Some time ago I liked A1 Minerals (AAM.ASX). A succession of failures resulted in the loss of my confidence in the stock. Weeks after that the Managing Director of the company resigned. To this day, the company is evasive in its reporting of the current state of affairs. More excuses...but ultimately in the quarterly report it does highlight the problem. From the Dec quarterly it is apparent that, despite good mine operating performance the operation is not producing the expected output of gold, i.e. The problem is contained gold since recoveries are normal. The problem then, as with many mining operations, is the original grade estimate.
I am not so familiar with the A1 ore geology, however I would be willing to bet that the style of mineralisation for all deposits in the ore reserve are similar. This casts a shadow over the total ore reserve. This lack of confidence is conveyed to me by the fact that:
1. The company is playing up the potential of its broader tenure
2. The company is playing up the discoveries by other mining companies in the area.
For this reason, I believe that A1 Minerals is a dog. There is always some temptation to jump on a stock like A1 Minerals which has a functional plant, but I think you cannot place any value on its resource. Current operations are likely 'high grading' the better quality resources, and despite that their operating costs are over $1000/oz. They are thus not making much money, and thus I expect the mine to close this year. Those discoveries nearby don't seem to offer any potential for toll treating since they are low grade. Its possible they could treat the higher grade ore through this plant....which grades 1.9g/t, but I'm not aware of the distances involved. Is the company worth $14.7 million? (i.e. 200mil shares at 7.3c). Probably not when they will need to embark on another capital raising, since they have just $850,000 in cash. They will need to undertake another round of exploration. i.e. Another $15 million to get to the position they were before.....if they can find anything, and then they are stuck with a treatment plant in the wrong locaiton. There is potential for a merger or takeover if there are other resources in the area. I don't know what non-AAM resources are available near the plant.
It seems to be the way with mining companies - one is forced to read between the lines. It can make you paranoid sometimes. That is the nature of disclosure with Australian resource stocks. That is the quality of government-sponsored regulation around the world. Utterly no respect for facts or the interests of shareholders. Who wants to kill a good story? One can bet there were plenty of geologists in WA who knew the nature of the ore in this region. It does not of course preclude someone floating a company and taking it to the market. We have of course seen this all before....Bendigo Gold, Gleneagle Mining, Perserverence Mining, etc etc. Its always been the way with gold mining. Whispers were probably made at conferences and pubs, but don't expect a regulatory bureaucrat to be in the right place. Nope....they are waiting for some 20,000 odd shareholders to lose all their money before they will act. Yep, good luck with your government.
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