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Ariana – cracking update from Kiziltepe: buy

By Nigel Somerville | Wednesday 11 July 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 Turkish gold producer and explorer Ariana Resources (AAU) announced its second quarter production numbers from its JV Kiziltepe mine this morning, and the numbers blew me away. With an annual target of 20,000 oz of gold production, it achieved 7,171 oz – a 47% increase quarter on quarter.

Ore processed was 49,325 tonnes, up from 44,897 tonnes last quarter and gold recoveries remained very high at 94.3% (down a noggin from the 95.1% clocked up last quarter). That doesn’t really explain the blow-out gold production number on its own, but the average head grade to the plant of 4.77 g/t gold (up from 3.85 g/t last quarter) certainly does. I always reckon that companies with good news rush it out and this quarterly production report has come out five days earlier than the equivalent one last time, and we are told that full results for the quarter will be released by early August. I reckon those numbers will be earlier than the equivalent report for Q1 as well.

With over 12,000 ounces of gold production already in the bag during the first two quarters, Kerim Sener stated we remain confident in delivering positively against our production guidance of at least 20,000 ounces for the year. Talk about under-promising and over-delivering, I would suggest that he is confident of absolutely smashing that 20,000 target!

Further, Kerim Sener stated:

The results of the past quarter are our best to date, outperforming overall quarterly feasibility-study expectations by 92%.  The tonnage of ore mined has exceeded 70,000 tonnes during the period and grades remain substantially above 4 g/t gold.  This production rate has ensured a very healthy stockpile position representing over four months of mill feed. Processing rates were also maintained at the highest rates through the period, which on an annualised basis suggests that the processing plant is already capable of achieving throughput of almost 200,000 tonnes per annum, or 33% above the designed rate.

In my piece of 16 April I suggested that 23,000 ounces could be achieved. Since then the plant has processed more ore than before and the gold grade has improved. This morning’s numbers suggest that I may have been rather conservative – if they keep up this performance we could see over 26,000 oz gold. We shall see: will the gold grade remain high enough and will the plant continue to work? But the danger appears to be to the upside, not the downside.

The gold price has slipped recently, sitting now at the $1250 per oz mark that Kerim Sener has said he is happy with. But with production forging ahead, I fancy that the finances of Kiziltepe will be very happy and that Ariana has continued to receive cashflow from it in the form of debt repayments, the scale of which I hope will be reported when it releases the full Q2 report.

All in all, this is a tremendous report which reinforces my buy recommendation for the shares – now at 1.6p to buy - with a (seemingly modest) target of 2p to sell.

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