There will doubtless be times when stock market investors wished that their portfolios only consisted of companies with solid cash flow, a clear corporate strategy and management that has the ability to ability to surprise on the upside.
It may be the case with Amur Minerals this week we have seen a company which having tried the patience of its long-term shareholders, has now converted itself into a company that ticks the three (positive) boxes described above.
Indeed, one might say that it has added an extra tick to the aforementioned wish list: a small mining development company that has sufficient funding to see through the development process of a massive project. The massive project in question is Kun Manie, a nickel-copper sulphide asset in Russia.
The arrival of Adam Habib, Advisor to the Board of Amur Minerals earlier this year always looked as though it could turn the tide for Amur, and with this week’s news regarding the interest in the Roper Bar iron ore project in Northern Australia, underlines the value of Habib’s CV, Rolodex, and nous.
In particular, Amur’s $4.67m investment via a Convertible Loan Note in Nathan River Resources (NRR) (who own Roper Bar) carries a 14% coupon. The return on this should amount to quite a tidy return in terms of bankrolling Amur’s flagship Kun Manie project.
That is not to say that Roper Bar is insignificant in its own right, being a 446m tonne JORC resource. Added plus points are that the project in Australia is set to commence production imminently, and as Amur has a CLN, should things blossom with Roper Bar, it has the option to convert into an equity share and then get paid a dividend.
There is also the maths of Roper Bar to consider: 4-5m tonnes of production annually, at an iron ore price of even $100 a tonne or more, and revenues are pretty substantial at $500m a year. Amur’s 19% share of Roper Bar means it could earn close to $100m per annum.
Perhaps the icing on the cake though is the way that the deal to buy into NRR involved multinational miner Glencore (GLEN), and the process clearly brought Amur closer to the giant company in terms NRR’s offtake agreement being with it.
But it really is all about the cash flow from Roper Bar, and the knock-on effect it will have in terms of benefitting Amur Minerals down the line. Apart from funding the banking feasibility stage of Kun Manie, having earning coming in from Australia will mean that when the large financial input is required to get Kun Manie into production, less cash will be required, less dilution for shareholders, and more of a stake in the project retained by Amur.
Nevertheless, the wonder of the latest announcement by Amur Minerals is really the way that overnight the company has transformed itself from a minnow with no cash flow for more than a decade, to one rubbing shoulders with Glencore and set to deliver earnings that any mid-tier mining company would be proud of. All of this and the ability to bring on stream a de-risked world-class asset in Russia of a key resource, nickel-copper sulphide. The hope would be that set against this backdrop we would see off-takers for Kun Manie over the next six months, to underpin Amur further still.
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(The opinions expressed here are those of the author, a columnist for Share Talk.)
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