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Today’s Small-Cap Losers: African Minerals Limited And AMARA MINING PLC

Although we don’t believe in timing the market or panicking over every stock fluctuation, understanding how a business is performing, competing and changing is vital to sensible investment.

Uncertain prospectsBHP Billiton

At time of writing, African Minerals (LSE: AMI) has fallen around 17% as investors continue to fret about the company’s prospects.

African Minerals is currently facing a number of headwinds. Owner of the Tonkolili mine — one of the largest iron ore resources in the world, with a total mine life in excess of 60 years — African Minerals is at risk from the falling price of iron ore.

Indeed, the price of iron ore has slumped this year, falling from a high of around $150 per ton last year, to below $90 per ton this year. Unfortunately, the falling price of ore is bound to affect African Minerals’ profitability. Still, the company is targeting a cash cost of production of $30 per ton for 2014, so the company is not loss-making yet.

Nevertheless, African Minerals is facing other headwinds. One of the company’s independent non-executive directors resigned without warning last month and the Tonkolili mine is located within Sierra Leone, right at the heart of the current Ebola outbreak.

On Monday, it was revealed that hundreds of troops had been deployed across Sierra Leone and Liberia to quarantine communities hit by the deadly Ebola virus. It’s not clear yet if this has hit African Minerals’ operations, but it is likely to have an effect. The company has not issued any update concerning the matter, so shareholders have been left in the dark.

At present, the City expects African Minerals to report a pre-tax profit of £29m, or 4.1p per share this year and £62m, or 8.3p per share next year. This forecast could change if the company’s operations are hit by the Ebola outbreak.

opencast.miningHighly exposed

Amara Mining’s (LSE: AMA) share price is also under pressure today thanks to the deadly Ebola outbreak. At the time of writing, the company’s shares had fallen 7% today.

Amara has one of the largest gold resource bases of any London-listed junior gold miner. With assets spread across West Africa, Amara has plenty of potential. However, all four of the company’s current exploration assets are located in, and around, the region of Africa most affected by the deadly virus.

Amara’s prospects are located within Côte d’Ivoire, Sierra Leone, Burkina Faso and Liberia. While not all of these countries are affected by the virus, Amara — like African Minerals — has not updated the market on the state of its operations, which is causing concern.

At present, the City expects Amara to report a pre-tax loss of £14.5m this year, with the loss narrowing to £6.8m next year. Once again, this forecast could change if Amara’s operations are hit by the Ebola outbreak.

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