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Anglo Asian leaps after increasing production and cutting debt in H1 2018 (AAZ)

Today saw Azerbaijan-focused Anglo Asian Mining (LSE:AAZ) reveal that it cut its debts and increased gold production by nearly a quarter in the first half 2018, sending shares 10.4pc higher to 49.7p.

The business reported that production from its Gedabek contract area came in at 37,349 gold equivalent ounces (GEOs) over the period, up from 30,561 GEOs in H1 2017. As a result of this, it said it is well positioned to achieve forecast production for full-year 2018 of between 78,000 to 84,000 GEOs, as announced in February.

Increasing production and strong gold prices also led the company to report Q2 gold bullion sales of 10,822oz at an average of $1,307/oz. up from 7,406oz at an average of $1,258/oz in Q2 2017.

This jump was more than enough to offset a slight drop in copper concentrate sales, helping the business to cut its net debt to £2.9m at 30 June, down from $10.4m at 31 March and $35 as at 1 January 2017. This net debt consisted of $15.4m loans against a cash on hand and at bank balance of $12.5m. The firm added that it paid off an additional $3.6m worth of loans after the reporting period ended, meaning it has now repaid all outstanding borrowings.

Finally, the firm said a second crusher line is now in operation at Gedabek to significantly boost production by allowing its agitation leaching and flotation plants to processing independently.

Gedabek is a producing mining operation that houses a sizeable polymetallic ore deposit that produces gold, copper, and silver and processes ore on site. More than 700,000t of ore was mined from Gedabek’s central open pit last year at an average grade of 1.18g/t of gold. Meanwhile, more than 80,000t was mine from the nearby Gadir underground mine in 2017 at 3.56g/t of gold. The final source of production from Gedabak is a resource called Ugur, which contains 199,000oz of gold and 1,049,000oz of silver.

Today’s results follow a busy period for Anglo Asian, which has spent the last year cutting its liabilities, refinancing, and optimising mining and production across its portfolio of operations in Azerbaijan. In March, the company launched an extensive, fully-funded three-year exploration programme focused on Gedabek.

Anglo Asian chief executive Reza Vaziri said: ‘Our production from Gedabek continues on its upward trajectory with a 22pc year on year increase in total production measured as gold equivalent ounces for the first half, and we expect to see increased copper production this current quarter now the second crusher line is operating.

‘The increase in total production has resulted in an outstanding financial performance with net debt in the quarter reducing by $7.5m to $2.9m. Furthermore, Anglo Asian had repaid all the Group’s outstanding borrowings in early July, save for the Pasha Bank refinancing loan which bears interest at a fixed 7pc- a rate which is considerably lower than Anglo Asian’s recent average cost of borrowing.’

Vaziri also referred to Anglo Asian’s plans to introduce a maiden dividend payment on the back of a period of strong performance, which led shares to jump when first announced last month. He said:

‘Our operations are moving up a gear with the new Ugur mine and second crusher line adding significantly to our production capacity and, I believe, we are well placed to meet our FY 2018 production target of between 78,000 to 84,000 gold equivalent ounces. We are accordingly creating a sound financial position from which to announce and pay a maiden dividend, in line with our previous announcements, following completion of the share capital reduction proposed in the recent circular to Shareholders.’

When we spoke to Anglo Asian’s CFO Bill Morgan in May when shares were sitting at 48.9p, we argued that it would be interesting to see if the bull-run in its shares over the last year continues as exploration progresses and the company once again approaches profitability.

What remains clear is that Anglo Asian is in a transformational period and it has plenty of potential share price catalysts on the horizon as it delivers newsflow from its exploratory work at both Gedabek and Ordubad.

Author: Daniel Flynn

Disclosure: The author does not hold shares in the company mentioned in this piece.

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