As far as my portfolio is concerned, news this week (and price action) has all been about Anglo Asian Mining (AAZ).
JORC Reports (Tuesday)
Bringing the company’s resources up-to-date to incorporate 2018 and Q1 2019 work. All of the reports for the entire estate (along with ongoing exploration work) are now fully compliant with JORC reporting standards. For anyone wanting to read these reports, I would suggest starting with this overview and following the internal links to the individual reports.
Aerial ZTEM and Aeromagnetic Survey Update (Wednesday morning)
This is the news that really caught the imagination. It provided further detail on exploring the 31 targets on the Gedabek estate; 20 of which are shallow targets (Zs1-Zs20), 5 deep targets (Zd1-Zd5) and 6 are Porphyry (M1-M6). In the short-term, two shallow targets; Zs15 (Korogly) and Zs18 (Zehmet) have been prioritised. Another interesting point being that several of the targets straddle the boundary of the Gedabek license area and in line with the terms of the PSA (Production Sharing Agreement with the Azeri government), AAZ are able to extend their mining operations if it can be shown to be a continuous deposit from one that begins within the AAZ license area. I will revisit this point in a moment. Here is a link to the full report – it makes a fascinating read and leaves me very confident that these resources will extend AAZ’s production profile at Gedabek for many years to come.
Hardman Initiation (Wednesday afternoon)
I was fortunate enough to meet with Bill Morgan (CFO) earlier this year, courtesy of Hardman & Co (my reflections on that meeting can be found here). Therefore, I was delighted to see them initiate coverage of AAZ this week with a DCF valuation of 156p based on life of mine (LoM) only until 2025 and an 8% discount rate. The full note is well worth a read. In particular, there is a hypothesis put forward that the Gedabek license area is part of a much bigger, continuous resource. If so, AAZ seem to be in an excellent position to gain an extension via the terms of the PSA – perhaps.
AGM Statement (Thursday)
It was almost a relief to get an AGM statement with no new news. Reading the statement through, it is quiet reminder how much the company have achieved in such a short space of time. I was unable to make the AGM and therefore, grateful to those from the online community who reported back snippets. My favourite two quotes are:
“Take your time because we’re in a hurry” (attributed to John Sununu, NED)
“I was sceptical about the Helicopter Survey but it has turned out to be the best investment I ever made” (attributed to Reza Vaziri, CEO)
As signalled here previously, I have taken the opportunity to top slice my holding in AAZ this week based on both price and volume action. For context, the AAZ share price began the week at 108p and represented a portfolio weighting of 30.2%. I sold one tranche on Monday @ 112p and four tranches on Thursday (three @ 132p and one @ 131p) – the total amount realised being around 75% of my total investment in AAZ. The share price closed the week at 120p and my remaining holding now has a portfolio weighting of 24%.
Mindful that by reducing my AAZ position I am surrendering the final dividend (c3.15p per share going ex-divi on 27th June), my primary intent was to diversify and smooth portfolio income (along with some thematic elements which I will cover in a future article). Following on from my article on quarterly dividend shares last weekend, I have added three new holdings to the portfolio; Paypoint (PAY), Renewables Infrastructure Group (TRIG) and an iShares ETF focused on Asia Pacific dividends (IAPD) – the blended yield of which is over 6% (versus c5% yield on AAZ based on last Friday’s closing price). I also topped up my holding in Strix Group (KETL) which although yielding around 5%, I see more as a compound growth share. Separate to this, I also shaved around 10% from my GlaxoSmithKline (GSK) holding @ 1599p and used the funds to increase the weighting in Duke Royalty (DUKE) @ 47p.
The price of gold has shot up this week to $1400/oz. The main driver seems to be the prospect of rate reductions and possibly a return to QE by Central Banks (especially the US Federal Reserve) in order to avoid global recession. My own view is that this is a mistake. Recessions are healthy for an economy to clear out the dead wood of weak and debt laden businesses, enabling strong companies to first survive and then thrive as economic conditions improve. By trying to avoid recession and pumping more money into the economy, it merely serves to delay the inevitable, making the eventual unravelling even more savage. Add to this the ongoing trade wars, the possibility of an escalation towards currency wars and the heightened tensions between the US and Iran, gold is being seen as a safe haven store of value. I have no idea how long this will last or indeed, how high the price of gold will rise but for now, I am very happy with the extra profits that will be generated by AAZ (start of year forecasts were based on $1250/oz, house broker forecasts are based on $1275/oz and this week’s Hardman & Co forecasts were based on $1350/oz) and over time, the increased dividends that will be paid to shareholders. As for the world and stock markets – both look to be in a dangerous place right now.
I feel as though I am too old for this but I am going on my prospective son-in-law’s stag do this weekend (yes, I am to be father of the bride in just a few weeks’ time) – wish me luck!
Disclosure – At the time of writing, I own shares in AAZ, PAY, TRIG, IAPD, KETL, GSK and DUKE which were all mentioned in this article.