2015 has been a year of major ups and downs for investors in Amur Minerals (LSE: AMUR). In fact, the exploration company has seen its share price rise from around 10p at the start of the year to over 40p last month, before crashing back down to earth in recent weeks so that it now trades at around 18p following today’s 16% fall.
Clearly, the news of a long-term licence at the Kun Manie project in Russia was the reason behind the soaring share price, with investors feeling especially optimistic regarding the scope for strong long term profitability. However, it appears that reality has now hit home (as well as a degree of profit taking by investors sitting on considerable gains), with the project’s logistical side now apparently dominating the thoughts of investors. And, on this front, there are a number of unanswered questions.
For example, Amur Minerals needs to conduct various tests at the site so as to determine the quality of the reserves on offer. This process can take time and, of course, can produce positive or negative news flow. Furthermore, the project needs to be financed and, while the project has considerable long term appeal, Amur Minerals will be competing in a ‘buyer’s market’. In other words, with a number of small, medium and large mining companies being short of cash, investors have the upper hand and can be much more selective in terms of which projects they finance and, crucially, at what terms. Therefore, Amur Minerals may not be able to fund the project as easily, or at as an attractive rate, as it had previously hoped.
Still, the above is to be expected for any exploration company, with cash burn being a key focus when a company has no revenue. And, encouragingly for the company’s investors, Amur Minerals currently has no debt and, impressively, has already taken care of various tasks such as the acquisition of water rights and this means that the company can focus more fully on the development of the mine. And, with it being among the twenty largest nickel copper sulphide prospects in the world, it has huge long term potential.
Looking ahead, that considerable long term potential is likely to drive Amur Minerals’ share price higher over the long term. After all, the long term outlook for the mining sector remains relatively bright, with a global economy that continues to move from strength to strength. The problem for investors in Amur Minerals is that in the short and medium term, there will inevitably be setbacks and challenges that cause its share price to disappoint for periods and remain highly volatile.
As such, the decision to buy a slice of the company rests on your attitude to risk. If you are able to take a relatively high level of risk and live with a high degree of volatility then, in the long run, the rewards could be significant. However, if you are seeking more stable mining stocks then it may be best to pair Amur Minerals up with larger peers, or else look elsewhere for your returns.