Australia | Sep 28 2010
By Chris Shaw
Formed from the merger of Uranium King and Monaro Mining, Australian-American Mining Corporation ((AIW) is a gold and uranium exploration company hoping to emerge as a uranium producer as early as the end of 2012.
Aus-American has a number of brownfields projects located in Nevada, New Mexico and Texas in the US, the most advanced being the Apex/Lowboy uranium projects in Central Nevada. As well, permits have been granted for drilling the Rio Puerco project in New Mexico.
The potential upside from these projects is enough for DJ Carmichael to place a Speculative Buy rating on Aus-American. This is supported by its expectation the company is likely to deliver significant news flow over the next six to nine months as work on the projects continues. This work includes drilling to increase the resource base at each project and the completion of pre-feasibility and feasibility studies.
The attraction for DJ Carmichael is Aus-American could be re-rated once the current drilling programs are completed, as the stock is currently trading below its peer group average. As well, DJC notes the location and size of the projects implies a possible enterprise value to resource pound metric of between US$1.50-$2.00 per pound. This is especially the case if Aus-American can negotiate an access agreement to a uranium plant.
Drilling in coming months will be funded via a recent convertible note facility of a maximum of $3,650,000. At the Apex/Lowboy project (90%-owned) the current resource is 950,000 pounds and targets are between 3-5 million pounds at Apex and 10-15 million pounds at Lowboy.
At Rio Puerco (100%-owned) the company has an inferred resource of around 11.4 million pounds, while the exploration target is between two to five times the current resource. There is also regional potential, so the project may be expanded in the future.
As well, Aus-American has 100% of the Lone Star project, where there is a historical resource of three million pounds and a target of 4-6 million pounds. The advantage of the Lone Star project is good access to existing plants with excess capacity.
Back in 2007 a pre-feasibility study confirmed the Apex deposit could support an open pit mine producing 1.5 million pounds per year with a 4-year mine life, while a new study should be completed by the end of 2011. Having previously been considered a secondary project, the Lowboy deposit may yet prove to be the better of the two in the stockbroker's view.
Work is less advanced at Rio Puerco but additional drilling is planned, while Lone Star is Aus-American's least-advanced project at present. This means news flow in coming months should be at least initially centred on the Apex/Lowboy operations.
Management is looking to have a total resource of 26-30 million pounds of uranium sometime next year, something DJC notes would assist in entering production agreements with owners of uranium mills.
Along with its Speculative Buy rating on Aus-American, DJ Carmichael has placed a price target range for the stock of $0.08-$0.12 per share. This implies a premium to the current share price of between 100-200%.
What supports Carmichael's positive view on Aus-American is a positive view on the uranium market in general and in the US in particular. This reflects an expectation the domestically produced US uranium market will expand beyond 2013 once a current megatrons to megawatts program concludes.
At current levels Aus-American has a market capitalisation of only around $8 million, so there is little coverage of the stock in the Australian market. This is reflected by no brokers in the FNArena database offering an ratings on the stock.
Shares in Aus-American today are unchanged at $0.042, with the stock trading in a range of $0.03 to $0.06 over the past 12 months.
