Is the Market Missing an Opportunity With AIM Resources? By...

Is the Market Missing an Opportunity With AIM Resources?

By Stephen Clayson
18 Aug 2005 at 10:50 AM EDT


LONDON (ResourceInvestor.com) -- AIM Resources [AIM:AIMR; ASX:AIM] has garnered little attention since adding an AIM listing to its ASX quote earlier this year. However, the market seems to be missing an opportunity.

AIM’s primary focus is its Perkoa zinc project in Burkina Faso, a project doubted by some due to the very limited infrastructure and landlocked location of the country in which it is located, but where the company plausibly believes will prove to be highly viable.




The project has the advantage of coming in at a reasonable initial capital expenditure requirement of $40 million, in return for an output of around 65,000 tonnes/year of zinc metal, beginning in 2007. The Perkoa deposit amounts to approximately 7 million tonnes at a relatively high grade of 17.7%. At current zinc prices, the project’s projected output would yield revenues in excess of $80 million per year.

Perkoa also has the advantage of strong support from the government of Burkina Faso, which is desperate for a share of the burgeoning mining investment that has been precipitated by the recent commodities boom thanks to the extreme poverty of the country, even relative to the rest of Africa. Consequently, AIM regards Burkina Faso as by African standards an agreeable place to work.

In contrast, the company was relieved earlier this year at the failure of its application to acquire the Mooiplats platinum project in South Africa, in concordance with the growing reluctance amongst international mining firms to invest in new operations there when other options are available.

The declining quality of the South African administration, rising labour militancy, and increasing political risk are negative factors that have been building for some time in the country and, together with the strength of the rand, are conspiring to act against investment in the country’s mining industry.

The viability of the Perkoa project will naturally be affected by the price of zinc, which after ascending to a high of $1400/t in March dipped back beneath $1200/t in July, but has since begun what may be a recovery towards its earlier peaks. Demand for zinc is closely tied to the usage of steel, the galvanic coating of which is its primary application, and demand for which is consistently forecast to continue rising.

Though it has been suggested that stainless steel is replacing galvanised in some applications, this is probably an overstatement of the case, and longer term demand for zinc for galvanic coating of steel and for its numerous other applications looks likely to remain strong. Even as extra supply comes on stream, given a reasonably healthy global economy it seems unlikely that we will see a sustained fall back in the price of zinc, and this of course bodes well for the profitability of Perkoa if the project proceeds as expected.

A number of other avenues are also available to AIM, the most interesting of which is its joint venture with BHP Billiton [NYSE:BHP] on the Mumbwa copper project in Zambia, which may prove to host significant amounts of highly desirable iron oxide copper gold type mineralisation. Uranium signatures also raise the rather tantalising possibility of an Olympic Dam style deposit. A drill programme to test this hypothesis is planned for later this year, weather and drill rig availability permitting.

AIM joined the London junior market in March at 2.5 pence per share, and after a brief post launch fillip drifted steadily downward before bottoming out at just under 1.75 pence in June. Since then, though, the company’s share price has crept back up, partly in anticipation of the Perkoa feasibility study, and now stands at 2.75 pence.

Nevertheless, a formal affirmation of the viability of the Perkoa project and a commencement of the run up to construction with zinc prices as they are should alert the market to AIM’s potential, accompanied by a commensurate upward re-rating of its share price.