2021 has been a rough year for the Asiamet Resources (LSE:ARS) share price. Since the start of the year, this stock has fallen by nearly 45%. Consequently, this underwhelming performance has pushed its 12-month return firmly into the red at around -30%.
But since last week, the group seems to have turned a corner because the stock is finally on the rise. In fact, it’s up by around 13%. So, what’s behind this new-found growth? And should I be considering this business for my portfolio?
The rising ARS share price
Asiamet Resources is an early-stage mining company specialising in developing copper and gold deposits. The firm currently has two projects located in Indonesia, both of which are estimated to contain a big amount of resources primed for extraction.
On Tuesday, management released an update on the drilling progress being made at its BKZ Polymetallic project. The group has successfully drilled nine holes in an attempt to detect the presence and concentration of precious metals. The collected data has been processed and analysed for five of these drilling sites, with the remaining four awaiting testing. And the early results, in my opinion, were pretty impressive.
Asiamet successfully confirmed the presence of zinc, lead, copper, gold and silver mineralisation across all five drilling sites. The metals were found starting from a relatively shallow depth of 65 metres and varied between medium and high-grade quality.
This is obviously fantastic news for the business, especially since BKZ is 100% owned by Asiamet – something that’s quite rare for young mining companies. So, seeing the ARS share price jump on the news is hardly surprising.
The risks that lie ahead
As promising as positive drilling results can be, I think it’s important not to get too excited. The BKZ project still has a long road ahead before any metal extraction can take place. In the meantime, Asiamet has no active mines in its portfolio. And based on the current timeline published in August, the company won’t enter its commercial production phase until 2023. In other words, for the next two years, this will remain a pre-revenue business.
Needless to say, this adds a considerable amount of risk to the ARS share price. The firm is entirely dependent on external financing to keep the lights on. Management is currently in active discussions with potential partners and financiers to secure funding by the end of 2021. However, nothing has yet been confirmed.
Time to buy?
Getting in early on a stock can lead to exceptional returns, especially when it comes to young mining companies. However, without a guarantee for funding over the next two years, Asiamet may be unable to pursue this opportunity. But even if it manages to secure a loan or equity investment, it’s unclear whether the business will need to sacrifice part of its ownership stake in the project.
These are quite some substantial unknowns in my mind. So as exciting as the growth opportunity seems for the share price, I’ll be keeping this business on my watchlist until more information is available.
Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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