Ariana Resources plc : Kiziltepe Quarterly Operational Update

1 February 2018
AIM: AAU

KIZILTEPE QUARTERLY OPERATIONAL UPDATE

Ariana Resources plc ("Ariana" or "the Company"), the exploration and development company operating in Turkey, is pleased to announce its operating results for the quarter ended 31 December 2017 for the Kiziltepe Mine ("Kiziltepe" or "the Project").  Kiziltepe is part of the Red Rabbit Joint Venture with Proccea Construction Co. and is 50% owned by Ariana through its shareholding in Zenit Madencilik San. ve Tic. A.S. ("Zenit").

Operational Highlights*:

• Gross income for the quarter is US$6.31 million and average effective gold price (see Table 1, note 2) is US$1,402 per ounce. 
   
• Production and sale of 4,501 oz gold and 35,095 oz silver during the quarter ending 31 December 2017 exceeded feasibility forecast by c.38% for recovered gold on an annualised basis.
   
• Operating cash costs for the quarter are estimated at US$ 585 per ounce^#.
   
• Total gold and silver sales for 2017 are 10,191 oz and 65,600 oz respectively.
   
• Operational mill availability running at 98% and utilisation at 95% during December. 
   
• Weighted average grade of ore mined in the period is 3.40 g/t Au and 33.5 g/t Ag, matching overall reserve expectations.
   
• 45,381 tonnes ore milled during the period ending 31 December 2017; 21% higher than the feasibility forecast, on an annualised basis and milled grades were 3.90 g/t Au and 40.7 g/t Ag. 
   
• Approximately 46,600 tonnes of ore at a weighted average grade of 1.88 g/t Au stockpiled for future use.
   
• Process recoveries of gold and silver remain higher than expected at c.89% for gold and 67% for silver as at the end of the quarter. 

* All production figures are quoted gross with respect to the JV in this announcement.

^#  Operating cash costs are inclusive of on-site costs and off-site charges and royalties specific to the project.  It also includes adjustments for stockpile balances at the end of each quarter, in addition to an adjustment for by-product silver.  They exclude finance costs, taxes and development capital. The definition used to derive the cash costs is essentially the same as that used within the feasibility study.  This cash cost was calculated based on unaudited figures obtained from Zenit.

Current Developments:

• Production of ore from the open-pit achieved an average rate of 16,600 tonnes per month over the period, with a peak rate of over 19,000 tonnes achieved in December.
   
• Gross capital loan repayments by Zenit to Turkiye Finans Katilim Bankasi A.S. have been made on their scheduled basis and have amounted to over US$7.7 million as at the end of December 2017; c. US$1.9 million was repaid in Q4.
   
• Second-stage Tailings Storage Facility ("TSF") dam wall to be completed during Q1 2018 and Stage 2a TSF liners installation to commence in order to increase capacity further; operation fully re-circulating process water from the TSF.
   
• Central Bank of the Republic of Turkey now buying gold from the operation through its mandated right of first refusal, which has become effective since early January 2018.

Corporate Matters:

• Share bonuses and options due to management (including directors) and staff as detailed in the announcement of 21 December 2017 have been finalised. Further to that announcement and to provide additional clarity, the Company confirms that presently it has no intention of issuing further options to management or staff until the current award period has expired (1 January 2023), other than in the event of exceptional circumstances.

Dr. Kerim Sener, Managing Director, commented: 

"This is another great result from the Kiziltepe Mine, demonstrating that we have exceeded 2017 production guidance on a gold-only basis.  Our second quarter of commercial production, as detailed here, underscores the profitability of this operation, with operating cash costs remaining well within range of our expectations.  At current gold prices, profitability of the mine is predicted to increase further during 2018, due to increasing grades expected to be encountered in the coming months.

As the JV company has been cash-flow positive for some time, 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. 

Work is now progressing on the permitting of other open pits in the vicinity of the primary pit at Arzu South and we envisage commencing mining of some of these areas towards the end of this year.  We are also giving consideration to future underground mining scenarios for optimal resource extraction.  We will be providing 2018 production guidance during Q1 2018 once these matters are considered further."

Table 1: Production statistics for the Kiziltepe Mine in Q4 2017 and for the period mid-March to end-December 2017. 

1. Cash costs are not provided for the purposes of the year to date due to the operation having been in ramp-up during part of the period.  Costs incurred during the ramp-up period are not reflective of estimated operating costs over the longer term.   
    
2. Effective gold price accounts for both the gold and silver sold during the period and is calculated by dividing the gross income by only the gold ounces sold in the period. 

Summary of Project

The Kiziltepe operation is currently expected to deliver approximately 20,000 oz gold equivalent per annum over eight years of initial mine life, for a total of up to 160,000 oz gold equivalent based on current resources.  The operating company, Zenit Madencilik San. ve Tic. A.S. (50:50 JV between Ariana and Proccea) will continue to make repayments against its loan from Turkiye Finans Katilim Bankasi A.S. based on a contracted schedule.  Major loan repayments will have been completed by April 2020 and, during this time, excess cash-flow from the operation will be used to make proportional repayments of loans provided by Ariana and Proccea jointly to the JV for exploration and development respectively.  After the repayment of all loans, profits from the operation will be shared on a 51:49 basis between Ariana and Proccea respectively.

Commercial production was initiated at Kiziltepe during July 2017 and formal quarterly production has commenced.  The Company has also completed a new resource estimate for the project based on recent drilling and geological interpretation.  Detailed technical and economic assessments will be completed on several satellite vein systems which are not currently in the mining plan, in anticipation of these being developed in future years.  The Company is currently targeting a minimum ten-year mine life, which will require the addition of a further 40,000 oz gold equivalent in reserves outside of the four main pits (Arzu South, Arzu North, Banu and Derya) that are currently scheduled to be mined.  Management is confident that this can be achieved following conversion of existing resources to reserves.