Amur Shares, AMC, Up 50%, Down 11%, On Mine Sale Because It’s On Tick

Amur Minerals (LON: AMC) shares jumped 50% this morning then fell back again to be 11% down on the day at pixel time. These sorts of share price movements need explanation and there is an analysis available here. Amur has been able to close the sale of its mine in Russia’s Far East – that’s good, that explains the jump. But closer analysis leads to the realisation that this is largely on tick which is a much less attractive prospect. It could, for example, take a decade and a half to receive the last payments.

As we’ve said before about Amur Minerals the general and base strategy has its attractions. There’s the mineralogy part of it – exploration and extraction technologies advance over time. So it’s often worth going over older – and in the past uneconomic – finds to see whether they are now actually worth mining. Nickel is quite the fashionable metal these days. The strategy also worked, in the sense that Amur did find, out there in Russia’s Far East, a nickel deposit that looks worth mining.

The next part of the strategy also works. A junior miner always faces a number of valuation points, decisions have to be made at each one. A prospective mine being confirmed is one of those – the next question becomes does the company try to raise the £billion (just an estimate) to really go mining, or crystalise that value already created by selling out?

Also Read: The Best Nickel and Nickel Mining Stocks to Buy

Amur Minerals received an offer at perhaps £100 million and decided to go for it. Today’s news is that this is now going through, has been agreed at least. That explains the 50% jump in the Amur share price at open. The good news is confirmed and money has been made.

What happens next though is that Amur gives up all of that rise and falls to – currently – 11% below the original price. The reason here being people actually reading the offer itself. For the colloquial way of describing this is that Amur has sold that mine on tick.

Firstly, it’s $105 million, not £100 million which is a bit of a disappointment. But then the terms seem to get worse. $15 million on completion – say within 60 days of actual signing. Then $10 million a year later. Then $50 million in 4 years’ time. Then there’s the $30 million of internal loans, which start getting paid back in 5 years time at $3 million a year for a decade.

So, there’s little money now and as much as 15 years between now and full payment. This isn’t so much a sale for cash as it is a sale on tick. And Amur retains no equity interest over that 15 years – just what amount to a series of loan notes that don’t even appear to carry an interest coupon. In a world of 8% inflation, a 15 year loan note isn’t worth anything like the nominal value.

Amur has also said that the initial considerations will be used to reinvest. It’s only when the second payment – the $10 million – is paid that there might be a special dividend.

The headline number, the $105 million, is larger than Amur’s market capitalisation by a several times multiple. But once the terms and timings of the cashflow are worked out it becomes a lot, lot, less attractive. Possibly in the Russian environment of today, that’s the best that could be achieved – But Amur’s now going to be a cash shell and one without, actually, all that much cash in it. So, the valuation isn’t all that excited by the announcement.