Mining minnow Amur Minerals (LSE: AMC) is charging higher today after the company announced the signing of a Financial Advisory Agreement with the Russian Government’s Far East and Baikal Region Development Fund.
The Far East and Baikal Region Development Fund was established by the Russian government to stimulate economic development in the east of the country. Amur’s flagship Kun-Manie project is located in the east of Russia, close to the border with China.
This is without a doubt an extremely significant development for Amur. The collaboration agreement allows Amur to work in partnership with the regional Development Fund in attracting financing for its Kun-Manie project from across Asia.
Commenting on the deal, Alexei Chekunkov, CEO of the Development Fund said:
“Amur Minerals boasts a world-class team and an exceptional asset. Strategically located in proximity to the world’s most dynamic economies, the Company presents a robust investment case.”
Robin Young, CEO of Amur Minerals Corporation, commented:
“Sign-off of this Financial Advisory Agreement provides Amur with substantial momentum as we shift from exploration to preproduction development. It not only confirms Russia’s commitment to development of the Far East through both Russian derived funding and that of foreign sources but also provides additional support and backing to our existing shareholders.”
Multiple benefits
There are several reasons why today’s news from Amur is a game-changing development for the company.
Firstly, the company now has access to a network of financial advisors across Asia, which will help Amur attract financing for the Kun-Manie project from investors across the region. Secondly, Amur’s inclusion in the Development Fund shows that the Russian government supports, and is willing to assist the company’s development. And thirdly, in addition to providing new potential sources of capital, the Development Fund can deploy federal financing earmarked for infrastructure development.
As Amur is facing a potentially crippling bill of more than $300m just to construct the access road to its Kun-Manie project, the possibility of additional infrastructure financing from the Development Fund is a welcome relief for the company.
Risks remain
The signing of this deal with the Development Fund could give Amur access to a broad range of financing options for the development of its Kun-Manie project. However, the company is still years away from initial production.
And for this reason, Amur remains a high-risk play.
That said, Amur is edging closer to production every day. The company’s Kun-Manie mine is a world-class asset, with a net present value between $0.71bn and $1.44bn. But the biggest problem facing Amur is the fact that the company has to raise the cash needed to fund the construction of Kun-Manie. Construction costs are estimated to be $1.4bn over a two-year period. Collaboration with the Development Fund should improve Amur’s chances of locking in funding for the project, but it’s all a question of time.
Amur had less than $2m in the bank at the end of 2014, so the company’s survival really does depend on its ability to unlock additional financing. Management has stated that the group has enough cash to keep the lights on until 2016, but I wouldn’t rule out placings or a rights issue in the near-future.
The bottom line
Overall, it remains difficult to place a value on Amur’s shares and judge if they’re overvalued or not at present. Although, it’s clear that there are plenty of risks ahead…
