dj carmichael target 3.42, page-3

At the end of their 12 Aug Weekly Brief.

Ampella Mining (AMX) Buy
Second Development Front Looms
AMX has announced the first RC drilling results from its recent Foumbiri drilling program aimed at assessing the potential of the prospect to host economic quantities of gold mineralisation. The first results, given they were scout holes only, look encouraging, and confirms our thesis in previous notes, that AMX could start a second development front at its Batie West project in Burkina Faso. We retain our Buy recommendation.

Key Points:
In our May note for AMX we flagged that the company was embarking on a series of drill programs on regional exploration targets, away from the flagship Konkera deposit. The first results from those programs are now starting to come in, after lengthy delays at local sample preparation laboratories, due to the sheer volume of exploration work being undertaken within the country.

First RC results from Foumbiri are encouraging for the discovery of further economic mineralisation, which over the course of the next 12 to 18 months could add substantial resource ounces to the existing 2.2Moz inventory. A total of 54 holes have been drilled at Foumbiri testing a strike length of 2.5 km of a total strike length of 4.0 km.

Four other regional targets have also been drilled. To date, a total of 232 holes, totalling 24,000 metres of drilling, are awaiting assays. We expect to see the results of this work released to the market over the coming weeks and months and therefore believe AMX will have high news flow over the traditionally slow months of the wet season from June through to October.

Recent drilling at the flagship Konkera deposit has concentrated on the depth extents of the mineralisation. Due to the lack of available drill rigs prior to the wet season, the new resource update has been delayed until the Q4 2011, with the prefeasibility study for Konkera anticipated to be released during the Q1 2012. The definitive feasibility study will be initiated immediately after this and is due for completion by Q4 2012.

We have re-calculated our peer based comparisons to reflect current average EV/Resource ounce metrics for gold equities with projects in West Africa, to derive updated EV/Resource ounce metrics to feed into our valuation matrix. However we have kept our DCF based valuation for an assumed operation on the existing 2Moz resource. Our updated sum-of-parts valuation for AMX is now $3.42, up 10% on our May note, primarily driven by the increase in the average EV/Resource ounce metrics ($201/Oz) for ASX listed, West African focused, gold companies.