Ariana Resources: Working that Plan!

Whilst Ariana Resources (LON:AAU) stand on the cusp of sealing their milestone Joint Venture agreement with construction and engineering conglomerate Proccea International Construction, investor attention is now starting to ponder on how the market will view (and value!) the transformed Company going forward. In a buoyant Gold market, fundamental wisdom tells us that a Gold Company's share price should experience its greatest gains once it has paved its route to gold production (this is largely due to de-risking factors and increasing confidence in a project's potential for commercial success) and Ariana now stands at a seminal point on that journey. Given the current level of investor anticipation, we invited Ariana's Managing Director Dr Kerim Sener to participate in an investor focussed question and answer session with Mining Maven and we are delighted he has agreed to take part. 

We trust this will be of interest to our readers. If you have any comments or feedback please feel free to contact us

MM: We noted from last months announcement that Ariana has successfully completed a placement to raise £1m. Are you able to tell us more about the nature of this fundraising?

KS:We have previously made it clear that Ariana is pursuing a dual strategy, focused firstly on fast-tracking the Red Rabbit project into production and, secondly on new grassroots exploration in Turkey.  We are continually evaluating new opportunities and in this process one in particular stood out.  This was to acquire a series of advanced exploration opportunities across the country and included its related exploration data.  In order for us to pursue this particular opportunity we entered a closed bid auction process and the timing and magnitude of our fundraising was designed partly to support that acquisition. However, the fundraising was not specifically focused on that opportunity alone and part of the fundraising was for additional working capital to advance exploration, current Red Rabbit development and to enable us to be financially poised to take advantage of other opportunities which we are assessing.

MM:In light of this how will this funding be utilised and do you now expect to be financed through to production from Red Rabbit? Can you also elaborate on what funding options are available to Ariana currently and also going forward? 

KS:It is our intention to bring Red Rabbit into production in 2012.  At this point the company would be well placed to fund further exploration from the profits generated out of Red Rabbit.  In the meantime the company is well positioned financially, and prudent use of our resources during the next two years, in addition to capitalising on existing investments, are likely to be sufficient in part to meet our ongoing and demanding growth projections for the company. In the event that further funding is required to bolster the company’s growth, improving market sentiment in the UK and abroad is likely to translate into a supportive framework for future equity or debt financing facilities. 

MM:The company is following a dual strategy to deliver shareholder value: Fast-tracking the “Red Rabbit” gold project to production via a JV with Proccea and grass roots exploration to discover Turkeys next multi million ounce gold project. With regard to the Proccea JV, can you comment on how things are progressing? Also once complete, what involvement in terms of day-to-day operations do you expect Ariana to have in the JV Co going forward?

KS:We have reached agreement with Proccea on a number of outstanding legal technical and managerial aspects of the JV.  The agreement is currently being worked on by our respective lawyers in order to ensure that the agreement reflects the understanding already reached by the companies.  I will be out in Turkey during May and further work on the JV agreement is high on my agenda.  According to the structure of the JV, the initial phase of JV board control will remain with Ariana.  This management control will pass to Proccea at the construction phase.  This will free up Ariana management to focus on further growth of the company through exploration discovery, the second thrust to our strategy.

MM: Gold production from the JV Co will generate revenue for Ariana. To give our readers a sense of the potential here, could you expand on time scales and anticipated production levels?

KS:We are looking at a throughput of 150,000 tpa from Kiziltepe.   The Arzu South Vein will be the first of potentially 5 veins to be mined, and the projected mine life is estimated at ~7 years.  The current resource model indicates grades of 3.5-4.5g/t Au and 50-70g/t Ag from the optimised pits.  The estimated project cash cost is US$350-$400/oz. Assuming that Kiziltepe is mined successfully development and then production will proceed at Tavsan which has an estimated mine life of 5 years.

MM:Moving on to exploration, why did you decide that grassroots exploration was the way forward? Can you elaborate for our readers on what this entails and how you expect this strategy to build value for investors?

KS:All of the prospects being developed by companies in Turkey were found approximately 20 years ago.  Since the late 1980’s early 1990’s there has been little new grassroots exploration; and rather tellingly the majority of known deposits are located just 1.5km from the nearest road!  Good geology doesn’t necessarily occur next to roads and, in a country which is know to be highly prospective, it is a serious missed opportunity for exploration companies to stick to well worn paths. Having a good understanding of the regional geology in Turkey coupled with our own extensive database we have identified several new exploration target areas.  We have initiated a new BLEG stream sampling programme in western Turkey and we are aiming to build up licence packages in several new areas.  Of course one of the key ingredients to successful exploration is time and timing, and our strategy is designed to make optimal use of this precious commodity.  From an investors perspective by building a solid pipeline of exploration targets we can aim to optimise for exploration success and increase shareholder value by identifying and nurturing projects to the point where they can yield a tangible return.

MM:Given your recent fund raising do you intend to accelerate exploration activities and how aggressive can investors expect these operations to be going forward? Also how does owning and operating your own drilling rig benefit the company?

KS:We are committed to exploration for the reasons outlined above and we feel that exploration is really where we can add value in the long term by making new discoveries.  Whilst in the last year we were unable to undertake extensive drilling (due to macroeconomic pressure), we are now positioned to drill test several new targets at Kiziltepe and other prospects.  The other great advantage with the rig is that both the equipment and the team have intrinsic value and we have an initiative underway which will aim to capitalise on this.

MM:How great a part does technology (advanced remote-sensing & geological modelling etc) play in your approach to exploration and resource development? Can you expand on how this sets you apart from other exploration companies?

KS:We are one of perhaps only a few junior gold companies that actively supports geological research and we have active links with a number of British and Turkish universities.  We also place emphasis on our geologists to undertake advanced degrees on a part-time basis and many of our geologists, past and present, have focused their MSc and PhD research topics on our projects.  This provides the company with a cutting-edge understanding of the geology and this, in time, will help lead the company towards new exploration discoveries.  Our remote-sensing methodology is a good example of this; it was in fact based on MSc research that we sponsored at Imperial College during the very earliest and formative days of the company.  Such research is not demanding in terms of our existing human and financial resources and yet may hold the key to further discoveries. 

MM: With regard to your other JV operated by European Goldfields in the Ardala region, the little we hear from European Goldfields seems to be extremely encouraging. Can you comment on developments here and what are your views on the potential for a significant discovery here?

KS:The exploration work in the Artvin area continues to advance in conjunction with our JV with European Goldfields, and drilling was successfully completed on the Ardala and Salinbas areas last year.  During the winter season there is always a hiatus due to heavy snowfall in the region, but plans are being made for a second round of drilling within the Ardala project area.  The region hosts several large scale hydrothermal systems related broadly to porphyry-style mineralisation.  Our exploration team is focused on trying to understand the nature of these systems to best target further exploration effort.  So far several anomalous areas for gold have been identified within the licence package and the broader mineralised trends that exist in the region.  There seems to be ample scope for the discovery of new gold and copper deposits. 

MM:In a recent presentation you suggest that Ariana should be viewed as “Springboard” into Turkey. Can you expand on how this relates to Ariana’s current strategy and activities and what kind of opportunities this capability could be expected to present.

KS:The metaphor refers to the fact that Ariana is well placed to act as an experienced local partner for companies seeking to enter Turkey.  As commented upon above, we have an active JV with European Goldfields who saw in Ariana this capacity to act as a springboard.  We are flexible in our approach to these kinds of partnerships and opportunities abound for other value-additive teamwork.  It must be remembered here that Turkey is a very big country and it makes a great deal of sense to subdivide our interests based on such regionally-focused partnerships as exemplified by our JV with European Goldfields.

MM:Looking ahead two years from now, given your current path of development, where would you like to see the company being? 

KS:We would like to see the company having multiple interests in Turkey.  In the first instance we envisage growing the Red Rabbit JV in the form of a junior Turkish-based gold mining company.  Secondly we would like to see our assets in the northeast of Turkey even further up the project value curve through the sterling efforts of our JV exploration team.  Thirdly we would aim to have continued to build up our licence portfolio in Turkey and to have concentrated our exploration efforts on specific licence packages, the more advanced the better.  We would also like to see the company in a position where it has the capability to explore in some of the remotest and difficult parts of the country, because we firmly believe that there is much opportunity where others have failed to tread.