Member Info for M20ASH

Hi VanVan
I need to update it for the H1 numbers as well, although the outstanding queries on admin and finance costs means that I will not be very confidant as to what these will be for the full year and next year. I also need to think more about the timing of construction costs/loan repayment and production at Tavsan as I think Q3 2021 might now be a little early for first gold following on from Kerim's information so I will probably be a little more conservative. I also want to be a bit more specific about the potential silver credit for Tavsan as the ratio of silver to gold is much lower there - 3 or 4 times, I believe.
Any thoughts from members here would be much appreciated.
Cheers, Ash

Hi Benjie, appreciate the recommendation, but not my bag. Always asking too many questions for my own good rather than always towing the line!
Good post earlier regarding working capital btw. Have not had the time to assess how the borrowings have been used. Probably needs more information on non-current asset movements i.e. acquisitions/amortisation in order to produce a cash flow statement for the JV that would pin down how the additional borrowings have been used, but I will have a go at the weekend to see if I can come up with something.
Cheers, Ash

Credit goes to Benjie for that question John

Hi DJ, understandable. My use of the word 'possibility' rather than 'probability' merely exercises a note of caution. I would have liked the remaining 2 questions to have been put forward and answered in order to give me a better understanding of some of the costs within the interim results. I would add, however, that the results surpassed my expectations and with the likelihood of stronger revenues in H2, the full year results should be excellent, if costs remain in line, and on that basis, I personally think that 3p is within reach, but whether the market does remains to be seen.
Cheers, Ash

Apologies for not responding sooner, but I always go out on a Tuesday evening with a long-standing friend of 30 years to have a few beers and shoot the breeze.
I seem to have stirred up a bit of a hornets’ nest in my endeavours to bottom out some of the issues around the accounts, etc, but still feel that it is important that we as investors are fully informed and that the Board are fully aware of their obligations to the shareholders and the requirement for full transparency and integrity so that we can make informed decisions based on correct and fully informative information.
I totally accept that the Company has a need for working capital and that the borrowings are disclosed in the accounts. I also accept that at no point have the Directors stated that the Company will be debt-free at the end of April 2020. However, it is clear that the perception of most shareholders is different to that which the Directors might have wanted to convey and that probably comes down to assumptions regarding investors understanding of financial information, which may not always be sufficient, particularly with so many PI's, who have no financial background.
I have been aware of the borrowing issue for some time and have referred to it previously in my posts on LSE. The forecasts that I offered to share to both the LSE and ADVFN boards incorporate the borrowings with an estimated timeline for repayment, although until today I was unsure exactly what they represented. Those forecasts still anticipate the possibility of the share price increasing by several times the current price with the additional potential for dividends in 2-3 years, given the need to establish a positive retained earnings position.
I remain fully invested and supportive of the Company and the progress it is making, but with the proviso that the Board need to accept that sometimes it is not sufficient to simply comply with the statutory disclosure rules, but also to act and disclose information wherever possible in a totally honest and transparent way to ensure they maintain the full support of their shareholders.
At the end of the day, I'm sure it is in all our interests.
When I have some more time I will re-read some of the posts today and if I feel I can add more, then I will try to do so.
Cheers, Ash

Agreed, not very well handled by Yellow Jersey, in my view. What was the point of tabling questions and then either not having them asked or not asked as drafted so that some of the essence of the question was lost.
Still, I did manage to establish that the additional borrowings are working capital loans with a repayment timeline into 2020-2021 and I think, if I understood Kerim's answer correctly, that the increase in amounts in JV/inter-company borrowings from Ariana relate to dividends declared, but not actually remitted within the six month period, which is a bit of a nonsense, as unpaid dividends become null and void.
Questions around increasing administration costs and the variability and constituent elements of finance costs were not posed, although I dialed in 20 minutes late and may have missed these.
Also, a little disappointed at the ever-increasing timelines for Tavsan so maybe bringing Kizilcukur into the JV in the near term is a good option. Not surprised to hear that Tavsan will probably be funded by borrowings as it would appear that much of the cash generated by the JV is pretty much ear-marked for further exploration and work on Kiziltepe and Tavsan and repayment of the additional working capital loans within the JV and any surplus will go back to group for further exploration and work on Salinbas and maybe distribution as dividend at some point in the future once they have either worked out a capital re-organisation (unlikely) or generated sufficient retained earnings to make this possible.
Oh well, back to work!
Cheers, Ash

Hi Nickel Investor, historically I think not. Nothing stated in the financials re hedging against the current price. Quite a bit regarding currency-risk strategies, but again hedging is not a policy.
Cheers, Ash

Hi all, I see that per this morning's RNS that the conference call will now only be hosted by Kerim. Perhaps Michael has some work to do re-checking the numbers!
Cheers, Ash

Hi again John, I am referring to the comparable numbers in the 2018 full accounts. The current and non-current liabilities have been incorrectly switched round in the comparisons in the non-audited interim accounts! Who does check these things? And what else could be incorrect?
Cheers, Ash

Hi John, you had me worried there a second. The figure of £14.764m is the total of current liabilities i.e. borrowings repayable within 1 year, trade creditors and other borrowings, including shareholder loans. The comparable figure for non-current liabilities i.e. repayable after more than 1 year is £9.937m, which has fallen to £7.851m in the interim numbers, reflecting the fact that £2,086m is payable within the first six months next year - the 1 year period runs from the balance sheet date so the interim numbers refer to the period to 30 June 2020, whereas the last full accounts refer to the 1 year period to 31 December 2019.
If you apply an arbitrary exchange rate of $1.25/£1 this gives a $ value of $2.6m, which surprise, surprise approximately equates to 10% of the original construction loan before the'profit' element.
So, I believe this establishes that the repayment schedule for the original construction loan falls within current liabilities in the interim numbers, leaving £7.851m still owing, of which c. £0.978m relates to the asset-retirement obligation. I do not know exactly what this is, but your theory seems reasonable, although a simple question to the Directors today would settle the matter.
My main concern, however, is there appear to be considerable liabilities still to be repaid and the fact that they exist has not been drawn to anyone's attention, whilst so much has been made of the fact that the construction loan is being repaid giving some shareholders the impression that the operation will be debt-free from April 2020 next year when it may not be (the Company have never actually stated this, to be fair). What is perhaps of note is that once the construction loan is repaid, Ariana's share of the JV profits increases to 51% from 50% per the JV shareholder agreement.
Cheers, Ash

My questions sent in below.
1. Much has been made of the ongoing repayment of the original construction loan of $33m through the quarterly update releases and as a result, the expectation is that 90% of the loan will have been repaid at the end of the current financial year with the balance repaid by April 2020.
However, the Joint Venture borrowings outstanding at the 31st December 2018 to be repaid after more than one year i.e. 2020 and beyond were £8.959m and the latest figure from the interims of borrowings repayable after more than one year is £7.851m (including the asset retirement obligation).
Please would the Directors explain why the Joint Venture will continue to have liabilities of such magnitude, even after having repaid the construction loan, what these funds have been used for and when they will be repaid.
2. Additionally, we have been informed through quarterly updates and broker research notes that there have been repayments of inter-company loans this year, yet the amount owing by the Joint Venture to Ariana Resources Plc has increased from £1.4m at 31st December 2018 to £3.6m at 30th June 2019.
Please would the Directors explain this apparent consistency and to what purposes these funds have been put, especially given the return of capital by the immediate parent, Galata Madencilik San. ve Tic. Ltd, in February this year.
3. The reported administration expenses incurred by the Joint Venture have increased from £423k in 2017 to £969k in 2018 and then to £985k in only six months in 2019.
Please would the Directors provide some insight into the key driving factors behind this apparent doubling of costs year on year and whether the shareholders can expect this trend to continue.
4. Finance expenses were reported as £2.646m in 2017 rising to £12.196m in 2018 and then falling back to only £2.81m in the six months to 30th June 2019.
Please would the Directors provide the shareholders with more understanding of what costs constitute finance expenses and why the levels are so inconsistent given that the normal assumption would be that any interest element would correlate with the amount of borrowings outstanding and would be expected to decrease more smoothly in line with any reduction in borrowings.
Looking forward to their response to these and all the other questions.
Cheers, Ash

The translation reserve is required because of the depreciating value of the lira. Accounting convention dictates that fixed assets i.e. capital items are stated at their historical cost less periodic write downs e.g. amortisation. This cost remains fixed through the life of the asset, but because there are accounts prepared in a foreign currency that are then converted to GBP at the balance sheet date to be consolidated into the group accounts stated in GBP, whilst the asset cost remains the same in the subsidiary account, the conversion from YTL to GBP at a different FX rate, will give a different cost in GBP and the translation reserve is simply the adjustment required between the converted cost and it's historic cost in the group accounts. The depreciation of the TL against the £ has meant that the cost converted from TL is lower and has to be adjusted upwards to the original cost in GBP thereby creating a negative reserve, which then reflects the true underlying value of the asset, whilst complying with the accounting conventions.
Hope that helps explain things. All exciting stuff.
Cheers, Ash

Hi Benjie, my understanding was that there are 2 elements - interest on loans, which would stop once all borrowings are repaid as you suggest and the write down of the mine construction costs, which will continue until cumulative production reaches 160k oz as this was the initial resource at the commencement of operations. What has surprised me a little is that finance charge is so low when compared with the charge in the previous year, but I'm not complaining, as these results, if extended through to year end make the current market cap look very low.

As promised, here is a quick summary of where we currently are...

1. Update on Strategic Investment plans

2. Kiziltepe - Have Forestry permits been received to facilitate mining at Arzu North & Derya? Can we expect the new Resource/Reserve statement before Xmas and consequently an all important extended Life of Mine?

3. Can you please reinstate the Resource Development Schedule Gantt chart?

4. Kepez - wasn't this due to go into production subject to permits Q2 - 2019 to in someway compensate for the delayed Tavsan? Not heard anything? Is the Tavsan EIA & PFS on schedule for Q1-2020?

5. Would a second Broker/Analyst Note be a good idea to widen the market/investor message and establish a more realistic share price target - Co. valuation? Panmure Gordon still using gold at $1250.

6. Salinbas - you said you were reaching a decision point concerning a major new work programme involving further drilling and technical studies, including the preparation of a full EIA & PFS. Can you update us on progress and possible discussions with other interested parties to speed up progression?

7. Kizilcukur - Is selling the asset into the JV on the contracted basis in the JV agreement in AAU shareholders best interests, given that exercise of this option is at AAUs call?

8. Red Rabbit - If after a few years at Kilztepe, other miners/ explorers in the region want to use the JV facilities do Ariana get to share in any revenues eg if we entered into a sub JV could we get say 25% - is it possible that we could become a processor for that region given high set up costs for other explorers? Or do proccea have control? Any thoughts?

9. JV Balance sheet - if as the company continue to state through quarterly updates, the amount of the original construction loan will be 90% repaid at the end of 2019, that is, $2.4m outstanding, why are the borrowings due to external sources falling due after more than one year £8.959m? What do these borrowings relate to and when will they be repaid?

10. Tavsan - what are the directors anticipated timelines from the completion of the current programme of work to the start of mine construction?

11. Tavsan - what are the Board's thoughts regarding funding of mine construction vis a vis funding from cash, borrowings or a combination of the two?

12. Tavsan - If the funding of mine construction requires borrowing, have these discussions commenced?

13. Tavsan - what are the Board's expectations of support levels from the Turkish Govt? That is, will they comparable to the development of Kiziltepe, including interest support on any borrowings required.

I am going to copy this across to the ADVFN board as they will no doubt have questions of their own. Hopefully, both tomorrow's results and Tuesday's Q&A session will answer most questions and give us all a better understanding of how the potential value can be realised here in due course.
Cheers, Ash

Hi Joe, the only reason I referred to Tavsan as the elephant in the room is that my understanding of the phrase means it it is right in front of you and no ones talking about it (my understanding may be incorrect). So much talk on here and on the ADVFN board about Kizilcukur, Salinbas, Ivrindi, intra-day price movements, CGT v IHT, cars, expanding capacity at Kiziltepe and so on, but over the last couple of months, Tavsan seems to be low on most members priorities when to me it is key to achieving the next level for the value of the company and the sp, along with expansion of Kiziltepe, which based on recent exploration (pending results) could be as significant.
It seems that many shareholders overlook Tavsan in comparison to the potential of Salinbas, but for me, the prospect of 50k oz per annum with Tavsan operational alongside Kiziltepe, even with a higher cost of production (again this is a subjective issue as the $ cash costs are historic and not far off those of kiziltepe at that time) and only a 4 x silver credit, far outweigh anything else the company currently has in pipeline.
It's all about filling the gap between current production and the future potential of Salinbas and right now, Tavsan and the expansion of Kiziltepe are the key imo.
Enjoy your day.
Cheers, Ash

Sorry, last para, meant Kiziltepe, not Kizilcukur. Long day!
Cheers, Ash

Evening all again, so further to previous posts regarding dividends and share buy-backs. The Plc can only pay dividends from distributable reserves i.e retained earnings and if you look at the Company balance sheet on page 40 of the 2018 Financial Report, retained earnings are negative as a result of cumulative losses. Until these are positive, the Plc cannot pay dividends to it's shareholders i.e. you and me.
With regard to share buy-backs, under normal circumstances, the same rules apply, which is why the proposed share buy-back earlier this year was aborted. However, there are special rules regarding share buy-backs that could make it possible. for a Plc to be able to do this. The company would normally need to pass a special resolution giving the Directors authority to buy back shares, which would also need to be backed up by a Court Order authorising this.
If approved by the Court, the Company could then buy back shares at market prices, pay for the shares in cash and then cancel the shares. However, this is not as straightforward as it sounds. Even if the Company has the necessary cash to buy the shares back from the current shareholders, there are further ramifications around the price they pay. The average price realised from the issue of the current share capital is 1.69p per share (I arrived at this using a rough calculation taking the value of share capital + the share premium account i.e. the total amount subscribed and dividing it by the no. of shares in issue). If the company buys back the shares at a lower market price than 1.69p, it can then cancel the shares and the 'profit' i.e. the gain by buying the shares back cheaper than the issue price can be transferred from the share premium account to retained reserves, thus creating additional retained reserves for future distribution as dividends.
However, if the shares were to be bought back at current market prices, which exceed the average subscription price of 1.69p, then the 'loss' will need to be added to the retained losses. I am not even sure right now whether that is possible, but even if it is, it will mean that the ability to pay further dividends will be further reduced.
So, in a nutshell, to focus on dividends and share buy-backs right now is not the issue. Instead, we need to focus on the main drivers for profit so that retained earnings and cash can be built up, which I believe, along with a few others, are expansion of Kizilcukur and the construction of the mine at Tavsan.
All imvho.
Cheers, Ash

Hi Paul, very fair comment as I hadn’t looked at it like that (or had too many thoughts one way or the other).
I think quite a few here now think that as a result of recent exploration results, that expansion of Kiziltepe & development of Tavsan are the main drivers of development and profitability over the next few years.
I will try and summarise questions going in from here and also drop a message into the ADVFN board later this evening and if I can stay awake long enough will address the questions from everyone about dividends/share buy backs as I think I now understand the current position.
Cheers, Ash

Evening VanVan, chores done, tapas night almost concluded so coming back to thoughts about tomorrow.
The logic around the timing of the possible sale of Kizilcukur into the JV is purely based on the fact that until such an event happens, it is probably unlikely that Ariana Exploration & Development will have funds to repay the inter-company loan and as the repayment of these borrowings is not expected in the current 12 months (as the borrowings are classified as falling due after more than one year from the last balance sheet date), it is a natural conclusion that said sale will probably not happen until next year.
Right side of brain kicking in whilst left side is moving past beer and on to wine!
Cheers, Ash

Hi John, bit of an update for you and everyone else. VanVan and I have pinned down the answers to the question regarding amounts owed by group undertakings of £9.749m - by far and away the largest element is owed by Ariana Exploration & Development, which we now understand is the subsidiary that undertakes the exploration at Salinbas, Kizilcukur & Ivrindi, which all sit outside the current JV. The assets within this are the intangible exploration costs incurred on these projects and these will be realised and the loans repaid as when the projects are sold into the current JV, to a new JV or to a third party.
So that may assist with some of your questions around Kizilcukur as this is where the cost of exploration sits and the timeline, based on when the loan is repayable, indicates it is likely to be over a year from the last balance sheet date before the asset might be sold into the JV.
Because we have nailed the question re group undertakings, there is little point pursuing this on Tuesday so I am hoping that VanVan will address the questions regarding Tavsan on our behalf.
Cheers, Ash