WEIGHT OF GOLD

The World Gold Council (WGC) reported that 2023 witnessed the highest global demand for gold in history, nearing 4.9 thousand tonnes. Geopolitical uncertainties and heightened purchases by central banks worldwide are expected to continue this trend in 2024, according to the WGC. The escalating Middle East crisis in October last year further amplified gold's appeal. By early December 2023, gold prices soared to an unprecedented $2100 per ounce, marking a historic milestone. Leading financial institutions speculate that gold may fetch $2200 per ounce by the end of this year.

Azerbaijan's gold mining sector comprises two major players: state-owned AzerGold CJSC and British firm Anglo-Asian Mining (AAM). AzerGold marked a record-high output in 2023, while both companies express optimism for the ongoing year.

High goals

AzerGold CJSC, a state-owned enterprise, initiated operations in 2017 at the Chovdar mine in Dashkasan district. Over the past seven years, the company successfully commissioned three additional gold deposits: Aghyokhush, Merekh, and Tulallar, situated around Chovdar in Dashkasan and Goychay districts. The cumulative commercial reserves of these mines are estimated at 778 thousand ounces. The Aghyokhush mine attained completion in 2021, while the Chovdar, Merekh, and Tulallar mines remain operational.

Concurrently, AzerGold is pursuing exploration and research on gold, copper, and other non-ferrous metal deposits in Nakhchivan Autonomous Republic, Balakan, and Kalbajar districts. AzerGold's chief, Zakir Ibrahimov, confirmed that the company achieved its highest annual production in 2023, yielding 63.7 thousand ounces of gold (a 3% increase from 2022). Silver production in 2023 reached 114.3 thousand ounces.

On December 28, 2023, a new vat leach plant commenced operations in test mode at the Chovdar regional processing site. AzerGold anticipates a 90% gold yield, with an annual ore processing capacity of 1.1 million tonnes. The ₼380 million investment for plant construction was entirely funded by the company's internal resources.

Between 2016 and 2023, AzerGold's cumulative revenue from precious metal sales (gold and silver) totaled ₼1.19 billion. Throughout this period, the company's investments amounted to ₼550 million, of which only 8%, or ₼45 million, was drawn from the state budget.

AzerGold targets a gold production increase to 70 thousand ounces (+9.9% from 2023) and silver production to 156.8 thousand ounces (+37.2% from 2023) for 2024. The company expects to source the entire volume from the aforementioned mines, although it may potentially launch the Agiohush-2 mine this year. A definitive decision on this matter remains pending, with project plans slated for clarification by mid-2024.

AzerGold's corporate development strategy, extending until 2035, outlines ambitious objectives, and the company appears to be advancing steadily toward achieving them. The gold miner intends to develop 11 deposits by 2036, including six gold, one polymetallic, three copper, and one iron ore deposit. Consequently, AzerGold envisions becoming Azerbaijan's largest non-oil company and one of its foremost employers, boasting an annual turnover of $1 billion.

By 2036, AzerGold plans to augment its cumulative revenue to ₼18.5 billion, projecting a ₼24.5 billion contribution to GDP and ₼1.7 billion in direct and indirect tax payments.

Metal of Past and Future

British gold mining company Anglo Asian Mining plc operates under a PSA agreement signed on August 21, 1997, and has charted its own strategic growth plan. The company currently holds development rights to eight contract areas within Azerbaijan.

AAM envisions an increase in precious metal production in Azerbaijan by 2029, with a heightened focus on copper production commencing in 2026. The company anticipates that the contribution of copper production to AAM's revenues will surpass that of gold production, starting from 2026. This strategic shift is in response to copper's significance as a key component in the global transition towards zero-emission energy.

"Production growth up to and including 2027 will be fuelled by the sequential opening of four new mines in Azerbaijan. Copper, being the most important metal for the energy transition to zero-emissions, is expected to be the company's main product starting from 2026. The strategy assumes that the contribution of copper production to AAM's revenues from 2026 will exceed the contribution from gold production," the company stated.

The company plans to commission three new mines—Zafar, Ghilar, and Kharkhar—by the end of 2026, and Garadagh in 2028. Rich in copper, gold, and zinc, the Zafar deposit holds substantial promise. Gilar and Kharkhar boast copper and gold reserves, while Garadagh is anticipated to produce over 300,000 tonnes of copper. AAM's strategic growth plan estimates that the total value of copper production could triple by 2029.

AAM's Gadabay and Gosha fields have been operational since 2009 and 2010, respectively. In 2023 Anglo Asian Mining received 21,758 thousand ounces of gold (-49.5% than in 2022), 2,138 thousand tonnes of copper (-15%), 53,226 thousand ounces of silver (-70.8%). A decline in production was experienced in 2023 due to environmental monitoring and subsequent operational suspension at the Gadabay mine. As AAM seeks to bolster production at Gadabay and commence extraction at Gilar and Zafar, the ultimate objective of its strategic growth plan is to elevate the company's status to that of a mid-tier mining enterprise.

Perspectives on Garabagh and East Zangazur

The restoration of Azerbaijan's territorial integrity and sovereignty has unveiled fresh prospects for AzerGold and Anglo Asian Mining plc to expand their operations. AzerGold has initiated investigations into the illicit exploitation of resources in Garabagh and East Zangazur. Started before the Patriotic War, this process has gained momentum after the liberation of Azerbaijani lands. The company aims to legally assess the actions of Armenia and certain European companies involved in these activities. Moreover, exploration and prospecting activities have begun in the Tutkhun area, situated in the Kalbajar district, with preliminary results proving satisfactory.

So far, exploration works have been carried out only in the territory of 57 sq.km cleared of mines. A further 32 square kilometres of land will be allocated for exploration this year. Currently, specialists from the Mine Action Agency are clearing the area of mines and other unexploded ordnance.

AAM, in turn, was given the opportunity to start preparations for gold mining in the East Zangazur economic region, as well as at the Demirli copper-molybdenum deposit and the Gizilbulag copper-gold deposit (Garabagh). Spanning 462 square kilometres, the Gizilbulag area hosts multiple mines and exhibits excellent exploration potential, as demonstrated by its numerous mineral deposits and known targets. Prior to its recent closure, the Gizilbulag copper-gold mine reportedly produced up to 35,000 ounces of gold annually, indicating the presence of a robust gold mineralisation system.

The Demirli site, adjacent to Gizilbulag, offers the potential for extending the development area towards the north-east. Although unconfirmed, estimates suggest that the deposit contains approximately 275kt of copper and 3.2kt of molybdenum. The Demirli mining complex is already in place, allowing AAM to expedite the development of operations in this region.

AAM also recognises the significant geological exploration potential in the Vejjali contract area (East Zangazur), which was previously subject to illegal gold mining during the Armenian occupation. The company is currently conducting studies to evaluate the economic feasibility of exploiting the underground mine in this area.

Increasing prices

AAM's focus on ramping up copper production in the future comes as no surprise, given the metal's importance for the energy sector. Copper is widely utilized in the manufacturing of wires and cables, as well as in mechanical engineering. It is a critical component for constructing solar and wind power plants, and its high electrical conductivity has earned it the title of the primary metal of electrification. Copper is used in batteries, coils, and wiring for electric cars, and in charging stations. Consequently, demand for copper is on the rise, and the metal is poised to become the "next generation oil," as it is expected to largely replace traditional energy sources. Analysts predict that copper demand will double by 2035, with annual shortages of around 10 million tonnes. Thus, AAM's decision to concentrate its efforts on copper appears to be a farsighted move. This strategic move will serve as another contribution from Azerbaijan to the global challenge of combating climate change and facilitating the world's transition to clean energy.

In early 2024, copper prices experienced a rapid surge, surpassing $8,200 per tonne. Goldman Sachs experts anticipate that the cost of this metal may reach $10,000 per tonne by 2024. Positive momentum is expected to continue into 2025, with copper prices potentially rising to $15,000 per tonne. This projection highlights copper as an asset deserving of special attention.

In contrast, the historical high for gold was recorded at $2,152.3 per ounce on December 4, 2023. Vladimir Pantyushin, a senior analyst at Gazprombank, foresees gold prices reaching a new historic high by the end of 2024, climbing to $2,300 per troy ounce. In the medium term, gold prices are expected to continue rising due to an anticipated 3% annual increase in global wealth.

The anticipation of the US Federal Reserve moving toward interest rate cuts is also fuelling optimistic forecasts for gold and silver prices. Joni Teves, a precious metals analyst at the bank, explains that a weaker dollar would further contribute to this trend. As interest rates decline, gold becomes more attractive compared to alternative investments like bonds. Additionally, lower interest rates weaken the dollar, making gold more affordable for international buyers and stimulating demand.

Amid the deteriorating geopolitical situation in the Middle East last October, gold's significance as a 'safe haven' has grown. Teves asserts that investors will likely turn to gold amidst macroeconomic uncertainty and geopolitical risks. The outlook for silver, often referred to as gold's "poorer cousin," is also positive, with predictions that it will "really shine."

The Silver Institute projects that global silver demand will rise by 1% to 1.2 billion ounces in 2024. If this forecast holds true, it would represent the second-highest level in history. Swiss financial holding company UBS attributes this growth primarily to increased industrial demand. Global silver supply is anticipated to reach 1.02 billion ounces, potentially marking the highest volume in eight years.

In summary, the current state of the gold market is favourable for gold miners, and the optimistic outlook for global precious metal prices provides a basis for expecting a substantial increase in production volumes and revenues from domestic gold sales. This, in turn, will contribute to increased revenue for the state treasury.