Azerbaijan increases gold production
Review by Caliber.Az

ANALYTICS  19 April 2022 - 13:37

The price of gold has once again started to increase. The gold is considered as a safe haven asset in the context of high inflationary pressure in the United States, an unprecedented build-up of public debt and a sharp increase in imported inflation around the world, exerting pressure on the world reserve currencies. Demand for gold has increased markedly against the background of the conflict in Ukraine and anti-Russian sanctions, and investors are increasingly using gold to hedge the risks. Expecting a large-scale collapse of the stock market this fall, experts believe that global demand for gold may continue for a few more years. Such prospects promise a steady increase in export revenues to Azerbaijan, which is expanding the exploration and development of the new fields. 

In 2021, gold did not add significantly in value amid rising inflation as investors found more profitable tools to protect against rising prices - investments in real estate, stocks and cryptocurrency amid the post-pandemic economic recovery. However, in 2022 these types of assets stopped growing, so investors' interests again shifted to gold. Gold has historically proved its worth under conditions of hyperinflation, moreover, even when inflation was just over 3%, the price of gold was increasing by an average of 14%. 

This year, the effects of imbalance of traditional monetary mechanisms have been felt more strongly, resulting in unprecedented price increase in the U.S.: for example, annual inflation in the country accelerated to 8.5% in the first quarter, the highest since 1981 and this negative trend continues in other parts of the world. It is not surprising that a growing number of investors are  turning their attention to gold, which has traditionally been a safe-haven asset, the demand for which is growing amid inflation and geopolitical instability.  It is not surprising that a growing number of investors are  turning their attention to gold, which has traditionally been a safe-haven asset, the demand for which is growing amid inflation and geopolitical instability. In late March, the international rating agency Fitch Ratings upgraded its forecasts for the value of precious metals in 2022-2024, linking increased demand and prices for gold to the situation around Russia and Ukraine and the growing inflationary pressure in the world. It is not surprising that a growing number of investors are  turning their attention to gold, which has traditionally been a safe-haven asset, the demand for which is growing amid inflation and geopolitical instability. In late March, the international rating agency Fitch Ratings upgraded its forecasts for the value of precious metals in 2022-2024, linking increased demand and prices for gold to the situation around Russia and Ukraine and the growing inflationary pressure in the world. The recent statements of recognized experts in the U.S. on the prospects of the U.S. currency are not encouraging either: for example, CEO of JPMorgan Chase Jamie Dimon said recently that there is a growing risk that the Federal Reserve (Fed) plunges the economy into recession. In turn, according to former U.S. Treasury Secretary Larry Summers, a recession is the "most likely" result for the U.S. economy, recommending that investors buy more gold, silver and cryptocurrencies.  

Traditionally, the price of gold is strongly influenced by the dynamics of profitability on US government bonds and movements in the dollar index. However, this year, the value of this precious metal has also been actively affected by geopolitical risks in Eastern Europe: tensions between Russia and the West increased gold prices in mid-March to an eight-month high of $2,078 per ounce, forcing investors to avoid more risky assets and choose safe investments in precious metals. Despite a certain correction in gold prices in early April, the underlying trends started to strengthen in recent days and the price of the June gold futures on the New York Comex Exchange on Monday exceeded $2,000 per troy ounce. According to the analytical portal DailyFX,  mid-term inflation expectations are changing towards increase and this will probably continue to exert  pressure on the prices of precious metals.   

In this connection, it is possible to expect an increase in quotations on new historical maximums - nearly $2200 for an ounce even taking into account the increase of the discount rate of U.S. Federal Reserve System and some strengthening of US dollar. In the base case scenario for the second quarter of this year, gold quotes will remain in the range of $1800-2000 per troy ounce.  

Thereby, in the nearest some years, it is possible to expect maintenance of high prices on precious metals and global demand will inevitably stimulate companies involved in gold mining. According to the World Gold Council (WGC), in recent years, global gold mining companies are no longer able to find new gold deposits with high precious metal content to compensate for aging deposits. Global gold production has been very rapid and most of the deposits currently in production have been largely depleted. This means that supply of gold in the world market will decrease in the future and accordingly, the price of this precious metal will inevitably rise. Under the present circumstances, WGC experts say, there is a considerable increase of investor interest in the development of numerous small and medium-sized gold deposits in Africa, South-East and Central Asia, Turkey, and, of course, in Azerbaijan.

Thus, the growing global demand for gold is more positive than ever for Azerbaijan, where mining company Anglo Asian Mining (AAM) and state-owned "AzerGold" CJSC plan to expand exploration and increase production of gold-bearing ore at the new deposits and its processing using modern technology. 

In particular, this year AzerGold plans to produce 61,074 ounces of gold and 122,147 ounces of silver. In order to ramp up production, the company has launched work on the underground, sulphide phase of development of Chovdar deposit located in Dashkesan: the forecasted gold reserves at this stage are estimated at 320,000 ounces and recoverable reserves - 212,000 ounces, which exceeds 2016 forecasts by 33,000 ounces. Specifically, according to CJSC, an ore processing plant is under construction at the Chovdar processing facility, which is scheduled to be operational between 2022 and 2023. The tank leaching (CIL) method of ore processing will be used to ensure maximum efficiency. AzerGold will allocate about AZN 73 million for stripping, mining and transportation at the Chovdar site for processing of ore as part of the sulphide phase of development, as well as for grinding of oxide rock from Aghyokhush-2, Mereh and Chovdar deposits. In its turn, in 2022 ore mining will be launched at the new "Tyulallar" mine located in the Gyoygyol region and the ore extracted here will be also sent to a new plant for processing. In the medium term, it is planned to process gold ore from the Narimanli deposit, which was discovered in 2021, at the new plant. A total of AzerGold company plans to put into operation a total of 10 deposits by 2029: four of them are gold deposits, one polymetallic deposit, three copper deposits and two iron ore deposits.

In turn, Anglo Asian Mining (AAM), which mines precious metals from the Gadabay and Gosha contract areas, plans to establish mining at the new Avshanjli deposit in the Gadabay contract area this year. Today AAM also continues appraisal drilling at the new copper-gold deposit "Zafar" and prepares to activate exploration at the "Ordubad" deposit in Nakhchivan AR. It should be noted that by the end of the fiscal year 2021 AAM received a record profit of $37.5 million in Azerbaijan which exceeds the figure of 2020 by 21.35%. In the reporting period, the company produced over 2.18 million tons of ore. Production volumes will increase even more as AAM has discovered a new sub-vertical Hasan gold vein south of the main Gosha gold mine, where geological and structural mapping is currently underway, as well as planning for underground development of the vein. 

However, the most significant event for the country is the preparation for the development of gold deposits on the liberated from the occupation territories of the Karabakh region. In particular, Anglo Asian Mining - the operator of three contractual deposits - Souteli, Gizilbulag and Vejneli - has been activated in this direction. "The company will fully assess the potential of the three contract areas after it receives permission for access from the Azerbaijani government. During the Armenian occupation, all three contract areas were illegally mined: the conflict has caused huge damage to the entire region, so significant investment will be needed to repair and rehabilitate the mines," said Anglo Asian Mining president and CEO Reza Vaziri earlier this year.

Extraction of non-ferrous and precious metals will be set up at the Gashgacay, Elbeydash and Agduzdag ore deposits, which have recently been transferred to Eti Bakır and Artvin Maden in Turkey. This very promising direction: only "Agduzdag" mine, located in Kalbajar region, has explored up to 100 gold-bearing veins with an average gold content of 6.72 grams per ton. In general, according to preliminary expert estimates, the liberated territories have five major deposits of gold and other precious metals with estimated reserves of about 132.4 tons.

In turn, AzerGold also announced the beginning of a program of geological exploration at gold deposits in the Karabakh region, calculated until 2025. In particular, the CJSC started relevant works, including the study of hyperspectral satellite images, carrying out remote sensing (non-invasive) studies to explore potential deposits of gold and other precious metals in the Tutkhun basin and its surroundings - in Orujlu, Bashlibel, Khanlanli, Asrik, etc. These territories should be cleared of mines, and the necessary steps are already being taken in this direction, in order to carry out drilling and other geological prospecting works in the future.

Caliber.Az