Ariana Resources (LSE: AAU) climbed 8% on Tuesday on news that it will receive up to £3.79m worth of capital from its subsidiary Galata Madencilik. Galata, Ariana’s wholly-owned Turkish operating company, has transferred around £1m to date as a result of the repayment of loans by its JV company, Zenit Madencilik.
Galata made the loans to cover the exploration and development of its Kiziltepe Mine, which achieved first gold production in March 2017. The mine is part of the Red Rabbit Gold Project, a joint venture between Galata and Proccea Construction (incorporated as Zenit Madencilik). Now that production has ramped up, cashflow from the mine has reduced capital requirements, allowing Zenit to make repayments back to Galata.
Speaking with Mining Maven, Ariana’s Managing Director, Dr. Kerim Sener explains:
"We’ve been building up a strong position of funds within our subsidiary as a result of the transfers that were coming from our joint venture with Proccea. Those funds were derived from cashflow in repayment of loans we previously made to the joint venture. We have been receiving loan repayments pretty much every month since February of last year.’"
The return of funds will obviously be very beneficial to Ariana, which will now be able to redistribute additional capital to its other assets in Turkey. The company is currently undertaking a drilling campaign in Western Turkey at Kizilcukur, which lies around 22km to the northeast of the Kiziltepe Mine. Sener told us some of its new funds will be redirected here. Sener commented on progress at the Kizilcukur Project in a January update to investors, saying:
“We are encouraged by the results of this recent work and the current drilling programme will add confidence to the resource estimate for the Zeki Pit as part of our feasibility work programme.”
Drilling to date has indicated that Kizilcukur has the capacity to act as a high-grade satellite source for Kiziltepe. More will be known in the summer when the joint venture plans to truck 300ts of ore to Kiziltepe for test processing. 2,800ts of material has already been stockpiled on site and has been subjected to successful initial testing. Ariana will truck the remaining 2500ts for processing if the first batch of 300ts is successful.
The repatriation of funds back to Ariana is expected to pick up again after this year. In line with this, Sener tells us that repayments of loans to the Turkish bank that provided the finance for the development of Kiziltepe are marginally higher this year:
"Once we’re through this year, the free cashflow will be directed to the partners – ourselves and Proccea Construction. But we first need to bring those funds into Ariana PLC. The most efficient way to do this is to pursue a reduction in capital. The reduction of capital allows us to repatriate that capital to the UK, without incurring tax.’"
With the Kiziltepe Mine in full swing and generating cashflow, Ariana is now in a strong position to continue the expansion of its operations.
Author: Stuart Langelaan
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