MM: Can you outline, in overview, what the company has found to date in terms of mineralised veins and quantified resources at the Red Rabbit Project?
KS: The Red Rabbit project comprises two main sectors separated by 75km. A mineralised zone called the “Sindirgi gold corridor” runs between both sectors, with Kiziltepe located to the south west and Tavsan to the north east. In-between these two sectors lie the satellite assets Kepez, Karakavak and Kizilcukur.
The Kiziltepe sector comprises 45km of low sulphidation epithermal quartz veins with a current JORC compliant resource of 232,000oz Au Eq. (89% of this resource falls into the measured and indicated category). Accounting for just 20% of the known vein system, this resource is contained within the Arzu South, Arzu North, Banu, Derya and Kepez veins.
The Tavsan sector comprises a gently dipping sheet of gold mineralised jasperoid containing a current JORC compliant resource of 215,000 oz. Au Eq( the resource is in indicated and inferred categories). Similar to Kiziltepe the resource is based on just 20% of the known mineralised system.
MM: Your announcement on 1st February 2012 confirmed new vein systems, please explain the significance of the addition of new veins and what further work will be needed to prove up resources within these veins, to an acceptable standard?
KS: Based on structural and geophysical studies there is evidence for further resource potential within buried vein systems in the area. In May 2011 we announced the discovery of the Fidan and Gamze veins, running approximately parallel to the Arzu North and Arzu South veins. This 1800m long vein system shows similar surface sample results to other high-grade gold bearing vein systems at Kiziltepe. Initial results show continuous gold grades of up to 10.7 g/t Au Eq.
In August 2011 we announced the discovery of the Hande vein which lies parallel to the Fidan and Gamze veins. This vein shows gold grades of up to 7.74 g/t Au Eq. and shows the potential to extend into the planned Banu pit.
Finally in February 2012 we announced the discovery of Emel which is located in the undercover “gap zone” between Arzu North and Arzu South.
Drill testing will continue throughout Q1/Q2 2012 and we will be expecting further assay results from the Fidan, Gamze, Hande and Emel veins to support future resource growth.
MM: You also noted a deep drilling campaign at Kiziltepe? Given the preference to date of open pit, accessible resources, why has the company decided to undertake this work and how will the company manage the technical and financial challenges faced with the development of underground operations?
KS: The deep drilling programme at Kiziltepe will likely involve just 4 holes which are going to be precisely targeted using three dimensional geophysical and geological modelling. The reasoning behind the deep drilling programme is borne out of our requirement to understand the potential of the mineralised vein system to continue at depth . This is will be an exploratory exercise, as the results will have a bearing on the long term planning of the mining schedule and mine designs. At this point in time we are not considering any change to the open pit mining plan, and at best the deep drilling programme will only highlight the possibility of finding further vein systems at depth, which could only be mined using underground methods.
MM: The company plans to produce gold in 2013 from the Red Rabbit project. Can you outline the progress made to date and the key steps remaining toward the first gold pour?
KS: Environmental baseline studies were completed in late 2011 and the company is expecting to submit its project summary environmental report to the authorities in due course.
The PFS was completed in Q4 2011 and Wardrop is now working to complete the FS (feasibility study). The outstanding work is focused on modifications to the design of the open pits to minimise the strip ratio and the review of the process engineering designs, OPEX and CAPEX. It is currently expected that this work will be completed in Q2 2012.
Most permits are in place for the development of the Kiziltepe mine with further consents required from further government departments in due course. Land acquisition is an important final hurdle for project related permitting. A new subsidiary of Ariana known as Camyol has been established for acquisitions of strategic freehold land in the vicinity of the planned Arzu South pit. To date Camyol has purchased approximately 83,830m2 of land which corresponds to approximately three-quarters of the freehold land in the Arzu South area. Further acquisitions are planned in Q1 2012. Any land acquired by Camyol will either be sold in to or leased to Zenit for the duration of the project (Ariana’s subsidiary Galata Madenclilik is 99% shareholder of Camyol).
Zenit will be seeking a financing facility of approximately US$22million to fund the development of the mine (the current capital cost estimate of the project is US$28.4 million). These discussions will be advanced in parallel with the completion of the FS such that final permitting for construction can commence during the second half of 2012.
MM: Your work, and that of your advisors, has indicated a payback period of around 18months for Red Rabbit. What are the key assumptions that underlie this rapid payback period?
KS: The rapid payback period that you refer to is defined in our scoping study and is based on three key parameters; gold price, project cash cost and resource. At the time we used a higher limit gold price limit of $1350 and project cash costs of $441-472 /oz. In the feasibility study we are expecting there to be an increase in the payback period due to among other things, increased fuel costs which have a knock on effect to our contractor mining rates. Finally the size and grade of the resource also has a bearing on the payback period, with the Arzu South pit essentially being the “payback” pit for the Red Rabbit project. So in effect the smaller satellite resources can be considered upside to an already robust financial model.
MM: What is your initial production target, in terms of ounces of gold and silver processed and is it possible to augment the existing input resource to increase mine life and annual processing?
KS: The mine will target production of 150,000 tonnes per year of ore over a mine life of 8.1 years, operating for six days a week. 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.
Based on whittle-pit optimisation carried out in the PFS for the above pits, the total tonnage equates 1,177,800 tonnes. With average grades of 3.12 g/t Au and 38.36 g/t Ag this equates to 118,200 oz Au and 1,452,600 oz Ag contained metal respectively.
When looking at the economics and future resource growth there are three main things to remember.
- The optimised pits are based purely on 20% of the known vein system. The economics have been proven using conservative figures for the future price on gold and silver.
- Exploration and drilling between 2011 and Q1 2012 has defined further veins at Kiziltepe. There is potential to define further resources on some of these vein systems.
- Exploration outside the Red Rabbit Project area but within the Red Rabbit area of interest in western Turkey have the ability to be sold back to JV at 3 x exploration costs if Ariana so wishes.
MM: Can you also explain the auction process for new gold licences in Turkey , the current state of play and the key factors Ariana Resources considers make licence applications a high priority for the company?
KS: Auctions are being held for licences from January through to May 2012. The process thus far has been shown to be transparent though highly competitive. There are two rounds in the auctions, closed bid round and open bid round and Ariana has proceeded to open bid round on all auctions entered so far.
The acquisition of new licences are important from a long term strategic plan to develop our portfolio. The licences we apply for in auction are refined on the basis of exploration and other geoscientific data sets, and all licences we apply for have the potential to host gold mineralisation.
ENDS
DISCLOSURE: MiningMaven principals own shares in Ariana Resources
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