Ariana Resources Funded Through To Mine Development

Ariana (AAU.L) has announced the outcome of its final Definitive Feasibility Study (DFS) for the Kiziltepe sector of its JV Red Rabbit project. The DFS states adjustments to operating costs and initial capital requirements. While these have, in general, moderately increased, the actual cost of mining waste and ore has dropped markedly, by c 28%, from US$25.98/t (in its 29 October interim FS) to US$18.69/t. Taking account of the DFS cost parameters we revise our previous 3.30p base case valuation to 3.19p per share (at long-term prices of US$1,676/oz Au & US$28.15/oz Ag). Our unrisked valuation is now 5.51p, which we consider better reflects Ariana’s ongoing exploration successes close to Red Rabbit that could extend its current eight-year mine life. Both valuations use a 10% discount rate.

Funded through to mine development
Ariana has conditionally agreed a £1.25m equity subscription/swap agreement with Lanstead Partners (announced 17 June 2013). Through this, Ariana has secured enough funding to take it through to the development stage of Red Rabbit, anticipated for early-2014 pending successful financing. The latter is expected by Q413.

EIA process underway and completion due in Q313
Ariana’s current target is to have obtained environmental impact assessment (EIA) approval during September 2013. Following this, Ariana expects to submit further forestry applications and to apply for other permits during Q413. We have therefore modelled first production to occur at Red Rabbit in H214 (vs Q114 previously), which allows for an estimated six- to eight-month construction period.

Valuation: Revised for DFS, base case now 3.19p/s
We have adjusted our previous 3.30p valuation for capex and mining costs contained within the recent DFS. We have not changed the mining schedule from that of our previous valuation (a full description of our previous assumptions can be found on page three of this note). On this basis, our valuation is now 3.19p per share at gold prices of US$1,510/oz (2014) rising to US$1,676/oz long-term. The silver price used is US$24.75/oz (2014) rising to US$28.15/oz long-term. Both valuations are for Ariana’s eventual 50% share of the Red Rabbit project and use a discount rate of 10% to reflect general equity risk. Our model assumes 100% debt funding for Red Rabbit. Furthermore, our valuation remains a robust 1.80p at current gold and silver prices of US$1,250/oz and US$19/oz respectively.

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