Anglo Asian Mining PLC

Anglo Asian Mining PLC (LON: AAZ) is an FTSE AIM All-Share quoted 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.

Investment Rationale – SPECULATIVE BUY at GBX 105.50

• Strategic Investment: AAZ completed the investment of 19.8% in Libero Copper & Gold Corporation for US$4.9 million.
• Stable Production: AAZ has sustained a steady rate of production in FY21 so far. It shall be presented with compelling growth opportunities on the back of high-quality Zafar deposit, strengthened copper inventories, and three exciting new contract areas.
• Technical Indicator: From a technical standpoint, the momentum oscillator, 14-day RSI (~40.95) is hovering close to the oversold position, while the stock price is trading around the lower Bollinger Band.
• Undervalued Multiples: On a forward 12-month basis – EV/Sales, EV/EBITDA, and Price/Earnings valuation multiples of AAZ are quite undervalued against the median of the Basic Materials sector.

Risk Assessments

• Gold Price Volatility: The sluggishness in gold prices due to US dollar strengthening, rising Omicron variant-related concerns, and uncertain demand outlook can impact the Company’s financial condition.
• Macroeconomic Uncertainty: As the Federal Meeting has signalled the interest rates hike and monetary policy tightening, it can keep the equity market under pressure.

Q4 F21 Production and Operations review (for the three months ended 31 December 2021, as on 13 January 2022)

 (Source: Company Website)

• Quarterly Production: During FY21, AAZ produced 64,610 of gold equivalent ounces (GEOs) against 67,249 GEOs in FY20.
• Liquidity: As of 31 December 2021, the cash balance was stood at US$37.5 million (30 September 2021: US$30.9 million).

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative)

Conclusion

As the free cash flow for FY21 remained within the guidance of US$10 million to US$15 million, it ended FY21 with better liquidity in hand. Moreover, it has a resilient production base, while it is developing new opportunities in Azerbaijan and abroad. On 2 December 2021, Anglo Asian affirmed that it has received access to the Zangilan district of Azerbaijan from the government. Therefore, it plans to begin exploration and processing in the future.

Notwithstanding, its nature of being a penny stock involves high risk, and thus, investors are suggested to invest cautiously. The stock made a 52 week High and Low of GBX 164.00 and GBX 104.00, respectively.

Based on the solid production in FY21, decent gold price environment, sound profitability, industry-leading dividend returns, we have given a “SPECULATIVE BUY” recommendation on Anglo Asian Mining PLC at the closing market price of GBX 105.50 (as of 1 February 2022), with lower double-digit upside potential based on 11.86x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

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