Anglo Asian Mining PLC (LON: AAZ) – On track to deliver FY21 total production ranging from 64,000 GEOs to 72,000 GEOs.

Anglo Asian Mining PLC (LON: AAZ) is an FTSE AIM All-Share listed Company, focused on the production of precious metals like 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.

On 21 September 2021, the Company expects to release H1 FY21 results.

(Source: Company presentation)

Recent trend of dividend payments

• AAZ had paid 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.
• Furthermore, the increase of 1.50 US cents per share represented a special dividend paid during March 2021.

Growth Prospects

• Encouraging Results from Zafar Deposit: The initial mineral resource estimate for the Zafar polymetallic deposit had delivered encouraging results. Moreover, the Company had completed 47 million tonnes of mineralisation with average copper grades of around 0.60%.
• Increased Focus on the Avshancli: 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.
• Long-term Development: The Company had plans to increase production at Gedabek, Gosha, & Ordubad and existing deposits. Furthermore, AAZ might collaborate with Conroy Gold through a possible Joint Venture for exploration & development in Ireland.
• Extension of Gedabek License: During April 2021, the Company’s Gedabek license was extended for a further five years, showcasing the excellent relationship between the Company and the Government of Azerbaijan.

Key Risks

• Increase in US Dollar & Rising Treasury Yields: The strengthening of the US dollar and rise in the treasury yields may create pressure on the gold price.
• Rising Covid-19 Cases in Azerbaijan: Azerbaijan had reported 2,993 new COVID-19 cases on 15 August 2021. With a rise in the Covid-19 cases, the Company’s exploration & drilling activities may get adversely impacted.
• 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.
• Failure to Discover Substantial Reserves: The failure in discovering substantial reserves could adversely affect the AAZ’s future performance as exploration and development are capital-intensive activities.

Gold Industry Dynamics

• Global gold ETFs had demonstrated a marginal net inflow of 11.1 tonnes, equivalent to USD 669 million, during July 2021, an increase from the prior month levels.
• The inflow into European and Asian funds was offset by an outflow from large North American Funds.
• Moreover, the inflow was driven by a partial recovery in the gold price, particularly during the second half of July 2021.
• However, there are concerns related to uncertain global growth prospects and central bank commitments to keep easy money policies despite inflation inching towards elevated levels.
• The US Federal Reserve would play a key role in determining the future gold price as the worries regarding the Covid-19 pandemic would get side-lined.

The Gold futures had recently witnessed a sharp decline from USD 1,765 to USD 1,678 after the release of strong US jobs data, which had ignited the fears of a rise in interest rates earlier than expectations. Nonetheless, the gold price had rebounded and reached normal levels in a week.

 (Source: REFINITIV; Analysis done by Kalkine Group)

On a daily chart, COMEX Gold Futures' price (USD 1,774.80) is sustaining between the lower Bollinger band and middle Bollinger band, indicating an upside direction for the commodity. The momentum indicator RSI (14-period) is indicating a neutral stance at ~46.06 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.  

Q2 FY21 and H1 FY21 Operational & Production Highlights (as of 14 July 2021)

(Source: Company result)

• AAZ had achieved a substantial increase in the total production to 16,740 GEO (“gold equivalent ounces”) during Q2 FY21, while it was 14,301 GEOs during Q2 FY20.
• With regards to the financial position, the Company had managed to increase the cash balance from USD 22.9 million as of 31 March 2021 to USD 36.6 million as of 30 June 2021.
• The silver production had achieved a healthy growth from 23,961 ounces during Q2 FY20 to 43,566 ounces for Q2 FY21.

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

(Source: Company result)

• AAZ had shown a decent increase in revenue to USD 102 million during FY20 as compared to USD 92 million in FY19, boosted by an increase in the metal price.
• 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.
• The Company had witnessed a marginal 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 16 August 2021, at 08:45 AM GMT, AAZ’s shares were trading at GBX 136.70, down by around 2.36% from the previous day closing price. Stock’s 52-week High and Low were GBX 180.57 and GBX 101.32, respectively.

From a technical perspective, 20-days exponential moving average of GBX 135.50 is supporting an upside potential in the stock price. Moreover, the MACD line remained above the signal line suggesting the bullish momentum in the stock price.

Over the last five years, AAZ’s stock price had delivered a positive return of around 666.84%, while the FTSE AIM All-Share index (benchmark index) had produced a return of about 61.61% and FTSE All-Share Precious Metals & Mining (benchmark sector) had generated a return of approximately 74.59%. 

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

Business Outlook Scenario

The Company had delivered significant growth in the total production during Q2 FY21 on a quarterly basis and an annual basis as well. Moreover, it had maintained the annual production guidance for FY21. Furthermore, AAZ would continue to pursue expansion opportunities in Azerbaijan to increase the overall production and delivers significant shareholder value. The Company had recently unveiled satisfactory results from the newly found Zafar deposit.  Also, the Company would deliver a significant increase in the production capacity with the commencement of production in the Avshancli mineral district by late 2021 or early 2022. In a nutshell, AAZ would generate long-term growth for the shareholders with robust cash generation, increased production capacity, rising exploration activities and a strong balance sheet.

Considering the impressive revenue and profitability growth during FY20, increase in production during Q2 FY21, ample growth opportunities, robust liquidity profile, regular 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 136.70 (as on 16 August 2021 at 08:45 AM GMT), with lower-double digit upside potential based on 9.87x 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.

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