Asiamet Resources Ltd (LON: ARS) shares seemed to not take all that much notice of a recent report from the company. Despite what the company called “stunning” drill results the share price has more or less bobbled about the average of the past few months. Why is this? Shouldn’t the finding of more minerals to mine for valuable metals push a share price more than this?
In the answer to this, we find the base problems that all junior miners face. Which is that revenue is, by definition, going to be some long way off into the future. Therefore the value of the mineralisation itself being explored isn’t the major determinant of the share price. This is the issue that Asiamet has run into – having minerals is all very nice but that’s not the end of it at all.
It’s necessary to go through a series of hoops in mining. First, the finding of a mineralisation that’s interesting to try to explore. Then exploring it – which is the stage Asiamet is at. Then comes having to prove, to a legal standard, the information. That’s expensive. Among which proof it’s necessary to show that the mineralisation can be extracted and processed, using current tech, at current prices, and a profit made. That’s what makes something a mineral reserve and that is that stage that Asiamet is working to reach.
After that, there’s the issue of coming up with the capital to actually do the work. Asiamet is currently valued at some £50 million and it will take hundreds of millions to billions to actually build mines. So, there will have to be a hunt for capital at some point. Or, of course, the sale of the explored but unexploited mineralisations (as Amur Minerals is considering).
Then there’s the projections of what metals prices will be that decade down the line when production actually starts. Sadly, this isn’t all either, Asiamet then faces political risk. Indonesia has made some fairly odd decisions about mining rights over the years. For example, an insistence that nickel ores must be processed in-country – an economic absurdity but something they have tried to insist upon.
This is why share prices of junior miners don’t react as much as we might hope to announcements about mineralisations. As with Asiamet here, the quantity of metal in the ground is by no means the end of the process. It’s a necessary, but not sufficient, a precondition for future success that is.
Asiamet has found more and better mineralisation at its prospective mine. Excellent, now, how about all those other issues that need to follow? Which is why there is some gearing to drill results but not as much as we might like or hope.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage . 68 % of retail investor accounts lose money when trading CFDs with this provider . You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money .
Tim Worstall is a freelance writer specialising in economics and the financial markets.