Investment Highlights We recently visited AMXs Batie West (BW) project in Burkina Faso, located 500km south of the capital of Ouagadougou. The tour comprised an overview of geology, on-package prospectivity, inspection of active artisanal sites and Konkera drill core. We left site very encouraged by the quality of the project and AMX remains our preferred West African gold exploration exposure. We have increased our price target to A$2.02/sh and maintain the BUY recommendation. Upgrading expectations. BW hosts current Inferred resources at Konkera of 1.2moz Au (18mt at 2g/t). With an 80,000m RC/DD drilling program underway, we are confident AMX can double this resource in CY10, and further out, we believe BW is potentially a +5moz project on the assumption that artisanal workings are a valid indicator to underlying mineralisation, and recognition that AMX has drill tested <5km of a 110km long regional structure. Modelling a base case. We view reserves of c.1moz as an arbitrary hurdle rate to development in West Africa. Assuming AMX can sustain current discovery momentum we expect improved clarity on development potential by end CY10. With the market prepared to pay for future resource growth (AMX sustains a 49% premium to sector EV/resources metrics - A$231/oz vs. A$155/oz average) we have modelled up a notional development scenario which assumes production of 175kozpa from mid-CY13, pre-production capital costs of A$200m (diluted for 50% equity at 10% disc. to sp), nominal cash operating costs of US$460/oz, and 10 year mine life. This delivers an after-tax NPV of A$330m on our gold and FX assumptions (A$616m on spot gold/FX assumptions). Catalysts. (1) Exploration 115,000m RC/DD/auger program underway at BW including infill drilling at Konkera; (2) potential new discoveries as reconnaissance drilling moves north; (3) emerging strategic appeal should BW evolve positively. Risks. (1) Pricing risk the market is factoring in significant resource growth with inherent discovery risk; (2) conventional geopolitical, metallurgical and feasibility risk associated with mineral exploration. Disclosure: Patersons Securities acted as lead manager to a placement of 30m AMX shares at A$0.55/sh to raise A$16.5m in November 2009. It received fees for this service. This analyst declares a beneficial interest in AMX securities.
AMX Price at posting:
$1.50 Sentiment: LT Buy Disclosure: Held
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