Kun-Manie is among the largest 20 nickel sulphide deposits in the world and, once in production according to the parameters thus far established, should be one of the top 10 producers of nickel in the world. Some market commentators may consider Amur to be a potential acquisition target; however, the award of a production licence this year (until 2035) allows Amur Minerals to shift its strategy from exploration to pre-production, with a view to entering production in FY20.
On 14 December, Amur announced that it has entered into a subscription agreement with Crede Capital Group, whereby the latter will invest £12.5m (plus warrants) into Amur in five equal tranches, at respective 90-day intervals from the first tranche on 14 December. Not only will this agreement guarantee funding to complete a definitive feasibility study, but it will extend it through the majority of the Russian approvals process, including mine planning, scheduling, infrastructure etc.
Amur’s counterparty in the funding deal, Crede Capital, is a private equity firm based in LA with an office in New York. It is not a hedge fund, but a ‘long-only’ family office that manages the affairs of the Peizer family and of which Mr Terren Peizer is the ultimate and sole beneficial shareholder. Its primary business is direct investment in publicly traded companies.
Amur currently has three recognised, technical consultants working on the mineralisation at Kun-Manie, namely SRK (which conducted the original resource estimates and pre-feasibility study), as well as Wardell Armstrong and Runge Pincock Minarco.
During the 2015 field season, Amur completed 5,821.4m of exploration drilling (out of a target of 6,000m), split between two programmes – one step-out and the other in-fill. The cores from this drill programme have now been analysed by the (independent) Alex Stewart Laboratories and, once fully incorporated into the resource model, are expected to result in an improvement in the categorisation of the existing resource from inferred to indicated status and a material increase in in-situ nickel grade in the existing resource as well as an increase in the overall resource size (see our Update note dated 8 December).
Once the inferred resource at Maly-Kurumkon-Flangovy has been upgraded to indicated status, the largest remaining resource in the inferred category will be at Kubuk. Future drill programmes will focus on similarly upgrading this resource via an estimated 7-8km in-fill drill programme – to which end drill sites have been identified and variously prepared at Sobolevsky with a view to determining the continuity of a 20m thick, >1% nickel outcrop in the direction Kubuk (see below).
Exhibit 1: The five currently defined exploration areas at Kun-Manie
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SRK is reported to be using Leapfrog technology to build a high-grade model at Kubuk, which will allow the definition of simulated mining units (SMUs) to a 5m x 5m accuracy and ultimately allow Amur to generate a mining schedule and model for the deposit.
In the meantime, Flangovy and Kubuk samples are being assayed for metallurgical recoveries (note, having previously been assayed for grindability and crushing energy requirements). Since the samples are deemed to be high-grade (>1%) nickel, they are required by the Russian authorities to be assayed twice, with the result that SRK estimates that it will take until the end of Q116 for the resource models at Maly-Kurumkon and Flangovy to be updated and simulated mining units determined. Once completed, Amur will set about optimising its mining schedule.
In the context of the broader mineralisation at Kun-Manie, 2015 step-out drilling at Flangovy in particular could be interpreted as being indicative of a single, continuous corridor of mineralisation, approximately 2.5km long, 20-30m thick and at an in-situ grade from 0.7-0.9% nickel, running from Maly Kurumkon through Flangovy to Gorny. However, it is also possible that there is another similar such corridor from Ikenskoe-Sobolevsky to Kubuk, such that Amur may have not one but two multi-kilometre exploration targets to explore.
Future substantiation of these conclusions, in due course, could materially affect the economics of the project, the most efficient approach to its exploitation and the projected mine plan (in particular, the balance of open-pit versus underground mining).
Amur expects to produce an updated resource in Q116. The resource will be specifically domain modelled into high-grade and low-grade zones to reflect its likely suitability for both underground and open-pit exploitation.
From the perspective of Russia’s legal framework, Amur is currently operating under the auspices of a temporary TEO (note, a Russian TEO equates to a western feasibility study) – the ‘temporary’ nature of the TEO allows Amur to conclude its exploration activities. The key piece of work – to upgrade the status of its TEO from ‘temporary’ to ‘permanent’– is a bulk sample. As the current field season (typically June to October) is over, Amur is prioritising this piece of work for 2016, to which end suppliers have guaranteed delivery of two D9R Caterpillar bulldozers and an excavator (critical) to site by March 2016. Thereafter, management has stated that it is prepared to fly the bulk sample out from site by helicopter if necessary (note, a 20t bulk sample would require approximately eight helicopter flights to transport), with the result that it believes it will be possible to produce a full feasibility study to Russian standards in 18-24 months.
As stated previously, the focus of the 2016 exploration field season will be Kubuk, where up to 17.1Mt of inferred resource may be upgraded to indicated status. In addition, there is potential for a step-out programme to the east and down-dip below 400m. Together with its existing LF-70, the recent purchase of a Boart Longyear LF-90 drill rig will double the number of drillable metres that Amur can achieve in a season. At the same time, two new bulldozers (effectively representing a seed capital fleet) will be mobilised to set up ready access along the full length of the Kurumkon trend in preparation for pre-production development.
Once the full feasibility study is completed and the project is financed, Amur envisages a two-year construction period in CY18 and CY19 before first production of nickel in CY20. According to a Russian TEO, development could, in turn, lend the project naturally to Russian project finance, in which case management has suggested that an 80:20 debt:equity financing structure could also be feasible. However, it is understood that Amur is also investigating the potential to access funding via a streaming arrangement relating to its by-products, in particular. Note that streaming is associated with less risk than debt (and is not considered as debt by lending banks), as it has neither a fixed repayment schedule nor associated debt-service covenants.
In the meantime, management continues to work on improving the operational blueprint published in June this year (and which itself built on the earlier, 2015 conceptual open-pit study). Currently, management envisages that Ikenskoe-Sobolevsky would support an open-pit mining operation, that Kubuk would support an open-pit and underground mining operation and that Maly-Kurumkon would support an open-pit mining operation, but that this would transition into underground mining at Flangovy. In addition, it believes that it has identified a potential c US$150m in capex savings, which could then be used to invest in a flash smelter (vs the electric furnace smelter and converter smelter configuration currently envisaged).
