I have been an avid supporter of AIM-listed gold miner Ariana Resources (AAU) for a long time and have been advocating buying the shares since recommending them last February, as production approached. I like the company, I like head-hocho Kerim Sener who is, in my view, an exception on AIM in that he is straight and I think the news from the company’s joint venture mine at Kiziltepe has been exemplary. In particular, in the wake of the production update last month for Q2, I had been looking forward with some considerable excitement to the full results of that period. But we have a crisis in Turkey: is it a concern?
Unfortunately it seems that politics in Turkey has taken a severe turn for the worse, and the Erdogan-vs-Trump saga has seen the Turkish Lira falling away sharply bringing with it the threat of a systemic crisis. As things stand, I fear we may not be far from exchange controls – despite what the Turkish government says - and the knock-on effect on Ariana needs looking at. The problem, as I see it, is that Ariana has to sell a large portion of its produced gold to the Turkish Central Bank. Although Ariana is “effectively” paid the US$ gold spot price, it is actually paid in Turkish Lira. Of course it can convert the Lira to US$ at any time and up until now it would not seem to have been a problem. But what if exchange controls were to be brought in? If Ariana can’t convert its cash to US$ and the Lira continues to crash, that becomes a problem with regard to the JV debt – which is priced (and repaid) in US$ - and the JV debt is secured on the JV. I don’t think it is rocket science to see how things could go badly wrong here.
Having made enquiries, I am happy to report that my concerns have been answered very satisfactorily. The US$ loan is from the Turkiye Finans bank and is repaid in US$. If exchange controls were brought in then the bank would have a bit of an issue with the Turkish authorities (it would not, after all, be Ariana’s fault). But since Turkiye Finans is partly Arab backed (in particular Saudi Arabia) and the Turkish government draws a lot of funding from such sources, one can imagine how any conversation needed to keep the wheels turning would go! So my worries (and they were considerable) have been addressed and I am still happy to own and recommend the stock. But there is more: since much of the costs at the Kiziltepe mine are in Turkish Lira (which has been falling off a cliff), Ariana is actually set to benefit from the current rocky climate.
And, of course, we know that the last update was that Q2 had seen exceptional (and record) performance. I gather the formal numbers are on the way, so it should not be too long before we see just how good they are. But with record production and falling costs it seems that there is much to look forward to there – even if (is US$ terms) gold has come off a fair bit recently. So despite the current turmoil, I still rate Ariana – now at just 1.3p offer, with the market rattled - as a buy, with a target of at least 2p.
Filed under: Ariana Resources, AIM private censures, Boxhill Technologies, MBL Group, Tern, TomWinnifrith.com
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