assets.
The company’s focus on a single large-scale mining project and the attractive nickel market outlook makes Amur Minerals particularly attractive. The approval of its production licence earlier this year shows the company is steadily getting closer to production. But Amur Minerals is still in the very early stages of development, as further metallurgical testing is required to determine the quality of its reserves.
More good news could be to come, but investors have to be prepared for a bumpy ride.