“Figuring out how to turn a £3 idea into almost £30mln”: this is how managing director Kerim Sener describes the process of transforming Ariana Resources (LON:AAU) from an upstart explorer into a gold producer over the last seventeen years.
There’s been little stopping Ariana after it kicked off production at its first gold mine, Kiziltepe in western Turkey two years ago.
The mine brought in a record US$11.76mln income in the third quarter of 2019, with production ramping up to meet a yearly 25,000 ounces of gold.
But Ariana is now spreading its wings, with plans to ultimately open two more mines in the country, as well as expand into northern Cyprus.
“We’re sitting on £30mln in cash, and hope to grow another tenfold,” says Sener.
So, where did it all go right?
A shot at gold
It began fifteen years ago, with Sener and his father driving around Turkey in a second-hand car and sampling the ground for gold, and coming up short.
It was 2004, and they were surveying an area of hydrothermal alteration, which were often known to coincide with crystallisation of metals and minerals, in Turkey’s volcanic rocks.
The area had been broadly identified for mining potential by Sener, when he was going through satellite images and remote sensing data during his geology Phd a year earlier.
After that, a master’s student had pinpointed a few targets for the team, at which point Sener and his father set to work on the preliminary field mapping and sampling.
At first, they were discouraged by a lack of high-grade gold samples, but things quickly turned around when Ariana caught wind of a rumour that the world’s largest gold miner, Newmont Goldcorp PLC, was drilling in an area to the north of them.
It turned out that Newmont was looking to sell all but one of its mining prospects there.
Ariana was in the right place at the right time, and wasted no time in buying one of the smaller prospects, known as Kiziltepe.
It was incredibly unlikely to work: estimates suggest that one out of a thousand exploration targets becomes a mining prospect.
Out of those, only one in a hundred goes on to become a mine.
From the start, Sener explains that there was a “resolute focus” on making Kiziltepe a success.
When it came to considering the possibility that Kiziltepe might fail, Sener says his and the team’s motto was always: “Plan B is to make sure that Plan A works”.
A huge part of this tenacity came from selecting the right partners, explains Sener.
In 2009, the first ore was trucked and the mine produced its first gold, and Ariana was considering signing an offtake agreement to fast-track the mine to production.
Ariana eventually decided against this course because of a feeling that the relationship with its potential partner “wouldn’t have worked” in the long-run, but importantly, it was during these talks that Ariana met a Turkish-owned company called Proccea Construction, who they went on to strike up a joint venture in 2010, called Zenit.
“It seemed to be a marriage that made sense,” Sener says, saying the partners both realised they shared “a common vision to create a mining entity in Turkey”.
Ariana brought the geological expertise, and Proccea the capital and capacity to design, build, and operate a processing plant.
“Both partners throughout were completely committed to making it happen, come hell or high water,” he says.
Follow the deposit
Even with all the will in the world, the road to gold production is perilous.
Sener says that mining companies don’t always realise that the “number one risk” to their project is the local community.
He explained: “You can’t choose where your mine is going to be, nature just puts the deposit where it is, and you go wherever that is.”
“It doesn’t matter how good your mineral deposit is, it doesn’t matter how many millions of ounces it is or what grade it is, because if you don’t have the local community on your side, then your project will never happen.”
To the north of Turkey, the Roșia Montană deposits in Romania have still not been developed, despite their potential to be one of the largest gold mines in Europe.
Over a decade was wasted by Canadian miner Gabriel Resources as they warred with Romanian authorities over permits, and residents refused to sell their houses.
Sener says there’s a “tendency among mining companies to come in with a robust approach to local issues, which usually doesn’t go down well with the community”.
“The easy bit for a geologist is to take rock samples from the ground, and possibly get to drilling, but then there are a whole series of things that are almost entirely out of your control.”
Sener says that Ariana itself “nearly came unstuck” between 2012 and 2015 when three years of permitting delays meant the company could not perform a feasibility study to go ahead with the Kiziltepe mine.
It was touch and go for three years before Ariana finally received forestry permits in 2015.
At the same time, Ariana was looking for a US$17-18mln loan in order to build the plant, but struggled to get one with viable interest rates from a foreign bank, because Turkey was at the time deemed risky based on coup attempts and perceived terrorism threats, which Sener says were “not entirely fair”.
In the end, it made a financing agreement with a Turkish and Saudi bank in 2014, which gave it an effective 7.5% interest per annum over a five-year term.
So, it came right in the end for Ariana.
For this, Sener credits the fifteen years the company spent building relationships within Turkey, during which time the team has stayed largely the same so that “the community has always seen the same faces”.
More than just partnering with a Turkish firm on the project, Ariana’s director himself is half-Turkish and able to speak the language.
This, he says, allowed him to “get things done” in Turkey, giving him a better understanding of cultural sensitivities that other companies might have ended up bulldozing over.
Kiziltepe is, in the end, almost a fully Turkish project.
Looking ahead, Sener says that Ariana’s sitting on £30mln in cash, which he hopes to grow another tenfold into £300mln.
Plans include doubling Kiziltepe’s production in the coming years to 50,000 oz per annum, as the company tries to extend drilling deeper.
Next, Ariana is expecting its Tavsan mine to begin producing, with a feasibility study and the environmental impact assessment (EIA) to be finished in the coming months, and this will be followed in a few years by Ariana’s other advanced prospect, Salinbas, when it comes on stream.
This might all happen sooner than expected. In December, Ariana proposed to bring in another partner to the Zenit joint venture.
A major Turkish construction is hoping to buy 53% of Zenit for US$50mln, to be split between the partners equally, as well as an US$8mln cash injection by the proposed partner to help bring the projects into production.
Sener said the partnership, if approved, “will create a formidable exploration, development and production group focused on Turkey”.
And judging by the past seventeen years, Ariana is keeping its eyes firmly on the prize.