Ariana Resources (LON:AAU) the exploration and development company operating in Turkey announced its operating results for the quarter ended 30 September 2017 for the Kiziltepe Mine. We took the opportunity to put some investor focused questions to Managing Director Dr Kerim Sener in this investor focused Q&A. 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.   

MM: What do you consider are the key points investors should be focusing on from the operating results announcement? AKS: The main point to take away is that these results represent a very solid start to commercial production at Kiziltepe.  The mine and plant are operating largely at or beyond feasibility expectations.  In particular, where we have been able to “push” the plant, it has performed very well, and so we are now focusing attention on ensuring we can operate at higher sustainable rates.  In addition, the mining operation, being undertaken by our mining contractor, DemirKose, has continued to meet revised higher production targets at a rate which is up to 75% above the feasibility plan.  This is in order to meet our stockpile targets for the operation ahead of the winter months.    MM: 35,049 tonnes of ore were milled during the period; 7% lower than the feasibility forecast, on an annualised basis, though milled grades were 3.46 g/t Au and 41.7 g/t Ag.  Can you expand on the significance of this? AKS: This demonstrates that the mill and process plant are operating very close to feasibility expectations. While the mill has been tested intermittently at significantly higher throughput rates than this, we have not yet done so on a sustainable basis, although we are working towards achieving overall rates beyond feasibility levels in the months ahead.  An important part of this has been to ensure optimal pumping of the tailings to the TSF, so there is a careful balance that the team have been trying to achieve between input and output rates.  The grade of the ore entering the mill is somewhat higher than the grade of the mined ore in the period, as we have generally targeted higher grade feed.  At present any material lower grade than about 3 g/t Au is typically being stockpiled.   MM: Recognising increasing output from open pit production, how does this relate to the stock pile balance and also we have noticed from comments on bulletin boards that investors may be confusing tonnes ‘mined’ with tonnes ‘milled’. Can you explain the difference and its significance? AKS: In any operation that intends to stockpile some ore, the tonnes mined will always be higher than the tonnes milled.  Our current strategy is to ensure our stockpile balance provides for several months of continuous milling operations, even in the event that we had to shut down all mining operations from the open-pit at any time.  This is prudent given our experience from late last year which showed that production rates from the pit can slow down during periods of inclement weather.  It is also generally good practice to maintain healthy stockpiles, as that provides for operational flexibility for any other reasons.   The descriptions below may assist those that are not familiar with the terminology above: Mined tonnes = weight of dry ore extracted from the pit and either put directly into the plant or placed on stockpiles. Milled tonnes = weight of dry ore crushed and ground in the ball mill to c. 0.05mm or less, which is then fed through to the gold extraction tanks.   MM: Can you also expand on the significance of the ‘substantial’ Turkish VAT refund recently received by Zenit in the context of the investment incentive schemes secured for the project? AKS: Under the terms of the Strategic Investment Status secured for the project we have had the opportunity to claim for certain VAT incurred on the project during its construction.  Prior to this latest claim we had successfully claimed more minor amounts, but this time the figure was some way in to the seven digits in USD terms.  We also have additional VAT claims that can be made in the future and these will be scheduled as appropriate.  Such VAT returns are being utilised by our JV company largely to off-set prior working capital commitments made exclusively by our JV partners, Proccea, incurred during the time the operation was in commissioning and start-up.  Some of this last VAT refund (c. US$50,000) relates to expenditure made by our operating subsidiary for resource development drilling and we expect to receive these funds from the JV in due course.     MM: Gross loan repayments by Zenit to Turkiye Finans Katilim Bankasi have been made on their scheduled basis and have amounted to over US$5.9 million as at the end of September 2017; c. US$1.8 million was repaid in Q3. How confident are you in the JV Company’s current finances and its ability to continue to meet bank loan repayments as they fall due from production revenue and profits without the need for recourse to the JV partners? AKS: We have been careful to ensure that all repayments to Turkiye Finans have been made on time.  This helps foster a positive long-term relationship with the bank which will be important when considering other opportunities and future funding requirements.  Importantly for our relationship with our JV partners, who had until recently been taking on the entire working capital burden of the mine, we were able to provide some additional financial support to our JV from the proceeds of a timely fundraise that we completed in June.  This became increasingly relevant while we continued to wait for the substantial VAT refund and while the operation remained in ramp-up.  So, short-term cashflow management issues aside, such as the above, we are expecting revenue from the project (at current gold prices) to exceed or match our repayments to Turkiye Finans going forward.     MM: What exploration work is currently being undertaken within the vicinity of Red Rabbit and the Kiziltepe Mine and are costs for this carried by Ariana or the JV Company? AKS: Since Q1 we have not undertaken any further work on the Kiziltepe area and since Q2 we have not undertaken any further exploration on the Tavsan area.  Until now all costs associated with such exploration were borne by Ariana, with such expenditure reflected in the loan account to Zenit.  Such loans will start to be repaid during the months ahead as we continue operations at Kiziltepe.  However, going forward we do not intend to fund more resource development work at Kiziltepe, as this work is largely complete after we successfully demonstrated the opportunities for resource expansion and the potential for increased mine life with the drilling programmes we completed in 2015 and 2016.  From this point onwards, any further work on resource and reserve definition will be the responsibility of Zenit.  Having said that, we intend to maintain input in to this process and, beyond that, more conceptual targeting and associated exploratory drilling would likely continue to be our remit.  Also we remain focused on identifying other resource opportunities that sit outside of the JV, which we retain the option of selling in to the JV at three times exploration cost.     MM: Both JV partners have loans outstanding with the JV Company, Zenit. When do you believe Zenit will be in a position to commence loan repayments of these loans to Ariana and Proccea? AKS: Such loans are already being repaid.  We have agreed with Proccea that some of the loans that they had taken out privately to support the working capital requirements of the operation before it became cash-flow positive would be repaid to them on a priority basis.  Thereafter, in the months ahead, we expect that the remaining loans made by Proccea and our operating subsidiary Galata will start to be repaid on a proportional basis.  In addition, we want to ensure that Zenit has sufficient capital to weather any additional short-term working capital demands in the future and we would like to see this at a healthy level, ideally, before we consider the repayment of any further loans to the partners.     MM: Moving on to Salinbas, where Ariana now owns 100% of the project, how is work progressing there and how well funded is the company in terms of undertaking the exploration work budgeted for? AKS: We are fully funded for the work programme for 2017 and well in to 2018, though we are not currently planning any drilling programme on Salinbas. The Summer 2017 exploration work has yielded so much new data that we are planning to conduct a thorough review of the project, including all of the most recent data.  We are aiming to make a decision by Q1 2018, at the latest, to either commit to more work on the project in our own right or to consider alternative strategies.      MM: Are you still seeing third party interest in Salinbas and do you still remain confident in its potential, being located within the Hot Gold Corridor and given its proximity to the Hot Maden discovery? AKS: There is plenty of third party interest in Salinbas and we have, so far, had to turn away such interest, particularly while we conducted our own exploration of the project over the course of the Summer and in to Autumn.  We are very confident that further discoveries can be made in the area, particularly around Salinbas and Ardala.  The recent discovery of Ardala North has substantially changed our view of how the mineralisation developed around the Ardala porphyry and we are confident that other potentially economic deposits may have formed in its vicinity.  Future exploration will be testing these new concepts.   MM: What news should investors expect from the company in the coming months? AKS: We will be updating the market on Salinbas in the relatively near term, which may be followed-up with a further update later in the year based on our current exploration there.  We will also be updating the market on our 100% owned Kizilcukur project during the quarter and providing some more detail on how we envisage operating this in parallel with the Kiziltepe processing plant.  We are also working on a revised resource for Tavsan and we will provide further information on our plans for that project in due course.  Kiziltepe production enhancements will be reported on as and when they are completed and commissioned.   During January we will also update the market with our Q4 results from the Kiziltepe operation.     ENDS