Amex Exploration (AMX.V) has finally released its maiden resource estimate on the flagship Perron project, and with 0.6 million ounces of gold in the measured and indicated resource category with an additional 1.05 Million ounces in the inferred resource category (for a combined 1.65 million ounces of gold across all categories), the result is simply disappointing. Not in the least because the company has always been ‘arm waving’ to have a multi-million maiden resource by the end of 2022 but after another 1.5 years of drilling, the updated resource comes in way below expectations. The image below shows the excerpt of a Canaccord Genuity research report, published on June 16, 2022.
So now, more than two years later, and incorporating what we estimate is in excess of 100,000 meters of additional drilling, Amex’s resource comes in at just 60% of what was generally expected two years ago. That’s disappointing, and the sell-off in its share price was well-deserved.
At its current market cap of around C$125M, the market cap of Amex is now more in line with the reduced expectations for this project. And keep in mind that although the maiden resource is definitely smaller than anticipated, the project still appears to be viable thanks to its location, the grade and the predominant underground resource while the recovery rates are very strong. Although the share price has fallen to a level below the price Eldorado Gold (ELD.TO, EGO) has paid for its stake, this could be just temporary because as soon as the PEA comes out, the valuation and fair value of Amex will likely be based on a multiple of the anticipated NPV of the project. Additionally, the company continues to drill and we have zero doubt the resource will grow from here on, providing additional potential mill feed to keep the operation running for longer.
The resource update is a setback. But the outcome of the PEA will set the tone for the future. We hope to be positively surprised, for a change.
Disclosure: The author has a long position in Amex at a much higher price. Please read the disclaimer.
