Article on SP19 Oct 2020 13:24
Unexpected negative events, especially geo-political ones, can present great buying opportunities at times, as the market tends to severely over-react, even when there is no Immediate specific impact on a company itself.
Any risk of this sort usually sees the share price of companies operating in that region plummeting, and especially so if any sort of military conflict kicks off, but even then the chances of a full-blown war are usually very remote, and often these conflicts are fairly localised and may not even impact the operations of many companies.
I would argue that is very much the case with the current fighting between Azerbaijan and Armenia, and that the chances of other countries allowing the localised dispute in the Nagorno-Karabakh area to escalate into wider spread fighting is quite low. Although I would also accept that there is some risk to its operations as they are close to the border, but in another area of the country.
Based upon that belief, I definitely think it is worth taking a look at shares in a gold, copper and silver mining outfit called Anglo Asian Mining (AAZ), which is a company that I was keen on in the past, but suggested banking big profits last year after the share price had risen by almost 80% from the level I originally tipped it at as a buy.
Since then an awful lot has changed in the world, and most relevant of all when it comes to Anglo Asian is the large increase in the gold price – which makes up the bulk of production from its operations – since I last took a look at the company.
The company had also seen a dip in production during the first half of the year, due to lower grades at its Gedabek mine, and less ore being processed at Gadir, but the latest operational update for Q3 showed that output had largely recovered and was up by 25% on Q2, at 18,400oz of gold equivalent, although was still around 10% lower than the corresponding quarter in 2019.
Anglo Asian also announced that it was downgrading its full year guidance by 5-10%, as a result of delays to the development of some of its resources being caused by some of its staff having been conscripted by the military. Previous guidance was for 75,000 to 80,000 ounces for the full year
The company also managed to take advantage of the higher gold prices by managing to sell at an average of $1,947/oz in Q3, compared to $1,649/oz in H1.
If we look at cash in the bank, it had declined from $29.2 million at the end of June to $21.4 million by the end of September, but there is a very good reason for that, as at the end of the period the company had over $12 million in inventories, plus had paid out a $5.1 million dividend, along with $3 million in taxes during the quarter.
The interims results showed that the company made a pre-tax profit of $11.8 million for the six month period, and I’d expect a strong performance overall for 2020, given that production has increased and the gold price is also significantly hig
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