Atlantic Coal (ATC.LN) Expects US Domestic Anthracite Prices to Head North as Ukraine Coalfield Crisis Now Confirmed & Exports Stop

For some time I have been reporting about the potential impact of the conflict underway in eastern Ukraine on the anthracite coal market. From reports that are now emerging, it's becoming clearer that rebel separatist forces are now firmly in control of Ukraine's eastern coalfields and indeed their anthracite production. The major player in the anthracite market in Ukraine is DTEK (http://www.dtek.com/en/home) which is a parastatal integrated anthracite mining and power generation company. DTEK have reportedly been importing anthracite from as far afield as South Africa. Ukraine's power stations are configured to use anthracite and with lack of supply, there is a real danger that the country could suffer power outages as winter approaches.

http://www.reuters.com/article/2014/11/26/us-ukraine-crisis-coal-idUSKCN0JA19T20141126

Unlike other forms of coals, anthracite prices are not quoted on a recognised price exchange and so pricing is not transparent. UK AIM Listed Atlantic Coal, one of a few public listed anthracite mining companies does via its requirements as a public company report on US prices, given its main and only production comes from its Pennsylvania located Stockton Mine. Prices in the US for domestic sales generally hover between $130 to $160 per ton and where pricing is often negotiated based on market feel, rather than from a quoted index, however, anthracite has historically traded at a premium to the private price exchange company and port quotes such as FOB Richards Bay, FOB Rotterdam etc obtained and published by Global Coal, IHS McCloskey, International Energy Agency , London Commodity Brokers Ltd, Marex Spectron, Platts, Argus Media & Wood Mackenzie.

The historic price premium of anthracite lump over the price of other thermal lump coals has been circa $130 per ton. So by examining the Chicago Mercantile Exchange futures contracts for a Coal Futures Quote for January 2015, the price is $53.10 per ton. Essentially that would see US anthracite potentially trade at approximately $183 per ton. By no means is this pricing prediction for anthracite in the US an exact science. 

What we do know for certain is that Ukraine and Russian anthracite exports to the US have collapsed. Historically circa 160,000 to 170,000 tons of anthracite from Ukraine landed in the US each year. So far in 2014 up to July, Ukraine had shipped 83,466 tons of anthracite and astonishingly even with trade sanctions the Russian's had managed to land 25,000 tons into the US. We know for certain that these shipments have now stopped. The US market produces circa 1.9 million tons of saleable anthracite annually. The price of Ukraine anthracite landed in the US has typically been priced at around $85 per ton and had a pretty significant impact on driving and dampening prices of anthracite in the US market. Now that these shipments have stopped, which have accounted for approximately 9% of the total US production, it is fair to say that US anthracite prices should head north by 10% which makes my prediction of $183 per ton for US anthracite look very realistic.

For Atlantic Coal, this changing geo-political situation is working in their favour as it is with the rest of the US market. Atlantic Coal has been re-equipping its mine with new earthmoving equipment and with fuel, its biggest direct operational cost now coming down, the company is heading into 2015 in the best shape of its life. I would estimate that total cash costs per ton would be circa $100 so plenty of price margin with improving anthracite prices.

ATC shares are trading at 0.0013p and in my opinion are incredibly cheap given the lower idiosyncratic risks the company faces and the improving price market for anthracite.

Turkish Mining Sector Recent Transaction & Permit News is Exciting Investors

The Turkish mining sector has been growing steadily over the past ten years experiencing average year on year growth of 11%. The election of President Erdoğan on the 10th August this year provides certainty over the political direction of the country that has witnessed decent GDP growth of 5.2% each year on average between 2002 and 2011 and 4% growth in 2013.

Turkey is Europe’s largest gold producer. In 2013 the country produced 33.5 tonnes of gold, from 7 producing mines and by 2015 is looking to take production to 50 tons annually with more mines coming into production. The Turkish authorities are pro mining and recent events are supporting that view.

 

http://www.invest.gov.tr/en-US/infocenter/

publications/Documents/MINING.INDUSTRY.PDF

Turkey has seen decent year on year growth and earnings from its mining activities. Turkey wants to increase gold production to 50 tons annually by 2015. Permitting new gold mines and expansion projects is critical to achieving that objective.

Source: Turkish Gold Miners Association

Some investors are nervous about Turkey when it comes to the mining sector and often when it’s a junior miner, they think the transfer of discovered value in the ground to value back to shareholders is paved with difficulties. Permitting is one of the concerns that most worries investors.

Might I shed some light on three recent events that indicate to me at least why investors uncertain about Turkey’s mining sector should think about softening their approach.

Lets look at Australian listed Chesser Resources (CHZ:ASX) a 31 million USD market cap Australian based gold exploration company that have been developing the Kestanelik gold exploration project in western Turkey. The company acquired the prospect in 2009 and set about undertaking a drill campaign that eventually led in 2011 to the company securing a JORC compliant resource of 703,000 ozs of gold with decent sets of grades near surface, some as high as 28 g/t Au and with most targets hitting well over 5 g/t Au.

On the 3rd September Chesser announced to the market that a Turkish group, Nurol Holdings had placed an offer to Chesser to purchase Kestanelik for $40 million USD in cash and where the deal would give Chesser shareholders a cash return of A$0.15 per share. Chesser’s share price closed Friday at A$0.15 and so if the deal goes through, it would provide its shareholders with a huge premium. In fact Chesser’s market cap in itself is only $31 million, this deal would double the value. It’s a good deal for both parties, as Chesser gets the value now and Nurol benefit by buying 703,000 ounces of gold for an in the ground price of $57 per ounce.

What this deal does mean to investors is this.

1, That a Turkish industrial group like Nurol, is confident that it can take this project from its discovered stage to production stage and that means navigating permitting, financing and all the other hurdles that have to be overcome to enable the company to realize the true value of its investment. It essentially means that Nurol is confident that the regulatory, political, financial and importantly local stakeholder support is there for this project to be turned into a mine.

2, For investors it means that an exploration stage company in Turkey, that discovers, delineates and develops a good high quality gold play, has an exit strategy that can deliver decent returns to shareholders.

I have no doubt that Chesser shareholders will vote in favour of the deal, why wouldn’t they? After all they have two other projects in Turkey that they can now fund with the proceeds from this sale and bring into production if they want to.

So I hope this transaction eases some concerns about Turkish gold exploration and what it can mean for an investor.

Now onto Eldorado Gold (ELD:TSX) the Canadian listed gold mining company. Eldorado is a strong investor in Turkey and is currently mining gold from its flagship open pit Kişladağ mine in the west of the country. No stranger to permitting Eldorado first identified the Kişladağ ore body back in 1997 and has taken the project all the way through exploration, construction to mining and processing. Kişladağ is a big footprint mine with a big environmental footprint too.

The important piece of news associated with this story came out on the 26th June when Eldorado announced that it had secured Environmental Impact Assessment approval for the expansion of Kişladağ from its current 12.5 million tonnes per annum to a maximum of 35.0 million tonnes per annum, more than nearly trebling the operation.  This is a big expansion and where the company would naturally have to have had updated forestry permit approvals for the expansion.

What this signals, is that the Turkish Ministry of Environment and Urbanisation clearly remains supportive of mining operations and it would seem aligned to the fact that Turkey’s economic development of the mining sector, and in particular gold, is clearly motivated to permit to help grow output and meet its own growth targets.

For UK Investors, the story here is London listed Ariana Resources (AAU:AIM). The company is fully funded for the development of the Red Rabbit Project and its first mine at the Kiziltepe Gold-Silver sector of the project. Ariana recently secured 100% surface exploitation rights to the Arzu South target. Clearly, this means that the locals who have assigned these rights to Ariana are supportive of the development of Red Rabbit and the bringing into production of Kiziltepe. Ariana is only awaiting some final permits before proceeding into mine development. Given the recent market indicators and the ambition of the Turkish government to grow the economy and the mining sector, why would investors choose to be cautious about Ariana?

On a final point, what is more interesting is making the resource comparison, valuation analysis and strategic position Ariana now have in Turkey. For example, Ariana has a joint venture project with Eldorado on the Salinbaş and Ardala gold project where 49% of the project is held by Ariana. Excluding the Ardala extension Salinbaş on its own is a JORC compliant resource of 770,000 oz Inferred and Indicated, the grade is 2.3 g/t Au plus 12.1 g/t Ag.  Approx. 23% of resource is Indicated. Compare that to Chesser’s Kestanelik resource which has 703,000 ounces in the Inferred and Indicated category. The grade 2.15 g/t Au plus 1.9 g/t Ag.  Approx. 26% of resource is Indicated.

At the moment, the market is not just undervaluing Ariana in terms of its proximity to entering production, it is failing to properly value its other assets such as Salinbaş, where if you compare that project on the same valuation matrix as Chesser’s Kestanelik project, it would value Ariana’s stake in the Eldorado- Salinbaş extension only and not including Ardala at $20 million alone and where Salinbaş has a better grade and a larger deposit with the Ardala upside………Astonishing

To add more to this story, Ariana’s chairman Michael de Villiers purchased another 1,000,000 ordinary shares taking his stake in the company to 2.02%, another real sign of the confidence surrounding Ariana at the moment.

Lithium Sector......Why Investing in REM and BCN Makes Sense

When BMW start making cars that look as sexy as the i3 powered by a lightweight lithium battery, you just have to take the electric vehicle business seriously. For someone who has spent over 20 years investing and working in the natural resources sector, making the connection between supply and demand is the cornerstone of investment thinking when picking which commodity to back.

That is why I am backing lithium. Nissan have broken the back of this market, the leaf is the biggest selling highway capable electric car selling over 50,000 units worldwide and has helped spur demand for lithium in the automotive sector.

I have some personal experience of how technology changes the market in the automotive market. Back in the late 1960's and early 1970's my father was developing catalytic converters and was awarded a US, Japanese and British patent for the use of ceramics in catalytic converters in the 1970's, going on to sell the business he created. He had a vision to make cars clean, he made a lot of money and became very very wealthy off the back of that vision. 

Over 40 years on, many more people will make millions out of the paradigm shift that is happening in the automotive sector. The vision today is to create vehicles that are less dependant on hydrocarbons for propulsion........its as simple as that and those that will make millions will be those investing, developing and selling materials that sit at the heart of the value chain of this electric vehicle market revolution.

In the same way catalytic converters realised the vision for smoke free emitting cars. Hybrid electric and full electric vehicles are realising a vision for green fossil fuel free transportation.

Don't get me wrong as long as we can find oil and make petrol, the market for traditional combustion engines will always be there, but the revolution in lithium demand is here to stay.

In the same way catalytic converters drove demand for platinum and other speciality metals and components, the electric vehicle market is driving demand for lithium and rare earths.

The platinum industry has much to thank green minded politicians and innovators like my father for and the lithium mining sector will have much to thank companies like BMW for who are now taking the electric vehicle market to a new upmarket and mass market customer base.

Its a no brainer. Just look at the list of cars below being developed using battery component technology, then just think of the impact on lithium demand. 

If you want some evidence of why the lithium market is THE place to be at the moment, then take a look at Western Lithium WLC:TOR, the shares are up 351% so far this year.

If you are in the UK and want to invest in London quoted lithium play you can really only invest in Rare Earth Minerals REM:AIM and the recent AIM listed Bacanora Minerals BCN:AIM.

Rare Earth Minerals have a 30% interest in the Suaz Lithium project in Mexico which looks very promising. REM also have 5.45% stake in Bacanora who in turn have significant lithium projects under development in Mexico.

The automotive sector is the BIG BIG driver of lithium demand.......evidence of that demand is listed below. But finally

Its BMW..........When the Germans get involved in electric vehicles, you know the market is about to take off..........and so will Lithium stocks. I always back the German's to score and that is why you should back lithium to score some goals in your investment portfolio.

Full-sized cars

Cars and utility trucks of normal size and capable of 100 km/h (62 mph) highway speed that are currently available.

• Bolloré Bluecar operates as part of the Autolib' carsharing in Paris that began service to the general public in December 2011. The Bluecar was the top selling highway-capable electric car in France in 2012.

• BMW i3 - Retail sales began in Europe in November 2013. The electric car is available with an optional gasoline-powered range extender that increases the range from 130 to 160 km (80 to 100 mi) to 240 to 300 km (150 to 190 mi). The U.S. release is scheduled for the second quarter of 2014.

• BYD e6 - Sales to the general public began in October, 2011, in Shenzhen, China.

• Chery QQ3 EV - Available only in China

• Chevrolet Spark EV - The Spark EV was released in the U.S. in selected markets in California and Oregon in June 2013. GM also plans to sell the Spark EV in limited quantities in Canada, South Korea and select European markets.

• Fiat 500e - Deliveries began in California in July 2013.

• Ford Focus Electric - U.S. Deliveries for fleet customers began in December 2011 and to retail customers in May 2012.

• Honda Fit EV - Production will be limited to only 1,100 units over the first three years. Deliveries to retail customers in the U.S. began in July 2012 and availability is limited to California and Oregon.

• JAC J3 EV - Available only in China.

• Kandi Technologies KD5011 - Pure EV, currently in production and sales in China. Nine other EV models by the manufacturer approved for sale in China.

• Mitsubishi i MiEV, launch in 2009, is available Asia, Europe and the Americas, lithium-ion battery pack with 130 kilometres (80 mi) range, and a top speed of 130 kilometres per hour (80 mph). The i MiEV was the first electric car to sell more than 10,000 units, including the models badged in Europe as Citroën C-Zero and Peugeot iOn. According to Guinness World Records, the record was reached on February 2011, but several months later, the Nissan Leaf overtook the i MiEV as the best selling all-electric car.

• Nissan Leaf introduced in the United States and Japan in December 2010, followed by several European countries throughout 2011 and 2012. and available in in 35 countries as of January 2014. The Leaf is the world's top selling highway-capable all-electric car ever, with global sales of over 100,000 units by mid January 2014, capturing a 45% market share of worldwide pure electric vehicles sold since 2010.

• Peugeot iOn/Citroën C-ZERO France and the EU, re-badged Mitsubishi i MiEV.

• Renault Fluence ZE, introduced in Israel in 2011 and to be introduced worldwide in 2012.

• Renault Zoe, retail customer deliveries began in limited number in France in December 2012. With cumulative sales of 4,442 units through September 2013, the Zoe is the top selling all-electric car in France accounting for registrations since 2010.

• Roewe E50, available only in China.

• Smart ED, available for leasing in the United States since early 2011. Originally converted by Zytek from 100 Smart Fortwos. Now on sale the third generation in the U.S. and Europe.

• Tesla Model S, deliveries of the 85  kW·h premium limited edition model in the U.S. began in June 2012. Since its introduction, cumulative sales in North America reached 12,700 units through June 2013, with most units delivered in the U.S.

• Toyota RAV 4 EV - Sales started in September 2012. It is developed in cooperation with Tesla Motors.

• Volkswagen e-Up! - Retail sales began in Europe in October 2013.

• Wheego Whip LiFe, sales began in the U.S. in April 2011. A total of 34 units have been sold by March 2012.

Microcars

Aixam e City & e Coupé

• Buddy, successor to the Kewet
• Lumeneo Smera, 110 km/h (68 mph) .
• Mia electric
• MM NmG, previously named Corbin Sparrow
• Sakura (Available in Italy from EFFEDI)
• Tango, 150 mph (240 km/h) ultra-narrow electric sports cars by Commuter Cars
• Tazzari Zero

Low-speed vehicles

These vehicles have a top speed less than many highway speeds, and may not be street-legal without restrictions. They are known as quadricycles in Europe and asNeighborhood Electric Vehicles (NEVs) in the US.

• Renault Twizy Z.E.; a two-seat electric car with a 4 or 13 kilowatts (5.4 or 17.4 hp) electric motor. Top speed is 80  km/h and range is up to 100 km. Launched in Europe in March 2012, became the top selling plug-in electric vehicle in Europe during the first half of 2012 with more than 6,000 units sold in just three months on the market.
• Columbia ParCar Corp <http://www.parcar.com
• CityEl three-wheeled EV, produced in Germany.
• citEcar produced by Road Rat Motors in Gainesville, Florida <http://www.RoadRatMotors.com> with vehicles ranging from 2 to 29 passengers.
• Dynasty EV a neighborhood electric vehicle
• Organic Transit ELF a pedal-assisted, electric, velomobile of "tadpole" format. <http://www.organictransit.com/> Manufactured in Durham, North Carolina, USA.
• EuAuto Mycar manufactured in Southern China, sold in Hong Kong, limited to roads with speed limit at or below 50  km/h
• Global Electric Motorcars, LLC (GEM) quite common in California.
• Kenguru - pronounced "kangaroo" is a 4-wheeled 1-person electric vehicle designed for disabled use: with no seat, drivers drive from their wheelchairs, and enter/exit from the rear door (the only door). The maximum speed of the Kenguru is 45  km/h. Steering is via motorcycle-style handlebar or joystick and a 5-inch-diameter steering wheel in a future model. It is designed by Hungary-based company Kenguru Car Ltd, and is currently manufactured in USA by Community Cars, after Kenguru Car Ltd stopped manufacturing the car.
• Mahindra e2o, launched in the Indian market in March 2013.,^[ range of 100 km (62 mi) and a top speed of 80 km/h (50 mph).
• Miles Electric Vehicles LSVs for fleet and neighborhood use
• Oka NEV ZEV Low Speed Electric Vehicle made in Russia, sold in USA.
• Open Since the beginning of this year also sold in Japan as Girasole, with higher speed and wider range as the Open.
• Star EV a specialist in golf carts who also offers a wide selection of electric vehicles ranging from 2 to 14 passengers. Made by Suzhou Eagle Electric Vehicle Manufacturing Co.,Ltd. in China (www.eagleelectricvehicle.com)
• Twike three-wheeled EV with pedal assist option. Produced in Germany.
• Miles XS500 Electric Vehicle Production Electric Vehicle from Miles Electric Vehicles.

Demonstration fleets

Hyundai BlueOn

• Mini E from BMW, with more than 500 cars leased for field testing in the U.S., the U.K., Germany, and France.

• BMW ActiveE Field testing in the U.S. began in January 2012, after the Mini E trial ended.Available only in select markets.

• Toyota eQ/Scion iQ EV - Toyota announced that the iQ EV/eQ production would be still more limited, to about 100 units for special fleet use in Japan and the U.S. only.The first 30 units were delivered to the University of California, Irvine in March 2013 for use in its Zero Emission Vehicle-Network Enabled Transport (ZEV-NET) carsharingfleet. Toyota announced that 90 out of the 100 vehicles produced globally will be placed in American carsharing demonstration projects.

• Tata Indica Vista EV

• Volvo C30 Electric

• Volkswagen Golf blue-e-motion

Cars planned for production

Alpha LUJO Electric Vehicle Pty Ltd has a my EV 118 model and is an Australian company with production in China early 2011.

One of the earlier version have passed EEC crash test in early May 2010.

• Audi A1 e-tron

• Colmach type 1 - Roadster / stainless steel / In development, to be manufactured in Southern California.

• Callidai Car - A car created by Callidai Motor Works, Chennai, India for wheelchair users - to drive while seated on their wheelchair. This is a Battery powered car and can seat one more passenger besides the driver. Has a maximum speed of 30 Kmph and has a retractable, motorised ramp in the rear to permit entry and exit of driver and passenger. There is a first prototype which will be field tested by a customer. The second and final prototype with better performance should be available in the market in 2013. The price is expected to be about Rs. 3.50 lakhs ex-Chennai.

• Detroit Electric SP.01 with sales scheduled to begin in the U.S. in August 2013.

• EDay. An Australian designed electric car to be built in China and released in 2012, for less than $10,000

• EVTraxer EC homogulated chassis

• Electrovaya plans to sell the Maya 300 a full electric car in Canada and USA by Summer 2009

• Hybrid Technologies
  • LiV DASH
  • AFS Trinity hybrid prototype is a modified Saturn Vue, estimated cost $33,000-40,000.

• Hyundai BlueOn will be launched in South Korea late in 2012, with just 2,500 units.

• Infiniti LE

• Liberty Electric Cars is re-engineering Range Rovers to produce electric 4×4's that will have a range of 200 miles (320 km) and retail for £95,000.

• Lightning Car Company is currently developing its eponymous Lightning based on a pre-existing internal combustion-powered sports car, and plans to use NanoSafe cells and Hi-Pa Drive in-wheel motors.

• Mass-EV is developing in Reading, UK by Turbo Electric Ltd. This car is targeted to be on sale 2011 at a price of £7,000 to the public and charges directly from the UK socket. Roughly the size of a Ford Focus C-Max, will do in excess of 100 miles and motorway speeds. With trailer generator was projected to travel in excess of 500 miles on one tank of petrol.

• Mercedes A-Class E-Cell

• Mercedes-Benz B-Class Electric Drive - Sales are scheduled to start in the U.S. by mid 2014.

• Mercedes-Benz SLS AMG Electric Drive - Sales were scheduled to begin in June 2013.

• Obvio! 828E and 012E

• Phoenix Motorcars based in Ontario, California, plans to build both a mid-sized SUV and an SUT (Sports Utility Truck) with 130-mile (210 km) range for $45,000 using NanoSafe batteries from Altairnano. 500 cars are planned for delivery in early 2008 to fleet customers. A consumer version is planned for release in late 2008. Over 250-mile (400 km) range version also in development.
• Rimac Concept One

• Quimera GT car - scheduled for release in 2012, the first all-electric gt racing car. The car has a top speed of 300  km/h.

• SIM-Drive - SIM-LEI and SIM-WIL prototypes, 4-seater planned for 2013

• SSC Ultimate Aero EV - Planned for Q4 of 2009

• Subaru Stella Electric Vehicle - Deliveries beginning in Japan in July 2009.

• Switch Vehicles planned for 2012 delivery as a kit car. Three-wheeled four-seater. Estimated cost $15,000.

• Tesla Model X - Production was initially scheduled to start by the end of 2013, but later was postponed to commence by late 2014 in order to focus "on a commitment to bring profitability to the company in 2013" and also to achieve their production target of 20,000 Model S cars in 2013.
• Tesla expects small number deliveries at the end of 2014 with volume production planned for 2015.

• Universal Electric Vehicle Corporation Electrum series Spyder, COM V-3

• Veeco RT, a 2 seater reverse trike, planned for 2013 production. Developed in Portugal as a partnership between manufacturer "VE—Fabricação de Veículos de Tracção Eléctrica, Lda. " and the Lisbon Engineering Institute (ISEL).

• VentureOne Trike with hybrid and EV options. Three-wheeled vehicle registered as a motorcycle in the USA. Not required to be FMVSS tested.

• Venturi Fétish marketed as the world's first electric sports two-seater. Monaco

• Volkswagen e-Golf - Retail deliveries in Germany are scheduled to being in the second quarter of 2014.

ARIANA RESOURCES, I TOLD YOU SO

For those of my loyal followers who have been reading my blog and outputs, I hope that you have been as positive on Ariana as I have been. Ariana announced today that they have secured the project finance for Red Rabbit. You can read my assessment of Ariana through my previous article on Proccea

Anyway, I TOLD YOU SO

RED RABBIT GOLD PROJECT: MINE 100% FINANCED

Ariana Resources plc ("Ariana" or "the Company"), the Anglo-Turkish gold exploration and development company focused on Turkey, is pleased to announce a finance agreement to bring its Kiziltepe Gold-Silver Mine ('Kiziltepe') into production.  Kiziltepe is the initial mine targeted at the Red Rabbit Gold Project in western Turkey, a joint venture between Ariana and Proccea Construction Co. ("Proccea").  The finance agreement has been secured via the joint venture company, Zenit Madencilik San. ve Tic. A.S. ("Zenit").

Highlights:

• US$33 million overall credit agreement, inclusive of capital repayments and borrowing costs, completed with Turkiye Finans Katilim Bankasi A.S., an international award winning Turkish investment bank.

• US$236,000 first drawdown completed by Zenit.

• Additional equity contribution by Proccea of approximately US$5 million to earn-in to 50% of the project completes project funding.

• Loan repayments will occur over five years, with a two-year principal repayment holiday following first drawn down.

• Facility is non-recourse and comprises no hedging or currency swap requirements.

Dr. Kerim Sener, Managing Director, commented:

"With our partners, Proccea Construction Co., we are exceptionally pleased to have secured the support of Türkiye Finans Katilim Bankasi A.S. for the financing of our first mine at Kiziltepe.  This is a major leap forward enabling us to advance our plans for the construction of the mine.  We would like to take this opportunity to thank Proccea for the resolute focus they have shared with Ariana as we transform from development into production.  We also warmly appreciate Türkiye Finans Katilim Bankasi's confidence in our joint venture.  Ariana and Proccea are highly encouraged and energised by these developments.  Securing the finance will enable us to hit the ground running in H2 2014 pending the completion of final permitting. 

"This is a refreshingly straight-forward form of non recourse project financing that allows us to get on with developing the significant potential of the Red Rabbit project."

Finance Facility

A US$33 million finance facility has been agreed following negotiations with Türkiye Finans Katilim Bankasi A.S. ("Türkiye Finans").  The facility has been provided in the name of Zenit Madencilik San. ve Tic. A.S. ('Zenit") in order to fund the construction of the Kiziltepe Gold-Silver Mine.  This is in addition to a final equity contribution (approximately US$5 million) to the project by Proccea which will complete their earn-in on 50% of the project.

The facility will have a term of five years from the time of first draw down.  Repayment of the loan will occur via 36 monthly instalments following a two-year principal repayment holiday after first draw down.  The total repayments are capped at US$33 million, which covers all capital repayments and funding costs.  Net lending prevailing at time of first drawdown is US$24 million with the balance of the facility attributable to borrowing costs.  As the facility is based on a participatory banking model, repayments are calculated according to the amount and timing of each drawdown, and will be dependent on market conditions prevailing at the time of each drawdown.  However, over the term of the loan, the overall credit profit margin cannot be changed in terms of the credit agreement.

Proccea Construction Co. and Ariana's subsidiary, Galata Madencilik San. ve Tic. Ltd., have provided joint and several security over their shares in Zenit to the bank until such time that the loan has been repaid.  Additional security provided against the loan includes all freehold land owned by Ariana's subsidiary, Camyol Gayrimenkul, Madencilik, Turizm, Tarim ve Hayvancilik Ltd. There is no hedging, currency swaps or other overhead requirements that are normally associated with traditional western-style project finance arrangements. 

Ariana has no further financial commitment to the JV for development level funding although it will aim to continue its exploration programmes across the JV region in order to improve overall potential and extend the life of mine to the maximum.

First Drawdown

Zenit Madencilik has undertaken a first drawdown of US$236,000 following the completion of the credit agreement with Türkiye Finans. This first drawdown has been applied to detailed engineering work completed by Proccea. 

Ariana Resources (AAU) & Proccea The Team Set to Build Turkey’s Next Gold Mine

Ariana (AAU) & Proccea The Team Set to Build Turkey’s Next Gold Mine

I have been spending some time in Turkey recently, visiting a place called Gaziantep, one of the oldest continuously inhabited cities in the world. Just 6o miles from Aleppo in Syria, Gaziantep is Turkey’s industrial powerhouse, its sixth most populous city and if you want to really experience what it is like doing business in Turkey, you just have to visit Gaziantep.

Why is my reference to this old Turkish industrial town relevant when it comes to Ariana Resources, the AIM listed gold mine development company? Simply because for the many investors who look at junior gold mining companies like Ariana, there is often a suspicion by investors that the company will either never get into production or never get the permits necessary to build a mine. Many investors believe that junior’s like Ariana cannot make the step leap from explorer to miner and that Turkey may be a difficult place for them to do that, I disagree.

Turkey’s reputation as a mine friendly development country took a bit of a dent when the former AIM listed nickel miner, European Nickel struggled to get a forestry permit for its Caldag nickel project, and ended up selling the whole asset to a Turkish group for US$40 million back in 2011, to then end up de-listing from AIM in 2012, when its other Philippine based nickel project was sold for £49.8 million. You could say the Turkish got their hands on Caldag cheaply or given the current price of nickel, they paid over the odds, either way, the property for good or bad was never able to deliver the sort of returns European Nickel investors could potentially have enjoyed over the longer term.

My dealings in Turkey and my experiences so far have only been positive. The one cultural factor that I have picked up on is partnership. When I had my first meeting at the Chamber of Commerce in Gaziantep, I really wanted to understand what I would need to do to make sure the basis for a successful relationship could exist between myself a British businessman and my Turkish business partners. “Protocol, Friendship and Trust” was the reply. Protocol meaning the establishment of a Memorandum of Understanding, essentially a business accord that set out the relationship, objectives and importantly the financial clarity of our relationship. The second was friendship and the third was trust.

I have to say that the advice the Chamber of Commerce gave me in Gaziantep early on has been invaluable in helping me make successful business in Turkey, not just financially, but also culturally. I see the same business accord at work between Ariana and their Turkish business partner Proccea. The Joint Venture partnership Galata (Ariana’s 100% owned Turkish subsidiary) and Proccea have created a Turkish joint stock company Zenit Madencilik San. ve. Tic. A.S. (Zenit) to develop Red Rabbit, Ariana’s flagship near term gold mine project and get it into production. Ariana currently holds 86% of the joint venture, this is likely to be reduced because of Proccea’s commitment to invest a further US$5 million into the Red Rabbit JV.

As someone who actually invested in European Nickel, looking back on it, I did not fully appreciate at that time, the importance of joint venture partnerships and protocols and how vital they are if you want to do successful business in Turkey. Also just how important it is, not just to have a local partner in namesake only, but to have a true shareholding local partner that can bring something to the party.

Proccea, Will Make All The Difference to Ariana

In Ariana’s case they have not just got any local partner in Turkey, they have in Proccea, one of the most respected construction companies in the country one that is highly connected, but more importantly for Ariana shareholders, one that brings real value to the company and one that has an incredible track record in gold mine development. A track record that will absolutely help both Ariana and Proccea get the debt finance they need to bring Red Rabbit into production. Proccea will make all the difference. Maybe for European Nickel a similar partner possibly would have seen their Turkish adventure be more successful.

Proccea is an Engineering, Procurement and Construction Management Company (EPCM). In mining terms think of them in the same light as DRA, famous for the building of many of the world’s best platinum mines and experts in the design and engineering of platinum concentrators.

Think of Proccea as a Bateman Engineering, now Tenova, who have built mines all over the world.

Think of Proccea as a HATCH the Canadian EPCM contractor, who have built gold mines all over the world. I remember working in South Africa a few years ago on a debt financing deal and one of the South African banks said to me. “Who is the Jockey for this project” in other words they wanted to know who was going to oversee the money they were looking to provide, who was going to take the project from concept into production and make sure they actually got their money back. Banks love to see “BAT” on the finance application, Best Available Technology” they like to see the names of proven EPCM contractors that have brought mines into production on behalf of their mining clients, they will see that with Proccea’s name on the paperwork, and the beauty id they are Turkish, no language barrier, no cultural barrier, they are not giving money to any old EPCM contractor, if it’s a Turkish bank, they will be giving it to one of their own.

Ariana into Production

What Proccea can do is bring Red Rabbit into production, because it can tick all the boxes the banks will need ticking in order to release the debt finance for Red Rabbit to be built. In other words, Proccea is the perfect “Jockey” the banks will be looking for, backed up by the highly talented and proven track record mine development team at Ariana. Just take a look at the track record Proccea will put before the banks to support Ariana and why I believe Rad Rabbit will get financed.

Vasgold Gold Mine, Kazakhstan. The largest gold reserve in Kazakhstan where Proccea were engaged by Summit Valley via the Fooldgate Holding (Netherlands) / Government of Kazakhstan JV partners to build the adsorption, desorption and recovery plant (ADR)

Amesmessa-Trek Gold Mine, Algeria. Proccea was the prime contractor for the mine, awarded the contract by the ENOR SPA Team that included AIM listed GMA Resources. Proccea did the structural steel design & manufacturing

cic columns design & manufacturing, the ADR plant installation, start-up & commissioning, plus the staff training.

Kittilä Gold Mine, Finnish Lapland. In the harsh arctic frozen landscape town of Kittilä in Finnish northern Lapland, Proccea was selected by Canadian listed Agnico Eagle to commission the ADR plant.

In Turkey, Proccea has helped build the, Çöpler Gold Mine, for TSX and ASX listed major Alacer Gold Corp where the mine is set to produce over 200,000 ounces of gold this year. Other projects Proccea has played a leading role in the development of are the Eti Gümüs-Silver Mine, Turkey, the Koza Gold-Mastsa Gold Mine, Turkey, the Maaden Gold Mine, Saudi Arabia, the Tüprag (Eldorado Gold)/Klada Gold Mine, Turkey, the Minera Triton project, Argentina, the Ouagadogou Gold Mine, Burkina Faso, the Tüprag (Eldorado Gold)/Kisladag Gold Mine, Turkey and the Zarcan-Takeb Gold Mine, Iran.

At Red Rabbit, Proccea will have to build a simple Carbon In Leach (CIL) plant, run of the mill standard processing that been done time and time again for gold mines all over the world.  There is no re-writing history, its not new technology, it’s bog standard processing of a simple oxide ore body, just like Alacer’s Çöpler project. Ariana and Proccea will not be asking the banks to fund any new fancy never been done before process………….

Summary:

I have no doubt Ariana will get Red Rabbit into production. With the support of Proccea and the fact the company has the right protocol in place in Turkey, a factor that I now appreciate the importance of more than ever before, means that for AIM investors, you are now looking at a company in Ariana that given its current share price of circa 0.08p would mean the only way is up for this Anglo Turkish success story in the making.