Gold mine tip raises cash, but shares fail to shine
Amara Mining is an AIM-listed gold miner, focused on West Africa. Junior gold companies have had a rough ride for more than a year and stocks with business in ebola-ravaged parts of Africa have been hit harder than most.
Midas recommended Amara last May when the shares were 17¼p. Today, they are 16¾p. The performance looks unimpressive, but the stock should still deliver rewards over the medium term.
Amara shares have rollercoastered over the past nine months, climbing to more than 25p in August before falling to 14p towards the end of the year. The peak followed strong results from Amara’s flagship mine, Yaoure, in Ivory Coast, but the shares then fell back as the gold price floundered and concerns mounted about ebola.
Now, the threat of ebola finally seems to be receding, while interest in gold is rising. These trends should benefit Amara as Yaoure has the potential to become one of the top ten mines in Africa, with some of the lowest production costs in the sector.
The mine is at the exploration phase but indications are promising so far and last week, chief executive John McGloin received a ringing endorsement when he raised £14.6million from institutional shareholders at 16p a share.
The money will fund Amara to the first quarter of next year, during which time it will continue to update the market on Yaoure’s prospects. McGloin also intends to deliver two important studies assessing how much it will cost to take the mine to production.
To raise money at this stage can be a challenge so McGloin has done well, especially as one of the main buyers of new shares is a specialist mining fund, Tembo Capital, which only invests in projects after exhaustive analysis.
Amara has had some setbacks. The group has a mine in Sierra Leone, where all work ceased last year following the ebola outbreak. Difficult conditions also hit its mine in Burkina Faso. Although a relatively small project, it has now gone into liquidation. For the moment therefore, Amara is entirely focused on Yaoure.
Midas verdict: Last May, Midas said this stock had plenty of potential. The shares have been volatile since then, but they should come good over the coming year. Amara is backed by some well-known and respected institutions, who believe McGloin will overcome setbacks and deliver value. Existing shareholders should hold. Adventurous investors may also be tempted by the stock at current levels.