Salinbas, Ariana’s other JV
Ariana (LONDON:ARNR) has a joint venture with Eldorado Gold (NYSE:EGO) (51%) over the Salinbas-Ardala projects in NE Turkey. Focusing on Salinbas only due to its sizeable (1Mt for c 0.84Moz AuE) gold-silver resource, initial cost data indicate a low-cost, low-capex (c US$25m) heap leach project. Further technical work is critical to defining Salinbas’s value, but our first-pass DCF valuation of the project points to a potential value for Ariana’s current 49% interest in the JV of 1.10p. This does not form part of our current base case valuation for Ariana.
Kiziltepe: Final forestry permit needed
With debt financing in place to construct the Kiziltepe mine, Ariana and its partner Proccea Construction need to acquire a forestry permit from the Turkish authorities. The Turkish government is in the process of approving amendments to the mining act, which it has now sent to parliament for final review and passing into law. This has been a major hurdle for Ariana and its JV partner in developing its now fully funded Kiziltepe project.
Valuation: Adjusted for Q116 start and gold prices
We adjust our previous base case 1.90p valuation for Ariana’s eventual 50% share of Red Rabbit for a Q116 mine start-up (previously Q115), gold prices as per page two, and a cable rate of 1.52 (previously 1.69). On this basis our base case valuation becomes 1.71p, using a 10% discount rate to reflect general equity risk. Applying flat gold and silver prices of US$1,200/oz and US$17.00/oz respectively results in our base case becoming 1.04p.
With Salinbas, Ariana is potentially worth 2.8p
We value Ariana’s 49% interest in the Salinbas-Ardala JV based on scoping study level data for the potential development of the deposit as a heap leach operation. We assume that 60% of the 1Mt gold-silver resource would be economic to mine (no reserves have been calculated to date), which would support a 10-year life of mine with ore throughout to a mill of c 636ktpa. We also revise metal grades based on an assumption that 60% of the resource gold and silver grades report to the reserve estimate. Gold and Silver recoveries are assumed at 75% and 30% and the stripping ratio at 10:1. Due to no development timeline being in place, we value Salinbas on a DCF basis using gold and silver prices of US$1,200/oz and US$17.00/oz respectively. On this basis Salinbas is worth, on a 100% basis, 2.2p (US$21.4m) at a 10% discount rate and 1.1p (US$10.5m) for Ariana’s current 49% interest.
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