What: Shares of Amur Minerals (LSE: AMC), a small resources group operating in the far east of Russia, surged 63% in May.
So What: There are two elements behind the rise in its shares — not both of them have been acknowledged by market observers.
First off, Amur Minerals has managed to secure and register a licence for its benchmark Kun-Manie project, surprising investors and analysts.
Secondly, a less obvious aspect perhaps, it reminds investors why it is important to take into account the track record of senior executives when selecting investment opportunities.
On 7 May, Amur said that it had obtained a “112 square kilometer water allotment adjacent to the planned mill site at its Kun-Manie nickel copper sulphide project.” That piece of news did little to lift confidence in the stock, which fell 24% from 13,25p on 6 May to 10p on 21 May, the day before a key trading update was released. In hindsight, willing investors should have paid more at attention to it — it was a sign of events soon unfolding.
On May 22, after more than a 10-year wait, the explorer announced that the Russian government “had approved the company’s ‘Detailed Exploration and Mine Production Licence’ for its Kun-Manie nickel copper sulphide deposit“.
“The new 36 square kilometre licence is valid until December 2034,” it added. The site is attractive as project costs are lower than in most places on Earth.
The shares rose 85% in a single day of trading, and their rally continued to the end of the month, adding some 25 percentage points to its performance in about a week. Its Kun-Manie production licence was successfully registered, the explorer announced today, news of which pushed up the stock almost 8%.
“The new 36 square kilometre licence has been duly registered with the State Geological Fund, and payment of the 23.6m rouble one-time fee (approximately $429,000 equivalent at an exchange rate of 55 roubles to the dollar) has been arranged and the transfer will be completed in the coming days.“
Now What: The shares are on a roll, having gained almost 40% of value so far in June, in spite of obvious risks associated to the investment, namely: a) funding risk; b) execution risk; and c) political risk, among others.
There is no way to gauge the fair value of Amur, which has a market cap of £126m, based on its financials.
One element worth considering, however, is that its chief executive, Robin Jay Young, who has led the business since 2004, is a geological engineer with 30 years’ experience in the mineral resources industry. According to Bloomberg, “his work has been used to assist in the listing and financing of various companies in London and Canada,” while since 1991, he has worked extensively throughout the CIS and Eastern European countries.
As such, political risk may be lower than many models suggest.
