African Aura Mining - a radiant light?

Thursday, Nov 19 2009 by

African Aura Mining is a new name in the resources sector on the London stock market. But its history is a much longer one - the group was created through the merger of Mano River Resources and African Aura Resources in October 2009. Mano River had iron, gold and diamonds exploration prospects in Sierra Leone, Liberia and Guinea, while African Aura had licences in Cameroon and Liberia.

The company is now focusing on the development of the more advanced stage assets in Liberia and Cameroon, particularly the Putu iron ore prospect and New Liberty gold deposit. Management points out that Liberia and Cameroon are world class iron ore provinces, with existing mines at at Mbalam (close to Nkout), Goe & Fantro, Bong, Wologisi and Simandou [1] .

Chairman David Netherway has in depth experience  of West African mining - he built three gold mines in the region, and heads up Shield Mining; CEO Luis de Silva is a mining engineer though his experience is in aggregates rather than metals (he put in time with Blue Circle and Lafarge). Independent directors add links with a number of resources sector names to conjure with, including Afren, Aquarius Platinum, and Tianshan Goldfields.

The Putu iron ore project, in Liberia, is a joint venture with Russian iron producer Severstal, which holds 61.5% and is the operator. Severstal offers a couple of key advantages as a partner; first, it has experience of mining this type of low grade iron ore resource, and secondly, it has the capital to fund extensive capital expenditure requirements. (The capital costs are expected to be over £1bn, including  port facilities and a railway line as well as the mine operation itself [2] . But the operational cost of production should be quite low, as this is a classic open pit prospect.) Severstal will be spending USD 30m just to get to the stage of a bankable feasibility study [3] .

In October, AAAM filed its technical report on the Putu iron ore project in Liberia. This showed a mineral resource of 1.08 billion tonnes of ore, at 37.6% total iron - and the estimate covered only a 2.6 km section of a ridge that extends in full length to over 12 km. The company is targeting what it believes is a 5 billion tonne iron ore resource, and will complete a…

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1 Comment on this Article show/hide all

ohisay 1st Feb '11 1 of 1

Excellent result today from the Nkout project .

Independent consultants SRK have assigned a 43-101 maiden resource estimate on the project of 1.04 billion tonnes of iron ore at a grade of 34 per cent in the inferred category.

However the management believes there may be the headroom to increase the resource base to 4 billion tonnes by targeting the wider Nkout area.

 Canadian broker GMP is equally impressed.

We highlighted in a previous report that African Aura was set to deliver three
major catalysts in Q1/11. It has now delivered one with the Nkout maiden
resource, but we still expect the resource upgrade for Putu and the restructuring
of the company into two separate entities * to realise significant
valuation uplift.
Nkout worth US$178m
We value early stage African iron ore projects based on an EV/ferrous resource
approach, where we assign a multiple of US$0.50/tonne to projects with iron
grades less than 35% on average and no infrastructure in place. Thus we value
Nkout at US$178m.
Raising PT to 350p; re-iterate BUY rating on significant upside
We value African Aura using a sum of the parts (SotP) valuation based on an
EV/ferrous resource multiple for the company’s share of the Putu and Nkout
iron ore projects and a DCF valuation for the New Liberty gold project.
Following the inclusion of Nkout our SotP value rises to 351p from 246p and we
raise our price target to 350p. We re-iterate our BUY rating because we believe
that the stock is trading well below its true value and is destined to deliver
further major near-term catalysts.

*AAAM is set to split into two this quarter hiving off its gold etc interests into a separate company Aureus mining .

I'd expect the iron ore side of the business to attract significant interest following that split.As an Isable low cap (£160m) iron ore /gold stock with cash of £25m and a clued up CEO - see the presentation here 3 weeks ago - its a good looking investment IMV


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