Ariana Resources PLC

Ariana Resources PLC (LON: AAU) is an FTSE AIM All-Share listed gold exploration and development company focused on precious and technology metals.  

Investment Rationale for Valuation – Speculative Buy at GBX 4.15

• Tavsan Update: On 6 April 2022, the Group provided an update on its Tavsan mine with gold and silver mine targeting production of up to 30,000 oz of gold per annum over eight years. Discussions over debt financing are also going on with potential lenders, and the company is expected to conduct a new exploration program across Tavsan in the coming months.
• Agreement: The company has inked an exploration alliance and investment agreement with Newmont Corporation in regard to 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.
• Production Update: During FY21, Kiziltepe produced a total of 20,737 ounces of gold. This reflected a 9% increase in full-year guidance levels.
• Technical Indicator: The price of the stock is trading near the middle Bollinger band, with a 14-day RSI of ~49.62.  

Key Risks

• Exploration Risk: The Group is prone to the risk of the absence of minerals or resources from the designated sites.
• Macro Concerns: The current macro conditions have been very volatile owing to interest rate hike by the Fed and geopolitical issues.

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

(Source: Company Website)

• Revenue: Gross full-year revenue in FY21 was reported at US$42.9 million with average gold price realisation of US$1,763 per ounce, against an average revenue per gold ounce of US$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 US$177 million in revenue since operations commenced in early 2017.     

One Year Share Price Chart

(Source: REFINITIV; Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22E)

*Peers: Few peers considered are Yamana Gold Inc, Hill & Smith Holdings PLC and Antofagasta PLC.

*All selected peers are LSE-listed Companies from the Materials sector.  

Conclusion

The management has been quite bullish about the performance of the Kiziltepe mine and expects double life of mine production as compared to the feasibility study.  

Based on the decent performance, exploration alliance, gold production exceeding guidance levels, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Ariana Resources PLC at the closing market price of GBX 4.15 (as of 25 April 2022) with lower double-digit upside potential based on 15.65x Price/NTM Earnings value (approx.) on FY22E earnings per share (approx.). The stock has not started trading as of 26 April 2022, 8:58 AM GMT+1.

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.

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

Note 2: Investment decision should be made depending on the investors’ appetite on 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 subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which 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 5: ‘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.’

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 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 unfavorable movement in the stock prices.

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