Ariana Resources PLC (LON: AAU)

Ariana Resources PLC is an FTSE AIM All-Share listed gold exploration and development company focused on precious and technology metals. The primary area of operations is in Turkey and across the wider European & Eastern Mediterranean regions.

Growth Prospects

• Impressive Collaborations: The Company has inked an exploration alliance and investment agreement with Newmont Corporation regarding the exploration in south-eastern Europe via Ariana's 75%-owned Western Tethyan Resources Ltd. The cooperation will focus on copper and gold exploration in the geographies of Bosnia and Herzegovina, Bulgaria, Greece, Kosovo, North Macedonia, and Serbia.
• Joint Venture Production Guidance: AAU has shown significant gold mining interest in its joint venture Kiziltepe Mine as it held approximately 23.5% of the shareholding. Meanwhile, the gold production is expected to increase from 20,737 ounces of gold in FY21 to 25,000 ounces of gold for FY22.

Key Risks 

• Impressive US Jobs Data: The S. jobs report released recently had signalled more interest rate increases in 2022 that could adversely impact the global equities.
• Record UK Inflation: The rise in regulated household energy bills led to UK inflation leaping to 9% in April 2022, the highest level since 1982. It may adversely impact UK equities.
• Bank of England Warning: The Bank of England has trimmed its economic growth forecast for 2023 and is expected to show a contraction of 0.25% from a previously estimated growth of 1.25%. Moreover, it had also warned of UK inflation reaching around 10% very soon.

Gold Industry Dynamics

• US Dollar Index: The recent correction in the US dollar index after climbing to a 20-years high supported the gold price. Moreover, the index may further go downwards due to the speculation regarding the slowdown of US economy.
• ECB Meeting: The US inflation data and the European central bank meeting may decide the upside potential in gold price for the short term.
• Risk Factors: The outlook for the gold price seems vulnerable because of the rising interest rate prospect and recovery of global equities.

(Source: REFINITIV; Analysis done by Kalkine Group)

On a daily chart, COMEX Gold Futures' price (USD 1,851.30) continued to gain traction as the precious metal reported second weekly gain after the recent price correction. At the same time, the 14-days RSI stood at 47.51 levels. Meanwhile, the MACD line has given a bullish crossover against the signal line.

Key Fundamental and Shareholders Statistics of Ariana Resources PLC. 

De'Villiers (Michael John) is the most significant shareholder as it holds nearly 63.00 million shares.

FY21 Production Highlights (for the year ended 31 December 2021, as on 18 January 2022)

(Source: Company Filings)

• Revenue: Gross full-year revenue in FY21 was reported at USD 42.9 million with average gold price realisation of USD 1,763 per ounce, against an average revenue per gold ounce of USD 2,067.
• Production: As on 2021 end, the Kiziltepe mine has produced a total of 104,937 ounces of gold and 1,154,805 ounces of silver, recording USD 177 million in revenue since operations commenced in early 2017.
  

Financial and Operational Highlights (for the six months ended 30 June 2021 as on 30 September 2021)

(Source: Company Filings)

• Net profit: The profit realised on the restructuring of group activities drove net profit higher from £1.9 million in H1 FY20 to £5.0 million during H1 FY21.
• Balance Sheet: The cash & cash equivalents stood at £22.43 million as of 30 June 2021.
  

Share Price Performance Analysis

 (Source: Refinitiv, Research done by Kalkine Group)

On 06 June 2022 at 10:26 AM GMT+1, AAU’s shares were trading at GBX 3.74, down by around 2.86% from the previous day’s closing price. Stock’s 52-week High and Low were GBX 5.29 and GBX 3.06, respectively.

On a daily chart, the stock price is sustained between the lower Bollinger band and the middle Bollinger band. Hence, there could be an uptick in the stock price in the near term. Furthermore, the 14-days RSI of 42.68 approaches an oversold territory.

Valuation Methodology: Price/Earnings Approach (FY22E) (Illustrative)

 Business Outlook

The Company has witnessed a remarkable year-on-year growth of around 150% in the net profit during H1 FY21 because of the restructuring activities as it had reduced the shareholding in the Kiziltepe mine from 50% to 23%. AAU had anticipated FY22 production volumes to remain more than 20% ahead of FY21 volumes. Meanwhile, the FY21 production volumes remained 9% ahead of the guidance. The Company has shown accelerated progress regarding the Tavsan mine development programme. The investments made across the Eastern Hemisphere in line with the Project Catalyst Strategy had resulted in enhancing the operational reach. In a nutshell, AAU remains focused on generating increased returns for the shareholders with an impressive pipeline of Greenfield and Brownfield projects.

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Considering the decent financial ratios, accelerated operational progress, strong balance sheet, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Ariana Resources PLC at the current market price of GBX 3.74 (as of 06 June 2022 at 10:26 AM GMT+1), with lower-double digit upside potential based on 15.44x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is subject to the factors discussed above.

Note 3: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 4:  Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.

Note 5: Dividend Yield may vary as per the stock price movement.  

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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