AMC has an “Answer Team” team comprised of staff and public relations affiliates (Yellow Jersey PR) to respond to questions submitted to our web address of firstname.lastname@example.org. Our team’s intent is to provide shareholders with accurate and factual information. Price sensitive questions cannot be addressed in this forum in accordance with LSE regulatory constraints. Such information will be provided in an RNS. We look forward to your questions.
“In January of this year, Robin Young presented at a Proactive Investor evening where he stressed that reserves are far more important than having a large resource, and that the use of the term ‘World Class’ should be carefully used. Could you please elaborate on this?”
Answer Team: When we asked Robin Young to provide input on this, he directed the Answer Team to a presentation by Richard Schodde of MinEx Consulting in August 2010. This presentation provides insight into the language used to describe a deposit as World Class or Tier One. For convenience, the link to the presentation is provided below and we encourage our readers to fully examine this highly informative presentation.
Key to the presentation is that it differentiates a Giant Deposit from that of a World Class Mine. Mr. Schodde suggests that the term “World Class” should be attributed to a deposit that can be turned into a large mine while being large, having a long mine life, be low cost and highly profitable, as well as being immune to the business cycle. He also states that Giant Deposits are not the same as World Class Mines as it is mines that generate money, not deposits. As a company, we believe that we have the potential to become a World Class Mine based on our engineering results obtained to date.
Our exploration programme of the Kun-Manie project has always been focused on the identification of resources that have a high probability of being mined by open pit or underground mining methods. We consider the definition of resources that will ultimately be convertible to reserves to be critical to our success in developing Kun-Manie and we believe this approach is more in line with Mr. Schodde’s definition. For example, the RungePincockMinarco trade off study at Maly Kurumkon / Flangovy “mined” 87.5% (at an average grade of 0.75% nickel) of the resource tonnage. This is a very high proportion of the MKF orebody, (based on the resource model that excluded the 2016 resource expansion related to the highly successful drill programme), when compared to most explorers and miners which report between 45% and 55% of Measured and Indicated resources as reserve. We attribute our high ‘resource to reserve’ conversion rate to executive management’s knowledge and experience in what is required to develop a mine and not a resource.
We are not focused on being labelled World Class or Tier One usage. It is our opinion that these terms have been over used by too many companies across all sectors of the mining industry and that real numbers (reserves) leading to a producing mine are far more important. Ultimately, we believe we will develop a viable mine that can ultimately be considered a World Class Mine.
“Can you inform me of the safety considerations associated with the equipment and supplies we haul over the ice road?”
Answer Team: When the ice road begins to form in December as winter fully settles in, we monitor the formation of the ice which generally reaches the necessary thickness to support the weight of our convoys in early February. The ice thickness, suitable for transportation, lasts until about late March when temperatures start to exceed ‘freezing’ during the day when the spring thaw begins. Whilst we continually monitor the thickness of the ice road, it can be used until about mid-April.
A typical vehicle load for us is about 10 tonnes. This requires an ice thickness ranging from 15 to 20 inches. For heavy equipment such as dozers and excavators, ice thickness must have a span of between 20 and 30 inches. As we move the equipment in convoys, the team maintains a spacing of 10’s of meters between vehicles, which reduces the load on the ice. Anytime the convoy pauses for a break, the vehicles are parked on a well-spaced basis between each vehicle, in areas of greater ice thickness or on the adjacent riverbanks. This ensures that the quality of the ice is maintained and our personnel are safe.
We average between 7.5 km/hr and 15.0 km/hr whilst moving. This allows us to complete a round trip totaling about 720 kilometres over the course of a four to five day period.
“This week, a note from Edison was issued which is paid-for research. It states that there will be a placing for $140 million and dilution to the company will be nearly 300%, taking the total shares to nearly two billion outstanding shares. Is this true and why has this not been announced?”
Answer Team: Edison Investment Research (Edison) is an FCA registered company, which must adhere to the regulatory requirements, just as Amur does. As this is paid for research, which is the norm for nearly every junior company to do, Edison has access to public information from which it draws data in order to report its evaluation of a company.
Though we cannot speak directly for Edison, its research attempts to identify the positive and negative aspects of a company without bias. Taking this approach, the Edison materials are intended to provide another source of information to potential investors and existing shareholders.
The Edison research note states that there will be a placing of $140 million resulting in substantial dilution, which should have been announced. You are correct, and if such an agreement existed, Amur would have released such key and specific information in an RNS. The scenario provided by Edison is intended to show a potential funding alternative, which it has selected and reported upon. To avoid any further confusion, Edison responded to a question from a reader of the document stating its position. The response from Edison is provided below:
“In fact, the Edison model assumes US$140m will be raised via the issue of 1.3bn shares at 11 US cents per share. Hence, the number of shares in issue is currently around 0.6bn and by the end of 2017 (on this basis), I would assume that there will be 1.9bn in issue.”
“However, Edison has no idea when these shares might be issued. As a default position, Edison therefore assumes that they will be issued and the funds raised around mid-year. That being the case, the weighted average number of shares for the year (which you see in the Income Statement) is a weighted average of 0.6bn and 1.9bn, which is 1.3bn. For subsequent years, the weighted average number is the same 1.9bn as the number of shares in issue.”
“What is the next step in evaluation of the access road to Kun-Manie?”
Answer Team: Indeed, the road is an important component in the successful development of the Kun-Manie project. It will allow us to move the concentrate from the mine to the Ulak rail station, located on the Baikal Amur rail line. Once the concentrate is delivered to the Ulak station, it can be rail transported to a smelting company for further processing. Alternatively, we are evaluating treatment of the concentrate in a company owned furnace generating a Low Grade Matte, which will then require transport to a refiner.
In addition, the road will allow us to supply the mine site with fuel, additional consumables for mining and processing of the ore to generate the concentrate. Personnel changeovers will also be required. These are all necessary considerations in the design of the road to allow for support of the planned operation.
The road design process consists of a series of evaluations to be completed in a phased approach. Currently, detailed topographic maps and hydrological parameters are being compiled for use in the designation of a preliminary route design and preliminary and more accurate costing of the road. It is anticipated that the topographic work will be available within the next month and work can begin on this stage of the road design. Once the preliminary route is defined, a field inspection of the route will be completed, which will allow for verification of the acceptability of the route, and any adjustments to the route will be included subsequent to the field inspection. This will include bridge designs where necessary and any other water diversions or crossings.
Subsequent phases of work will include geological studies (soil analyses, source of construction materials, final hydrological assessments, final detailed road design, final detailed bridge design and land use designation) allowing for the construction of a “Technical Road”, which will be owned by the company. By constructing a “Technical Road”, the certification and approval process to be completed by the by various Russian agencies will be reduced.
“The old Preliminary Economic Analysis (PEA) states that production will be derived equally from underground and open pit mining with about three million tonnes being mined per year by each method. With the new Runge (RungePincockMinarco – RPM) design at Maly Kurumkon / Flangovy (MKF) indicating that the majority of the production will be from underground, is it possible to mine six million tonnes per year from underground and have periods where no open pit production is required?”
Answer Team: Within the PEA, production is based on open pit mining commencing first, providing the majority of the mined ore during the first half of the mine life. As the mine life advances, the underground production increases, replacing open pit production and ultimately reaching the point where all ores are mined by underground methods.
The newly defined RPM mining potential at MKF indicates substantially higher grades of ore, and greater tonnages can be mined using underground methods. For example, the average underground mined nickel grade defined in the RPM trade-off study is 0.79% nickel. The PEA estimated underground mined grade for the same deposit to be 0.53% nickel. A direct comparison between the PEA (resource model dated H1 2015) and RPM numbers (resource model dated H1 2016) should not be made. The models differed significantly. In addition, there will be substantially greater difference as neither model included the highly successful drill results of the 2016 exploration programme, which expanded the H1 2016 resource model by adding 900 metres of additional length to the 2,100 metre long deposit used in the H1 2016 resource update.
As for being able to mine 6.0 million tonnes per year by underground only, this is possible and will be established during the compilation of the Mining Ore Reserve (MOR) estimates. During determination of the MOR, a production schedule will be generated that optimises mining, and the extent of the blending of production (open pit vs underground) will be based on the operating profit per tonne. As we have four deposits available to determination of reserves and the production schedule, production may be derived from two or more deposits at the same time. The cost to transport the ore to the mill will vary by deposit. To fully answer this question, it is necessary to complete the MOR and its production schedule. Underground production could well attain 6.0 million ore tonnes planned per year. It is a matter of having sufficient production faces available to attain this level of production and the MKF deposit is believed to have this potential due to its newly increased size, grade and physical configuration.
“We have metallurgical recoveries at the mine to make our concentrate. Does the “Mineral Resource” take into account the smelter losses and if not how much will be lost there?”
Answer Team: It is important to clarify that the current plan consists of the generation of the sulphide concentrate at the mine as well as the generation of a Low Grade Matte (LGM) at a proposed concentrate treatment facility which is to be located at the Ulak rail station area. We have reported the metallurgical recoveries expected to be achieved at the mine during generation of the concentrate, which is based on test work completed by Sibsvetmetniproyect, SGS Minerals and Gipronickel Institute within several RNS releases. There will be additional metallurgical losses during the treatment of the LGM. At the concentrate treatment facility in Ulak, the anticipated losses for nickel and copper are based on typical smelting and refining recoveries reported by companies that operate their own facilities. It is noted that there are losses that range between 2.5% and 5.0% with losses for cobalt, platinum and palladium being in the order of 15%. These Norilsk reported losses must be verified by additional metallurgical test work have been included within our analyses related to the project and are typical recoveries to be expected during the treatment of the concentrate in the generation of a LGM.
“What cutoff grade was used to define the reserves stated in the 10 February 2017 RNS?”
Answer Team: The 10 February 2017 RNS was a statement of “Mineral Resources” and not reserves. As noted in the RNS (within the Glossary at the end of the release), the “Mineral Resource” was specifically defined and is an integral part of the RNS and must be read in conjunction with the entirety of the release. For clarification and in accordance with JORC 2012 standards, a “Mineral Resource” is defined as a concentration or occurrence of material of intrinsic economic interest in or on the Earth’s crust in such form, quality and quantity that there are reasonable prospects for eventual economic extraction. The location, quantity, grade, geological characteristics and continuity of a Mineral Resource are known, estimated or interpreted from specific geological evidence and knowledge. Mineral Resources are sub-divided, in order of increasing geological confidence, into Inferred, Indicated and Measured categories. These categories are also defined within this section and should be examined carefully to allow for a full understanding of how the three categories differ.
It is noted that the “Mineral Resource” is based on a nickel cutoff grade of 0.4%.
“How are we positioned with regard to funds to pay for exploration during this next summer session of drilling? Are we better funded than most companies?”
Answer Team: Firstly, it is important to note that it is our policy to only report our cash position based on financially audited or reviewed results. Our last cash positon reported at the end of H1 2016 was US$11.5 million, up from US$9.6 million at the start of 2016.
Our information on other companies funding position is gleaned from public information. The most relevant and current data has been sourced for Austex Unique Research based in Australia. They report that there are 687 Australian listed resource companies. Of these, about 588 are planning to conduct exploration during the upcoming year.
Total exploration expenditures are projected to be AU$348 (based on H1 2017 numbers) with one company representing nearly 5% of the total. Nearly 102 companies report no exploration expenditures are planned.
On a cash basis, Austex reports 225 companies have more than AU$3 million. Last year, 178 companies were reported to be in this position. This would indicate a potential improvement in the mineral resource sector with regard to cash on hand (at least in Australia). On the low side, 180 companies have less than AU$0.5 million.
“In Robin Young’s presentation at the Proactive Investor conference in the middle of January, there was a slide showing how much more exploration potential remains at our licence. What evidence is there that indicates the Ikenskoe and Kubuk may be one deposit?”
Answer Team: The exploration results in the area between Ikenskoe / Sobolovelsky and Kubuk are very similar to the information that we had between the Maly Kurumkon (MK) and Gorny deposits. It was the information between the Maly Kurumkon and Gorny deposits that led the Company to drilling eastward from MK where we discovered the Flangovy extension (immediately to the east of Maly Kurumkon) which resulted in the doubling of its size. About 500 meters of undrilled area remains to be tested to determine if Gorny is a continuation of the MK deposit.
Between Ikenskoe / Sobolevsky and Kubuk, the supportive information includes geological mapping, surface chip samples, soil samples and surface based geophysical surveys. With such similar results, this represents a resource expansion target that must be drilled. This of course does not guarantee that the mineralisation is continuous forming a single six kilometre long deposit but step out drilling is obviously required.
“There is or was (maybe it has expired) an MOU signed on using zeppelins to haul materials to and from the mine. It has not been mentioned for a long time. What about the Airlander 50, can’t this be used to get rid of the road?”
Answer Team: We continue to monitor the development of the zeppelins, which could provide an interesting alternative to the construction of the road and reduce the project footprint. The reported capacity of the Airlander 50 is about 50 tonnes. At this capacity, it would require approximately 20 trips a day to move the concentrate from the mine (not including additional trips for personnel changeovers). Assuming that it will take six hours per round trip allowing for loading, travel time and unloading, we would need to purchase a minimum of four, totaling nearly US$400 million (reportedly US$100 million each). At present, the road cost is projected to be substantially less.
In addition, loads required during the anticipated construction phase of the operation consist of single pieces exceeding the current maximum capacity of 50 tonnes. These components are typically related to the off road mining equipment (especially to implement the open pit mining portion of the planned operation).
“How do the Gipronickel Institute metallurgical recoveries impact the mining study recently released?”
Answer Team: The metal delivered to the processing plant in each tonne of mined ore will not change. It is the total amount of economic metals contained within the concentrate that will be increased. With increased recovery, this means that more of the metal will be recovered from each mined tonne while the operating cost per tonne is not anticipated to significantly change. So this additional recovered metal will add to the revenue derived per tonne of ore, which will increase the operating profit.
It is also noted that the grade of the metallurgical sample was 0.70% nickel and the average grade of the “mined” ore in the mining trade off study was 0.75% nickel. Grade recovery curves indicate that the recovery increases with increasing grade. Mining at these projected grades within Maly Kurumkon / Flangovy could be improved from the Gipronickel Institute recovery numbers, derived for the large scale production sample that has been processed.
“Mr. Ljupco Naumovski was appointed as a non-executive director to the board and not as a director. It was not stated how long he was appointed for and what his time commitment is to our Company. Please clarify this.”
Answer Team: There are two types of director positions. The first is that of an Executive Director, who is employed by the Company. This is Mr. Young’s role as he is the Chief Executive Officer. All other directors are titled as Non-Executive Directors.
In accordance with the Company’s Memorandum and Articles of Association, at every Annual General Meeting (AGM), one third of the existing board members must resign and be re-nominated by the shareholders. This requires a 50% approval of the voting shareholders. As the Company has a total of 5 board members currently, this means that two board members must resign and be approved at each AGM. It is also mandated that any newly appointed members must resign for re-nomination at the first AGM subsequent to their appointment. Hence, the two board members that will available for re-nomination at the next AGM will be Mr Naumovski and Mr Gazzard.
As for work commitments, it is expected that each Non-Executive Director commit to a minimum of nine days in support of the Company per quarter.
“The newly reported information on the mining reserve at Maly Kurumkon / Flangovy says the average grade of the nickel will be 0.75% and 0.19% for copper. The PEA or your Blueprint reports average life of mine grades at 0.56% nickel and 0.15% copper. How do the new results change the PEA?”
Answer Team: The PEA (Preliminary Economic Assessment) “mined” about 500,000 tonnes of nickel and 135,000 tonnes of copper during a proposed 15 year period. About half of the PEA “mined” material came from the Maly Kurumkon / Flanovy deposit. This means about 250,000 tonnes of nickel and 67,500 tonnes of copper in the PEA would be replaced by the newly reported 334,000 tonnes of nickel and 85,000 tonnes of copper. So the potential PEA mined tonnes of nickel increases from 500,000 to 584,000 tonnes (about 17% total nickel) and copper also increased from 135,000 to about 150,000 tonnes (about 11% total copper). The new tonnes of metal should be recovered at little or no additional operating cost.
This increased mining potential does not reflect the 2016 drill results, which expanded Maly Kurumkon / Flangovy by 900 meters to a total length of 3,000 metres. From this newly defined mineral, we anticipate additional ore to be identified for mining at Maly Kurumkon / Flangovy further altering the PEA ore projections. Also, the PEA included Inferred resources at Maly Kurumkon / Flangovy and this deposit has now been drilled at the spacing where the majority of the deposit, if not all, will likely be considered to be indicated. Indicated resources can be used to define Mining Ore Reserves (MOR) according to JORC (Dec 2012) standards.
Lastly, the production in the PEA was indicated to be a near equal blend from open pit and underground production. The new mining trade-off study indicates that the production tonnages from underground mining (especially at Maly Kurumkon / Flangovy) will be substantially larger than projected in the PEA, with nearly 75% of the production at this deposit alone being from underground.
“In the past you have talked about streaming opportunities for cobalt and the PMGs, but there has been no mention of this in recent RNS’s. Is streaming still on option?”
Answer Team: Streaming of cobalt and the PMGs is an option, discussions with organisations that offer this form of financing will be more productive when we are closer to the completion of the DFS, so it is an option that will be considered as we move closer to completion of the DFS.
“Can you clarify further the DFS and the TEO in terms of what is the similarities and differences between them, why both are required and how they are connected to funding?”
Answer Team: The Permanent Conditions TEO (TEO translates from Russian to ‘Technical Economic Explanation’) is a document mandated within our Mining Production Licence and a requirement on any company looking to commence a mining operation in Russia. It is part of the technical process to take Amur from exploration into production and is necessary for the operational approvals process, just like in any mining jurisdiction around the world. The main sections of the TEO describe in great detail project engineering requirements, reserves, environmental considerations for the project and related infrastructure needs such as power and access road support. This also includes capital and operating costs for the operation.
The DFS is a document with a broader scope than the TEO as it includes much of the same information as the TEO plus inclusion of additional environmental work done to EQUATOR principles (a framework that financial institutions such as the EBRD, IFC and most large western financial institutions use for determining, assessing and managing environmental and social impact). A DFS is necessary to access western funding sources, such as construction financing of infrastructure, mobile equipment fleets, processing plants etc. Without a DFS, western and multinational funding sources generally cannot be accessed.
If in the hypothetical event all funding was to be derived from Russian and / or other non-western sources such as China, then the DFS as a completed document would likely not be required. However, some elements of the DFS not present in the TEO may still need to be produced for a select portion of Russian funding sources as they too will require the detailed information on which to make commercial decisions.
Funding is not always predicated on the completion of the DFS as individual components of the DFS can unlock commitments to funding ahead of the completion of the DFS. For example, completion of the detailed road design or completion of the smelter design will provide the necessary information for funding sources that specialise in this form of infrastructure/production process to undertake their funding decisions.
In summary, the DFS in combination with the mandatory TEO (which has always been included as a part of the DFS) represents a substantial undertaking to which Amur is committed allowing for our transition from exploration into production. The combination simultaneously provides us with multiple funding options. We note that it is too simplistic to state that they are a single path activity from start to finish. As the work progresses, the Company will continue to undertake discussions with project funding sources whenever appropriate milestones are attained.
“I would like to attend the AGM on Friday 9th September. What do I have to do, do I have to register in advance?”
Answer Team: The AGM attendance requires that you are a verified shareholder. As normal with AGM’s, non shareholders will not be admitted. If you hold your shares in certificated form, we have a list which will be provided by our registrar on the day preceding the AGM.
Depository Interest holders wishing to attend the meeting should contact the Depository at Capita IRG Trustees Limited, The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU, United Kingdom or by email: email@example.com to request a Letter of Representation by no later than 11.00a.m. (BST) on 06 September 2016.
“As the Crede financing arrangement looks likely to cover 2 or more share allotment authorities, could you please clarify how the issuance of shares and warrants relate to previous, current and future share allotment authorities?”
Answer Team: The Company had the authority to issue up to 100 million shares until the 17 December 2015. The first tranche of the Crede financing agreement occurred on 14 December 2015 and therefore falls within this authority. Therefore all shares and warrants issued, and for the avoidance of doubt, all shares that the warrants are converted to fall within this authority.
The Company obtained the authority to issue up to 200 million shares at the AGM on 17 December 2015 (the “2015 Authority”) and the 2015 Authority will be valid up until the date of the next AGM. The subsequent tranches under the Crede financing agreement that were announced on 17 March 2016 and 20 June 2016 relate to the 2015 authority. Therefore the shares and warrants issued, and for the avoidance of doubt, all shares that the warrants are converted to from these tranches will be satisfied from this authority.
The Directors of Amur are not empowered to issue more shares than the authority granted at the Company’s AGM, as per Amur’s memorandum and articles of association.
The Company is completing an update of its website and looks forward to including the April 2016 backlog of non price sensitive questions.
“You seem to never have the AGM in London, your shareholders are here?”
Answer Team: We plan to hold this year’s Annual General Meeting (AGM) in London. We shall announce when and where it will be held once the date, location and time have been established. This will be provided in an RNS and a notice will be mailed to the address of your nominee account managers to forward to you. Relevant materials will also be posted to our website as is required by the LSE.