That's because shares in Anglo Asian Mining (AAZ: 39p), an Aim-traded gold, silver and copper miner in Azerbaijan, a little-known region of the former Soviet Bloc, soared from 37p to 56p between late June and early October last year, but have since given back all those gains. A close look at the chart and that of the gold price explains why as the yellow metal has slumped in value from $1,800 an ounce in early October to around $1,610 an ounce, which is bang in line with the price at the time I first advised buying shares in the company ('Golden opportunity', 19 Jun 2012). With hindsight, the trade was one where it was 'better to travel than to arrive', because having correctly predicted that the major monetary authorities would be forced into turning on the electronic printing presses on a massive scale due to the deteriorating economic situation in Europe and to prevent the contagion effect spreading, when they obliged this was the signal to take profits on gold-based plays, which had rallied strongly in anticipation of that news.
This is partly because since the US Federal Reserve announced its third round of quantitative easing in the autumn of 2012, investors have refocused their attention and asset allocation towards equities, which have performed strongly in the ongoing 'risk-on' rally. That is rational given that the risk of a break-up in the eurozone is now less likely since the decision of the European Central Bank to launch a bond bazooka in order to drive down peripheral sovereign bond yields and stop the contagion from the region's debt crisis has worked a treat. In turn, sovereign bond prices in Italy and Spain have surged and are now out of the danger zone, which has in turn reduced the risk premium demanded by equity investors to play the markets. The net result is that bonds and equities have enjoyed very benign conditions and precious metals have flagged as the need to hedge against Armageddon in the eurozone has lost some of its lustre.
All of which leaves me with a problem as shares in Anglo Asian Mining have been under pressure even though the investment case and operational progress of the company has been sound. In fact, guidance is for 2013 gold production from Gedabek to increase by approximately a fifth to 60,000 ounces and average cash operating costs to fall from around $650 an ounce last year to between $450 and $500 an ounce once the company's new agitation leaching plant has been commissioned. By the end of 2014, Anglo Asian is targeting annual output of between 80,000 ounces and 90,000 ounces. So, although the current gold price is below the average price of $1,660 an ounce earned on Anglo Asian's sales in 2012, it is clear that the increase in output and sharp fall in costs will significantly underpin profits. It's worth noting, too, that the Azerbaijan government's share in the annual revenue from these mining operations is set to remain at 12.75 per cent in the 2013-14 period.
But these positives count for little with investors right now and, with the gold price trending down and seemingly heading back to a major support area around $1,520 an ounce, there could be yet more downside to come for shareholders of Anglo Asian Mining. So, even though I can see the medium-term potential for the company, we are facing some stiff and very unfavourable headwinds in the near term and I have decided to belatedly sell out at 38p a share - a decision I should with hindsight have made some time ago.
■ Please note that I published two other online columns this week: 'A fundraising well worth backing', 18 February 2013 and A high yield property play in the north, 18 February 2013.
I also released seven online articles last week: 'A share set to hit the jackpot', 'A highly profitable arbitrage play, 'Seeking Alpha among the housebuilders', 'Chart break out for a solid income play', Time to dial into profit', 'Buy the breakout', 'A conundrum to solve', 15 February 2013.
Finally, I will be taking a four-week break during April to complete a book on 'Profitable stockpicking', my follow-up to Trading Secrets: 20 Hard and Fast Rules to Help You Beat the Stock Market. The book will be published in early summer.
MORE FROM SIMON THOMPSON ONLINE...
Since the start of this year I have written no fewer than 33 online articles, all of which are available on my homepage. These include articles on the following companies or investment strategies:
Week of Monday 18 February 2013
Communisis ('A fundraising well worth backing', 18 February 2013)
Town Centre Securities (A high yield property play in the north, 18 February 2013)
Week of Monday 11 February 2013
API (A conundrum to solve, 15 February 2013)
Daejan Holdings (Buy the breakout, 14 February 2013)
IQE (Time to dial into profit, 13 February 2013)
Mountview Estates ('Chart break out for a solid income play', 12 February 2013)
Bellway (Seeking Alpha, 11 February 2013)
Marwyn Value Investors (A highly profitable arbitrage play, 11 February 2013)
Netplay TV (A share set to hit the jackpot, 11 February 2013)
Week of Monday 04 February 2013
Oakley Capital, Randall & Quilter, Inland, Terrace Hill, Heritage Oil, Cairn Energy, Polo Resources, Trifast, Noble Investments, Fairpoint (Bargain Shares for 2013, 8 February 2013)
Telford Homes, MJ Gleeson, Stanley Gibbons, Molins, Indigovision, Trading Emissions, Mallett, Bloomsbury Publishing, Rugby Estates, Eurovestech (How the 2012 Bargain Shares fared, 8 February 2013)
Future (Decision time after a bright start, 5 February 2013)
Sanderson (An 'app' online investment, 5 February 2013)
Aurora Russia ('Time to play Russian Roulette', 4 Feb 2013)
Week of Monday 28 January 2013
BP Marsh & Partners ('Hyper value gains', 31 Jan 2013)
Bellway ('Profit from the London property boom', 30 Jan 2013)
Telford Homes, MJ Gleeson, Mallett, Rugby Estates ('Taking profits after a winning streak', 28 Jan 2013)
Week of Monday 21 January 2013
Market timing ('Lessons to learn', 24 Jan 2013)
Communisis, Netcall ('Bumper trading gains', 23 Jan 2013)
Crystal Amber, API, Sutton Harbour ('More upside to come', 22 Jan 2013)
PV Crystalox Solar ('Seeing the light', 21 Jan 2013)
Week of Monday 14 January 2013
Bloomsbury Publishing ('A publisher for the digital age', 18 Jan 2013)
Housebuilders first-quarter effect and performance table on all my recommendations from the final quarter of 2012 ('Stockpicking Marvels, 16 Jan 2013)
Eros ('A share firmly in the picture', 15 Jan 2013)
Netcall ('Jumping the gun: take two', 15 Jan 2013)
Moss Bros, Communisis ('Jumping the gun', 14 Jan 2013)
Week of Monday 7 January 2013
Stanley Gibbons, MJ Gleeson, Spark Ventures ('Small cap wonders', 11 Jan 2013)
IQE, Trading Emissions ('A tech share worth buying now', 10 Jan 2013)
S&P 500 portfolio of dog shares ('Dog shares barking back', 8 Jan 2013)
Air Partner ('A share ready to take off', 7 Jan 2012)
Week of Monday 31 December 2012
FTSE 100 traded options strategy ('Highly profitable options', 3 Jan 2012)
Telford Homes, MJ Gleeson, Molins, Noble Investments ('Rampant bargain shares', 31 Dec 2012)
