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I have to agree with Ash there, it would be a disaster for shareholders if Ariana were to loose the income from RR if the Salinbas project was not to come into production and loans had to be repaid from that income. We have to await more details.
John, I would add that I am in agreement that it would probably be better for shareholders, if the deal involved a separate JV agreement for Salinbas with the terms as agreed. I would, however, be amenable to some sort of arrangement on Red Rabbit, purely as a sweetner, but not on the same terms as proposed and given my thoughts below, it would make sense to ring-fence Red Rabbit so that any risk of failure to bring Salinbas into production does not impact profit and cash generation from Red Rabbit.
Hi John/VanVan, I think you are both right. Of course, the finance to construct the mine will be repayable by the JV. The new partner will organise this and will presumably be more capable of doing so than if Ariana were to go it alone, given the scale.
Where the open cheque book comes in to play is in respect of any additional funding required beyond the earn-in contributions of the new partner and Proccea in order to get Salinbas to a stage where the construction loan can be taken out and construction started. However, given that the respective shareholdings will have been established by that stage, I would expect the money to be loaned to the JV and ultimately repayable.
The difference between this agreement and the current JV is that whereas Ariana and Proccea both loaned monies to the JV, which are now being repaid, there will be no requirement for Ariana to draw on cash to support this additional funding requirement.
Why is this advantageous to Ariana? Well, firstly it means that the cash they will receive from the deal will not then be required to support Salinbas so it can be used to pay a special dividend and fund additional acquisitions, exploration and development, which will potentially multiply that cash as projects are sold into the JV.
Secondly, there is also a risk involved for the new partner in the JV not being able to bring Salinbas into production and recover the expenditure. Whilst that may be small risk right now and the loan may be recoverable from the JV as a whole, Ariana will at least have received a sum of money equivalent to its market cap prior to the deal being announced and will have cash and projects in pipeline that will allow it to continue.
I think that is essentially what is meant by a free carry on Salinbas, but I recognise that it is not the be all and end all in this debate....
Thanks John. As I said in my post “I suspect we will need to see the full tri-parite contract before we can draw definitive conclusions”, so on that basis I think we are aligned. Let’s wait and see what transpired after full due diligence has been completed by all parties.
...but I'm pretty sure the words "Ariana will be free-carried on further associated costs with the development of the Salinbas Project" are not that ambiguous'
I think they are ambiguous. You mention earlier in the same post that you thought the new company would use debt to finance the c£50m debt to build the mine. Fair enough if the loan is made by them outside the JV, although that could backfire on us if that loan is somehow secured against the Salinbas assets. However given that the development will be by the 'new' JV whose ownership structure will already have been established long before the construction loan is needed, how do you know that the loan will not be made by the JV itself? If it is then, in the same way that AAU presentations of the past have often said that the AAU was debt free at TopCo level (even though at the time the AAU/Proccea JV did have debt) then the same could be argued that taking of debt in the JV is technically not infringing the statement of 'free carry' of costs for AAU, at least at company level. The Salinbas construction debt could be in the JV company, in which AAU is a just a minority shareholder.
I have reviewed again the RNS, the BRR interview, the Proactive interview and the 30 minute Proactive Mining Finance conference footage and this point has not been clarified to my satisfaction - all I have seen, on several occasions, is the that the new partner will put in $5 + $8m for 53% of Salinabas plus that they will 'Organise' finance. There is ambiguity, believe me I want to be wrong but investors here should make sure we go all go into this with eyes open, not with fingers crossed that we have understood correctly.
That exactly how I read it VanVan, but as you say theres no ambiguity there to me either.
Our not are. Whoops - sorry.
That would give us an EPS of £0.013 or 1.3p and with a PE ratio of 16 would equate to a share price of 20.6p which I think any of us would be very happy with! I'd be happy with half of that.
I forgot to mention our 3rd 100% owned asset which is Karakavak. The licence here is in the process of renewal I believe. Then we will need Forestry Permits, so fairly early stage, but with Ivrindi and Kizilcukur that makes up the three 100% owned assets.
Going back to the all important "non-binding MoU for Salinbas" I think the words from the RNS you should focus on are:-
"be free-carried on further costs associated with the development of the Salinbas Project". That means money to build the mine pure & simple. And this is after the $8m allocated to get the project the Definitive Feasibility Study stage which will include E.I.A., permitting, freehold land acquisition and additional drilling & resource estimation. I would call that Stage One and Mine build Stage Two.
As I understand a "free carried interest" (FCI) means a free participating interest, without the need to contribute to expenditure until commencement of commercial production in our case. I believe they are more commonly used where the State/Government whats an interest and free carry means they don't have to buy their shares or pay their way.
When I was in the one to one with Michael & Kerim on Monday 25th I asked Michael if it was in effect an open cheque arrangement where are new partner finances the mine build. He said that was a good way to describe it although I got the impression the new partner would use finance to leverage the debt. In other words use the borrowed capital to increase the potential return on the investment. I suspect we will need to see the full tri-parite contract before we can draw definitive conclusions, but I'm pretty sure the words "Ariana will be free-carried on further associated costs with the development of the Salinbas Project" are not that ambiguous. Does that help?
Sorry I used a quarterly figure rather than an annual figure.
At present, Kiziltepe produces a total annual operating surplus in the region of $28 Million, which goes to Zenit, once the costs are paid off in the next quarter, the surplus will be divided between ourselves and Proccea, that $28 million is subject to royalties and taxes, so as a ballpark figure that will see approximately $10 million per annum paid to Ariana. The new partner is going to pay $50 Million for 53% of Zenit, so we will receive 2.5 years of revenues up front. However our annual revenue will decrease from $10 Million to £4.5 Million, however that will recover to the $10 Million as Tasvan comes on line.
The "New" version of Zenit, will fund the development costs of Salinbas, however Ariana will be free carried for their share - so the answer to the question about what Proccea put into Salinbas is there - Proccea and the new partner will fund the development., to which Ariana will receive 23.5% of the profit (About $8 Million per year).
In short, we will receive $25 Million cash and a total revenue from existing projects of around $18 Million per year.
Its a bit early to make an informed decision at the moment on this.
Ultimately Salinbas requires in the order of $60 Million to turn it into a mine, at present the asset is 100% owned by Ariana, but ultimately its purely a prospect not a mine.
What are the options for this: -
1. Leverage the revenue from Kiziltepe to finance it - That would be "betting the farm", if it pays off great, if it doesn't we're dead. We could reduce the risk by diluting.
2. Develop on the same basis as Kiziltepe with our exiting partner - ultimately if we were to do that we would need them to cough up at least 75% of the capital, to compensate us for giving away 50% of Salinbas - that on the face of it would be my preferred option, but perhaps its too much for them? Again we could dilute to fund our share or leverage Kiziltepe.
3. Kerim's deal, it does feel like we are giving a lot away - however IF they are 100% funding bringing salinbas (Which the RNS does say) into production, that will give us a revenue of $8 Million per year from Salinbas plus reduce our revenue from Kiziltepe from $7 million to $3million, so that's a net increase of $4 Million once Salinbas is in production, and securing a longer future - as well as the cash injection.
Someone, I honestly can't be sure who, implied in a post that the BOD had assured him that there was an 'open chequebook' from the new partner to effectively carry AAU to production in Salinbas. That isn't what the RNS says in my opinion, it mentions the $5m, the $8m and that the new partner will 'organise' finance. What does 'organise' mean? Something as fundamental to the deal as an open chequebook would surely have been emphasised in DrS' interviews with BBR and/or Proactive. Yes the former 2 figures we re-iterated but where was the message about an open chequebook? The omission of an explicit message about that is very troubling to me.
This is a post on ADVFN by Biggles who issued the 3% RNS earlier. He has visited the mine.
Michael rang me after meeting to ok the rns regarding my shareholding. I too suggested the interview was very high level and not much detail (I’ve never found proactive investors too in depth tbh). He explained they were thrashing out the detail and they made the decision to declare the MOU at this point with broad outline while working on detail rather than someone leaking and it having an adverse effect on the shareprice. So bottom line is the detail is being worked on while the principle and overall thinking of the company regarding the deal is in the public domain. Not everyone is going to be happy 100% of time and your always going to get different theories . Today we got one about an aggressor coming in to force them into a partnership, this isn’t an aggressor imho it three companies seeing synergy to develop a much larger enterprise , they’ve declared it as is their open style now they need to thrash out detail. So they would find it hard to give something which hasn’t been decided upon.
Equally Van I think the salient points are there! Yes they may twiddle round the edges but the percentages, and probably sums mentions are, I would have thought, set in stone. Most on the two boards are in support and will no doubt advocate support. I don't think anyone will take any advice from little old me.
As for Proccea, interest in Salinbas prior to the deal = 0%. Interest in this already 1m oz deposit post deal = 23.5%. As they say, what's not to like.
With respect John I think it is too soon to be advising shareholders to oppose the deal. We only have the broad outline. It would surely be prudent to wait till both sides have completed their Due Diligence. At that time Ariana will share with shareholders the full details ahead of a General Meeting to ratify it.
I acknowledge that, but to be fair they (particularly Ivrindi) are a small part of the portfolio. And since there is little alternative to their inclusion into the JV due to a lack of processing options then they are effectively nailed on as part of the deal anyway.
I never have been keen on this fixed 3 x costs basis for Kizilcukur as you know, less so now the retention of including it in the JV leaves AAU with only 23.5% of the ceded asset. I don't want to bang on but do the maths yourself - 50,000 ounce management target at Kizilcukur which seems now to be realistic given the rich veins found, $1000 per oz bottom line profit (say), approx. $1.5m costs to date. I know who I think does best out its inclusion in the 'new' JV structure. Also don't forget that the 3 x inclusion basis costs AAU because it comes from JV funds, not solely from the other partner(s) - in other words to add insult to injury Ariana are making a substantial contribution to the 3x costs it receives! Sounds a bit like the EU...…...
I used to think Andrew at Proactive looked too young and smooth to be a good interviewer. I was wrong, unlike BBR he probed the wisdom of handing a controlling interest to an unknown new party in a deal that leaves the establish partners with a minority interest even when combined. He also directly asked why W Turkey was being included, why this deal wasn't confined to NE Turkey only. To be honest I found Dr S' answers much less assured or convincing than usual, he waffled a bit in my opinion.
I ask that the shareholders oppose this deal and encourage instead a new JV covering NE Turkey only. Yes we lose the $25M but gain a much higher cash flow annually for 10 years + from W Turkey to fund exploration and to cover a regular dividend. Its worth bearing in mind that Dr S has stated that only 15 – 20% of this area has been explored. The potential is huge and AAU can keep 51% not 23.5% of it.
On a different tack I have realised just how difficult it is managing your investment in a company as small as this. Liquidity is next to nothing. Not only do we see a bid/offer spread bordering on the insane, but if you sell even a modest amount then small investors like us move the share price by maybe 5%. And use all the liquidity in the market. Now I obviously don't like this deal but respect that you and most others do, but suppose a piece of news came that was universally disliked by all investors. it would be no good scrambling to the exit believe me. That is another reason why I want to (eventually) limit my exposure to below the levels I have now. I am way above where I was when you, me and Paul280i shared that enjoyable meal in summer!
I was referring to our 100% owned assets at Kizicukur & Ivrindi of course. Sorry that wasn’t clear.
Assets remain the same? So we retain 51% of Red Rabbit and 100% of Salinbas after the deal? Not as I understand. The only assets unaffected (at the moment at least, those in W Turkey are bound to be absorbed into the JV in time which itself is a huge cost) are probably associated with the Cyprus deal.
Do we honestly need to invite the new partner in to Western Turkey to clear the way to Tavsan production when we seem to have coped perfectly well in getting the Kiziltepe production plant into operation without them? We already have a respected Turkish partner in Proccea don't forget. To gain the influence of the new partner (and cede overall control to them which I notice Andrew picked up on in the Proactive interview) we are to be giving away 53.92% ((51 - 23.5)/51) of our W Turkey assets for $25m. That 51% was going to be worth a small fortune over the next 10 years, especially when Tavsan kicks in - that is why I was hoping to see an updated Ash spreadsheet to do a DCF calc and work out a balancing discount rate to equate the net income given up to $25m.
No matter hard I try I don't like this deal, and the market seems to be agreeing. I have sold a small proportion of my shares now but am pretty well stuck with the rest at the moment due to the decline in the share price back to square 1. I sincerely believe the 'old' Ariana would at least have doubled in price, maybe more, over the next year when free of Kiziltepe debt, strong income of getting on for £8m pa initially and with Tavsan progressing positively towards its own production plant. I cannot see what would cause a similar escalation in share price now, I wouldn't be surprised to see it stuck between here and 2.5p for the foreseeable future. Believe me I hope I'm wrong.
Don’t forget Tavsan still has to go through many Turkish loops John including securing the EIA, which includes getting local support, getting the permits, getting the mine Construction permit and of course the difficult ones related to Forestry. There are lots of other smaller ones. I believe circa 20. This is where delays can occur. Open a new mine even with our success record shouldn’t be underestimated. I think it is hoped with our new influential partner doors can be opened. What are you referring to re 100%? Our assets remain ours as far as I know.
Sorry, but Salinbas JV - yes.
Venus minerals - yes.
Diluting the interests in Western Turkey by over 50% where everything is planned within existing finances, will not be advanced timewise by this new partnership, where available bank loans for Tavsan are already nailed on, and within 6 months will produce very significant revenue for maybe 10 years hence - no, absolutely definitely not.
Good for shareholders - who knows, no one can say that with certainty one way or the other.
23.5% of a larger entity? An entity whose assets are ...….. what we currently own 100% and 51% of.
So $5m or £4m cash from the sale of 17% of Salinbas ear-marked for dividends?
Salinbas to be fast-tracked, but into production a few years after Tavsan?
Existing business relationship between Proccea and the proposed partner.
Three years to be spent on Cyprus earn-in? What else is going to happen in that time?
These are the key points and questions I picked up on from listening to the interview.
I have to confess, I had hoped for more and still want to know who holds the 10% of Venus Minerals (Cyprus) Limited, which presumably still holds the licences in Cyprus.
Thanks for sharing jupiternmars. I thought Kerim appeared quite pleased with himself and very upbeat about the jv. A lot of irons in the fire and a potentially very bright future for us.
I know we will be reduced to 23.5% but of a larger entity and we won't have to use all of our cash to progress Salinbas. That will hopefully mean more free cash for an ongoing, albeit small, dividend. Maybe