Mining minnow poised to dazzle as gold reserves rocket 30-fold
AMARA Mining is an AIM-listed junior gold company that has uncovered one of the largest treasure troves in Africa – a mine in Ivory Coast with about 6 million ounces of gold in the ground.
The size of the mine makes it a top ten asset in Africa and among the top 50 in the world, capable of producing more than 300,000 ounces of gold a year.
Yet Amara shares are just 171⁄ because the mine, Yaoure, is a good two years from production and sentiment towards gold remains uncertain. At this price, the stock is well worth a punt.
Amara has three principal assets. In Burkina Faso, its Kalsaka/Sega mine has been in production for several years. It is scheduled to close over the next few months, but it will still produce about 60,000 ounces of gold this year and it has helped to fund exploration and development at Yaoure and at Amara’s other site, Baomahun in Sierra Leone.
Baomahun has deposits of more than a million ounces and was considered an extremely attractive asset when the gold price was more than $1,400 (£830) an ounce and rising. Now, with gold hovering at between $1,250 and $1,350 an ounce, Amara chairman John McGloin is focusing resources on Yaoure.
The Ivorian asset has several important advantages. First and foremost, it is huge – the biggest in the country and 35 per cent larger than its nearest rival, Tongon, owned by gold giant Randgold Resources.
Second, Yaoure is located between Ivory Coast’s political capital, Yamoussoukro, and its economic capital, Abidjan, so there are good transport links within a few miles of the mine and access to an educated workforce from a nearby mining university.
Yaoure is also just a couple of miles from a major hydroelectric plant, so there is an abundant water supply, which is essential for gold production, and energy costs are three times lower than in neighbouring states.
This means that Yaoure is capable of producing gold far more costeffectively than most junior rivals and would be commercially viable even if gold fell to $800 an ounce.
Amara used to be known as Cluff Resources, run by mining veteran Algy Cluff. The shares rose to more than 100p in 2010 but then fell steadily as the gold price tumbled and sentiment turned against the metal. Cluff left to pursue other interests and McGloin was appointed chairman in April 2012. By last summer, the stock was just 10p. McGloin remained undeterred. Under Cluff’s watch, the company focused on Kalsaka/ Sega and Baomahun but did little with Yaoure, not least because of civil unrest a few years ago.
Ivory Coast is now becalmed, allowing McGloin to turn his attention to the site. In the past 18 months, estimated reserves have soared from 200,000 ounces to more than six million.
McGloin, a geologist, combines commercial nous with sound expertise as his career includes a long spell mining in Africa and several years at stockbroker Collins Stewart, now part of Canaccord Genuity.
The road from finding gold to producing it can be long and difficult, but the Yaoure project has started well and Amara recently raised £17 million to take it to the next stage – a pre-feasibility study, which will provide further guidance about exactly how much gold is in the ground and how much it will cost to get it out. McGloin is already talking to potential partners about helping to fund the next stage and many followers of the stock believe Amara will either find a willing partner or the company will be taken over.
Midas verdict: Amara shares are cheap because the stock market is nervous about junior mining firms and the outlook for gold is uncertain. The shares are not for the risk averse but, at 171⁄ 4p, there is plenty of upside potential.
Even if gold hovers at current levels, Yaoure is an extremely attractive asset, so Amara will probably find the resources to take it into production or be gobbled up by a larger rival. Either outcome would benefit shareholders. An adventurous buy.