Afferro’s (LON:AFF) Nkout project in Cameroon contains significantly more iron ore than is reflected in today’s updated resource estimate, according to Charles Kernot, of Evolution Securities.
This assertion, and a recent site visit, prompted the respected mining sector veteran to raise his valuation of the company to 350 pence a share from 280 pence.
Today the stock is changing hands at 96.25 pence, down 4.25 pence, in spite of a 36 per cent upgrade to the Nkout resource which takes it to 1.42 billion tonnes.
"We believe that Afferro Mining is significantly undervalued in relation to its peers and that it represents the best opportunity for investors to gain exposure into the rapidly emerging iron ore province of West Africa,” Kernot said in a note to clients.
It is just four months since the company published its maiden resource statement, and Kernot believes there is the potential for further upward revisions to the current estimate.
Certainly today’s statement from the company holds out that possibility. Afferro has so far only drilled a 5.9 kilometre section of a 20 kilometre magnetic anomaly.
At the same time there is the potential to add up to another 600 million tonnes that currently sits below the optimised pit shell constructed by independent consultant SRK, which compiled the latest data.
"We believe that Nkout contains significantly more iron ore than is reflected in this statement," Kernot added. “Our recent site visit to Cameroon also demonstrated the upside potential of this project.”
Afferro says it expects this year’s drilling campaign to exceed 35,000 metres, with 8,500 metres completed thus far.
The next phase of the programme will target oxidised material with direct shipping potential.
Results from one hole in the latest batch of data reveals a section of just over 44 metres graded 60.9 per cent iron ore, which makes it a possible candidate for direct shipping.
Chief executive Luis da Silva said: "This is tremendous progress as the company targets an increased drilling rate to simultaneously target the potential direct shipping oxidised material as well as the banded iron formation.
"This new estimate and upgrade of mineral resource category from inferred to indicated comes after just three and half months of work since the maiden resource estimate was released and is a testament to the hard work of the team on the ground.
"Subsequent resource estimates later this year are expected to show an increase in the resource whilst identifying further oxidised material."
Afferro is the rump iron ore business from African Aura, which did a “butterfly split” earlier this year when its Aureus Mining gold division was spun off.
The AIM and TSX-listed group has two major projects. Nkout, which has hogged the headlines of late, and Putu in Liberia, which has 2.48 billion resource with only half the strike length drilled to date.
So there is a wide held believe that Putu could be double the current size.
In Liberia Afferro has cemented a joint venture with the Russian giant Severstal which needed the resource to be above 2 billion tonnes to be viable.
Severstal is pouring US$30 million into the project to earn a 61.5 per stake.
In doing so it will also compile a pre-feasibility study that is expected to be completed at some point next year.