Printer Friendly Version Minews Story Date: October 26, 2006 AIM...

Printer Friendly Version
Minews Story Date: October 26, 2006

AIM Resources Going Full Steam On Perkoa Zinc Project.

By Rob Davies

High and rising metal prices provide increasing incentives for miners to fast track development of new mines in order to lock in additional revenue that may not be available in a few years time. That is what the market is all about and AIM Resources provides a perfect demonstration. Scott Reid, Executive Director, described how this Australian company, which is also listed on AIM, was fortunate enough to acquire the Perkoa zinc property in Burkina Faso from BHP Billiton in January 2005 for a US$1million when the zinc price was about US$1,100/ tonne. Its subsequent massive run has seen the metal triple in price transforming the economics of this high grade, but small deposit. A mine with a reserve of 6.3 million tonnes was never going to make a difference to a company the size of BHP Billiton even if the grade is 14.5% zinc.

But it has made a difference to AIM Resources. A year ago the shares were just over 2p and today they are trading at 6.25p having been as high as 8.4p. Even at today’s valuation the market is only valuing AIM at £39million but serious funding is now required to build the mine and put it into production. In fact because the company intends to fast track construction capital costs will increase to US$135million although that means that the mine can be in production by the middle of 2007, twelve months ahead of the previous schedule. This has been achieved by opting for larger equipment and going for a deeper box cut and larger decline eliminating the need for a shaft. Consequently cash flow starts a year earlier with commensurate benefits to the shareholders.

In the original plan Scott said production was due to start in January 2009, but under the new one the processing plant will be up and running by the end of the first quarter of 2008. Scott explains that the net present value of Perkoa on the initial plan was US$148million based on a flat zinc price of US$1,815 a tonne. When the exercise was repeated in March this year using a zinc price of US$3,300 a tonne the NPV rose to US$405million. The most recent calculation, using the accelerated construction programme, would yield an even higher number although it has not been released yet.

To fund this activity AIM has said it will raise US$20million in equity through Seymour Pierce, has mandated Standard Bank to raise US$90million of project finance and asked Cartesian Capital to raise US$35million through a convertible loan issue. Scott reports that the frameworks of these agreements are in place and all parties are now doing due diligence; crossing t’s and dotting i’s. Asked whether AIM would be seeking, or if the banks have asked, to lock in current zinc prices Scott said that it would be sensible to hedge part of the production but that the company also wanted to leave some upside.

Burkina Faso is a landlocked country and has not got great infrastructure but the mine only lies 30 kilometres from a railway line with a daily service to the coast so exporting concentrate will not be too difficult. Scott reports that the company has a good relationship with the Government which has a modern and good mining code and AIM is not expecting any difficulties on that side.

Minesite’s last question to Scott concerned valuation. Like most Directors he feels his company’s stock is undervalued, and the impending equity issue is one clear reason for that. Nevertheless, it is possible to look round the market and see a number of companies, like AIM, that have good projects moving towards production on the basis of sound economics which have lower valuations than some explorers. However, as Scott says, the market is never wrong. It just gets there in its own time, but the waiting period can be frustrating.