AS HURDLES go African Aura Mining (LON:AAAM, CVE:AUR) cleared this one quite convincingly.
It revealed this morning that the resource base of its Putu iron ore project in Liberia had more than doubled to 2.4 billion tonnes.
In doing so it cements AAAM’s joint venture with Severstal which needed the resource to be above 2 billion tonnes to be viable.
There is the chance Putu is far bigger than first thought – perhaps double the current size, so there is plenty of upside.
Russian steel giant Severstal is pouring US$30 million into the project to earn a 61.5 per stake in the project. In doing so it will also compile a pre-feasibility study that is expected to be completed at some point next year.
This is the third piece of positive news from the group in the space of less than a week and paves the way for a successful “butterfly split” of the company’s gold and iron ore assets into two separate companies.
The shares rose 18.12 pence to 249.62 pence in morning trade and are up more than 260 per cent in the past year.
However, Charles Kernot, the respected mining analyst at Evolution Securities, puts a 400 pence valuation on the stock.
He said: “The presence of over two billion tonnes of mineralisation at Putu means that the currently known extent of the deposit has grown beyond the minimum size deemed economically viable by African Aura’s joint venture partners, Severstal.
“We believe this announcement is transformational for the company ahead of the planned butterfly split in a couple of months.”
Earlier, African Aura has announced an expansion in the overall resource estimate at Putu, in eastern Liberia, to 2.37 billion tonnes at a grade of 34.1 per cent iron from 1.08 billion tonnes at 37.1 per cent iron.
Additionally, the 60,000 metres of drilling that is planned for this year provides scope for further expansions of the resource.
Chief Luis da Silva said: “The headline objective of African Aura and our joint venture partner Severstal Resources was a 2 billion tonne resource and I am very pleased that this has rapidly been achieved.
“We expect to upgrade this resource to the indicated category during 2011.
“The joint venture partners are mindful of the importance of moving the project forward as efficiently as possible, for the benefit of the local communities and all other stakeholders, and I look forward to providing updates on progress in due course.”
The latest update follows two very positive announcements from African Aura last week, which unveiled a maiden resource for its Nkout iron ore project in Cameroon as well as some very encouraging results from its Ndablama gold prospect in western Liberia.
“African Aura has exhibited a very strong recent share price performance and we believe that this news represents perhaps the most important of its recent milestones,” Evolution’s Kernot noted.
The company is planning to split into one iron ore and one gold company that could see the asset base re-rate, and in November it raised £20.3 million, or US$32 million, to fund the two operations. It now has USS$39 million in cash and around US$28 million has already been earmarked to fund work programmes across both businesses.
African Aura boss da Silva explained: “The rationale for the proposed split of the company into separately listed iron ore and gold companies, with shareholders in African Aura receiving one share in each company for each share they hold in African Aura, is a means to allow the market to better measure and reflect the intrinsic value of our assets which is becoming increasingly apparent."