How Much Lower Can Amur Minerals Corporation Go?

Amur Minerals (LSE: AMC) has had an eventful 12 months. This time last year the company was trading at 3.4p per share before rocketing to a high of 43p per share during June, a gain of 1200%.

Unfortunately, the company’s shares have now fallen by more than 50% from their June peak. But have these falls presented an opportunity to buy? How much lower can Amur go before its fortunes turn around? 

Plenty of risks

Of course, as with all equity investments, there’s a chance that Amur’s shares could fall to zero, wiping out shareholders. This is, of course, the worst-case scenario. 

That said, Amur is at a crucial point in its corporate life. The company’s Kun-Manie mine is a world-class asset, with a net present value between $0.71bn and $1.44bn. However, Amur still has to raise the cash needed to fund the construction of Kun-Manie, which is estimated to be around $1.4bn over a two-year period.

Amur had less than $2m in the bank at the end of 2014, so the company’s survival depends on its ability to unlock additional financing. Placings could help keep the lights on while the company looks for a partner and discusses lending with banks, but ultimately, there’s no denying Amur is running out of time to secure its future. 

A plan is needed

Even though the company is running out of time, Amur isn’t heading for the rocks anytime soon.

During 2014 Amur spent $2.4m or £1.5m running its operations. On that basis, after taking into account the company’s current market capitalisation of £86m, it’s easy to conclude that Amur can continue to operate as a going concern for the foreseeable future by using a number of small placings. Also, the company could attempt a rights issue to raise a lump sum and remove a certain amount of uncertainty about its future. 

Still, right now uncertainty prevails. Until Amur has laid out a detailed financing plan and roadmap for the mine’s development, it’s going to be difficult to value the company’s shares.

Indeed, the company’s only major asset at present is the Kun-Manie mine. And while Kun-Manie is worth nearly 20 times more than Amur’s current market cap, it is still undeveloped. As a result, I believe it is overoptimistic to value Amur based on this one prospective asset. 

With this being the case, it’s difficult to judge how much lower Amur’s shares can go.

The bottom line

All in all, Amur could head a lot lower from present levels. For long-term holders, however, this shouldn’t be an issue — if the company can get Kun-Maine into production, shareholders are set for a hefty payoff.

Nevertheless, Amur has a long way to go before production begins at Kun-Maine, and there’s still plenty that can go wrong. 

So, if you already own Amur, it might be sensible to sit back and ignore the company for a few years while keeping an eye on your other investments. 

You see, the best way to profit from a high-risk, high-reward company like Amur is to use a basket approach. Simply put, a basket approach is a portfolio of both risky and defensive stocks, which reduces risk allowing you to sleep soundly at night. 

With this in mind, The Motley Fool's top analysts have recently identified a company that they consider to be one of the market's "top small caps".

Our analysts reckon that the shares of this company could have a potential upside of 45%! And the company in question has a strong cash balance, proven advantage and is supported by some of the biggest players in its industry. 

All is revealed in our new free report entitled "Is This Stock Tomorrow's Big Winner?"

Don't delay, download the free report today -- but hurry, it's only available for a limited time. 

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.