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Monumental Opportunity in Azerbaijani Gold & Copper

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  • Monumental Opportunity in Azerbaijani Gold & Copper

    Resource Investor, VA
    Aug 4 2005

    Monumental Opportunity in Azerbaijani Gold & Copper

    By Stephen Clayson
    03 Aug 2005 at 11:28 PM EDT

    LONDON (ResourceInvestor.com) -- One of the most intriguing new issues
    of the year so far is Anglo Asian Mining [AIM: AAZ], which made its
    market debut last Friday after raising an impressive £20m to fund
    the exploration and development of its gold and copper concessions
    in Central Asian petrostate Azerbaijan.

    The company is the result of several years' effort on the part of John
    H. Sununu, formerly US President George H.W. Bush's Chief of Staff,
    and Reza Vaziri, formerly a Minister at the Imperial Court of the Shah
    of Iran, both of whom worked to secure the mineral exploration rights
    to substantial amounts of Azerbaijan before forming AAM in order to try
    and develop them. Sununu and Vaziri now sit on the company's board,
    the latter as Chairman. Among others, the board also includes ex-UK
    Energy Minister Tim Eggar.

    AAM's Chief Executive Charles Hancock, a corporate financier
    by background, reports that the company's flotation was twice
    oversubscribed, even at its comparatively large value of £20m. To have
    raised such an amount is indicative of a company with something of a
    buzz about it, given the softness arguably afflicting the market for
    junior resource stocks in London, though this condition is probably
    better characterised as retrenchment after overexcitement.

    So far since their flotation, AAM shares have more than held their
    own in trading, rising from an initial price of 77p each to just under
    90p. This reflects interest in the company's very large portfolio of
    assets, which purportedly contains all in around 15.6moz of Soviet
    classified gold equivalent resources with potential according to
    the company for up to 78moz more - a hefty figure indeed if it can
    be verified.

    But how does Azerbaijan stack up as a viable location for
    realising these resources? The country's recent past is a chequered
    one. After gaining independence from the Soviet Union by dint of its
    disintegration in 1991, Azerbaijan entered a period of dire political
    instability. By the mid 1990s the situation had simmered down under
    the yoke of the now deceased President Heydar Aliyev. Aliyev has
    now been succeeded as President by his son Ilham, who rules in an
    essentially absolutist fashion and has maintained ostensive stability
    in the country for some time. Nonetheless, the country carries a high
    degree of political risk to foreign investors.

    Of concern too is a lingering conflict with neighbouring
    Armenia over the majority ethnic Armenian province of Azerbaijan,
    Nagorno-Karabakh. While this conflict has been in abeyance for some
    time and the withdrawal of Armenian forces from the affected area is
    expected during the next few years, a flare up is still a possibility.

    AAM actually claims substantial mineral licences within
    Nagorno-Karabakh, some parts of which are presently being mined on an
    ad hoc basis by opportunistic parties, but the company is currently
    unable to gain access. It hopes that this situation will eventually be
    rectified if and when a lasting settlement regarding the area between
    Armenia and Azerbaijan is reached and a withdrawal of Armenian troops
    is agreed, but for now the licences cannot effectively be touched
    and the company itself ascribes them no significant value.

    In Azerbaijan's favour as a location for mining investment, Hancock
    avers that it in fact belies its reputation for turbulence, and is a
    reasonable place to work. The country undeniably has its benefits as
    far as the industry is concerned, these being most notably extremely
    cheap energy and an abundance of cheap labour that includes experienced
    geologists and mine workers.

    The presence of British Petroleum as the largest extractor of
    Azerbaijan's extensive hydrocarbon reserves is also a stabilising
    factor, given that the company is rumoured to have the ear of the
    government in a significant way, and trickle-down revenue from this
    sector of the economy, particularly with energy prices as they are,
    goes some way towards promoting relative social order.

    However overall, investment in Azerbaijan still carries a considerable
    degree of risk in terms of the potential for political instability,
    administrative difficulties or open conflict, either internecine or
    with Armenia. In partial palliation though, the steering of AAM through
    any troubles that may emerge in Azerbaijan is where the heavyweight
    political content of the company's board may come into its own.

    The legal substrate of AAM's involvement in Azerbaijan is a 30 year
    Production Sharing Agreement with the country's government, a bargain
    which is expected to attribute approximately 55% of any resulting
    cash flow to AAM. The agreement covers ground amounting to 1062sqkm,
    not including the acreage claimed in the unruly Nagorno-Karabakh
    region in which the PSA in theory also applies. Within the currently
    accessible ground twenty two mineral prospects can be identified,
    of which eight have been reviewed by the company to date.

    Of these eight, AAM has selected one prospect that it hopes to bring
    rapidly to production at a rate of around 250,000oz gold per year.
    Other priorities for the company over the coming two years, the period
    for which its initial tranche of funding is planned to last, will be
    the reclassification to Western standards various Soviet reserves and
    resources and the undertaking across its property portfolio of other
    developmental tasks, including the completion of two pre-feasibility
    and two full blown feasibility studies.

    AAM believes that several practical factors will in time conspire to
    make it a low cost producer of copper and gold. These are namely: the
    fact that 7 of its 8 prospects would, if proven amenable to production,
    be open pit mines of higher than average grade material; that all its
    sites are relatively accessible by road and rail and comparatively
    well supplied with water and power; and that no issues are anticipated
    with disturbance of either the environment or the local populace.

    The potential of AAM is clearly almost Brobdingnagian, and hence so are
    the possible returns for its shareholders. Nevertheless, the company
    must beware the distracting complexity of being a small outfit juggling
    a large portfolio of properties in a region of a world that can have
    its problems. To its advantage though, AAM can boast an impressive
    board of directors of wide ranging experience and connections, and
    some very interesting mineral assets. As such, it merits attention.

    --Boundary_(ID_Ae0dl7wxhUGqVrhiTOv77Q)--
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