Amur Minerals – Initiation of coverage with a speculative buy recommendation at 20.75p with 12 month target price of 56p

	Key Data
	EPIC	AMC
	Share Price	20.75p
	Spread	20.25p-21p
	NMS	5,000
	Total no of shares	101,703,938 (9,291,456 options outstanding)
	Market Cap	£21.1 million (£23 million – fully diluted)
	12 Month Range	15.75p-24.75p
	Market	AIM
	Website	www.amurminerals.com
	Sector	Resources
	Contact	David Wood (CFO) 07903 792 2821

Amur Minerals was formed in early 2004, with the purpose of acquiring, exploring and developing mineral properties in the Far East of Russia.  The company aims to develop projects into mines in the mineral-rich Amur Province and nearby Khabarovsk region. The initial seed capital for Amur was $2.2 million and prior to the company’s listing on AIM in March 2006; the company raised a total of $7.5 million in three rounds of private financing. The four founding partners, three of which are Russian and the other British, have very good knowledge of the Far East Russian Federation region, and are no longer involved in the running of the company but maintain an average 7-7.5% shareholding.

Source: Amur Minerals Corporation

On the 15th March 2006, Amur Minerals listed on AIM raising £4.1 million through the placing of 12.36 million new ordinary shares at a price of 33p per ordinary share. Following the company’s listing, its market capitalisation was £28.4 million. Post IPO, the company raised an additional £2.79 million in April 2007 in a share placement of 15.5 million shares at 18p per share. The funds raised are being used to support the continuous development of the Kun-Manie project, exploration of the Anadjakan copper-gold project and other selected projects in the far-East of Russia.

Amur Minerals’ flagship asset is the 100% owned Kun-Manie exploration licence, a nickel-copper deposit located in the mineral-rich Amur Province. The 950 square kilometre license was acquired in 2004 and is located 700 km North East of Amur Province’s capital city of Blagoveshchensk on the Chinese border. When ZAO Kun-Manie, a wholly owned subsidiary of Amur, acquired the licence area in April 2004 it had no resource, despite previous work by Falconbridge and Russian explorers. Since 2004, Amur has managed to increase the resource base in each year of exploration and believes that given the large area yet to be explored there is real scope for it to achieve further material increases.

In February 2007, Amur acquired the Kustakskaya exploration/mining licence for $240,000.  The project has nickel, copper and copper-molybdenum targets located adjacent to and immediately east of the Kun-Manie project. The 25 year exploration and production licence covers 1,034 square kilometres with two distinct geological terrains. The southern part of the licence exhibits similar nickel mineralisation characteristics to the Kun-Manie exploration license and is interpreted to be a continuation of the Krumkon Trend. The northern part of the licence is characterised by Mesozoic porphyry copper style intrusions, with Russian results indicative of the potential presence of copper, molybdenum, cobalt and minor nickel to be present. The company aims to conduct exploration in a phased approach, starting from 2008. 

The second property bought since flotation is the Anadjakan copper-gold exploration licence, located in the Khabarovsk region which covers an area of 250 square kilometres. The Anadjakan licence is valid for a term of five years, convertible into a 20 year mining licence following a commercial discovery. During 2007, Amur conducted its first field season work at Anadjakan, which included geological mapping and a comprehensive soil sampling programme designed to confirm historical data and assess previously untested areas.

Kun-Manie Project

Kun-Manie represents Amur’s principal asset, and is potentially one of the five largest new nickel sulphide discoveries since Voisey’s Bay. The company has undertaken exploration and drilling work for the past three seasons and in each year it has successfully expanded its resource base. This year’s work, which started in May and completed in October, represents the fourth field season and aims to increase and upgrade the resource base by 20%.The primary exploration target within the licence area is the 40 kilometre long Krumkon Trend, within which a 15 kilometre long segment has been primarily explored with four identified zones (Vodorazdelny, Ikenskoe, Falcon and more recently Maly Krumkon). This 15 kilometre long segment currently has three ore bodies (Vodorazdelny, Ikenskoe and Maly Krumkon) with a JORC compliant resource of 53.3 million tonnes of nickel at grades of 0.47% nickel and 0.14% copper, with a combined metal resource estimate of 254,500 tonnes nickel and 73,000 tonnes copper.

In addition, the company has identified three more drill targets, Chornie Ispelene, Kubuk and Yan Hegd. The last two are due to be subject to drilling in next season’s exploration programme. Amur has recently completed its 4th field season of exploration and development work that included 5,000 metres of infill and step out drilling, with analytical results due to be made available within the last quarter of 2007. Based on these results, Amur is expected to release an updated resource estimate and valuation of the Kun-Manie project in early 2008.

Source: Amur Minerals Corporation

Concurrently, Amur is in the process of completing a pre-feasibility study on the Kun-Manie project, due to be released in the fourth quarter of 2007, which will include a scoping study assessing the potential of producing final saleable nickel-copper product on or near the site. During this period and with the release of this season’s analytical results, the company will make its first filings to GKZ to have parts of the Kun-Manie licence area classified as C1 and C2 reserves under the Russian system. Once a Certificate of Discovery is issued, it will pave the way for converting portions of the exploration licence into a mining licence. By the middle of 2008, Amur plans to apply for an extension of the exploration acreage not covered by the mining concession. 

Brief overview of Licence Tenure & Field Season Work

The Kun-Manie exploration licence was issued in April 2004 and runs until December 2008. Under the terms of the licence, this can be converted into a mining licence if economic mineralisation can be defined, subject to the Ministry of Natural Resources’ approval. The stipulations of the licence include several key targets that have to be met at different dates during the licence tenure, such as the completion of airborne geophysics, geological surveys, drilling, trenching and the preparation of annual reports on work completed. These have been carried out by Amur between  2004 and 2006, with related follow-up work completed in 2007. The next two phases are the certification of the project’s resource into a Russian C2 resource by December 2008 and an outline for a bankable study on the nickel-copper mineralisation by December 2008.

Due to climate & weather conditions, field season work at Kun-Manie starts around May and finishes in late September or early October. The previous three field seasons which, put together, represent approximately 12 months of work, have taken Kun-Manie from a grassroots exploration prospect to a resource of 53.3 million tonnes of near surface mineralisation containing 254,500 tonnes nickel and 73,000 tonnes copper. This year’s field season aims to increase the resource by 20%. Drilling is handled by Dalgeophysica, a state-owned Russian company, under the supervision of Amur’s geological team, headed by CEO Robin Young and Dr. Vladimir Prokhodko. A brief overview of each field season follows below.
  
The 2004 field work concentrated on confirming the historical data on the project, and consisted of running airborne geophysics (gravimetric and magnetic) over the entire licence area.  It also ran induced polarization (electrical resistivity) over the main target areas at the time of Ikenskoe and Vodorazdelny, as well as some limited IP work on another geophysical target.  In 2004, the company drilled 15 diamond core holes, in Ikenskoe (8 holes) and Vodorazdelny (5) and Falcon (1), for a total of 2041 metres .

During 2005, the company raised $5.5 million through a private equity placing and increased its combined metal resource estimate from 125,000 tonnes Ni to 209,000 tonnes Ni and 58,000 tonnes Cu on the Kun-Manie nickel-copper licence, through the completion of a second field season drilling programme. The programme completed 39 drill holes for a total of 5,235 metres in its primary target areas of Vodorazdelny and Ikenskoe. This increased the 20.9 million tonnes of Russian category resource estimate to 46.1 million tonnes JORC compliant resource, of which 28.4 million was in the indicated category. As a result of the significant increase in the resource and the contained metal estimates, SRK Consulting increased the project value from US$25-35 million to US$60-80 million. In addition, the program identified a new mineralisation zone and an environmental baseline study was conducted.

In 2006, Amur completed its third field season on the Kun-Manie licence through 54 diamond core drill holes for a total of 3,224 metres. The primary focus of the programme was within the Vodorazhdelny and Ikenskoe areas, with scout holes completed in the newly discovered area of Maly Krumkon. This work resulted in the increase of the overall geological resource from 46.1 million tonnes to 54 million tonnes of mineralisation and a 21% increase of its estimate resource to 254,500 tonnes Ni and 73,000 tonnes Cu. The in-ground valuation was raised by 43% from US$60-80 million to US$100 million. The progress increased the confidence levels of the company in ultimately converting these resources into mineable reserves, and advancing the project towards production.

In addition, the company confirmed the discovery of the Maly Krumkon zone with drilling as well as identifying additional drill targets in and around Maly Krumkon and Ikenskoe, and discovering a new target area, located to the north of the main trend, known as Yan Hegd. The company also initiated a prefeasibility study ahead of schedule and added to its exploration acreage by being awarded the Anadjakan copper-gold exploration licence in the summer of 2006.

The 2007 field season, started in early June and initially targeted 5,500 metres of drilling, focusing on resource expansion in targeted areas in the Maly Krumkon area, continued development drilling at Ikenskoe and Vodorazdelny in the form of in-fill and step out drilling, and geophysical surveys at Yan Hegd, a recently discovered mineralisation zone outside the Krumkon trend. Amur is confident that the 2007 field season exploration work will result in an increase of the resource by approximately 50,000 tonnes of contained nickel (ca. 20% increase). As at early September, Amur had completed approximately 4,000 metres of drilling with the view of increasing the company’s confidence levels in the continuity of mineralisation and to define its limits. Amur expects analytical results shortly which will pave the way for an updated resource estimate and project valuation at Kun-Manie.

Mineralisation and Geological Resource

The Kun-Manie licence area sits in the Siberian Platform and contains outcrops of sulphide enriched mafic and ultramafic sills and dykes. Within the 40 kilometre long and 2 kilometre wide Krumkon Trend more than 100 targets have been identified for further exploration and development. The nickel-copper and Platinum Group Metals (PGM) mineralisation is disseminated and veinlet in character, with the better grades contained in websterites.  Past drill results returned an average nickel content of ca. 0.45% with higher grades, in excess of 2%, identified toward the base of the sills.

The geometry of Kun-Manie is conducive to open-pit mining with a low waste to ore ratio. This promises relatively low mine extraction costs and due to its large size and low grade nickel deposit, it is highly dependant on the price of nickel as well as the potential expansion of the resource base. The 40 kilometre long Krumkon Trend is host to a number of significant nickel deposits, with 6 zones identified, two of which contain all of the Measured and Indicated resources. There is an abundance of targets waiting to undergo drilling, with geochemical sampling indicating more potential for an increased resource base along the trend. Work carried out so far, in the form of diamond core drilling, trenching and geological mapping, has identified four mineralised targets within the Krumkon trend known as Vodorazdelny, Falcon, Ikenskoe and Maly Krumkon zones.

 

SRK Consulting JORC Compliant Resource Estimate
Orebody	Tonnage (Mt)	Ni (%)	Ni (t)	Cu (%)	Cu (t)
Vodorazdelny
Indicated	5.9	0.71	41,800	0.2	11,800
Ikenskoe
Measured	3.7	0.61	22,700	0.16	5800
Indicated	26.8	0.42	111,300	0.12	32,700
Inferred	5.9	0.49	28,700	0.13	7,500
Total Ikenskoe	36.4	0.45	162,700	0.13	46,000
Maly Krumkon
Inferred	11	0.45	50,000	0.14	15,200
Total Resources
Total Measured	3.7	0.61	22,700	0.16	5,800
Total Indicated	32.7	0.47	153,100	0.14	44,500
Total Inferred	16.9	0.48	78,700	0.13	22,700
Grand Total	53.3	0.48	254,500	0.14	73,000

Source: Amur Minerals Corporation

Two more additional drill targets have been identified within the trend, through geological mapping, limited trenching and grab sampling programmes. These are Chorney Ispelene and Kubuk. An additional mineralisation zone was identified off-the-trend with a possible vertical structure, known as Yan Hegd. Overall, these 6 zones are located along half of the Krumkon Trend 40 kilometre length, with the remainder of the trend showing additional potential based on identified anomalous mineralised host structures. We look at each zone-deposit within the Krumkon Trend in more detail below.

Source: Amur Minerals Corporation

Ikenskoe Zone

The Ikenskoe target is oval in shape and covers an area of approximately 3.8 square kilometres.  The entire area has been examined using both airborne and ground based geophysics as well as detailed geological mapping and geochemical sampling.  The work indicates mineralisation may be present throughout the entire extent. 

Within this large target, only a limited portion has been explored in detail.  The NorthWest and very Northern edge of the target is assessable by road.  This area is where Amur has focused its drilling and trenching as the mineralisation is readily amenable to open pit mining.  A total of three near flat lying host sills are present with the lowest being the primary drill target.  These zones extend to the South East beneath a mountain peak and exploration remains to be conducted on this extensive area.  Positive results could result in additional resource potential where a combination of open pit and underground operations may well be suited to recover additional resources.  This large area of untested potential offers the company an opportunity to significantly enlarge the resource of Kun-Manie and is targeted for 2008. 

The drilled portion of the Ikenskoe deposit covers an area of approximately 0.8 square kilometres.  Conceptual pit analyses confirm the currently drilled area is recoverable by open pit mining methods.  Approximately 84% (135Kt/160Kt) of the drill defined mineralisation falls within an SRK Consulting conceptual pit design.  The total drill defined resource is 36.4 million tonnes at 0.45% Ni and 0.13% Cu.  By resource category, the conceptual pit also contains most of the Measured and Indicated category (83.8%) of resource which totals 162,700 and 46,000 tonnes for nickel and copper, respectively. This year’s exploration drill programme is focused on infill drilling of the area allowing for an upgrade in the resource categories and to assist in providing suitable drill spacing for conversion of this area of the exploration licence to a mining licence. In addition, condemnation drilling is being conducted along the north and west edge of the conceptual pits to allow pit limit definition and assist in the identifying appropriate locations for waste dumps.

Vodorazdelny and Falcon Zones

The two zones are adjacent to each other.  Vodorazdelny is presently the most well defined deposit on the property. It consists of three distinct pods, two of which contain drill defined resources.  The average grade is the highest of the drilled deposits and contains an estimated 5.9 million tonnes at 0.71% Ni and 0.20% Cu, with contained metal of 41,800 tonnes Ni and 11,800 tonnes Cu.  The mineralisation within the two pods is exposed on the surface and sits on the crest of a ridge which offers a very low waste to ore open pit opportunity.  This has also been confirmed in conceptual pit analyses and it may well be the first deposit scheduled for mining should the global mining reserve be large enough to indicate the project is economically viable.  The third pod contains limited narrow zones of mineralisation and is presently assigned a low exploration priority. This year’s exploration effort is comprised of infill drilling, additional trenching and some ground based geophysics within the two pods in order to upgrade the resource to a measured category increasing the value of the project as well as establishing a drill spacing suitable for reporting to the GKZ and subsequent conversion to a mining licence.

The Falcon zone is located adjacent to and east of Vodorazdelny.  Limited core drilling has been conducted and no resource has been reported to date. Two, possibly three, layered sills ranging in thickness from 2 to 6 metres have been identified.  The sills dip at about 25 degrees to the northeast and can be observed at the surface for a length approaching two kilometres.  The area requires more drilling however Amur has given this area a lower priority for this year as there are an abundance of additional targets available for drilling which are believed to have better potential.  Work is tentatively planned for 2008.

Maly Krumkon Zone

The Maly Krumkon deposit is an exciting prospect hosting nickel-copper sulphides within an abundance of websterite sills. The area contains as many as 8 sills along a length of 6 kilometres, of which only 800 metres of the zone has been subjected to core drilling including four holes and some limited trenching.  These trenches and holes are located at the very West end of the zone leaving the remaining five kilometres to the East untested and representing significant upside potential for resource expansion.  These few intercepts have established an Inferred category resource of 11 million tonnes at 0.45% Ni and 0.14% Cu, with contained values of 50,000 tonnes Ni and 15,200 tonnes Cu.  Exploration drilling this field season is intended to provide infill holes to both confirm continuity of the mineralisation and to upgrade the resource category within the area where drilling and trenching was previously completed.  These holes may well also expand the size of the Maly Krumkon resource in this vicinity.   The company’s target for Maly Krumkon is to increase the resource by addition of another 50,000 tonnes Ni. 

To the East of the area toward Vodorazdelny, the zone has been identified by geological mapping and geochemical sampling.  Ground based geophysical surveys are being completed along the entire extent of this zone to assist in identification of the sills which could contain economic levels of nickel and copper.  The geophysical results will be used to establish the drill targets for 2008.

Chorney Ispelene and Kubuk Zones

Both targets are located to adjacent to and along the strike of the trend.  These have been identified through airborne geophysics, geological mapping, limited trenching and grab sampling programmes. 

Chorney Ispelene is located to the North and West of Maly Krumkon and forms the top of the ridge.  Compositionally, it is a websterite dike having a steep dipping orientation.  At a maximum thickness of about 70 metres, this structure contains nickel and copper in sulphide form with the highest grades located at the contacts.  This zone could represent a deep feeder structure.

The Kubuk area is located four kilometres to the East of the Ikenskoe deposit and recent anomalous rock chip and stream sediment samples indicated grades up to 1.0% nickel. Trench results published in July 2007 confirm the presence of nickel mineralisation, with two channel sampled trenches starting and ending with potentially economic mineralisation. This indicates that the zone could be thicker than exposed in the trenches. Two trenches contained 33.9 metres averaging 0.63% Ni and 0.17% Cu, and 11 metres at 0.51% Ni and 0.12% Cu, respectively.

Yan Hegd 

The Yan Hegd prospect lies just 8 kilometres to the North of the Krumkon Trend and hosts the largest geochemical anomaly on the property.  It is two square kilometres in area and grab samples of up to 0.4% nickel have been collected.  A total of 48 rock chip samples averaging 0.18% nickel are included in this area. Surface samples are often lower in grade due to the rock being leached up to a metre in depth.  In addition, a gravity anomaly overlies in the Western half of the geochemical anomaly and could indicate higher metal content at depth. Drill target selection in October this year will take place after more geophysics, with drilling set to begin next year.

An exciting aspect of this area is its two fold potential.  The extent of exposed websterite which hosts the nickel and copper is the largest single area on the property and it is interpreted to be vertical in orientation representing a potential feeder.  The near surface potential represents a large lower grade target at the surface which is conducive to open pit mining. 

The second potential is a more deep seated target.  The gravity anomaly and geological mapping indicates this zone extends to depths up to 700 metres below the surface.  This near vertical structure is similar to other deposits in the world that have high grade lower tonnage potential.  As a result of the dual target potential, Amur plans to closely evaluate this years geophysical results and develop a drill programme that will test the potential of both the shallow and deep targets.

Kun-Manie Project Development Timeline

The next 6-12 months, will be a critical development period for the project as the 2007 exploration programme continues to expand both the resource and the in-ground value of the project. The 2007 field season program will be followed by the completion of the pre-feasibility study and first filings to GKZ.  An application for a mining licence conversion will follow in 2008, with additional field work and engineering studies, where necessary. A Bankable Feasibility Study is scheduled in 2009, which will allow the financing of the mining project to gather pace in the same year. The construction and commission of an open cast mine will see the project through 2010, with production set to start sometime in the middle of 2012.  

The 1,034 square kilometre Kustakskaya licence area was acquired in February 2007 for $0.24 million and covers the right to a 20-year exploration and production licence.  It is located Eastwards of the Kun-Manie licence and across the Amur Oblast boundary in Khabarovsk Krai. The Kustaskaya licence, is a prospective area hosting nickel-copper and associated minerals and consists of two geological terrains.  Each terrain contains a different type of mineralisation target, with the southern area covering a 100 square kilometres of nickel, copper and cobalt mineralisation, with nickel values of up to 1.5%. This area is a continuation of the Krumkon Trend identified in the Kun-Manie exploration licence, and contains a number of ultramafic sills and dikes. The Northern portion of the licence covers an area of 190 square kilometres of Mesozoic granites, with historical Russian results indicating the potential presence of copper, cobalt and molybdenum. Copper values of up to 0.6% are contained within the historical Russian sampling work. Amur has begun limited reconnaissance work within a part of the licence and will continue to do so in 2008.  Identified targets as planned for drilling during 2009.   

Source: Amur Minerals Corporation - Re: Kustakskaya Licence

 

Amur’s strategy is to continue the expansion and extension of the already identified mineral resource at Kun-Manie, whilst identifying new targets and developing potentially economic mineral deposits. The company’s most advanced deposits are within a 15 kilometre segment within the 40 kilometre Krumkon Trend where the potential exists for resource expansion immediately adjacent existing drilled areas. There is also significant potential for an increase of the existing resource and extension of the mineralisation Eastwards and Westwards. Identified targets include Chorney Ispelene and Kubuk and there is also exploration potential within the Yan Hegd area which contains two opportunities - it is located off the main trend and is interpreted to be a vertical structure similar in composition and orientation to the high grade lower tonnage deposits of Australia and Canada.  In addition, there is potential for discovery of a lower grade near surface deposit which could form an open pit target. 

The company’s stated primary objective is to bring Kun-Manie towards production during 2012. If it continues to deliver positive exploration results we believe that investors will back further equity fund-raisings to support that goal although, ultimately, the construction of a mine will be largely debt financed.

In addition, the company is using its knowledge of the region to acquire new exploration licences and near-production stage projects. Amur can realise value from its project portfolio in a number of ways. It can take an asset through bankable feasibility stage and into production on its own, or where appropriate enter into a joint venture agreement or farm-in agreements on specific assets. In addition, the company can maximise the value of its assets at an appropriate stage of their development, by bringing them to production or selling them at a premium to book value.

The next 6-12 months, will be a critical development period for the flagship project as the 2007 exploration programme continues to expand both the resource and the in-ground value of Kun-Manie. There is an abundance of exploration targets to be drilled, but Amur is likely to be selective in its approach on how it presses ahead. By definition it must take a balanced view in deploying its finite financial, management and operational resources towards drilling a number of selected targets whilst developing and extending the resource base deposits of Vodorazdelny, Ikenskoe, and Maly Krumkon.  

Much of the company’s progress at Kun-Manie revolves around the successful completion of the Pre-feasibility study in the fourth quarter  of 2007. There is currently an abundance of exploration targets for the company to exploit during this field season. Before Christmas 2007 we expect that there will be a field season update which will report on exploration progress in expanding both the resource and the in ground value at Kun-Manie.

A successful pre-feasibility study will open the path to a full Bankable Feasibility study, subject to the surmounting of a number of critical hurdles. The first hurdle is the obtaining of a Mining Permit at Federal level. Work is currently being completed on a report for submission to the State Committee on Reserves (GKZ). Upon approval, the GKZ should issue a Discovery-status certificate, which will allow Amur to continue the ongoing process of converting portions of the exploration licence into a mining licence. The company expects this to be completed in 2008, with additional field work and engineering studies where appropriate. This will lead to a bankable feasibility study and financing of the project in 2009.

The second hurdle is the completion of a road survey and its construction which will allow access to the mine and the wider licence area at Kun-Manie. The third hurdle is the ordering of long lead time project related equipment in early to mid 2009 when the project financing will be in place. The company estimates that construction and commissioning of an open pit mine will take two years to complete, including connection with the national power grid which will be needed to provide energy for the whole operation. This will take the company to a production start-up in late 2011.

The major challenges facing the company are weather and infrastructure conditions which bring their own difficulties when operating in such challenging conditions. As a result, key to the development of the Kun-Manie project, besides the expansion and upgrade of the resource, is the provision of road, power and related infrastructure. A significant component of the capital cost for building and operating a mine will be the costs of building an access road of some 300-350 kilometres and the supply of power on site or through a link to the national power grid. These costs, estimated to be in the region of $200 million, combined with the low grade deposit at Kun-Manie could hinder the project economics and its progress. An important factor is whether the Government is prepared to fund some of the cost in improving the region’s infrastructure, thus enabling an all-weather access to the project and the provision of power supply at a lower cost to the company.

Due to these factors, the case for upgrading/increasing the resource base significantly at Kun-Manie becomes all the more critical to the project’s success. An increased scale of mining and processing needs to be targeted in order to sustain an economically feasible low-grade mining operation. In valuing the project and setting a target price for Kun-Manie, we have considered the upside from an increased scale of mining operations plus the leverage to the nickel-copper prices that could provide an added lift to the project’s value. In our valuation we have used modest metal prices.

There are currently shares 101,703,938 shares in issue, with 9,291,456 share options outstanding. The following shareholders hold in excess of 3% of the issued ordinary shares in the company.       

 

Shareholder	Shares Held	Percent of Outstanding shares
Credit Suisse Client Nominees (UK)	22,373,874	22.0%
Foxley Associates Limited	7,920,085	7.8%
HSBC Global Custody Nominee (UK)	7,827,853	7.7%
Anturium Resources SA	6,994,094	6.9%
Polar Star Capital Ltd	6,994,094	6.9%
Resource Investment Group Inc	6,994,094	6.9%
Euroclear Nominees Limited	6,900,609	6.8%
The Bank of New York (Nominees)	3,333,333	3.3%
Pershing Keen Nominees Limited	3,216,840	3.2%

 

Robert Schafer, Chairman (Non-Executive). With 32 years of experience in the mineral industry, working with both major and junior mining companies, Schafer has worked internationally, with notable experience in the Far East of Russia, Southern Africa, South America and Australia. His work has included the structuring and implementation of successful exploration strategies, project reviews and valuations leading to acquisitions, and the management of local and expatriate exploration teams operating in a wide variety of geologic environments. Schafer is currently Vice-President, Business Development with Hunter Dickinson Inc., a globally active private natural resources corporation.

Robin Young, Chief Executive Officer. Young is a geologist and mining engineer who has gained extensive working experience in the CIS since 1991. With 31 years experience in the mineral resources industry, including large projects in remote areas as well as significant work with junior mining companies, Young has held positions of increasing responsibility within the exploration, development and production sectors. Since 1980, he has been involved in the international sector and has been the Chief Executive Officer of two geological and mining consultancy companies. Young has been CEO of Amur Minerals since October 2004.

David Wood, Chief Financial Officer. Wood has eighteen years of corporate finance advisory experience, two-thirds of which has been in the former Soviet Union. From 1996 to 2002, he was a management consultant with Deloitte & Touche in the CIS and led its management consulting and corporate finance practices in Moscow and Almaty. Wood has been Chief Financial Officer of Amur Minerals since October 2004, and has been a consultant to the Company since February 2004. He speaks fluent Russian and lives in Moscow.

George Eccles, Non-Executive Director. Eccles is a law graduate from the London School of Economics and a chartered accountant. He became a partner in the London office of Deloitte Haskins & Sells before moving to Moscow where he was a partner in Coopers & Lybrand and later in Deloitte & Touche. Subsequently he worked in Kazakhstan as Chief Operating Officer of the Central Asian–American Enterprise Fund, a US government sponsored development fund. He is currently non-executive Chairman of Hambledon Mining PLC.

David Straker-Smith, Non-Executive Director. Straker-Smith joined CrossBorder Capital in early 1999 having been in the financial markets since 1980. His previous positions include director at Gerrard and National plc, manager of proprietary equity book at Gerrard and National and Head of East Europe and Middle Eastern Equity sales at Baring Securities. He is currently a senior non executive director of LTG Technologies Plc and director of a number of limited companies.

On September 3rd Amur released its results for the six months ended 30th June 2007. The highlights of the year included the successful acquisition of an additional licence (Kustakskaya exploration/mining licence – April 2007) for $240,000, a £2.79 million private placing of 15.5 million new ordinary shares at 18p per shares, the initiation of the fourth field season at Kun-Manie and the first field season exploration work at the copper-gold Anadjakan licence. As at 3rd September, the company has completed nearly 5,000 metres of infill and step out drilling with the view to increase and upgrade the resource base at Kun-Manie project.

During the period, Amur has expanded its understanding and database of the project and is looking forward to the forthcoming publication of the pre-feasibility and additional metallurgical optimization studies. Amur capitalized $1.9 million of direct project-related expenditure, up from $0.616 million in the first half of 2006, with the view of amortising these costs against future income once the mine is in production. The company reported an operating loss of $1.22 million, up from $1.1 million and a loss per share of $0.01, down from $0.02. At the period end, the company has net assets of $13.77 million, up from $9.33 million, with  net cash, including $740,000 account payables, of $5.06 million. 

We have valued the company on a sum-of-the parts basis. The majority of the company’s value derives from its flagship Kun-Manie nickel-copper property. The other elements consist of a nominal value of £1.5 million for the other two properties, namely the Kustakskaya (£0.5 million) and Anadjakan (£1 million) licences, and a net element of cash of £2.5 million.

Kun-Manie nickel-copper project
We have valued the Kun-Manie project based on a ‘metal in the ground’ approach using conservative percentages for each category of the existing JORC compliant resource. This does not take into consideration any increase or upgrade in the resource base, likely to follow after the analytical results from this year’s field season are released.

We have valued the measured mineral resource at 3.5%, 4% and 4.5% of the contained metal value, using conservative medium term prices of $5.8/lb (ca$12,992/t Ni) for nickel, and $1.4/lb (ca.$3136/t Cu) for copper. The low contained values of platinum and palladium present at Vodorazdelny and Ikenskoe are included using $500/oz for platinum and $250/oz for palladium. For the Indicated category, we have the indicated resource category at 2.5%, 3% and 3.5% of the contained metal value. For the inferred mineral resource, we have valued it at 2%, 2.5% and 3% of the contained metal value. We consider these percentages very conservative, given the fact that Amur’s enterprise value at the time of writing of £18 million is less than 0.5% of its in-situ value at current nickel and copper prices of ca $29,800/t Ni and $8,128/t Cu. We use the lower percentage on each category to form the basis of our valuation, the middle percentage for a medium case valuation and the higher percentage as our best case scenario. Based on the existing resource estimate from the three ore-bodies, ignoring the other four areas of interest within the project and using these assumptions, we arrive at a base case valuation for the Kun-Manie project of $86 million (£44 million) or 43.56p per Amur share on an undiluted basis. The middle case valuation comes to $114.37 million (£58.65 million) or 57.9p per share and the best case scenario values the project at $132 million (£67.7 million) or 66.85p per share.

The significant upside is reflected on the valuation we prepared on the assumption that the company will be successful in increasing the resource estimate by 20% following this year’s field work to bring the contained metal values to 305,400 tonnes of nickel and 87,600 tonnes of copper. Based on these metal values, using the same percentages for each resource category and ignoring any category upgrade in the resource estimate, we arrive at a base case scenario of $103.29 million (£52.97 million) or 52.29p per share, a middle case scenario of $137.29 million (£70.4 million) or 69.5p per share and a best case scenario of $158.51 million (£81.28 million) or 80.24p per share.

We have also produced an NPV8 valuation of the Kun-Manie project based on a conceptual mining and processing operation model, arriving at an NPV value of $114.42 million (£58.67 million) or 57.6p per share. The heavily risk weighted valuation model assumes a 20 year mine life, with production commencing at 2012, capital costs of $497 million (includes mine and plant, road and power infrastructure capital costs, smelter, mining and processing costs). However, we consider the parameters in this model indicative at best and in the absence of a detailed SRK pre-feasibility study, it does not form part of our valuation at this point in time. Hence our base case valuation for Kun-Manie under the existing resource JORC-compliant estimate is $86 million or 43.56p per share, with the near-term potential of increasing to $103.29 million or 52.29p if the company is successful in increasing the resource estimate by 20%. Our 12 month target price for the Kun Manie project is therefore 52.29p per share or 56p overall for the company.
 
Amur represents a growing mineral development and exploration company, operating in a mineral rich region of the Far East of Russia. Whilst the company faces some major challenges in financing and improving the Kun-Manie infrastructure, it has an experienced management with a clear mind-map of where and how it plans to take the project forward. This is a high risk/reward investment, with significant upside deriving from increased scale of the project and leverage on the nickel-copper price. Our initial valuation assumes a successful 2007 field season but leaves enormous scope for upside from further exploration success or higher metals prices.  At 20.75p, we initiate our coverage of Amur Minerals with a speculative buy recommendation and a 12 month target price of 56p.

 

Forecasts Table

Year to 31st December	Sales (US$ million )	Pre-Tax Profit (US$ million )	Earnings Per Share ($ cents)
2005A	0	(1.56)	(5)
2006A	0	(1.51)	(2)
2007E	0	(1.55)	(1.5)