• Ampella Mining have hoisted a for sale sign over the business as requests for data increase from corporates.
• Management have chosen to push ahead with a sale program for Ampella to take advantage of the substantial corporate interest seen in the stock. The statement is clear that if a sufficiently attractive offer is not made then the company will “shut down further discussions and move forward aggressively with our exploration and development programme.”
• The company appears shaken by the market’s reaction to recovery rates on its fine grained sulphide ores and has decided that a public sale process is the best way to go.
• A larger and more experienced mining company will be better placed to construct the Konkera mine and to develop value from both the oxide and sulphide ores within this mine.
• The Ampella team are to focus on exploration with a A$25m budget for the year to prove-up better value from the 110km shear zone.
• Ampella’s exploration team are considered to be ‘world-class’ and should add significant value, relatively quickly through their exploration. The enlarged team now have a sample prep-lab to speed the turnaround of sample assays. The lab cost A$450,000.
• Exploration: Ampella have had a relatively low discovery cost of around A$8.5/oz on the 3.1moz Konkera gold resource. The figure is particularly impressive considering the consistency of discovery on the company’s licenses in Burkina Faso. We would expect the company to continue to find and prove up resource ounces for this sort of cost through 2012.
• The team are running an impressive 11 drill rigs on the Battie West licenses
• Management change: Evan Cranston is stepping down from the board to pursue other personal business interests. Evan has been instrumental in developing the company through the last three years of growth. His decision to move on may make room for more experienced mining hands to take the business into its next phase of sale and or development.
• Cash: Ampella has $55m of cash in its treasury and appears adequately funded for its exploration and feasibility study programs through 2012.
• Feasibility update: work continues on drilling for the feasibility study for the Konkera gold project. We look forward to further news on the feasibility study report in Q2. This work is in addition to the A$25.3m earmarked for other exploration.
Conclusion: Investors might infer that $25m of exploration on these properties could uncover a further 2.9moz of gold resources. Applying the company’s current market capitalisation per ounce (A$80/oz) to future potential discoveries could add a further A$234m to Ampella’s valuation this year. The eventual valuation will depend on the grade, scale, mineralogy and location of each resource discovered but with a number of discoveries already known it is only a matter of time and effort before ounces are added in meaningful numbers.
* Fairfax has previously acted for Ampella Mining in the issue of new shares
AMX Price at posting:
$1.05 Sentiment: Buy Disclosure: Held
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