Please see below a research note issued today by Numis Securities Ltd following Anglo Asian Mining (AIM : AAZ) Preliminary Results this morning.
ANGLO ASIAN MINING* - 22p - BUY target price 84p - Full year results statement
Gedabek: feasibility study expected to be completed in the next few months. Gedabek is expected to produce between 50,000 - 70,000ozs of gold per year at cash costs of around $275/oz.
Administrative expenses of $5.2m seem high but do include a FRS 20 adjustment of $0.6m and an IFRS adjustment of $0.8m for issuance of options to directors and personnel.
Capitalised exploration of $6m versus $1.6m indicates the increase in exploration expenditure for the year. The capitalised expenditure will be depreciated over the expected life of the respective projects. Some $0.2m of costs for the Shakardara property are expensed as the board is unable to currently confirm if the property will go into commercial production.
Robert Jeffcock and Charles Hancock: resigned from the board. This should enable the company to move ahead and take on directors and personnel with more mining related experience.
Funding: The company has some $6.4m in the bank and looks likely to sell its existing gold plant for around $15m. This should substantially fund the development of the Gedabek gold plant although some further funding will be required for the completion of the new mine and plant and for working capital and other exploration. While the company should be able to fund this through bank facilities the company might also consider issuing further equity for the construction of the Gedabek gold plant.
Valuation: we will review our valuation of the company shortly as Anglo Asian is making the transition from exploration to production. We expect this to reduce our discount rate on the business and to enable further opportunities in Azerbaijan and within the region.
* Numis Securities Ltd acts as broker and advisor to Anglo Asian Mining
ANALYSTS: JOHN MEYER 0207 260 1279 / MARC ELLIOTT 0207 260 1232 / SIMON TOYNE 0207 260 1330
Sent: 15 February 2007 08:53
ANGLO ASIAN MINING* - 15P - BUY target price 84p - Gedabek develops as low cost heap leach gold mine
mkt cap lb15m previous different recommendation none
Anglo Asian has announced the results of its scoping sturdy at its Gedabek property in Azerbaijan that concludes that the optimal treatment method of the deposit is a combination of open pit mining and heap leaching
Gedabek: The project will now move from scoping to feasibility scheduled for completion in Q2 2007 and construction to begin this summer. We would expect mining to also commence towards the end of this year. The company forecasts annual production of 55,000-70,000ozpa for at least five years at cash cost of US$275/oz.
The nearby Gosha deposit could be developed as a satellite feed to Gedabek as it is within trucking distance. This would extend the life of the operation.
The company has decided to sell its CIL plant that it had previously bought as it is no longer needed at Gedabek since treatment of the ore will be via heap leaching. The plant had been bought for US$9.7m but we would expect that in light of significant development activity in the gold industry, a substantially higher price could be obtained of as much as US$20m.
Funding: The sale of its CIL plant in conjunction with a cash balance of US$5.5m may almost sufficient to bring the mine to production with an estimated capex of US$25m. Local or international banks will be targeted to source the balance of funding requirements, although it is possible that the company comes to market to top up any shortfall. Anglo Asian estimates its current monthly cash spend below US$400,000 following cost reduction measures.
Long Term: Anglo Asian has other properties in Azerbaijan to explore and we would expect exploration activity to expand once Gedabek is operational and providing cash to fund exploration programmes. Our belief is that the Gedabek gold deposit overlies a significant copper resource that was mined by Siemens around 100 years ago. We look forward to further evaluation of this copper deposit and a potential proposal to extract copper.
Valuation
Our valuation is a DCF based valuation based on the production profile from Gedabek. We have maintained value for other projects within the company's portfolio. The small town located near these sites developed to serve the original copper mine in the area should provide a ready labour force close to hand.
Risks
Mine: The mine at Gedabek may run into development problems from a number of sources e.g. ground conditions, equipment etc. We expect that a simple heap leach open pit operation will be relatively easy to develop.
Political: Anglo Asian is developing gold mines in Azerbaijan and therefore is entirely exposed to this one country. Azerbaijan is an ex-Soviet country and has yet to resolve a conflict with Armenia. Corruption is ubiquitous. However, the company has so far proved its ability to work there.
Gold Price: Gold prices are at high levels not seen for 25 years or so. Uncertainties regarding issues such as Iran, Israel/Lebanon, the US economy as well as a shortage of supply to meet demand have all contributed to the current environment. However, prices could rapidly fall although perhaps not to levels below US$350/oz since mining costs are now high and therefore if prices fall too low then some mines will have to stop production. Ultimately the gold price will be a major determinant in how successful the company will be.
Management: Previously management has struggled with its strategy of project developments. However, Anglo Asian has worked to strengthen the management team in order to carry forward developments.
* Numis Securities acts as broker and advisor to Anglo Asian Mining
ANALYSTS: JOHN MEYER 020 7776 1578 / MARC ELLIOTT 0207 776 1464 / SIMON TOYNE 020 7776 1579
Sent: 01 December 2006 09:41
ANGLO ASIAN* 21p - BUY - Target price 84p - Gedabek produces JORC gold resource of 702,000oz
Gold equivalent 1.1moz
Mkt cap lb20m - previous different recommendation none
Anglo Asian has announced a JORC compliant resource of 702,000oz of gold, 37,500t of copper and 6,100,000oz of silver at Gedabek.
Gedabek: Providing a JORC resource at Gedabek gives great credibility to the project. The resource has been confirmed by independent geological consultants SRK. The resource is based on 15,507m of drilling in 129 diamond and reverse circulation drill holes, and uses a cut off grade of 0.3g/t gold.
The company states that the resource remains open in a number of directions, in particular 400m to the North, indicating that the size of the resource may increase in the future. An induced polarisation (IP) geophysical study has been initiated to identify potential further extensions to the ore body. Gold bearing dump material in the mineralised area has not been included in the resource.
Processing: The company has indicated that it is investigating treatment of the ore through heap leaching. Tests are underway in Canada and indications thus far support this alternative.
Product Sharing Agreement (PSA): Following the resource estimate, Anglo Asian is preparing a "Notice of Discovery and its Commerciality" report on Gedabek to submit to the government, which under the terms of the PSA will initiate the 15 year development and production period (includes two possible five year extensions). The scoping study -due for completion in January 2007- will provide the information for the report.
Gebek JORC resources
Tonnes (mt) Au (g/t) Ag (g/t) Cu (%)
Indicated 12.4 1.5 13.0 0.26
Inferred 3.2 1.0 9.1 0.16
Total 15.6 1.4 12.2 0.24
Valuation
Our valuation on a more up to date production profile incorporating lower production from Gedabek. We have maintained value for other projects within the company's portfolio.
We expect the first mines to be announced at Gedabek and at Gosha due to their proximity to infrastructure and to each other. The small town located near these sites developed to serve the original copper mine in the area should provide a ready labour force close to hand.
Risks
Mine: There are a number of projects being investigated by Anglo Asian upon which exploration work is in progress. Should further exploration results disappoint on some of these prospects, the focus of development could change and result in delays.
Political: Anglo Asian is developing gold mines in Azerbaijan and therefore is entirely exposed to this one country. Azerbaijan is an ex-Soviet country and has yet to resolve a conflict with Armenia. Corruption is ubiquitous. However, the company has so far proved its ability to work there.
Gold Price: Gold prices are at levels not seen for 25 years or so. Uncertainties regarding issues such as Iran, Israel/Lebanon, the US economy as well as a shortage of supply to meet demand have all contributed to the current environment. However, prices could rapidly fall although perhaps not to levels below US$350/oz since mining costs are now high and therefore if prices fall too low then some mines will have to stop production. Ultimately the gold price will be a major determinant in how successful the company will be.
Management: Previously management has struggled with its strategy of project developments. However, Anglo Asian has worked to strengthen the management team in order to carry forward developments.
Numis Securities acts as broker and advisor to Anglo Asian Mining
ANALYSTS: JOHN MEYER 020 7776 1578 / MARC ELLIOTT 0207 776 1464 / SIMON TOYNE 020 7776 1579
Sent: 11 October 2006 08:52
<< File: Anglo Asian Mining update.pdf >>
ANGLO ASIAN MINING* - Operational update indicates plan changes
Gedabek: Anglo Asian is investigating the possibility of using heap leaching to extract the gold at Gedabek. Directors estimate production would be 50,000-70,000ozpa of gold with copper and silver credits using this method. This method would allow construction to be completed by the end of 2007 allowing production to start soon after. A resource estimate for Gedabek is in progress to be announced next month.
Anglo Asian had previously purchased a CIL (carbon in leach) plant for a total cost of US$9.7m. We had been expecting this to be used to extract the gold at the company's first mine to come into production e.g. Gedabek. However, using heap leaching (less capital intensive) gives Anglo Asian the option of selling its CIL plant (purchased for US$9.7m) we believe at considerably more than the purchase price. We expect the market value of this plant to be around $20m if sold.
Current cash resource (US$11.8m at 30 June) appears sufficient to provide funding for the company through to end 2007. The company could also fund the construction of the new mine largely through existing cash and through the potential sale of the existing gold plant, which is currently located in Singapore.
We had previously been expecting production to be over 100,000ozpa from Gedabek and will be adjusting our numbers for this more up to date guidance.
Although this will likely result in a downgrade it is good to see development plans firming up.
Exploration work at the company's other prospects has been continuing but the company is now focussing its efforts on Gedabek. The camp at Ordubad is being moved to Gedabek. Further limited evaluating and sampling work is planned at Gosha, a resource assessment at Piyazbashi is outstanding. Work at these and other sites will pick up once Gedabek is sufficiently advanced and will not suffer from possible diversion of resources.
Target price: we are reducing our target price to 84p from 135p due to the reduction in forecast gold production from the Gedabek/Gosha project.
Valuation
Initially our valuation of Anglo Asian was based on production starting up at Piyazbashi. However, since the re prioritisation to get production at Gedabek we have reviewed our model accordingly. In light of recent announcements we are basing our valuation on a more up to date production profile incorporating lower production from Gedabek. We have maintained value for other projects within the company's portfolio.
We expect the first mines to be announced at Gedabek and at Gosha due to their proximity to infrastructure and to each other. The small town located near these sites developed to serve the original copper mine in the area should provide a ready labour force close to hand.
Risks
Mine Risk: There are a number of projects being investigated by Anglo Asian upon which exploration work is in progress. Should further exploration results disappoint on some of these prospects, the focus of development could change and result in delays.
Political Risk: Anglo Asian is developing gold mines in Azerbaijan and therefore is entirely exposed to this one country. Azerbaijan is an ex-Soviet country and has yet to resolve a conflict with Armenia. Corruption is ubiquitous. However, the company has so far proved its ability to work there.
Gold Price Risk: Gold prices are at levels not seen for 25 years or so. Uncertainties regarding issues such as Iran, Israel/Lebanon, the US economy as well as a shortage of supply to meet demand have all contributed to the current environment. However, prices could rapidly fall although perhaps not to levels below $350/oz since mining costs are now high and therefore if prices fall too low then some mines will have to stop production. Ultimately the gold price will be a major determinant in how successful the company will be.
Management Risk: Previously management has struggled with its strategy of project developments. However, Anglo Asian has worked to strengthen the management team in order to carry forward developments.
* Numis Securities acts as broker and market maker
ANALYSTS: JOHN MEYER 020 7776 1578 / MARC ELLIOTT 0207 776 1464
-----Original Message-----
Sent: 05 June 2006 17:52
<< File: Anglo Asian drill report 05 06 06.pdf >>
-----Original Message-----
Sent: 02 June 2006 08:47
ANGLO ASIAN MINING PLC* - 39.5p BUY Target 144p, Gedabek drilling indicates that resource may lead to second new gold mine in area
Market cap lb40m, Cash in bank $16m, IPO raised lb20m ($31m net). No previous differing recommendation.
Anglo Asian have today reported significant drilling results from 31 drill holes at the Gedabek copper gold property in the west of Azerbaijan. The drilling, under the guidance and inspection of SRK consultants shows what look like reasonable copper and gold grades over an area of around 500 x 500m square.
Work is set to continue to further define the resource with further infill and boundary drilling to be completed by the end of August. A further 22 holes should enable the team to calculate a defined resource on which to plan the company's next copper / gold mine.
The Gedabek project appears to be reporting respectable gold, silver and copper grades over significant intervals. A former copper mine adjacent to the site is said to have reported grades of over 10% copper and this may have been part of a wider complex of copper gold mineralisation.
The relatively shallow nature of the copper / gold mineralisation and the topography of the hill at Gedabek indicates that the project could lead to a relatively low cost open cast mining operation.
The company has recently boosted its expert team of mining professionals to take the first key projects forwards. We expect the first two mines to be announced at Gosha and at Gedabek due to their proximity to infrastructure and to each other. The Gedabek project is located next to a small town which developed to serve the original copper mine at the site. Former workings, exploration adits and other geological evaluation indicate that the project should contain significant mineralisation and a ready labour force is close at hand. The town also used to host a copper smelter for processing.
The respected consultants, SRK, are reviewing information collected by the company and are assisting in the work programs necessary for the proper economic evaluation of the key mineral deposits. A sample lab has been set up to faster process the assay results in Azerbaijan.
The team are looking to take a decision on what to do with the gold plant acquired last year. The gold plant could be shipped to Gosha or could be sold for significant profit in Australia if it does not meet the specifications of the mineralisation of the Gosha deposit. The plant has substantial capacity of up to 4,000tpd and could transform Anglo Asian into a significant mid-tier gold producer.
The team is being led by Graham Mascall, the new non-executive chairman who worked formerly within the executive management teams at BHP Billiton and Outokumpu. Gordon Lewis, formerly the coo of Alexandra Mining and at Avocet Mining is due to start with Anglo Asian on 1st July.
In conclusion, it has taken time for Anglo Asian to pull together a sufficiently broad and expert team to evaluate the enormous amount of data available on the key mineral deposits. The team now appear focussed on the potential development of mines at Gosha and Gedabek on which today's results are based. The development of a well defined resource / reserve at Gedabek could enable us to upgrade our valuation of the deposit in time where we have formerly attributed a valuation of around $27m.
We have extracted some of the more significant drill results below:
Selected Drill results
Hole No. Type TD(m) From(m) To(m) Interval (m) Au Eq (g/t) Au (g/t) Ag (g/t) Cu (%)
CDDD01 Core 110.2 32.0 95.0 63.0 5.33 4.49 25.07 0.19
CDDD04 Core 100.0 6.0 44.0 38.0 3.61 2.20 11.47 0.53
CDDD12 Core 220.0 42.0 50.0 8.0 11.11 9.30 64.43 0.32
CDRC01a RC 125.0 2.0 48.0 46.0 3.50 2.24 10.35 0.47
57.0 76.0 19.0 3.73 3.53 2.45 0.07
94.0 123.0 29.0 3.03 2.37 7.62 0.23
CDRC03 RC 148.0 23.0 60.0 37.0 4.51 3.67 35.58 0.11
CDRC06 RC 66.0 20.0 47.0 27.0 9.69 6.70 72.06 0.78
*Numis Securities Limited is acting as broker and nominated adviser to the Company.
ANALYSTS: JOHN MEYER 020 7776 1578 / SIMON TOYNE 020 7776 1579 / MARC ELLIOTT 020 7776 1464
