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Ariana Resources PLC - FINAL RESULTS FOR THE YEAR 31 DECEMBER 2019

RNS Number : 2060U
Ariana Resources PLC
28 July 2020
 

 

 

 

 

 

28 July 2020

AIM: AAU

 

FINAL AUDITED RESULTS FOR THE YEAR 31 DECEMBER 2019

NOTICE OF ANNUAL GENERAL MEETING ("AGM")

 

 

Ariana Resources plc ("Ariana" or "the Company"), the AIM-listed exploration and development company operating in Europe, announces its final audited results for the year ended 31 December 2019. 

 

The Report and Accounts will be posted to shareholders as applicable, and are available on the Company's website www.arianaresources.com, together with the Notice of AGM, and extracts are set out below.

 

The AGM will be held at 2nd Floor, Regis House, 45 King William Street, London, EC4R 9AN on 28 August 2020 at 12.00 noon.

 

Chairman's Statement

 

Fellow shareholders,

 

I am pleased to report on the Company's audited results for the year ended 31 December 2019. This has been another outstanding year for Ariana, which has delivered production and profitability well above its plans. The Kiziltepe Mine, which is held within Zenit Madencilik San. ve Tic. A.S. (a 50:50 JV with Proccea Construction Co.), achieved gold production of 27,985 ounces, 12% above production guidance at an average cash cost of just US$507/oz. This, once again, places the Kiziltepe Mine comfortably amongst the lowest-cost gold producers in the world. The profitability from our Turkish operations has enabled Ariana to report a significant improved earnings per share of 0.65 pence and a price earnings ratio of 6, which is a respectable position in the junior gold mining sector.

 

Production at the Kiziltepe Mine has remained well above the planned feasibility rates since start-up in 2017, resulting in accelerated depletion of the Arzu South open-pit. Post-period end, this enabled timely completion of repayments against the US$33 million capital expenditure loan, in addition to the JV partners receiving a return of capital invested and their respective share of profits. This allowed for the payment of a maiden dividend of £1.6 million from our Turkish operating subsidiary to Ariana Resources plc, representing the first profit cash-flow in the Company's history. This places Ariana in a particularly strong position in a time of general uncertainty. We are, therefore, well-placed to deploy our resources to the ongoing development of our existing portfolio of wholly-owned projects in Turkey, particularly Salinbas, as well as our new earn-in on Cyprus-focused Venus Minerals.

 

At Kiziltepe, resource extension work was completed earlier this year, which is currently targeting an extension of the life of mine to a total of 10 years. In addition, further drilling and resource work is currently being undertaken at Kiziltepe to test down-dip extensions of the Arzu South vein with a view to assessing possible underground or additional open-pit potential. Similar resource extension and other project development work has been completed at Tavsan with a view to bringing this project into production from 2022. Salinbas has also seen extensive work during the year, achieving proof of concept on both the origin and potential extent of this very large mineral system. The area has attracted significant international interest following the spectacular recent drilling results from the nearby Hot Maden project, validating the perceptive decision by Ariana to continue investing in this region.

 

The new year started positively for the Company, with management able to report excellent first quarter production results and guidance for the year well above the feasibility plan. This sound start to the year has, however, been overshadowed by the scale and significance of the COVID-19 pandemic sweeping across the world, touching all of our lives. Having seen, early on in my mining career in Namibia, some of the gruesome consequences of the 1918 Spanish Flu epidemic, I am well aware of the serious impact this could have on both our personal and business lives. The Ariana and Zenit management teams have put in place all the recommended procedures for the well-being and safety of our employees and contractors at both exploration and mining sites, allowing operations to continue unhindered. I must pay tribute to all the people working for Ariana and those at the Kiziltepe Mine for their prompt and no-nonsense approach in adjusting to the required precautionary steps and then just getting on with life. By facing these challenges head on and adopting new working practices we have been able to operate much as we did before. Thus far, we have not had any incidence of COVID-19 in any of our spheres of operations.

 

The business of mineral exploration is well versed in the process of defining uncertainty and risk and is also adept at managing these factors, evidenced by the way in which both current exploration and mining operations have adapted to this current climate of uncertainty. Our industry has been a long-term adopter of remote work and distributed working teams, and for a while it has been the norm for our work to be carried out in the field on one continent and be collated and analysed on another. Despite international travel restrictions, it is a great credit to our dedicated team that they have been able to carry on with normal work commitments, enabling us to meet all our ongoing work and reporting requirements within a reasonable timeframe. We will continue to review ways we might need to adapt in response to this worldwide crisis in order to mitigate risks and to continue working effectively. 

 

The last financial year has been particularly good for gold but not quite so for silver. As the bulk of Ariana's production revenue (>85%) comes from gold, the lacklustre silver price in response to market sentiment has not had a material impact on overall revenue. Interestingly, the gold-silver ratio has for most of modern history been around 1 to 50, while the current ratio is closer 1 to 100; a marked departure from the norm, which is an indication that the silver price is overdue for a positive correction. The diverse industrial usage of silver is an additional driver for the market price firming, including the requirement for silver in medical and anti-viral/microbial settings. Copper, while not yet part of our current revenue stream, but part of our exploration portfolio, is also likely to see a price improvement following a post-pandemic price correction. It already has a broad base of demand in the evolving electrification of vehicles and other low-carbon technological developments, but is now being mooted as having anti-viral/microbial uses where it could be applied to frequently touched surfaces. This may well become an industry standard following the experience of our current crisis.

 

Meanwhile, the long-term trend for gold has been upwards for much of the last two decades and there is little to detract from this trajectory. Increasing levels of global uncertainty, marked differences between the paper and physical prices of precious metals, physical accumulation by hoarders, central banks and exchange-traded funds ('ETFs'), and the expansive nature of government spending will all undoubtedly result in hard currency inflation, all of which support the long-term price of our primary product, gold. Gold is, after all, a currency without a government. Ariana is well placed, both in terms of its balance sheet and its project portfolio of the correct metals, to prosper through the coming years.

 

With this long-term perspective in mind across our commodities of prime interest, the Company has been exceptionally busy on the exploration and development front during the past year. We have made significant progress across our pipeline of strategic projects in Turkey and for our new earn-in focused on Cyprus. For the latter, we are not alone in recognising the potential of this ancient source of copper, which also appears to host significant and previously unrecognised gold potential. Consequently, Ariana is very well positioned to deploy existing resources and attract other industry partners to contribute to the development of an attractive portfolio of prospective development assets. With the shake-up in the resources sector, it is probable that we will see other industry sectors, such as energy, starting to look at the minerals sector to progress their long-term green development objectives, given that the decarbonisation agenda requires the identification and consumption of substantial mineral resources.

 

Exploration like all other frontier industries is only as successful as its philosophy will allow it to be. It is on reflection of this that I think of how the legendary geologist J David Lowell, the world's best mine finder, expressed himself. He was noted for saying he was good at being wrong and was never afraid of that. Drilling out a 'duster' was nothing to be afraid of, as the mistake would have been not to try. You had to ignore existing dogma in order to have a chance of success. Above all else he was successful at finding some of the best mines in the world today, over one of the longest careers in our industry. It is particularly poignant that such a legendary man should pass at the ripe old age of 92 in the very year that we need such courage and inspiration. I think that we should all take a leaf out of his book as we step out into this changed new world to find the materials we need to build our future.

 

Like all companies, Ariana exists for the benefit of its stakeholders and in particular its shareholders, who must be rewarded through increasing market capitalisation and a potential dividend stream. Your Board remains focused on these outcomes and we are particularly pleased to see that the market price of Ariana shares is substantially higher than it was this time last year. The Board would particularly like to thank its shareholders for the close and personal interest you have shown in the Company over the last few years. We appreciate your support and we look forward to meeting you on future occasions. It seems unlikely we will be able to hold face-to-face meetings or the AGM as we have done before, and we are instead looking at participating in virtual events accordingly. Either way, we would like to ask you all to exercise your proxy votes well in advance of the AGM date, as it is unlikely that we will be able to accommodate online voting at this stage. We look forward to the day when we are all able to meet in the same room as before.

 

Last but not least I would like to thank our employees, professional advisors and our joint venture partners for their dedication and support in helping Ariana achieve its ongoing success.

 

Michael de Villiers

Chairman

 

 

 

 

Financial Review

The Group's profit after tax grew by more than threefold in the year under review rising to £6.9m (2018: £2.2m) primarily due to the excellent operational performance of our Joint Venture investment in Zenit.  This company's turnover grew by 21% reflecting the favourable movement in the gold price and increased production year on year, with their profits after tax rising from £7.4m to £15.8m, our 50% share of which amounted to £7.9m (2018: £3.7m).  The year's performance also benefited from the disposal of our Kiziltepe property owning subsidiary, Camyol, being sold to Zenit at a book profit of £0.6m. The Directors are confident that Zenit will continue to finance the Group's operations for the foreseeable future through dividends declared and paid over the course of the year.

 

Aside from the performance of Zenit, the results are generally consistent with the prior year, with administrative costs slightly improved at £1.2m, and net exploration costs written off also broadly consistent amounting to £0.4m (2018: £0.3m).  The effect of the declining value of the Turkish Lira on the underlying value of our subsidiaries in Turkey is £0.4m better than the previous year, but still a significant cost reflected though Other Comprehensive Income at £1.8m. Nonetheless, our earnings per share has shown a very healthy increase from 0.21 pence per share in 2018 to 0.65 pence per share in 2019.

 

Our net assets as recorded in the Statement of Financial Position have increased by £5.3m primarily on account of our share of the net assets of Zenit increasing by £3.8m. The Company also capitalised a further £0.5m of expenditure within intangible exploration assets, being our Turkish exploration work, as well as incurring a further £0.5m of expenditure included within debtors on our Cypriot project, ahead of it being converted into shares under our earn in agreement with Venus Minerals Limited in May 2020.

 

Overall this was a very satisfactory year for the Group from a financial perspective, and we look forward to building on these foundations to enhance our performance for our shareholders going forward.

 

 

Outlook

During 2019, Ariana consolidated its position as a sustainable mineral exploration and development enterprise. This has established a solid platform on which Ariana can develop its strategy, which is all the more important given the current global challenges.

 

We have started 2020 facing several new and unexpected circumstances. The developing trade-war between the USA and China, coupled with decadal lows in the oil price, have now been compounded by the COVID-19 virus pandemic originating in China. At the time of writing, the pandemic has sadly had a significant cost in human lives and is creating a profound global economic shock in its wake. Factories in China, which are attempting to gear-up following a reduction in output in the early phase of the pandemic, are now producing for a market that no longer exists; the rest of the world economy is in the process of severe contraction. As the consumer-producer dynamic becomes strained, supply lines are becoming choked. Meanwhile, to try and save the day, governments are scrambling to apply a band-aid to systemic problems with an obscenely leveraged and derivatives driven global financial system based on the US dollar.

 

What this will mean for commodity markets and producers is, as yet, unknown. However, as a gold producer, we are expecting that demand for the ultimate form of money will continue unabated. Unlike paper money, gold does not represent debt (a consequence of fractional-reserve banking), it presents no counterparty risk and acts as the only real hedge against inflation in the long term. It is no surprise that central banks around the world, particularly those which wish to maintain some resilience and independence outside of the US dollar denominated global order (including Turkey), have been buying gold in ever increasing amounts during recent years. In fact, central bank gold purchases in 2018 and 2019 were at 50-year highs as part of this effort to spread risks away from the US dollar, with some 650 tons of gold added to central bank reserves in 2019. Consequently, we are in the fortunate position of producing the only commodity which represents the ultimate final form of payment for the international banking system. Whatever the headwinds, this financial demand will remain.

 

Operationally we are well-positioned to take advantage of these unusual circumstances. Despite the current crisis, we have been fortunate in the commitment of our staff in the UK and Turkey at a time when families and communities have been under great strain. We have also seen a very supportive approach to our business at both local and national government levels in Turkey.  Our JV operation at Kiziltepe is continuing to produce gold and silver at high margins due to the low-cost operating environment. This has resulted in sufficient cashflow to satisfy our operational requirements and has created opportunities to diversify and make new investments, such as Venus Minerals. Our portfolio of assets and investments represents projects at every stage of a self-sustaining investment cycle, which we have spent the past 15 years developing methodically as part of our long-term strategy. In addition to an operating mine, this includes near-term development assets, a major large-scale exploration asset, and is supported by both current and nascent investments.

 

We are a unique exploration and development company, with a strategy geared toward longevity, sustainability and the growth of value in the long-term, which is ultimately underpinned and driven by our exploration success. At the beginning of a new and uncertain decade, we look forward to the future and remain resolved on delivering upon the immutable certainty of pure gold.

 

Dr Kerim Sener

Managing Director

 

 

 

 

 

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2019

 

 

Continuing operations

Note

2019

£'000

2018

£'000

 

 

 

 

Administrative costs

 

(1,242)

(1,355)

General exploration expenditure

 

(18)

(153)

Intangible exploration assets - written off

11

(364)

(181)

Other gains

4

627

-

Other income

 

61

-

Operating loss

5

(936)

(1,689)

Profit/(loss) on disposal of equity securities at FVOCI

13

20

(2)

Share of profit of Joint Venture accounted for using the equity method

6

7,891

3,710

Investment income

 

5

158

Profit before tax

 

6,980

2,177

Taxation

8

(46)

-

Profit for the year from continuing operations

 

6,934

2,177

Earnings per share (pence) attributable to equity holders of the company

 

 

 

Basic and diluted

10

0.65

0.21

 

Other comprehensive income

 

 

 

Items that are or may be reclassified subsequently to profit or loss:

 

 

 

Exchange differences on translating foreign operations

 

(1,774)

(2,162)

Items that will not be classified subsequently to profit or loss:

 

 

 

Net change in fair value of equity securities at FVOCI

13

49

(26)

Other comprehensive loss for the year net of income tax

 

(1,725)

(2,188)

Total comprehensive profit/(loss) for the year

 

5,209

(11)

 

The accompanying notes form part of these financial statements.

 

 

 

 

 

 

 

 

 

Consolidated Statement of Financial Position

For the year ended 31 December 2019

 

 

Note

2019

£'000

2018

£'000

Assets

Non-current assets

 

 

 

Trade and other receivables

15

93

83

Intangible exploration assets

11a

16,404

16,975

Intangible assets

11b

187

-

Land, property, plant and equipment

12

50

278

Investment in Joint Venture accounted for using the equity method

6

7,768

3,968

Total non-current assets

 

24,502

21,304

Current assets

 

 

 

Trade and other receivables

16

4,574

1,860

Equity securities at FVOCI

13

-

35

Cash and cash equivalents

 

453

938

Total current assets

 

5,027

2,833

Total assets

 

29,529

24,137

Equity

 

 

 

Called up share capital

18

6,054

6,054

Share premium

18

11,821

11,821

Other reserves

 

720

720

Share based payments

18

364

250

Translation reserve

 

(5,970)

(4,196)

Retained earnings

 

12,298

5,315

Total equity attributable to equity holders of the parent

 

25,287

19,964

Total equity

 

25,287

19,964

Liabilities

 

 

 

Non-current liabilities

 

 

 

Deferred tax liabilities

19

2,273

2,273

Other financial liabilities

20

1,651

1,651

Total non-current liabilities

 

3,924

3,924

Current liabilities

 

 

 

Trade and other payables

17

318

249

Total current liabilities

 

318

249

Total equity and liabilities

 

29,529

24,137

 

The accompanying notes form part of these financial statements.

 

 

 

 

 

 

Company Statement of Financial Position

For the year ended 31 December 2019

 

 

Note

2019

£'000

2018

£'000

Assets

Non-current assets

 

 

 

Trade and other receivables

15

8,508

9,749

Investments in group undertakings

14

365

337

Total non-current assets

 

8,873

10,086

Current assets

 

 

 

Trade and other receivables

16

534

-

Equity securities at FVOCI

13

-

35

Cash and cash equivalents

 

-

-

Total current assets

 

534

35

Total assets

 

9,407

10,121

Equity

 

 

 

Called up share capital

18

6,054

6,054

Share premium

18

11,821

11,821

Share based payments reserve

18

364

250

Retained earnings

 

(8,838)

(8,010)

Total equity

 

9,401

10,115

Liabilities

Current liabilities

 

 

 

Trade and other payables

17

6

6

Total current liabilities

 

6

6

Total equity and liabilities

 

9,407

10,121

Company's loss for the financial year

 

828

907

 

The accompanying notes form part of these financial statements.

 

 

 

 

Consolidated Statement of Changes in Equity

For the year ended 31 December 2019

 

 

Share

capital

£'000

Share

premium

£'000

Other

reserves

£'000

Share

based

payments

reserve

£'000

Translation reserve

£'000

Retained

earnings

£'000

Total attributable to equity holders of parent

£'000

Changes in equity to

31 December 2018

 

 

 

 

 

 

 

 

Balance at 1 January 2018

6,054

11,821

720

93

(2,034)

3,071

19,725

 

Profit for the year

-

-

-

-

-

2,177

2,177

 

Other comprehensive income

-

-

-

-

(2,162)

(26)

(2,188)

 

Total comprehensive income

-

-

-

-

(2,162)

2,151

(11)

 

Share options

-

-

-

250

-

-

250

 

Transfer of share options

-

-

-

(93)

-

93

-

 

Transactions with owners

-

-

-

157

-

93

250

 

Balance at 31 December 2018

6,054

11,821

720

250

(4,196)

5,315

19,964

 

Changes in equity to

31 December 2019

 

 

 

 

 

 

 

 

Profit for the year

-

-

-

-

-

6,934

6,934

 

Other comprehensive income

-

-

-

-

(1,774)

49

(1,725)

 

Total comprehensive income

-

-

-

-

(1,774)

6,983

5,209

 

Share options

-

-

-

114

-

-

114

 

Transactions with owners

-

-

-

114

-

-

114

 

Balance at 31 December 2019

6,054

11,821

720

364

(5,970)

12,298

25,287

 

 

The accompanying notes form part of these financial statements.

 

 

 

Company Statement of Changes in Equity

For the year ended 31 December 2019

 

 

Share

capital

£'000

Share

premium

£'000

Share

based

payments

reserve

£'000

Retained

earnings

£'000

Total

£'000

Changes in equity to

31 December 2018

 

 

 

 

 

Balance at 1 January 2018

6,054

11,821

93

(7,196)

10,772

Loss for the year

-

-

-

(907)

(907)

Other comprehensive income

-

-

-

-

-

Total comprehensive income

-

-

-

(907)

(907)

Share options

-

-

250

-

250

Transfer of share options

-

-

(93)

93

-

Transactions with owners

-

-

157

93

250

Balance at 31 December 2018

6,054

11,821

250

(8,010)

10,115

Changes in equity to

31 December 2019

 

 

 

 

 

Loss for the year

-

-

-

(828)

(828)

Other comprehensive income

-

-

-

-

-

Total comprehensive income

-

-

-

(828)

(828)

Share options

-

-

114

-

114

Transactions with owners

-

-

114

-

114

Balance at 31 December 2019

6,054

11,821

364

(8,838)

9,401

 

 

 

 

 

Consolidated Statement of Cash Flows

For the year ended 31 December 2019

 

 

2019

£'000

2018

£'000

Cash flows from operating activities

 

 

Profit for the year

 6,934

2,177

Adjustments for:

 

 

Profit on disposal of land owning operations

(627)

-

(Profit)/loss on disposal of equity securities at FVOCI

(20)

2

(Profit) on disposal of equipment

(53)

-

Depreciation of non-current assets

20

1

Write down of intangible exploration assets

364

181

Fair value adjustments

(49)

26

Share of profit in Joint Venture

(7,891)

(3,710)

Share based payments charge

114

250

Investment income

(5)

(158)

Income tax expense

46

-

Movement in working capital

(1,167)

(1,231)

Decrease in trade and other receivables

918

183

Increase/(decrease) in trade and other payables

253

(49)

Cash outflow from operating activities

4

(1,097)

Taxation paid

(8)

-

Net cash from operating activities

(4)

(1,097)

Cash flows from investing activities

 

 

Purchase of land, property, plant and equipment

(12)

(36)

Payments for intangible assets

(516)

(353)

Proceeds from disposal of equity securities at FVOCI

104

146

Proceeds from disposal of equipment

55

-

Dividends from Joint Venture

-

1,369

Investment income

5

158

Net cash used in investing activities

(364)

1,284

Net (decrease)/increase in cash and cash equivalents

(368)

187

Cash and cash equivalents at beginning of year

938

773

Exchange adjustment on cash and cash equivalents

(117)

(22)

Cash and cash equivalents at end of year

453

938

 

 

 

Company statement of cash flows

For the year ended 31 December 2019

 

All bank transactions are undertaken by Ariana Exploration & Development Limited on behalf of Ariana Resources PLC and recharged accordingly.  As such the Company had no cash transactions directly, as was the case in 2018.

 

The accompanying selected notes form part of these financial statements.  The full financial statements are being posted to shareholders and being made available as a digital document on the Company's website: www.arianaresources.com

 

 

 

Selected Notes to the Consolidated Financial Statements for the year ended 31 December 2019

 

1. General Information

 

Ariana Resources PLC (the "Company") is a public limited company incorporated, domiciled and registered in the UK. The registered number is 05403426 and the registered address is 2nd Floor, Regis House, 45 King William Street, London, EC4R 9AN.

 

The Company's shares are listed on the Alternative Investment Market of the London Stock Exchange. The principal activities of the Company and its subsidiaries (together the "Group") are related to the exploration for and development of gold and technology-metals, principally in Turkey.

 

The consolidated financial statements are presented in Pounds Sterling (£), which is the parent company's functional and presentation currency, and all values are rounded to the nearest thousand except where otherwise indicated. The financial information has been prepared on the historical cost basis modified to include revaluation to fair value of certain financial instruments and the recognition of net assets acquired including contingent liabilities assumed through business combinations at their fair value on the acquisition date modified by the revaluation of certain items, as stated in the accounting policies.

 

Basis of Preparation

 

The Group financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards as adopted by the EU ("Adopted IFRSs") and effective for the Group's reporting for the year ended 31 December 2019.

 

The separate financial statements of the Company are presented as required by the Companies Act 2006. As permitted by that Act, the separate financial statements have been prepared in accordance with IFRS. These financial statements have been prepared under the historical cost convention (except for financial assets at FVOCI) and the accounting policies have been applied consistently throughout the period.

 

Going Concern

 

These financial statements have been prepared on the going concern basis.

 

The Directors are mindful that there is an ongoing need to monitor overheads and costs associated with delivering the exploration programme and to raise additional working capital to support the Group's specific activities on occasion. The Group has no bank facilities and has been meeting its working capital requirements from cash resources. At the year end the Group had cash and cash equivalents amounting to £453,000 (2018: £938,000). Since the year end the Group has received the outstanding consideration owed for the sale of its land owning subsidiary and the part repayment of a loan from Zenit, amounting in total to £3.3m.

 

The Directors have prepared cash flow forecasts for the Group for the period to 31 July 2021 based on their assessment of the prospects of the Group's operations. The cash flow forecasts include expected future cash flows from our Joint Venture investment in Zenit Madencilik San. ve Tic. A.S. ("Zenit"), be they loan repayments or dividends paid, along with the normal operating costs for the Group over the period together with the discretionary and non-discretionary exploration and development expenditure. The forecasts indicate that on the basis of existing cash and other resources, and expected future repayments of loans and dividend payments from Zenit, the Group will have adequate resources to meet all its expected obligations in delivering its work programme for the forthcoming year. In the event that the forecast cash flow from Zenit is not forthcoming, the Group has the ability to reduce its operating expenditure and in particular its discretionary exploration expenditure, in order to assist the Group to meet its financial obligations as they fall due.

 

If this should not prove adequate to meet the Group's financial obligations, the Directors would be obliged to consider a variety of options as regards to the financing of the Group going forward, and this may include an equity raise via an open-offer if thought appropriate. Despite challenging capital markets for junior exploration and mining companies, the Company and Group have been successful historically in raising equity finance and in light of this, the directors have a reasonable expectation of securing sufficient funding to continue in operational existence for the foreseeable future. For these reasons, they continue to adopt the going concern basis in preparing the consolidated financial statements.

 

The Group believes there should be no significant material disruption to the mining operations in Zenit from COVID-19, but the Board continues to monitor these risks and Zenit's business continuity plans.

 

In preparing these financial statements the Directors have given consideration to the above matters and on this basis they believe that it remains appropriate to prepare the financial statements on a going concern basis.

 

6. Share of profit of interest in Joint Venture

 

In July 2010 the Group entered into an agreement with Proccea Construction Co. ("Proccea") such that Galata Madencilik San. ve Tic. Ltd. ("Galata") would transfer its principal assets at Kiziltepe and Tavşan, collectively known as the "Red Rabbit Gold Project" into a new wholly owned subsidiary, Zenit Madencilik San. ve Tic. A.S. ("Zenit"). Proccea earned their 50% share in Zenit by investing US$8 million in the capital of Zenit, US$1.4 million of such funds having been spent on a Feasibility Study and an Environmental Impact Assessment ("EIA"), with the balance on initial mine construction, once the Feasibility Study and EIA were completed satisfactorily. Shareholdings in Zenit represents the ratio of 50% to the Group and 50% to Proccea, with Proccea in management control, but with key decisions requiring approval from both the Group and Proccea.

 

Zenit entered production during March 2017, with commercial production declared from 1 July 2017. Operational revenues and costs arising from pre-commercial production were capitalised in 2017 along with any new capital expenditure incurred during 2018 including the construction of the district road diversion necessary for the full development of the Arzu South open pit. Total revenue for the year was c. US$45.1m (2018: US$37.8 m) in gold and silver sales.

 

The liability of the Joint Venture includes current and non-current portions of a bank loan repayable to Turkiye Finans Katilim Bankasi A.S. Management does not foresee any significant restrictions on the ability of the Joint Venture to repay this loan.

 

The Group accounts for its Joint Venture with Proccea in Zenit using the equity method in accordance with IAS 28 (revised). At 31 December 2019 the Group has a 50% (2018: 50%) interest in Zenit. Ultimately profits from Zenit are shared in the ratio of 50:50 between the Group and Proccea.

 

Principal place of business for Zenit is Ankara, Turkey. Zenit was also incorporated in Ankara, Turkey.

 

Financial information of the Joint Venture, based on its translated financial statements, and reconciliations with the carrying amount of the investment in the consolidated financial statements are set out below:

 

 

 

Statement of Comprehensive Income

For the year ended 31 December 2019

2019

£'000

2018

£'000

 

 

 

Revenue

35,337

29,254

Cost of sales

(15,444)

(13,548)

Gross Profit

19,893

15,706

Administrative expenses

(1,636)

(969)

Operating profit

18,257

14,737

Finance expenses including foreign exchange losses

(4,762)

(12,196)

Finance income including foreign exchange gains

2,667

4,552

Profit before tax

16,162

7,093

Taxation charge/(credit)

(380)

327

Profit for the year

15,782

7,420

Proportion of the Group's profit share

50%

50%

Group's share of profit for the year

7,891

3,710

 

 

Statement of financial position

As at 31 December 2019

2019

£'000

2018

£'000

 

 

 

Assets

Non-current assets

 

 

Other receivables

440

513

Intangible exploration assets

837

370

Kiziltepe Gold Mine (including capitalised mining costs, land, property, plant and equipment)

23,275

24,538

Total non-current assets

24,552

25,421

Current assets

 

 

Cash and cash equivalents

7,184

3,570

Trade and other receivables

752

1,098

Inventories

1,745

1,474

Other receivables, VAT and prepayments

2,187

1,074

Total current assets

11,868

7,216

Total assets

36,420

32,637

Liabilities

 

 

Non-current liabilities

 

 

Borrowings

3,241

8,959

Asset retirement obligation

1,000

978

Total non-current liabilities

4,241

9,937

Current liabilities

 

 

Borrowings

5,776

9,272

Trade payables

1,883

2,081

Other payables (including shareholder loans)

8,984

3,411

Total current liabilities

16,643

14,764

Total liabilities

20,884

24,701

Equity

15,536

7,936

Proportion of the Group's profit share

50%

50%

Carrying amount of investment in Joint Venture

7,768

3,968

Movement in Equity - our share

 

 

Opening balance

3,968

2,467

Profit for the year

7,891

3,710

Translation and other reserves

(1,049)

(840)

Dividend receivable

(3,042)

(1,369)

Closing balance

7,768

3,968

 

 

 

10. Earnings per share on continuing operations

 

The calculation of basic profit per share is based on the profit attributable to ordinary shareholders of £6,934,000 (2018: £2,177,000) divided by the weighted average number of shares in issue during the year being 1,059,677,953 shares (2018: 1,059,677,953). There is no material effect on the basic earnings per share for the dilution provided by the share options.

 

11a. Intangible exploration assets

 

 

Deferred exploration expenditure

£'000

 

Cost

 

At 1 January 2018

17,527

Additions and capitalised depreciation

369

Exchange movements

(740)

Expenditure written off

(181)

At 31 December 2018

16,975

Additions and capitalised depreciation

516

Reclassification of expenditure

(206)

Exchange movements

(517)

Expenditure written off

(364)

At 31 December 2019

16,404

Net book value

 

At 1 January 2018

17,527

At 31 December 2018

16,975

At 31 December 2019

16,404

 

 

None of the Group's intangible assets are owned by the Company.

 

On review of the likely recovery of the costs capitalised as intangible exploration assets management has determined that £364,000 (2018: £181,000) is not recoverable and hence written off these costs.

 

The technical feasibility and commercial viability of extracting a mineral resource are not yet fully demonstrable in the above intangible exploration assets. These assets are not amortised, until technical feasibility and commercial viability is established. Intangible exploration costs written off represent costs relating to certain projects that are no longer considered economically viable or where exploration licences have been relinquished.

 

 

 

 

15. Non-current trade and other receivables

 

 

Group

Company

 

2019

£'000

 2018

£'000

2019

£'000

 2018

£'000

 

 

 

 

 

Amounts owed by Group undertakings

-

-

8,508

9,749

Other receivables

93

83

-

-

 

93

83

8,508

9,749

 

 

Other receivables falling due after more than one year represent amounts due from the government of Turkey in respect of VAT relating to the Group's exploration projects. The amounts owed to the Company by Group undertakings are interest free and repayable on demand.

 

 

16. Trade and other receivables

 

 

Group

Company

 

2019

£'000

 2018

£'000

2019

£'000

 2018

£'000

 

 

 

 

 

Amounts owed by Joint Venture Company

3,383

1,402

-

-

Other receivables

598

442

-

-

Earn-In advances

534

-

534

-

Prepayments

 59

16

-

-

 

4,574

1,860

534

-

 

 

The amount repayable to Galata Madencilik San. ve Tic. Ltd. by the Joint Venture Company ("Zenit") has no scheduled repayment terms and is repayable on demand. The prior year loan amounting to £1,402,000 was settled by Zenit in full during the year. Interest is not charged by Galata Madencilik San. ve Tic. Ltd. on dividends declared, but unpaid by Zenit.

 

Trade and other receivables include Earn-In advances of £534,000 which relate to Venus Minerals Ltd ("Venus"), an entity focused on the exploration and development of copper and gold on the island of Cyprus. Ariana Resources PLC has the option to acquire up to 50% of Venus through an earn-in agreement, requiring total expenditure of 3.0M Euro over five years. Investment rights continue to accrue as at 31 December 2019 on expenditure of 0.6M Euros. This capital expenditure has been carried forward under other receivables as at 31 December 2019, pending conversion into ordinary shares in Venus (post-period end, in May 2020, total expenditure to date of 0.92M Euros was converted to shares comprising 9.24% of Venus). Additional capital support has been agreed, in principal under the terms of the earn-in agreement, by the Board of up to a further 2.08M Euros over the next three years.  Ariana has the option to cease funding unilaterally at any point in time but is committed under the terms of the earn-in agreement to a minimum expenditure per annum  of 0.5M Euros during the option exercise period from October 2019 to October 2022, such that the minimum total expenditure commitment is greater than 1.0M Euros.

 

The carrying values of other receivables approximate their fair values because these balances are expected to be cash settled in the near future.

 

17. Trade and other payables

 

 

Group

Company

 

2019

£'000

2018

£'000

2019

£'000

2018

£'000

 

 

 

 

 

Trade and other payables

109

104

-

-

Social security and other taxes

66

22

-

-

Other creditors and advances

7

10

-

-

Accruals and deferred income

136

113

6

6

 

318

249

6

6

 

 

The above listed payables are all unsecured. Due to the short-term nature of current payables, their carrying values approximate their fair value.

 

 

18. Called up share capital and premium

 

Allotted, issued and fully paid ordinary 0.1p shares

Number

Ordinary Shares

£'000

Deferred shares

£'000

Called up
 Share capital

£'000

Share
Premium

£'000

In issue at 1 January 2019 and 31 December 2019

1,059,677,953

1,059

4,995

6,054

11,821

 

 

During 2013 the existing ordinary shares were sub-divided into one new ordinary share of 0.1 pence ("New Ordinary Share") and one deferred share of 0.9 pence ("Deferred Share"). The New Ordinary Shares have a nominal value of 0.1 pence. The percentage of New Ordinary Shares held by each shareholder following the subdivision is the same as the percentage of existing ordinary shares held by the shareholder before the change.

 

Fully paid Ordinary Shares carry one vote per share and carry the right to dividends. Deferred Shares have attached to them the following rights and restrictions:

 

they do not entitle the holders to receive any dividends and distributions;

 

they do not entitle the holders to receive notice or to attend or vote at General Meetings of the Company;

 

on return of capital on a winding up the holders of the Deferred Shares are only entitled to receive the amount paid up on such shares after the holders of the Ordinary Shares have received the sum of 0.1p for each ordinary share held by them and do not have any other right to participate in the assets of the Company.

 

Potential issue of ordinary shares

Share options

 

The Company issued 64,000,000 new options to directors and staff at an exercise price of 1.55 pence, vesting over 3 years, commencing on 1 January 2018. At 31 December 2019 the Company had options outstanding for the issue of ordinary shares as follows:

 

 

 

 

Date of grant

Exercisable from

Exercisable to

Exercise price

Number granted

Options cancelled

during the year

Number at 31

December 2019

Options

 

 

 

 

 

 

1 January 2018

1 January 2018

31 December 2023

1.55p

64,000,000

-

64,000,000

Total

 

 

 

64,000,000

 

64,000,000

 

 

No options were exercised in the year. The fair value of services received in return for share options are measured by reference to the fair value of share options granted. The fair value of employee share options is measured using the Black-Scholes model. Measurement inputs and assumptions are as follows:

 

Costs associated with options issued on the 1 January 2018 and exercisable by 2023

 

Share price when options issued

1.25p

Expected volatility (based on closing prices over the last 7 years)

67.84%

Expected life

5 years

Risk free rate

0.75%

Expected dividends

0%

 

 

The expected volatility is wholly based on the historic volatility (calculated based on the weighted average of the last 7 years of quotation).

 

 

Group and Company

 

Share based payments reserve

2019

£'000

At 1 January 2019

250

Charge during the year

114

At 31 December 2019

364

 

 

As set out in note 2 the Group recognised an expense of £114,000 (2018: £250,000) relating to equity share based payment transactions in the year.

 

 

19. Deferred tax liabilities

 

 

Group

Company

 

2019

£'000

2018

£'000

2019

£'000

2018

£'000

Opening and closing deferred tax liability

2,273

2,273

-

-

 

 

Deferred tax has been provided against the fair value uplift of intangible exploration assets that resulted from the business combination that happened in 2016.

 

 

20. Other financial liabilities

 

 

Group

Company

 

2019

£'000

2018

£'000

2019

£'000

2018

£'000

Contingent consideration payable

1,651

1,651

-

-

 

 

The consideration above relates to a 2% net smelter returns royalty on the future production revenue at Salinbaş. This liability arose as a result of the business combination as noted in note 19 and will be remeasured at each reporting date and any gain or loss will be charged/(credited) through the income statement.

 

Given this provision is based on future production revenue, there are uncertainties relating to the timing and amount of this liability.

 

 

Note to the announcement

The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 December 2019, or year ended 31 December 2018, but is derived from those accounts. Statutory accounts for 2018 have been delivered to the Registrar of Companies and those for 2019 on which the auditors have provided an unqualified report will be delivered following the AGM.

 

 

Contacts:

 

Ariana Resources plc

Tel: +44 (0) 20 7407 3616

Michael de Villiers, Chairman

 

Kerim Sener, Managing Director

 

 

 

Beaumont Cornish Limited

Tel: +44 (0) 20 7628 3396

Roland Cornish / Felicity Geidt

 

 

 

Panmure Gordon (UK) Limited

Tel: +44 (0) 20 7886 2500

James Stearns / Atholl Tweedie

 

 

 

Yellow Jersey PR Limited

Tel: +44 (0) 20 3004 9512

Dom Barretto / Joe Burgess / Henry Wilkinson

arianaresources@yellowjerseypr.com

 

 

Editors' Note:

 

About Ariana Resources:

 

Ariana is an AIM-listed mineral exploration and development company operating in Europe.  It has interests in gold production in Turkey and copper-gold assets in Cyprus.  The Company is developing a portfolio of prospective licences in Turkey, which contain a depleted total of 1.5 million ounces of gold and other metals (as at April 2020). 

 

The Red Rabbit Project is comprised of the Company's flagship assets, the Kiziltepe and Tavsan gold projects, and is part of a 50:50 Joint Venture with Proccea Construction Co.  Both assets are located in western Turkey, which hosts some of the largest operating gold mines in the country and remains highly prospective for new porphyry and epithermal deposits.  The Kiziltepe Sector of the Red Rabbit Project is fully permitted and is currently in production.  The total gross depleted resource inventory at the Project and its wider area is c. 500,000 ounces of gold equivalent (as at April 2020).  At Kiziltepe a Net Smelter Return ("NSR") royalty of up to 2.5% on production is payable to Franco-Nevada Corporation. At Tavsan an NSR royalty of up to 2% on future production is payable to Sandstorm Gold.

 

The 100% owned Salinbas Gold Project is located in north-eastern Turkey and has a total resource inventory of c. 1 million ounces of gold equivalent.  The project comprises three notable licence areas: Salinbas, Ardala and Hizarliyayla, all of which are located within a multi-million ounce Artvin Goldfield.  The "Hot Gold Corridor" contains several significant gold-copper projects including the 4Moz Hot Maden project, which lies 16km to the south of Salinbas and 7km south of Hizarliyayla.  A NSR royalty of up to 2% on future production is payable to Eldorado Gold Corporation on the Salinbas Gold Project.

 

Ariana is also earning-in to 50% of UK-registered Venus Minerals Ltd ("Venus"); currently c. 10% held by Ariana.  Venus is focused on the exploration and development of copper-gold assets in Cyprus.

 

Panmure Gordon (UK) Limited are broker to the Company and Beaumont Cornish Limited is the Company's Nominated Adviser and joint broker.

 

For further information on Ariana you are invited to visit the Company's website at www.arianaresources.com.

 

Ends.

 


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
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