Member Info for M20ASH

Hi John, Tavsan is undoubtedly the elephant in the room and so far we don’t have anyone stepped up to the plate on this one. Key questions required around timelines, funding decisions/progress and levels of support from the Turkish Govt need to be addressed.
I’ve not picked up from the ADVFN board that this is foremost in the mind - more interest in expanding processing capacity, dividends, PR, broker involvement, Salinbas timelines, but not, in my view, the next logical steps in terms of profit generation, which is a little strange.
Anyway, would be happy for someone here to run with this topic DJ? 4kandles? Gambling Addict? Any help would be appreciated.
Cheers, Ash

Hello Raredragon, sorry to hear about your health problems, but glad you’re in safe hands.
Lots of questions there so here goes...
Dividends/share buy backs not only require the correct shareholder approvals in accordance with the Company’s Memorandum & Articles of Association, but can only be made from distributable reserves - typically positive retained earnings. Ariana currently has negative retained earnings as a result of cumulative losses so is not in a position to pay dividends or buy back shares. Besides which, there are decisions to made next year regarding the funding of the Tavsan mine development vis a vis cash or borrowings. Ultimately, the continued re-investment will generate sufficient profits to create positive retained earnings and decisions around dividends & share buy-backs.
With regard to tax, the JV is currently benefiting from exemptions from the Turkish Govt on cumulative profits up to 50% of the initial mine investment of c. £32m. Once the JV profits exceed £16m, then a Turkish corporation tax rate of 20% will apply. Funds remitted to the UK will be from post-tax reserves.
Ariana themselves will only start to pay UK corporation tax at the prevailing rate once it has utilised any b/fwd tax losses, which will be comparable to the level, but not the same as the current level of cumulative losses, due to the quirks of the UK tax rules regarding allowable and non-allowable expenditure (the Turkish tax regime is much more straightforward - wysiwyg). When Ariana does become liable to pay UK corporation tax, any tax on profit from the JV will be offset by the tax credit for taxes already paid in Turkey and as I believe that the current rate of UK corporation tax is lower, there should be no further tax to pay on this element of the Company’s income. The remaining investment income less administration costs will be a tax loss so no tax to pay.
Hope that helps.
Cheers, Ash

Hi all, was anyone aware of the updated broker research note from Panmure Gordon dated 28 August. I was trawling around the website and came across it and as I could not recall seeing any reference to it either here, on ADVFN and there was no RNS I have checked back and cannot find any commentary. I am, therefore, wondering whether this slipped under the radar. Might explain some of the positive price movement that followed at that time.
The research note reiterates the buy recommendation with a target price of 3.18p. Interestingly, they are still estimating all in costs (including finance costs) for the JV of under $1,000 per oz, which would give rise to a net return of @ $500 per oz at an average realised price of $1,496 per oz. I assume this is before administration costs, but if correct, it would definitely exceed my expectations, which may be lower as I think the interest support from the Turkish Govt will reach its cap in H1. No doubt we will see on Monday....
Cheers, Ash

Hi VanVan, message received ok, reply sent. Remove the numbers and use the preceding letters to decode. Apologies to all for the espionage!
Looking to work with some of the members over on ADVFN as well to try and co-ordinate questions. My thinking is that spreading the questions around to get as much coverage and participation as possible with minimal duplication will make for a more useful Q&A session and convey to the Board the level of interest from shareholders.
Cheers, Ash

Hi VanVan, I will check it out over the weekend, busy day today and the leaves are wet. Beers tonight and hangover tomorrow. Cheers, Ash

Just re-read my last post, penultimate paragraph doesn't read well as I inadvertently left the word 'whether' in there, which now makes no sense! Too much red wine! Roll on Monday...
Cheers, Ash

Hi VanVan, no problem taking the time although it was a later night then usual followed by a busy day today. So many leaves dropping at this time of year!
Joking apart, do you want to take put forward the question re the amount owed by group undertakings. Definitely a risk as it is a significantly material element of the balance sheet value, which could affect future profit, if the value of the asset had to be written down and whilst the Auditors have reviewed this at the time of their audit, they will not report for a further 12 months and we all know a lot can happen in 12 months. Note 14 clearly states that the amount owed is interest-free and repayable on demand, but the latter is clearly dependent on the ability to realise the value of the underlying asset and without knowing what that is, it is hard to form a judgement as to whether that represents true value or what the risks might be.
With regard to the sale of Kizilcukur into the JV, perhaps John would like to take that one on? I'm not totally sure that the Board will have formed a definite view on whether or when to bring Kizilcukur into the mix given the increasing potential of expanding Kiziltepe and developing Tavsan, so it would be helpful to get a view.
Benjie, go with your question regarding use of the processing facilities in the future for other mines.
Joe, any thoughts on what is most pertinent to your investment right now?
I intend to focus on the outstanding borrowings, which I believe are greater than the original mine development loan, in order to understand how they have arisen, what they have been used for and what the repayment timescales are.
I also think it would be very informative to ask whether the Board several questions around the Tavsan mine development e.g. do they foresee a possibility of being able to finance from cash as opposed to borrowings. What are the likely timescales from completion of the EIA and receipt of approvals to commencement of the mine construction.
Lastly, I'm sure the Directors would be more than happy to answer questions about what cars they drive/have driven and whether they support Burnley, but I'll leave that to you guys!!

PS I am shortly hoping to be able to start moonlighting as an accountant to supplement the income from my day-time job as a road-sweeper.
Cheers, Ash

VanVan, further to the question regarding amounts owed by group undertakings, I have just read the auditors comments on this at the foot of page 34 of the Financial Report, which gives assurance that following their investigations, they have concluded that the entity that owes the money to Ariana has both sufficient net assets to cover this value and would be in a position to recover sufficient liquid funds to repay the debt. This confirms that the auditors consider that the purposes to which those funds have been used i.e an investment are both realiseable and of sufficient value to justify the carrying value of the debt, but at this juncture, it is not envisaged that the asset will be sold and the funds repaid this year, hence the decision to report the asset as a non-current debt.
Cheers, Ash

Sorry VanVan, missed the very last question regarding the Kizilcukur asset - this is 100% owned by Ariana and I believe it is Ariana themselves that have incurred the exploration costs. If you look at the Company Statement of Financial Position i.e. the balance sheet, rather than the Consolidated Statement of Financial Position, which reflects both the company and it's wholly-owned subsidiaries, you will see that there is no carrying value of Intangible exploration assets within Non-current assets, which essentially confirms that the costs of exploration have been written off.
It is almost certain that the potential sale value to the JV has been not yet been recognised, as it would be incorrect to do so until an agreement has been reached and the revenue falls due. So, if an agreement is reached to sell Kizilcukur into the JV at 3 x the cost of exploration, then the revenue generated would represent 100% profit to Ariana.
Cheers, Ash

Hi Benjie, of course the question is relevant, although whether the Board will have had any thoughts around this at the present time can only be determined by asking the question. My take is that with the ongoing development of Kiziltepe, then bringing Tavsan on stream followed by the additional options of utilising the facilities to process ore from Kepez, Ivrindi and possibly Kizilcukur, then the facilities would hopefully be fully utilised for quite some time, making it difficult to presently foresee how then could provide capacity for a third party from the existing facilities, but it may well be that to maximize all this potential, the Board will consider expanding the present capacity, including an additional ball mill, and it could then become a further option.
As to the financial arrangement that would prevail, I have very limited knowledge , but I would assume that the revenues generated would be shared in the same proportion as those set out in the current JV agreement.
Hope that helps?
Cheers, Ash

Hi VanVan, regarding your first question regarding note 14 and amounts owed by group undertakings of £9,749 could be monies owed by Galata Madencilik San VeTic Ltd or any of the other 100% owned subsidiaries as detailed on page 21 of the Financial Report e.g. Asgard Metals Pty Ltd (Australia). The note states that the debt has been reclassified as non-current as the Directors do not expect the debt to be repaid within one year, but is repayable on demand. Suggests to me that whichever subsidiary(ies) owe the money, there is probably no cash at this time to repay the debt and begs the question as to whether there will be cash in the future or whether a more prudent accounting approach would require a provision or write off, which would reduce the net assets and reserves and ability to pay future dividends, which can only be paid out of distributable reserves i.e. retained earnings, which are currently negative, hence the company was unable to carry out the proposed share buy back.
Second point, you are correct with regard to the timings of the draw downs and subsequent repayments. My understanding is that as each repayment is made, not only is the original amount drawn down repaid, but also the sharia-based loan 'profit' or in other words the interest element. My concern is that the company have made much of the fact that this loan will be cleared by April 2020, but have not drawn attention to the fact that there are unidentified borrowings in excess of this, which can be discerned from the overall balances outstanding. Slightly disingenuous perhaps.
None of the above affects my investment decision as future profits and cash generated will clear the debt, but I feel it would be preferable to have full transparency.
Lastly to the subject of Kizikcukur, I agree that whilst the initial benefit of selling the asset to the JV accrues to Ariana, the benefit to Proccea for no further investment would be a significantly greater windfall for them, but the terms have been agreed and at this point in time, it probably makes very little sense to try and develop the mine outside of the JV. However, it may be that the continuing exploration at both Kiziltepe, Tavsan and Kizilcukur presents a range of options to Ariana that allows them to defer this decision for now and maybe consider Kizilcukur as a stand-alone project at a later date.
I am keen to hear more about the drill results from below the current pit level at Arzu South and the latest drilling to investigate the 'bonanza' grades at Arzu North/Derya to understand more clearly how Kiziltepe can be expanded and what those future options might be. I also have not discounted the potential of Arzu Central, which sits under the hill (or Tepe in Turkish), as a future potential project, albeit one requiring a different and presumably more costly mining approach. Food for thought....
Cheers, Ash

Hi VanVan, note 15 Trade and Other Receivables gives the balance owing by the Joint Venture to Ariana as at 31/12/18 as £1.4m, which should all be repaid this year. There is no additional amount to be paid after this as the balance per note 14 Non-current Trade and Other receivables is nil.
In note 5, this amount owing by the JV to Ariana is included within Current Liabilities - Other Payables (including Shareholder Loans) of £3.4m. It may be reasonable to assume, as this is a JV, that there is a similar amount of £1.4m owing to Proccea with a further £600K of other non-trade payables, which could be accrued state rights (recently paid) and royalties.
What is certain is that these loans sit outside the main borrowings as discussed below.
Cheers, Ash

I guess I should probably submit some questions for the Q&A session following the conference call. Does anyone think it a good idea to try and co-ordinate what questions to ask to save on too much duplication?
Pleased to see this opportunity and the communication of this and the publication of results. Better PR and more supportive of the share price, if only v. short term. Let's hope the trend continues.
Cheers, Ash

Hi John, to my mind, I do not believe that there is an anomaly. The original capital loan was $24m with a 'profit' i.e. interest element of $9m giving a total of $33m repayable. It would be normal accounting practice to state the liability as the capital element of $24m in line with the cost of asset purchased (simple double-entry book-keeping). The liability is then reduced by the capital element of the repayments with the interest element charged to the P&L as the debt is repaid - the interest element of the finance costs in the JV P&L (the JV accounts discloses finance costs, which consist of the interest plus the amortisation of the mine asset cost over the original expected LOM i.e. 160,000oz).
What I am getting at is if, as you state, 69% was repaid at the end of Q2 and the JV is on target to have repaid 90% at the end of the financial year, leaving 10% of the original amount borrowed i.e $2.4m to be repaid by April 2020, why will there still be so much borrowing left to repay.
If you were to track the total borrowings at the end of each financial year for the years 2016 and 2017 and subtract the amount due to be repaid within the following year, you would assume that the result would be roughly equal to the combined borrowings at the end of the following financial year, but in each year, total borrowings have increased by a further £2.2m.
For example, total borrowings at the end of 2017 were £22.6m with £6.6m due to be repaid in 2018. You would assume that borrowings would reduce to £16m, yet at the end of 2018, total borrowings were £18.2m, which leads to the conclusion that the JV has added additional borrowings, resulting in a greater liability than the original construction loan, most of which will still be outstanding at the end of this financial year.
Odd don't you think?
Cheers, Ash

From the 2018 Annual Report & Accounts, note 5 Statement of Financial Position on page 50, borrowings included within non-current liabilities are £8.959m = borrowings repayable after more than year i.e 2020 and beyond, whereas borrowings included within current liabilities are £9.272m = borrowings repayable within one year i.e. 2019.
In other words, there will be almost as much debt to repay after the end of this financial year as the JV has repaid in the current year.
Please could anyone who believes that the JV will be debt-free at the end of Q1 2020, explain why they believe this will be the case given that 90% of the original mine development loan of $24m will be paid at the end of 2019 with only 10% i.e. $2.4m remaining, yet there will still be nearly £9m of borrowings to repay.
Should be an interesting discussion.
Cheers, Ash

Any thoughts on what we might expect from the interims? Difficult to assess the costs of admin and exploration incurred by Ariana themselves together with any investment income, but assuming similar levels to 2018, I am optimistic that the JV will return a contribution for H1 in the region of £2.1m giving a PBT for Ariana in the range of £1.3-1.4m improving in H2 based on the higher gold and silver prices and guidance production levels - maybe, £2.9-3.0m PBT for the full year. We will no doubt see in due course...

John, I have a feeling that the interims may be a little disappointing to some, but I’m looking for confirmation on my expectations, which will bode well for full year results. If that’s the case, it may well present an excellent buying opportunity before the 3rd quarter numbers are out.
Optimistic on POG because I just cannot see a quick resolution to the US v China impasse. Weaker China data may give rise to more concessions, but my gut feel is that the Trump administration want it all their own way & that’s unlikely to happen imo. We shall just have to see...

Hello Gambling Addict. If you trawl back through my previous posts, you will find a link to a spreadsheet I have put together that may answer some of your questions. You will need to bear in mind that cash does not equate to P&L due to factors such as amortisation of mine development costs & the P&L only reflects the interest element of loan repayments.
I am on holiday in Spain at the moment so cannot check the link is working or remember exactly how I left the model - I think the last figures I was working on was on the assumption that the POG falls back as I wanted to see how that affected future profitability and cash availability.
Cheers, Ash

Hi Joe, yes I remember the story. Actually one of my favourite films.