AMUR MINERALS ORD NPV (LSE:AMC)

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Amur Minerals to benefit from new Russian draft law

The Russian government has approved a draft law exempting greenfield projects from its profit tax for a period of five years, and reducing it to 10% for the following five years, benefiting companies like Amur Minerals (AMC).

The company owns the 950 square kilometre Kun-Manie nickel-copper sulphide project in Russia. Amur Minerals commenced seasonal field work on the licence in 2004 and has already established total measured, indicated and inferred resources of over 250,000 tonnes of contained nickel and 72,500 tonnes of copper.

A pre-feasibility study completed in 2007 projected that the company could incur approximately $114 million (£74.5 million) in profits tax over the 10-year life of the operation. This was based on the 24% profit tax rate defined in 2007.

The newly drafted legislation could result in a reduction in the projected tax payments in the amount of $95 million to $100 million over the course of the 10-year tax holiday.

The improved net present value (NPV) of the project due to the proposed tax holiday is an increase from the originally estimated $81 million to $143 million using a discount rate of 10%. The internal rate of return could also increase from 15.8% to 20.3%.

The company is now conducting a re-evaluation of cost increases and technological improvements that will impact the 2007 pre-feasibility pro forma cash flow model. It will be released when completed.

Analyst view

"We expect that with five years of cost inflation, the benefits will be lessened to the $62 million increase to the 2007 NPV, but there is no doubt that once in production this will be a significant benefit to the company," commented analysts at FoxDavies.