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Ariana remains a buy after resource update

By Gary Newman | Thursday 4 May 2017

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

I recently wrote a piece HERE expressing my surprise that the share price of Ariana Resources (AAU) had failed to react positively to good news, so it probably shouldn’t have come as a surprise that a decent update on its resource actually resulted in the share price closing slightly lower.

The latest news from this Turkish gold and silver miner related to the resource estimate for its Kiziltepe project on the Red Rabbit area, in which it has a 50% stake alongside partner Proccea Construction.

The latest update relates to all of the drilling on subsidiary veins that have been tested so far but as yet haven’t been included within the mining plans, as well as an increase for the four main veins and several subsidiary veins. This follows an additional drilling programme which was completed in December.

The latest JORC compliant update has added around 100,000 ounces of gold equivalent to the total resource, which now stands at 605,000 across the whole of the Red Rabbit project area, and this should have a fairly significant impact on the mine life.

Existing reserves stand at 160,000 of gold equivalent and the mine had an expected life of eight years, with the company hoping to extend that to ten years, but Ariana managing director Dr. Kerim Sener now states that the increased resource could extend that to 12 years, based on current production rates and a further exploration target of 90,000 ounces, and basing estimates upon previous resource-to-reserve conversion rates.

These extra resources are largely based upon the Arzu veins extending for further than was originally thought, and total ore is expected to be in the region of 3.8Mt as compared with 2.4Mt or so previously. Although overall grades have reduced as a result and are now 2.1g/t and 39.7g/t for gold and silver respectively, compared to 2.49g/t and 40.3g/t. But despite that reduction in grade, the net effect is still very positive. For anyone who is interested in the reserves and resource for the specific main veins and exploration targets, all of the data is included within the latest update but there is too much to go into detail here on each one individually.

The update also mentions that the mine – which recently had its first gold pour of 5.25kg – is performing as expected as production is ramped up towards full capacity, at which point it will be producing 20,000 ounces per annum. Going forwards, investors will be able to keep an eye on how it is performing as the company will be giving quarterly production updates commencing from the end of June this year.   

Whilst it is true that gold has continued to weaken in recent weeks and is now back down in the $1230 range, an investment here – or in any other gold producer – is very much dependent on your view of where prices will go over the longer term, rather than just what the spot price will do over the much shorter term.

I know that some are very wary given what has been going on in Turkey recently from a political viewpoint but, if you are going to invest in gold producers, then often it is the case that these mines aren’t exactly in the most stable parts of the world anyway, and I would still view Turkey as far safer from an investment viewpoint than many countries in Africa, for instance.

Nothing in the latest update has changed my opinion that the company has plenty of potential given its current market cap of around £14 million and a share price of 1.7p. As long as you can see gold remaining strong, then I can still see value in buying at current prices, and the slightly weaker gold prices may well have presented an opportunity to still get in at this level despite several recent pieces of positive news. So for me, this is still a buy.

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