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Ariana Resources interview transcript

Published: 09:00 26 Jun 2008 AEST

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What is the Ariana Resource's business strategy?

Well, Ariana Resources was a company set up to focus itself on Turkey and gold exploration opportunities in that country. Our strategy has remained the same over the years; we've focused our attentions more and more on western Turkey, recently, and I'll go on to talk our major projects there later. In north eastern Turkey, of course, we have our joint venture with European Goldfields and again, I'll talk about that in more detail later in the interview.

So, bring us up to speed on the WAVE project: the concept - its component parts such as Sindirgi and Tavsan.

Well, the WAVE project defines an area surrounding our core Sindirgi project, which is located about two and a half hours drive out of Ismit, the town on the western coast of Turkey. WAVE, itself, stands for ?Western Anatolian Volcanic and Extensional?, and is the name given to the geological province in that region. This region is, basically, a volcanic province that's undergone extension over a number of different phases, and during the latter most stage of extension we've witnessed the introduction of epithermal gold mineralisation, and the introduction of gold bearing porphyry and copper gold porphyry deposits. So, its a very prospective region to be exploring within, and our objective is to define approximately one million ounces within the WAVE project region. The subsiduary projects within the WAVE project area - Sundige and Tavsan being our major ones - they're the ones that are being developed most intently, particularly Sundige, and the Kiziltepe prospect within the Sundige project, and Tavsan our most recent acquisition from Odyssey Resources.

What is significant about Ariana's joint venture with European Goldfields in eastern Turkey?

The joint venture is focused, specifically, on the Pontide Metallogenic Province, which is a large area on Black Sea coast of Turkey. We held a number of licenses within that area which have now become part of the joint venture, and Ariana on it's own was not capable of undertaking the exploration required on these licenses beyond reconnaissance stage. The most important project within the joint venture region is the Ardala copper-gold porphyry, and work on this porphyry has started just a week ago; I was out in eastern Turkey, myself, with the joint venture team and we were designing the exploration strategy for that part of Turkey, particularly the Ardala copper-gold porphyry.

What other activities would you like to bring us up to date about, Kerim?

Perhaps one of the most important activities, recently, has been our thrust towards our own drilling programme and the purchase of our own diamond drilling rig. The arrival of the rig occurred two weeks ago; it?s a rig that we purchased from Sweden and we now have our own drilling team. We've got a driller that we've taken on from Spectra Drilling, drillers? assistants, off-siders and a drilling geologist. So, we've got a very capable drilling team now and we're going to be starting our first drill holes during the course of this month. The other important development for the company has been the acquisition of the Tavsan project. The acquisition of the project was undertaken for US$¼ million upfront, and then another US$¼ million, plus three million shares in Ariana at five pence per share with Odyssey Resources. The latter payments are going to be held in escrow and we're going through the process of license transfer. Once we've taken on that project we will be undertaking exploration on more or less an equal basis to the Kiziltepe project.

Can you comment on the financial position of the company?

The financial position of the company is very sound, at present, particularly after the European Goldfield's placement - European Goldfields, of course, taking twenty per cent of the company. We now have just over £1 million in reserve and certainly enough to carry us through for another year.

What can investors expect from Ariana Resources in the short to medium term?

In the short to medium term, investors can expect a continuing flow of exploration news, particularly from our drilling programmes in western Turkey, and of course, updates on the progress of our exploration in joint venture with European Goldfields, in the north east part of the country. Of course, our thrust on our western Turkey projects is to take Kiziltepe and Tavsan up through to the scoping stage. We've just completed a mining option study on Kiziltepe, and our intentions are to carry this through to a formal scoping study in the next few months. Similarly, at Tavsan, we intend to undertake a scoping study to look at the opportunities for the development of an open pit operation on a potential heap leach type operation at that location.

I see you envisage 50,000 ounces of production in 2010; please tell us more about where you see the company and its operations in 2010.

We see the company developing two operations by 2010. ?2010? and ?50,000 ounces? are our headline figures; it?s what?s we're targeting - our objective for the challenge - and our intentions are to develop Kiziltepe to about 30,000 ounces per year production, and 20,000 ounces per year production from Tavsan. They're quite different projects: Kiziltepe, as you know, is an epithermal low sulphidation gold-silver deposit at high grade. We're looking at the option to develop other satellite projects in the vicinity. Tavsan would have to be dealt with quite separately; it?s a low-grade type deposit, amenable to heat bleaching, so it would need to have it's own plant.

What is the discovery cost, per ounce, in the WAVE project area, Kerim?

The discovery cost, per ounce, on the Kiziltepe project is approximately US$20 per ounce - that?s per resource ounce - into the indicated category. It also includes the acquisition cost of the Sundige project from Newmont Gold Mining. Over the whole WAVE project area, if we include Tavsan - the project cost of Tavsan ? that?s, of course, coming to us at US$6 an ounce; again, into the inferred and indicated categories. So, in addition to our other exploration for which we haven't established resource ounces just yet, I would like to think that we're in the range of between US$6 and US$20 per ounce, overall.

The WAVE project is based on the concept of a central processing facility with satellite mines. What are the implications of high fuel costs on this style of operating?

Of course, fuel is a challenge. With fuel costs increasing over the last few years - and every indication seems to suggest that that scenario will continue to play out - it?s something that we're going to have to watch quite closely. At the present time, trucking in Turkey is relatively cheap; we've obtained quotes for trucking over the distance of about 150 kilometres to 200 kilometres, and what that would do is have the effect of reducing the grade of our ore, in effect, by one gram per tonne gold equivalent. So our intentions are, of course, to obtain the highest grade ore possible within the vicinity of the Kiziltepe operation, because without high grade ore, it just wouldn't be viable. At Tavsan, of course, because the grade of ore is quite low - in the range of 1.5 to 2 grams per tonne - that project would have to be developed only by heap leach methods with an independent plant located very close to site.

Given that Ariana Resources is exploration focused, what skill base does the company have in mine development and operations?

Thats a very good question. Yes, we have been exploration focused. Our skill base initially, as a company, was exploration, but over the years, we've been attracting a number of staff members that are really very skilled in the operational environment. We've got Muhanned Arar - he?s a Turkish-Jordanian national - he worked for the last sixteen years on the Inmet-owned Çayeli copper mine, the underground copper mine. We've got our License Manager, Bülent Yilmaz ? again a very experienced individual, he?s a Mining Engineer by profession. He's worked in a number of open pit and underground mining scenarios in Turkey, primarily on coal, but latterly in the gold sector. And, of course, we've got Ugur Aydin, our Accounts Manager. He worked for seventeen years with Eldorado Gold, the Turkish subsidiary of that company, and he?s a very experienced Accountant and Financial Manager, that?s very focused and keen on the mining sector. So, such individuals - having those within the company - we've got a lot of leverage that I think many other companies would be envious of.

Turkey is earthquake-prone, particularly along the North Anatolian Fault. What kind of consideration does Ariana Resources give to earthquakes in its planning?

Turkey is earthquake-prone, particularly along the North Anatolian Fault - you're quite right. Of course, most of our projects areas in western Turkey are very much to the south of the North Anatolian Fault and the Marmara Fault Basin. But of course, western Turkey does experience earthquakes fairly frequently, in fact, but they tend to be relatively low in magnitude ? three, at the most five, on the Richter scale. In terms of our planning, of course, we have all the standard company insurance policies out. In terms of the way that we stack our core in our core sheds - we've undertaken that in a way that earthquake damage would be minimised. If we were to develop any mining operation, the mining operation would, of course, need to be designed to withstand earthquakes at certain magnitude. In western Turkey, I would imagine that that would be to withstand up to magnitudes of six plus. But, generally speaking, we do not experience very large earthquakes in western Turkey and all the dangerous ones occur towards Istanbul and, really, along northern Turkey.

Who are Ariana Resources? local stakeholders, and how do you engage with them?

Well, we do have a number of Turkish shareholders - they're based in Istanbul and we speak with them on a very regular basis, keeping them informed of our activities, and they're very keen on seeing our progress. They've been long-term shareholders. In terms of other stakeholders, we've got the local communities, which we consider very important to our activities; without them we wouldn't be able to undertake the work that we do. Before we go into any new area we've always consulted with local people, even at the village level: consulting with the village headman, talking about our exploration programmes and what we hope to achieve from those programmes, and what the potential benefits might be for them in the long run. So certainly at Sindirgi, and in the villages around Sindirgi and our project area there, we've got a very active and engaging relationship with the local people. They certainly support us, they want to see us become a mining company, they're keen for jobs; it?s a very, very supportive environment to be working in, and we try and help them just as they try to help us.

What are the licensing, fiscal and environmental regimes for exploration and mining companies in Turkey?

Well, they're generally very favorable. The exploration and mining licensing is a very standardised process; there's no room for ambiguity. Exploration licenses run for a period of three years, and they can be extended for a further two years, so an exploration license can be held for a maximum of five years and there's no expenditure commitment on an exploration license. So, a company can hold ground for up to five years without having requirement for extensive reporting or recorded expenditure. That?s, of course, a good thing and a bad thing; the negative aspect of that is that companies can hold ground without doing any work on the ground. As a company, that has not been our policy - we've tried to turn ground over as best we can. We've tried to expend, sensibly, on our main projects at Kiziltepe, Ivrindi and Demirci, and, once an exploration license has gone through it's full cycle, it can then be upgraded to operational status on submission of a suitable report to demonstrate that it has an operational merit. Once that report has been accepted by the government, an operational license is granted, and that will run for a period of ten years minimum, and can be extended for up to sixty years. In terms of the fiscal and environmental regimes ? again, both very beneficial, in fact. VAT law was changed in favour of exploration companies for gold and silver, and so many items of VAT, at about 18 per cent, can be reclaimed from the exploration expenditure budgets. The environmental sides ? again, legislation is actually changing on a fairly ongoing basis, but there's nothing that?s not favorable to mining. A lot of the legislation is in place, of course, to protect the environment in the best way possible, but at the same time, recognising that mining operations are a vital part of the economy and do need to be developed in the most environmental and sustainable way possible.

What are your thoughts on doing business in Turkey?

Well, Turkey's a very comfortable place to do business, I would say. There's certainly a bureaucracy, and a level of bureaucracy that you wouldn't see here in the UK, but once you know the procedures, actually the system works very, very well. It?s actually quite slick, in fact. In terms of the general economic climate and environment ? again, it?s become more and more positive. When we started out our work in Turkey in late 2003, early 2004, the country was really improving and it?s continued to improve. They've brought inflation well under control, it?s now at about eight per cent or so, and they're continuing to attract large amounts of foreign investment - not just in the mining sector, of course, but across the board. So, there's a strong sense of growth and dynamism in Turkey that wasn't there, let?s say?. ten years ago. and so because of that, as a background factor it?s certainly assisted us.

Do you have any plans to list Ariana Resources on another market?

We don't have any intentions to list Ariana Resources on another market at the present time. But, once the conditions are suitable, we will look at options to list elsewhere on a suitable market. But, we wouldn't intend to do such a thing until our market capitalisation is significantly higher than it is today.

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