For some, running a Gold Exploration Company may be easier than for others. However running a gold exploration company that has any chance of success is quite a different matter.
You will always need to articulate your message, have a prospect or two and secure that all important funding.
But to achieve success its more about hard work and how you allocate your resources. So be prepared for a rigorous ongoing exploration programme and a proactive development strategy; namely, identifying an initial gold resource, building on it, driving it up the value curve and then selling the asset or even (heaven forbid!) actually produce your own gold from it!
So running a successful gold exploration company is never going to be a walk in the park and regrettably, for the vast majority of juniors, the only gold they will ever see is when the MD returns from the jewellers with his (or her) new Gold Rolex watch!
Fortunately for Kerim Sener, Managing Director of Ariana Resources (AIM:AAU), that rather broad analogy does not apply - and that’s because Ariana have already produced their first gold!
At the November 2009 Mines and Money show in London, I visited the Ariana stand. Kerim, very articulately talked me through the company’s activities, its operations and its potential. He then pulled out of his pocket a one-ounce bar of Ariana Resources own gold! This bar was produced during trial mining activities undertaken in 2009.
The Ariana story has been building for some time. The company has diligently focused on a no-fluff approach by steadily building a 400,000 ounce resource base which we outline further below. And not just any old resource base, but one that includes a good slug of JORC compliant “Measured” gold (Measured being the highest level of confidence of the 3 JORC compliant categories).
Its also worth noting that in October 2009 Edison Investment Research provided a Gold Report in which they re-ran their analysis to differentiate between Measured, Indicated & Inferred ounces and to define a value for each. It concluded a realistic average value of $380 per ounce to gold ounces in the measured category. Such a valuation would therefore suggest that for measured ounces alone, Ariana could justify a market capitalisation of $40million or £25million, equating to 15 pence per share! Such simplistic valuation methods can be crude, but still not a bad indication, given the current mid share price of just 3.25p (Thursday 31/12).
But why the need to build such a reliable resource base? Well because they want to get to production fast and for that, they need the assurance that there is actually enough economically mineable gold in the ground to support their proposition. This approach has recently paid big dividends with an MoU signed with Proccea Construction in Turkey in October 09 to develop their own mine at the Red Rabbit project in western Turkey.
This agreement covering the development of Sindirgi and Tavsan (now together named the ‘Red Rabbit’ project) in effect will lead to a new 50/50 company into which Ariana will place the properties. Proccea have provided a good will payment of $500,000 to Ariana and will fund the Joint Venture business with $8million to be committed to feasibility and plant development. The balance of $4m for plant cost is expected to be raised through debt finance as per the October 2009 announcement. (full details click here).
So a clever little non-dilutive deal, which completely de-risk's the venture for Ariana and should reassure shareholders that they are now well within reach of near term production.
A recent update confirmed that Red Rabbit is moving forward apace. An NI43-101 compliant resource is being calculated, new metallurgical test work completed and environmental scoping is underway. In fact it seems that both parties are pushing ahead of the strict scheduled timetable and, it is expected that the Joint Venture Agreement will be signed off in the first quarter of 2010. The feasibility work is to take place in 2010 and production, if all matters progress as expected looks set as soon as 2011. And in the world of gold mining, that is fast!
A recent update confirmed that Red Rabbit is moving forward apace. An NI43-101 compliant resource is being calculated, new metallurgical test work completed and environmental scoping is underway. In fact it seems that both parties are pushing ahead of the strict scheduled timetable and, it is expected that the Joint Venture Agreement will be signed off in the first quarter of 2010. The feasibility work is to take place in 2010 and production, if all matters progress as expected looks set as soon as 2011. And in the world of gold mining, that is fast!
Alongside their gold producer ambitions they also have a Joint Venture with European Goldfields (AIM:EGU) on their properties in north eastern Turkey. (For those unfamiliar, European Goldfields is a Canadian CDN$1.2Bmarket gold company. They also hold a 16% stake in Ariana).
After all, if you're a small exploration company, its often best to de-risk yourself and hand over exploration responsibilities to a larger, more able partner with deep pockets. Riding on the coat tails of their success with a stake in something which could one day end up materially bigger – namely a decent third party funded discovery.
Operationally the company has consistently delivered on its promises and has achieved the goals it has set itself. So a big pat on the back is rightly deserved. However the environment over the last two years has been testing especially in terms of raising finance, and although Ariana has all but made it through the woods in tact and now looks to be well funded for all its planned activities, the stigma of two consecutive discounted placements can be a hard one to shake off.
The Company has also come in for some criticism regarding their lack of promotional activities. Whilst news flow to the Market over the last 2 years has shown solid progress on the ground, and Kerim is certainly not one to hide away from his shareholders, promotional activity has, to say the least been somewhat lacking.
As private investors will testify, the initial excitement of a positive RNS delivered to an expectant market can fade fast unless backed up by an ongoing coordinated PR campaign to keep up levels awareness. To be fair to the company, in last years prevailing climate with limited funds available, Promotion was probably not at the top of their agenda.
Nonetheless they now find themselves in a place where, starved of the oxygen of publicity, this enticing story has so far reached a very limited audience.
But all that seems set to change in 2010. In a New Year communiqué to shareholders, Kerim stated that the Company intends to ramp up the PR machine and create greater investor awareness, with events and presentations planned such as The Association of Mining Analysts, Proactive Investors Events, Minesite Forum, & Master Investor Show .
A revitalised PR budget for 2010 should certainly help prepare the ground for the significant news flow and transformational developments expected in Q1 and beyond.
Before we get into the meat of Ariana’s portfolio, it’s worth talking a little about Turkey as a region in which to operate. After all, geopolitical risk is a key element when assessing the prospects for junior explorers.
A new more liberal mining law implemented in 2004, along with a competitive state royalty and corporation tax regime, with certain VAT exemptions on gold and silver exploration has encouraged foreign investment in the sector and a positive operating environment.
If you ever needed convincing of the importance of Gold to Turkey and its economy, a chat to the people at the Istanbul Gold Exchange should leave you in no doubt that Turkey, better than most, really understands gold and its ever growing significance in global investment and monetery terms. Everyone (and I mean everyone!) in Turkey understands gold and appreciates its value. Yet if you were to ask your avarage London stockbroker what the midday fix was on Gold, he would probably have no idea (or interest!).
Turkey is the largest gold market in Europe, with domestic consumption of 153 tonnes in 2008. Turkey is also a major manufacturing centre and the largest exporter of gold to the Middle East and in more recent years to Russia and Ukraine.
A recent report from the Turkish Ministry of Energy and Natural Resources points to the fact that Turkey's own gold resources currently fulfil just 5 percent of its domestic demand, the rest of which is filled by imported gold.
The rising domestic demand for gold means that companies producing in the region will have a growing market eager to buy their metal. On a global scale, Turkey's increase in gold imports means an even tighter gold supply, which can only be considered as bullish for investors.
So as Ariana’s stated objective is to target a 1m-ounce resource in Western Turkey, whilst also making giant strides towards fast track production through its JV with Proccea, and only 5% of demand satisfied by domestic production, can you see a rather compelling bigger picture starting to emerge??
Red Rabbit – Gold Project Development at Sindirgi and Tavsan:
Right back in 2005, on admission, the company came to market with Sindirgi, a gold project acquired from Newmont Mining in January of that year and hosting some 45km of gold bearing epithermal quartz veins (or a decent gold prospect for the less technically inclined).
During recent years exploration work on only a small portion of the vein system has provided a JORC compliant resource of some 186,000 ounces at Sindirgi (48,000 inferred 32,500 indicated and 105,500 measured) and Ariana are targeting a 250,000 ounce JORC. Recent exploration work at Kepez (see rns 13.5.09 and 3.9.09) demonstrate that expansion of the resource is perfectly feasible.
Supplementing Sindirgi Ariana acquired the Tavsan project licences in April 2008 from TSX listed Odyssey Resources. Tavsan, located in Western Turkey, was a perfect addition to the company portfolio and currently has a JORC compliant resource of some 214,000 ounces (124,000 inferred and 91,000 indicated) and the company sees potential to increase this to 300,000 ounces in due course.
In total the company thus has a JORC compliant resource of 400,000 ounces of which 26% is measured, 31% indicated and just 43% inferred.
One has to consider the status of operations and here too Ariana is somewhat ahead of the game. In 2009 metallurgical testing and trial mining was undertaken from Kiziltepe (Sindirgi) enabling the company to pour its first gold production. Not material in volume terms but the significance of actually producing gold has apparently been lost on the market.
Though the market failed to recognise this milestone, it certainly managed to draw attention locally. As detailed previously, in October 2009 the company announced the Memorandum of Understanding, leading to a 50/50 Joint Venture agreement with Proccea Construction, expected to be concluded in Q1this year.
Ardala – Joint Venture with European Goldfields:
This Joint Venture, to explore the Ardala copper gold porphyry and eleven other licences in north eastern Turkey, was announced to the market by the company in February 2008.
The agreement provided for exploration work to be funded by European Goldfields providing them with a 51% interest in the licences, increasing to between 80 and 90% for each relevant project on completion of a Bankable Feasibility Study.
The deal also saw a placing in Ariana shares to European Goldfields totalling some £890,000 at 5 pence per share.
This Joint Venture appears to be making steady progress and the news in November 2009 highlighted trench results at the Salinbas project of 33 metres at 9.6g/t and 46 metres at 8.3g/t. More importantly this latest discovery now seems to have impressed European Goldfields as their new management set about re-evaluating the significant potential of their JV with Ariana.
More news will no doubt follow from this Joint Venture and of course with European Goldfield funding all exploration up to feasibility, the benefits come at no cost to Ariana.
Additional Exploration:
Alongside the material progress being made through the Red Rabbit project and the progress in the north east with European Goldfields, Ariana is also developing its own exploration portfolio.
Ivrindi and Demirci are two 100% owned projects in western Turkey. At Ivrindi Ariana now has drill ready targets in place on the Kinik gold project. Demirci is a gold/nickel project with interesting gold and nickel drill data available from the Goveli prospect.
Further details of both projects are available from the company website.
In addition, in April 2009 Ariana announced the acquisition of the Muratdag gold project from Newmont with Newmont retaining a 1% net smelter return should the project proceed to gold production at some stage in the future.
So the Portfolio again........
- 400,000 ounces (105,500 measured) of JORC compliant gold resources in western Turkey;
- Metallurgical work and trial processing completed with first gold poured in 2009;
- A MoU and potential Joint Venture with Proccea whereby the partner will invest $8million to conduct feasibility studies and plant development.
- An exploration Joint Venture with European Goldfields in north eastern Turkey;
- An exploration portfolio including established and recently acquired gold and nickel targets;
- A market cap of £5.6million.
It was evident at Mines and Money that the company are extremely committed and focused on the production route. Gold explorers have two principal routes with discoveries, either sell or develop. For those that choose to develop the road can be relatively long and troublesome, but the extra effort and commitment can pay enormous dividends. For Ariana much of the risk has been mitigated with the choice of a “third way” through the joint venture route. Should Ariana succeed with its chosen development option then shareholders should expect to be handsomely rewarded.
Example Risks (not comprehensive):
- Exploration work fails to identify economic deposits;
- Country/Regulatory risk;
- Financial risk (sufficiency and stewardship of working capital and investment capital in particular);
- Commodity price exposure;
- Key person exposure (risk of losing key members of the team).
Company information:
Shares in issue - 171,049,239 (fully diluted 227,491,469).
Market cap (2.1.10) - £5.6million.
This summary represents the views and opinions of Miningmaven, has been prepared for information and educational purposes only and should not be considered as investment advice or a recommendation. All rights reserved. Users may print extracts of content from this blog for their own personal and non-commercial use only. Republication or redistribution of Miningmaven content, is expressly prohibited without the prior written consent of miningmaven. However, linking directly to the Miningmaven blog is permitted and encouraged.
The author owns shares in Ariana Resources plc.
Copyright © miningmaven 2009
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