Australia | Aug 23 2010
By Chris Shaw
Australian American Mining ((AIW)) is the result of a merger in 2008 between junior Australian uranium plays Monaro Mining and Uranium King, the new company offering a global array of prospects in the sector.
Assets in the company previously ranged from exploration licenses in Queensland and the Northern Territory in Australia and others in the Kyrgyz Republic, as well as operations in Bulgaria and Estonia. These have all been offloaded and Australian American is now focussed on projects in Nevada and New Mexico in the US.
Investment Bank Hallgarten & Company has initiated coverage on Australian American with a "Long" rating, noting what separates the group from other juniors in the sector is a focus on old workings. This offers the advantage of shorter lead times and usually, better existing data for projects.
Australian American's assets include the Apex project, which is 270 kilometres east of Reno, Nevada and includes an inferred resource of 1.55 million pounds grading 0.07%. There is an additional 500,000 pounds of identified potential within the design of the pit. Hallgarten notes if grades could come in closer to historical levels of 0.12% the resource could be as much as 50% larger.
Hallgarten expects the project will be an open cut operation with an estimates capital cost of around US$15 million. The production target is 1.4 million pounds of uranium, which implies projected EBIT (earnings before interest and tax) of US$70.5 million. Payback is estimated at 1.2 years, which Hallgarten suggests is a rapid payback period.
As well, Australian American has the Lowboy mine which is six miles south east of the Apex project. The mine has a current proven reserve of 56,018 pounds at an average grade of 0.054%, with additional probable reserves of 192,400 pounds. The location of the project should allow for some joint exploration economies of scale in the future.
Further exploration work is planned for Lowboy, Hallgarten noting there is potential for the project to host 10 million to 20 million pounds of uranium, enough for a heap leach project. Drilling will commence this month.
In New Mexico, Australian American has the Rio Puerco project with an inferred underground resource of 11.45 million pounds at a 0.03% cutoff. There is scope for the exploration target to contain as much as three times the current defined resource, Hallgarten noting the aim is to add more than 10 million pounds to the resource.
In Texas, Australian American has a number of new leases with the company hopeful of reaching an initial resource of four million pounds of mineralisation. Exploration on the Texas assets is to commence in coming months.
The other item on Australian American's agenda is to finalise the disposal of its Australian mineral assets, which Hallgarten notes is to be achieved via selling these to Forge Resources, which then intends to list of the Australian market. Australian American is to receive three million shares in Forge as consideration for the assets.
The attraction of Australian American for Hallgarten is twofold – first, uranium is increasingly becoming a sought after power source and the company has the potential to generate significant revenues in coming years if its projects proceed.
The second attraction is cash flows could start as early as 2013, as production at Apex-Lowboy could begin in the middle of 2012 and Rio Puerco could be up and running sometime in the following year. This is a shorter timetable than most of the company's competitors.
On Hallgarten's numbers Australian American could be generating earnings per share of around US1c in FY13, rising to US21c in FY14. This is based on a forecast uranium price of US$74 per pound, which is above current spot levels but represents Hallgarten's forecast contract price by the time Australian American commences production.
In terms of funding development work, Hallgarten notes Australian American has cash on hand of around US$1 million, with a burn rate at present of around US$100,000 per month. What will help is progress towards a Level II ADR listing in the US, which Hallgarten notes would expose the company to a new range of investors.
Hallgarten's Long rating on the stock equates to a Buy, with a price target for the ADRs of US$0.75, which compares to a current ADR price of US$0.40. The ADRs have a 10:1 ratio and on the Australian market Australian American is trading at $0.04. This compares to a range over the past year of $0.03-$0.06.
Australian American has a market capitalisation of only around US$6.28 million, so it receives little coverage in the Australian market. None of the brokers in the FNArena database cover the stock.
