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.