Oxus Gold Oxs Ln
December 12, 2004 - 6:26pm EST by
2004 2005
Price: 1.03 EPS
Shares Out. (in M): 0 P/E
Market Cap (in $M): 250 P/FCF
Net Debt (in $M): 0 EBIT 0 0

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Oxus Gold is a gold company listed on the AIM in London. Oxus has one producing asset, Amantaytau (AGF) in Uzbekistan. A second mine, Jerooy, is in Krygyzstan and is scheduled to commence production in 2005. On Nov 14 the company announced that "Total attributable production will rise to 373,000 ounces a year in 2006, from an estimated 75,000 ounces this year and will rise by another 34 % to 500,000 ounces by 2008". This note details why a) this production curve is fairly realistic and leads to an extremely depressed valuation (p/e of 3.4 in 2006); b) these two countries are highly prospective and have some leading companies (Newmont, Centerra) active in gold production and c)Oxus is very cheap compared to these other companies.

Even though I am not a gold bug, I do believe that most investors should have some exposure to gold. The primary reasons include the declining credibility of central banks and the potential devaluation of paper currencies. However, gold is a depleting reserve (like oil) and most large companies have flat or declining production - for example, Newmont's production declined from 7.4 mm ounces in 2003 to 7.1 mm in 2004 and 6.6 mm in 2005. Therefore, it is important to find a company of a smaller size that has significant production and exploration upside (again like oil).

Oxus has a large land position in Uzbekistan and it's AGF property is located on the Tien Shan gold belt close to the Muruntau mine, which is the largest open pit gold mine in the world and is operated by Newmont. The Tien Shan is the second largest gold deposit in the world after the Witwatersrand basin in South Africa and is relatively unexplored. AGF is operated by Oxus and the Uzbek government has a 50% interest. The reserves are 3.3 mm oz and resources are an additional 3.4 mm oz. It is very likely that this resource base will significantly increase. The initial operation will commence mining from only 2 of the 27 known desposits within the AGF license area and the total resource identified by Soviet geologists (including P1 and P2) is a gargantuan 57 mm oz (28.5 mm attributable to Oxus).

The Jeeroy project in Kyrgyzstan is the second largest gold deposit in the Republic (after Centerra's Kumtor deposit) and has a reserve of 2.39 mm oz and a resource of 3.2 mm oz. It is also located on the Tien Shan and is also highly prospective. Oxus raised US$58 mm on Nov 30, 2004, to demonstrate to the Government that the Company has adequate financing for the project. This is expected to lead to reinstatement of the license which was revoked in Aug 2004. However, this remains the most significant risk for the company. Centerra (a spin-off from Cameco) has been operating here since 1997 in a trouble-free basis and Oxus should likely get early approval.

There are a number of valuation measures used in the gold business and each of them demonstrate that Oxus is extremely cheap. The closest comp is Centerra which has a declining production profile - 700k oz in 2005 to 500k oz in 2008 - with a market cap of $1.2 bn and a P/E of 20. Oxus will have ths same attributable production in 2008 and a 2006 P/E of 3.4. Oxus sells at a price/NAV of 0.5 while both Centerra and Newmont trade at a P/NAV of 2x.


1. Reinstatement of the Jeeroy project in Kyrgyzstan since Oxus has raised the required $58mm.
2. High likelihood that Oxus will be acquired. Several companies have visited the properties and conducted preliminary due diligence. However, best timing to sell is when both mines are in production by Q2 2006 and additional reserves/resources have been established.
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