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Ariana is at a crossroads with two distinct strategic paths.
1) Ariana goes it alone to prospect Salinbas to the point of a FS, this will cost about $11 million (the combined amount that the new partner and Procea plan to invest). Ariana will have to sink most of its profits for the next 4 years into Salinbas and during this time is unlikely to pay a dividend which will keep the share price depressed. Even if Ariana develops Salinbas to the point where a mine and processing plant will be built then about $60 million (for 50oz pa) will have to be found necessitating a JV, loan funding and potential equity raise with corresponding dilution. There is always the risk that Salinbas is not commercial. Going it alone means that Ariana will have a larger share of the final profits but at a greater risk. The share price in 10 years time may be greater but at the risk of a lower share price in the near and medium term with the JV.
2) Ariana enters the JV, gets $30 million up front (which is the current market cap) and ends up with only 23.5% of the resulting JV. The future risks are considerably diminished as there are no costs for Ariana in developing Salinbas if it is proved to be commercially viable. The upside is that Ariana can pay a windfall dividend from the $30 million and start paying regular dividends which should improve the current share price also Ariana will have a 23.5% share in the potential profits of Salinbas without having to make any financial commitment. The downside is that Ariana will lose 50% of the current and future Zenit profits and will have a smaller share of the potential profits of Salinbas (depending on how the capital to build the mine is raised if Ariana goes it alone). Even with the JV Ariana is likely to have a considerably higher share price in 10 years time than the current share price and will have a higher short and medium term share price.
The question is do you want higher risk and potentially higher reward in the distant future or much lower risk with potentially lower reward in the distant future but a higher near and medium term reward?
Good post strangerstill. Nicely put. Based on our current understanding, I think that summarises it very well.
Very well put Strangerstill, sums it up nicely. I'm for option 2 provided the agreement provides safeguards for Ariana and it's shareholders.
The only observation I would make would be that the impression I got from the Proactive/BRR interviews ( I may be wrong) is that the 'windfall' special dividend will be a proportion of the $5 paid for the 17% interest in Salinbas. There was no implication that any of the Red Rabbit 'windfall' of $25m will be used for special divi. The over 50% loss of interest in Red Rabbit revenues will limit the ability to pay a regular dividend in future imo, at least until Tavsan is in the mix.
I'm with Paul 280i on this
Strangerstill:- would you object if I copied your excellent post over to ADVFN?
Evening all, tick up from me today on Stangerstill’s post and a lot of others recently, including yours John, because I think there is still much to debate.
I’m still going to play Devil’s Advocate on this as I still don’t see a straightforward path given the current options. Obviously, I have looked at the numbers, highlighted reasons why a JV on Salinbas is advantageous, how the company can mitigate the risks of having a partner with a controlling interest, but for me and, no doubt for everyone else, it comes down to a decision on whether they think the deal is right for Ariana and each shareholder’s investment - whether to vote for or against, whether to buy, hold or sell.
I agree that the proposed deal puts Ariana at a crossroads with two choices. The question I want to put is whether these are/should be the only two options? In other words, is this the best deal Ariana could get? Is it the only deal they will get? Or, is it a possibility that a better deal could be reached, either with the proposed partner or a new potential partner on Salinbas.
I would prefer Ariana to retain more of Red Rabbit with protection built into any agreement to ring fence it from the potential risks with Salinbas, but recognise that a JV agreement on Salinbas is the right way forward.
Ultimately, how much pressure is there to commit to a deal right now? If LOM at Kiziltepe can be extended for a further 10 years together with a similar LOM from Tavsan, is there any rush to accept the first deal that is put on the table?
Answers on a postcard.......
Cheers, Ash
Hi Ash
If Ariana get $30m from the deal then I would support it and I think the share price would rally north of 3.5p up to the date of the deal being completed. It would have to.
The key thing for me is would I stay invested thereafter. If say they only distributed a small (say £3m) special dividend then what are their plans for our money? They are still a small team so can’t do everything. Maybe they’ll sink it all into prospecting for copper in Cyprus. Would you be happy with that? Or maybe they have their eyes on something else that’s outstanding . Or maybe they will become a lifestyle business for the directors. So what they plan to do with the money (if they don’t return it to shareholders) is the key point for me and hopefully that will become clear before the deal is completed, if it isn’t then I’ll sell near that time! Cheers ash
I agree with that Benji. If most of the money is to be spent on exploration then we would be just as well to progress Salinbas on our own using the profits from Kiziltepe and retain 100% for longer. Either way all of our money will go into exploration. The deal only makes sense for shareholders if they are going to benefit. I like the idea of a generous but not excessive special dividend and a modest ongoing dividend to help underpin the share price.
Ash
Great post. Duly ticked up and surprised not a load more support. Don't think questioning this deal is very popular.
I agree with what you say, I am probably a bit more anti than you but similar ideas - Red Rabbit should not be part of the deal, there should be a separate JV for Salinbas. We are about to gain significant cashflow from the current JV at RR (from which we benefit 51% not 23.5%) so are not desperate.
Its not as if the Salinbas deal knocks your socks off if, as you and I suspect, construction at Salinbas will be a loan to the JV not purely financed by the New Partner. Then they will have a 53% interest of a (prospective) 2.7 million oz deposit for $13m (call it 10m quid). Nice work if you can get it. And that's without the considerable sweetener at RR thrown in.
For me AAU would still be investable if I were not already, but is not in my view as investable as it was. Bid price currently 2.15p, down to a similar level prior to pre MoU announcement levels, so I am not selling at the moment.
3.7M oz John, the 2.7 is additional to the current 1M oz
Even worse!!
Hi VanVan I hope that the world is ok with you.
If you think my missives are good enough to copy to ADVFN by all means copy them you do not need to keep asking my permission just let me know that you have done so.
I suspect that whichever strategic path Ariana chooses long term shareholders will end up making a substantial profit.
Thanks strangerstill. I have just posted it.
Hi Benjie, on the face of it, the cash is a positive and the special dividend will be welcomed (apart from the tax), but as you say, what then?
It is after all just cash and is not going to generate any immediate benefits. If it’s going to be used for exploration and development in Cyprus or elsewhere, I agree with Willowman that it might be as well to not do the deal and use the retained profits and cash to develop Salinbas to a point where the potential value of a deal is much greater.
The numbers don’t really tell me anything in as much as the cash & foregone profit pretty much balance out rather than there being a clear incremental benefit.
Where I find myself now is stuck on the fence, having formulated a strategy to hold and at some point partially cash out with a free ride on the remainder and now I am uncertain whether the new proposal fits with my previous timescales, I am having to decide on something that I basically did not want to have to make a decision on without a clear view of the incremental benefit and I am having to formulate a new strategy based on what I think may happen in the short term, medium term and long term. Ok, so there will be events such as the recent Syrian skirmish and movements in the gold price that were always going to throw in the odd curve ball and it would be foolish of me to think that everything would go according to plan, but I still feel a bit miffed and underwhelmed by what is on the table, a bit like John, but hopeful that in time, we will all be better off as a result....
Cheers, Ash
Hi ash
I agree with all the sentiments but what I would say is that if the directors recommend the deal then given their expertise and knowledge they should be supported by the shareholders
However clearly the dynamic will have changed massively and if there is an unwillingness to redistribute a substantial amount as a special dividend then it would be reasonable for the shareholders to expect an updated business plan so we can see what they intend to do with it and then whether as a shareholder it ticks the boxes. I don’t agree that it would help to fund an ongoing regular dividend because my own personal view is that regular dividends should be paid from sustainable profits.
Given the uncertainty expressed from the BBs I also think that Ariana could benefit from appointing a non exec director (possibly a shareholder with a decent shareholding) onto the board to oversee the private investors interests. I think if they did this it would benefit the share price as it would give shareholders some confidence that their interest / voice is being heard. How about putting yourself forward!! I’m staying invested but am hoping for an updated business plan before the deal is concluded. By the way Cyprus scares me only because I read a book recently about money laundering and the Panama papers and the amount of dirty Russian money in the Cyprus economy. In fact I think it was the Russians would bailed out the Cyprus banking system not that I’m in any way suggesting Ariana would be involved in anything dodgy. Sorry for waffling on!
All the best
Benjie you are getting your Cyprus and Kibris mixed up.
As for Ariana it’s hard to fathom out what will unfold, I think most were looking for a multibagger around now or next year. This now seems not to be the case with the Kibris opportunity, I’m happy to keep holding in my SIPP and ISA until 2030 along with Panther metals.
I was in Mariana and now sit on Sandstorm and I hold a considerable amount in Greatland Gold so I’m happy so far.
Paul - thanks for comments. I probably am getting mixed up in some way but if you can elaborate on Cyprus/kibris it would help understand where I’m going wrong
Many thanks
Kibris is only recognised by Turkey
https://www.motorsport.com/f1/news/turkish-organisers-fined-for-podium-ceremony/233129/
https://www.dw.com/en/eu-targets-turkeys-oil-drilling-off-cyprus-coast/a-51200320https://en.wikipedia.org/wiki/2018_Cyprus_gas_dispute
Im interested to know how a UK listed company can operate in Kibris without questions being raised by Greece or the EU, even after we have left their 5**t show!
Hi Paul, I think Benjie is correct - the JV that Ariana are looking to earn in to will be based in southern and not Northern Cyprus.
Cheers, Ash
I hope the BOD are noting the downwards pressure on the SP, it clearly indicates that investors (including prospective investors) are not universally happy. There are not that many sells, but equally if Ariana Mk2 is such an attractive proposition compared to Mk1 then they should be asking why no one is buying either, especially as the SP is now barely changed from the pre RNS level.
I think there are two situations here (john). Firstly there was a general euphoria just before your Election when sterling rose quite dramatically against both the USD and the euro. It has now fallen back a little. Simultaneously many shares rose, including AAU which could be partly because of the potential deal and partly because of the general buoyancy which may have encouraged investments. Again many shares subsequently fell back. If I have gauged it right, having sold all my UK bank shares on the recent spike, the next phase will be doubts and concerns about managing Brexit and the inevitable "what ifs" scenarios which, with some scaremongering by the media", could well drive stock down and enable me to buy my bank shares back for less money.
How many times have we witnessed AAU shares rise a little on news and fall again little by little when the "excitement" wears off until there is a new kindling? So the current "downward trend" is hardly a surprise. I really don't see anything now which will drive our sp seriously upward except a specified dividend and/or a detailed commitment by all signatories to any impending re-structuring. Without this.... speculation about underground seams, alternative sites (or investment possibilities by the Company) is little more than "pie-in-the-sky", Smoke & mirrors, pure conjecture or wishful thinking projected on these chat boards. Current reality is the choice to hang in here folks or whizz off elsewhere if you've run out of hope and patience after so many years. Maybe I'll just hibernate for the winter. Enjoy your Weekend. Regards DJ
Hi DJ
As always respect your views. But this time we are not talking about the quarterly production results or some half expected positive drilling outcome. This (the MoU) is a chuck it all in a bag, swirl it round, chuck it in the air and see how it lands sort of news. Its a total seismic change to company structure, assets owned and indeed cedes majority control over the assets that AAU have nurtured and developed very competently over many years. So no, I wouldn't expect the SP to wander up a bit, pause for thought and gradually drift. If this is a good deal I would have expected it to have gone up and stayed up. And it very clearly hasn't.
Greetings john but I truly believed I had offered some reasoning. You suggested "This (the MoU) is a chuck it all in a bag, swirl it round, chuck it in the air and see how it lands sort of news". I fully endorse that.... hence my response " I really don't see anything now which will drive our sp seriously upward except a specified dividend and/or a detailed commitment by all signatories to any impending re-structuring". In the absence of very detailed information of what this MoU will entail for both the Company and also existing stock-holders, plus anyone else considering buying in, I really don't comprehend how there can be a dramatic upward movement of the share price at this time. Last week most of us had no idea that such a deal might be "on the cards". Show us the money!
Sorry DJ, I was having a thick moment and misunderstood.
You sum it up well. I don't think much 'windfall' will be distributed as a special divi, in fact Dr S has already implied that the SD will be a % of the $5m that the new partner pays for 17% of Salinbas. The rest I guess including the $25m will be earmarked for exploration. Further I agree with another poster who pointed out that a large SD is very unlikely at least until the current share options have expired for senior staff, because the net assets of the company will drop and take the SP with it. I don't think we honestly expect the BOD to be that philanthropic.
I also agree with Benjie that I would expect regular divis to normally to be paid from regular income, but since AAU seem to be giving away over half of that then I would have thought divis unlikely until at least Tavsan is also in production and debt free - which is about 3 years away. Salinbas will be advanced undoubtedly, but only probably halving the 10 year time line to production so still too distant to boost SP in the short term.
In other words you are spot on. There is nothing to drive this price any more. You thought 3p by Easter, to be honest I though 4p or more by this time next year when the market saw Ariana Mk1 receiving large divis from a debt free RR operation and a positive road map to Tavsan in which it benefitted 51%. Now I see no driver. I have been selling, nearly 50% of my holding, but I think stopped now as I may as well hang on at these low prices because Ariana Mk2 is still attractive, just less in my opinion than its forebear. If the price rises I may well sell more. The new partner, whoever it is, didn't get big by playing nicey nicey with minnows like AAU. It will have used its size to drive a very very hard bargain.