Friday, January 22, 2010 Ampella Mining target price raised by...

Friday, January 22, 2010

Ampella Mining target price raised by Fairfax
by Proactive Investors

Uk-based Fairfax Investment Research has upgraded its valuation on Ampella Mining (ASX: AMX) "based on upside potential, the speed and efficiency of exploration, gold price strength and the fact that half the resource ounces can be considered high grade for open-pit mining (3.2g/t).

Short term target price based on 2Moz is A$1.09."

The maiden resource from the Batie West project in Burkina Faso is greater than forecast at 1.2Moz of inferred resource at a grade of 2g/t (using a 1g/t cut-off) from a global resource of 1.54Moz at a grade of 1.4g/t (using a 0.5g/t cut-off). The larger than expected resource appears to be due to the stacking of multiple mineralised lenses, especially in the Konkera Main deposit.

- Shallow, open-pittable resource - ounces principally within 100m of surface offers the potential of quick, low-cost gold production.

- High grade component of 6Mt at 3.2g/t for 612,000oz (using 2g/t cut-off).

- Only 21,400m drilled to achieve resource at a discovery cost of less than A$5/oz (company calculated) - indicates efficient discovery cost.

- Large ground holding with great potential. This resource has been calculated from just one prospect representing only 3km of the 110km strike length of shear zone.

- Deposit is open along strike and down dip and another five prospects, each with multi-million ounce potential have already been identified.

- Rapid delineation of resource ounces. Only 18 months from signing tenements to maiden resource of 1.2Moz. Rate of discovery should continue.

- Relatively close spaced drill interval. Drill grid spacing of nominal 40m by 40m and 80m by 40m for Konkera North and 50m by 25m for Konkera Main. Gives confidence in the resource.

- Burkina Faso a politically stable country and mining-friendly jurisdiction with four new gold mines into production within the last two years and two more expected in 2010.

The new peer group of Perseus Mining (ASX: PRU), Azumah Resources (ASX: AZM), Gryphon Minerals (ASX: GRY) and Adamus Resources (ASX: ADU) gives an average valuation of A$81/oz in the ground, based on EV / Resources. Grades and categorisation of resource ounces are variable. We believe Ampella could lead valuations higher due to their great potential for discovery and their rapid, efficient exploration.

Ampella have progressed from reconnaissance exploration to maiden resource in just under 18 months. The Batie West tenements were signed on the 22nd of July 2008. Perseus Mining is notable for also having rapidly increased its resource, going from 200,000oz at the old Ayanfuri mine in May 2006 to just over 4Moz (at 0.8g/t cut-off) in April 2009. Ampella may progress in a similar manner to Perseus who is attracting a premium valuation.

Ampella have drilled just 21,400m to achieve this resource at an average (company calculated) discovery cost of less than A$5/oz.

Over half of the ounces in this resource can be considered high grade ounces for an open-pit operation (6Mt at an average grade of 3.2g/t for 612,000oz).

The multiple, dipping mineralised lenses at Konkera Main should lend themselves particularly well to an open-pit mining operation.

This resource has been calculated from the Konkera Main and Konkera North deposits. Together they represent only 3km of strike length on the 110km long shear zone. Another five prospects, Konkera East, Pampouna, Kouglaga, Doubema and Foumbiri South have already been identified. The Konkera deposit (Konkera Main and Konkera North together) is open along strike and down dip.

The company may commence pre-feasibility studies once a resource of 2Moz has been delineated. This now looks possible within 12 months.

Ampella have approximately A$19m in the bank and plan to drill 20,000m in 2010. For the reasons listed above we believe that as Ampella continue to develop the Batie West project the company will attract a premium to the average valuation. We have therefore assigned a short term valuation of A$1.09/share based on an increased resource of 2Moz. After this, as pre-feasibility work commences we would expect a market re-rating and therefore apply a higher valuation per ounce.

Fairfax said this maiden resource is higher than anticipated and give confidence in the land package that Ampella have acquired and in their ability to rapidly and efficiently explore the ground. It moves the project and company up the value curve and down the risk curve.

With the approximately A$19m of cash held (at the end of November 2009) and plans for 20,000m of drilling in 2010, a resource of 2Moz looks possible within 12 months. Fairfax said it anticipates a re-rating once the company has outlined such a resource and starts moving towards pre-feasibility studies.