House broker and resource specialist SP Angel is upbeat on gold miner Anglo Asian Mining Plc (LON:AAZ) and has upgraded its rating on the stock to 'buy' from 'hold'.
It reckons better production, weaker currency and operational savings at its operations in Azerbaijan will drive Total cash costs (TCC) lower and impove free cash flow, which will in turn improve the balance sheet.
The broker has calculated a net asset value (NAV) for the company of US$43.3mln or 24p/share, which implies a 29% upside to the current share price (18.6p).
Analyst John Meyer reckons total gold and copper output will come in at 74,000 ounces for 2016 - against management guidance of 73 to 77,000 ounces
The broker assumes that 2,200 tonnes of copper will be produced with production skewed towards the second half of 2016 due to stronger throughput from the newly installed SAG mill.
The miner is forecast to report a significant drop in total cash costs driven by a 32% depreciation in the local Azeri manat through 2016 compared to 2015 and a 50% drop against 2014, alongside stronger production and operational optimisation.
Total cash costs are expected to average $688 per ounce and $598 per ounce in 2016 and 2017, respectively, compared to $821 per ounce in 2015.
That will translate into $19.8mln and $18.4mln in levered FCF (free cash flow), which comfortably covers its loan repayment commitments to ATB of $10m per year during the period.