Successful track record of production
Spread of commodity risk through copper, gold and silver
Directors hold signficant stakes
Exploration could turn Anglo Asian's ground into a mining camp
How do you build a successful gold mining company?
Interested parties could do worse than take a leaf out of the book of Anglo Asian Mining PLC (LON:AAZ), the Azerbaijan-focused company that’s been consistently delivering growth for several quarters now.
The latest numbers, for the three months to March 2019 show gold equivalent production up 11% when compared to the corresponding period a year earlier, and overall gold production up by 5%.
Total quarterly production of 20,287 gold equivalent ounces puts the company well on track to meet its full year guidance of between 82,000 and 86,000 gold equivalent ounces.
If it manages to hit the top end of that range it will beat the previous annual production record, set in the fully year to 2018, of 83,736 gold equivalent ounces.
And an Anglo Asian’s recent track record there’s every reason for confidence that that target will be met.
The majority of production continues to come from the Gedabek mine, although the production mix is shifting somewhat more in favour of copper as time goes by. Last year’s 72,798 ounces of pure gold production won’t be matched this year, and guidance is now set at between 65,000 and 67,500 ounces. Instead, copper production is set almost to double, from 1,645 tonnes of copper to between 3,000 and 3,100 tonnes.
At a time of weakening gold prices but considerable copper price resilience, that’s perhaps no bad thing. In any case, Anglo Asian makes a virtue of the increasing diversity of its product mix, and on that score it should be noticed that a not inconsiderable amount of the equivalent ounces are also accounted for by silver.
So, although the averaged realised price for the gold Anglo Asian is selling has fallen somewhat since the highs of a few months ago, the overall impact ought to be fairly small.
Investors certainly don’t seem too worried.
Yes, Anglo Asian’s shares are now trading at slightly weaker levels than they were at the end of last year, when the trajectory of the gold price was well and truly up. But even so, the shares are still only down 10% from the December 4th all-time high. Compare the current 81.5p to the share price a year ago (41p), or three years ago (7p), and you get a clear enough picture of what the market thinks.
But what exactly is it that the markets like so much?
For one thing, Anglo Asian has net cash. This is not a company that is overburdened by the kind of debt payments that tend to push dividends out into the middle distance for other mining companies that make it into production.
The final dividend for 2018 amounted to US$0.03 per share, and Anglo Asian has gone on record stating that this year it intends to pay out a minimum of US$0.06 per share. Yes, it’s investing in exploration and growth, but it’s also quite prepared to return some of the cash flow its production operations are generating to shareholders.
That may seem like a fairly innocuous financial strategy to newcomers to the junior mining sector, but the more seasoned industry watchers will know only too well that extracting dividends from companies that have gone into production isn’t always easy for shareholders. Instead the focus is always on the next project.
In Anglo Asian’s case, though, investors get both. The dividend is assured, and well covered by free cashflow which at the most recent set of financial figures, for the six months to June 2018, rang in at US$16.4mln. It will be higher now, following the significant reduction of the company’s debt burden during 2018.
At the same time the upside remains considerable. Around US$1.8mln has been earmarked this year for exploration on the Ordubad contract area, a 462 square kilometre exploration project which may contain multiple mineralised porphyry systems.
Porphyries tend to be rich, and tend to occur in clusters, so there’s a very real possibility that this year’s exploration programme could be transformative for Anglo Asian. Certainly, historic Soviet data seems to point that way, and now that cash is coming in in large enough quantities it’s hardly surprising that Anglo Asian is keen to initiate a major exploration effort.
Separately, exploration around the wider Gedabek region is also underway, with a recent airborne survey having identified 25 potential new porphyry targets.
In the context of all this exploration work it’s interesting to note that Stephen Westhead, Anglo Asian’s director of geology, purchased 60,000 shares in the company at an average price of 86.3p towards the end of last year, taking his total holding to 235,000.
Other major shareholders include chief executive Reza Vaziri, who holds just over 28% of the shares. Another significant shareholder is a former US Governor, John Sununu, who also serves as a non-executive. And the chairman, Khosrow Zamani, a former director at the IFC, speaks for just over 1%.
Shareholders interests are therefore very clearly aligned with directors here, the same directors that have delivered a tenfold uplift in the share price over the past three years. The next three may not be quite so spectacular, but there’s cash coming in now, dividends being paid out, and huge exploration upside on the cards. For Anglo Asian, these are very interesting times.