Ariana Resources Plc
Annual Report 2019

Plain-text annual report

Contents Strategic Report Principal Activities Strategy & Business Model 2019 Production Highlights Chairman’s Statement Operations Review Financial Review Organisation Review Directors Operational Team Key Performance Indicators Risks & Uncertainties Section 172(1) Statement Governance Corporate Governance Corporate Responsibility Report of the Directors Independent Auditor’s Report Financial Statements Annual General Meeting COVID-19 Statement Notice of the 2020 Annual General Meeting of Ariana Resources PLC Advisors 1 2 2 3 4 5 8 22 23 24 26 27 28 31 32 32 36 38 42 46 73 74 76 ARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019Principal Activities The principal activities of the Company and its subsidiaries are the exploration and development of precious and technology metals. The primary area of geological focus is the globally significant Tethyan Metallogenic Belt, which spans over 10,000km from central Europe through to the Himalayas and beyond. This metallogenic belt hosts some of the world’s largest gold, silver and copper deposits. The Company aims to advance mineral resource opportunities both within its primary area of operations in Turkey and across the wider European and Eastern Mediterranean regions, within which the Company has specific expertise. Beyond its primary interest in precious metals, specific opportunities are being evaluated in the context of the demand for mineral resources which contribute toward technological development, energy efficiency and the global decarbonisation agenda. Red Rabbit 50:50 Joint Venture - Proccea Salinbaş 100% Ariana owned Kizilçukur & Ivrindi 100% Ariana owned Magellan & Mariner 100% Venus Minerals owned Ariana earning in to 50% SALINBAŞ Istanbul TAVŞAN IVRINDI KIZILÇUKUR KIZILTEPE Izmir SALINBAŞ Ankara Turkey Antalya MAGELLAN Cyprus MARINER KILOMETERS 0 100 200 2 STRATEGIC REPORTARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019Strategy & Business Model The Company’s primary strategy is to achieve sustainable long-term growth of the Company via robust and cost- efficient gold exploration and development. This approach has led Ariana to identify, advance and develop projects rapidly, with a discovery cost per ounce of gold that is less than half that of its peers. The Company plans to achieve its goals by: Focusing on the discovery of sizeable mineral systems Building positive long-term relationships with local government, communities and key stakeholders Developing a strong team with excellent commercial, technical and financial skills Forming robust business partnerships for the development of gold and other mineral projects Executing selective, high-impact exploration programmes and joint venture (‘JV’) opportunities Ensuring safe operating procedures and minimising environmental impact 3 ARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORT 2019 Production Highlights Total JV Revenue* Revenue / US$ Average Cash Costs: US$507/oz per oz FY2019 Average Gold Recovery: 93.7% Average Milled Grade: 4.5 g/t Au, 67.9 g/t Ag Total Ore Milled: 204,866 tonnes 4 STRATEGIC REPORTARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019*JV Revenue is based on total gold and silver sales as recorded by the 50:50 JV with Proccea Construction Co. Please refer to Note 6, Share of Profit of Interest in JV for further detail.2018 37.8m2019 45.1mGold Revenue / US$ Production / oz Silver Revenue / US$ Production / oz 5 Chairman’s Statement Fellow shareholders, I am pleased to report on the Company’s audited results for the year ended 31 December 2019. This has been another outstanding year for Ariana, which has delivered production and profitability well above its plans. The Kiziltepe Mine, which is held within Zenit Madencilik San. ve Tic. A.S. (a 50:50 JV with Proccea Construction Co.), achieved gold production of 27,985 ounces, 12% above production guidance at an average cash cost of just US$507/oz. This, once again, places the Kiziltepe Mine comfortably amongst the lowest-cost gold producers in the world. The profitability from our Turkish operations has enabled Ariana to report a significant improved earnings per share of 0.65 pence and a price earnings ratio of 6, which is a respectable position in the junior gold mining sector. Production at the Kiziltepe Mine has remained well above the planned feasibility rates since start-up in 2017, resulting in accelerated depletion of the Arzu South open-pit. Post-period end, this enabled timely completion of repayments against the US$33 million capital expenditure loan, in addition to the JV partners receiving a return of capital invested and their respective share of profits. This allowed for the payment of a maiden dividend of £1.6 million from our Turkish operating subsidiary to Ariana Resources plc, representing the first profit cash-flow in the Company’s history. This places Ariana in a particularly strong position in a time of general uncertainty. We are, therefore, well-placed to deploy our resources to the ongoing development of our existing portfolio of wholly-owned projects in Turkey, particularly Salinbas, as well as our new earn-in on Cyprus-focused Venus Minerals. At Kiziltepe, resource extension work was completed earlier this year, which is currently targeting an extension of the life of mine to a total of 10 years. In addition, further drilling and resource work is currently being undertaken at Kiziltepe to test down- dip extensions of the Arzu South vein with a view to assessing possible underground or additional open-pit potential. Similar resource extension and other project development work has been completed at Tavsan with a view to bringing this project into production from 2022. Salinbas has also seen extensive work during the year, achieving proof of concept on both the origin and potential extent of this very large mineral system. The area has attracted significant international interest following the spectacular recent drilling results from the nearby Hot Maden project, validating the perceptive decision by Ariana to continue investing in this region. ARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORT2018 3.4m2019 5.9m2018 241,6162019 363,6502018 34.4m2019 39.2m2018 27,1102019 27,985Production of gold 12% above guidance for 2019.Chairman’s Statement continued while not yet part of our current revenue stream, but part of our exploration portfolio, is also likely to see a price improvement following a post-pandemic price correction. It already has a broad base of demand in the evolving electrification of vehicles and other low-carbon technological developments, but is now being mooted as having anti-viral/microbial uses where it could be applied to frequently touched surfaces. This may well become an industry standard following the experience of our current crisis. Meanwhile, the long-term trend for gold has been upwards for much of the last two decades and there is little to detract from this trajectory. Increasing levels of global uncertainty, marked differences between the paper and physical prices of precious metals, physical accumulation by hoarders, central banks and exchange-traded funds (‘ETFs’), and the expansive nature of government spending will all undoubtedly result in hard currency inflation, all of which support the long-term price of our primary product, gold. Gold is, after all, a currency without a government. Ariana is well placed, both in terms of its balance sheet and its project portfolio of the correct metals, to prosper through the coming years. The new year started positively for the Company, with management able to report excellent first quarter production results and guidance for the year well above the feasibility plan. This sound start to the year has, however, been overshadowed by the scale and significance of the COVID-19 pandemic sweeping across the world, touching all of our lives. Having seen, early on in my mining career in Namibia, some of the gruesome consequences of the 1918 Spanish Flu epidemic, I am well aware of the serious impact this could have on both our personal and business lives. The Ariana and Zenit management teams have put in place all the recommended procedures for the well-being and safety of our employees and contractors at both exploration and mining sites, allowing operations to continue unhindered. I must pay tribute to all the people working for Ariana and those at the Kiziltepe Mine for their prompt and no-nonsense approach in adjusting to the required precautionary steps and then just getting on with life. By facing these challenges head on and adopting new working practices we have been able to operate much as we did before. Thus far, we have not had any incidence of COVID-19 in any of our spheres of operations. The business of mineral exploration is well versed in the process of defining uncertainty and risk and is also adept at managing these factors, evidenced by the way in which both current exploration and mining operations have adapted to this current climate of uncertainty. Our industry has been a long- term adopter of remote work and distributed working teams, and for a while it has been the norm for our work to be carried out in the field on one continent and be collated and analysed on another. Despite international travel restrictions, it is a great credit to our dedicated team that they have been able to carry on with normal work commitments, enabling us to meet all our ongoing work and reporting requirements within a reasonable timeframe. We will continue to review ways we might need to adapt in response to this worldwide crisis in order to mitigate risks and to continue working effectively. The last financial year has been particularly good for gold but not quite so for silver. As the bulk of Ariana’s production revenue (>85%) comes from gold, the lacklustre silver price in response to market sentiment has not had a material impact on overall revenue. Interestingly, the gold-silver ratio has for most of modern history been around 1 to 50, while the current ratio is closer 1 to 100; a marked departure from the norm, which is an indication that the silver price is overdue for a positive correction. The diverse industrial usage of silver is an additional driver for the market price firming, including the requirement for silver in medical and anti-viral/microbial settings. Copper, 6 STRATEGIC REPORTARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019With this long-term perspective in mind across our commodities of prime interest, the Company has been exceptionally busy on the exploration and development front during the past year. We have made significant progress across our pipeline of strategic projects in Turkey and for our new earn-in focused on Cyprus. For the latter, we are not alone in recognising the potential of this ancient source of copper, which also appears to host significant and previously unrecognised gold potential. Consequently, Ariana is very well positioned to deploy existing resources and attract other industry partners to contribute to the development of an attractive portfolio of prospective development assets. With the shake-up in the resources sector, it is probable that we will see other industry sectors, such as energy, starting to look at the minerals sector to progress their long-term green development objectives, given that the decarbonisation agenda requires the identification and consumption of substantial mineral resources. Exploration like all other frontier industries is only as successful as its philosophy will allow it to be. It is on reflection of this that I think of how the legendary geologist J David Lowell, the world’s best mine finder, expressed himself. He was noted for saying he was good at being wrong and was never afraid of that. Drilling out a ‘duster’ was nothing to be afraid of, as the mistake would have been not to try. You had to ignore existing dogma in order to have a chance of success. Above all else he was successful at finding some of the best mines in the world today, over one of the longest careers in our industry. It is particularly poignant that such a legendary man should pass at the ripe old age of 92 in the very year that we need such courage and inspiration. I think that we should all take a leaf out of his book as we step out into this changed new world to find the materials we need to build our future. Like all companies, Ariana exists for the benefit of its stakeholders and in particular its shareholders, who must be rewarded through increasing market capitalisation and a potential dividend stream. Your Board remains focused on these outcomes and we are particularly pleased to see that the market price of Ariana shares is substantially higher than it was this time last year. The Board would particularly like to thank its shareholders for the close and personal interest you have shown in the Company over the last few years. We appreciate your support and we look forward to meeting you on future occasions. It seems unlikely we will be able to hold face-to-face meetings or the AGM as we have done before, and we are instead looking at participating in virtual events accordingly. Either way, we would like to ask you all to exercise your proxy votes well in advance of the AGM date, as it is unlikely that we will be able to accommodate online voting at this stage. We look forward to the day when we are all able to meet in the same room as before. Last but not least I would like to thank our employees, professional advisors and our joint venture partners for their dedication and support in helping Ariana achieve its ongoing success. Michael de Villiers Chairman 7 ARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORTOperations Review The year under review marked an extraordinary period of development for the Company, unlike any other in its history. This development was financed internally from the proceeds of our profitable gold and silver mining operation in western Turkey. Production continued at the Kiziltepe Mine and this was accompanied by an intense period of exploration and development work undertaken across all project areas. In addition, the Company completed its first earn-in agreement into a portfolio of advanced and greenfield projects in Cyprus. The Company remains well-financed for its planned work programmes across all projects. As in previous periods, the year ended positively, with forecast production figures reporting 12% over guidance for the period. As at year end, the JV had also repaid close to 90% of the construction capital loan of US$33m to Turkiye Finans Katilim Bankasi A.S.; post-period end the JV had completed all repayments against this loan. The JV reported total revenue of about US$45m for 2019 from the Kiziltepe Mine, in contrast with the annual feasibility target of US$26m. This represents a 75% increase over the target. Ariana is now one of a handful of junior mining companies on AIM capable of internally financing its operations. We have achieved this success through a combination of low-cost and effective exploration, prudent financial management, strong partnerships and through fostering positive relationships with key stakeholders at all levels, including among local communities and government entities. 8 STRATEGIC REPORTARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019S I N D I R G I G O L D C O R R I D O R Sindirgi Gold Corridor Licence Areas Production Exploration Resources 100% Ariana Owned Roads Karakavak North Kepez West Karakavak Kepez North Kepez South Kiziltepe Kizilçukur KILOMETERS KILOMETERS 0 0 2.5 2.5 5 5 9 ARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORTOperations Review continued Red Rabbit Gold Project Area Life of Mine to Date (up to Q4 2019) The Red Rabbit Gold Project (‘RRGP’) comprises the Kiziltepe and Tavşan sectors, located within the Tethyan Metallogenic Belt of western Turkey. The project is being advanced in partnership with Proccea Construction Co. (‘Proccea’) via a 50:50 JV. The Kiziltepe Mine has produced in excess of 65,555 ounces of gold since production commenced up to the end of Q4 2019, with production guidance of 18,000 ounces of gold provided for 2020. The Company remains focused on increasing its production profile through targeted exploration and development work across both the Kiziltepe and Tavşan sectors. The JV is focused on achieving production from both sectors simultaneously in the coming years, with the aim of increasing output to approximately 50,000 ounces per annum. Gold produced (troy oz) Silver produced (troy oz) Gross Revenue (US$’000) 65,555 670,861 96,910 Average realised gold price (US$/oz) 1,316 Average revenue per gold ounce (US$/oz) 1,478* * Average revenue per gold ounce is a measure of the Total Revenue divided by the number of Troy ounces of gold produced within a given period. It accounts for the contribution of by-product silver. S E R U G I F Y E K 1 0 STRATEGIC REPORTARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019 Resource Estimate table for Kiziltepe/Tavşan (RRGP JV): Kiziltepe and Kepez Main Vein Zones Measured Indicated Measured & Indicated Inferred Global Total Tonnes (t) Grade Au (g/t) Grade Ag (g/t) Gold (oz) Silver (oz) 970,000 1,044,000 2,014,000 1,011,000 3,025,000 2.46 2.54 2.51 2.23 2.33 43.64 43.35 43.49 29.58 77,000 77,000 1,361,000 1,377,000 154,000 2,738,000 73,000 961,000 38.03 227,000 3,699,000 Summary 2020 Kiziltepe and Kepez JORC 2012 compliant Mineral Resource Estimate (depleted for mining). Reporting is based on a 1.0 g/t Au cut-off grade. Resource estimate dated 22 April 2020. Tavşan Measured Indicated Measured & Indicated Inferred Global Total Tonnes (t) 611,000 2,556,000 3,167,000 1,322,000 4,489,000 Grade Au (g/t) Grade Ag (g/t) Gold (oz) Silver (oz) 2.77 1.70 1.91 1.39 1.75 4.84 5.19 5.12 4.72 5.01 54,000 95,000 140,000 427,000 194,000 522,000 59,000 201,000 253,000 723,000 Summary 2020 Tavsan JORC 2012 compliant Mineral Resource Estimate. Reporting is based on a 0.7 g/t Au cut-off grade. Resource estimate dated 8 June 2020. 1 1 ARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORTOperations Review continued Kiziltepe Gold Mine Commercial production was initiated at Kiziltepe during July 2017 as the Company’s first mine. Gold mineralisation occurs within an area of 3km by 1.5km containing a series of quartz veins and associated alteration zones hosted by dacitic volcanic rocks. Mining commenced on the Arzu South pit and during 2020 these activities will be shifted gradually to other planned pits. Processing is undertaken using a combined CIL/ CIC plant producing a gold-silver doré on site, which is shipped to a refinery in Istanbul. Detailed technical and economic assessments are also being completed on several satellite vein systems, which are not currently part of the mining plan, in anticipation of these being developed in future years. The Company is targeting a minimum ten-year mine life (eight years according to the Feasibility Study), which will require the addition of a further 40,000 oz gold equivalent in reserves outside of the four main pits at Arzu South, Arzu North, Banu and Derya, which are included as part of the current mining schedule. Management is confident that this can be achieved, should existing resources be converted to reserves as a result of this ongoing work. Kiziltepe 2019 Production Table Mine Life Cash Costs Q1 2019 Q2 2019 Q3 2019 Q4 2019 Processing c. 6 years remaining (up to 10 years potential) US$399 US$589 US$540 US$500 CIL/CIC Production Rate (Life of mine average) 20,000 oz Au p.a. (up to c. 25,000 oz Au p.a.) Global JORC Resource 2.01Mt @ 2.51 g/t Au, 43.49 g/t Ag (Measured, Indicated) 1.01Mt @ 2.23 g/t Au, 29.58 g/t Ag (Inferred)* Payback Royalty 100% of construction loan (US$33 million) repaid on 1 May 2020 State Right and 2.5% NSR to Franco-Nevada * Resource figures include Reserves. Depleted resource figures are provided on page 11. S E R U G I F Y E K 1 2 STRATEGIC REPORTARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019 Kepez Prospect Kepez is located up to 14km haulage distance to the northeast from the Kiziltepe processing plant. It is likely to be the first of the satellite mines to be developed in the periphery of Kiziltepe. Gold mineralisation occurs in a series of quartz veins and associated alteration zones hosted by dacitic volcanic rocks. A recent resource update for the Kepez Prospect demonstrated the potential to add at least one year of production from this satellite deposit to the Kiziltepe mining operations. An Environmental Impact Assessment (‘EIA’) extension covering part of the Kepez North area was completed in 2018. A revised mineral resource estimate and pit optimisation studies were recently completed. 1 3 ARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORTOperations Review continued Tavşan Development Project The Tavşan Sector is located approximately 75km to the north- east of the Kiziltepe Mine. Gold mineralisation occurs within a jasperoid unit located between ophiolites and limestones. A recent Resource Estimate, completed post-period end, substantially de- risks the project following a material improvement in the size of the resource and its classification, with 77% of the resource in Measured and Indicated categories. The new estimate has enabled the JV to proceed with the completion of its Feasibility Study and EIA, without further resource drilling. The JV is targeting the development of Tavşan as a heap-leach project in parallel with the Kiziltepe Mine, within the broader context of the Red Rabbit Joint Venture. Further work is required to be completed on the Feasibility Study and EIA, which the JV is completing in-house, along with associated permitting. Scoping Study Summary Mine Life Cash Costs Processing Production Rate 6 years (based on revised resources) US$630/oz Heap Leach 30,000 oz Au p.a. Global JORC Resource 4.0Mt @ 1.3g/t Au, 4.5g/t Ag (Measured, Indicated & Inferred) In-pit Grade Net Present Value Internal Rate of Return Payback Royalty 1.6 g/t Au, 3.0 g/t Ag US$42 million* 80%* 1.1 years on US$20 million initial capital* State Right and 2% NSR to Sandstorm Gold *Pre-tax base case at US$1,250/oz for gold as at November 2016 (completed by Auralia Mining Consulting). S E R U G I F Y E K 1 4 STRATEGIC REPORTARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019 TA V Ş A N S I T E P L A N Licence Boundary Jasperoid Designed Pit Outlines EIA Boundary Waste Rock Dump Heap Leach Pad Village Roads North Zone Main Zone Orencik West Zone South Zone KILOMETERS 0 1 2 TA V Ş A N E X P L O R AT I O N U P S I D E ODX99A 11m @ 5.11g/t Au + 6.8g/t Ag T6 75m @ 1.19g/t Au + 6.5g/t Ag T4 170m @ 1.04g/t Au + 4.1g/t Ag OR3 9m @ 1.30g/t Au + 4.3g/t Ag North Zone 8 7 T3 140m @ 1.11g/t Au + 5.2g/t Ag T1 60m @ 1.30g/t Au + 4.3g/t Ag 13 15 12 11 6 9 5 4 14 10 West Zone Kiziltepe 70km to mine site Main Zone 16 ODX53 6m @ 3.37g/t Au + 3.7g/t Ag KILOMETERS 0 0.5 1 Selected Historic Collars 1 Exploration Target Untested Trenches Designed Pit Jasperoid Outcrops Priority Target Area Licenses Trial Open Pit 1 5 ARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORTOperations Review continued Other Projects Kizilҫukur Development Project The Kizilҫukur Project is located 25km to the north-east of the Kiziltepe Mine and is wholly owned by the Company. Gold mineralisation occurs in a series of quartz veins within dominantly basaltic host rocks. The latest resource estimation and scoping study for Kizilҫukur highlights the potential for the project to become a satellite source of ore for the Kiziltepe Mine, providing for at least a further year of mine life. Metallurgical test work demonstrates that the Kizilҫukur ore responds well to the leach conditions utilised within the Kiziltepe processing plant, with high gold recoveries ranging from c. 83% to 92%. Further work will be conducted on the ore to determine the variability of recovery over a greater range of grade and other characteristics. Current plans involve the bulk trial-processing of Kizilcukur material at the Kiziltepe processing plant. Under the terms of the JV agreement with Proccea, Kizilcukur can be sold into the JV at three times the exploration cost. Resource Estimate table for Kizilҫukur (100% Ariana owned): Classification Measured Indicated Measured & Indicated Inferred Global Total Tonnes (t) 130,511 87,805 218,317 37,344 255,660 Grade Au (g/t) Grade Ag (g/t) Gold (oz) Silver (oz) 2.79 2.60 2.72 1.75 2.57 84.11 69.01 78.04 57.31 75.01 12,000 353,000 7,000 195,000 19,000 548,000 2,000 69,000 21,000 617,000 Summary 2020 Kizilcukur JORC 2012 compliant Mineral Resource Estimate. Reporting is based on a 1.0 g/t Au cut-off grade. Resource estimate dated 9 May 2020. Ivrindi Exploration Project The Ivrindi Project is located 70km to the north-west of the Kiziltepe Mine and is wholly owned by the Company. Gold mineralisation is encountered within several discrete zones of clay alteration in andesitic volcanic rocks. Recent exploration in 2018 identified a new zone of mineralisation; a 1.3km long geochemical anomaly identified through soil analyses. While this zone will need to be tested further, this discovery has indicated the potential to grow the resource at Ivrindi substantially. Metallurgical test work demonstrates that the Ivrindi ore responds well to the leach conditions utilised within the Kiziltepe processing plant, with high gold recoveries ranging from c. 85% to 91%. Ivrindi is envisaged as a satellite to the Kiziltepe operations, though remains at an earlier stage in its development compared with other projects. The Company is working towards developing Ivrindi to a point at which it may be sold to the RRGP joint venture. Resource Estimate table for Ivrindi (100% Ariana owned): Classification Inferred 1 6 Tonnes (t) 207,000 Grade Au (g/t) Grade Ag (g/t) 1.7 n/a Gold (oz) 11,000 Silver (oz) n/a STRATEGIC REPORTARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019K I Z I LT E P E E X P L O R AT I O N U P S I D E Balikesir Ivrindi 50/50 JV 100% Ariana Owned Projects with Resources Exploration Projects Open Pit Operation Major Cities / Towns Sindirgi Gold Corridor Proposed Trucking Routes Kizilçukur Bigadiç Kepez Karakavak Sindirgi Kiziltepe Hub KILOMETERS 0 10 20 1 7 ARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORTthe understanding that the Ardala area represents a significantly gold enriched porphyry system. Further work will be required to determine if there are other gold-rich porphyry intrusions or breccia-pipes within the broader Ardala Intrusive Complex, which potentially underlie part of the Salinbaş deposit. Operations Review continued Salinbaş Exploration Project The Salinbaş Project is located in north-eastern Turkey and is wholly owned by the Company. The project represents a transition in mineralisation styles from porphyry to epithermal, including skarnoid replacement in a variety of host rocks in the vicinity of the intrusions. Confidence in the potential for the Salinbaş Project to host a multi-million ounce gold system in the area surrounding the Ardala Au-Cu-Mo porphyry has increased as a result of the exploration and development work conducted during recent years. In 2019, fifteen Reverse Circulation (‘RC’) drill holes were completed and this work is informing further resource modelling and estimation work. During 2018, a JORC Exploration Target of up to 2.7Moz gold and 16.1Moz silver was established for the project, in addition to current JORC Indicated and Inferred Resources of c.1Moz gold. There is potential for further resource extensions to be delineated within high-grade and steeply plunging breccia pipes (akin to the nearby Hot Maden deposit), which likely feed in to the Salinbaş gold-silver zone. Recent exploration has demonstrated that gold mineralisation continues to the immediate north of the Salinbaş deposit over c.500m of strike, as predicted by the geological model and the JORC Exploration Target. Furthermore, recent work continues to reaffirm Scoping Study Summary Mine Life Cash Costs Processing Production Rate JORC Resource Net Present Value Internal Rate of Return Payback Royalty 10 years US$770/oz CIL 50,000 oz Au p.a. 9.9Mt @ 2.0 g/t Au, 10.2 g/t Ag (Indicated & Inferred) US$108 million* 28%* 3.3 years on US$53.3 million initial capital* State Right and 2% NSR to Eldorado Gold *Pre-tax base case at US$1,250/oz for gold as at April 2015 (completed by Auralia Mining Consulting). S E R U G I F Y E K 1 8 STRATEGIC REPORTARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019 Cu-Au-Mo porphyry: 16.3Mt for 323,000 oz Au at 0.6 g/t Au 4.7Mt for 10,000t Cu at 0.22% Cu 18Mt for 2,400t Mo at 0.014% Mo (Inferred) S A L I N B A Ş E X P L O R AT I O N U P S I D E Berta 100% Ariana Tenements Prospects Hot Gold Corridor Inferred Faults Mapped Intrusions Alteration Artvin Au-Ag epithermal: 10Mt for 650,000 oz Au at 2 g/t Au and 10g/t Ag (Inferred and Indicated) Derinkoy North Ardala Salinbas R O D I R R O D C L O T G O H Cu-Au-Zn epithermal: 9.2Mt for 3.87 Moz Au eq. at 13 g/t Au eq. (Inferred and Indicated) Hizarliyayla Hot Maden KILOMETERS 0 2.5 5 Resource Estimate table for Salinbaş / Ardala (100% Ariana owned): Zone Salinbaş1 Indicated Inferred Zone Ardala Inferred Inferred Inferred Tonnes (t) Grade Au (g/t) Grade Ag (g/t) Gold (oz) Silver (oz) 2,290,000 7,760,000 2.10 2.00 Tonnes (t) Grade (g/t) 11.90 9.70 Metal2 156,000 878,000 493,000 2,396,000 Metal (t) Gold (oz) 16,270, 000 4,660,000 18,000,000 0.60 2,175 136 Au Cu Mo - 323,000 10,000 2,400 - - 1. Figures for the Salinbaş Zone are revised according to a Scoping Study announced in Q2 2015. 2. Separate resource domains have been established for the Au, Cu and Mo components of the Ardala porphyry. It is considered reasonable to estimate these domains in this manner because the resource is classified as Inferred in this location and mining parameters have not yet been established. There is a 95% coincidence of the Au and Cu domains, and a 40-50% coincidence of the Au and Mo domains. 1 9 ARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORTOperations Review continued Investments Venus Minerals Ltd Asgard Metals Pty Ltd Ariana is acquiring up to 50% of UK-registered Venus Minerals Ltd (‘Venus’) via an earn-in agreement completed in Q4 2019. Venus is a Cyprus- based exploration company which is developing Volcanogenic Massive Sulphide (‘VMS’) copper- gold deposits in the ophiolite terranes of south- eastern Europe, principally the Troodos Ophiolite in Cyprus. Venus has been active in Cyprus for more than 15 years. During this time, it has secured a substantial exploration portfolio, ranging from brownfield properties with demonstrated resources at Kokkinoyia and Klirou, to grass roots projects displaying the hallmarks of highly prospective VMS deposits. As at year end, Ariana is required to spend a further 2.4 million Euro to earn into its full entitlement of 50%. Asgard is a 100%-owned Australian subsidiary of Ariana Resources, which was established to focus on technology-commodity opportunities globally. Projects hosting metals utilised in renewable-energy applications, such as antimony and lithium, are being reviewed. Such commodities are potential economic game-changers for a growing global population driven towards green-energy platforms. Asgard originally held interests in several lithium pegmatite projects in Western Australia and the Northern Territory and vended these into two separate ASX-listed companies, Dakota Minerals Ltd and Kingston Resources Ltd. Asgard remains well- financed and on the look-out for new opportunities in the technology-metals space which could be developed in conjunction with experienced partners. 2 0 STRATEGIC REPORTARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019Outlook During 2019, Ariana consolidated its position as a sustainable mineral exploration and development enterprise. This has established a solid platform on which Ariana can develop its strategy, which is all the more important given the current global challenges. We have started 2020 facing several new and unexpected circumstances. The developing trade-war between the USA and China, coupled with decadal lows in the oil price, have now been compounded by the COVID-19 virus pandemic originating in China. At the time of writing, the pandemic has sadly had a significant cost in human lives and is creating a profound global economic shock in its wake. Factories in China, which are attempting to gear-up following a reduction in output in the early phase of the pandemic, are now producing for a market that no longer exists; the rest of the world economy is in the process of severe contraction. As the consumer- producer dynamic becomes strained, supply lines are becoming choked. Meanwhile, to try and save the day, governments are scrambling to apply a band-aid to systemic problems with an obscenely leveraged and derivatives driven global financial system based on the US dollar. What this will mean for commodity markets and producers is, as yet, unknown. However, as a gold producer, we are expecting that demand for the ultimate form of money will continue unabated. Unlike paper money, gold does not represent debt (a consequence of fractional-reserve banking), it presents no counterparty risk and acts as the only real hedge against inflation in the long term. It is no surprise that central banks around the world, particularly those which wish to maintain some resilience and independence outside of the US dollar denominated global order (including Turkey), have been buying gold in ever increasing amounts during recent years. In fact, central bank gold purchases in 2018 and 2019 were at 50-year highs as part of this effort to spread risks away from the US dollar, with some 650 tons of gold added to central bank reserves in 2019. Consequently, we are in the fortunate position of producing the only commodity which represents the ultimate final form of payment for the international banking system. Whatever the headwinds, this financial demand will remain. 2 1 Operationally we are well-positioned to take advantage of these unusual circumstances. Despite the current crisis, we have been fortunate in the commitment of our staff in the UK and Turkey at a time when families and communities have been under great strain. We have also seen a very supportive approach to our business at both local and national government levels in Turkey. Our JV operation at Kiziltepe is continuing to produce gold and silver at high margins due to the low-cost operating environment. This has resulted in sufficient cashflow to satisfy our operational requirements and has created opportunities to diversify and make new investments, such as Venus Minerals. Our portfolio of assets and investments represents projects at every stage of a self-sustaining investment cycle, which we have spent the past 15 years developing methodically as part of our long-term strategy. In addition to an operating mine, this includes near-term development assets, a major large-scale exploration asset, and is supported by both current and nascent investments. We are a unique exploration and development company, with a strategy geared toward longevity, sustainability and the growth of value in the long-term, which is ultimately underpinned and driven by our exploration success. At the beginning of a new and uncertain decade, we look forward to the future and remain resolved on delivering upon the immutable certainty of pure gold. Dr Kerim Sener Managing Director ARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORTFinancial Review The Group’s profit after tax grew by more than threefold in the year under review rising to £6.9m (2018: £2.2m) primarily due to the excellent operational performance of our Joint Venture investment in Zenit. This company’s turnover grew by 21% reflecting the favourable movement in the gold price and increased production year on year, with their profits after tax rising from £7.4m to £15.8m, our 50% share of which amounted to £7.9m (2018: £3.7m). The year’s performance also benefited from the disposal of our Kiziltepe property owning subsidiary, Camyol, being sold to Zenit at a book profit of £0.6m. The Directors are confident that Zenit will continue to finance the Group’s operations for the foreseeable future through dividends declared and paid over the course of the year. Aside from the performance of Zenit, the results are generally consistent with the prior year, with administrative costs slightly improved at £1.2m, and net exploration costs written off also broadly consistent amounting to £0.4m (2018: £0.3m). The effect of the declining value of the Turkish Lira on the underlying value of our subsidiaries in Turkey is £0.4m better than the previous year, but still a significant cost reflected though Other Comprehensive Income at £1.8m. Nonetheless, our earnings per share has shown a very healthy increase from 0.21 pence per share in 2018 to 0.65 pence per share in 2019. Our net assets as recorded in the Statement of Financial Position have increased by £5.3m primarily on account of our share of the net assets of Zenit increasing by £3.8m. The company also capitalised a further £0.5m of expenditure within Intangible exploration assets, being our Turkish exploration work, as well as incurring a further £0.5m of expenditure included within debtors on our Cypriot project, ahead of it being converted into shares under our earn in agreement with Venus Minerals Limited in May 2020. Overall this was a very satisfactory year for the Group from a financial perspective, and we look forward to building on these foundations to enhance our performance for our shareholders going forward. Dr Kerim Sener Managing Director 2 2 STRATEGIC REPORTARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019Organisation Review ARIANA EXPLORATION & DEVELOPMENT LTD NON-GOLD INTERESTS PORTSWOOD RESOURCES LTD (BVI) ASGARD METALS PTY LTD (AUSTRALIA) GALATA MADENCILIK SAN VE TIC LTD GREATER PONTIDES EXPLORATION BV (NETHERLANDS) 100% Ariana 100% Ariana 100% Ariana ZENİT MADENCILIK SAN VE TIC AS PONTID MADENCILIK SAN VE TIC LTD 50% Proccea 50% Galata 100% Greater Pontides TURKEY Note: Simplified organisational structure. Ownership structures as at 27 July 2020. 2 3 ARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORTDirectors Michael de Villiers B. Comm. Professional Accountant (SA) MIOD Chairman and Company Secretary Michael qualified as a Professional Accountant with Ernst & Young in Cape Town. He gained his experience as Financial Manager at mining and chemicals operations in Botswana, Bulgaria, FSU, Ghana, Namibia and the United Kingdom. He was previously CFO of Eurasia Mining plc, Finance Director of Mercator Gold (now ECR Minerals plc), Oxus Gold plc and Navan Mining plc. He has over 30 years’ experience in the mining industry. Michael is Chairman of the Audit Committee and serves on the Sustainability Committee. 2 4 Kerim Sener BSc (Hons) MSc DIC PhD Managing Director Kerim graduated from the University of Southampton with a first-class BSc (Hons) degree in Geology in 1997 and from the Royal School of Mines, Imperial College, with an MSc in Mineral Exploration in 1998. After working in gold exploration and mining in Zimbabwe, he completed a PhD at the University of Western Australia in 2004. Since then he has been responsible for the discovery of over 3.8Moz of gold in eastern Europe. Kerim is also Non-Executive Chairman of LSE-listed Panther Metals plc and an Adjunct Research Associate at the Centre for Exploration Targeting, University of Western Australia. Kerim is a Fellow of The Geological Society of London, Member of The Institute of Materials, Minerals and Mining, Member of the Chamber of Geological Engineers in Turkey and a member of the Society of Economic Geologists. STRATEGIC REPORTARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019 William Payne BA (Hons) ACA Chris Sangster BSc (Hons), ARSM, GDE, FIMMM Non-Executive Director and Chief Financial Officer Non-Executive Director William studied Accountancy at Exeter University before training and qualifying as a Chartered Accountant with KPMG in London. In 2003, he became a partner in top 20 accountancy practice Wilkins Kennedy LLP at their London office, which is now part of the Cogital Group. William is Chairman of the Remuneration Committee and serves on the Audit Committee. Chris is a mining engineer with over 40 years’ experience in the mining industry. He has a BSc Hons in Mining Engineering from the Royal School of Mines, Imperial College in London and a GDE in Mineral Economics from the University of Witwatersrand and is a Fellow of the Institute of Materials Minerals and Mining. Chris has extensive experience in gold, diamond and base metal production environments. He held positions of Vice President Mining Services at KCM PLC and Principal Mining Engineer for Australian Mining Consultants. He co-founded ASX / AIM listed Scotgold Resources and was its Managing Director following which he became a Non- Executive Director and Technical Consultant from late 2014. Chris is Chairman of the Sustainability Committee and serves on the Remuneration Committee. 2 5 ARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORTOperational Team Fatma Yildiz BSc (Hons) General Manager Fatma is a Turkish national and has 12 years of experience in the mining sector in Turkey. She graduated from Cukurova University in 2007 with a BSc degree in Mining Engineering. In addition to being our General Manager, she is also responsible for managing the administrative and legal requirements of our exploration/operational licenses, applications and formal reporting for licenses. Fatma is a member of the Chamber of Mining Engineers of Turkey, holder of a technical inspector certificate and an occupational health and safety certificate Berkin Uğurlu BSc (Hons) Exploration Manager Berkin graduated from the Middle East Technical University with a BSc degree in Geology in 2004. He worked with Teck in Turkey for four years before spending a further four years as a Senior Consultant. Following this he was appointed as Country Manager for Tigris-Eurasia Madencilik, originally a subsidiary of Royal Road Minerals, where he worked for four years. He has experience managing all aspects of mineral exploration programmes from project generation through to resource and reserve drilling and technical reporting including to 43-101 and JORC standards. He is a member of the Society of Economic Geologists, a board member of the Mining Geologists Association and a member of the Chamber of Geological Engineers in Turkey. He holds a IHA0 drone pilot qualification in Turkey. Zack van Coller BSc (Hons) Special Projects Geologist Zack graduated from Cardiff University with a BSc (Hons) degree in Exploration and Resource Geology in 2010. As leader of our Special Projects Team, he is responsible for advancing our project pipeline, in addition to being involved in various exploration programmes across Turkey. He was involved in the development of the highly successful lithium strategy pursued by Asgard Metals Pty. Ltd. on behalf of Ariana. He has also been involved in advanced project development of a high- sulphidation Cu-Au deposit in the Republic of North Macedonia. Zack is bilingual in English and Afrikaans. Zack is a member of the Geological Society of London and the Southampton Mineral and Fossil Society and operates primarily between the UK and Turkey. Our full team can be viewed at arianaresources.com 2 6 STRATEGIC REPORTARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019Key Performance Indicators Financial KPIs Production Success Enhancing profits through efficient mining operations and successful conversion of Resources to Reserves. Exploration Expenditure Enhancing intangible exploration assets through targeted expenditure. Cash Flow Forecasts Regular cash flow monitoring to ensure exploration targets are met and that working capital is maintained. Operational KPIs Operational Success Increasing JORC compliant resources and progressing Red Rabbit Gold Project through development and into production. Advance Portfolio Through acquisition or discovery of new exploration properties utilising on-going exploration to target new ground. Environmental, Health & Safety Ensuring that all efforts are made to minimise adverse personal, corporate and environmental outcomes, through best practice training, implementation and monitoring. 2 7 ARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORTRisks & Uncertainties Risk Description Mitigation Production risk Mining activity involves a variety of potential risks to production or interruptions to output. These can include geological, mining, processing, environmental and financial risks. The Joint Venture company reviews mining progress on a regular basis to determine any potential risk factors that could affect production negatively. The Joint Venture employs experienced management staff. Exploration and development risk Inherent risks associated with the failure to discover or develop an economically recoverable ore reserve, to conclude a definitive feasibility study, and to obtain the necessary consents and approvals for the conduct of exploration and mining. Partner risk Any joint venture arrangement contains an element of counterparty risk. Political / in-country risk Political instabilities, which could cause the loss of an asset through expropriation, war or unrest. Exploration or mining licences applied for might not be granted or renewed. The Board is committed to reviewing progress relating to the development of its various exploration targets and assesses this against planned expenditure and expected outcomes. The Group employs highly trained geologists with extensive knowledge of the style of gold/ silver mineralisation located in Turkey. The Company maintains good working relationships with our Joint Venture partners and monitor their financial condition and commitment on a regular basis. Turkey benefits from a robust political environment and has established fiscal and mining codes. The Group enjoys a good working relationship with the relevant authorities in Turkey and has a permanent management team in the country to monitor developments. 2 8 STRATEGIC REPORTARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019Risks & Uncertainties continued Risk Description Mitigation Environmental / safety risk Major pollution arising from operations and/or loss of life due to systems or equipment failure. The Group adopts best practice in the industry with on-site, country level and corporate level policies and procedures. The Group’s principal interest is gold and silver and the outlook for gold remains broadly positive as a continuing safe haven vehicle for wealth protection. The Group will consider the use of appropriate hedging products to mitigate this risk. The Group relies primarily on cash flow from its joint venture investment in an operational gold mine as well as the issue of share capital, to include bank borrowing where appropriate, to finance its activities. The Group maintains tight financial and budgetary control to keep its operations cost effective. Forward planning helps ensure it is adequately funded to reach its objectives. The group finances its operations though the cash flow generated from its share of profits from our investment in our Turkish gold mining company. On receipt of funds by the Group in Turkey in Lira, surpluses after local operating costs are then generally transferred by way of dividend to the UK as Pounds Sterling. The Group maintains the majority of its cash in Pounds Sterling and continues to monitor relevant currency movements and considers action where appropriate. Staff have been supportive of these new methods of working and have adapted quickly to them. Commodity risk A potential fall in commodity prices which could lead to it becoming uneconomic for the Group to mine its assets. Financing risk This is the risk of running out of working and investment capital. Foreign currency risk The Group’s results are sensitive to foreign currency movements and in particular with its exposure to the Turkish Lira, arising from the Group’s primary operations being in Turkey. COVID-19 risk The recent escalation in the spread of COVID-19 worldwide poses a threat to the continuation of business operations if a widespread infection were to occur at the Kiziltepe Mine. Government guidance on the pandemic in the UK and Turkey is being kept under review. Risk mitigation procedures were implemented rapidly and well-ahead of government guidance, to ensure safe working practices were maintained for Ariana staff and staff working at the Kiziltepe Mine site. 2 9 ARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORT3 0 STRATEGIC REPORTARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019Section 172(1) Statement - Promotion of the Company for the benefit of the members as a whole The Directors believe they have acted in the way most likely to promote the success of the Company for the benefit of its members as a whole, as required by s172 of the Companies Act 2006. The requirements of s172 are for the Directors to: • Consider the likely consequences of any decision in the long term; • Act fairly between the members of the Company; • Maintain a reputation for high standards of business conduct; • Consider the interests of the Company’s employees; • Foster the Company’s relationships with suppliers, customers and others; and • Consider the impact of the Company’s operations on the community and the environment. The application of the s172 requirements can be demonstrated in relation to the some of the key decisions made during 2019: • Continuing evaluation of existing license areas and assessment of projects; • Undertaking pre-feasibility studies as part of the operating licence process; • Identifying and refining both new and previously defined drill targets; • Further identification of drill targets across projects whether held within the joint venture or not; • Completion of diamond and Reverse Circulation drill programmes at various projects; • Commencement of resource estimation for the projects in accordance with JORC reporting standards; and • Continued assessment of corporate overheads, expenditure levels and wider market conditions. As a mining exploration and development Group operating primarily in Turkey, the Board takes seriously its ethical responsibilities to the communities and environment in which it works. We abide by the local and relevant UK laws on anti-corruption and bribery. Wherever possible, local communities are engaged in the geological operations and support functions required for field operations, providing much needed employment and wider economic benefits to the local communities. In addition, we follow international best practice on environmental aspects of our work. Our goal is to meet or exceed standards, in order to ensure we maintain our social licence to operate from the communities with which we interact. The interests of our employees are a primary consideration for the Board. Personal development opportunities are supported and a health and security support network is in place to assist with any issues that may arise on field expeditions. 3 1 ARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORTCorporate Governance The Ariana Board of Directors aims to conform to statutory responsibilities and industry good practice in relation to corporate governance of Ariana and its subsidiaries. The Board has adopted the latest version of the QCA Corporate Governance Code (2018) (“QCA Code”) and strives to follow the 10 principles outlined within it to the fullest extent possible taking into consideration the stage of development of the Company. Details of how the Company addresses the key governance principles defined in the QCA code are set out below, and are found in more detail on the Company’s website in accordance with AIM Rule 26. 1. Business model and strategy The Board has developed and implemented a strategy and business model which it believes will achieve long term value for shareholders. This strategy and business model is clearly explained in the strategic report and on the Company’s website. The Company believes that this strategy and business model is appropriate to protect the Company from unnecessary risk and secure its long-term future. 2. Understanding shareholder needs and expectations The Board is committed to maintaining good communications and seeks to understand and meet shareholder needs and expectations by engaging with them across a range of platforms. This includes regular investor presentations, Q&A forums, investor relations company services, an investor portal available on the website, and social media sites as well as its Annual General Meeting. The Company provides phone numbers on all its updates and RNS announcements where shareholders can contact the appropriate senior Company representatives or advisors directly with their queries together with a dedicated email address for shareholder feedback. 3. Considering wider stakeholder and social responsibilities The Board recognises that the long-term success of the Company is reliant upon the efforts of the employees of the Company and its partners, contractors, suppliers, regulators and other stakeholders. The Board has put in place a range of processes and systems to ensure that there is close oversight and contact with its key resources and relationships. For example, all employees of the Company participate in a structured Company- wide annual assessment process which is designed 3 2 to ensure that there is an open and confidential dialogue with each person in the Company to help ensure successful two way communication with agreement on goals, targets and aspirations of the employee and the Company. These feedback processes help to ensure that the Company can respond to new issues and opportunities that arise to further the success of employees and the Company The Company’s principal areas of operation (project locations) are in Turkey and the surrounding regions. The Company is committed to cultivating and maintaining good relations with all stakeholders and its strategy and business model are designed to minimise any potential negative impact of its activities and of those working on its behalf, on the communities where it operates and on the environment. The Company has established a positive working relationship with governments, non- government organisations and local communities with whom it holds regular meetings to appraise them of the Company’s plans. The Company firmly believes that the mining and exploration development projects that form the basis of its business model will substantially benefit the countries and regions in which it operates. The Company provides open and clear communication channels and points of contact for all its stakeholders and has a robust communication system in place to ensure all concerns are quickly brought to the Board and senior management’s attention. 4. Risk management In addition to its other roles and responsibilities, the Audit Committee is responsible to the Board for ensuring that procedures are in place and are being implemented effectively to identify, evaluate and manage the risks faced by the Company. The Company recognises that it is exposed to risks which may negatively impact on its business operations. It takes all reasonable steps to identify, assess the impact of and mitigate these risks wherever possible. These risks are clearly identified on page 28-29 of the Strategic Report. The following risk assessment matrix sets out those risks, and identifies their ownership and the controls that are in place. This matrix is updated as changes arise in the nature of risks or the controls that are implemented to mitigate them. The Audit Committee reviews the risk matrix and the effectiveness of scenario testing on a regular basis. The following principal risks and controls to mitigate them, have been identified: GOVERNANCEARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019Activity Risk Impact Control(s) Operation Injury to staff Injury to staff whilst operating heavy machinery in remote location Regulatory adherence Breach of rules Censure or withdrawal of authorisation Strategic Market downturn Change in Macro economic conditions Creating a safe working environment through strict procedures and regular training Strong compliance regime instilled at all levels of the Company Ongoing monitoring of economic events and markets. Failure to deliver commercially Inability to operate efficiently and economically Active operational monitoring and experienced management Financial Misappropriation of funds Fraudulent activity and loss of funds IT security Loss of critical financial data Robust financial controls and segregation of duties Regular back up of data online and locally The Directors have established procedures, as represented by this statement, for the purpose of providing a system of internal control. An internal audit function is not considered necessary or practical due to the size of the Company and the close day to day control exercised by the executive Director. However, the Board will continue to monitor the need for an internal audit function. The Board works closely with and has regular ongoing dialogue with the outsourced finance function and has established appropriate reporting and control mechanisms to ensure the effectiveness of its control systems. The outbreak of the recent global COVID-19 virus has resulted in increased risks within the global economy. The extent of the effect of the virus, including its long-term impact, remains uncertain and the Company continues to monitor the situation while adopting the recommended precautions to ensure the safety of employees. 5. A well-functioning Board of Directors The Board comprises a Chairman, Michael de Villiers, a Managing Director, Dr Kerim Sener and two non- executive directors, William Payne and Chris Sangster. Chris Sangster is considered by the Board to be an independent director, having been appointed in 2016 and since having acted in a primary technical capacity. In accordance with the Articles of Association of the Company, one third of the Board is required to retire each year at the Company’s AGM but directors resigning can put their name forward for re-election. The executive director dedicates 100% of his contractually required time to the Group. The non- executive directors dedicate as much time as is 3 3 required for them to fully carry out their duties for the Group including overseeing corporate governance arrangements and serving on board committees with the ultimate responsibility for the quality of, and approach to, corporate governance lying with the Chairman. Michael de Villiers also serves as the Company Secretary and William Payne acts as the Chief Financial Officer. It is recognised that an additional independent non-executive director will benefit the Company and it will appoint such an independent director at the appropriate time so as to comply with the Code. It is also recognised that whilst the finance function is currently carried out by a Non-Executive Director and his supporting team in the UK, given not only William Payne’s accountancy experience but also that of Michael de Villiers, it is effective and well suited to the Company. The Board is responsible for formulating, reviewing and approving the Group’s strategy, budgets, major items of capital expenditure and acquisitions. An agenda and all supporting documentation is circulated to the directors before each Board meeting. Open and timely access to all information is provided to directors to enable them to bring independent judgement on issues affecting the Group and facilitate them in discharging their duties. The Board met regularly during the last financial year to 31 December 2019. Generally, no individual director is absent for more than one board meeting during any given year. The Board has three sub-committees: the Audit Committee, Remuneration Committee and Sustainability Committee. Governance and Nominations are dealt with by the entire Board. The Company shall report annually on the number of Board and committee meetings held during the year and the attendance record of individual Directors. In order to be efficient, the Directors meet formally and informally both in person and by telephone. ARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019GOVERNANCECorporate Governance continued 5. A well-functioning Board of Directors continued Details of the Directors’ attendance at formal quarterly board meetings are set out below: Meetings Attended Meetings eligible to attend Kerim Sener Michael de Villiers William Payne Chris Sangster 4 4 4 4 4 4 4 4 The Board is accountable to the shareholders for delivery of sustained value growth. In order to support its duties and responsibilities the Board implements control procedures that assess and manage risk and ensure robust financial and operational management within the Group. The Board sets the Group’s strategy and monitors its implementation through operational and financial performance reviews. It also works to ensure that adequate resources are available to implement strategy and exploit opportunities in an appropriate manner. 6. Appropriate skills and experience of the directors The Board members have a diverse range of skills and experience spanning technical, financial and operational areas relevant to the development and management of the Company. Summary biographies of each Board member are shown on pages 24-25. Directors keep their skill sets up to date by attendance at, and participation in, various events organised by their respective industry sectors and by participation in continuing professional development courses. As the Company evolves, the Board will be reviewed and expanded if necessary to ensure appropriate expertise is always in place to support its business activities. The Board recognises that it currently has a limited diversity and this will form a part of any future recruitment consideration if the Board concludes that replacement or additional directors are required. Where necessary the Board has engaged external professional consultants on an ongoing basis to ensure the Company is meeting it’s strategies. The key advisers to the Company are set out on page 76. The Board engages external geologists, environmental specialists and a number of other specialised 3 4 consultants to produce the required surveys and reports for the Environmental Impact Assessment, Social Impact Assessment and Pre-Feasibility Study. The key advisers to the Group were 76. The Board have ensured that the all external advisers are knowledgeable and provide the required skillset. 7. Evaluation of board performance The performance of the executive management of the Company is evaluated on an on-going basis by the Remuneration Committee (“Remcom”) which is composed of William Payne and Chris Sangster. The results of these evaluations are reflected in changes in the executive remuneration levels recommended by the Remcom from time to time and in awards under the Company’s Share Option and Management Incentive Schemes where it considers such awards are warranted. As the Company grows, the Board will develop more comprehensive human resource policies to provide both internal and external performance evaluations of its Board, senior management and staff including the provision for upskilling where necessary and to provide for Board member succession planning. The Board considers that the corporate governance policies it has currently in place for Board performance reviews is commensurate with the size and development stage of the Company and well within the norms of the peer group and industry. 8. Corporate culture The Company operates across several countries including the UK, Turkey, Holland, BVI and Australia. In line with its international reach, the Company recognises the cultural diversity both internally and among its business partners, service providers and other stakeholders. The Board recognises that their decisions regarding strategy and risk will impact the corporate culture of the Company as a whole and that this will impact the performance of the Company. The Board is very aware that the tone and culture set by the Board will impact all aspects of the Company as a whole and the way that employees behave. The corporate governance arrangements that the Board has adopted are designed to ensure that the Company delivers long-term value to its shareholders and that shareholders have the opportunity to express their views and expectations for the Company in a manner that encourages open dialogue with the Board. A large part of the Company’s activities is centred upon what needs to be an open and respectful dialogue with employees, partners and other stakeholders. Therefore, the importance of sound ethical values and behaviours is crucial to the ability of the Company to successfully GOVERNANCEARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019achieve its corporate objectives. The Board places great importance on this aspect of corporate life and seeks to ensure that this flows through all that the Company does. The directors consider that at present the Company has an open culture facilitating comprehensive dialogue and feedback and enabling positive and constructive challenge. The Company has adopted, with effect from the date on which its shares were admitted to AIM, a code for directors’ and employees’ dealings in securities which is appropriate for a company whose securities are traded on AIM and is in accordance with the requirements of the Market Abuse Regulation which came into effect in 2016. 9. Maintenance of governance structures and processes Ultimate authority for all aspects of the Company’s activities rests with the Board, the respective responsibilities of the Chairman and Managing Director arising as a consequence of delegation by the Board. The Board has adopted appropriate delegations of authority which set out matters which are reserved to the Board. The Chairman is responsible for the effectiveness of the Board, while management of the Company’s business and primary contact with shareholders has been delegated by the Board to the Managing Director. Audit Committee Michael de Villiers and William Payne This committee has primary responsibility for monitoring the quality of internal controls and ensuring that the financial performance of the Company is properly measured and reported. It receives reports from the executive management and auditors relating to the interim and annual accounts and the accounting and internal control systems in use throughout the Company. The Audit Committee shall meet not less than twice in each financial year and it has unrestricted access to the Company’s auditors. Remuneration Committee William Payne and Chris Sangster The Remuneration Committee reviews the performance of the executive directors and employees and makes recommendations to the Board on matters relating to their remuneration and terms of employment. The Remuneration Committee also considers and approves the granting of share options pursuant to the share option plan and the award of shares in lieu of bonuses pursuant to the Company’s Remuneration Policy. The Remuneration Committee reviews overall remuneration against industry peer group 3 5 companies on a regular basis and takes professional advice as and when it is deemed necessary. Sustainability Committee Chris Sangster and Michael de Villiers The Sustainability Committee is formed of the two directors who have prior operational and industry experience and may include other management who are responsible for developing and implementing policy and procedures. The Company is committed to providing all employees a safe place to work in accordance with our HSE goals. This will be accomplished by providing safe equipment to operate, proper training and safe methods and procedures. The Company will at a minimum, comply with all applicable industry norms for rules and regulations. The Company takes the approach that no job is so important that it cannot be accomplished without injury. The Sustainability Committee also deals with the CSR policy outlined below. Nominations Committee The Board has agreed that appointments to the Board will be made by the Board as a whole and so has not created a Nominations Committee. Directors Fiduciary Duties In accordance with the Companies Act 2006, the Board complies with: a duty to act within their powers; a duty to promote the success of the Company; a duty to exercise independent judgement; a duty to exercise reasonable care, skill and diligence; a duty to avoid conflicts of interest; a duty not to accept benefits from third-parties and a duty to declare any interest in a proposed transaction or arrangement. 10. Shareholder communication The Board is committed to maintaining good communication and having constructive dialogue with its shareholders. The Company has close ongoing relationships with its private shareholders. Institutional shareholders and analysts have the opportunity to discuss issues and provide feedback at meetings with the Company. In addition, all shareholders are encouraged to attend the Company’s Annual General Meeting. Investors also have access to current information on the Company though its website, https:// www. arianaresources.com, and via management, who are available to answer investor relations enquiries. The Company proposed in 2018, subject to the necessary formalities, to move to more enhanced electronic communications with shareholders in order to maximise efficiency. ARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019GOVERNANCECorporate Responsibility Since commencing work on our Red Rabbit Gold Project, which includes the Kiziltepe gold mine, Ariana has been committed to building strong links with local communities and to establishing relationships of trust with stakeholders across Turkey. In addition, the Company has in place an Anti-Corruption and Anti-Bribery Policy. Since inception, we have been committed to socially responsible and environmentally conscious exploration and mining. Whilst work on establishing vital stakeholder links often occurs in the background, its importance cannot be under- estimated. Without such concerted efforts over many years, we would not be in the strong position of having an operating a gold mine today. Shareholders The Board of Directors actively encourages communications with shareholders and seeks to protect shareholders’ interests at all times. More information can be found in the Corporate Governance section. Employees Ariana has always attached great importance to professional development and the creation of employment in the localities where we operate. The Company provides fair remuneration, flexible working arrangements where practical and exposure to wider aspects of the Company’s operations. The Company gives full and fair consideration to applications for employment received irrespective of age, gender, colour, ethnicity, disability, nationality, religious beliefs or sexual orientation. More information on Ariana’s Employee policy can be found on its corporate website. Local Community Ariana has a strong track record of working with local suppliers and employing local people. Ariana has run many training programmes to focus on the mechanical, physical, technical and safety aspects of its exploration programmes. The Joint Venture company, Zenit Madencilik, employs local personnel, including professionally qualified mining engineers, from nearby villages and towns. More information on Ariana’s Communities policy can be found on its corporate website. 3 6 GOVERNANCEARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019Suppliers & Contractors Human Rights The Company has a prompt payment policy and seeks to ensure that all liabilities are settled within the supplier’s terms. Through fair dealings the Company aims to cultivate the goodwill of its contractors, consultants and suppliers. The Environment and Environmental Standard Compliance Ariana has established operating guidelines to ensure that specific environmental standards are met by its exploration and mining teams (through Zenit). We comply with various local environmental standards in Turkey and operate under the relevant certification from government departments accordingly. Ariana is committed to best-practice in socially and ethically responsible exploration and mining for the benefit of all stakeholders. The activities of the Company are in line with applicable laws on human rights. Health and Safety Company activities are carried out in accordance with its Health and Safety Policy, which adheres to all applicable laws. Relevant to their job roles, members of the team have received certification in occupational health and safety, advanced off-road driving, first-aid and survival. 3 7 ARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019GOVERNANCEReport of the Directors For the year ended 31 December 2019 The Directors present their report with the audited financial statements of the Company and the Group for the year ended 31 December 2019. Principal activity Ariana Resources PLC (the “Company”) is a public limited company incorporated and domiciled in Great Britain. The address of its registered office and principal place of business is disclosed at the end of this report. The Company’s shares are listed on the AIM market of the London Stock Exchange. The principal activities of the Company and its subsidiaries (the “Group”) are related to the exploration for and development of gold and other minerals principally in Turkey. Directors The Directors during the year under review were: M J de Villiers A K Sener W J B Payne C J S Sangster The beneficial interests of the Directors holding office either directly or indirectly (including interests held by spouses, children or associated parties) on 31 December 2019 in the ordinary issued share capital and options of the Company were as follows: M J de Villiers A K Sener W J B Payne C J S Sangster Total 2019 Ordinary Shares 2019 Share Options 2018 Ordinary Shares 2018 Share Options 54,845,000 19,564,252 9,359,314 3,716,844 17,000,000 19,000,000 4,000,000 4,000,000 54,845,000 19,564,252 9,359,314 3,716,844 17,000,000 19,000,000 4,000,000 4,000,000 87,485,410 44,00,000 87,485,410 44,000,000 Further details on share options can be found in note 18 to the financial statements. Annual General Meeting (AGM) COVID-19 ARRANGEMENTS – PLEASE READ CAREFULLY The Board takes its responsibility to safeguard the health of its shareholders, stakeholders and employees very seriously and so the following measures will be put in place for the AGM in response to the COVID-19 pandemic and the current social distancing measures being implemented by the Government in the United Kingdom, which may continue until after the date of the AGM. The formal business of the Annual General Meeting will only be to consider and vote upon the resolutions set out in the notice of meeting. Based on current measures implemented by the Government in the United Kingdom shareholders will not be admitted to the physical meeting and are therefore advised not to travel to the AGM. It is intended that the meeting will be held with the minimum number of shareholders and directors present required to form a quorum as per the Company’s Articles of Association. In line with corporate governance best practice and in order that any proxy votes of those shareholders who are not allowed to attend and to vote in person are fully reflected in the voting on the resolutions, the Chairman of the meeting will direct that voting on all resolutions set out in the notice of meeting will take place by way of a poll. Shareholders wishing to vote on any matters of business are strongly urged to do so through registering their proxy appointment and voting by proxy online and to appoint the Chairman of the Meeting as your proxy. This will enable the Chairman of the Meeting to vote on your behalf, and in accordance with your instructions, at the AGM. The final poll vote on each resolution will be published immediately after the AGM on the Company’s website. 3 8 GOVERNANCEARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019Share capital Section 561 of the Companies Act 2006 provides that subject to limited exceptions any shares being issued must be issued to all existing shareholders pro-rata to their holding. However, where Directors have a general authority to allot shares they may be given the power by the Articles or by a special resolution to allot shares pursuant to the authority as if the statutory pre-emption rights did not exist. An ordinary resolution will be proposed at the forthcoming Annual General Meeting for the renewal of the Directors’ general authority to issue relevant securities up to an aggregate nominal amount of £500,000. A special resolution will also be proposed at the forthcoming Annual General Meeting for the renewal of the Directors’ authority to allot relevant securities for cash without first offering them to the shareholders pro-rata to their holdings, pursuant to section 570 of the Companies Act 2006 up to an aggregate nominal amount of £250,000. The authorities mentioned above will, if passed, expire at the earlier of the following Annual General Meeting or the date being 15 months from the passing of the resolutions. A special resolution will also be proposed to allow that the Company’s Articles of Association be replaced in their entirety with the draft new Articles of Association which have been updated to allow new forms of company meetings to be held as physical meeting, virtual meetings, or a combination of the two. Substantial share interests The Company had been notified of the following interests in the Company’s shares held on 16 July 2020. Shareholder Hargreaves Lansdown Nominees Limited Barclays Direct Investing Nominees Limited Ordinary Shares % of Issued Share Capital 195,418,346 18.44% 132,638,608 12.52% Interactive Investor Services Nominees Limited 83,103,448 7.84% Mr Michael de Villiers Share Nominees Ltd 54,845,000 54,792,413 Jim Nominees Limited 45,969,900 HSDL Nominees Limited 37,025,290 Steve Bingham 34,450,000 5.18% 5.17% 4.34% 3.49% 3.25% 3 9 Strategic Report The Company has chosen, in accordance with Section 414C of the Companies Act 2006, to set out the following information in the Strategic Report which would otherwise be required to be contained in the Directors’ Report: • Financial risk management objectives; • Indication of exposure to principal risks; • Corporate Governance including committee objectives and memberships; • Disclosures required by s172 of the Companies Act 2006; • Future developments of the business. The Impact of COVID-19 on the Group Since March 2020, the Board has made preparations to mitigate the impact of COVID-19 on the business through several action plans and mitigation strategies. These will continue to be monitored and updated as required. The Impact of Brexit on the Group The Board has considered the extent of challenges to its business model and operations arising from the withdrawal of the United Kingdom from the European Union (“Brexit”). The Board does not envisage Brexit having a significant impact on the Group, based on operations and cash flow generating elements of the business residing outside the EU. The Group is sensitive to foreign currency movements and details of this risk, and mitigation thereof, are outlined within the Strategic Report on page 29. The Board will continue to follow the development of the UK’s negotiations with the European Union and evaluate the impact on the Group accordingly Dividends No dividends will be distributed for the year ended 31 December 2019 (2018: £nil) and the retained profit has been transferred to reserves. Group’s policy on payment of creditors It is the Group’s normal practice to settle the terms of payment when agreeing a transaction, to ensure suppliers are aware of those terms and to abide by them. Trade creditor days based on creditors at 31 December 2019 were 30 days (2018: 30 days). Political and charitable contributions During the year, the Group made a charitable donation of £3,000 to the University of Exeter towards the Richard Osman Memorial Fund. The Group has committed to supporting this charitable fund until 2022. No contributions were made for political purposes. ARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019GOVERNANCEReport of the Directors For the year ended 31 December 2019 Going concern The Directors confirm that they are satisfied the Group has adequate resources to continue in business for the foreseeable future, having regard to the factors set out in more detail in Note 1 to the financial statements. Post year end events Further details on post balance sheet events can be found in note 25 to the financial statements. Statement of directors’ responsibilities in respect of the Annual Report and the financial statements The Directors are responsible for preparing the Annual Report, Strategic Report, the Directors’ Report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare group and parent company financial statements for each financial year. Under that law they have elected to prepare both the group and the parent company financial statements in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU) and applicable law. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent Company and of their profit or loss for that period. In preparing each of the Group and parent Company financial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasonable, relevant and reliable; • state whether they have been prepared in accordance with IFRSs as adopted by the EU; • assess the Group and parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and • use the going concern basis of accounting unless they either intend to liquidate the Group or the parent Company or to cease operations or have no realistic alternative but to do so. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent Company’s transactions and 4 0 disclose with reasonable accuracy at any time the financial position of the parent Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. The Company is compliant with AIM Rule 26 regarding the Company’s website. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Disclosure of information to auditor The Directors who held office at the date of approval of this Directors’ report confirm that, so far as they are each aware, there is no relevant audit information of which the Company’s auditor is unaware; and each Director has taken all the steps that he ought to have taken as a Director to make himself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information. Corporate governance The Board of Directors The Directors are responsible for the Group’s system of internal control and for reviewing its effectiveness. The risk management process and systems of internal control are designed to manage rather than eliminate the risk of failure to achieve the Group’s objectives. Any such system of internal control can only provide reasonable but not absolute assurance against material misstatement or loss. Full meetings are held quarterly to review Group strategy, direction and financial performance. The Directors meet regularly to review operational reports from all of the Group’s areas of operations. The process is used to identify major business risks, evaluate their financial implications, and ensure an appropriate control environment. GOVERNANCEARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019Certain control over expenditure is delegated to on site project managers subject to Board control by means of monthly budgetary reports. of the issued share capital in options for the Company’s management and employees. Total Directors’ emoluments are disclosed in note 3 to the financial statements and the Directors’ options are disclosed above. Auditor In accordance with Section 489 of the Companies Act 2006, a resolution for the re-appointment of PKF Littlejohn LLP as auditor of the Company is to be proposed at the forthcoming Annual General Meeting. By order of the Board. Michael de Villiers Company Secretary Internal financial control procedures include: • preparation and regular review of operating budgets and forecasts; • prior approval of all capital expenditure; • review and debate of treasury policy; and • unrestricted access of Non-Executive Directors to all members of senior management. Audit Committee The Audit Committee comprises Michael de Villiers and William Payne. The Audit Committee may examine any matters relating to the financial affairs of the Group and the Group’s audits. This includes reviews of the annual financial statements and announcements, internal control procedures, accounting procedures, accounting policies, the appointment, independence, objectivity, terms of reference and fees of external auditors and such other related functions as the Board may require. Remuneration Committee The committee comprises William Payne and Chris Sangster. It determines the terms and conditions of the employment and annual remuneration of the Executive Director(s). It consults with the Managing Director, takes into consideration external data and comparative third- party remuneration and has access to professional advice outside the Company. The key policy objectives of the Remuneration Committee in respect of the Company’s Executive Director and other senior executives are: • to ensure that individuals are fairly rewarded for their personal contribution to the Company’s overall performance; and • to act as the independent committee ensuring that due regard is given to the interest of the Company’s shareholders and to the financial and commercial health of the Company. Remuneration of the Executive Director comprises basic salary, discretionary bonuses, participation in the Company’s share option scheme and other benefits. The Company’s remuneration policy with regard to options is to maintain an amount of not more than 10% 4 1 ARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019GOVERNANCE Independent Auditor’s Report To the members of Ariana Resources PLC Opinion We have audited the financial statements of Ariana Resources plc (the parent company) and its subsidiaries (the group) for the year ended 31 December 2019 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated and Parent Company Statements of Financial Position, the Consolidated and Parent Company Statements of Changes in Equity, the Consolidated and Parent Company Statements of Cash Flows and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006. In our opinion: • The financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 December 2019 and of the group’s profit and parent company’s loss for the year then ended; • The group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; • The parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and • The financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the group and parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. 4 2 Emphasis of matter We draw your attention to note 1 of the financial statements, which describes the directors of the group and parent company’s assessment of the COVID-19 impact on its ability to continue as a going concern. The directors have explained that the events arising from the COVID-19 outbreak do not impact the group’s use of the going concern basis of preparation nor do they cast significant doubt about the group’s and parent company’s ability to continue as a going concern for a period of at least twelve months from the date when the financial statements are authorised for issue. Our opinion is not modified in this respect. Conclusions relating to going concern We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where: • the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or • the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the group’s or the parent company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue. Our application of materiality The materiality applied to the group financial statements was £490,000 based on thresholds of 2% of net assets. The performance materiality for the group was £294,000. The net asset benchmark was concluded as most relevant to shareholders and investors for an exploration and evaluation group where the operating mine is held in a joint venture which is equity accounted. The materiality applied to the parent company financial statements was £93,000 based on a threshold of 1% of gross assets. The performance materiality of the parent company was £55,800. The gross asset benchmark was concluded as most relevant to shareholders and investors for a non-trading parent undertaking. Whilst materiality for the group financial statements as a whole was set at £490,000, component materiality for the joint venture was set at £430,000 based upon 3% of the average of profit before tax and net assets. Performance materiality was set at 60%. Component materiality for the subsidiary undertakings ranged between £116,900 and £294,000. GOVERNANCEARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019We agreed to report to the Audit Committee any corrected or uncorrected identified misstatements exceeding £24,500 and £4,650 for the group and parent company respectively, in addition to other identified misstatements that warranted reporting on qualitative grounds. An overview of the scope of the audit In designing our audit, we determined materiality and assessed the risk of material misstatement in the financial statements. In particular, we looked at areas involving significant accounting estimates and judgement by the directors and considered future events that are inherently uncertain. We also addressed the risk of management override of internal controls, including among other matters consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud. The accounting records of the parent company and all subsidiary undertakings are centrally located and audited by us based upon materiality or risk. The key audit matters addressed, and how these were addressed are outlined below. The Turkish registered joint venture company was audited by a component auditor under our instruction. The group audit team instructed the component auditor as to the significant risk areas to be covered and determined component materiality. There was regular interaction with the component auditor during all stages of the audit. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current year and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key Audit Matter Valuation and recoverability of intangible exploration assets (refer note 11). The carrying value of intangible exploration assets as at 31 December 2019 is £16,404,000 (2018: £16,975,000) which represents 56% (2018: 70%) of the group’s total assets. Exploration and evaluation assets comprise costs associated with early stage licenses through to advanced exploration projects. These carrying values are tested annually for impairment. Determining whether impairment indicators exist involves significant judgement by management, including considering specific impairment indicators prescribed in IFRS 6. How the scope of our audit responded to the key audit matter Our work included but was not restricted to: • A review of the Group’s exploration licences and permits to confirm good title and standing. • We reviewed and discussed management’s assessment of impairment in accordance with the requirements of IFRS 6. We discussed with management the scope of their future budgeted and planned expenditure on the licence areas, together with a review of subsequent events. • We performed an independent assessment to identify any indicators of impairment. • We reviewed independently prepared reports and resource estimates, including an assessment of the competence and objectivity of the preparer. • We assessed the appropriateness of the Group’s disclosure in respect of the judgement on whether impairment indicators exist (refer note 1). 4 3 ARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019GOVERNANCEIndependent Auditor’s Report To the members of Ariana Resources PLC Key Audit Matter Equity accounting for joint venture entity Zenit Madencilik San ve Tic Ltd (“Zenit”) (refer note 6). The investment in joint venture has a carrying value at 31 December 2019 of £7,768,000 (2018: £3,968,000). The Group’s share of profit during the year ended 31 December 2019 amounted to £7,891,000 (2018: £3,710,000). The accuracy of equity accounting for the joint venture is directly reliant on the accuracy of the financial statements of Zenit which contain a number of risk areas. How the scope of our audit responded to the key audit matter Our work included but was not restricted to: • We instructed, monitored and reviewed the component auditor working papers. Revenue recognition, recoverability of mining assets, inventory valuation and compliance with laws and regulations were among the areas designated as significant or identified risks. • We checked and agreed the GAAP transition adjustments between the local jurisdiction financial statements and the group accounting framework. • We checked the joint venture had been correctly equity accounted for, including the adequacy of disclosures, in the financial statements. Other information The other information comprises the information included in the Annual Report, other than the financial statements and our auditor’s report thereon. The directors are responsible for the other information. Our opinion on the group and parent company financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Opinions on other matters prescribed by the Companies Act 2006 In our opinion, based on the work undertaken in the course of our audit: • the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and • the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements. Matters on which we are required to report by exception In the light of the knowledge and understanding of the group and parent company and their environment obtained in the course of the audit, we have not identified material misstatements in the Strategic Report or the Directors’ Report. We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: 4 4 GOVERNANCEARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: http://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. Use of our report This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. David Thompson (Senior Statutory Auditor) for and on behalf of PKF Littlejohn LLP Statutory Auditor 15 Westferry Circus Canary Wharf London E14 4HD 27 July 2020 • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent company financial statements are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Responsibilities of directors As explained more fully in the Statement of Directors’ Responsibilities, the directors are responsible for the preparation of the group and parent company financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the group and parent company financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or parent Company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. 4 5 ARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019GOVERNANCEConsolidated Statement of Comprehensive Income For the year ended 31 December 2019 Continuing operations Administrative costs General exploration expenditure Intangible exploration assets - written off Other gains Other income Operating loss Profit/(loss) on disposal of equity securities at FVOCI Share of profit of Joint Venture accounted for using the equity method Investment income Profit before tax Taxation Profit for the year from continuing operations Earnings per share (pence) attributable to equity holders of the company Basic and diluted Other comprehensive income Items that are or may be reclassified subsequently to profit or loss: Exchange differences on translating foreign operations Items that will not be classified subsequently to profit or loss: Net change in fair value of equity securities at FVOCI Other comprehensive loss for the year net of income tax Total comprehensive profit/(loss) for the year The accompanying notes form part of these financial statements. Note 11 4 5 13 6 8 10 13 2019 £’000 (1,242) (18) (364) 627 61 (936) 20 7,891 5 6,980 (46) 6,934 2018 £’000 (1,355) (153) (181) - - (1,689) (2) 3,710 158 2,177 - 2,177 0.65 0.21 (1,774) (2,162) 49 (1,725) 5,209 (26) (2,188) (11) 4 6 FINANCIAL REPORTARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019Consolidated Statement of Financial Position For the year ended 31 December 2019 Assets Non-current assets Trade and other receivables Intangible exploration assets Intangible assets Land, property, plant and equipment Investment in Joint Venture accounted for using the equity method Total non-current assets Current assets Trade and other receivables Equity securities at FVOCI Cash and cash equivalents Total current assets Total assets Equity Called up share capital Share premium Other reserves Share based payments Translation reserve Retained earnings Total equity attributable to equity holders of the parent Total equity Liabilities Non-current liabilities Deferred tax liabilities Other financial liabilities Total non-current liabilities Current liabilities Trade and other payables Total current liabilities Total equity and liabilities Note 2019 £’000 2018 £’000 15 11a 11b 12 6 16 13 18 18 18 19 20 17 93 16,404 187 50 7,768 24,502 4,574 - 453 5,027 29,529 6,054 11,821 720 364 (5,970) 12,298 25,287 25,287 2,273 1,651 3,924 318 318 83 16,975 - 278 3,968 21,304 1,860 35 938 2,833 24,137 6,054 11,821 720 250 (4,196) 5,315 19,964 19,964 2,273 1,651 3,924 249 249 29,529 24,137 The financial statements were approved by the Board of Directors and authorised for issue on 27 July 2020. They were signed on its behalf by: M J de Villiers Chairman A.K.Sener Managing Director The accompanying notes form part of these financial statements. 4 7 ARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019FINANCIAL REPORTCompany Statement of Financial Position For the year ended 31 December 2019 Assets Non-current assets Trade and other receivables Investments in group undertakings Total non-current assets Current assets Trade and other receivables Equity securities at FVOCI Cash and cash equivalents Total current assets Total assets Equity Called up share capital Share premium Share based payments reserve Retained earnings Total equity Liabilities Current liabilities Trade and other payables Total current liabilities Total equity and liabilities Company’s loss for the financial year Note 2019 £’000 2018 £’000 15 14 16 13 18 18 18 17 8,508 365 8,873 534 - - 534 9,407 6,054 11,821 364 (8,838) 9,401 6 6 9,407 828 9,749 337 10,086 - 35 - 35 10,121 6,054 11,821 250 (8,010) 10,115 6 6 10,121 907 The financial statements were approved by the Board of Directors and authorised for issue on 27 July 2020. They were signed on its behalf by: M J de Villiers Chairman A.K.Sener Managing Director Registered number : 05403426 The accompanying notes form part of these financial statements. 4 8 FINANCIAL REPORTARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019Consolidated Statement of Changes in Equity For the year ended 31 December 2019 Share capital £’000 Share premium £’000 Other reserves £’000 Share based payments reserve £’000 Translation on reserve £’000 Retained earnings £’000 Total attributable to equity holders of parent £’000 Changes in equity to 31 December 2018 Balance at 1 January 2018 6,054 11,821 720 93 (2,034) - (2,162) (2,162) - - - 3,071 2,177 (26) 2,151 - 93 93 19,725 2,177 (2,188) (11) 250 - 250 (4,196) 5,315 19,964 - (1,774) (1,774) - - 6,934 49 6,983 - - 6,934 (1,725) 5,209 114 114 (5,970) 12,298 25,287 Profit for the year Other comprehensive income Total comprehensive income Share options Transfer of share options Transactions with owners - - - - - - - - - - - - - - - - - - Balance at 31 December 2018 6,054 11,821 720 Changes in equity to 31 December 2019 Profit for the year Other comprehensive income Total comprehensive income Share options Transactions with owners - - - - - - - - - - - - - - - Balance at 31 December 2019 6,054 11,821 720 The accompanying notes form part of these financial statements. - - - 250 (93) 157 250 - - - 114 114 364 4 9 ARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019FINANCIAL REPORTCompany Statement of Changes in Equity For the year ended 31 December 2019 Share capital £’000 Share premium £’000 Share based payments reserve £’000 Changes in equity to 31 December 2018 Balance at 1 January 2018 Loss for the year Other comprehensive income Total comprehensive income Share options Transfer of share options Transactions with owners 6,054 11,821 - - - - - - - - - - - - Balance at 31 December 2018 6,054 11,821 Changes in equity to 31 December 2019 Loss for the year Other comprehensive income Total comprehensive income Share options Transactions with owners Balance at 31 December 2019 - - - - - - - - - - 6,054 11,821 Company statement of cash flows For the year ended 31 December 2019 93 - - - 250 (93) 157 250 - - - 114 114 364 Retained earnings £’000 (7,196) (907) - Total £’000 10,772 (907) - (907) (907) - 93 93 250 - 250 (8,010) 10,115 (828) (828) - - (828) (828) - - 114 114 (8,838) 9,401 All bank transactions are undertaken by Ariana Exploration & Development Limited on behalf of Ariana Resources PLC and recharged accordingly. As such the Company had no cash transactions directly, as was the case in 2018. The accompanying notes form part of these financial statements. 5 0 FINANCIAL REPORTARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019Consolidated Statement of Cash Flows For the year ended 31 December 2019 Cash flows from operating activities Profit for the year Adjustments for: Profit on disposal of land owning operations (Profit)/loss on disposal of equity securities at FVOCI (Profit) on disposal of equipment Depreciation of non-current assets Write down of intangible exploration assets Fair value adjustments Share of profit in Joint Venture Share based payments charge Investment income Income tax expense Movement in working capital Decrease in trade and other receivables Increase/(decrease) in trade and other payables Cash outflow from operating activities Taxation paid Net cash from operating activities Cash flows from investing activities Purchase of land, property, plant and equipment Payments for intangible assets Proceeds from disposal of equity securities at FVOCI Proceeds from disposal of equipment Dividends from Joint Venture Investment income Net cash used in investing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of year Exchange adjustment on cash and cash equivalents Cash and cash equivalents at end of year The accompanying notes form part of these financial statements. 5 1 2019 £’000 2018 £’000 6,934 2,177 (627) (20) (53) 20 364 (49) - 2 - 1 181 26 (7,891) (3,710) 114 (5) 46 250 (158) - (1,167) (1,231) 918 253 4 (8) (4) (12) (516) 104 55 - 5 (364) (368) 938 (117) 453 183 (49) (1,097) - (1,097) (36) (353) 146 - 1,369 158 1,284 187 773 (22) 938 ARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019FINANCIAL REPORTNotes to the Consolidated Financial Statements For the year ended 31 December 2019 1. General Information Ariana Resources PLC (the “Company”) is a public limited company incorporated, domiciled and registered in the UK. The registered number is 05403426 and the registered address is 2nd Floor, Regis House, 45 King William Street, London, EC4R 9AN. The Company’s shares are listed on the Alternative Investment Market of the London Stock Exchange. The principal activities of the Company and its subsidiaries (together the “Group”) are related to the exploration for and development of gold and technology-metals, principally in Turkey. The consolidated financial statements are presented in Pounds Sterling (£), which is the parent company’s functional and presentation currency, and all values are rounded to the nearest thousand except where otherwise indicated. The financial information has been prepared on the historical cost basis modified to include revaluation to fair value of certain financial instruments and the recognition of net assets acquired including contingent liabilities assumed through business combinations at their fair value on the acquisition date modified by the revaluation of certain items, as stated in the accounting policies. Basis of Preparation The Group financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards as adopted by the EU (“Adopted IFRSs”) and effective for the Group’s reporting for the year ended 31 December 2019. The separate financial statements of the Company are presented as required by the Companies Act 2006. As permitted by that Act, the separate financial statements have been prepared in accordance with IFRS. These financial statements have been prepared under the historical cost convention (except for financial assets at FVOCI) and the accounting policies have been applied consistently throughout the period. Going Concern These financial statements have been prepared on the going concern basis. The Directors are mindful that there is an ongoing need to monitor overheads and costs associated with delivering the exploration programme and to raise additional working capital to support the Group’s specific activities on occasion. The Group has no bank facilities and has been meeting its working capital requirements from cash resources. At the year end the Group had cash and cash equivalents amounting to £453,000 (2018: £938,000). Since the year end the Group has received the outstanding consideration owed for the sale of its land owning subsidiary and the part repayment of a loan from Zenit, amounting in total to £3.3m. The Directors have prepared cash flow forecasts for the Group for the period to 31 July 2021 based on their assessment of the prospects of the Group’s operations. The cash flow forecasts include expected future cash flows from our Joint Venture investment in Zenit Madencilik San. ve Tic. A.S. (“Zenit”), be they loan repayments or dividends paid, along with the normal operating costs for the Group over the period together with the discretionary and non-discretionary exploration and development expenditure. The forecasts indicate that on the basis of existing cash and other resources, and expected future repayments of loans and dividend payments from Zenit, the Group will have adequate resources to meet all its expected obligations in delivering its work programme for the forthcoming year. In the event that the forecast cash flow from Zenit is not 5 2 forthcoming, the Group has the ability to reduce its operating expenditure and in particular its discretionary exploration expenditure, in order to assist the Group to meet its financial obligations as they fall due. If this should not prove adequate to meet the Group’s financial obligations, the Directors would be obliged to consider a variety of options as regards to the financing of the Group going forward, and this may include an equity raise via an open-offer if thought appropriate. Despite challenging capital markets for junior exploration and mining companies, the Company and Group have been successful historically in raising equity finance and in light of this, the directors have a reasonable expectation of securing sufficient funding to continue in operational existence for the foreseeable future. For these reasons, they continue to adopt the going concern basis in preparing the consolidated financial statements. The Group believes there should be no significant material disruption to the mining operations in Zenit from COVID-19, but the Board continues to monitor these risks and Zenit’s business continuity plans. In preparing these financial statements the Directors have given consideration to the above matters and on this basis they believe that it remains appropriate to prepare the financial statements on a going concern basis. New Accounting Standards & Interpretations (a) New and amended standards mandatory for the first time for the financial periods beginning on or after 1 January 2019. As of 1 January 2019, the Company adopted IFRS 16 Leases, Amendments to IFRS 2 – classification and measurement of share based payments transactions, Annual improvements to IFRS Standards 2015-2017 cycle and IFRIC 23 Uncertainty over income tax treatments. IFRS 16 Adoption The Group has applied the exemption not to recognise right-of- use assets and liabilities for leases with less than 12 months of lease term when applying IFRS 16 to leases previously classified as operating leases under IAS 17. Of the other IFRSs and IFRICs, none have had a material effect on the Group and Company financial statements. (b) New standards, amendments and Interpretations that are not yet effective and have not been early adopted are as follows: Standards/interpretations Application Effective IAS 1 & IAS 8 amendments. Definition of Material IFRS 3 amendments. Business Combinations IAS 1 amendments. Classification of Liabilities as Current or Non-Current *subject to EU endorsement *1 January 2020 * 1 January 2020 *1 January 2022 The Group is evaluating the impact of the new and amended standards above which are not expected to have a material impact on the Group’s results or shareholders’ funds statements. FINANCIAL REPORTARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019Basis of consolidation The consolidated financial statements comprise the financial statements of Ariana Resources PLC and its subsidiaries for the year ended 31 December 2019. Subsidiaries are all entities over which the Group has power to direct relevant activities and an exposure to variable returns. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. The cost of an acquisition is measured at fair value of the assets and equity instruments acquired, and the liabilities incurred or assumed at the date of exchange. The acquisition of subsidiaries is accounted for using the purchase method. The cost of acquisition is measured at the fair values, at the date of exchange, of the assets given, liabilities incurred or assumed, and equity instruments issued. The acquirer’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS3 are recognised at their fair values at the acquisition date. Where the Group acquires a subsidiary for less than the fair value of its assets and liabilities, this results in negative goodwill or gain on acquisition which is recognised in profit and loss. If a business combination is achieved in stages, the acquisition date carrying value of the Group’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date; any gains or losses arising from such remeasurements are recognised in the income statement. Where necessary, adjustments are made to the financial statements to bring the accounting policies used into line with those used by other members of the Group. All significant intercompany transactions and balances between group entities are eliminated on consolidation. The Group has applied IFRS 11 to all joint arrangements as of 1 January 2015. The Group identifies joint arrangements as those arrangements in which two or more parties have joint control, where joint control is evidenced by the contractually agreed sharing of control of an arrangement, which exists where the decisions about the relevant activities require the unanimous consent of the parties sharing control. Investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations of each investor. Joint operations are identified as those agreements whereby the parties have rights to the assets and obligations for liabilities relating to the arrangement. Joint operations are accounted for by recognising the operator’s relevant share of assets, liabilities, revenues and expenses. The Group currently has no joint operations in existence. Joint ventures are identified as those agreements whereby the parties have rights to the net assets of the arrangement and are accounted for using equity accounting in accordance with IAS 28. Interest in joint ventures are initially recognised at cost and adjusted thereafter to recognise the Group’s share of the post-acquisition profits or losses and movements in other comprehensive income. When the Group’s share of losses in a joint venture equals or exceeds its interests in the joint ventures (which includes any long-term interests that form part of the Group’s net investment in the joint ventures), the Group does not recognise further losses, unless it has incurred 5 3 obligations or made payments on behalf of the Joint Venture. An associate is an entity over which the Group is in a position to exercise significant influence, but not control or joint control, through participation in the financial and operating policy decisions of the investee. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. The results and assets and liabilities of our investments in our associates are incorporated in these financial statements using the equity method of accounting except when classified as held for sale. Investments in associates are carried in the Group statement of financial position at cost as adjusted by post-acquisition changes in the Group’s share of the net assets of the associates, less any impairment in the value of individual investments. Losses of the associates in excess of the Group’s interest in those associates are not recognised. In the Company accounts, investments in subsidiary undertakings are held at cost less impairment losses. Foreign currency translation Functional and presentational currency Items included in the financial statements are measured using the currency of the primary economic environment in which the entity operates (the ‘functional currency’). The consolidated financial statements are presented in Pounds Sterling, which is the Group’s presentation currency. Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the comprehensive income statement. Group companies The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: • assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that statement of financial position; • income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transaction); and • all resulting exchange differences are recognised as a separate component of equity. On consolidation, exchange differences arising from the translation of monetary items receivable from foreign subsidiaries for which settlement is neither planned nor likely to occur in the foreseeable future are taken to shareholders’ equity. When a foreign operation is sold, such exchange differences are recognised in the statement of comprehensive income as part of the gain or loss on sale. ARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019FINANCIAL REPORTNotes to the Consolidated Financial Statements continued For the year ended 31 December 2019 Earnings per share Basic earnings per share amounts are calculated by dividing the profit after taxation of the Group by the weighted average number of shares outstanding during the year. Land, property, plant and equipment Land, property, plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is charged so as to write off the cost of assets over their estimated useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at each year end, with the effect of any changes in estimate accounted for on a prospective basis. Land – not depreciated Computer equipment – between 25% & 33% Drilling equipment – between 10% & 20% Fixtures and fittings – between 5% & 33% Motor vehicles – between 20% & 25% The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the statement of comprehensive income. Intangible assets Intangible assets include expenditure on software and databases acquired to develop the Group’s geological expertise. Assets within this category that have a finite useful life are amortised over 20 years. Intangible exploration assets Intangible assets represent exploration and evaluation assets (IFRS 6 assets), being the cost of acquisition by the Group of rights, licences and know-how. Such expenditure requires the immediate write-off of exploration and development expenditure that the Directors do not consider to be supported by the existence of commercial reserves. All costs associated with mineral exploration and investments, are capitalised on a project-by-project basis, pending determination of the feasibility of the project. Costs incurred include appropriate technical and administrative expenses but not general overheads and these assets are not amortised until technical feasibility and commercial viability is established. If an exploration project is successful, the related expenditures will be transferred to mining assets and amortised over the estimated life of the commercial ore reserves on a unit of production basis. Where a licence is relinquished or a project abandoned, the related costs are written off. The recoverability of all exploration and development costs is dependent upon the discovery of economically recoverable reserves, the ability of the Group to obtain necessary financing to complete the development of reserves and future profitable production or proceeds from the disposition thereof. Exploration and evaluation assets shall no longer be classified as such when the technical feasibility and commercial viability of extracting mineral resources are demonstrable. When relevant, such assets shall be assessed for impairment, and any impairment loss recognised, before reclassification to mine development. 5 4 Impairment of tangible and intangible assets At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets (except for intangible exploration assets) to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified. Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually, and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. Investment in Group undertakings The Company’s investments in Group undertakings are carried at historical cost less any provision for impairment. The Company’s investments arose from either incorporation of, or acquisition of subsidiary companies primarily based in Turkey. As these investments are not amortised, their carrying values are at risk of impairment. The carrying value of investments is compared to their recoverable amounts which are assessed with reference to the discounted cash flow forecasts associated with these territories where available or in accordance with the impairment indicators listed in IFRS 6 where projects are not advanced enough to have discounted cash flow forecasts. Equity securities designated as at FVOCI At 1 January 2019, the Group designated investments in equity securities at FVOCI because these equity securities represent investments that the Group intended to hold for the long term for strategic purposes. These assets are subsequently measured at fair value. Dividends are recognised as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognised in OCI, and are never reclassified to profit or loss. Financial instruments Financial assets and financial liabilities are recognised on the Group’s Statement of Financial Position when the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial asset only when the contractual rights to cash flows from the asset expire, or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for the amount it may have to pay. If the Group retains substantially all the risks and rewards of ownership FINANCIAL REPORTARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received. The Group derecognises financial liabilities when the Group’s obligations are discharged, cancelled or expired. Financial Assets Trade and other receivables Trade and other receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost less any provision for impairment. The Group applies the IFRS 9 simplified approach to providing for expected credit losses in accordance with applicable guidance for non-banking entities. Under the simplified approach the Group is required to measure lifetime expected credit losses for all trade receivables. No bad debts have been identified during the period. Cash and cash equivalents Cash and cash equivalents comprise cash in hand and on- demand deposits and other short-term highly liquid investments that are readily convertible to a known amount of cash with three months or less remaining to maturity and are subject to an insignificant risk of changes in value. Financial liabilities and equity instruments Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. Equity instruments Financial instruments issued by the Company are treated as equity only to the extent that they meet the following two conditions: • they include no contractual obligations upon the Company to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavourable to the Company; and • where the instrument will or may be settled in the Company’s own equity instruments, it is either a non- derivative that includes no obligation to deliver a variable number of the Company’s own equity instruments or is a derivative that will be settled by the Company exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments. To the extent that this definition is not met, the proceeds of issue are classified as a financial liability. Where the instrument so classified takes the legal form of the Company’s own shares, the amounts presented in these financial statements for called up share capital and share premium account exclude amounts in relation to those shares. Financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability is classified as at FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognised in profit or loss. Other financial liabilities are subsequently measured at amortised cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognised in profit or loss. Any gain or loss on derecognition is also recognised in profit or loss. 5 5 Share-based payments For grants of share options, the fair value as at the date of grant is calculated using the Black-Scholes option pricing model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that are likely to vest, except where forfeiture is only due to market based conditions not achieving the threshold for vesting. Where shares are issued in settlement of goods or services supplied, the relevant expense is recorded in the consolidated statement of comprehensive income, with the related share issue recorded within share capital and share premium. Provisions Provisions are liabilities where the exact timing and amount of the obligation is uncertain. Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of past events, when an outflow of resources is probable to settle the obligation and when an amount can be reliably estimated. Where the time value of money is material, provisions are discounted to current values using appropriate rates of interest. The unwinding of any discount is recorded in net finance income or expense. Taxation Current income tax assets and liabilities comprise those obligations to, or claims from, fiscal authorities relating to the current or prior reporting year, that are unpaid at 31 December 2019. They are calculated according to the tax rates and tax laws applicable to the fiscal periods to which they relate, based on the taxable profit for the year. Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill or on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. Deferred tax on temporary differences associated with shares in subsidiaries is not provided if reversal of these temporary differences can be controlled by the Group and it is probable that reversal will not occur in the foreseeable future. In addition tax losses available to be carried forward as well as other income tax credits to the Group are assessed for recognition as deferred tax assets. Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted as at 31 December 2019. Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the consolidated statement of comprehensive income, except where they relate to items that are charged or credited directly to equity in which case the related deferred tax is also charged or credited to equity. The deferred tax asset arising from trading losses carried forward as referred to in Note 8 has not been recognised. The deferred tax asset will be recognised when it is more likely than not that it will be recoverable. ARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019FINANCIAL REPORT Notes to the Consolidated Financial Statements continued For the year ended 31 December 2019 Segmental reporting 2. Staff costs Operating segments are reported in a manner consistent with the internal reporting provided to the Board of Directors who have been identified as responsible for allocating resources and assessing performance of the operating segments, and who act as the Chief Operating Decision Maker. Accounting judgements The following are the critical judgements, apart from those involving estimations (which are dealt with separately below), that the directors have made in the process of applying the Group’s accounting policies and that have the most significant effect on the amounts recognised in the financial statements. Accounting for Joint Venture Management have reviewed the criteria of IFRS 11 and made a judgement that despite its 50% shareholding, Zenit is a Joint Venture rather than a subsidiary due to the contractual agreement to share control of that company. The Group accounts for its Joint Venture with Proccea in Zenit using the equity method in accordance with IAS 28 (revised). Intangible exploration assets Determining whether intangible exploration assets are impaired requires an assessment of whether there are any indicators of impairment, by reference to specific impairment indicators prescribed in IFRS 6. This includes the assessment, on a project by project basis, of the likely recovery of the cost of the Group’s Intangible exploration assets in the light of future production opportunities based upon ongoing geological studies. This also involves the assessment of the period for which the entity has the right to explore in the specific area, or if it has expired during the period or will expire in the near future if it is not expected to be renewed. The Group determines that exploration costs are capitalised at the point the Group has a valid exploration licence or is in the process of renewal. Impairment of assets, excluding intangible exploration assets The Group assesses impairment at each reporting date on a project by project basis by evaluating conditions specific to the Group that may indicate an impairment of assets. Where indicators of impairment exist, the recoverable amount of the asset is determined based on value in use or fair value less cost to sell, both of which require the Group to make estimates. The directors are aware that one licence Kiziltepe West area is pending conversion to operational status at the General Directorate of Mining and Petroleum Affairs (“MAPEG”); a process expected to be concluded in 2020. Ivrindi received its operational licence renewal during 2020. 5 6 Wages and salaries Social security costs Share based payments (option scheme) Pension contributions Group Company 2019 £’000 2018 £’000 2019 £’000 2018 £’000 305 36 114 35 490 336 31 250 16 635 288 32 85 33 438 315 27 187 16 545 Total staff costs, including those capitalised within intangible assets, amounts to £771,000 (2018: £856,000). The average monthly number of employees (including Executive Directors) during the year was as follows: Exploration activities Administration 2019 Group Number 2018 Group Number 12 5 17 10 5 15 The only employees within the Company in the current and previous year were the directors. 3. Directors’ emoluments Short term incentives Basic salary and fees Pension contributions 2019 £’000 2018 £’000 342 33 375 360 17 377 Key management personnel consist of only the Directors. Details of share options and interests in the Company’s shares of each Director are highlighted in the Directors’ Report on page 39. Michael de Villiers Kerim Sener William Payne Year 2019 2018 2019 2018 2019 2018 Christopher Sangster 2019 2018 Salary & fees £’000 Pension £’000 Total £’000 132 130 115 150 40 40 55 40 10 - 23 16 - - 1 1 142 130 138 166 40 40 56 41 William Payne’s services are provided by a firm of Accountants, further details of which are set out in Note 24. FINANCIAL REPORTARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 20194. Other gains The group entered into a sale agreement to dispose of its 99%-owned subsidiary, Çamyol Gayrimenkul, Madencilik, Turizm, Tarim ve Hayvancilik Ltd (“Camyol”). Camyol carried out a significant part of the Group’s land purchases prior to the commencement of construction of the Kiziltepe Mine. The disposal was effected in order that all freehold land pertaining to the Kiziltepe Mine is owned directly by the operating company, Zenit Madencilik San ve Tic AS (“Zenit”) and in order to release cash to Galata Madencilik San. ve Tic. Ltd for advancement of the Group’s other exploration projects in Turkey. The disposal was completed on 31 December 2019, on which date full control of Camyol passed to Zenit, for a consideration of 6,200,000 Turkish Lira. Settlement of this transaction was completed in full during 2020. (a) Profit on disposal of land owning operations Trading loss on operations for the year Translation reserve transferred to statement of comprehensive income Exchange loss on revaluation of Intercompany loan Profit on disposal of subsidiary (5b) (b) Profit on disposal of subsidiary At the time of the disposal of the Group’s subsidiary, Camyol, the carrying amount of its assets and liabilities were as follows: Non- current assets Land Current assets Trade receivables Cash at bank Current liabilities Trade payables Net assets derecognised Consideration receivable on disposal Profit on disposal of subsidiary 5. Operating loss The operating loss is stated after charging/(crediting): 2019 £’000 (1) 23 (217) 822 627 2019 £’000 119 1 4 (115) 9 (831) 822 Depreciation and amortisation – owned assets Other income – disposal of drilling equipment and other miscellaneous income. Write down of Intangible exploration assets Net foreign exchange losses Fees payable to the Company’s auditor for the audit of the Group’s and Company’s annual accounts Fees payable to the Company’s auditor for other services: – The audit of the Company’s subsidiaries 5 7 2019 £’000 2018 £’000 20 (61) 364 144 50 1 - 181 96 65 20 28.5 ARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019FINANCIAL REPORTNotes to the Consolidated Financial Statements continued For the year ended 31 December 2019 6. Share of profit of interest in Joint Venture In July 2010 the Group entered into an agreement with Proccea Construction Co. (“Proccea”) such that Galata Madencilik San. ve Tic. Ltd. (“Galata”) would transfer its principal assets at Kiziltepe and Tavşan, collectively known as the “Red Rabbit Gold Project” into a new wholly owned subsidiary, Zenit Madencilik San. ve Tic. A.S. (“Zenit”). Proccea earned their 50% share in Zenit by investing US$8 million in the capital of Zenit, US$1.4 million of such funds having been spent on a Feasibility Study and an Environmental Impact Assessment (“EIA”), with the balance on initial mine construction, once the Feasibility Study and EIA were completed satisfactorily. Shareholdings in Zenit represents the ratio of 50% to the Group and 50% to Proccea, with Proccea in management control, but with key decisions requiring approval from both the Group and Proccea. Zenit entered production during March 2017, with commercial production declared from 1 July 2017. Operational revenues and costs arising from pre-commercial production were capitalised in 2017 along with any new capital expenditure incurred during 2018 including the construction of the district road diversion necessary for the full development of the Arzu South open pit. Total revenue for the year was c. US$45.1m (2018: US$37.8 m) in gold and silver sales. The liability of the Joint Venture includes current and non-current portions of a bank loan repayable to Turkiye Finans Katilim Bankasi A.S. Management does not foresee any significant restrictions on the ability of the Joint Venture to repay this loan. The Group accounts for its Joint Venture with Proccea in Zenit using the equity method in accordance with IAS 28 (revised). At 31 December 2019 the Group has a 50% (2018: 50%) interest in Zenit. Ultimately profits from Zenit are shared in the ratio of 50:50 between the Group and Proccea. Principal place of business for Zenit is Ankara, Turkey. Zenit was also incorporated in Ankara, Turkey. Financial information of the Joint Venture, based on its translated financial statements, and reconciliations with the carrying amount of the investment in the consolidated financial statements are set out below: 2019 £’000 2018 £’000 35,337 29,254 (15,444) (13,548) 19,893 (1,636) 18,257 (4,762) 2,667 16,162 (380) 15,782 50% 7,891 15,706 (969) 14,737 (12,196) 4,552 7,093 327 7,420 50% 3,710 Statement of Comprehensive Income For the year ended 31 December 2019 Revenue Cost of sales Gross Profit Administrative expenses Operating profit Finance expenses including foreign exchange losses Finance income including foreign exchange gains Profit before tax Taxation charge/(credit) Profit for the year Proportion of the Group’s profit share Group's share of profit for the year 5 8 FINANCIAL REPORTARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019 6. Share of profit of interest in Joint Venture continued Statement of financial position As at 31 December 2019 Assets Non-current assets Other receivables Intangible exploration assets Kiziltepe Gold Mine (including capitalised mining costs, land, property, plant and equipment) Total non-current assets Current assets Cash and cash equivalents Trade and other receivables Inventories Other receivables, VAT and prepayments Total current assets Total assets Liabilities Non-current liabilities Borrowings Asset retirement obligation Total non-current liabilities Current liabilities Borrowings Trade payables Other payables (including shareholder loans) Total current liabilities Total liabilities Equity Proportion of the Group’s profit share Carrying amount of investment in Joint Venture Movement in Equity – our share Opening balance Profit for the year Translation and other reserves Dividend receivable Closing balance 5 9 2019 £’000 2018 £’000 440 837 23,275 24,552 7,184 752 1,745 2,187 11,868 513 370 24,538 25,421 3,570 1,098 1,474 1,074 7,216 36,420 32,637 3,241 1,000 4,241 5,776 1,883 8,984 16,643 20,884 15,536 50% 7,768 3,968 7,891 (1,049) (3,042) 7,768 8,959 978 9,937 9,272 2,081 3,411 14,764 24,701 7,936 50% 3,968 2,467 3,710 (840) (1,369) 3,968 ARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019FINANCIAL REPORTNotes to the Consolidated Financial Statements continued For the year ended 31 December 2019 7. Segmental analysis Management currently identifies one division as an operating segment – mineral exploration. This operating segment is monitored and strategic decisions are made based upon this and other non-financial data collated from exploration activities. Principal activities for this operating segment is as follows • Mining - incorporates the acquisition, exploration and development of gold resources. • Reconciling items include non-mineral exploration costs and transactions between Group and associate companies. 2019 Other reconciling items £’000 Mining £’000 2018 Other reconciling items £’000 Group £’000 Group £’000 Mining £’000 Administrative costs - (1,242) (1,242) - (1,355) (1,355) General and specific exploration expenditure Profit/(loss) on disposal of investments Other gains Share of profit in Joint Venture Investment and other income Profit before taxation Taxation Profit after taxation Assets Segment assets Liabilities Segment liabilities Additions to segment assets Intangible assets Property, plant & equipment Depreciation and amortisation Geographical segments (382) - 627 7,891 - 8,136 (43) - 20 - - 66 (382) (334) 20 627 (2) - 7,891 3,710 - - - - 66 - 158 (334) (2) - 3,710 158 (1,156) 6,980 3,374 (1,197) 2,177 (3) (46) - - - 8,093 (1,159) 6,934 3,374 (1,197) 2,177 28,706 823 29,529 23,523 614 24,137 (4,003) (239) (4,242) (3,966) (207) (4,173) 516 32 - - - (20) 516 32 (20) 369 36 - - - (1) 369 36 (1) The Group’s mining assets and liabilities are located primarily in Turkey. Carrying amount of segment non-current assets 24,314 188 24,502 20,584 720 21,304 2019 United Kingdom £’000 Turkey £’000 Group £’000 Turkey £’000 2018 United Kingdom £’000 Group £’000 6 0 FINANCIAL REPORTARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 20198. Taxation (a) Current tax expense in respect of the current year The charge for the year can be reconciled to the profit per the statement of comprehensive income as follows: Profit before tax – continuing operations Profit multiplied by the standard rate of corporation tax in the UK of 19% (2018:19%) Effect of tax on share of Joint Venture profit Disallowable expenses and other adjustments Exempt gain on disposal of subsidiary Effect of different tax rates and laws of subsidiaries operating in other jurisdictions Losses for the year to carry forward Tax charge 2019 £’000 46 2018 £’000 - 2019 £’000 6,980 1,326 (1,499) 23 (137) 108 225 46 2018 £’000 2,177 413 (704) 58 - (8) 241 - The Group has UK losses carried forward on which no deferred tax asset is recognised in the financial statements as the recovery of this benefit is dependent on future profitability, the timing of which cannot be reasonably foreseen. Total UK losses carried forward amount to £9,313,000 (2018: £10,104,000). Turkish tax losses carried forward at the year end amounted to £104,000 (2018: £128,000). These losses can be carried forward and used against future taxable income rate at rates of 22%, although the Turkish losses expire after five years. Australian tax losses have been fully utilised during the year. Dutch tax losses carried forward at the year end amounted to £65,000 (2018: £90,000). No deferred tax assets had been recognised against the Group’s and Company’s tax losses as the entities do not have sufficient taxable temporary differences in the year which the losses could be utilised against. 9. Loss of parent company As permitted by Section 408 of the Companies Act 2006, the statement of comprehensive income of the parent Company is not presented as part of these financial statements. The parent Company’s loss for the financial year was £828,000 (2018: £907,000). 10. Earnings per share on continuing operations The calculation of basic profit per share is based on the profit attributable to ordinary shareholders of £6,934,000 (2018: £2,177,000) divided by the weighted average number of shares in issue during the year being 1,059,677,953 shares (2018: 1,059,677,953). There is no material effect on the basic earnings per share for the dilution provided by the share options. 6 1 ARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019FINANCIAL REPORTNotes to the Consolidated Financial Statements continued For the year ended 31 December 2019 11a. Intangible exploration assets Cost At 1 January 2018 Additions and capitalised depreciation Exchange movements Expenditure written off At 31 December 2018 Additions and capitalised depreciation Reclassification of expenditure Exchange movements Expenditure written off At 31 December 2019 Net book value At 1 January 2018 At 31 December 2018 At 31 December 2019 Deferred exploration expenditure £’000 17,527 369 (740) (181) 16,975 516 (206) (517) (364) 16,404 17,527 16,975 16,404 None of the Group’s intangible assets are owned by the Company. On review of the likely recovery of the costs capitalised as intangible exploration assets management has determined that £364,000 (2018: £181,000) is not recoverable and hence written off these costs. The technical feasibility and commercial viability of extracting a mineral resource are not yet fully demonstrable in the above intangible exploration assets. These assets are not amortised, until technical feasibility and commercial viability is established. Intangible exploration costs written off represent costs relating to certain projects that are no longer considered economically viable or where exploration licences have been relinquished. 11b. Intangible assets Cost At 1 January 2019 Reclassification of expenditure from exploration assets Amortisation charge At 31 December 2019 Net book value At 1 January 2019 At 31 December 2019 6 2 Software and database expenditure £’000 - 206 (19) 187 - 187 FINANCIAL REPORTARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 201912. Land, property, plant & equipment Cost At 1 January 2018 Additions Disposals Exchange movements At 31 December 2018 Additions Disposals Exchange movements At 31 December 2019 Depreciation At 1 January 2018 Charge Disposals Exchange movements At 31 December 2018 Charge Disposals Exchange movements At 31 December 2019 Net book value At 1 January 2018 At 31 December 2018 At 31 December 2019 Land £’000 Computer equipment £’000 Drilling equipment £’000 Fixtures & fittings £’000 Motor vehicles £’000 Totals £’000 182 - - (44) 138 - (119) (19) - - - - - - - - - - 182 138 - 40 11 - (4) 47 2 - (15) 34 32 6 - (5) 33 5 - (8) 30 8 14 4 256 - - (5) 251 26 (87) (164) 26 178 1 - (21) 158 5 (85) (72) 6 78 93 20 37 13 - (5) 45 4 - (15) 34 35 4 - (4) 35 4 - (16) 23 2 10 11 60 12 - (33) 39 - - (5) 34 41 6 - (31) 16 5 - (2) 19 19 23 15 575 36 - (91) 520 32 (206) (218) 128 286 17 - (61) 242 19 (85) (98) 78 289 278 50 Of the total depreciation expense, £18,000 has been capitalised to intangible exploration assets (2018: £16,000). 6 3 ARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019FINANCIAL REPORTNotes to the Consolidated Financial Statements continued For the year ended 31 December 2019 13. Equity securities designated as FVOCI Group and Company At 1 January 2018 Adjustment to fair value Disposals Exchange movement At 31 December 2018 Adjustment to fair value Disposals At 31 December 2019 Net book value At 31 December 2018 At 31 December 2019 Group £’000 218 (26) (146) (11) 35 49 (84) - 35 - Company £’000 63 (26) - (2) 35 49 (84) - 35 - The Company sold its remaining shares in Royal Road Minerals Ltd during 2019 and hence holds no further investments at the year end. 14. Investments in Group undertakings Company At 1 January 2019 Additions At 31 December 2019 Shares in Group undertakings £’000 337 28 365 The Company’s investments at the balance sheet date comprise ownership of the ordinary share capital of the following companies: Subsidiaries Ownership Country of incorporation Nature of business Ariana Exploration & Development Limited 100% United Kingdom Exploration Address 2nd Floor, Regis House, 45 King William Street London, EC4R 9AN Portswood Resources Limited 100% British Virgin Islands Holding company Kingston Chambers P.O. Box 173 Road Town, Tortola, British Virgin Islands Galata Madencilik San. ve Tic. Ltd. 100% Turkey Exploration Çankaya Mah. Farabi Sok. 7/5 Çankaya, Ankara, Turkey 6 4 FINANCIAL REPORTARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 201914. Investments in Group undertakings continued Ariana Exploration & Development Limited’s investments at the balance sheet date comprise the following companies: Subsidiaries Ownership Country of incorporation Nature of business Address Greater Pontides Exploration B.V. 100% Netherlands Holding company Herengracht 500, 1017 CB Amsterdam, Netherlands Pontid Madencilik San. ve Tic. Ltd. 100% Turkey Exploration Asgard Metals Pty. Ltd. 100% Australia Exploration Hilal Mahallesi, Konrad Adenauer Cd. 15A, 06550 Çankaya, Ankara, Turkey 10 Wygonda Rd, Roleystone WA 6111, Australia 15. Non-current trade and other receivables Amounts owed by Group undertakings Other receivables Group Company 2019 £’000 2018 £’000 - 93 93 - 83 83 2019 £’000 8,508 - 2018 £’000 9,749 - 8,508 9,749 Other receivables falling due after more than one year represent amounts due from the government of Turkey in respect of VAT relating to the Group’s exploration projects. The amounts owed to the Company by Group undertakings are interest free and repayable on demand. 16. Trade and other receivables Amounts owed by Joint Venture Company Other receivables Earn-In advances Prepayments Group Company 2019 £’000 3,383 598 534 59 2018 £’000 1,402 442 - 16 4,574 1,860 2019 £’000 2018 £’000 - - 534 - 534 - - - - - The amount repayable to Galata Madencilik San. ve Tic. Ltd. by the Joint Venture Company (“Zenit”) has no scheduled repayment terms and is repayable on demand. The prior year loan amounting to £1,402,000 was settled by Zenit in full during the year. Interest is not charged by Galata Madencilik San. ve Tic. Ltd. on dividends declared, but unpaid by Zenit. Trade and other receivables include Earn-In advances of £534,000 which relate to Venus Minerals Ltd (“Venus”), an entity focused on the exploration and development of copper and gold on the island of Cyprus. Ariana Resources PLC has the option to acquire up to 50% of Venus through an earn-in agreement, requiring total expenditure of 3.0M Euro over five years. Investment rights continue to accrue as at 31 December 2019 on expenditure of 0.6M Euros. This capital expenditure has been carried forward under other receivables as at 31 December 2019, pending conversion into ordinary shares in Venus (post-period end, in May 2020, total expenditure to date of 0.92M Euros was converted to shares comprising 9.24% of Venus). Additional capital support has been agreed, in principal under the terms of the earn-in agreement, by the Board of up to a further 2.08M Euros over the next three years. Ariana has the option to cease funding unilaterally at any point in time but is committed under the terms of the earn-in agreement to a minimum expenditure per annum of 0.5M Euros during the option exercise period from October 2019 to October 2022, such that the minimum total expenditure commitment is greater than 1.0M Euros. The carrying values of other receivables approximate their fair values because these balances are expected to be cash settled in the near future. 6 5 ARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019FINANCIAL REPORTNotes to the Consolidated Financial Statements continued For the year ended 31 December 2019 17. Trade and other payables Trade and other payables Social security and other taxes Other creditors and advances Accruals and deferred income Group Company 2019 £’000 2018 £’000 2019 £’000 2018 £’000 109 66 7 136 318 104 22 10 113 249 - - - 6 6 - - - 6 6 The above listed payables are all unsecured. Due to the short-term nature of current payables, their carrying values approximate their fair value. 18. Called up share capital and premium Allotted, issued and fully paid ordinary 0.1p shares Number Ordinary Shares £’000 Deferred shares £’000 Called up Share capital £’000 Share Premium £’000 In issue at 1 January 2019 and 31 December 2019 1,059,677,953 1,059 4,995 6,054 11,821 During 2013 the existing ordinary shares were sub-divided into one new ordinary share of 0.1 pence (“New Ordinary Share”) and one deferred share of 0.9 pence (“Deferred Share”). The New Ordinary Shares have a nominal value of 0.1 pence. The percentage of New Ordinary Shares held by each shareholder following the subdivision is the same as the percentage of existing ordinary shares held by the shareholder before the change. Fully paid Ordinary Shares carry one vote per share and carry the right to dividends. Deferred Shares have attached to them the following rights and restrictions: • they do not entitle the holders to receive any dividends and distributions; • they do not entitle the holders to receive notice or to attend or vote at General Meetings of the Company; • on return of capital on a winding up the holders of the Deferred Shares are only entitled to receive the amount paid up on such shares after the holders of the Ordinary Shares have received the sum of 0.1p for each ordinary share held by them and do not have any other right to participate in the assets of the Company. Potential issue of ordinary shares Share options The Company issued 64,000,000 new options to directors and staff at an exercise price of 1.55 pence, vesting over 3 years, commencing on 1 January 2018. At 31 December 2019 the Company had options outstanding for the issue of ordinary shares as follows: Date of grant Exercisable from Exercisable to Exercise price Number granted Options cancelled during the year Number at 31 December 2019 Options 1 January 2018 1 January 2018 31 December 2023 1.55p 64,000,000 - 64,000,000 Total 64,000,000 64,000,000 No options were exercised in the year. The fair value of services received in return for share options are measured by reference to the fair value of share options granted. The fair value of employee share options is measured using the Black-Scholes model. Measurement inputs and assumptions are as follows: 6 6 FINANCIAL REPORTARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 201918. Called up share capital and premium continued Costs associated with options issued on the 1 January 2018 and exercisable by 2023 Share price when options issued Expected volatility (based on closing prices over the last 7 years) Expected life Risk free rate Expected dividends 1.25p 67.84% 5 years 0.75% 0% The expected volatility is wholly based on the historic volatility (calculated based on the weighted average of the last 7 years of quotation). Share based payments reserve At 1 January 2019 Charge during the year At 31 December 2019 Group and Company 2019 £’000 250 114 364 As set out in note 2 the Group recognised an expense of £114,000 (2018: £250,000) relating to equity share based payment transactions in the year. 19. Deferred tax liabilities Opening and closing deferred tax liability Group Company 2019 £’000 2,273 2018 £’000 2,273 2019 £’000 - 2018 £’000 - Deferred tax has been provided against the fair value uplift of intangible exploration assets that resulted from the business combination that happened in 2016. 20. Other financial liabilities Contingent consideration payable Group Company 2019 £’000 1,651 2018 £’000 1,651 2019 £’000 - 2018 £’000 - The consideration above relates to a 2% net smelter returns royalty on the future production revenue at Salinbaş. This liability arose as a result of the business combination as noted in note 19 and will be remeasured at each reporting date and any gain or loss will be charged/ (credited) through the income statement. Given this provision is based on future production revenue, there are uncertainties relating to the timing and amount of this liability. 6 7 ARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019FINANCIAL REPORTNotes to the Consolidated Financial Statements continued For the year ended 31 December 2019 21. Operating lease arrangements Management have completed a detailed assessment of existing operating contracts and have not identified any contracts requiring adjustment on the adoption of IFRS 16 as the operating leases held by the Group are of low value and short-term in nature. At the year end, the Group had outstanding short term commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows: Within one year 22. Capital commitments 2019 16 2018 16 The Group had no authorised or unauthorised capital commitments at the year end other than as disclosed in note 16 (2018: £nil). 23. Contingent liabilities Following the disposal of the Group’s 99%-owned subsidiary, Çamyol Gayrimenkul, Madencilik, Turizm, Tarim ve Hayvancilik Ltd (“Camyol”) 75% of the resulting gain on disposal is exempt from Turkish corporation tax provided the gain is retained under equity by Galata Madencilik San. ve Tic. Ltd. for a period of 5 years. This potentially exempt taxable gain amounts to Turkish Lira 4,529,343 with an associated corporation tax liability of Turkish Lira 996,455, or approximately £137,000. 24. Related party transactions Group companies Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation. Ariana Resources PLC is the beneficial owner and controls, or is in joint venture with, the following companies and as such are considered related parties: Ariana Exploration & Development Limited Portswood Resources Limited Galata Madencilik San. ve Tic. Ltd. Zenit Madencilik San. ve Tic. A.S. (Joint Venture) Asgard Metals Pty. Ltd. Greater Pontides Exploration B.V. Pontid Madencilik San. ve Tic. Ltd. The only transactions during the year between the Company and its subsidiaries were intercompany loans, which were interest free and payable on demand and included the following: Loans payable by Ariana Exploration & Development Limited and Galata Madencilik San. ve Tic. Ltd. to Ariana Resources PLC amounted to £8,508,203 (2018: £9,735,206) and £nil (2018: £14,294) respectively. William Payne is a partner in Wilkins Kennedy, a firm of Accountants that provides his services. During the year end 31 December 2019, Wilkins Kennedy were paid £40,000 (2018: £40,000) in respect of his services as a Director, and £101,500 (2018: £64,000) in respect of accounting and management services. Fees paid for William Payne’s services are included as part of Directors emoluments declared in Note 3. At the year end the Group owed Wilkins Kennedy £40,451 (2018: £39,618). This remuneration is included as part of his emoluments as disclosed in note 3. Independent Executive Consultants Limited, a company jointly controlled by Michael de Villiers, charged the Company £37,000 (2018: £130,000) in respect of his services as a Director. This remuneration is included as part of his emoluments as disclosed in note 3. At 31 December 2019, Kerim Sener had received £109,583 or TL795, 621 (2018: £52,756 or TL353,792) from Zenit Madencilik San. ve Tic. A.S. for his services as a director of the joint venture subsidiary, in accordance with the Turkish Commercial Code and an Extraordinary General Meeting resolution dated 1 November 2018. This remuneration is in addition to his emoluments disclosed in note 3. As part of the Group’s earn in agreement described in detail in note 16, Kerim Sener was appointed a director of Venus Minerals Ltd (“Venus”) on 13 August 2019. Kerim Sener received no remuneration during the period to 31 December 2019. The Group made payments under the terms of the earn-in agreement of £534,000 which are eligible for conversion into ordinary shares in Venus and recognised in other receivables at 31 December 2019. There were no other transactions with Venus during the year. 6 8 FINANCIAL REPORTARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019Joint Venture company Loans including unpaid dividends payable on demand by Zenit Madencilik San. ve Tic. A.S. to Galata Madencilik San. ve Tic. Ltd. amounted to £3,383,297 (2018: £1,402,055). 25. Post year end events On 11 March 2020, the World Health Organisation declared the Coronavirus outbreak to be a pandemic in recognition of its rapid spread across the globe. For the Group’s 31 December 2019 financial statements, the Coronavirus outbreak and the related impacts are considered non-adjusting events. Consequently, there is no impact on the recognition and measurement of assets and liabilities. The risks to the overall business activity and the operations of the Group and the mitigating actions being taken have been set out in the Strategic Report. While the outcome of the COVID-19 pandemic cannot be estimated with reasonable certainty at this stage, the Group has not experienced any substantial disruptions to production or sales at our jointly owned Kiziltepe Gold Mine. On 1 July 2020 the Company announced that Özaltin Holding A.S., through its subsidiary, Özaltin Insaat, Ticaret and Sanayi A.S. (collectively “Özaltin”), has formally committed to proceeding with its acquisition of 53% of both the Salinbas Project (“Salinbas”) and the Zenit Madencilik San. ve Tic. A.S. (“Zenit”) joint venture which is currently owned by Ariana in a 50:50 partnership with Proccea Construction Co. (“Proccea”). Further to the Memorandum of Understanding (“MoU”) announced on 25 November 2019, the Group intends to partially dispose of various interests held in Turkey to Özaltin, including jointly with Proccea, 53% of Zenit for US$50 million (to be split equally by Ariana and Proccea), as well as an initial 17% of the Salinbas Project for US$5 million. In addition, Özaltin commits to injecting a further US$8 million of equity into the Salinbas Project in order to acquire 53% of the project. It is envisaged Özaltin will ultimately hold 53% of Zenit, with Ariana and Proccea each holding 23.5% and that the Salinbas Project ultimately will be acquired by Zenit, such that the respective shareholdings do not change. Özaltin are now seeking Ministerial approval for the transaction, and the Company also intends to seek approval from Shareholders for the transaction as soon as practically possible. 26. Capital management policies and procedures The Group’s capital management objectives are: • To ensure the Group’s ability to continue as a going concern; • To increase the value of the assets of the business; and • To provide an adequate return to shareholders in the future when exploration assets are taken into production. These objectives will be achieved by identifying the right exploration projects, adding value to these projects and ultimately taking them through to production and cash flow, either with partners or by our own means. The Group monitors capital on the basis of the carrying amount of equity, cash and cash equivalents as presented on the face of the consolidated statement of financial position. Movements in capital for the year under review are summarised in Note 18 and in the consolidated statement of changes in equity. The Group manages its capital structure in response to changes in economic conditions and in accordance with the Group’s objective to finance additional work on existing and new projects to enhance their overall value. In the normal course of its operations, the Group and Company are exposed to gold prices, currency, interest rate and liquidity risk. The Group and Company use financial instruments, other than derivatives, comprising short term deposits, cash, liquid resources and various items such as sundry debtors and creditors that arise directly from its operations. The main purpose of these financial instruments is to finance the Group’s operations. The main risks arising from the Group’s and Company’s financial instruments are liquidity and currency differences on foreign currency net investments. The Directors review and agree policies for managing these risks and these are summarised below. Liquidity risk Liquidity risk is the risk that the Group and Company will not be able to meet their financial obligations as they fall due. The Group and Company seek to manage financial risk to ensure sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably. The Board will seek additional funds from the issue of share capital where appropriate, by reviewing financial and operational budgets and forecasts. The Group and Company’s financial liabilities, including interest bearing liabilities and trade and other payables will all be settled within six months of the year end with the exception of the contingent consideration payable which is not expected to become payable for a period beyond 5 years. 6 9 ARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019FINANCIAL REPORT2018 £’000 - 9,749 9,749 2018 £’000 9,735 14 - 2019 £’000 9,042 - - 9,042 9,749 Notes to the Consolidated Financial Statements continued For the year ended 31 December 2019 26. Capital management policies and procedures continued Credit risk Credit risk is the risk of financial loss to the Group and Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Group and Company have borrowings outstanding from its subsidiaries and joint ventures, the ultimate realisation of which depends on the successful exploration and realisation of the Group’s intangible exploration assets: Trade and other receivables (current and excluding prepayments) Trade and other receivables (non-current) Group Company 2019 £’000 3,981 93 4,074 2018 £’000 1,844 83 1,927 2019 £’000 534 8,508 9,042 The concentration of credit risk for trade and other receivables at the balance sheet date by geographic region was: Group Company United Kingdom Turkey Other Market risk 2019 £’000 520 3,552 2 4,074 2018 £’000 386 1,539 2 1,927 Foreign exchange risk arises due to the Group’s and Company’s primary operations being in Turkey. The Group and Company have a general policy of not hedging against its exposure of foreign investments in foreign currencies. The Group and Company are exposed to translation and transaction foreign exchange risks and take profits or losses on these as they arise. GBP Turkish Lira Other Total Group Cash and cash equivalents Trade and other receivables Available for sale financial assets Trade and other payables Other financial liabilities 2019 £’000 2018 £’000 48 1,113 - 241 1,651 56 400 - 206 1,651 2019 £’000 157 3,459 - 70 - 2018 £’000 812 1,458 - 29 - 2019 £’000 248 2 - 7 - 2018 £’000 70 2 35 14 - 2019 £’000 453 4,574 - 318 1,651 2018 £’000 938 1,860 35 249 1,651 GBP Turkish Lira Other Total Company 2019 £’000 2018 £’000 2019 £’000 2018 £’000 2019 £’000 2018 £’000 2019 £’000 2018 £’000 Cash and cash equivalents - - Trade and other receivables 9,042 9,735 Available for sale financial assets Trade and other payables Other financial liabilities - 6 - - 6 - - - - - - - 14 - - - - - - - - - - 35 - - - - 9,042 9,749 - 6 - 35 6 - 7 0 FINANCIAL REPORTARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 201926. Capital management policies and procedures continued Sensitivity analysis Foreign exchange risk arises due to the Group’s and Company’s primary operations being in Turkey. A 10% strengthening/weakening of Turkish Lira against the Sterling at the reporting date would have increased/decreased net assets by £1,020,000. This calculation assumes that the change occurred at the balance sheet date and had been applied to risk exposures existing at that date. Market risk - Borrowing facilities and interest rate risk The Group and Company finances its operations primarily through its share of profits from its joint venture investment, and the issue of equity share capital to ensure sufficient cash resources are maintained to meet short-term liabilities and future project development requirements. Cash deposits are kept under regular review, with reference to future expenditure requirements and to maximise interest receivable. Sensitivity analysis (a) The Group and Company have limited exposure to changes to interest rates both locally and in Turkey since the interest accruing on bank deposits was relatively immaterial. (b) The Group and Company have no interest rate exposure on the loan finance provided during the year as the amounts owed by Group undertakings are interest free. Market risk – Equity price risk The Group and Company’s exposure to equity price risk arises from its investment in equity securities ceased during the year following the disposal of its remaining investment as set out in note 13. Fair values of financial instruments The fair value of a financial instrument is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability. Set out below is a comparison by category of carrying amounts and fair values of all the Group’s financial instruments: Carrying Amount Fair Value 2019 £’000 2019 £’000 2018 £’000 2018 £’000 2019 £’000 2019 £’000 2018 £’000 2018 £’000 Group Company Group Company Group Company Group Company Financial assets Cash and cash equivalents Financial assets at FVOCI – Level 1 Loans and receivables 453 - - - 938 35 - 35 453 - - - 938 35 Trade and other receivables (current) 4,574 534 1,860 - 4,574 534 1,860 - 35 - Trade and other receivables (non-current) 93 8,508 83 9,749 93 8,508 83 9,749 Financial liabilities measured at amortised cost Trade and other payables Other financial liabilities (non-current) (318) (1,651) (6) - (249) (1,651) (6) - (318) (1,651) (6) - (249) (1,651) (6) - 7 1 ARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019FINANCIAL REPORTNotes to the Consolidated Financial Statements continued For the year ended 31 December 2019 26. Capital management policies and procedures continued The fair value of trade and other receivables is estimated as the present value of future cash flows discounted at the market rate of interest at the reporting date. For receivables and payables with a remaining life of less than one year, the notional amount is deemed to reflect fair value. All other receivables and payables are, where material, discounted to determine the fair value. When measuring the fair value of an asset or a liability, the Group and Company uses observable market data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows: • Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. • Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). • Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). Differences arising between the carrying amount and fair value are considered not significant to adjust for in these accounts. The carrying amount and fair value of intercompany balances are the same as if they are repayable on demand. 7 2 FINANCIAL REPORTARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019Please note that this document is important and requires your immediate attention. If you are in any doubt as to the action to be taken, please consult an independent adviser immediately. If you have sold or transferred or otherwise intend to sell or transfer all of your holding of ordinary shares in the Company prior to the record date (as described in Note 12) for the Annual General Meeting of the Company on 28 August 2020 12:00 noon, you should send this document, together with the accompanying Form of Proxy, to the (intended) purchaser or transferee or to the stockbroker, bank or other agent through whom the sale or transfer was or is to be effected for transmission to the (intended) purchaser or transferee. If you have sold some only of your ordinary shares then please retain this document. COVID-19 – IMPORTANT – PLEASE READ The Board takes its responsibility to safeguard the health of its shareholders, stakeholders and employees very seriously and so the following measures will be put in place for the AGM in response to the COVID-19 pandemic and the current social distancing measures being implemented by the Government in the United Kingdom, which may continue until after the date of the AGM. The formal business of the Annual General Meeting (AGM) will only be to consider and vote upon the resolutions set out in the notice of meeting. The holding of the AGM will be kept under review in line with Public Health England guidance. However, based on current measures implemented by the Government in the United Kingdom SHAREHOLDERS WILL NOT BE ADMITTED TO THE PHYSICAL MEETING AND ARE THEREFORE ADVISED NOT TO TRAVEL TO THE AGM. It is intended that the meeting will be held with the minimum number of shareholders and directors present required to form a quorum as per the Company’s Articles of Association. The Company is taking these precautionary measures to safeguard its shareholders’, stakeholders’ and employees’ health and make the AGM as safe and efficient as possible. SHAREHOLDERS WISHING TO VOTE ON ANY OF THE MATTERS OF BUSINESS ARE STRONGLY URGED TO DO SO THROUGH COMPLETION OF A FORM OF PROXY which must be completed and submitted in accordance with the instructions thereon. It is emphasised that any forms of proxy being returned via a postal service should be submitted as soon as possible to allow for any delays to or suspensions of postal services in the United Kingdom as a result of measures being implemented by the Government of the United Kingdom. Shareholders wishing to vote on any matters of business are strongly urged to do so through registering their proxy appointment and voting by proxy online and to appoint the Chairman of the Meeting as your proxy. This will enable the Chairman of the Meeting to vote on your behalf, and in accordance with your instructions, at the AGM. In line with corporate governance best practice and in order that any proxy votes of those shareholders who are not allowed to attend and to vote in person are fully reflected in the voting on the resolutions, the Chairman of the meeting will direct that voting on all resolutions set out in the notice of meeting will take place by way of a poll. The final poll vote on each resolution will be published immediately after the AGM on the Company’s website. Further information on voting procedures follows the resolutions below. Queries regarding these procedures may be directed to the Company’s registrars, Computershare Investor Services plc, The Pavilions, Bridgewater Road, Bristol BS99 6ZY (+44 (0) 370 889 3196). 7 3 ARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019FINANCIAL REPORTNotice of the 2020 Annual General Meeting of Ariana Resources PLC Company Number: 05403426 Notice is hereby given that the Annual General Meeting of Ariana Resources PLC (the “Company”) will be held at the 2nd Floor, Regis House, 45 King William Street, London, EC4R 9AN on 28 August 2020 at 12.00 noon in order to consider and, if thought fit, pass resolutions 1 to 6 as Ordinary Resolutions and Resolutions 7 and 8 as a Special Resolutions: Ordinary resolutions 1. To receive the Annual Report and Accounts for the year ended 31 December 2019. 2. To re-elect Chris Sangster who is retiring pursuant to Article 27.1.2 of the Articles of Association as a Director of the Company. 3. To re-elect Dr Kerim Sener who is retiring pursuant to Article 27.1.2 of the Articles of Association as a Director of the Company 4. To re-elect William Payne who is retiring pursuant to Article 27.1.3 of the Articles of Association as a Director of the Company. 5. To re-appoint PKF Littlejohn LLP as auditors and to authorise the Directors to fix their remuneration. 6. That the directors be generally and unconditionally authorised to allot Relevant Securities (as defined in the notes to this Notice) up to a maximum nominal amount of £500,000 comprising: a. equity securities (as defined by section 560 of the Companies Act 2016) of ordinary shares of 0.1p each in the capital of the Company (“Ordinary Shares”) up to an aggregate nominal amount of £250,000 in connection with an offer by way of a rights issue: i. ii. to holders of Ordinary Shares in proportion (as nearly as may be practicable) to their respective holdings; and to holders of other equity securities as required by the rights of those securities or as the directors otherwise consider necessary, but subject to such exclusions or other arrangements as the directors may deem necessary or expedient in relation to treasury shares, fractional entitlements, record dates, legal or practical problems in or under the laws of any territory or the requirements of any regulatory body or stock exchange; and b. in any other case, up to an aggregate nominal amount of £250,000. Provided that this authority shall, unless renewed, varied or revoked by the Company, expire on the date which is 15 months after the date on which this resolution is passed or, if earlier, the date of the next annual general meeting of the Company save that the Company may, before such expiry, make offers or agreements which would or might require Relevant Securities to be allotted and the directors may allot Relevant Securities in pursuance of such offer or agreement notwithstanding that the authority conferred by this resolution has expired. This resolution revokes and replaces all unexercised authorities previously granted to the directors to allot Relevant Securities but without prejudice to any allotment of shares or grant of rights already made, offered or agreed to be made pursuant to such authorities. Special resolutions 7. That, subject to the passing of Resolution 6 the Directors be given the general power to allot equity securities (as defined by Section 560 of the 2006 Act) for cash, either pursuant to the authority conferred by Resolution 6 or by way of a sale of treasury shares, as if Section 561(1) of the 2006 Act did not apply to any such allotment, provided that this power shall be limited to: a. the allotment of equity securities in connection with an offer by way of a rights issue: i. ii. to the holders of ordinary shares in proportion (as nearly as may be practicable) to their respective holdings; and to holders of other equity securities as required by the rights of those securities or as the Directors otherwise consider necessary, but subject to such exclusions or other arrangements as the Board may deem necessary or expedient in relation to treasury shares, fractional entitlements, record dates, legal or practical problems in or under the laws of any territory or the requirements of any regulatory body or stock exchange; and b. the allotment (otherwise than pursuant to paragraph 6a above) of equity securities up to an aggregate nominal amount of £250,000. The power granted by this resolution will unless renewed, varied or revoked by the Company, expire at the conclusion of the next Annual General Meeting of the Company following the date of the passing of this resolution or (if earlier) 15 months from the date of passing this resolution, save that the Company may, before such expiry make offers or agreements which would or might require equity securities to be allotted after such expiry and the Directors may allot equity securities in pursuance of any such offer or agreement notwithstanding that the power conferred by this resolution has expired. This resolution revokes and replaces all unexercised powers previously granted to the Directors to allot equity securities as if section 561(1) of the 2006 Act did not apply, but without prejudice to any allotment of equity securities already made or agreed to be made pursuant to such authorities. 8. That the Company’s Articles of Association be replaced in their entirety with the draft new Articles of Association which have been uploaded to the Company’s website at https://arianaresources.com/investors/aim-rule-26. By Order of the Board dated 27 July 2020. 7 4 FINANCIAL REPORTARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019 Notes: 1. The notes in connection with the appointment of a proxy must be read subject to the overriding circumstances concerning attendance at the AGM as dictated by the COVID-19 pandemic, and described on page 73 of the annual report, which you are urged to read. 2. 3. As a member of the Company you are entitled to appoint a proxy to exercise all or any of your rights to attend, speak and vote at a general meeting of the Company. You can only appoint a proxy using the procedures set out in these notes. A proxy does not need to be a member of the Company but must attend the meeting to represent you. To appoint as your proxy a person other than the Chairman of the meeting, insert their full name in the box. If you sign and return this proxy form with no name inserted in the box, the Chairman of the meeting will be deemed to be your proxy. Where you appoint as your proxy someone other than the Chairman, you are responsible for ensuring that they attend the meeting and are aware of your voting intentions. If you wish your proxy to make any comments on your behalf, you will need to appoint someone other than the Chairman and give them the relevant instructions directly. Shareholders are reminded of the COVID 19 restrictions. 4. You may not appoint more than one proxy to exercise rights attached to any one share. 5. 6. 7. 8. 9. 10. 11. 12. To direct your proxy how to vote on the resolutions mark the appropriate box with an ‘X’. To abstain from voting on a resolution, select the relevant “Vote withheld” box. A vote withheld is not a vote in law, which means that the vote will not be counted in the calculation of votes for or against the resolution. If you give no voting indication, your proxy will vote or abstain from voting at his or her discretion. Your proxy will vote (or abstain from voting) as he or she thinks fit in relation to any other matter which is put before the meeting. To appoint a proxy you must ensure that the attached proxy form is completed, signed and sent to Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol BS99 6ZY by no later than 12 noon on 26 August 2020. In the case of a member which is a company, the Form of Proxy must be executed under its common seal or signed on its behalf by an officer of the company or an attorney for the company. Any power of attorney or any other authority under which this proxy form is signed (or a duly certified copy of such power or authority) must be included with the proxy form. In the case of joint holders, where more than one of the joint holders purports to appoint a proxy, only the appointment submitted by the most senior holder will be accepted. Seniority is determined by the order in which the names of the joint holders appear in the Company’s register of members in respect of the joint holding (the first-named being the most senior). If you submit more than one valid proxy appointment, the appointment received last before the latest time for the receipt of proxies will take precedence. CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so for the meeting (and any adjournment of the meeting) by following the procedures described in the CREST Manual available on the website of Euroclear UK and Ireland Limited (“Euroclear”) at www.euroclear.com. CREST Personal Members or other CREST sponsored members (and those CREST members who have appointed a voting service provider) should refer to their CREST sponsor or voting service provider, who will be able to take the appropriate action on their behalf. In order for a proxy appointment or instruction made by means of CREST to be valid, the appropriate CREST message (a “CREST Proxy Instruction”) must be properly authenticated in accordance with Euroclear’s specifications and must contain the information required for such instructions, as described in the CREST Manual. The message (regardless of whether it constitutes the appointment of a proxy or an amendment to the instruction given to a previously appointed proxy) must, in order to be valid, be transmitted so as to be received by Computershare Investor Services PLC. You may not use any electronic address provided in this proxy form to communicate with the Company for any purposes other than those expressly stated. Pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001, the time by which a person must be entered on the register of members in order to have the right to attend and vote at the Annual General Meeting is 6pm on 26 August 2020, (being not more than 48 hours prior to the time fixed for the Meeting) or, if the Meeting is adjourned, such time being not more than 48 hours prior to the time fixed for the adjourned meeting. Changes to entries on the register of members after that time will be disregarded in determining the right of any person to attend or vote at the Meeting. 13. Copies of the proposed new articles are available on the Company’s website by following this link https://arianaresources.com/investors/ aim-rule-26. A hard copy can be made available by calling on or by request in writing to Company Secretary at Ariana Resources plc, 2nd Floor, Regis House, 45 King William Street, London, EC4R 9AN. Relevant Securities means: • Shares in the Company other than shares allotted pursuant to: • an employee share scheme (as defined by section 1166 of the Act); • a right to subscribe for shares in the Company where the grant of the right itself constituted a Relevant Security; or • a right to convert securities into shares in the Company where the grant of the right itself constituted a Relevant Security. • Any right to subscribe for or to convert any security into shares in the Company other than rights to subscribe for or convert any security into shares allotted pursuant to an employee share scheme (as defined by section 1166 of the Act). References to the allotment of Relevant Securities in the resolution include the grant of such rights. 7 5 ARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019FINANCIAL REPORTAdvisors Directors M J de Villiers A K Sener W J B Payne C J S Sangster Secretary M J de Villiers Registered Office 2nd Floor, Regis House 45 King William Street London, EC4R 9AN Registered Number 05403426 Auditors PKF Littlejohn LLP 15 Westferry Circus, London, E14 4HD Bankers HSBC 186 Broadway, Didcot, Oxfordshire, OX11 8RP Solicitors Gowling WLG (UK) LLP 4 More London Riverside, London, SE1 2AU, United Kingdom Joint Broker Panmure Gordon (UK) Limited 1 New Change, London, EC4M 9AF Nominated Advisor and Joint Broker Beaumont Cornish Limited Bowman House, 29 Wilson Street, London, EC2M 2SJ Registrars Computershare Investor Services PLC The Pavilions, Bridgwater Road, Bristol, BS13 8AE Public Relations Yellow Jersey PR Top Floor, 70-71 Wells Street, London, W1T 3QE Design & Production by haywoodsener.com 7 6 FINANCIAL REPORTARIANA RESOURCES PLC - ANNUAL REPORT & ACCOUNTS 2019

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