Anglo Asian Mining: 2019 results and 14.2% dividend increase

Anglo Asian Mining (AIM All-Share, Market capitalisation: £145m, 127p and 5.9% of JIC Portfolio and 12.2% of JIC Top 10):

2019 Results. 

Conclusion: We knew much of what was in the results but the 14.2% increase in the dividend was a pleasant surprise. We are being kept waiting for concrete news on its plans for developing new production of gold and copper, but the 14% dividend increase and the tone of its comments, suggest that it is confident of presenting good news on this front before the end of the year. In the meantime, it is benefiting from the current high gold price. With April’s US deficit, announced yesterday, of $738bn and many forecasters suggesting US Treasury yields will drop into negative territory, gold looks a good place to be. The opportunity cost of holding gold is virtually nothing and even if there is deflation first, all this money printing may lead to inflation later. Whether that happens or not, the fear of it is likely to underpin gold prices for some time. 

With an 8.0UScents dividend, the yield is 5.1%. While all around are cutting or suspending dividends, that is attractive. I have AAZ as Medium Risk/High Reward, pointing to a 4.0% position. I am currently at 5.9%. I am happy to run that overweight position at the current price/valuation but on a spike up towards 140p would look to move the position towards 4.0%, perhaps in two steps. Trying to make sure there are no mixed messages: I like the stock but cannot justify reducing the risk from Medium to Low, which would allow the current position of 5.9%. Remember, I have a further 12.0% gold exposure through the two mining ETFs and one physical gold ETF. Happy Holder. 

We have had much of the detail in previous trading updates so I will stick to the main points:

82,795 gold equivalent oz. (GEOs) compared to forecast of 82,000-84,000 GEOs.
Revenue of $92.1m up 2% on 2018’s $90.4m
Pre-tax profits up 19% to $30.1m
Operating cash flow of $50.5m
Net cash at 31st December of $21.2m, up from $6.1m in December 2018.
A final dividend of 4.5 USCents, payable in July, takes the total for 2019 to 8.0 USCents. An increase of 14.2% on 2018.

Gold bullion sales amounted to 53,992 oz, down from 2018’s 59,481. The price achieved was $1,410 per oz. v $1,265 in 2018.

The all-in sustaining costs of gold production was $591 per oz. v $541 in 2018 but remains in the bottom quartile.

2020 production is forecast at between 75,000 and 80,000 GEOs.

It announced two new significant gold and copper discoveries during the year. It also mentions the identification of several major targets at Gebadek and Gosha and is extending the mineral reserves at its existing mines. Encouragingly its says “we still regard Ordubad as an untapped value opportunity and work there has been promising” and has not dismissed getting involved in opportunities outside Azerbaijan.

At current gold and copper prices, it is on track to achieve revenue of more than $100m in 2020:

“We have set a production target of 75,000 to 80,000 gold equivalent ounces for 2020, which is a small decrease from 2019. This includes up to 67,000 ounces of gold and between 2,200 and 2,400 tonnes of copper.  We are currently still on track to achieve this production target and I look forward to updating shareholders with our progress in the coming months. At current metal prices achieving our production guidance is expected to result in turnover in excess of $100 million.”


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