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Anglo Asian Mining PLC: DEEP DIVE
OVERVIEW

Anglo Asian heads higher as confidence in Gedabek licence grows

A first interim dividend was announced in September, since when there has been more good news
gold and dollars
OVERVIEW: AAZ The Big Picture
Plan is coming together for Anglo Asian

Anglo Asian Mining PLC (LON:AAZ) has more or less tripled in value over the past year as its transformation has become clearer.

A first interim dividend was announced in September since when there has been more good news as production from the company’s clutch of mines in Azerbaijan has continued to rise.

Broker SP Angel believes the share price can go further and expects the firm’s dividend to “nearly double next year”.

Anglo Asian can become “one of the top-yielding precious metals producers on the London market”.

There are several reasons for this price strength, but the central one is that Anglo Asian has been expanding operations and upgrading resources at its three mines in Azerbaijan.

Three gold and gold-copper mines supported by exploration

Its main mine is the Gedabek gold-copper open pit.

Nearby are the high-grade underground Gadir gold-copper mine and the Gosha underground gold mine.

In September, the firm boosted the total gold and copper resource amount at the Gedabek open pit to just short of 1mln ounces of gold, 63,375 tonnes of copper and 8.2mln ounces of silver.

Within that, the measured and indicated portion rings in at 800,000 ounces of gold, 53,676 tonnes of copper and 6.8mln ounces of silver.

Reserves meanwhile were 343,160oz of gold, 36,011 tonnes of copper and 3.4mln ounces of silver.

That’s about four years worth at current production but it’s not just production and cash flow that has changed for the better, investors are now much more upbeat over the long-term potential.

The Gedabek contract area also has significant exploration potential along a mineralised belt within its 300 square kilometre area.

Underground link-up between Gadir and Gedabek underway

Construction of a tunnel between the Gadir and the Gedabek mines also intersected Gedabek-style mineralisation at the end of the tunnel drive.

It is further planned to extend this tunnel along the Gedabek mineralisation beneath the back wall of the open pit and to fan drill to assess the mining potential for an underground mine.

Strong first half

An airborne geophysical survey has also just been completed over the entire Gedabek licence to identify new drilling targets.

The hope is that Anglo Asian will identify more deposits like Gadir and Gosha and that eventually, Gedabek might evolve into a substantial gold mining district.

Even with the strength of the shares over the past year, any evidence that might be the case would propel them to another level entirely suggests the broker.

In addition to the maiden interim dividend, the miner also delivered a 22% year-on-year increase in total production of gold equivalent ounces, swinging to a pre-tax profit of US$8.1mln from a US$1.3mln loss the year before as revenues climbed to US$40mln from US$29.8mln.

Fat margins reflect low production costs

Gold prices helped those numbers, but production costs per ounce also fell 4% to US$543 compared to the same period a year ago.

At the current gold price of US$1,206 per ounce, this translates to a profit of US$663 for every ounce mined.

That margin has helped boost the company’s cash balance to US$12.5mln from US$2.5mln last year and slashing its net debt from US$18.1mln to US$2.9mln.

For the whole of 2018, the company is targeting between 78,000 to 84,000 gold equivalent ounces (GEOs), a 13% increase from 2017.

Whether the larger Gedabek area will yield as much as hoped remains to be seen, but Stephen Westhead, who is the director in charge of geology, recently bought 60,000 shares at a price of 86.3p, which must reflect some confidence in the exploration programme.

According to SP Angel: “We feel a lot of upside potential in the company remains reflecting expected busy news flow on the exploration front focused on both extending known mineralisation at producing deposits as well as an opportunity for a greenfield discovery.”

In October, Anglo added it would hit the upper end of the estimate after a strong third quarter.

At 89p, the company has a market cap of around £103mln.

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