Ariana Resources: Increased To Reflect Resource Growth

EIA approval to trigger debt financing
Ariana Resources, (ARNR) announced on 30 December 2013 that it had received a positive decision on the Environmental Impact Assessment for its 50%-owned Kiziltepe gold-silver mine in Western Turkey. This is a key de-risking event that should have positive implications for sourcing the remaining c US$25m in debt finance from Turkish institutions. Proccea, Ariana’s 50% JV partner, is currently managing this process and we await the formal announcement of the completion of this financing in Q114. Our 10% discounted dividend flow (DDF) valuation, using our revised gold price forecasts (see page 2), is 2.27p. Our unrisked valuation is 3.45p, which we believe better reflects Ariana’s strengthening geological understanding of the wider area under its control.



Total cash costs estimated at US$1,043/oz
Ariana still has to finalise contractor costs for its future operations at Kiziltepe. However, based on its June 2013 DFS, we estimate a total operating cash cost (cash costs plus depreciation) of US$1,043/oz, allowing for a moderately resilient operation at Kiziltepe under current gold price conditions.

Eldorado JV drilling could add 0.74p to valuation
For illustrative purposes only we have undertaken an order of magnitude assessment of the resources that could potentially be delineated by the latest 2013 drilling at the Salinbas-Ardala properties in North-East Turkey. Based on our key assumption that ounces will become indicated in category with further drilling (Ariana is free carried at present and will not incur this cost), we estimate that the 2013 round of drilling could add 0.74p to its valuation (see page 7 onwards).

Valuation: Increased to reflect resource growth
We have adjusted our previous 3.19p valuation for our revised gold and silver price forecasts (see page 12) and use mining costs contained in the June 2013 DFS (see page 11 for a full description of our current and previous assumptions). On this basis, our valuation is now 2.27p per share. This valuation is for Ariana’s eventual 50% share of the Red Rabbit project and uses a discount rate of 10% to reflect general equity risk. Our model assumes 100% debt funding for Red Rabbit. Including blue-sky exploration potential, this company could be worth an additional 1.18p. Furthermore, our valuation remains a robust 1.57p at current gold and silver prices of US$1,265/oz and US$20/oz respectively. Positive catalysts include information about funding and the start of production at Kiziltepe.