Latest AAZ Broker note.29 May 2020 00:40
Company News
Anglo Asian Mining* (AAZ LN) 130p, Mkt Cap £148m – Earnings update: riding surging gold prices
BUY – 187p
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Strong FCF generation led by robust output, low unit costs and strong gold prices
The Company is guiding FY20 production at 75-80koz GE in FY20 including 65-67koz gold and 2.2-2.4kt copper (FY19: 70koz gold and 2.2kt copper).
Production estimates compare to 81.4koz GE produced in FY19 and reflect the change in the ore mix.
Revenues are expected to post another year of growth as an increase in gold prices is forecast to more than compensate for slightly weaker gold output with Anglo Asian benefiting from >85% exposure to the precious metal.
EBITDA is expected to come in at $57m this year implying strong >50% margins on the back of low AISCs costs of $634/oz.
FCF is estimated at $35m in FY20 helping to further grow the net cash position to $37m by the end of the year (after accounting for ~$10m in dividend payments), up from $26m recorded as of Mar/20.
The cash buffer that is set to expand to >20% of the current ~$180m market capitalisation represents capital that can be used to grow the business organically, potentially accommodate value accretive M&A or step up dividend payments.
Dividends – FY20e 5.0% yield is among the highest among London listed precious metals miners
In the view of continuing positive FCF generation and a strong balance sheet, the Company announced a FY19 final dividend of 4.5c, an increase over an interim dividend of 3.5c, bringing total FY19 payout to 8.0c or ~$9m, up on 7.0c for FY18 and , equivalent to ~33% of FCF and implying a stronger payout to the declared dividend policy of 25% of FCF.
Moving forwards, the Company is well positioned to sustain its dividend policy and potentially distribute more than 25% of annual FCF as was the case in 2018 and 2019. While the Board ultimately has discretion over the dividend policy that is reviewed each year, we estimate that assuming flat dividend of 8.0 cents in 2020 yields 5.0% on the current share price (130p) which is among the highest for London listed precious metals producers (see charts at the back).
The Company had $26m in cash in Q1/20, is expected to generate $35m in FCF in FY20 making 8.0c/$9m dividend payments well covered and sustainable.
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