Amur's Kun Manie project gets the green light

It's a tricky place, Kun-Manie. Remote and landlocked, deep in Eastern Russia, the only practical access to it at the moment is by air; the field season is relatively short, lasting from mid-March to October, and the logistics need careful planning well in advance. But this far flung site ? straddling the mineral-rich Kumkron trend in Amur Province - has the potential, according to its developers, AIM-listed Amur Minerals, to be the most significant nickel-copper sulphide discovery since Voisey's Bay.

Tricky and far flung it may be, but the local geology has attracted more than just Amur. Well established as gold miners in Amur Province, Peter Hambro Mining now seem to fancy a dabble with base metals, as according to Reuters, POG subsidiary Antares has just won at auction ? at a cost of 14.85 million roubles ($608,100) -  the undeveloped Kukurskoye, Luchinskoye and Utanakhskoye deposits close by Kun-Manie. "It's really good news that there are other people coming to this area," said David Wood, Amur's CFO. "This is a district, not just a deposit, and additional investment in the area means there will be more infrastructure built." Amur chose not to bid in the auction, according to Wood, preferring for the moment to commit all their resources to Kun-Manie.
 
This makes eminent sense, as although 2008 will be their fifth season at Kun-Manie, Amur have barely scratched the surface of this huge licence area. The mineralised trend lies in the southern half of their land and runs the full width of some 40km, of which only the central 15km have been investigated in any depth.  Yet within that 15km more than half a dozen potentially viable orebodies have already been delineated, and a JORC-compliant resource established over three of them. Exploration continues along trend, and the upside was massively increased last year when Amur added the adjacent Kustakskaye licence area ? which hosts the eastern extension of the Kumkron trend and has copper porphyry potential as well ? to their portfolio.

Star of the show is the Maly Kumkron deposit. Discovered just two seasons ago, Maly Kumkron has advanced rapidly to overtake in importance the initial discoveries at Ikenskoye and Vodorazdelny. By the end of the 2007 programme of infill and step out drilling, Maly Kumkron had more than doubled in size and scope, leading to a resource estimate in November of 136,500 tonnes of nickel (73,700 tonnes of which is in the indicated category) and 37,700 tonnes of copper. This interim upgrade brings Amur's global resource at Kun-Manie to 341,000 tonnes of nickel (226,000 tonnes indicated) and almost 100,000 tonnes of copper. Robin Young, CEO, is at pains to point out that not only is there plenty of room for expansion of this Ni-Cu resource tonnage, there are also healthy amounts of cobalt, platinum and palladium, which will make a welcome impact as by-products once production commences.

And, it seems, production WILL commence. During the winter, Kun-Manie has been transformed from a set of promising mineralised bodies to a mine-in-waiting. Even at this early stage of project development, and taking into account its remote location and infrastructure requirements, there are sufficient probable reserves at high enough grade to support an economic mining operation.

Existing data, plus the newly derived 2007 results, were incorporated by SRK into a full pre-feasibility report issued just before Christmas. Initial parameters based on the current resource envisage three open pits at Maly Kumkron, Ikenskoye and Vodorazdelny, feeding a central 4 million tpa mill and flotation plant which will recover 76% of the contained metals to a sulphide concentrate for sale on the open market to smelters. From this throughput, around 159,000 tonnes of nickel and 43,000 tonnes of copper in concentrate will be produced over a ten year life, although there is considerable scope to increase reserves and resources and extend minelife. With many mineralised targets along the trend still to explore and develop, there is also huge scope to increase the scale and nature of the entire operation. Amur might well consider the addition of on-site flash smelting or arc furnaces to produce a matte with a much higher onward sale value, once output tonnages warranted the capital expenditure.

Capex for the initial set-up is forecast at approximately $330 million ? a large proportion of which will be used to build a 320km haul road to the nearest railhead at Ulak, located on the Baikal-Amur railroad. From Ulak, the concentrate will be railed to smelters. Mining will be a 365 day a year operation, utilising the haul road during the most clement 8 months of the year to ferry concentrate out to the railhead and supplies in. A further $66 million of sustaining capex for replacing mining and haulage fleets and ongoing development of the mine site will also be required. Fortunately, Amur don't have to foot the bill for the capex involved in running electrical power out to Kun-Manie ? this is being met by the local supply company, in return for higher supply charges.

Costs are relatively modest at $2.51 per pound of nickel, which includes mining, processing, administrative, and all transportation fees, and ignores the contribution which could be made by cobalt and PGM by-products. Estimates of revenue assume that concentrate sales to smelters will generate around 64% LME for contained nickel, and 50% for contained copper ? although this is only a ballpark figure thus far, and is likely to be improved upon in negotiation. SRK's 10% NPV ? based on post-tax numbers and a nickel price of $7.50 ? gives a figure for this initial development at Kun-Manie of $84 million. Due to the high amount of capex incorporated in the base case NPV, it is remarkably sensitive to commodity prices. According to the report, just one dollar on the price of nickel ? i.e. $8.50 per lb (compared with today's $12 nickel) - will add almost $100 million to the NPV value.

Although the company have never doubted that Kun-Manie would become a mine ? and a significant one at that ? Robin Young was delighted with the SRK findings: "Our primary objective was to determine if the resource we have identified to date is large enough to justify the significant capital expenditure required due to the remote location of Kun-Manie. This report confirms that the first phase of the Kun-Manie development is economic. It also confirms our belief that Kun-Manie will be a premier nickel producer when in production.

"Multiple undrilled targets remain?.there is the potential to more than double the resources on the site.

"With the completion of the study, Amur has entered a new era: every tonne of
newly drilled nickel will now increase and enhance the economic potential of the
project."

Plans for the 2008 season of "increasing and enhancing" are now well advanced, and Amur have ambitious targets for their most recent discovery at Yan Hegd, just north of the Kumkron trend boundary. Discovered by accident whilst excavating for road works, Yan Hegd is the first vertically oriented structure to be found, and has shown 0.2% Ni from leached surface outcrops. A large gravity anomaly covers the western half of the 2km square target area, and last year's geophysical work appears to indicate higher metal content below surface. Yan Hegd could thus be the surface expression of a deep seated feeder structure, opening up potential for stronger mineralisation at depth along other parts of the trend as well as in the immediate area.

The budget for 2008 is over $13 million, and to partially finance the programme, the company have just announced a placing to raise the first tranche of £2.6 million. Seven million "placing units" at a cost of 37p each have been almost entirely taken up by Banque Cramer & Cie SA on behalf of their clients. Each unit consists of two ordinary shares plus a single 2-year warrant with an exercise price of 27p and at today's share price represents a placing at a premium ? quite a coup in today's markets.  Shareholder approval of the issue ? which represents an initial dilution of some 12% - will be sought at an EGM, at which the directors will ask for an increase in authorised share capital to 500 million shares and some additional headroom for further share issues in 2008 to complete the exploration programme.

Since we last reported on Amur's progress, they have issued nothing but good news. An excellent 2007 season, a resource increase at Maly Kumkron of 140%, a global nickel resource increase of 34%, and a highly positive pre-feasibility study which gives a base case valuation of a mine at Kun-Manie of $84 million.  At a nickel price of $8.50 per lb the NPV is $179 million.  At current nickel prices the NPV would take a quantum leap?.

Today's market cap? Under £18 million. Even given the remote location and allowing a significant discount for perceived "country risk" ? neither of which have deterred Peter Hambro! - 17p per share seems pretty low for a major new nickel sulphide discovery which could in the fullness of time ? in the company's belief ? rival Voisey's Bay in importance.

The author holds shares in Amur Minerals.