Asiamet Resources - there still remains long-term value considers Gary Newman

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When it comes to AIM mining companies, the majority of them will fail dismally and won’t even come close to producing anything or selling on their ‘assets’, but occasionally one does come through which looks like it could really make it. Contrary to popular belief, there are actually a few decent mining outfits listed on AIM – including an old favourite of mine, Central Asia Metals (CAML) – and I believe that if it carries on delivering as it has done up until now, then Asiamet Resources (ARS) could soon join that select club.

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This copper explorer is a company which I tipped as a long-term hold (ignoring the spikes) back when it was 4.6p, and although it has almost tripled in value to the current price of around 12p in less than a year, I still wouldn’t be in any rush to cash in, as this could well just be the start of the journey if things go even vaguely to plan. I won’t deny that the fact that its operations are based in Indonesia is likely to put some people off, given the history there, with even some much larger companies being screwed by the government as laws have suddenly changed. But these days the country seems to be making a real effort to change that image and encourage foreign investment, even if it does still have some laws in place which don’t exactly help that goal. Asiamet has just announced that it has secured a 50 year mining tenure for its 100% owned BKM copper project, through its Indonesian operating subsidiary Kalimantan Surya Kencana, and the overall terms look as favourable as can be expected. One area that is often controversial is the foreign ownership laws in Indonesia, but Asiamet will have ten years from when production starts before it then has to divest a 51% stake to a local Indonesian partner – or even a partial listing on the local stock exchange.

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There were a number of other stipulations, including the use of local labour, establishment of metal processing facilities plus figures for the rate of corporation tax and smelter royalties, as the laws have changed, but all of this was expected and was already factored into the 2016 preliminary economic assessment for the project. The company won’t be sitting back and taking things easy whilst waiting for BKM to reach production, as this year it is planning to not only complete the feasibility study on this project – due in H1 2018 - and consider financing options, but also to deliver a maiden resource for the BKZ polymetallic project, plus explore additional targets on the KSK overall acreage. On top of that it will look to increase its position in the Beutong copper/gold project and undertake more drilling there.

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Its operations will be financed from a recent placing, which was done at pretty much the market price at the time and raised £7.2 million via an accelerated book-build, and it was very encouraging to see chairman Tony Manini taking nearly 3.2 million shares himself. One thing which was also great to see is that the company actually declared how much money the placing cost it in total fees, which came in at £420,000 or around 5.8% - this is something that AIM companies often aren’t very open about! There were no cheap warrants or similar chucked in either. The other assets are interesting and have plenty of potential, but the initial focus is really on BKM and getting that to production, which is expected to cost up to $164 million. This initial mine would produce 25,000tpa, with a post-tax net present value of over $200 million and payback of capex in under three years. These figures are based on a copper price of $3.25/lb, which is higher than the current spot price of around $3, but with increasing demand and a lack of new supply coming online, that is expected to a fair bit higher in years to come.

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This lack of investment in new mines in recent years should also play into the hands of Asiamet, and the timing couldn’t really have been better as the industry is waking up to the fact that it needs to invest now or face a more serious shortage down the line. Although there is no guarantee that the company will secure the finance that it needs, I certainly wouldn’t bet against it on this basis, as well as taking into account the project economics. Based purely upon the net present value of BKM and the £83 million current market cap here, whilst considering the risks, it would be easy to argue that there isn’t much, if any, value at this price. But what people need to consider is that this is just an initial step in building a copper (and other metals) producing company and could easily just be the start. Success at BKM would fund other projects, plus there is still plenty of upside from higher copper prices during the life of the mine. If you are already invested here then I would continue to treat it as a longer term hold, and for anyone looking to invest in an early stage copper miner that could generate a large return in the coming years, whilst still carrying an element of risk at this stage, then the current buy price of 12p would seem to offer reasonable value.

This first appeared on ShareProphets. Are you missing the likes of it, Tom Winnifrith's bearcasts & more. Access for less than 2p an article HERE

Filed under: Asiamet Resources, UK Oil & Gas, Woodford, Steinhoff, Real Good Food, TomWinnifrith.com

2018-03-28 10:01:11

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