My buy tip for 2019 - AIM-listed Ariana Resources (AAU) – has made the 2p to sell target price: time to take some profits, then - and where’s the ouzo? This is on the back of cracking news of a £3.8 million return of capital to the parent. The implications are that Kiziltepe is throwing off plenty of cash – way more than had been previously disclosed...
Thoughts on The US Market Juggernaut (and Tesla & IQE) from Lucian Miers HERE
Having suggested buying at 1.55p (and up to 1.6p) I should be pretty pleased with that after about 7 weeks, but of course I first tipped it almost exactly two years ago – at 1.85p, and watched with smug satisfaction as the shares rose and rose to around 2.25p…..and then BANG – a placing at just 1.25p. That was very disappointing, but in hindsight it looks to me to have been an inevitable consequence of the late start-up at Kiziltepe which was caused by unusually severe weather. After all, the bank still needed repaying on time. My view was to hold firm (and indeed to carry on picking up more shares), although I did reduce the target to 2p from 2.25p. Well, we are there now - and my holding has got a little too big for my liking. I still believe there is quite a way for the shares to go (upwards), but you can’t take it with you and Ariana now represents too much of my share portfolio. Those who picked up shares at prices below 1.6p (and as low at 1.1p) should follow suit, in my view. It is time to enjoy some profits – which should keep me in Ouzo for a fair while! The reasons for holding on to most of my shares are that JV Kiziltepe mine will have paid off the bank in just over a year, the gold price appears set – at least at the moment – for a pretty sharp rise and Ariana has a bunch of satellite deposits to bring into the JV. Officially, I think we are still at around an 8-year mine life (with two down) and Ariana hasn’t been in a huge hurry to add to that life in the short term. I am pretty sure the life will be extended toward 15 years in the fullness of time. Then there is Salinbas, where we can hope for a decent resource to be found. Nothing guaranteed, mind, but it would be a nice bonus if it came off – and Ariana already has a million ounces of gold proved up.
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I have been saying for ages that Kiziltepe should be throwing off stacks of cash once the bank has been sent packing next April, but the latest news shows that the cashflow has been far more substantial than Ariana has let on until now. We knew that Ariana has been receiving around US$ 200,000 per month in loan repayments via its subsidiary Galata Madencilik San. Ve Tic Ltd. That should have provided Ariana with enough cash to keep the plc lights on and pay for a bit of exploration and so on. But now we are told that the plc parent had received £1 million from Galata, and a capital reduction is to allow £3.79 million to be released. Better than that, the reason given is that the flow of funds from Zenit (derived from revenue achieved from the Kiziltepe Mine) will exceed the working capital requirements of Galata in the future, enabling the direct return of funds to Ariana. In other words, no further capital requirement is expected at Galata. It also means that the cashpile has been growing far faster than the US$ 200,000 per month previously disclosed, and the joint venture partners are obviously confident that the bank loans still remaining to be paid off should be secure.
So Ariana now has a cashpile of around £4.8 million, less a few plc costs. I think that puts any last lingering worries about a dilutive placing well and truly to bed. The company tells us that the cash will be used for exploration and development of the project portfolio (including the Salinbas Project) and to fund the general working capital requirements of the Group which suggests that exploration at Salinbas is well covered for some time to come. And from April 2020 the cashflow will increase substantially as the bank will have been settled. This is all tremendous news – and we still have the full quarterly report for Q4 last year to come (any day now) and production guidance for this year (probably next month). That should, I hope, give the shares a further lift even before we consider exploration news from the satellite projects around Kiziltepe which I have high hopes for, and the potential bonus of good (or even spectacular) results from Salinbas. At the current 2.025p, Ariana is still only capitalised at £21.5 million so I see plenty of reasons for further share price appreciation and I want to enjoy the ride. So I’m holding on to most of my shares even if it is time to take a bit of cash off the table. My next target is 2.5p in the absence of news – let’s hope for that in quick order. But in the longer term, if Ariana can bring in, say, £10 million a year from Kiziltepe (ie around half its current market cap) once the bank has been settled and the mine life hits 15 years (as I expect in due course), what are the shares actually worth? Surely more than 2p!
If you think £10 million is pie in the sky, consider the Q3 numbers: gross income (to the JV) $10.12 million, costs of $330 per ounce means cash generated of $7.6 million – which annualises at $30.4 million – or around £23.4 million. That leaves £3.4 million for costs and £10 million each to the joint venture partners. Of course, gold could fall or the plant may need fixing, but you get the idea – and we could see a production upgrade. So whilst I shall enjoy taking some cash off the table, there are plenty of good reasons to hold on for more with the balance of my shares. Now, where’s that ouzo?!
Filed under: Ariana, Bearcast, US market, Finncap, Dunelm, Countrywide, Norman Broadbent, Alba Mineral
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