New Holding: Anglo Asian Mining, funded by sale of Iomart

Anglo Asian Mining (AIM All-Share, Market capitalisation: ÂŁ99.5m, 90p and 3.0% of JIC Portfolio and 0.0% of JIC Top 10):

New holding.

I have bought a new holding in Azerbaijan based gold miner, Anglo Asian Mining.

I met the CFO, Bill Morgan, a couple of months, back and thought it worth taking a position ahead of 2018 results on Thursday. I don’t think there will be any surprises in the results, but it will be interesting to see what forward guidance and strategic update it gives. I also think the publication of results will focus attention on the cash generation in the business and its attractive valuation.

There is a company presentation HERE, and a note from Hardman & co HERE but the key points to me are:

It is a low-cost producer of gold; $543 per oz. in H1 2018.

It has huge potential to see upgrades to mine life and the development of new gold reserves.

Increased production led to a transformation in its balance sheet, with it moving from net debt of $18.1m on 31st December 2017 to a net cash position of $10.8m at 31st March 2019.

It has pledged to pay out 25% of its free cash flow as dividends in two equal half-year payments. It paid its first dividend of 3 US cents for H1 2018 with a further 3 US cents due with the final results this week.

Valuation looks attractive on a yield of 5.3% on the 6 US cents paid in respect of 2018.

Hardman gives a target price of 146p on a discounted cash flow based on current expectations of mine life and recoverable reserves. Any extensions, which I fully expect would lead to upgrades to these forecasts. Hardman estimates that the annual free cash flow yield during 2019-2025 will average 18.7%.

On Stockopedia it has a StockRank of 94, comprising Quality of 75, Value 70 and Momentum 87. It is valued at just 4.5x free cash flow and passes the Free Cash Flow Cows screen.

The share price had a strong run during 2017 and 2018 and but in 2019 has done little. I think another leg up is due and hopefully, Thursday’s results will be the catalyst.

Iomart sold:

I funded the purchase by taking my profits in Iomart. Iomart is an attractive business, but over the last year, it has flattered to deceive with growth not hitting expectations. On Stockopedia it has a StockRank of only 38. Quality is 70, Momentum is 46 but Value, and this is my main concern, is only 19. Price to free cash flow is 22.6x, (compare that with AAZ’z 4.5x) and the dividend yield is 2.1%.

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