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Gold is still a big winner for this central Asian fund

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Gold bullion prices continued to rally in August, driving strong performance in gold stocks, although that strength wasn’t enough to pull Sturgeon Capital into the green for the month. The fund was down 3.09% for August, bringing its year-to-date returns to -5.1%. Difficult returns in Kazakhstan and Turkey weighed on the Silk Road-focused fund’s returns last month.

Weakness in central Asia

In their August update for investors, which was reviewed by ValueWalk, the Sturgeon Capital team reports that the Kazakh Index KZKAK declined 5.11% in August, while the MSCI Turkey was down 11.23% and the MSCI Russia index fell 4.72%. The Turkish lira lost 4.58%, while the Russian ruble declined 4.92%. The Kazakh tenge declined 0.74%, although the Georgian lari climbed 0.4%.

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Commodities started to correct in August as Brent oil plunged 7.27% and copper fell 4.65%. However, gold bullion prices continued to appreciate during the month, gaining 7.54%.

Gold bullion prices boost returns

Because of gold's strong performance, Centerra Gold and Polymetal were two of Sturgeon's top contributors during the month. Polymetal reported a 22% increase in production year over year to 756 Koz of gold equivalent. The company's EBITDA climbed 34%. The big contributor was the recently opened Kyzyl mine in Kazakhstan.

Georgia Healthcare was also a strong contributor for Sturgeon in August. The company's earnings report revealed a 12.7% increase in revenue and 19.4% increase in EBITDA year over year. Georgia Healthcare's capital expenditures dropped significantly, and the Sturgeon team said this paves the way for a dividend increase in the future.

Gold bullion prices and Developments in Georgia and Uzbekistan

The Sturgeon team reached an out-of-court settlement with Liberty Bank in George, so they have sold their entire stake in the firm.

Georgian Prime Minister Mamuka Bakhtadze announced his resignation earlier this month, citing disagreements with the chairman of the ruling party. One of his biggest achievements was to enact a law requiring that the minimum spend on education be 6% of GDP. Former Interior Minister Giorgi Gakharia succeeded Bakhtadze as prime minister. Because of this, the Sturgeon team remains a bit concerned about the political situation in Georgia now. Gakharia is considered to favor Moscow and was responsible for violence against protesters during the anti-Russia protests in June. The Sturgeon team is watching developments in Georgia closely.

The Uzbekistan central bank eliminated the floating exchange rate corridor for the nation's currency. The Uzbek soum will now be a free-floating currency based on supply and demand. The soum depreciated 8.34% against the U.S. dollar in August.

KazMinerals struck by copper weakness

The fund's three biggest negative contributors were KazMinerals, Alrosa and Soda Sanayii. KazMinerals reported solid operational numbers, but weakness in copper prices caused the company's top line and EBITDA to contract. Despite these issues, management expects to be able to meet their full-year guidance. They also announced plans for US$80 million in capital expenditures on the company's Baimskaya property, which the Sturgeon team said reminded investors of the risks associated with the project. Following the earnings report and these updates, KazMinerals shares corrected along with copper prices.

Alrosa struggled on the back of weakness in the diamond market, which can be linked to economic uncertainty. The company's revenue plunged 21% year over year due to lower sales volumes and prices. Management expects the diamond market to normalize in the second half of the year and is committed to paying 100% of the company's free cash flow as dividends.

Soda Sanayii corrected due to the strong Turkish lira as most of its revenues are based on hard currency.

This article first appeared on ValueWalk Premium

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