- Ampella shares hit by concerns of unrest in Burkina Faso - Concerns overplayed in view of DJ Carmichael - Buy rating reiterated following recent share price weakness

By Chris Shaw

Ampella Mining ((AMX)) is developing the Konkera gold project in Burkina Faso, a project stockbroker DJ Carmichael currently estimates will be able to produce slightly more than 200,000 ounces annually at cash costs of around US$500 per ounce.

Exploration offers significant upside potential to the project, DJ Carmichael expecting the resource base could increase by as much as two million ounces over the next 12-18 months as further drilling is conducted.

Recent drilling results support such a positive view, as results indicate an extension to the Konkera Main and Konkera North zones. The Perth-based stockbroker suggests the results have confirmed the continuity of mineralisation adjacent to the current resource.

Along with current drilling, DJ Carmichael notes there are additional prospects among the tenements held by Ampella in and around the Konkera project. At present, 212 drill holes are planned for five prospect sites.

Given the upside potential of the project, DJ Carmichael had a Buy rating on Ampella. Recent share price weakness sees the broker reiterate this rating as the value on offer has improved because a previous exploration premium priced into the stock has now been removed.

Among the brokers in the FNArena database, BA Merrill Lynch provides coverage and also has a Buy rating on the stock.

What has driven the recent weakness in Ampella's share price in DJ Carmichael's view are concerns about the stability of the operating environment in Burkina Faso. Civil unrest has stemmed from increases in the cost of living, which has led to some opposition to the ruling president.

According to DJ Carmichael the unrest is neither religiously or ethnically motivated as the population is essentially from one ethnic group and Burkina Faso has one main religion. The country is poor however, so increases in costs are pressuring people generally.

DJ Carmichael suggests the disruption of supply routes coming through Cote d'Ivoire are a major contributor to the cost increases, these disruptions stemming from civil disturbances in Burkina Faso's neighbour. Assuming the eventual re-opening of the supply routes, there is scope for the current cost pressures to ease.

Local sources of DJ Carmichael suggest the issues in Burkina Faso have not impacted on mining activity in the country, with no apparent changes to operations. Despite this, the share prices of Ampella and other companies with operations in Burkina Faso have fallen, so improving value in the sector.

To reflect lower average enterprise value per resource ounce metrics in the sector, DJ Carmichael's price target has been reduced to $3.08 from $3.64. Revised estimates suggest Ampella at current levels is trading in-line with the average EV/Resource ounce multiple for Australian-listed West African gold plays.

The $3.08 price target of DJ Carmichael compares to a $3.60 price target of BA-ML. Shares in Ampella today are higher and as at 11.10am the stock was up 5c at $1.975. Over the past year the stock has traded in a range of $1.28 to $3.42.

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