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Ariana Resources plc: THE INVESTMENT CASE

Ariana moving on to the second phase of development

"We acknowledge the continuing disconnect between our share price and the value of our assets when assessed in terms of the in-situ value of our resource and reserve ounces."
Kiziltepe
INVESTMENT OVERVIEW: AAU The Big Picture
"Irrespective of any cash flow from Kiziltepe, we believe the share price should be multiples of the current level," Ariana said

The business model of Ariana Resources Ltd (LON:AAU) is not unique in the minerals sector, relying as it does on joint ventures with experienced partners.

It has one commercially producing gold mine in Turkey, Kiziletepe, which is part of the wider Red Rabbit licence that Ariana owns jointly with local partner Proccea Construction.

At full tilt, the mine will churn out 20,000 ounces of the yellow metal a year but Ariana is already taking steps to increase that through exploration of the surrounding area.

Since its operational start-up, gold production has reached around 15,000 ounces and remains on trend above the company’s feasibility target for the project.

The second phase of its development links three strands of its current portfolio: bringing on stream additional resources identified at the Kiziltepe sector; planning and permitting of the Tavşan sector of the Red Rabbit project and continuing the exploration and development of its wholly-owned Salinbaş project.

A scoping study at Tavsan, some 75km away from Kiziltepe, suggests the asset may add a further 30,000 ounces a year to the 20,000 oz expected from Kiziltepe.

The study at Tavsan showed production at that level would cost between US$559-630/oz over the expected four-year mine life and generate a net present value of US$41.9mln at a gold price of US$1,250.

This is a return of 80% on the expected US$20mln build cost plus operating expenses.

Meanwhile, it has been Ariana’s long-held view that Salinbaş, located within the 'Hot Gold Corridor', contains resources well in excess of the one million ounces thus far identified.

The company has already seen interest in its Salinbas project following the takeover of Mariana Resources by mining royalty group Sandstorm, its managing director Kerim Sener has told Proactive.

Mariana Resources’ (LON:MARL) key asset is the keenly awaited Hot Maden gold project that it is developing with Turkish partner Lidya.

Ariana has acreage at Hizarliyayla on its Salinbas licence, that is just 8km from Hot Maden while other parts lie in what is fast becoming a substantial gold mining district in the country, says Sener.

“It is an area that, along with Hot Maden, is proving to be an exceptionally prospective goldfield with multi-million-ounce potential," Sener said.

Given the potential significance of this resource, Ariana believes it is important that the resource potential is defined more accurately before it enters into any discussions with potential future partners.

Making the transition to being self-funding

In 2017, the company booked a post-tax profit of £424,000 as the Kiziltepe gold project came into production.

The overall share of the profits due to Ariana from the joint venture that owns Kiziltepe amounted to a handsome £1.83mln, as the mine begins to hit its stride.

The company also had nearly £800,000 in the bank at year-end.

“Due to the strong operational cash flow from Kiziltepe, we have been receiving inter-company loan repayments from the JV [joint venture] to our wholly owned subsidiary, Galata Madencilik San ve Tic Ltd during Q1 2018. These repayments are continuing and are expected to be made on a monthly basis, enabling the company to become self-financing during 2018," Sener told shareholders.

The company is not ruling out more equity issued but says it is “no longer totally beholden to the market for funding”.

Any future share issues are likely to take the form of open offers to existing shareholders, although the company has also considered convertible debt facilities coupled to operational cash flow.

The group's financial position remains strong with net current assets of £3.3 million and total net assets of £19.7 million.

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