Amur Minerals plc (LSE:AMC) Chief Executive Officer Robin Young caught up with DirectorsTalk for an exclusive interview to discuss their production licence with the Russian government, the pre-feasibility study and the Maly Kurumkon/Flangovy objectives.
Q1: The largest consideration for Amur Minerals is the final award of the detailed exploration and production licence, this was submitted to the Russian government in December. How is the approval process going there?
A1: It’s advancing along standard Russian procedures, what I’d like to say first off is that it’s not a simple rubber-stamp job, we’ve never alluded to that. The Russian government, who are the final group to approve this, have to make sure that everything is really correct, it’s been done in the interest of the country, they also want to make sure they’re protecting the economy. The government itself maintains a right to query any information that’s been provided by the existing agencies and especially those involved in submission process and as a result, they can ask any questions of any of the agencies, it is protocol. What happens is a question will be addressed to an authority and then they have a choice of responding directly with the Russian government or coming back to the company ourselves and asking for additional information. The process itself we know works, it’s already played itself out in late December when they came back to us and they requested additional information on corporate structure, past financing and additional information regarding our work in Russia and what our long term plans are.
Q2: So they are reasonable people to do business with?
A2: Yes, they are. They do give bureaucracy credit, they live to it very well and as long as you’re working by their rules, everything will go well.
Q3: On the award of the production licence itself, Amur has been preparing to advance a project through planned drilling of the largest of your four deposits. What is the objective of this next drill program at Maly Kurumkon/Flangovy, what else is on the cards?
A3: We’re planning on advancing the project as quickly as we can as soon on the award of the licence itself. At this point in time, we’ve defined about 650,000 tonnes of nickel and another 180,000 tonnes of copper, all of which are in JORC resource inventory. This makes us about the 20th largest nickel sulphide deposits in the world and we’re bordering on China which is the number one consumer of nickel sulphide product. Of this total right now, only 30% of what we drill falls within the measured and indicated resource categories and these are the resources that can be converted to proven and probable reserves. We need to expand the amount of resource we have measured and indicated and hence we’re going to move forward with drilling on the Flangovy/Maly Kurumkon area and increasing from 219,000 tonnes of nickel, 58,000 tonnes of copper that we have in the reserve. This is all required as part of bankability and right now 70% of our nickel is contained in inferred resources so it’s very much in our interest to rapidly advance in infill drilling. Maly Kurumkon was selected as a starting point, it’s got 20 million in inferred tonnes and we want to convert those through 6,000 metres of drilling. We haven’t determined the limits to the east and the west so it’s a very good place for us to start as preliminary pit designs indicate that much of this inferred resource can be mined there when we infill drill. We also have samples here that we’re going to use for metallurgical testing. So we plan to move forward with the development of engineering studies as well, we need to look at road designs, bridge requirements, additional environmental and hydrological studies as well as social impact meetings. As we advance at each step, new options are going to present themselves and we’ll undertake a careful assessment program to look us ahead on an overall planned operation. We are taking a look at the opportunity of owner-operated smelter and see if we can overcome the punitive financial penalties that come along with smelting. There is more than enough to do at this deposit and it’s large by type and scale and this is the kind of project that will change a junior explorer like us into a serious miner.
Q4: As you said from your answer, you’re actually sitting on one of the largest nickel sulphide projects in the world and your market capitalisation is around £35 million so there’s obviously a disconnect between what you’re sitting on, let’s say, and how the market’s viewing you. Typically there isn’t that much hope value in the share price, investors these days want to see the metal in their hands practically before they upgrade the value of a company. What are you doing in terms of getting this disconnect sorted out?
A4: Well we’re pretty active on all fronts. We do know that we have the certificate of discovery, it grants us first right of production on anything within the licence area, we’ve been able to withstand ten challenging years, financial meltdown and various regulatory changes within Russia. The project at this stage is being run by a junior company with limited funds, we’ve gotten to this point with a great deal of tenacity and resilience. We’ve succeeded and we’ve maintained our rights all along for this project, each successful step we’ve completed as a company adds a greater value to the shareholder than if we’d partnered up and took on a joint venture partner. We plan on continuing to go the course along which will obviously require more tenacity and it’s going to require funding. One thing we’ve been conducting on a near continuous basis is networking with potential sources of funding. We never stop speaking with financial institutions in Russia and Europe and we’re getting the success based story out at this point in time. We’ve also kept in touch with industry acquaintances that are affiliated with certain higher profile mining companies than Amur is, this effort is in keeping everyone in the loop notice so that everybody knows how we’re progressing, that we’re around and that we have nickel deposits that we’re going to expand. There may be a time as we advance the project where it’s in the interest of the shareholders of the joint ventures, it’s formed with an appropriate financial institution or mining company. In that set of circumstances, we’d like to identify a partner who’s pretty qualified, experienced, a large scale producer, nickel familiar company and brings a level of professionalism to the project that would enhance value and ultimately the value to the shareholders. Our plan right now, in a nutshell, is just to continue on the course that we have, we will continue to advance the project, de-risk it and add shareholder value and when the right opportunity presents itself, sit down listen carefully and strike whatever terms would be appropriate if indeed they would be acceptable to the shareholders.
Q5: Finally, the shareholders are probably interested in this near mythical pre-feasibility study which seems to be on the cards for quite some time. Can you give us some information on that?
A5: Yes, of course. In September 2014, our internal PFS update was under management review and this included all additional new information that had been issued since the SRK 2007 report. We hadn’t updated operating costs which were primarily Russian based and all this work was done on 31 rubles to the US dollar and during the process of this review, the ruble began its devaluation run and by October it had slipped to 40-45 rubles to the dollar. This ruble to dollar decrease impacted our estimates on all the operating costs and we had to step back and re-estimate them. The costs ended up being lower in the results table on the unreleased update and were no longer representative of the project. The devaluation continued again to the total of 60 rubles right at the end of the year and we now anticipate that it’s maintaining at a more stable rate so over the last two months it has been updated using the 60 ruble conversion rate. The updated operating cost have now been determined and the financial and technical report has been updated. We anticipate that there’s a substantial amount of work to be done over the next two weeks, the change in the operating costs has a knock-on effect on all the operation; changes to cutoff grades so that reserves change, mine production schedule ends up being changed because it’s larger, the production will have to be increased, the grade that we deliver to the mill will change and hence the concentrate, the mill content and it’s value is also impacted and the tonnes of concentrate that gets shipped, so it’s a knock-on effect that goes all the way through the entire operation. We’re going through those numbers right now and bringing them into a final state so we can issue the report on this. With the new numbers and everything, the cash flow model and the relative sensitivity will differ substantially from that we had acquired in the review in the third quarter of last year and had we reported the results then it certainly wouldn’t have been representative of what we’re seeing in the operations’ configuration today. The actual delay caused by the devaluation has also provided us another benefit in that we’ve been able to obtain far better information with regard to total smelting versus an owner-operating smelter so as we go forward we’re going to be taking a much harder look at owner-operated scenario. We’re targeting completion of this update around the end of March, this is the very reason why I’m here in Khabrovsk right now, we’ve got the whole team together in one location to ensure that the work is completed and that we can get an available update out to shareholders in a document into an auditors hand for completion.
