Anglo Asian Mining PLC (LON: AAZ) – Total FY20 dividend stood at 9.50 US cents per share.

Anglo Asian Mining PLC (LON: AAZ) is an FTSE AIM All-Share listed Company, which is engaged in the production of gold, copper, and silver in Central Asia with a broad portfolio of production and exploration assets in Azerbaijan. The Company’s main operating location is the Gedabek contract area, comprising a 300 square kilometre area in the Lesser Caucasus mountains in western Azerbaijan. Furthermore, it has a second underground mine, Gosha, which is 50 kilometres from Gedabek.

Recent trend of dividend payments

AAZ will pay a final dividend of 3.50 US cents per share on 29 July 2021, while the ex-dividend date was 01 July 2021. The total FY20 dividend stood at 9.50 US cents per share. AAZ had paid a total dividend of 8.00 US cents per share during FY19. Moreover, the increase of 1.50 US cents per share represented a special dividend paid during March 2021.

Growth Prospects

• Extension of Gedabek License: On 21 April 2021, the Company’s Gedabek license extended for a further five years, showcasing the excellent relationship between the Company and the Government of Azerbaijan.
• Short-term production plans: AAZ aims to start production in Avshancli mineral district by late 2021 or early 2022. Moreover, it would disclose detailed production plans by the end of 2021. Furthermore, AAZ will reveal production details of the Zafer deposits during 2022 after the publication of JORC mineral reserve estimates.
• Long-term production plans: Moreover, it plans to increase production at Gedabek, Gosha, and Ordubad and existing deposits. The Company had identified further deposits in the geological exploration programme.
• Increased capacity of tailings dam: The Company raised the capacity of its tailings dam by 1.4 million cubic metres by raising the wall of the dam by 6 metres.

Key Risks

• Increase in US Dollar: The strengthening of the US dollar may cause a decline in the gold price. The US dollar index recently crossed the ~92.26 mark.
• Financial Risk: Several financial risks associated with fluctuation in the foreign exchange & interest rates, availability of adequate working capital, and credit defaults.
• Fluctuation in the commodity price: The high volatility in gold, silver and copper price could have an adverse impact on the top-line revenue of the Company.
• Principal Risks: The performance can be significantly impacted by the principal risks of lack of exploration success, failure to grab new venture opportunities, lack of health and security policies.

Gold Industry Dynamics

• Global gold ETFs had demonstrated a net inflow of 61.3 tonnes during May 2021 after showing significant outflow in the last three months.
• The larger funds across the US, UK and Germany remained as the primary driver of strong inflows. The North American funds had witnessed inflows of 34.5 tonnes, while European funds had demonstrated inflows worth 31.2 tonnes during May 2021.
• Central Banks across Serbia and Thailand had expressed their increased appetite for gold holdings.
• The Central Banks are carrying a belief that Gold would be the most significant guarantor of protection against several financial risks, particularly Inflation risk.
• Higher Crude prices are prompting oil exporters like Kazakhstan and Uzbekistan to buy more gold.
• Moreover, the gold price faced certain pressure triggered by higher bond yields and the strengthening of the US Dollar.

Moreover, Gold Future price dropped by around 7.05% during June 2021 because of the hawkish comments made by US Federal Reserve related to the rise in interest rates. However, the recent US jobs data had managed to calm down the inflationary fears.

(Source: REFINITIV; Analysis done by Kalkine Group)

On a daily chart, COMEX Gold Futures' price is sustaining between lower Bollinger band and middle Bollinger band, indicating an upside direction for the commodity. The momentum indicator RSI (14-period) is trading in positive territory at ~41.33 levels. 

Now, we will analyse the Key Fundamental Statistics & Shareholding Pattern of Anglo Asian Mining PLC.

Vaziri (Mohammad Reza). is the most significant shareholder as it holds nearly 32.80 million shares as of 30 June 2021.          

AGM Statement (as of 29 June 2021)

The total FY20 production stood at 67,249 gold equivalent ounces ("GEOs") during FY20. AAZ has an FY21 gold production target ranging from 48,000 ounces to 54,000 ounces of gold and copper production targeting from 2,500 tonnes to 2,800 tonnes.

FY20 Financial & Operational Highlights (for the twelve months ended 31 December 2020, as on 20 May 2021)

(Source: Company result)

• The Company reported a revenue of USD 102 million in FY20 as compared to USD 92 million in FY19, boosted by an increase in the metal price. The performance in 2020 is quite an achievement illustrating a strong balance sheet and adequate capital to ensure the continued future development.
• The Company became debt-free in FY20 and ended the year with a cash balance of approximately USD 39 million.
• On the profitability front, the Company had demonstrated a year-on-year increase of around 19% to USD 35.7 million in profit before taxation during FY20, while it was USD 30.1 million for FY19.
• AAZ had shown a significant increase in the operating cash flow from USD 50.5 million during FY19 to USD 52.8 million for FY20.

Financial Ratios (FY20)

Share Price Performance Analysis

 (Source: REFINITIV; Analysis done by Kalkine Group)

On 05 July 2021, at 07:05 AM GMT, AAZ’s shares were trading at GBX 136.00, down by around 2.86% from the previous day closing price. Stock 52-week High and Low were GBX 180.57 and GBX 101.32, respectively.

From a technical perspective, a 14-day RSI of ~38.43 is inching towards the oversold zone, indicating an upside potential in the stock price. Moreover, the stock is hovering around the lower Bollinger band, indicating an upside potential in the stock price.

Over the last five years, AAZ’s stock price had delivered a positive return of around 688.13%, while the FTSE AIM All-Share index (benchmark index) had produced a return of about 79.54%.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook Scenario

AAZ had a strong balance sheet and adequate capital to ensure the continued future development. AAZ had anticipated total FY21 production expressed as gold equivalent ounces (GEO) ranging from 64,000 GEOs to 72,000 GEOs, compared to FY20 production of 67,249 GEOs. Furthermore, the Company would continue to pursue expansion opportunities in Azerbaijan and other countries that align with the Company’s strategic objectives and delivers significant shareholder value. Also, it aims to acquire new concessions in Azerbaijan. In a nutshell, the Company would continue to maintain the reputation of a very well-established, low cost, debt-free, dividend-paying, gold, copper, and silver producer in the junior mining sector. The next important support level on the technical chart is at GBX 122.50.

Considering the Extension of Gedabek License, zero debt on the balance sheet, modest revenue growth, ample growth opportunities, robust liquidity profile, consistent dividend payment, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Anglo Asian Mining at the current price of GBX 136.00 (as on 05 July 2021 at 07:05 AM GMT), with lower-double digit upside potential based on 9.30x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peer information have been taken from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

Disclaimer

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

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