We feel Ariana has taken numerous steps towards first gold production at its flagship Red Rabbit project. Kiziltepe is now 100% financed, has been granted numerous investment incentives by the Turkish Government, and has recently had its mining licence renewed to 2034 (providing mining commences within the next five years). As such, we now feel the final major hurdle ahead of construction is the receipt of permits, the timing of which is uncertain, after which the company expects to have the mine fully constructed within eight months. Accordingly, we expect first cash flow in H2’15. While cautiousof the risks, our stance remains Speculative Buy.
Kiziltepe Poised To Enter Construction Phase, Subject To Permits
Kiziltepe is now is now poised to enter the construction phase, in our view, subject to certain permitting, the timing of which is uncertain. The mine is now 100% financed following an agreement with an international Turkish bank for an overall credit facility of $33m. In addition, the Turkish Government has granted the project a number of investment incentives, including a considerable reduction in corporation tax and exemptions from other applicable duty or tax charges. We feel the support of both the Turkish Government and a local investment bank endorse the project’s potential.
New Exploration Strategy
Various mineral prospects across the wider Red Rabbit project have delivered positive results recently, in our view. These are located within relatively close proximity to the proposed Kiziltepe mine site and could therefore add scale to the project. Ariana could also benefit further as it has the right to sell any resources delineated into the JV at three times cost. To date only 6% of the total vein system within the Kiziltepe region has received resource drilling, and given the numerous anomalies Ariana has identified across the region we feel there is the potential for additional resources to be identified that could add scale to the planned Kiziltepe site. However, we note that there is no guarantee any further resources will be delineated.
Ariana is now at the final stages of permitting at its Kiziltepe project, with significant implied support for the project coming from a major Turkish bank and the Turkish Government, in our view. There is potential for further upside to the project if Ariana delineates further resources at its prospective sites which we feel have shown promising results. We have valued Ariana using a DCF of its Kiziltepe project and an EV/Resource valuation of its other resources, which combined with net cash implies value of 1.62p. We note the risks of investing in a pre-revenue exploration mining company, with any changes in our assumptions potentially having a material effect on our valuation. Share dilution could also be an issue. However, we feel Ariana is relatively de-risked given its proximity to first cash flow. Speculative Buy.