Shares in African Aura Mining (LON:AAAM, TSX:AUR) were given a boost this morning after it was revealed that its Nkout project in southern Cameroon is potentially a world class iron ore project.
Independent consultants SRK have assigned a 43-101 maiden resource estimate on the project of 1.04 billion tonnes of iron ore at a grade of 34 per cent in the inferred category.
However the management believes there may be the headroom to increase the resource base to 4 billion tonnes by targeting the wider Nkout area.
The current estimate covers just a three kilometre section of a 20 kilometre-long anomaly.
Chief executive Luis da Silva said: "This is an excellent maiden resource achieved for the first 3 kilometres of the Nkout deposit and with the recently announced excellent metallurgical results, testifies to the world class potential of the project.
“Aggressive expansion of the resource base by drilling along strike both east and west of Nkout Centre is underway.
“The project will undoubtedly form a major part in the development of the regional iron ore infrastructure which has yet to be built.”
Early metallurgical test-work, meanwhile, has revealed the ore could be the basis for a high grade concentrate which has sinter fines potential.
Other work is investigating the potential for direct ore shipment with samples being analysed from a composite sample of saprolite material grading around 44 per cent Fe. The 2011 drilling campaign is now underway and is expected to run to 25,000 metres.
“This is an excellent result for African Aura, and we see the potential for Nkout to evolve into the company’s flagship asset,” said City research firm Fairfax in note to clients.
At 10.30 am the shares were up 8.1 pence at 175.35 pence in a busy early session. Charles Kernot, the respected Evolution Securities mining analyst, reckons the stock has much further to go as he raised his price target to 400 pence a share from 210p.
“African Aura has announced a maiden inferred resource at its Nkout banded iron formation deposit in Cameroon of 1.07 billion tonnes at an average grade of 34.2 per cent contained iron,” he said.
“This is more than we anticipated and we expect it to have a strong positive response to today’s share price.”
Fairfax, meanwhile, points out that Nkout is accessible being only 30 kilometres from a proposed rail line aimed to link the 2.4 billion tonne Mbalam project that is 160 kilometres to the east, with a proposed deep water port 310 kilometres to the west, adding strategic value to this asset if the rail line is developed.
The brokerage also identifies a potential valuation anomaly. It uses as its marker Sundance, with a market cap of A$1.3billion (£812 million), which has a potentially smaller asset than Nkout. AAAM, meanwhile, is worth a little north of £140 million.
“We recommend African Aura as a good switch from African Minerals and Bellzone for investors seeking earlier stage projects with greater upside potential (albeit with more risk),” Fairfax concludes.
African Aura also owns the Putu iron ore project in Liberia and the New Liberty Gold project with associated exploration targets in Liberia.
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.
“With the new resource at Nkout, the preliminary economic assessment for New Liberty and an updated resource statement on Putu pending, the value opportunity in African Aura is increasingly visible and the rationale for the proposed split into separate gold and iron companies even more compelling,” chief executive da Silva said this morning.