Kerim Sener goes for gold in Turkey with Ariana Resources

Dr Kerim Sener was studying for his PhD in Australia ten years ago when he decided it was time to start his own mining company. In just a few years, Sener and his team had established a focus on discovering and developing gold projects in Turkey and went on to bring Ariana Resources AAU to AIM in July 2005. Since then, the company has put together a three-pronged strategy led by the development of its Red Rabbit project in the west of the country, which should enter production next year. Meanwhile, a joint venture with European Goldfields EGU has given Ariana a free carry on the exploration of some highly prospective licences in northern Turkey. Finally, an investment in private company Tigris Resources has opened up the opportunity to explore lesser known regions of the country. Tigris is run by the same management team behind Australian company Lydian International LYD, which wants to replicate its success in Armenia by looking closer at under-explored areas of eastern Turkey.

For Sener, who studied under Bob Foster, the amiable chief executive of fellow Turkish gold explorer Stratex STI , the main focus is currently on clearing the regulatory hurdles at Red Rabbit. That project, which combines Ariana's Kiziltepe and Tavsan assets, boasts measured, indicated and inferred resources of 401,000 ounces of gold and has already undergone trial mining. The company is now planning to build a processing plant for an initial mine with a five year life, which will be constructed by Ariana's joint venture partner Proccea Construction. Ariana recently announced a proposed deal to buy four new exploration properties that will add to the company's inventory in western Turkey and consolidate its position around Red Rabbit, The assets include the Kizilcukur and Muratdag and are being sold by another AIM-listed Turkish explorer, Kefi Minerals KEFI.

In north-eastern Turkey, Ariana holds a 49% stake in a JV with European Goldfields, which is funding the exploration of a portfolio of licences through to the definitive feasibility stage. The main focus there is the Ardala project and Salinbas discovery. Elsewhere, Ariana's tie-up with Tigris, which was signed last November and involved it buying a 15% stake for C$115,000 (£74,000) gives it access to frontier gold and copper exploration in Turkey. Tigris has earmarked the cash for licence acquisitions when tenders are released in the coming months.

Kerim, tell me about you and the history of Ariana Resources?

I'm a geologist. I did my first degree at Southampton University, interestingly under Bob Foster, and I have to say that Bob was very much instrumental in me ending up in the gold industry. It was him that took me out to Zimbabwe and that's really where I started my career. While I was in Zimbabwe I had the opportunity to study in Australia and ended up securing a full Australian government scholarship to do a PhD at the University of Western Australia in gold deposit metal agenesis. So I spent from 2000 to 2003 in Australia, mainly in Perth, but my project area was up in the Northern Territory where there are a number of gold deposits. Latterly I was in Sydney with Mike Etheridge, who used to be a director of Ariana and is still a significant shareholder at the company. While I was doing my PhD I decided that it was time to think about setting up a company and that became Ariana Resources.

What was it about Turkey that made it an appealing prospect?

Well one of the main reasons I suppose is because I'm half Turkish, although that's not the only reason. We recognised that Turkey represented a huge opportunity for gold exploration in Europe. It was just coming out of a period where there had been quite a lot of negative press and sentiment about gold mining in Turkey but it looked like the country was just getting over that. That was really where the opportunity was. There was always a natural route in and my father was instrumental in setting up our Turkish subsidiary and he remains its general manager.

You made the transition from Exploration Director to Managing Director in March 2007. What was happening at that time inside the company and how was the focus changing?

I would say that the focus hasn't changed per se. There has always been a very strong exploration slant to the company, we recognise that the real opportunity in the long term is in a new discovery in Turkey. There is plenty of opportunity for such a new discovery, we've just got to be patient and position ourselves appropriately to take advantage of such an opportunity when it arises. Along with that we also recognise that we have got to do the best we can with what we've got, which is a more practical view. We recognised there was an opportunity to bring the Red Rabbit project into production quickly and this was highlighted primarily by a very successful period of trial mining that we did in 2009. We then developed the relationship that we have now got with Proccea Construction. With a partner like Proccea Construction, with their specialist aspect to their company associated with gold plant design and construction, we know that we are in good hands with them.

The Red Rabbit project is the sum of two key discoveries. How have you looked to develop that project?

The main hub of Red Rabbit is Kiziltepe and we recognised that that was going to form a hub very early on, even before the whole concept of Red Rabbit came about. The reason it is important is that it lies very central to an important exploration province in western Turkey. Any resources that are identified in and around Kiziltepe, just by establishing a gold processing plant at that location, you would have automatic leverage on any of those properties in the vicinity if they cannot otherwise be developed in their own right. So I'm not talking about stand alone resources. If there was a stand alone 1 million ounce project in the vicinity of course that would be developed independently, but there are lots of opportunities for smaller, higher grade resources that don't justify their own plant. So basically by having a plant there you're giving yourself some optionality over other resources. So that was the long term, strategic thinking behind it.

Later on we acquired the Tavsan property, which is 75 km away, as the crow flies, from Kiziltepe. The reason for that acquisition was that we knew that Odyssey Resources ODX was exiting from Turkey. We had to snap up that project because it was one of the closest, well developed resources in that region that we could acquire at relatively minimal cost, so it became a strategic component to the broader strategy. Once we had acquired it we knew that we had to develop this thing in a more coherent way and we had to give it a label, it had to become branded in a sense, and that's why it ended up with the name Red Rabbit. Tavsan in Turkish is rabbit and Kiziltepe means red hill, so it just became a conflation of the two names.

What development is going on at Red Rabbit at the moment?

On the Tavsan sector we have basically put that into longer term development, so there is not much going on right now at that project location other than trial mining that we have to do now and then to satisfy Turkish mining law. But the intention is to continue with exploration and resource drilling on Tavsan as we move the Kiziltepe sector through its feasibility. So the main focus right now, in terms of our physical attention and the expenditure that we are incurring through our joint venture, is on Kiziltepe. We have to bring Kiziltepe through feasibility, get its final permits and once we have done that everything else becomes possible.

What is the schedule in terms of driving that project into production?

We will complete the feasibility study and the environmental impact assessment in the third quarter of this year. It should then go into a period of three to four months of permitting. All being well those permits will be granted at the beginning of next year and then we can move straight into the construction phase. At the construction phase we hand over management control of the joint venture company to Proccea Construction because it is better handled by them, they are a construction firm and they have built gold plants before. So they are going to manage that process and bring the property into production and we expect production to start half way through, or perhaps third quarter, of 2012.

Tell me about your other projects in Turkey and what your plans are for them?

Well I think in that sense we have actually got our hands quite full because we have got three broad arms to our strategy. We have got a European Goldfields joint venture and an investment in Tigris Resources in addition to what we are doing in western Turkey. We are seeing a lot of exploration success coming out of the European Goldfields joint venture and we are really happy with the way that is developing right now. European Goldfields seem equally happy to continue exploring, particularly on the Salinbas prospect, there are some good results coming out of that.

Tigris Resources is a new investment in a junior exploration company. It is still a private company but it has got good pedigree in terms of the people that are involved. It is basically the Board of Lydian International, and what they want to do is ‘do a Lydian repeat' in eastern Turkey. We can see opportunity in that. Eastern Turkey is an area that is very much under explored, there are a number of deposits in the vicinity that are world class in terms of multi million ounce copper/gold deposits. But if you look at the map of exploration in Turkey, south-east Turkey is just a big, blank block so there is a lot more that can be done down there.

So we want to see those arms of the company develop a little bit more. In terms of the work that we are doing in western Turkey; it's exploration in our own right, we are identifying new opportunities in western Turkey and we are now just waiting for licence auctions to initiate.

What is the climate like in Turkey in terms of mining law and the process of getting these licences opened up?

One of the things that brought us into Turkey was that we knew that the mining law was being changed in 2003/2004 and we knew that the mining law was going to change in a positive way at that point in time. So when we entered Turkey by midway through 2004 a new mining law came in and that really opened the floodgates to foreign companies in Turkey. In a sense, we were one of the first in and that gave us an advantage because we were able to pick up the Kiziltepe property from Newmont Mining NEM and to do a couple of other deals with Newmont at that time. Then from 2009 into last year a new mining law needed to be developed. There were certain difficulties that had been encountered in the 2004 law relating to environmental permitting and how the environmental legislation interacted with the mining legislation. They just needed to iron out a few ripples in the legislation, which they did and they brought in the current law in June 2010. The regulations to that law came out in September 2010 and really it has changed things again very much to the positive. They have introduced a minimum expenditure commitment on licences in Turkey now, whereas in the past they didn't have that so people would just squat on ground for donkey's years. Western Turkey was choc-a-block, there was no room to move, there were no opportunities unless you could do a deal with a local partner and it made things tough. Now, with this new law coming into play, over the course of the next couple of years I expect to see quite a bit of ground in western Turkey coming up, especially in auction, and because of this expenditure commitment it is going to inhibit the ability for private groups/small companies to just hold onto ground and act as real estate agents.

For a company like Ariana, presumably that means there is a great deal to look forward to as larger players watch closely for the smaller explorers to come up with some decent discoveries?

Exactly. It will take a few years to play out but if there is anything that is important in exploration it is patience and giving yourself the opportunity to take advantage when the time is right.

With that in mind, why would now be a good time for a investor to take a closer look at Ariana?

I think the most important thing is that we have identified a property within the portfolio that can move into production in the near term and we've got a rock solid JV partner that is spending its own money on that property through feasibility. In that sense we have de-risked that particular project and it is de-risked also in the sense that we are not having to spend our own money on it right now.

With European Goldfields as well, we are not spending our own money there. European Goldfields have spent about $3.2m over the last couple of years on exploration on our properties there and we retain 49% of that joint venture. So again, they are de-risking everything for us very nicely.

Tigris Resources is, in a sense, a little bit more of a risky play for us but then it makes sense given the nature of the area that they are going into. There is clear opportunity in Tigris Resources but again it will take time for that opportunity to play out.

So with those three arms to the overall strategy, with de-risked properties in a technical sense, de-risked from the financial burden that they might otherwise place on a junior company like Ariana, we can go off and do our own thing in terms of our own exploration, identify the next opportunity in Turkey, and that is what it is all about. We are parking away major components of our current strategy but one arm of that, the exploration side of things, we want to drive forward now because we see that in a discovery we are going to change the whole dynamic of the company.

What can we expect to hear from the company over the course of 2011?

A lot of news flow will be related to the feasibility study, the environmental impact assessment and related work that we are doing in and around Kiziltepe. We hope to update shareholders on some of the exploration that we are doing but we can't do that until the auction process starts and until we're successfully able to secure new ground in western Turkey particularly. So yes, there's a lot going on.

Finally, do you cross paths with Bob Foster much these days?

Actually I've got a standing invite, I need to take him out to dinner one evening, but we're both very busy and flitting between countries. Of course, now he's off to Ethiopia as well, so I haven't bumped into Bob now for quite a while.

Kerim, thank you for your time.

It is a pleasure.

Stockopedia