StockMarketWire.com - Ariana Resources has reported pre-tax profits for the year ended 31 December 2016 of £13.726m, compared to a loss of £1.46m in 2015.

The basic and dilutes profit per share was 1.67p (2015: loss of 0.2p).

The Company's Chairman, Michael de Villiers, made the following statement:

This has been a landmark year for your Company with the successful completion of construction at the Kiziltepe Mine and our first gold pour in March 2017. This achievement is the result of the unwavering commitment of the Ariana team and our partners Proccea Construction Co. ("Proccea"), together with the support given by the local community and the Turkish Government. I would also like to acknowledge the steadfast commitment of our long-term shareholders, who have supported us as we strived to deliver our vision.

Whilst our primary focus has been to ensure that the Kiziltepe Mine was delivered as planned, we have also made significant progress to enhance the long-term economics of the Red Rabbit Gold Project by expanding the resource base at Kiziltepe through recent drilling programmes and its wider hinterland, including an important and timely reappraisal of the Tavşan Sector.

We have made significant advances in achieving these goals this year. Leveraging our well-established track record for cost-effective exploration, our discovery cost now having been further reduced to US$15 per ounce, we are confident that we have significantly extended the resource base at the Kiziltepe Sector of the Red Rabbit Gold Project through two successive resource updates in one year.

At Kiziltepe, approximately 7,200m of drilling during 2016 confirmed our expectations in the continuity of mineralisation beneath the cap rocks at Arzu Central and tested several other targets successfully. These exciting results indicate an extensive buried vein system connecting Arzu South with Arzu North for over 650m of strike. In addition, drilling on Arzu South has confirmed the continuity of mineralisation along the southern extensions of this vein. At Arzu Far South we have discovered a vein array which is anomalous in gold and particularly silver.

We have also added a further 125m to the eastern end of the mineralised vein strike at Banu, which will have the effect of increasing our resource at this location. The grades encountered here demonstrate the potential for extraction from an extended open-pit. At the Karakavak prospect we have confirmed the potential for several shallow open-pittable resources as satellites to the Kiziltepe Mine operations.

In November 2016, a scoping study completed on Tavşan demonstrated the opportunity for further resource growth and the development of an attractive low-cost and high-margin mining operation at a second site. Approximately two thirds of the Tavşan resource will be accessible via shallow open-pit mining methods. Additional exploration potential in the area suggests that there are opportunities to increase mine life by a further three years to a total of seven years, producing at a rate of approximately 30,000 oz gold p.a. The study underlined the potential for strong financial returns: NPV (8%) at US$41.9M, with payback secured within 1.1 years over an initial 4 year mine life at a gold price of US$1,250/oz. The scoping study has demonstrated that bringing the Tavşan Sector of the project on stream would enable us to increase production from approximately 20,000 oz to 50,000 oz p.a. gold eq. between the two operations.

These positive developments at our operational mine, together with an enhanced resource base, occur against a backdrop of growing strength in global precious metals markets. There appear to be many drivers of this trend, including geo-political uncertainties, central banks stockpiling gold, concerns that the stock markets are over-valued, re-emerging inflation and investors seeking safe havens. Another driver of the market worth noting is the increasingly important role of China. Since 2014 China has been the world's largest importer of gold and since 2007 it has been its largest producer, yet barely any of this production is exported.

Another global economic development with a positive impact on our Kiziltepe Mine is the present era of low oil prices, which looks set to continue. Oil prices are at around US$55 per barrel, compared with US$109 in 2012. This is very much the product of the fracking industry, particularly in the Texas Permian Basin. As this technology is rolled out over other oilfields globally, it appears likely that relatively low oil prices will persist for a considerable period of time.

Another positive development for the Company occurred in December 2016 with the 100% acquisition of the Salinbaş Gold Project in Turkey's Artvin Province from Eldorado Gold Corporation ("Eldorado"). The agreement provides a Net Smelter Return royalty to Eldorado of up to 2% on future production. Salinbaş had been part of a 49:51 Joint Venture with Eldorado since 2012 and previously with European Goldfields Limited from 2008, prior to their acquisition by Eldorado. Salinbaş is a highly significant asset, as it is located within the 'Hot Gold Corridor', a multi-million ounce goldfield containing several major gold- copper projects, notably the adjacent 4 Moz Hot Maden project. Salinbaş contains approximately 10Mt of Indicated and Inferred JORC resources, with an average grade of 2.0 g/t Au and 10.2 g/t Ag (for 650,000 oz gold and 3.2 Moz of silver). A scoping study completed on Salinbaş demonstrated potential for production of approximately 50,000 oz gold and 100,000 oz silver p.a. over 10 years, providing an NPV (8%) in excess of US$100M.

In recognition of the widening scope of Ariana's interests, the Ariana Board was strengthened in August 2016 with the addition of Chris Sangster as a Non-Executive Director. Chris is a mining engineer with over 35 years in the industry. His insight will be invaluable in the next stage of Ariana's development, as we continue to prove up our other projects in Turkey and beyond. We look forward to working closely with Chris as we bring Kiziltepe through ramp-up and as we start developing this and other sites further.

Over the past two years, Ariana has been diversifying its portfolio into technology-metals, such as lithium, which are associated with many gold provinces worldwide. We witnessed the first benefits of this strategy in late 2015, when Ariana's subsidiary Asgard Metals Pty. Ltd. ("Asgard") vended a package of six tenements in the Pilgangoora area of Western Australia, to Dakota Minerals Limited (ASX: DKO). In July 2016 Asgard completed the sale of our interests in a second package of lithium tenements in Western Australia and the Northern Territory to Kingston Resources Limited (ASX: KSN).

In summary, the past year has been a transformational one for your Company. Despite the challenging market conditions and several regulatory changes in Turkey over recent years, we have not wavered from our strategic vision. Our determination has enabled us to make the challenging transition from an explorer to a joint venture producer with the construction of our first mine at Kiziltepe. This is a pivotal moment in the evolution of your Company and our achievement is the result of the professionalism and diligence of the Ariana team, our JV team in Zenit Madencilik San. ve Tic. A.S. ("Zenit") and our partners Proccea. I would like to extend my thanks and congratulations for what we have achieved together. We have also been fortunate in the support we have received from the local community in Western Turkey, the Turkish Government and Turkiye Finans Katilim Bankasi A.S. Our JV company, Zenit, has also been careful to ensure that local suppliers are preferentially used for material, equipment and services for construction. This has developed a strong sense of community ownership of the Kiziltepe Project.

We are now in the process of realigning Ariana to take advantage of our evolving position as an exploration junior backed by cash-flow from our Joint Venture operation at the Kiziltepe Mine, in addition to our significant investments in three listed junior companies. This provides the Company with a platform on which to expand our strategy both within and outside Turkey. I am immensely proud of the Ariana team: we have a proven track record of successful and cost-effective exploration. Now we also have a track record for delivering our strategic vision, having made the transition from exploration to joint venture production. These achievements give us the confidence and momentum to drive our strategy over the coming years, as we widen our interests to strengthen our portfolio and create shareholder value through further exploration and development of our assets.

Financial Review

As outlined in the Chairman's Statement, the past year has been a transformational one for the Group and this is reflected in the Statement of Comprehensive Income, which shows a profit for the year of £13.7M.

The primary driver of this surplus is the fair value assessment of the intangible exploration asset made by the Directors on the acquisition of the remaining 51% of the Salinbaş business in north-eastern Turkey from Eldorado Gold Corporation. The acquisition of these shares allows us to take full control of the continued development of the Salinbaş Project. On acquisition the Directors performed a review to assess whether they had purchased an asset or a business. Having looked at the infrastructure, people and operations in place it was determined they had bought a business and therefore IFRS 3 has been applied. IFRS 3 requires the Directors assess the fair value of the project both just prior to and post the acquisition itself. As our original 49% share of the project was correctly recorded at no value under equity accounting rules in previous years' accounts, our assessment of the value of the intangible exploration asset at Salinbaş, undertaken with the assistance of an independent external valuer, of US$20M, less the recognition of a deferred tax liability of £2.3M and the fair value of the consideration given (in terms of a net smelter royalty), gives rise to a surplus on acquisition of £12.4M in the accounts.

Another significant transaction for the Group this year was the conclusion of the sale of our lithium licences in Western Australia for a consideration of A$147,000 and 37.2m shares in an ASX listed company, Dakota Minerals Limited ("Dakota"). Subsequently we sold some of these shares and the overall profit on both the initial sale of licenses and the subsequent sale of Dakota shares, in aggregate of £1.9M is reflected in this year's profit before taxation.

In western Turkey, our Joint Venture partner Proccea completed the acquisition of the remaining shares in our Joint Venture company to arrive at their 50% ownership of our Joint Venture vehicle, Zenit Madencilik San. ve Tic. A.S. ("Zenit"), and the gain on the associated dilution amounted to £0.7M this year.

As far as the Balance Sheet is concerned, the significant increase in intangible assets arises through our aforementioned valuation of the Salinbaş exploration licenses. Our share of the net assets of Zenit also increased as the mine development progressed towards completion. Included within available for sale investments are the remaining shares arising from last year's Australian licence sales, being primarily the Dakota shares, and these are included at their year-end market value. Trade and other payables have increased this year by £0.7M, largely on account of corporation tax payable in Australia.

The Company has funded its ongoing activities this year in part through the disposal of its shares in Dakota, but also through placing of shares to raise approximately £0.5M during 2016 and in January 2017 for £0.9M. In one sense, these are relatively small sums given the scale of achievement in the year under review, but the Directors are very mindful of the impact of further dilution and always strive to balance the need for working capital and the fulfilment of our primary objectives to build a valuable exploration, development and mining concern.




At 2:30pm: [LON:AAU] Ariana Resources PLC share price was -0.05p at 1.7p



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