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Ariana – gold production update, still a buy - do the maths!

By Nigel Somerville, the Deputy Sheriff of AIM | Monday 16 April 2018


Disclosure: I own shares in one or more of the stocks mentioned. 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.


AIM-listed Ariana Resources (AAU) served up a gold production update for its first quarter of 2018 (to the end of March). This is not the quarterly report for the period, which we are told is due in early May, so it is a little light on details but the production news is excellent.

We are told that Ariana churned out 4,866 oz of gold in the period. That is a little way short of the 2018 guidance of 20,000 oz but that guidance was only offered on 12 March, just a couple of weeks before the end of Q1. So I don’t see this as a miss at all – rather, it is superb news because Ariana reaffirmed its 20,000 oz target for the year. Indeed, I suspect Ariana could beat that easily.

Managing Director Kerim Sener stated: we are confident in delivering positively against our production guidance for 2018 and I draw your attention to the maths:

Metallurgical recoveries rose to 95.1% (up from 91.6% in Q4). The 2018 forecast is to process 180,000 tonnes with a gold grade of around 4 grammes per tonne. At a 95.1% recovery rate that works out at 180,000 grammes per quarter – or about 5,787 troy ounces.

So if Kerim and his team produce the goods, we could be looking at annual gold production of over 23,000 oz. With gold currently at around $1345 per oz and costs at (under) $600, that would suggest that an extra $2.35 million could be thrown off by Kiziltepe over and above what is planned, which could be very good news for Ariana to the tune of perhaps $1.17 million.

We will have to wait for the rest of the numbers in the full quarterly report, such as average sale price and production costs, but these numbers bode really well. It also suggests that next year will be even better, given that Q1 this year was about 1,000 oz short of the quarterly average for this year.

We have already been told that Ariana is now getting cashflow from Kiziltepe. On these numbers, there appears to be plenty of room a pleasant surprise. I believe that Ariana is in a very strong position financially, based on these numbers, and that the danger of a placing has receded further.

We will have to wait to find out what the company plans for its Hot Gold Corridor around Salinbas before we can finally rule out a fundraise, but I am convinced that the market is still undervaluing Ariana because of the perceived risk of dilution and I am sure the management is fully aware of that.

I am also certain that the board will consider that very carefully – especially bearing in mind that in two years Kiziltepe will have paid off the bank and half the cash will be flowing to Ariana. On 95% recovery, 180,000 tonnes at 4g per tonne (and the silver in for free), $1345 per oz of gold and $600 per oz of production costs, that would be $8.6 million a year to Ariana – about £6.03 million.

With a market capitalisation of £15.1 million Ariana already looks cheap to me. But with plans to exploit the Tavsan prospect by processing its gold ore at Kiziltepe and what could be a substantial project around Salinbas thrown in for free, Ariana remains a stonking BUY. My target price remains 2p for now (33% up from where we are now), but once we get news of what is planned at Salinbas I’ll take another look.


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