Member Info for Strangerstill

Once again the share price gets near to 3p per share and the market maker is dumping shares all on delayed publication. Currently Ariana has a market value of about £42 million but what is Ariana really worth? I will use either forecast profit to value current operations or the current acquisition cost for gold reserves to value current reserves and apply a reasonable discount.

Looking at the constituent parts of the business I estimate the following:

Zenit production over the next five years.

Kiziltepe – recently stated that the plant will be processing ore for several years using high grade ore from Tavsan and ore from the Kiziltepe satellite pits. So I take several to mean more than two and less than five, lets say three years at 20,000 oz per year. Tavsan – in production in 2025 at 30,000 oz per year. Total over the next five years 210,00 oz of gold. Assuming that costs have not gone crazy and gold stays above $2,500 per oz then profit should be over $1,000 per oz giving $210 million profit. Ariana’s share is $49 million or £38 million. This is almost certain production and profit so I will discount it at 75% to give £28.5 million.

Salinbas

Last resource update was 2020 with considerable exploration work since then. The global resource is 1.5 million oz of gold (Salinbas plus Ardala) with 600,000 oz being high grade at Salinbas. Discovery cost of gold is running at over $50 per oz and recent acquisition costs of gold have been over 100$ per oz. So on discovery cost for the global resource would value Salinbas at $75 million and acquisition cost for the high grade deposit would be $60 million. This is without any upward revision to the resource due to exploration since 2020. Taking the lower figure of $60 million gives £47 million of which Ariana’s share is £11 million. This is more uncertain, and I will discount it at 50% to give £5.5 million.

Dokwe

In pit optimisation resource is 1.2 million oz gold with a global resource of 1.8 million oz gold. The acquisition cost would be £120 million for the optimised resource and the discovery cost would be $90 million for the global resource. There is a large potential for the resource to increase as Dokwe North and Central are explored further and Dokwe South is explored. I will go with the acquisition cost which is £94 million, I will also discount this at 50% to give £47 million.

Other (Western Tethyan, Venus, etc.) from the published accounts are valued at £6 million.

So the total value by this method is £(28.5 + 5.5 +47 + 6) = £87 million which is well above the current market capitalisation.

Has anyone else got any thoughts on the real worth of Ariana?

Moving it would be a lot less expensive than purchasing a new plant outright. There would be the prelim work and the mine build but the plant would be operational fairly quickly, it would just make so much sense.

The JV is covered by Article 411 of the Turkish Commercial Code Nr. 6102 ("TCC") which guarantees some rights to minority shareholders.

Zenit has acquired 100% of the shares of Pontid Madencilik San. ve Tic. A.S. ("Pontid") through an all-share merger (Pontid owned the Salinbas Project); this rationalisation has ensured all advanced mines and projects in Türkiye, specifically Kiziltepe, Tavsan and Salinbas are now held directly through Zenit with Ariana continuing to hold a 23.5% interest in the projects through its ongoing 23.5% of the enlarged Zenit. The reorganisation makes it easier to transfer assets across the JV. This will make it easier transfer the CIL processing plant from Kiziltepe to Salinbas once the Kiziltepe satellite pits are exhausted. This would leave 30,000 oz per year to be processed through additional plant, possibly heap leach. I suspect that Salinbas is not going to be in production until all the Kiziltepe pits are exhausted and that no possible calls on the cash flow from Zenit will occur before that, Salinbas still needs all the permits, EIS, etc.. Zenit may well get the CIL plant operational before any investment in additional processing capacity at Salinbas.

Galata is responsible for exploration across the Joint Venture and is reimbursed at cost plus a bonus of two times the exploration cost for increases to project resources of over 10% or following the vend-in of new projects. New projects could include the WTR projects if Newmont does not want to develop them with Ariana. The exploration work at Kiziltepe, Tavsan and Salinbas should be profitable, these profits being recognised in Galata which is 100% owned by Ariana. It would be very useful to have information about the profitability of the exploration work undertaken by Ariana for Zenit.

Zenit owes Ariana £3,728,000 ($4,735,000) loan as of Dec 23. During May 2023, it was agreed that the monthly instalment plan ($50,000 per month) would be paused until the second mine at Tavşan, currently under construction and financed entirely from funds retained by Zenit, is operational . So once Tavsan is built this will be repaid to Ariana at a rate of about £500,000 per annum for just under 8 years.

I see no reason why Ozaltin would not want to distribute profits from Zenit, there is no benefit to Ozaltin to have cash tied up in Zenit that it could use for capital projects, to pay off loans or to pay dividends to its own shareholders.

Looking back at the mine build with Proccea back in 2016 the build went quite smoothly with the plant targeted for completion at the end of 2016 and the first gold poured in March 2017.

The impetus was lost when Ozaltin joined the JV. I suspect that Proccea and Ariana might progress things better.

Kiziltepe

With the gold price having climbed from US$1,200 per ounce in 2017 to well over double that today, Kiziltepe remains a highly profitable mine and the partners intend to maximise the returns from this operation over the next few years.

With a current cash cost averaging US$1,450 per ounce, partly reflective of the additional costs of Tavsan, Zenit's finances remain robust.

Doom and Gloom - Obviously Zenit has lost control of operational costs so we will make very little profit in the future.

Rational interpretation – Kiziltepe will be producing gold profitably for more than a couple of years but less than five years, this is a lot longer than originally forecast. The Tavsan mine is fully operational so all the revenue costs of mining (including Tavsan) are currently being absorbed into the 20k production at Kiziltepe. When the heap leach processing plant at Tavsan is operational the mining costs will be absorbed over 50k production and I suspect that, even with the processing costs included, the economies of scale will result in a lower cash cost per oz.

The RNS was full of good news.

Tavsan will soon be operational and making profit.

The Dokwe Feasibility Study is being progressed with the help of Proccea, a company that has lots of experience and good working relationship with Ariana.

Kiziltepe will be operational and profitable for a few more years.

All this is news we have been waiting for, so why are so many investors so negative?

I have read the latest RNS and have analysed it from two points of view; Doom and Gloom and my rational interpretation.

Tavsan

Construction at Tavsan commenced at scale in July 2023 and has been largely funded via Zenit through its internal funds. More recently, a US$20 million debt facility was committed to the project to accelerate construction for delivery of the new processing plant by the end of 2024. As a result, we are now on track for gold production through the Tavsan heap-leach in early 2025.

Doom and Gloom – Once again Tavsan is delayed, now until 2025 and Salinbas will probably only be built sometime in the 25th century.

Rational interpretation – Projects often get delayed, the major delay was the legal action against Zenit. Another reason for the project being delayed was the strategic decision to fund the initial ground woks, mine development, etc. from cash generated by the Kiziltepe operation. This resulted in a much smaller loan being taken out with less risk and lower interest charges. This will result in more upstream profit than if a loan had been taken out to fund the whole mine and processing plant build.

Dokwe

The Zenit operational team have commenced a project assessment study, following their recent visit to Zimbabwe and the Dokwe Project site of the Zenit mining, exploration and construction teams on site last month. Over recent weeks, we have shared our project data with Zenit as we explore opportunities to leverage their technical strengths with a view to involving them in support of the Dokwe Feasibility Study."

Doom and Gloom – We are going to sell out to Zenit at a ridiculously low price.

Rational interpretation – Proccea is responsible for the construction and operation of the mines for Zenit. When Dokwe was being considered Ariana made it clear that it would make sure, as far as possible, that it would keep control of Dokwe and that it might involve Proccea in the design and build of the mine. Proccea is a Turkish company that has built several gold mines and operates some of them for clients.

There was a lot of negativity about Dokwe and the ASX listing due to concerns that the funds needed for the development of Dokwe would all come from dilution. Ariana has taken a short term (18 months) to help fund the Feasibility Study to reduce the amount of share dilution.

Ariana will know how the development of Tavsan is going and the impact that this will have on the distribution of profits from Zenit. I know that we are all frustrated with the lack of news on Tavsan, Salinbas, etc. but this is dependent on the official news released by Zenit and I suspect that there is no urgency on the part of Ozaltin as Zenit is just a sideshow to them. I suspect that this loan is seen by the Ariana management as a short term, albeit expensive, drawdown on expected cash from Zenit.

Ariana have bought some time on the ASX listing, as short-term cash needs are met from the loan, taking the pressure off the need for a hasty ASX listing. I suspect that Ariana will want to have published the Feasibility Study and have news of Tavsan and Salinbas published before going for the ASX listing to get a better price on the listing.

The Investor further agrees to cornerstone, at the appropriate time, an equity investment of a minimum of A$350,000 and up to A$500,000 into the planned ASX capital raise as part of the anticipated ASX dual-listing IPO ("ASX IPO"). This is a vote of confidence in the ASX listing and Ariana and will help when Ariana is listed on the ASX.

I believe that this loan, although a bit expensive at a cost of $420,000, will help to keep the amount of dilution down and help with the listing on the ASX and will subsequently give a higher long term share price. I also believe that the further exploration of Dokwe North, Central and South will give a very large gold reserve. The area of surface anomaly at Dokwe South is far greater than the surface anomalies of Dokwe North and Central combined.

I believe that this is a very good management decision.

Yintai Gold signs $272m deal to acquire Osino Resources for the gold reserves at Twin Hills. Twin Hills is at the Pre-Feasibility stage the same as Dokwe. Both mines are planned as open pit and the gold deposits are at similar depths. The ore at Dokwe has 23% more gold per tonne than Twin Hills and therefore will be somewhat less expensive to process.

Dokwe

1.2 million oz from 29.6 million tonnes @ 1.33 grams per tonne

Twin Hills – Osino

3 million oz from 81.2 million tonnes @ 1.08 grams per tonne

On the basis of Twin Hills being worth $272 million then Dokwe should be worth about $109 million. Ariana paid about $16 million (in shares) for Dokwe. I would say that Ariana got a bargain.

If you look at the drilling results from Salinbas, Dokwe, Tavsan and Slivova (which are all reasonably good deposits) the drilling results at Hizarliyala are very underwhelming.

For instance Au at Dokwe from between 80m to 250 m

45 m @ 2.75g per tonne

22 m @1.57g per tonne

14 m @4.44g per tonne

20 m @1.39g per tonne

Venus

It would be very useful to know what Ariana intends to do with Venus Minerals. At the moment it appears that Venus will be on the back burner until Dokwe is developed unless Venus is sold off.

Western Tethyan

Partnership with Newmont exploring several prospects best of which is Slivova a sediment-hosted gold deposit containing 640,000t @ 4.8 g/t gold and 14.69 g/t silver and several less explored potential satellites. WTR is currently earning into 85% ownership of Slivova.

Newmont significantly reduces the risk in WTR but would also be eligible for up to 60% of any mine that is developed. WTR is one for the future and could end up being a nice little earner without any real direct risk to Ariana.

Finally

When you consider all the investments Ariana has and all the potential development it would appear that Ariana is very undervalued. Whenever the share price makes any headway the background seller comes in and knocks the price right back. I think that ultimately the share price could be three to five times the current price, hopefully whilst I can still enjoy it.

The background seller

It would be useful to know who the seller is. The selling has held the share price back for a long time now. The selling does not seem to have any relationship with the news that comes out of Ariana and appears to be someone just releasing cash.

Zenit/Pontid

The recent restructure looks sensible and enables Kiziltepe, Tavsan and Salinbas to be owned and managed through the same entity. There are operational advantages one of which is that when the satellite pits at Kiziltepe are exhausted the plant could be easily transferred up to Salinbas (as the plant and Salinbas are now owned by the same company). This would give a 20K CIL plant to process high grade ore whilst a 30K heap leach plant is developed for the low grade ore.

Tavsan and Kiziltepe combined should produce about 50K for the next two years and Tavsan 30K for at least another five years after that. With the current price of gold this surely means a profit of $250 million of which 23.5% ($58 million or £45 million) is Ariana’s share. Currently there is a substantial amount of high grade ore being trucked to Kiziltepe with about 105 oz of gold (50 *20 tonne *3.0 g) per day. (3.0 g per tonne as measured high-grade ore JORC). This is on top of the further development of the satellite pits.

ASX

Ariana are hopeful that an ASX listing will lift the share price. There will be some dilution as more shares will have to be issued. Ariana has already stated that any funds raised will be used for further exploration at Dokwe.

Dokwe

The big one. High reward for moderate risk. There is substantial derisk as the project is already at the feasibility stage. The intention is to fund more exploration through a share issue when Ariana is listed on the ASX. There is a lot of potential in the unexplored Dokwe licence area and my take (based on how Kerim reacted when asked about Dokwe South) is that Dokwe could easily end up with a gold resource of over 3 million oz. Hopefully Dokwe can be progressed quickly (within 3 years for mine build to start) as a large proportion of the work needed for a final feasibility study to raise the funding has already been done.

This will make Ariana if it is successful but could also cause a lot of dilution and could eat up future cash flow depending on how Ariana manages to fund the project.

Ariana cannot sell Salinbas to fund Dokwe as Ariana does not own Salinbas. If Zenit sold Salinbas to fund Dokwe it could only do this if Zenit owned Dokwe. Zenit is not going to own Dokwe.

Question - What would be the preferred method of financing the mine build at Dokwe, JV with another partner, share issue or bank loan?

Answer - We will chart the optimal route for the financing of the Dokwe project as the opportunity is advanced following the merger. In particular, we will need to make some headway into the Feasibility Study. Some combination of equity and debt would be likely. We do not intend JV'ing the project any time soon, if ever. The asset is a company-maker, that is why we are acquiring it, and greatest value will be achieved if we hold on to 100% for as long as possible.

I have voted for the merger with my 4 million shares.

I thought that the presentation and Q&A session today was OK.

Dokwe does look good with the resource standing at 1.8 million oz gold and reserves at 0.8 million oz of gold. KS stated that he believed that Dokwe could be a multimillion oz resource and with his track record as a geologist I am inclined to believe that this is highly probable.

MDV stated that the intention would be to keep Dokwe 100% Ariana if possible. I got a distinct impression that neither KS or MDV were particularly happy with the running of Zenit and would prefer to avoid a JV if possible.

Shares will be issued upon the ASX listing and the capital receipts will be used to further the prospecting at Dokwe which should further increase the resources and reserves.

There is considerable dilution in the merger and more dilution will occur with the listing on ASX but with the further prospecting and increased resources and reserves Dokwe will keep increasing in value. I believe that this will enable Ariana to fund the mine build on its own, hopefully with 100% debt. I also believe that the value added by Dokwe will be considerably more than the value lost by dilution.

As for partners KS waxes lyrical about Proccea but not about Ozaltin and I suspect that Proccea will be involved with the planning, construction and running of any future mine, which I would be happy with.

One thing to bear in mind is that MDV and KS have considerably more skin in Ariana than the vast majority of us individual investors and I cannot believe that they would recommend the merger if they did not see a good upside in it.

High John

The problem is the absolute transparency of the communications from Ariana.

The latest presentation (May 2024)states that the Tavsan heap leach is planned to produce 30,000 oz gold for 8 years. The production guidance for 2024 (May 2024) states 'The Kiziltepe operation is currently targeting a minimum ten-year total mine life and current Reserves are sufficient to enable production through to 2026. Further exploration and resource development work remains underway in the expectation that further extensions to mine life are possible.'

Kiziltepe is plated at 20,000 oz gold per annum and is unlikely to be operating at much less than this for the rest of the life of the processing plant (investment in extra milling).

So looking at both bits of information the inference is hoped that Kiziltepe will produce around 20,000 oz gold for a few years yet and Tavsan will produce 30,000 oz gold for the next 8 years.

I wish that Kerim could just come straight out and say what the expected production is likely to be, it always seems that the two processing plants are talked about in relative isolation and that the combined processing output is never detailed.

This is good news.

To date Tavsan has been funded from the cash flow of Zenit and all the earthworks and mine development has been completed before the processing plant is installed. The purchase and installation of the processing plant is the most expensive part of the build. Although Zenit could have funded it internally we would have had to wait for another couple of years to pay for the plant from cash flow impacting on dividend payments, the decision has been made to progress the final build of the mine using debt finance. The deal appears to be a good one at relatively low interest rates (for Turkey) and will mean that next year both Kiziltepe and Tavsan will be churning out gold. Ariana have already stated that Kiziltepe will be producing 20,000 oz of gold for the next few years with feed from the satellite pits (upgraded reserves) and high grade ore from Tavsan. Tavsan is planned to produce 30,000 oz of gold using low grade ore and heap leach. Zenit must be making in excess of $1,300 per oz of production with the current gold prices, we can all do the maths ((50,000 * 1,300) – 7,500,000) * 0.235 = $13,500,000 profit per annum to Ariana.

I think that the funding of the relatively low cost but long duration earthworks and mine development using internal funding and only borrowing the $20 million to fund the purchase and installation of the processing plant is good economic sense. Zenit would have had to borrow a lot more over longer duration if they have funded the whole development using bank finance (and probably paid a higher interest rate due to higher risk).

From Ariana's articles

Subject to the provisions of the Acts and to the authority of the Company in general

meeting required by the Acts, the Board may offer, allot (with or without a right of

renunciation), issue or grant options over or otherwise deal with or dispose of shares in

the Company to such persons, at such time, for such consideration and generally on

such terms and conditions as the Board may determine.

So a general meeting resolution is all that is required.

The presentation was interesting and although MdV was not very forthcoming KS did open up quite a bit. KS seems to believe that this will take Ariana to the next level.

How much is Dokwe worth?

Dokwe North has 1.2 million oz gold reserves which will be mined using open cast. The current projection is to mine 100,000 oz for 10 years which should give about $1,000 million of future profit. The mine will be opencast and relatively inexpensive to mine. The stripping ratio is about 6:1 which is 2.5 times less than the overburden at Kiziltepe. This is the profit that Ariana would receive if it developed the mine by itself, however I think that it might develop the mine as a JV and thus the profit would be lower. If there is a JV then Ariana needs to drive a harder bargain than it did with Ozaltin regarding Zenit.

Dokwe Central has had minimal exploration drilling but is currently showing a resource of 80,000 oz. There needs to be significant further exploration of Dokwe central.

At the corporate presentation in November 2023 Kerim stated that there is a Dokwe South (Shaba). Dokwe South is outcropping (with little or no overburden) and the Ariana team seemed very excited about it although no prospecting results are available. From the presentation on Thursday it can be seen that there is an extensive area where there are significant surface anomalies at Shaba.

Dokwe already has four times the reserves than Kiziltepe and Tavsan have and remember Ariana only has claim to only 23.5% of Zenit’s reserves.

It is of note that Ariana is attending the 121 Mining Investment in London. This connects mining companies with potential (institutional) investors. This ties in with the ASX listing. I very much suspect that Ariana will have a further share issue that will be sold to institutional investors and that this cash will be used to further the prospecting at Dokwe (Shaba?) with the intention of increasing the gold reserves substantially.

In the assessments below I am not discounting future profits as both the assessments are at current value.

All the calculations are rough and ready.

Assessment of what Rockover shareholders will get from the merger.

The Rockover share holders will get about 37.5% of the future profits that accrue to Ariana. This is the 23.5% of the profits of Zenit in the future. I am going to be quite generous with the assessment of the future profit.

Current projects Kiziltepe and Tavsan are forecast to produce 25,000 oz of gold for the next ten years. Thus the future profit at $2,000 per oz gold (assume $1000 per oz profit) is about $250 million of which Ariana will get about $59 million therefore Rockover shareholders will get about $22 million of future profits that would accrue to Ariana.

There are no other projects that are at the PFS stage in the current portfolio.

The other bits and pieces that Ariana owns may be worth about $6 million at present (although Ariana’s current shareholders think they are worth $0), so add $2 million giving a value of $28 million.

Rockover shareholders get 37.5% of Ariana’s current assets and future profit in exchange for Ariana shareholders getting 62.5% of Rockovers asset of Dokwe.

Assessment of what current Ariana shareholders will get from the merger.

Assuming the mine is built then current Ariana shareholders would get 62.5% of £1,000 million or $625 million of future profits. Even if there is subsequent dilution in the future (e.g a JV to fund the build costs or share issues to cover further prospecting costs) then I think that Ariana shareholders will still get a large amount of future profits from the deal.

My instinct is that this is a good deal for both parties, on paper it appears that Rockover could get a better price selling out to another miner right now. The directors of Rockover are very experienced, and I believe that they see that a future with Ariana will give the best long term returns through Ariana’s holdings in Dokwe, Zenit, Venus, WTR, etc.

I believe that this is a win-win for both parties depending on how Ariana funds the future exploration and the building of the mine and processing plant at Dokwe, and how much more gold there is at Dokwe. This deal would certainly make Ariana into a mid-tier gold miner.

How will Ariana proceed if the merger goes ahead?

I do not believe that Ariana would build and operate the mine itself but would look for a JV or at least a development partner. KS when questioned stated that Ariana had a very good working relationship with Proccea and were looking to Proccea to help to design the mine and processing plant. If this was the case then it would be sensible to have Proccea build and operate the mine and processing plant. KS also stated that there was no need to look for others. In the context of what was being said at the time I assume that he meant no others than Proccea. It was noticeable that Ozaltin was not mentioned very much at all.

It was also stated in the presentation that Ariana would look for bank loans to fund the development. When Ariana was just a start up, with Kiziltepe as the only asset, the JV with Proccea managed to get the funding for the mine as loan funding. I would think that it is highly likely that loan funding would be the vast majority, if not all, of the funding for the mine once the final feasibility study is produced.

Pros

Ariana gets 100% of a large gold reserve (which might be very large depending on future prospecting) that will provide a considerable amount of profit in the future.

If played right, despite the share dilution, existing shareholders should benefit both from increased capital value of shares and, with a bit of a delay, an increased ability to pay dividends.

The two directors that would join the Ariana board are very experienced.

Cons

Current shareholders suffer a relativly large dilution of shares.

The development of Dokwe might result in further share dilution.

Dividends are probably delayed by a couple of years.

Conclusion

I think, with the information that we currently have, that this is a good deal for Ariana and for Ariana’s existing shareholders despite the dilution and risk of further dilution. However I do want to see the revised PFS before the vote on the merger. If I am then satisfied with the merger I will vote for the deal with my four million shares. If any shareholders are absolutely of the opinion that the merger is a bad deal without any further information, then I would suggest that they just sell their shares.