I had resolved to take a break from providing Share Watch commentary over the summer months but news flow from my largest holding this week coupled with another England batting collapse have persuaded me to pen a few words.

Anglo Asian Mining (AAZ) – Exploration Update and Media Comment

AAZ published a comprehensive update on H1 exploration activities on 8 August and it is clear from reading the detailed reports that the company have been moving ahead rapidly and discovering huge amounts of gold, copper and silver, perhaps of world class importance, on the back of last year’s heli-survey data. The next stage is for these finds to be proven to JORC standards.

This week, it was reported in the Azeri press that the government of Azerbaijan have hired consultants to value the possible buy-out of AAZ’s 49% share of the PSA for all their contract areas. Whoa! In a heartbeat, this accelerates my investment thesis for AAZ. The prodigious cash generation, low AISC and growing dividends are now secondary. AAZ has become an asset play and it appears to be very much in-play.

The real question is how much will AAZ be paid for their assets? I don’t know if this will be a simple case of the government buying them out of the PSA (which has around 12 years remaining) and running the assets via state-owned Azergold or whether AAZ have received a takeover approach and this move by the government is part of the process for renegotiating a PSA with the suitor. Either way, it looks like there is a liquidity event around the corner.

As to valuation, I have no idea. Fair value is far in excess of the current share price (at least double in my opinion and possibly much more). One can only hope the consultants appointed by the government reach the same conclusion. I have decided to take no action. AAZ currently has around 30% portfolio weighting and as regular readers will know, I have already taken meaningful profits on this holding. Unless the share price goes bonkers, it seems a reasonable risk-reward to wait for the liquidity event to reveal itself, hopefully at a decent premium.

That’s all folks, enjoy your bank holiday weekend!

Disclosure – At the time of writing, I own shares in AAZ.