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Is Down The Only Way Forward For Amur Minerals Corporation, Sirius Minerals PLC & AFC Energy plc?

Amur Minerals (LSE: AMC) is less enticing than Sirius Minerals (LSE: SXX) at its current market price, but AFC Energy (LSE: AFC) could beat them all. Here’s why. 

Amur Minerals (£70m market cap) 

Its shares have plunged 64% to 15.8p since their multi-year high of 44.5p in mid-June, when Amur registered the license for its Kun-Manie nickel copper sulphide deposit project in Far East Russia. 

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On top of this, there are no trading metrics to gauge this equity investment, which should give you a good idea of the risk involved in the trade. 

Its capital requirements amount to about $1.85bn, so the explorer is working to secure the necessary funding: access to fresh capital and decent financing terms (pricing, duration, collateral) are what you are betting on right now if you are invested. 

What do we know, though? 

Lenders

On 10 August, Amur announced the signing of a financial advisory agreement with the Far East and Baikal Region Development Fund (FEBRD), which did not change the complexity of the investment case.

The FEBRD could allocate millions to the Kun-Manie project, but Amur needs billions. 

The fund was set up by the Russian government in 2011 to support the development of Far East Russia and the Lake Baikal area, and essentially operates as a subsidiary of Russia’s VTB Bank, which has a branch in the City of London, opposite the Bank of England. 

The loan syndicate team of VTB, which has shrunk since the credit crunch, maintains deep ties with Western banks eager to fund emerging market projects, and their involvement could be of paramount importance through the development stage of the Kun-Manie mine, in my opinion. 

Amur will “work in partnership with the fund in attracting financing from within the Russian Federation, Republic of India, and the Peoples Republic of China“, the group said, adding that SP Angel Corporate Finance will also join the fundraising.

In my experience, lenders from Russia, India and China might be able to finance up to 30% of the overall Kun-Manie budget, or about $550m, but the big tickets — as the bank commitment in a fundraising round is called in the loan market — will have to come from banks with stronger balance sheets. 

The Kun-Manie license is valid through 1 July 2035, so there’s plenty of time to raise the required  financing, but it’s hard to determine whether the cost of funding will be manageable, with or without the inclusion of Western banks in the syndicate. Execution risk and political risk are two additional factors that investors should consider. 

With this in mind, and considering Amur’s current equity valuation, I’d rather snap up the shares of Sirius or those of AFC Energy. 

There are caveats, however. 

Sirius (£371m market cap) & AFC Energy (£142m market cap)

There are no financial metrics for Sirius, either, and similarly to Amur, the potash developer must raise the financing to fund its flagship development, the York Potash Project. 

Its funding requirements top those of Amur at up to £2bn, and stage one of the financing is expected to be completed by end of Q1 2016 — so, it will likely be a roller-coaster ride until then for investors. 

On 1 July, its stock sky-rocketed, recording a +94.8% performance at one point, while setting a new 52-week high of 29.5p, giving Sirius a market cap of £626m — its market value has dropped to $371m in less than two months. 

Its stock, currently valued at 17p, is getting closer to my personal price target of 12p, where I’d be inclined to invest in it. This week’s update concerning a new supply deal with a US-based agri-business customer is certainly encouraging, but other elements are more important to gather support from new investors.

Finally, AFC Energy.

Its shares have recorded a stellar performance so far this year, and there is reason to believe that its rally may continue, based on several outstanding operational updates, but thin volumes and its financials suggest caution. 

Its earnings per share stood at 0.60p as at 30 April, and that was a great achievement in the light of its track record. Still, assuming forward annual earnings at about £3m, its forward price-to-earnings ratio stands at about 50x, while its market cap amounts to 10x the value of its total assets. 

Although cash flow trends are very encouraging, its free cash flow is still in negative territory, and its net cash position is down year-on-year. Hence, I need more evidence to jump on board for the long term, to be honest. 

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Alessandro Pasetti 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.

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