Ariana Resources - still a buy, current target 2p says Nigel Somerville

Today on ShareProphets: Purplebricks & Jefferies damning report, Falanx & Bulletin Board Morons, Neil Woodford, Big Sofa, BT Group, Comptoir Group, Bearcast & more. The easy way to pay sub 2p per article for the site HERE

Ariana Resources (AAU) has delivered its Q4 update from its joint-venture Kiziltepe gold mine in Turkey. The news looks to me to be very good on several fronts. Production figures are strong: bearing in mind the target number of 20,000 gold-equivalent per annum, figures of 4,501 oz gold and 35,095 oz silver work out pretty well. When I looked up the gold-equivalent calculation (in the FY15 Annual Report) it seemed to be based on 60oz silver to an ounce of gold. That gives us a gold-equivalent figure of 5086 oz for the quarter – nicely ahead of target. The production costs came in at $585 per oz – again beating the target figure of $600 by a (smallish) margin. The gold price has been very strong of late – if you are an investor with US$ - and as previously mentioned the price moved sharply higher post-period. That will be good news for the current quarter, especially if costs can be kept under control despite the falling $. The reported proceeds for Q4 were at an average of $1273 per oz of gold – nicely ahead of the $1250 Kerim Sener is comfortable with - and $16.56 for silver. That brought in $6.31 million to the JV company.

Purplebricks responds to damning Jefferies report but not convincingly says Tom Winnifrith HERE

Knocking off costs of perhaps $2.6 million plus a few overheads that will have left plenty of cash to pay down the JV’s debt, and we are told that a further $1.9 million was repaid during Q4 to bring the total repaid up to $7.7 million. My original calculation was that the JV needed to repay around $33 million by April 2020. It has now paid down $7.7 million, which leaves $25.3 million over the next 28 months – around $2.7 million per quarter. That makes payments thus far look a bit behind schedule, but I gather that the repayments are at a lower level during the early period, and get ramped up particularly during 2019. Additionally, a new tailings dam has been being built, which is near completion. Once that it out of the way there will be more spare cash. And that brings me to cashflow to Ariana from the JV. There is bank debt to repay, and we are told that so far it is on schedule. Then there are loans from JV parter Proccea as well as Ariana to pay off, and with that in mind we are told:

we are currently expecting intercompany loan repayments from the JV to our wholly owned subsidiary, Galata Madencilik San. ve Tic. Ltd. to commence during Q1 2018.  Whilst it is too early to say for certain, the current operational plan and gold price situation suggests that with cash-flow from our JV, together with existing cash resources at Group level, the Company has the capacity to become self-financing during 2018.

Big Sofa - a strong buy; the alternative view to Cynical Bear from HotStockRockets HERE

The big worry with Ariana has always been about when the next placing is coming. The above indicates that we are set fair as the company becomes self-financing, as I had previously suggested. With the tailings dam almost done and repayments to Ariana expected to commence in Q1 (ie any time now) that looks very promising. I don’t yet have a guesstimate for how much cash might turn up, but my understanding is that Ariana plans to offer data this quarter, once a review of pit scheduling has been done. Bearing in mind the company’s recent tweets and pictures from its pits, I don’t think things will be being revised downwards. Of course this all does not add up to a commitment to avoid a call to Mr B Ucketshop, but it is a strong enough statement to mean that the board will have a large dose of egg-on-face if they don’t deliver on that. So I am pretty confident that there isn’t a placing around the corner and, indeed, I don’t think we will see one this calendar year (although if the shares race ahead that may change things!). That is great news, if correct, and we should find out in the next 8 weeks.

Falanx - Bulletin Board Morons and lies - what should a company do? Read HERE

However, with higher debt repayments scheduled for 2019 we will have to see how things play out with the hot gold corridor (or whether Ariana simply sits on its hands for a while until the debt is finally paid off and the big payments to the company from the JV follow thereafter). With the shares currently standing at 1.5p– 1.6p (last seen) that capitalises the company at £16.4 million (source: ADVFN). There is a stack of options and bonus shares out there too from December, which I can’t say I’m happy about, and together with previous issues of warrants and options it looks as though there is dilution of 10.85% ahead (although this will also entail some cash coming in). So let’s take the market cap at perhaps a fully diluted £18.2 million. But we are told today that there won’t be any more options etc until 2023 “except in exceptional circumstance” – whatever they are. So perhaps we’ve seen the dilution from that ending (for at least 5 years) today, as well as the placings stopping (at least for now).

BT Group - what price no growth, a 6% dividend and unchanged forecasts? Chris Bailey writes HERE

In just over a couple of years (when the bank debt has gone), Ariana could see cashflow of perhaps $7-7.5 million per year coming in for at least a further 5 years (except by then we should have seen the project life substantially extended as more drilling is done). That works out at perhaps £25 million. If the mine life get to 15 years in the end (which I suspect it will), that comes in at something like £60 million. Against a fully diluted market cap of around £18.2 million, I think the shares look very cheap. Then there is the Hot Gold Corridor which the company seems terribly excited about. That may be worth a fair bit in due course, but I still see it as a speculation for the time being - the icing on the cake. Meanwhile Kiziltepe is real, working, generating cash and looks set to fund Ariana going forward. I'm sorry this tip has taken so long to clock up a profit, but I am convinced it will get there. Still a buy, target remains 2p for the time being.

Three more charts that show the absolute folly of Neil Woodford HERE

Filed under: Ariana Resources, Purplebricks, Jefferies, Big Sofa, Falanx, BT Group, Neil Woodford

2018-02-02 10:40:19

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