Ariana Resources Plc (LON:AAU) Chief Executive Officer Dr Kerim Sener caught up with DirectorsTalk for an exclusive interview to discuss the drilling results at the Arzu South Red Rabbit project and what they mean for the business, the depreciating gold price and the expected revenues from the Red Rabbit project
Q1: If I can start by asking, what were you trying to find with the latest sets of drilling at Arzu South in your Red Rabbit project?
A1: The drilling that we’ve just completed at Arzu South, as announced this morning, related to testing at the very lower most levels and beyond the lowest most levels of our current pit design, really to confirm our understanding of the geological model in that we have now confirmation of plunging shoots of mineralisation, particularly in the southern end of Arzu South. So that’s improved our confidence in our understanding of the geology, the geological model in particular, and also, quite unexpectedly, we’ve had some high grades, particularly in the central part of the pit, at the very lowest most level. It’s about our reserve grades, it’s fantastic to see those high grades kicking in right at the bottom of the pit and that bodes very well for the operation by about year 5.
Q2: So what were the results?
A2: The results related to 5 RC drill holes for a total of, just shy of 600 metres so we were drilling at really the lowest most levels of the current designed pit. We’ve got intercepts in excess of 4 grams per tonne over 11 metres and that’s a 4 gram per tonne gold equivalent and also grades just shy of 3 grams per tonne gold equivalent over intercept of 7 metres each and another couple of lower grade intercepts on much deeper intercepts in fact, right at the end of Arzu South.
Q3: Do these results mean then that you’re likely to revise the mineral resource for Kiziltepe in a positive way? I guess what I’m asking is what could it mean for the business?
A3: Yes, that’s absolutely correct. We will be utilising these results as part of a more global resource update and we’re planning to undertake that work during the first quarter of next year. There are more results that we need to receive, we’re expecting those to be received during the course of January, based on the current schedule of drilling and on the basis of that, coupled with our improved understanding of the geological model, we intend to revise our resource estimate.
Q4: Now, there are concerns about the depreciating gold price, does it concern you?
A4: It doesn’t concern us at this stage and the reason for that is we’ve got a great deal of optionality on our current design. In the current schedule, we’ve been producing at about 150,000 tonnes of ore per annum over a course of 8 years but the current design of the process plant allows us to increase that throughput, possibly up to 200,000 tonnes per annum. So we’ve got some optionality in terms of how we can front-load the operation, bring some of the more higher grade ore forward, and we’ve got optionality on other pits as well so both in terms of our current design as well as the exploration that we’re undertaking, which is showing continuity elsewhere. We’re quite confident that either we’ll have a scenario where we mine for over 8 years or we still refine within the 8 year period but we see an improvement of grade.
Q5: Do you think gold price will recover?
A5: The gold price, it’s very difficult to say what the gold price will do and I don’t think it’s our place, as an exploration company, to take a very specific view on whether it would go up or down. What we’ve got to do is deliver on our operation, within the constraints of that operation, and there are things we can do, both from an exploration as well as a mining technical point of view, that can ensure that we perform well in different gold price environments.
Q6: So if the gold price remains steady, will it materially affect the revenue that you’re expecting to generate from the Red Rabbit project?
A6: So in terms of revenue, we’ve previously announced our feasibility study, which was published mid-way through 2013, and in that feasibility study we ran a sensitivity analysis all the way down to negative 30% on the gold price, so it actually went below the current gold price today, it actually brought the gold price for the model just over $900 an ounce. So the operation under those conditions, it was still profitable, obviously we’d like to see a gold price higher than that and more than that, the engineering factors used for the design of the open pit, so what we call the Whittle optimisation work for the pit, was undertaken on a then very conservative gold price of about $1050 an ounce. So in terms of our current pit design, we’re robust so we’re going to undertake some revisions, of course, in the light of any changes to the resource update once we’ve intergrated the new drilling but I think we’re actually in fairly good shape.
