Shares in AIM-listed Ariana Resources (AAU) have been a wild ride this year, ranging from around 1.45p at the start of the year to a peak of almost 2.6p at the peak in June. The stock has been helped along by the rising price of gold and the impending settlement of the bank debt by its Joint Venture at Kiziltepe come April, which will transform Ariana’s income profile. But more recently a correction set in amongst gold stocks, and then came President Erdogan’s foray into Syria after Donald Trump cleared the way by withdrawing US troops. Of course, you can’t blame Ariana for the actions of the Turkish government. On the other hand its gold mining operations will be helping the Turkish treasury along the way, no matter how trivial. There are already questions over whether Turkey overstepped the mark when intervening in Syria...
With the above in mind, it has been a difficult time to be a shareholder in Ariana – especially as the company has been offering up plenty of good news as its drilling ventures are reported on and permits granted. It is hard to celebrate when people are dying. The interims didn’t really help much. Released on 30 September, they covered the period up to 30 June – by which time the gold price had reached around $1420 so the rise through $1500 (peaking at over $1550) was not factored in. At the same time, production had slipped as the pushback of the southern wall of the Arzu South pit was ongoing, but had remained above guidance even so. The result was that the bottom line didn’t offer a full reflection on how things have changed. And on top of that, we were told that production had been increasing in Q3. The just-released Q3 production numbers show gold and silver numbers are back up again, with 6,933 oz gold produced over the quarter. Total gold produced for the year at the end of Q3 sat at 20,667 oz against an annual target of 25,000, so we can expect the company to beat its target comfortably. Sadly we are not given the latest count on the bank loan or sales prices and production costs. Whilst we are told that this quarter saw one of the best revenues in the history of the operation, we will have to wait until next month before the full numbers come out. I would hope also for an indication that the rebound in production is continuing during Q4.
What we do know is that gold has been pretty much bang on $1500 per ounce since the beginning of August and production costs sit at around $500 per ounce. My guess is that the average will be perhaps marginally below $1500 but the attached silver credit - worth c. $190 per ounce of gold produced in Q2 - will lift revenues up to $1650 per oz, giving a margin of around $1150 per ounce of gold produced. Multiply that by 6,933 and that is the best part of $8 million.
ShareProphets favourite technical analyst (perhaps because he is so much more), Jordan Roy Byrne of thedailygold.com, reckons that gold will remain in correction mode for a while yet and amongst good things to look for while we wait for the yellow stuff to head north again are prospects for increasing production. Well, Ariana currently offers a 50-50 split on 25,000 ounces a year. But in prospect is the doubling of that and a 50,000 oz a year project on the other side of the country, at Salinbas. I think they tick that particular box nicely. As such there is plenty of reason to hope for greater things from Ariana in the future – and a much higher share price as a result. But for now I am more than content to wait for the Kiziltepe joint venture to be bank debt free next April. With a production profile of 25,000 oz gold a year and costs around $500 per ounce, the current gold price sitting near $1500 means that when the bank is paid off Ariana will be in clover - you can do the maths. As such, the shares are currently a stonking buy, with a top-slicing target for me of 2.5p before holding for higher. I note here that HotStockRockets has a target of 3p which I cannot disagree with. I am perhaps just a little too boring and conservative. But I will be watching Turkey’s role in Syria carefully.
Filed under: Ariana, IP Group, Vast Resources, Neil Woodford, Buy2LetCars.Com, HotStockRockets
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