Postive Interim Feasibility Completed on Red Ra...

 

 

29 October 2012
AIM: AAU

POSITIVE INTERIM FEASIBILITY COMPLETED ON RED RABBIT GOLD PROJECT

Ariana Resources plc ('Ariana' or 'the Company'), the gold exploration and development company focused on Turkey, is pleased to announce the completion of an interim Feasibility Study ('FS') report which demonstrates that highly attractive economic fundamentals are achievable from the Kiziltepe Sector of its Red Rabbit Gold Project in western Turkey ('Red Rabbit' or 'the Project'), which is held within a Joint Venture currently 86% owned by Ariana.  

Highlights:

• Combined reserve in designed pits at the Kiziltepe Sector of the Red Rabbit Gold Project is approximately 1.1 million tonnes at an average grade of 3.1 grams per tonne ('g/t') gold ('Au') and 39.8 g/t silver ('Ag'), corresponding to 115,460 oz Au and 1,468,200 oz Ag. 

• Output expected at a rate of 150,000 tonnes ore per annum, corresponding to an average production of approximately 21,000 oz/year of Au equivalent over the first five years of operation. 

• Financial model at a 'current' gold price of US$1,650/oz and a silver price of US$25/oz provides a (gross with respect to the JV terms) Net Present Value ('NPV') (8% discount) of US$49.8 million and Internal Rate of Return ('IRR') of 47.8%, with payback secured in 2.1 years. 

• Capital cost estimated at US$29.5 million, including US$14.2 million for the processing plant and EPCM (Engineering, Procurement, Construction Management). 

• Cash costs estimated at between US$678 and US$693 per ounce across the financial model range. 

• Significant potential to identify additional resources at Kiziltepe and on four other prospects in the vicinity currently held under licence by the Company. 

Dr. Kerim Sener, Managing Director, commented:

"The results from the interim FS demonstrate the potential of the Red Rabbit Gold Project as we move to a decisive stage of permitting.  The study reinforces the Company's ability to generate significant revenues from the Kiziltepe Sector of our Red Rabbit Project.  

"Recent discoveries in the Kiziltepe area including bonanza grade intercepts from strike extensions to the known veins, underscores the longer term potential of the deposit.  While the current life of mine will be approximately 8 years, there is significant potential to locate further resources in the vicinity that may be mined and trucked to the Kiziltepe plant.  An example of this is the Kizilcukur property upon which we recently secured a 10-year operating licence.

"At the present time, the Company remains in wait for the necessary permits to enable access to the designated Tailings Storage Facility area for final geotechnical and hydrogeological drilling.  This remains the last major hurdle for the project before completion of the feasibility and environmental impact assessment works, and the approval for construction."

Feasibility Interim Report

Following on from the completion of the Pre Feasibility Study ('PFS') the Company and its consultants, Tetra Tech WEI Inc. ('Tetra Tech'), formerly Wardrop Engineering, have completed additional work on its Feasibility Study for the Kiziltepe Sector of its Red Rabbit Gold Project.  The interim FS has been completed ahead of the Company's final Feasibility Study on the Project, which is currently delayed as a consequence of a new permitting regime in Turkey.

Reserves and Resources

Mineral Resources (Table 1) and Mineral Reserves (Table 2) have been estimated for the project.  The Mineral Resource estimate has not changed since October 2011, though Mineral Reserves are provided here for the first time.  

Table 1: Summary of Mineral Resources, reporting at a cut-off grade of 1 g/t Au; inclusive of Ore Reserves.  All figures are reported gross and need to be multiplied by a factor of 0.86 to determine the net figures attributable to Ariana with respect to the Red Rabbit Joint Venture.  

	Tonnes (t)	Au (g/t)	Ag (g/t)	Au (oz)	Ag (oz)	Au equiv. (oz)***
Vein Zones
Measured	782,942	4.1	51.4	103,319	1,294,836	118,080
Indicated *	619,029	2.3	41.4	46,496	891,368	56,658
Measured & Indicated	1,401,971	3.3	47.0	149,815	2,186,204	174,738
Inferred	164,998	1.8	40.9	9,752	217,005	12,226
Alteration Halo**
Indicated	352,819	1.6	25.8	18,430	293,007	21,770
Measured & Indicated	352,819	1.6	25.8	18,430	293,007	21,770
Inferred	76,059	1.4	33.7	3,544	82,341	4,483
Subsidiary Veins
Inferred	115,941	1.5	51.3	5,505	191,446	7,687
GLOBAL	2,111,788	2.8	43.7	187,046	2,970,002	220,904
*Includes Kepez.    **Some of the Alteration Halo material will be necessarily mined and may be processed at the end of mine     life but Tetra Tech considers more studies are required to determine the nature of the mineralisation.
***Au equivalents are derived from the formula:      {(Ag g/t*Ag Recovery*Ag price*0.032)/Au oz Price}/Au Recovery=Au equivalent oz/t     Au recovery determined by testwork at 85.5%, Ag recovery determined by testwork at 64%.

Table 2: Summary of Ore Reserves by mining area at 1 g/t Au equiv. cut-off grade. All figures are reported gross and need to be multiplied by a factor of 0.86 to determine the net figures attributable to Ariana with respect to the Red Rabbit Joint Venture.

Zone	Tonnes	Au Grade (g/t)	Ag Grade (g/t)	Contained Metal (oz)
				Au	Ag
Proven
Arzu South	588,110	4.1	45.4	76,880	858,500
Kepez	-	-	-	-	-
Arzu North	210,620	2.0	37.5	13,840	253,620
Banu	71,370	2.2	42.8	5,050	98,110
Derya	45,680	1.9	42.8	2,660	61,410
Total	914,770	3.3	43.2	98,440	1,271,650
Low Grade Stockpile (<1.0 g/t Au equiv.)	7,880	0.7	7.1	180	1,808
Probable
Arzu South	16,990	2.4	36.5	1,340	19,930
Kepez	60,000	4.6	34.7	8,870	66,900
Arzu North	37,900	1.9	29.7	2,270	36,150
Banu	15,490	1.7	44.0	860	21,900
Derya	63,700	1.4	20.5	2,800	41,890
Total	194,070	2.6	19.2	16,150	119,880
Low Grade Stockpile (<1.0 g/t Au equiv.)	30,830	0.7	8.0	690	7,970
Total
Arzu South	605,100	4.0	45.2	78,220	878,440
Kepez	60,000	4.6	34.7	8,870	66,900
Arzu North	248,510	2.0	36.3	16,120	289,770
Banu	86,850	2.1	43.0	5,920	120,010
Derya	108,370	1.6	29.6	5,470	103,310
Total	1,108,840	3.2	40.9	114,590	1,458,424
Low Grade Stockpile (<1.0 g/t Au equiv.)	38,710	0.7	7.9	870	9,780
Included Inferred Resources*
Total	38,020	1.6	28.1	1,980	34,400
Low Grade Stockpile (<1.0 g/t Au equiv.)	8,130	0.8	8.1	200	2,110

*The reader is cautioned that the included Inferred material shown Table 2 contributes to the production scheduling and economic assessment of this project.  The included Inferred material represents less than 5% of the scheduled reserve.

Open-pit Optimisation and Design

Whittle Pit Optimisation Software has been run on the resource and an open-pit design (Figure 1) based on the optimised pit shapes have determined that part of the total resource that could be extracted economically (Table 3). No pit was designed for the Kepez area, as this will probably be extracted using only mechanical methods.

The combined resource within the selected pit shapes, including the Arzu South, Arzu North, Derya, Banu and Kepez pits, is estimated at 1,147,000 tonnes at an average of 3.3 g/t Au and 41.9 g/t Ag.  This resource is based on a fully diluted vein model and takes in to account the probable dilution of higher-grade vein material by lower-grade host-rock material in the hangingwall and footwall of the vein. Importantly the new pit designs have enabled considerable savings in waste rock movement reducing the strip ratio from 14.5:1 (waste:ore) at the PFS level to 12.5:1 at the FS level.  

A cut-off grade is estimated at 1 g/t Au equivalent for the reserves based on a gold metal price of US$1,058/oz and a silver metal price of US$16.6/oz.  For this base case, only resource blocks of Measured and Indicated category are used.

Table 3: History of pit optimisation results, comparing the scoping study with the PFS outputs.

Output	Unit	Scoping	Pre-feasibility	Feasibility
Selected Pit Resource	Tonnes	1,034,600	1,177,800	1,147,000
Au Grade	g/t Au	3.56	3.12	3.3
Ag Grade	g/t Ag	41.57	38.36	41.9
Au Metal	Oz Au	109,600	118,200	117,647
Ag Metal	Oz Ag	1,382,700	1,452,600	1,504,722
Waste Movement	Tonnes	11,373,000	15,740,000	14,906,000
Strip Ratio	waste:ore	10.9	14.5	12.5

Figure 1: Three-dimensional projection of vein models (in blue), surrounded by their corresponding designed pit shapes based on the output of Whittle pit optimisation.  These designed pits provide an average strip ratio of 12.5:1.

Site Layout

Site layouts have been finalised for the purposes of the Interim FS stage. The currently envisaged site layout is shown in Figure 2.  The layout minimises the environmental footprint of the plant and related mine infrastructure.  Current studies in progress do not indicate that any major changes will be made to the site layout on completion of the FS.

Figure 2: Site layout as envisaged for the Interim FS, showing the location of the designed open pits, the waste rock dump and the tailings dam design outlines.  Access and haulage roads are shown as bright green lines and mine building locations shown in red.

Production Schedule

The mine will be based on one central pit located at Arzu South with satellite pits at Arzu North, Banu, Derya and Kepez.  The location of the selected pits (excluding Kepez) is shown in Figure 2.  The mine will target production of 150,000 tonnes per year of ore over a mine life of 8 years, operating for six days a week (Table 4).  The production will be scheduled with mining starting at Arzu South and progressively shifting to the Kepez, Arzu North, Banu and Derya pits as grades decrease later in the mine life.  The final material to be processed will be a small quantity of low-grade stockpile that will be accumulated over the mine life from the various open pits.

Material from the open pits will be split in to three categories, run-of-mine ore grade (>1 g/t Au equ.), low-grade ore (<1 g/t Au equ.) and waste.  The division between low-grade ore and waste will be determined during grade control and be influenced by the minimum mining width (1.5m) and the expected dilution width (0.25m either side of the vein).  
Table 4: Outline mining schedule for the various mineralised zones.  Tonnages for each pit are expressed in '000s tonnes.

Zone	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6	Year 7	Year 8	Total
Arzu South (kt)	150.4	150.0	150.0	150.0	4.6	-	-	-	605.1
Kepez (kt)	-	-	-	-	60.0	-	-	-	60.0
Arzu North (kt)	-	-	-	-	85.4	150.0	15.2	-	250.6
Banu (kt)	-	-	-	-	-	-	109.5	-	109.5
Derya (kt)	-	-	-	-	-	-	25.3	96.3	121.7
Low Grade Mined (kt)	4.0	0.4	0.3	0.2	2.3	0.9	12.7	25.9	46.8
Process Tonnes (kt)	150.4	150.0	150.0	150.0	150.0	150.0	150.0	143.2	1,193.7
Process Au Grade (g/t)	3.44	3.95	4.30	4.44	2.87	2.15	1.99	1.31	3.07
Process Ag Grade (g/t)	36.87	41.64	50.92	51.40	28.36	42.83	36.75	24.22	39.21
Contained Au Metal (oz)	16,620	19,038	20,745	21,404	13,821	10,369	9,615	6,035	117,647
Contained Ag Metal (oz)	178,294	200,848	245,588	247,893	136,782	206,567	177,259	111,491	1,504,722
Contained Au eqv. (oz)*	18,653	21,328	23,545	24,230	15,380	12,724	11,636	7,306	134,802

*Au equivalents are derived from the formula:
     {(Ag g/t*Ag Recovery*Ag price*0.032)/Au oz Price}/Au Recovery=Au equivalent oz/t
    Au recovery determined by testwork at 85.5%, Ag recovery determined by testwork at 64%.

Processing Plant Design

A conventional hydrometallurgical process will be used for the project.  The confirmed configuration will involve a six tank Carbon-in-Column circuit, proceeding to a two aerated pre-leach tanks and finally a five tank Carbon-in-Leach circuit (Figure 3).  The plant will be placed on a slope to allow for gravity-flow assistance between tanks and to save on pumping costs.  This process offers the best recoveries of gold and silver at the lowest capital and operating costs.  At full production, the process will treat up to 500 tonnes per day of run-of-mine ('ROM') ore.  Assuming 96% availability and 97% utilisation the process is scheduled to operate 340 days per year.  The feasibility level estimated metallurgical recoveries are 85.5% for gold and 64% for silver.  

Figure 3: Schematic view of the feasibility stage processing plant layout.  

Environmental Impact Assessment

Environmental baseline work has been completed while Environmental Impact Assessment studies are ongoing.  A project summary document has been prepared in accordance with Turkish government regulations and will be submitted to the Ministry of the Environment and Urban Planning once the current delays with permits for the designated Tailings Storage Facility area are resolved.

Financial Model

An economic evaluation of the Kiziltepe Project was prepared based on a pre-tax financial model of an 8 year mine life and 1,194,000 tonnes processed.  The pre-tax financial model was established on a 100% equity basis, excluding debt financing and loan interest charges on a total capital expenditure estimate of US$29.5 million.  The financial outcomes have been tabulated for NPV, IRR and Payback of Capital.  Discount rates of 8% and 10% were applied to all cases identified by metal price scenario.  Tetra Tech's base case prices for this analysis were as follows:

• Gold -  US$1,265/oz 

• Silver -  US$20/oz 

The continued use of the US$1,058/oz Au for the pit optimisation study and final pit design was to maintain continuity with the PFS and a subsequent trade-off study, which demonstrated that this price captured much of the resource that could otherwise be captured even with very much higher gold prices.  Sensitivity analyses on the financial models were carried out to evaluate the project economics with plus or minus (+/-) 10%, US$1,500/oz and US$1,650/oz Au metal prices (Table 5).  

The US$1,265/oz Au price is used as a forecast long-term price obtained from the Energy and Metals Consensus Forecast (EMCF), at31 August 2012.  A 'current' price of US$1,650/oz Au is also included, which provides a view on the present worth of the project.

Table 5: Sensitivity analysis results based on variation of the gold and silver price away from the base case. The cash costs provided are the operating costs including on-site and all off-site charges and royalties.  Consequently the cash costs scale in line with the gold and silver price across the financial model range.  The sensitivity analysis results are reported gross with respect to the Red Rabbit JV of which 86% is currently attributable to Ariana.  

Scenario	NPV 10 (US $M)	NPV 8 (US $M)	IRR (%)	Payback year	Cash Cost (US $/ oz Au)
Minus 10%	10.0	12.7	19.5	3.2	678
Base Case	18.7	22.0	27.1	2.9	682
Plus 10%	27.4	31.3	34.3	2.6	685
US $1,500 /oz Au	36.1	40.6	41.1	2.3	689
US $1,650 /oz Au	44.8	49.8	47.8	2.1	693

It is important to note that there remains further potential to identify additional resources at Kiziltepe and on prospects in the vicinity of this location.  At Kiziltepe, the potential remains to identify further high-grade resources at depth and along blind structures that have little or no surface expression.  Furthermore, there is potential to identify new resources in the vicinity of Kiziltepe and the recent announcement on the 2 October 2012 concerning the grant of a 10 year operational licence status on the Kizilcukur property, located 21km from Kiziltepe, is a part of the Company strategy to identify satellite resources.  

Contacts:

Ariana Resources plc	Tel: [phone]
Michael Spriggs, Chairman
Kerim Sener, Managing Director
Beaumont Cornish Limited	Tel: [phone]
Roland Cornish / Felicity Geidt
Fairfax I.S. PLC	Tel: [phone]
Ewan Leggat / Laura Littley
St Brides Media & Finance Ltd	Tel: [phone]
Hugo de Salis / Susie Geliher

Editors' note:

The Competent Persons responsible for this study are as follows:

For the Resource Estimate, Paul Gribble, FIMMM, C.Eng., a senior geologist with Tetra Tech in Swindon, UK.

For the mining studies, Richard Hope, MIMMM, C.Eng., a senior mining engineer with Tetra Tech in Swindon, UK.

For the processing studies, Dr. Arun Vathavooran, PhD., MIMMM, C.Eng., a senior processing engineer with Tetra Tech, Swindon, UK.

The above persons have reviewed this press release and consent to the inclusion of data and text taken from the study report in the form and context in which it appears.

Dr Kerim Sener, BSc (Hons), MSc, PhD, is the Managing Director of Ariana Resources plc.  A graduate of the University of Southampton in Geology, he also holds a Master's degree from the Royal School of Mines (Imperial College, London) in Mineral Exploration and a doctorate from the University of Western Australia.  He is a Fellow of The Geological Society of London and has worked in geological research and mineral consultancy in Southern Africa and Australia.  He has read and approved the technical disclosure in this regulatory announcement.  

About Ariana Resources

Ariana is an exploration and development company focused on epithermal gold-silver and porphyry copper-gold deposits in Turkey.  The Company is developing a portfolio of prospective licences selected on the basis of its in-house geological and remote-sensing database, on its own in western Turkey and in Joint Venture with Eldorado Gold Corporation in north-eastern Turkey.  Eldorado owns 51% of this joint venture and is fully funding all exploration work on the JV properties, while Ariana owns 49% and is the operator.

The Company's flagship assets are its Sindirgi and Tavsan gold projects which form the Red Rabbit Gold Project.  Both contain a series of prospects, within two prolific mineralised districts in the Western Anatolian Volcanic and Extensional (WAVE) Province in western Turkey.  This Province hosts the largest operating gold mines in Turkey and remains highly prospective for new porphyry and epithermal deposits.  These core projects, which are separated by a distance of 75km, are presently being assessed as to their economic merits and now form part of a Joint Venture with Proccea Construction Co.  Proccea is earning in to 50% of this Joint Venture on expenditure of US$8 million.  The total resource inventory of the Company stands at 448,000 ounces of gold equivalent.  

Ariana also has a strategic investment in Tigris Resources Limited (www.tigrisresources.com), a private Jersey-based exploration company, which is focused on the exploration of copper and gold deposits in southeastern Turkey.  Ariana retains 12.3% of Tigris Resources Limited.  

Fairfax I.S. PLC are brokers to the Company and Beaumont Cornish Limited is the Company's Nominated Adviser.

For further information on Ariana you are invited to visit the Company's website at www.arianaresources.com.

Ends

Glossary of Technical Terms

¹ Gold equivalence is derived from the formula:
{(Ag g/t*Ag Recovery*Ag price*0.032)/Au oz Price}/Au Recovery=Au equivalent oz/t
Au recovery by testwork 87%, Ag recovery by testwork 64%

"Au" the chemical symbol for gold;

"cut-off grade" The lowest grade, or quality, of mineralised material that qualifies as economically mineable and available in a given deposit. May be defined on the basis of economic evaluation, or on physical or chemical attributes that define an acceptable product specification;

"g/t" grammes per tonne;

"low-sulphidation" a style of gold mineralisation which is typically found distal to volcanic centres and is characterised by adularia-sericite alteration and quartz veins;

"Indicated resource" a part of a mineral resource for which tonnage, densities, shape, physical characteristics, grade and mineral content can be estimated with a reasonable level of confidence. It is based on exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes. The locations are too widely or inappropriately spaced to confirm geological and/or grade continuity but are spaced closely enough for continuity to be assumed;

"Inferred resource" a part of a mineral resource for which tonnage, grade and mineral content can be estimated with a low level of confidence. It is inferred from geological evidence and has assumed, but not verified, geological and/or grade continuity. It is based on information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that may be limited or of uncertain quality and reliability;

"Inverse Distance Squared" a conventional mathematical method used to calculate mineral resources.  Near sample points provide a greater weighting than samples further away for any given resource block;

"JORC" the Joint Ore Reserves Committee;

"m"   Metres;

"Measured resource" a part of a Mineral Resource for which tonnage, densities, shape, physical characteristics, grade and mineral content can be estimated with a high level of confidence.  It is based on detailed and reliable exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes.  The locations are spaced closely enough to confirm geological and grade continuity;  

"Nearest Neighbour" a methodology used to derive the value of an attribute from surrounding sample data on the basis of point-to-point proximity;

"Ordinary Kriging" is a geostatistical approach to resource estimation.  Instead of weighting nearby data points by some power of their inverted distance, OK relies on the spatial correlation structure of the data to determine the weighting values.  This is a more rigorous approach to modelling, as correlation between data points determines the estimated value at an unsampled point;

"oz" Ounces;

"porphyry" an igneous rock with larger crystals contained within a matrix of much smaller crystals;

"stockwork" a mineral deposit in the form of a branching network of small irregular veins;

"top cut" the maximum gold content for samples used to calculate an average gold content for a resource;

"variographic" the use of semi-variograms (a mathematical technique) as part of the geostatistical methodology used to derive resource estimates;

"Whittle" computer software that uses the Lerch-Grossman algorithm, which is a 3-D algorithm that can be applied to the optimisation of open-pit mine designs.  The purpose of optimisation is to produce the most cost effective and most profitable open-pit design from a resource block model.  

Ends

Positive Interim Feasibility Completed on Red Rabbit Gold Project

---

This announcement is distributed by Thomson Reuters on behalf of Thomson Reuters clients.

The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and other applicable laws; and
(ii) they are solely responsible for the content, accuracy and originality of the
information contained therein.

Source: Ariana Resources plc via Thomson Reuters ONE

HUG#1652919