AME - Tipped in IC5 Feb 2011 10:58
Tipped in IC next week
BULL POINTS:
■ Large acreage in good mining region
■ Strong evidence of gold
■ Funded for imminent drilling
■ Close to infrastructure
BEAR POINTS:
■ High exploration risk
■ Some political risk
African Mining & Exploration (AME), whose shares were admitted to the Alternative Investment Market in November, has sizeable greenfield exploration acreage in Mali, a country that has several world class gold mines. The company's acreage is already extensively worked by local miners with picks and shovels, so there is no doubting that gold is there. Now the company is about to launch a drilling programme with a target of finding 1m ounces of gold. True, abject failure would wipe out the company's value, but if the results are close to the target, the share price could treble
Mali is fast developing into one of Africa's largest gold producers and hosts several sizeable deposits being mined by majors. These include Sadiola Hill (owned by IAMGOLD, with a reserve of 5m ounces), Loulo (Randgold Resources, 7m ounces) and Morila (Randgold Resources and AngloGold Ashanti, 4m ounces). The country is politically stable and democratic by west Africa's standards, though the current president led the military coup that removed the previous authoritarian regime in 1991. Mali also has decent infrastructure and AME's key project, Karan, lies just off a main tarmac road, close to electricity, geological services and an international-standard testing laboratory
The long history of local people mining on the Karan permit adds strong evidence for the existence of significant gold ore. Locals have mined the area for 200 years down to depths of 20 metres. Up to 300 people dig and pan daily over several kilometres of the estimated 8km length of mineralisation. Indeed, the village of Karan depends on its cottage gold industry and the local miners have clearly delineated the gold-bearing region. Finding gold in the bedrock provides evidence that mineralisation exists at depth that that artisans cannot reach. There are even anecdotal reports of nuggets being found weighing up to 1kg.
While extensive so-called artisanal activity is an important indicator of the potential, AME still has to drill holes to prove that the ore can support an economic mine. When AME's shares came to Aim, its resource potential – and a management team combining gold mining and West African experience – attracted backing by some leading funds. This helped the company raise £4.3m after expenses and AME plans to spend £1m this year to drill around 30 holes. The first drill results are expected before May and could provide significant momentum for the share price.
Prior to drilling, it’s difficult to speculate how much value might be held in AME's acreage. Nevertheless, shares in comparable West African gold miners trade at an average valuation of $67 (
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