TIDMCGH
RNS Number : 4121D
Chaarat Gold Holdings Ltd
26 June 2019
26 June 2019
Chaarat Gold Holdings Limited
("Chaarat" or the "Company")
PRELIMINARY ANNOUNCEMENT OF AUDITED FINANCIAL STATEMENTS FOR THE
YEARED 31 DECEMBER 2018
Chaarat (AIM:CGH), the AIM-quoted gold mining company with
assets in the Kyrgyz Republic and Armenia, today publishes its
preliminary results for the year ended 31 December 2018.
Highlights for the year
-- New and enlarged senior management team with extensive
industrial experience, incentivised by restrictive stock and option
scheme planned to be approved in 2019
-- Majority independent Board in place, with the addition of two
independent non-executive directors in 2018 and a further
independent non-executive director in 2019, bringing the total
number of independent non-executive board members to four
-- Tulkubash Measured and Indicated (M&I) Mineral Resource now over 1.6 million ounces of gold
-- 20,000 metres of diamond drilling completed at Tulkubash,
adding more than 650,000 ounces of gold to the Measured and
Indicated (M&I) Resource at a discovery cost of
US$11.40/ounce
-- US$120 million secured in financing in 2018 and the first
half of 2019, with minimal dilution to shareholders
-- Strengthened processes throughout the value chain to ensure
adherence to the highest international environmental, social and
corporate governance standards
Post-period highlights
-- Updated feasibility study for Tulkubash, resulting in a
significant capital expenditure optimization from US$132 million to
US$110 million
-- Over 3,800 (of planned 20,000) metres of drilling completed
at Tulkubash this year; expected to exceed 2 million ounces of gold
in Measured and Indicated JORC Resource categories in 2019
-- Acquisition of the Kapan mine turned the Company from a
developer to a producer, highlighting the management team's ability
to execute deals quickly, diligently and on accretive terms
-- Attracted an equity partner for Tulkubash and Kyzyltash,
based on an agreed valuation of US$252 million (post money) for the
two assets
Martin Andersson, Executive Chairman of Chaarat, commented:
"I am delighted with the progress we made in 2018, a year of
transformation for Chaarat Gold. The Company has executed a
full-scale management turnaround and we now have a world-class,
industrial team in place to execute on our strategy to create a
leading emerging markets gold company.
Last year's exploration drilling programme added a further
650,000 ounces of gold in Measured and Indicated Resource
categories at a discovery cost of US$11.40 per ounce. We expect
similar rates of success with this year's programme. Chaarat's
successful acquisition of the Kapan mine in Armenia in early 2019
was also a critical moment, turning the Company from a developer to
a producer in a single step.
This trajectory has continued into the first half of the year.
The Joint Venture with Çiftay represents a significant milestone
for the funding of Tulkubash and clearly demonstrates the Company's
intrinsic value. Meanwhile, an almost 40% year-on-year increase in
Tulkubash's gold reserves demonstrates the remarkable future growth
potential of the project.
I look forward to the rest of the year as we continue to build
an industry-leading Central Asia and FSU low cost gold producer
with a sound organic growth strategy supported by selective
M&A."
Enquiries
Chaarat Gold Holdings Limited
Artem Volynets (CEO) +44 (0)20 7499 2612
info@chaarat.com
Numis Securities Limited
John Prior, Paul Gillam (NOMAD) +44 (0) 20 7260 1000
James Black (Corporate Broking)
Powerscourt
Conal Walsh +44 (0)20 7250 1446
Sam Austrums chaarat@powerscourt-group.com
About Chaarat
Chaarat is a gold mining company which owns the Kapan operating
mine in Armenia as well as Tulkubash and Kyzyltash Gold Projects in
the Kyrgyz Republic. The Company has a clear strategy to build a
leading emerging markets gold company with an initial focus on
Central Asia and the FSU through organic growth and selective
M&A.
Chaarat is engaged in active community engagement programmes to
optimise the value of the Chaarat investment proposition.
Chaarat aims to create value for its shareholders, employees and
communities from its high-quality gold and mineral deposits by
building relationships based on trust and operating to the best
environmental, social and employment standards. Further information
is available at www.chaarat.com.
Chairman's Statement
It is a pleasure to report to all our stakeholders on what has
been a year of transformation for Chaarat Gold. We are moving
purposefully towards our goal of building a leading emerging
markets gold company focused on Central Asia and the Former Soviet
Union.
To all our stakeholders, I would like to reiterate our firm
commitment to adhering to the highest standards of sustainable
development and responsible mining. We are dedicated to caring for
the environment where we mine and the well-being of our employees.
Our actions are informed by and based on understanding and
respecting our local host communities. Being a responsible
corporate citizen is at the very core of our strategic
objectives.
The Company has executed a full-scale management turnaround and
now has a completely new senior management team with extensive
industrial expertise in building and managing mines, spotting
untapped exploration potential, and optimising opportunities via
cost-effective discovery.
Our two robust standalone projects, Tulkubash and Kyzyltash,
have shown material growth potential. We are confident that our
diversified portfolio of producing and developing mines will
generate the cash flow to fund ongoing organic growth and deliver a
strong equity return to investors.
Chaarat's successful acquisition of the Kapan mine in Armenia in
early 2019 was also a key milestone and a first step in our M&A
strategy. The acquisition turns the Company from a developer to a
producer in a single step. It also bears testament to our
management team's ability to execute deals quickly, diligently and
on accretive terms.
In June 2018, we were delighted to appoint Artem Volynets as
Chief Executive Officer. Artem's track record as a senior executive
and dealmaker in the global mining sector, combined with his
industry and investor connections in Russia and Asia, has been
invaluable. He brings more than 20 years' experience to Chaarat,
having led private and public transactions worth in excess of US$30
billion and managed leading businesses in the metals and mining
industry.
Our management team has also been significantly enhanced by the
addition of Chris Eger as Chief Financial Officer in August 2018.
Chris has comprehensive financial, M&A and commercial expertise
in the metals and mining sector, gained over a 20-year career in
investment banking, metals trading and private equity.
In June 2019, we were pleased to appoint Darin Cooper as Chief
Operating Officer. Darin has a career spanning more than 30 years
in the metals and mining industry, encompassing operations,
projects, restructuring and culture change.
Robert Benbow, previous Chief Operating Officer of Chaarat, will
continue to serve on the Board of the Company as a non-executive
director and he will remain chair of the Technical Committee.
Robert has been instrumental to the recent success of Chaarat and
will continue to play an important role at the Company, drawing on
his life-long experience of building and operating mines.
In recognition of the need for strong independent non-executive
director representation at Board level, we were pleased to welcome
to the Board two new independent Non-Executive Directors in 2018,
Robert Edwards in September and Hussein Barma in December, and one
further independent Non-Executive Director, Warren Gilman, in March
2019. I can confirm that we now have a majority independent Board
in place with a total of four independent Non-Executive Directors
including Gordon Wylie, Deputy Chairman and Senior Independent
Director.
Robert Edwards has worked in the global natural resources
industry for 27 years, with a particular focus on frontier markets.
His broad institutional and corporate experience, combined with his
industry insights, complement Chaarat's rapid expansion in the
Commonwealth of Independent States as we grow our asset base and
production capacity across the region.
Hussein Barma brings deep knowledge of the global mining
industry, compliance, audit and governance, having spent 15 years
at Antofagasta.
Warren Gilman has acted as advisor to the largest mining
companies in the world including BHP, Rio Tinto, Anglo American,
Noranda, Falconbridge, Meridian Gold, China Minmetals, Jinchuan and
Zijin and has been responsible for some of the largest equity
capital markets financings in Canadian mining history.
In March 2019, Martin Wiwen-Nilsson stepped down from his role
as non-executive director of the Company. He, instead, takes on a
role as senior advisor of the Company. He remains a shareholder in
Chaarat.
I believe we now have an effective, highly skilled and
experienced Board and management team in place, who are focused on
and collectively responsible for the long-term success of the
Company. I am delighted that the Chaarat team will also be fully
aligned with shareholders in creating value via direct stock
ownership and a performance based incentive programme.
I would like to thank all the members of the Board, including
its new and outgoing members, for their support and dedication, and
our management team and employees for their undivided commitment
and drive. I would like to extend my special thanks to all our
stakeholders for their continued backing over the years.
We look forward, with confidence, to the year ahead.
Martin Andersson
Executive Chairman
CEO Statement
I am delighted to write my first annual review as the Chief
Executive Officer of Chaarat Gold. 2018 has paved the way for an
exciting 2019. We have a clear strategy and we are delivering on
it. In the last 12 months, Chaarat has:
-- Fully refreshed its senior management
-- Transformed the Company from a developer to a producer
through its acquisition of the Kapan mine
-- Secured more than US$120 million in debt, convertible debt,
new equity and partner contributions
-- Increased the resource at Tulkubash by more than 60%, paving
the way for further resource increases
-- Optimised its feasibility study for Tulkubash, resulting in a
significant capital expenditure reduction of more than US$20m
-- Attracted an equity partner for Tulkubash, with a view to raising additional debt finance
-- Relisted on the Alternative Investment Market (AIM), attracting new institutional investors
We are focused on producing organic growth through an ambitious
and value-enhancing development programme for existing assets, and
delivering shareholder-accretive, transformational M&A.
Environmental, social and governance
In 2018 we strengthened our processes throughout the value chain
to ensure we adhere to the highest international environmental,
social and corporate governance standards.
Safety remains at the forefront of our decision making, with
international health and safety best practices used throughout our
operations and construction sites, complemented by a clear
reporting and remediation framework.
Environmental responsibility is a core value for Chaarat, and we
take as much care as possible to ensure we minimise damage to the
environments in which we work. We continuously measure the wider
impact of our activities, ensuring we adhere to all local and
international regulatory requirements, including recommendations
set out by the IFC Performance Standards on Environmental and
Social Sustainability.
Our long-term success relies on trusting and constructive
relationships with the communities who live and work beside us. We
have established a Regional Consultation Group to facilitate
communication and consultation with local communities. We also
continue to support the education and development of local
employees and children, invest in local business projects and
medical programmes and provide crucial infrastructure.
Alongside the European Bank for Reconstruction and Development
(EBRD), we are proud to sponsor an annual conference in London
promoting the benefits of doing business in the Kyrgyz Republic.
This forms part of our ongoing work with the EBRD and others to
promote responsible foreign direct investment in the region.
Kapan
2018 was a year of significant change for Chaarat, culminating
in the successful acquisition of Kapan Mining and Processing for a
consideration of US$55 million in early 2019, an attractive price
for the Company and its shareholders. The Kapan acquisition is an
excellent and complementary addition to Chaarat's portfolio,
elevating the Company from a developer to a producer, now with
three strong assets in two jurisdictions.
In 2017, the Kapan mine produced around 50 koz of gold
equivalent, generating more than US$20 million EBITDA and had gross
assets of US$96 million. In 2018, the Kapan mine produced around 51
koz of gold equivalent, generating a profit before tax of US$3.2
million, and had gross assets of US$93.3 million. Looking ahead, we
anticipate group production of approximately 65 koz of gold
equivalent in 2019.
We continue to pursue other selected M&A targets and believe
Chaarat is well positioned to be a driver of consolidation in our
target regions.
The Chaarat Project
Located in the prolific Tien Shan gold belt, the Chaarat Project
has the potential to become a significant producer alongside other
large mines in the area. An extensive drilling programme and
feasibility studies carried out over many years have revealed a
rich deposit of gold ore in the Tulkubash, Contact and Main zones
of the deposit.
We are very encouraged by the ongoing results of our drilling at
Tulkubash. Discovery costs per ounce and ounces discovered per
metre drilled are excellent and validate our belief that Tulkubash
will continue to grow into a world-class gold deposit. Indeed, we
are confident that this is the beginning of an emerging new gold
district.
The mineralisation remains open along strike, and we have
drilled only a small portion of the prospective 24-kilometre trend
of favorable geology and surface gold occurrences. We completed
approximately 20,000 m of drilling in 2018, delivering a 67%
increase in M&I resources. In June 2019, our most recent
feasibility study update reported a significant increase in
reserves and mine life. We also reported a reduction of more than
U$20 million in capital expenditure at Tulkubash.
We look forward to commencing development of Tulkubash in 2019
through our Joint Venture with Çiftay, the Turkish mining and mine
construction contractor. As announced in March 2019, Çiftay will
invest up to US$31.5 million for an equity stake of up to 12.5% in
Tulkubash and neighboring Kyzyltash based on an agreed valuation of
US$252 million (post money) for the two assets.
Çiftay's investment provides a significant amount of the
required equity for the Tulkubash project. Total capital
expenditure for the project is approximately US$110 million, and
after the Çiftay equity investment the vast majority of the
remaining capital expenditure is expected to be debt funded, thus
avoiding substantial dilution to Chaarat's shareholders, a key
strategic objective for the Company.
Çiftay's investment clearly demonstrates the inherent value of
Chaarat's assets in the Kyrgyz Republic and the significant
potential share price upside for investors. I would like to express
my sincere gratitude to the Çiftay team for their support for
Chaarat and the Tulkubash project. This agreement further
illustrates our focus on shareholder value and ability to
creatively fund the business on accretive terms.
Whilst Tulkubash is being put in construction, and expanded
through exploration, development of the large, high grade Kyzyltash
ore body presents the Company with a clear avenue for organic
growth. The Kyzyltash mineralisation also remains open along strike
and at depth, and further exploration has the potential to vastly
increase the size of the deposit.
I would like to thank both the Kyrgyz government and the local
population for their support for the Chaarat Project during 2018
and look forward to working with both as we develop further in 2019
and beyond.
Financing
Our fundraising efforts in 2018 reflect our commitment to
finance the Company's strategy while managing dilution and cost of
capital through a combination of debt, hybrid and equity
instruments.
In 2018 and the first half of 2019, we have secured more than
US$120 million in financing, with minimal dilution to shareholders.
This was achieved in a macro environment in which financing options
for small mining companies have been limited.
To finance the acquisition of Kapan, which was completed for a
total consideration of US$55 million on 30 January 2019, the
Company raised US$40 million of third-party bank funding, and
issued a convertible loan note for US$10 million. The US$5 million
balance was provided for in cash.
As explained above, the Company also agreed an investment of up
to US$31.5 million from Çiftay, its long-term mining and
construction partner for up to a 12.5% equity stake in Tulkubash
and Kyzyltash. It is intended that most of the remaining capital
expenditure in respect of these projects will be debt funded, in
order to avoid substantial dilution to Chaarat's shareholders.
Separately, Chaarat has secured circa US$45 million via
convertible bond issuances in 2018 and the first half of 2019,
secured a US$10 million loan agreement with a previous note holder
in the Company in November 2018, and raised US$2.7 million via new
equity issuance in May 2019, including director and management
input.
I am grateful that nearly all Chaarat's long-term investors have
taken the opportunity to increase their exposure in the Company.
These fundraises represent a clear expression of confidence in
Chaarat's growth trajectory from both internal and external
investors, who have subscribed for equity and bonds at respective
premiums to the share price. Management have also subscribed to
these fundraises, keeping their interests in line with those of all
investors.
Looking forward, Chaarat is well positioned to provide further
growth capital for its expanding projects and portfolio. We remain
firm in our commitment to growth and returns, catalysed by our
success thus far and confident in our future strategy.
To everyone who has been a part of Chaarat in 2018 - our
hardworking employees, investors, community partners and advisors -
a special thank you for your contribution. Much has been
accomplished. Much more remains to be done.
Artem Volynets
Chief Executive Officer
Operational review - Kapan
The Kapan Mine and Processing Company was acquired by Chaarat in
early 2019 for a consideration of US$55 million. The acquisition
was an important milestone in achieving Chaarat's goal of building
a leading emerging markets gold company with an initial focus on
Central Asia and the FSU through organic growth and selective
M&A. In particular, the Kapan Acquisition:
-- Demonstrates the Company's ability to execute deals quickly,
diligently and on accretive terms
-- Transformed Chaarat from a developer to a producer
-- Provides a catalyst for a potential re-rating
-- Strengthens the Company's portfolio of assets, with an
anticipated group production of approximately 65 koz Au Eq in 2019
(based on Chaarat management's analysis)
-- Provides the Company with additional finances for the
development of Tulkubash and Kyzyltash at the Chaarat Gold
Project
-- Vindicates Chaarat's ability to implement future mergers and acquisitions
-- Transforms Chaarat into a cashflow generating company with a significant growth profile
-- Has a valuation which the Directors believe is attractive;
anticipated to imply a P/ NPV 10 of 0.37x (based on Polymetal's
analysis) and 0.78x (based on Chaarat management's analysis)
Kapan accelerates Chaarat's transformation from a developer to a
producer with an anticipated group production of approximately 65
koz Au Eq in 2019. Chaarat is well placed to take advantage of the
opportunities presented by this cash-generative asset, which,
following significant investment in the asset over the last two
years, is estimated to grow production by approximately 30% per
annum in 2019 versus 2017.
Ownership 100% Measured & indicated 2,224 koz contained
Resources + Reserves metal; 10.59 Mt at
6.5 g/t (Au Eq)
Start 2003 Production c. 65 koz Au Eq/ year
Date
Extraction Underground Life of Mine 5+ years *
Process mining, 900kt
flotation
circuit
*The Life of Mine is expected to be extended beyond the 5
years.
Kapan Mining and Processing Company comprises one Mining Licence
and one Exploration Licence covering 90.7km(2) which draw from the
Shahumyan deposit. The Shahumyan mineralization is characterised by
narrow veins (0.2-2.0 m), steeply dipping (70deg-85deg), east-west
orientation, and contains gold-base metals (Cu-Zn-Pb-Au-Ag).
Meanwhile, Kapan comprises an automated underground mine with a
capacity of 700 ktpa, feeding an on-site crushing and grinding
facility followed by a conventional flotation circuit. The recently
renovated milling and flotation circuits have a capacity of 2,100
tpd (750 ktpa) and 2,300 tpd (840 ktpa) respectively, with
potential to expand capacity to 900 ktpa. Kapan produces copper and
zinc concentrate which is trucked to the Poti seaport in Georgia
(850km).
Production at Kapan commenced in 2003 and the current reserve
life extends to 2023; however, the Company believes that conversion
of current inferred resources to reserves and new exploration
success is likely to further extend the mine life. Indeed, the
Company's internal modelling assumes production will continue until
2029. For the year ended December 2018, the Kapan Mine produced
around 51 koz of gold equivalent, generating a PBT of US$3.2
million, and had gross assets of US$93.3 million.
Chaarat is currently executing several improvement programmes
for Kapan which prioritise safety, operating efficiency and cost
discipline. By maintaining a focus on these actions along with
active engagement with host communities, Chaarat believes that the
benefits of the acquisition and new management approach will
deliver considerable additional value to all stakeholders.
Operational review - Tulkubash
Overview: The Tulkubash oxide heap leach represents the first
phase of development for the Chaarat project via a simple, low-cost
processing method.
Resources: 1,624 koz at 1.20g/t defined within 4km of 24km
trend
Reserves: 658 koz at 0.92g/t (June 2019 Feasibility Study)
The Tulkubash oxide heap leach represents the first stage of the
development of the Chaarat Gold Project. The 2019 Feasibility Study
envisages production of 453 koz of recovered gold and 459 koz of
recovered silver over the life of mine, with average gold
production of 94 koz per annum, with peak production during steady
state operations in excess of 110 koz annually.
Chaarat retained LogiProc to update the existing Bankable
Feasibility Study of the Tulkubash Project prepared by TetraTech in
April 2018. There have been significant additions to the Resource
since the Feasibility Study was updated, including an indicated
initial five-year mine life.
The current mine plan and process facility design is based on a
Proven and Probable reserve of 22.2 Mt grading 0.92 g/t gold
containing 658 koz, an increase of 39% from the April 2018
Feasibility Study. The open pit mining schedule envisages an
initial life of mine based on the current reserve of 5.3 years. The
nominal processing rate is 4.9 million tonnes of ore per annum, at
an average life of mine strip ratio of 2.64 (waste:ore).
Geology and Exploration
Gold mineralisation at Tulkubash, a thickly bedded massive
quartzite, occurs in quartzite breccias, quartz stockwork zones,
and intensely silicified quartz flooded zones that form multiple
parallel lodes trending northeast and dipping 60-80deg to the
northwest. The individual gold-bearing lodes combine to form a
mineralised zone that varies from 110 to 250 metres wide that has
been developed over a strike length of approximately 4 kms.
Mineralisation is open to the northeast along strike and down dip
below the limits of the current drilling (+/-150 metres). The gold
is very fine grained and is associated with minor pyrite and
stibnite. The Tulkubash Zone is strongly oxidised and contains free
milling ore suitable for heap leach processing.
During 2018, approximately 20,000 metres of diamond drilling was
completed at Tulkubash. This drilling extended strike length of the
deposit to extend the strike extent of the heap leachable material
by approximately 1.2 kilometres ("km") and added more than 650,000
ounces of gold to the Measured and Indicated (M&I) Resource at
a discovery cost of about $11.40/ounce per kilometre. M&I
Resource grade was increased to 1.20 g/t Au from 0.86 g/t Au in the
2017 year-end Resource estimate.
The 2019 drilling season has already commenced with ten rigs
currently operating on site. The drilling continues to demonstrate
the strong continuity along strike of the Tulkubash mineralisation
and the Company expects similarly strong results to 2018.
Resources as at 31 December Tonnes Au grade Content
2018Tulkubash open pit heap (kt) (g/t) (koz)
leach
cut-off grade ("COG") 0.3
g/t Au
Measured 5,660 1.35 246
------- --------- --------
Indicated 36,300 1.18 1,378
------- --------- --------
Measured & Indicated 41,960 1.20 1,624
------- --------- --------
Inferred 2,330 0.46 33
------------------------------ ------- --------- --------
1. Chaarat has used a COG of 0.3 grams per tonne ("g/t") on the
basis of the likely economic cut-off for open pit mining and heap
leach processing.
2. Quantity and grade are estimates and are rounded to reflect
the fact that the resource estimate is an approximation.
3. Mineral resources are not ore reserves and do not have
demonstrated economic viability. There is no certainty that all or
any part of the mineral resource will be converted to reserves.
Tulkubash Mineral Resource at 0.3g/t Cut-Off Grade
31 January 2018 31 December 2018
--------------------------- --------------------------
Tonnes Au grade Gold Tonnes Au grade Gold
(kt) (g/t) (koz) (kt) (g/t) (koz)
----------- -------- --------- ------ ------- --------- ------
Measured 22,915 0.88 647 5,660 1.35 246
----------- -------- --------- ------ ------- --------- ------
Indicated 12,329 0.82 324 36,300 1.18 1,378
----------- -------- --------- ------ ------- --------- ------
Total M&I 35,244 0.86 971 41,960 1.20 1,624
----------- -------- --------- ------ ------- --------- ------
Inferred 3,782 0.68 83 2,330 0.46 33
----------- -------- --------- ------ ------- --------- ------
Ongoing exploration
Pre-production mining is planned to start in December 2020 and
continues until Q4 of 2021. In December 2021, gold production will
start and continue for 5.3 years to the end of 2026.
The life of mine is expected to grow significantly from 5.3
years since the current resource and reserve is only based on drill
testing around 4km of a 24km strike length of favourable geology.
Chaarat management believe there is a high probability that
additional resources and reserves will be added.
The reserve and resource for the current mine life is derived
from approximately 4kms of a defined 24km strike length for the
Tulkubash trend, with mineralisation remaining open along strike.
Numerous occurrences of outcropping ore-grade gold mineralisation
and high-grade gold in soil anomalies have been defined along this
trend within the existing Chaarat mining and exploration licences.
Tulkubash is now seen as an emerging gold district, with potential
to host multiple gold deposits.
The 2019 drilling programme has already started, with a budget
for 20,000m of drilling in the year. The 2019 drill programme will
focus on extending mineralisation along strike from the current
resource and on infill drilling to improve project economics in
select areas within the current resource footprint. The Company
anticipates an ongoing drill budget of 15,000m to 20,000m per year
thereafter.
In March 2019, Chaarat entered into a Joint Venture with Çiftay
İnsaat Tahhüt ve Ticaret A.S., the Turkish mining and mine
construction contractor, to collaborate on its assets in the Kyrgyz
Republic. Çiftay, a partner since 2017, mobilised equipment to the
Tulkubash site in the Chatkal Valley in 2018 and will be appointed
as construction and long-term mining contractor for the Tulkubash
project in 2019.
Under the agreement, Çiftay will commence earthworks at
Tulkubash in 2019, negotiated at arms-length rates, which represent
an improvement to the terms indicated in the 2018 Feasibility
Study.
Chaarat continues to advance detailed engineering and has
finalized several project components for immediate construction
readiness at Tulkubash. Çiftay has earthworks equipment at the mine
site and constructed a temporary construction camp in 2018 to be
ready to start major earthworks in 2019.
The Company sees potential to increase significantly the
existing Tulkubash resources prior to the first gold pour in 2021
and believes that exploration success will continue to add gold
resources in future years. The Company's upcoming and ongoing drill
programmes are designed to maximise the ratio of Resources
converted to Reserves, using enhanced understanding of the
geological controls on mineralisation and economic constraints on
Reserve classification as defined by the feasibility study.
Feasibility study
Chaarat retained LogiProc to update an existing Bankable
Feasibility Study of the Tulkubash Gold Project prepared by
TetraTech in April 2018, that details its scope, design features
and economic viability.
The update confirmed an initial blueprint for the development of
the Project:
-- Initial reserve base of 22.2 Mt ore grading 0.92g/t gold
containing 658,000 ounces of gold, an increase of 39%
-- Average gold production of 94,000 ounces per annum, with peak
production during steady state operations in excess of 111,000
ounces per annum
-- Average cash operating cost of US$678 per ounce
-- All-in sustaining cost of US$819 per ounce, including all taxes
-- Ongoing exploration in 2019 and beyond expected to significantly add to existing reserves
-- Tulkubash is now seen as an emerging gold district, with
potential to host multiple gold deposits
-- Significant capital expenditure optimisation, which has
resulted in an overall reduction from US$132 million to US$110
million
-- Improved post tax net present value of US$70 million (at 5%
discount rate) and internal rate of return of 20%
-- Projected annual post tax free cash flow of US$44 million
during steady state operational period
Completion of the 2019 Tulkubash Feasibility Study Update
reaffirmed management's belief that the oxide gold project has the
potential to deliver strong operational cash flow over several
years.
The initial post-tax net present value for Tulkubash, using a 5%
discount rate and a long-term gold price of US$1,300 per ounce, is
projected to increase to US$70 million with an undiscounted total
cash flow of US$114 million. These metrics are expected to be
significantly enhanced as ongoing exploration extends the reserve
base along strike. The deposit will be developed by a mining
contractor using conventional open pit mining methods. Processed
ore will be subject to three-stage crushing to produce 12.5
millimetres ("mm") product which will be stacked at a rate of
13,500 tonnes per day on a conventional valley fill heap leach pad
with an initial capacity of 16 Mt. All personnel will be housed in
an on-site camp. Diesel-generated power totalling 4MW will serve
process and support facilities. Roads and infrastructure have been
designed and sited to respect regulatory requirements, minimise
risk, and promote efficient operation.
Gold production is expected to start In December 2021 and
continue for 5.3 years until 2026. Operations will process 4.9 Mt
of ore annually once ramp-up is complete in 2020. Silver totalling
459 koz will also be produced over the life of the project.
A significant outcome of the 2019 Feasibility Study is the
reduction in anticipated initial capital investment from around
US$132 million to US$109.7 million, which includes a US$10 million
contingency.
The life of mine average mining cost for the project is US$1.88
per tonne mined. This cost covers both ore and waste as well as
ex-pit haulage of 5km from the mine to the run-of-mine pad. Life of
mine process costs are US$4.75 per tonne processed. General and
administrative costs total US$1.55 per tonne processed over the
life of mine including the owner's cost for mining management,
technical support, and grade control. All costs are inclusive of
12% VAT where appropriate.
Reserves as at 1 April 2019
Tulkubash open pit heap Tonnes Au grade Content
leach (kt) (g/t) (koz)
COG 0.37-0.40 g/t Au
Proven 6,750 0.95 206
------- --------- --------
Probable 15,430 0.91 451
------- --------- --------
Proven & probable 22,180 0.92 658
------- --------- --------
1. Ore reserves are reported with appropriate modifying factors of dilution and recovery.
2. Quantities may not add or multiply due to rounding.
3. Ore reserves based on a gold price of US$1,250 per ounce.
Discovery costs per ounce and ounces discovered per metre
drilled at Tulkubash are impressive and continue to validate
management's belief that Tulkubash will continue to grow into a
world-class gold deposit. Indeed, recent resource updates continue
to suggest the emergence of a significant new gold district.
Operational review - Kyzyltash
Overview: The large, high grade Kyzyltash sulphide ore body will
form the second phase of development at the Chaarat project.
Resources: 5,377 koz at 3.75g/t defined within 3km of 24km
trend
The Kyzyltash ore body represents most of the currently defined
mineralisation at the Chaarat project and provides Chaarat with a
clear path to organic growth. The mineralised zones occur within
two subparallel northeast-trending structural zones that have been
traced for 10km along strike.
Due to the more complex, refractory nature of the
mineralisation, Kyzyltash will be developed once the Tulkubash
project is in production. Based on the work performed by NERIN,
Kyzyltash has the potential to produce 200,000-300,000 ounces of
gold per annum at low operating cash costs. In the medium term, the
Company's expectation is to have both Kyzyltash and Tulkubash in
production in parallel, producing up to 400,000 ounces of gold per
annum from the Chaarat Gold Project.
Mineral Resources
Following the update to the 2016 resource for Tulkubash, the
Kyzyltash resources were restated at a cut-off grade of 2.0 g/t.
This is based on a block model which had been prepared on a basis
suitable for selective mining in an underground environment.
Underground Tonnes Au grade Content
COG 2.0 g/t Au (kt) (g/t) (koz)
Measured 6,722 3.26 681
------- --------- --------
Indicated 32,794 3.79 3,864
------- --------- --------
Measured & Indicated 39,516 3.70 4,545
------- --------- --------
Inferred 6,611 4.05 832
------- --------- --------
Total 46,127 3.75 5,377
------- --------- --------
1. The Kyzyltash resource is based on the block model originally
developed for the November 2014 resource update.
2. Resources have been stated on the basis of underground mining
as this reflects the selectivity of mining consistent with the
estimation parameters.
3. The potentially open pitable resources at Kyzyltash,
previously announced in 2016, have not been re-estimated to
understand the impact of dilution - all resources have been
included within the underground mineable resource table.
4. A new block model would be required prior to reporting
resources at Kyzyltash suitable for open pit mining.
5. The underground resources at Kyzyltash have been reported at
a cut-off grade of 2.0g/t. The previously reported underground
mineable resources in 2016 were reported at a cut-off grade of
1.8g/t.
Whilst the Kyzyltash resource constitutes a large ore body
capable of generating a robust mine life for initial development,
the mineralisation remains open both along strike and at depth.
Development options
Building on the foundation of the NERIN feasibility study,
Chaarat will continue advancing technical studies on the Kyzyltash
Project. Ongoing work will include further metallurgical testing, a
review of the most appropriate mining method, and a review of the
optimal processing plant layout given the infrastructure in place
for the Tulkubash heap leach processing facility. This will develop
an optimised and updated feasibility study.
Kyzyltash is expected to produce gold through a refractory
processing plant recovering gold via pre-oxidation followed by
direct cyanidation. Ore will be sourced from higher grade
underground stopes accessible via simple adit development into the
hillside, which could be augmented by ore accessible via open pit
mining. The currently defined resource of 5.4million ounces of gold
is potentially capable of supporting at least a seven to eight-year
mine life at a production rate of 200,000-300,000 ounces of gold
per year.
On completion of an updated feasibility study for Kyzyltash, the
decision to commence construction will be dependent on the Group's
cash flow and development plans, as the Company's balance sheet
continues to be strengthened by Tulkubash production and the
results of merger and acquisition activity.
Operational review - Regional exploration
Located in the prolific Tien Shan gold belt, the Chaarat Project
has the potential to become a significant producer alongside other
large mines in the area. Chaarat already has six million ounces of
gold resources and a large, underexplored area with the potential
to add significantly more.
The Chaarat mining and exploration licences are best viewed as
comprising an emerging gold district, not simply two deposits. The
Company believes that it has only just begun to develop the
potential of this emerging district. As a rough comparison the
Company's land position comprises a surface area approximately
40-50% the size of the Carlin trend in Nevada, which started with
one mine in the 1960s and has since produced more than 50 million
ounces of gold. Chaarat plan to use its internally generated free
cash flow to explore and define the long-term potential of the
Chaarat District.
In 2019, exploration work will continue in the large exploration
licence to the north-east of the six-kilometre Chaarat mining
licence.
-- Initial reconnaissance drilling will be undertaken on a large
soil anomaly at Ishakuldy, approximately 10km along strike from the
proposed Tulkubash open pit.
-- Detailed mapping, trenching and surface sampling to develop
long-term drill targets will be carried out in the unexplored area
between the mining licence boundary and the Ishakuldy soil
anomaly.
-- Beyond the Ishakuldy soil anomaly, district scale exploration
of the trend will continue. This will include a stream sediment and
panned concentrate sampling programme supported by a remote
camp.
Financial review
In August 2018, Chaarat received commitments for US$17.6 million
in the first phase of a convertible debt placement with existing
convertible investors, as well as select new investors. The Company
received strong support from its long-term convertible investors
holding existing convertible notes, substantially all of whom
converted into new ordinary shares in the Company and/or rolled
their convertible proceeds and subscribed to the new instrument,
providing incremental growth capital to the Company.
In November 2018, Chaarat entered into a loan agreement with a
previous note holder in the Company, to secure funding of US$10
million to support the Group's activities including the Kapan
acquisition. The loan reflects Chaarat's commitment to finance the
Company's strategy while managing dilution and cost of capital
through a combination of debt, hybrid and equity instruments. In
the same month, Chaarat entered into agreements with two investors
for the subscription and issue of secured convertible notes for
US$600,000 and US$400,000 respectively. Chaarat secured a further
US$10.6 million in early 2019, which includes the US$10 million
convertibles issued to PMTL as part of the acquisition of Kapan,
bringing the total number of notes in issue to US$29.2 million. In
addition, at 1 April 2019 the Group had received a signed
commitment for a US$10 million subscription for convertible bonds
by a new investor. In late May 2019 this commitment was increased
to US$15 million. The Group expects to receive the subscription
proceeds in early July 2019.
In December 2018, the Group entered into a committed revolving
term loan facility agreement with Labro Investments Limited
("Labro") for a total amount of US$15 million (the "Labro Loan
Agreement"). The facility is for the general corporate purposes of
the Group and can be drawn down by the Group at any time before its
maturity. To date US$2.5 million has been drawn down, US$0.5
million has subsequently been repaid, and US$12.5 million remains
available to the Group.
Chaarat's fundraising has been, and will be, used to support the
Company's M&A consolidation strategy and the development of
Tulkubash. Investment in Chaarat in 2018 reflects a clear
expression of confidence in the Company's management and its
strategy and demonstrates Chaarat's inherent value. The Board and
management team remain committed to appropriately fund the business
on accretive terms whilst minimising shareholder dilution.
In early 2019, Chaarat completed the acquisition of Kapan Mining
and Processing Company CJSC from PMTL Holding Ltd, a subsidiary of
Polymetal International Plc for a total consideration of US$55
million (subject to net debt and working capital adjustments). This
comprised US$10 million settled on completion in convertible loan
notes; US$5 million paid as a deposit in November 2018; and US$40
million of third-party bank funding.
During 2019, Chaarat intends to invest further significant sums
in the development of the Tulkubash project following the Company's
Joint Venture with Çiftay İnsaat Tahhüt ve Ticaret A.S., the
Turkish mining and mine construction contractor. Under the
agreement, based on an agreed valuation of US$252 million (post
money) for Tulkubash and Kyzyltash, Çiftay will progressively
invest up to US$31.5 million for a 12.5% equity stake in Chaarat's
mining projects in the Kyrgyz Republic.
Çiftay's investment provides a significant amount of the
required equity for the Tulkubash project. Total capital
expenditure for the project is approximately US$110 million, and
after the Çiftay equity investment most of the remaining capital
expenditure is expected to be debt funded, thus avoiding
substantial dilution to Chaarat's shareholders. Chaarat is in the
process of securing the remaining project financing which is
targeted to close in Q4 2019. Further details of the Group's status
as a going concern are set out in the Directors Report and note 2
to the financial statements.
Consolidated Income Statement
For the year ended 31 December 2018
2018 2017
Note US$'000 US$'000
Exploration expenses (1,692) (1,850)
Impairment of Assets under Construction 12 - (10,008)
Administrative expenses 4 (12,013) (4,746)
Total administrative expenses (13,705) (16,604)
Other operating income 24 8
Operating loss 3 (13,681) (16,596)
Interest receivable - 69
Interest payable 8 (3,361) (1,565)
Loss before and after tax for the year,
attributable to equity shareholders of the
parent (17,042) (18,092)
Loss per share (basic and diluted) - US$
cents 10 (4.52) (5.14)
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2018
2018 2017
US$'000 US$'000
Loss for the year, attributable to equity
shareholders of the parent (17,042) (18,092)
Other comprehensive income:
Items which have been reclassified to profit
and loss
Exchange differences on translating foreign 74 -
operations liquidated during the year
Items which may subsequently be reclassified
to profit and loss
Exchange differences on translating foreign
operations and investments - 455
Other comprehensive income for the year,
net of tax 74 455
Total comprehensive loss for the year attributable
to equity shareholders of the parent (16,968) (17,637)
----------------------------------------------------- ---------- ----------
Consolidated Balance Sheet
As at 31 December 2018 2018 2017
Note US$'000 US$'000
------------------------------------- ------ ---------- ----------
Assets
Non-current assets
Exploration and evaluation costs 11 43,527 31,385
Other Intangible assets 54 9
Property, plant and equipment 12 5,094 3,252
Total non - current assets 48,675 34,646
------------------------------------- ------ ---------- ----------
Current assets
Trade and other receivables 13 190 194
Prepayment on acquisition of Kapan 13 5,000 -
Cash and cash equivalents 14 1,168 7,461
Total current assets 6,358 7,655
Total assets 55,033 42,301
------------------------------------- ------ ---------- ----------
Equity and liabilities
Equity attributable to shareholders
Share capital 15(b) 3,951 3,569
Share premium 15(b) 152,063 138,184
Share warrant reserve 15(d) 1,352 1,352
Convertible loan note reserve 15(f) 2,360 867
Merger reserves 10,885 10,885
Share option reserve 15(c) 1,414 2,912
Shares to be issued 15(e) - 1,926
Translation reserve (15,398) (15,472)
Accumulated losses (132,984) (118,952)
------------------------------------- ------ ---------- ----------
Total equity 23,643 25,271
------------------------------------- ------ ---------- ----------
Liabilities
Non-current liabilities
Convertible loan note 18 16,303 -
------------------------------------- ------ ---------- ----------
Total non-current liabilities 16,303 -
------------------------------------- ------ ---------- ----------
Current liabilities
Trade and other payables 16 4,924 600
Other liabilities 17 10,163 1,000
Convertible loan note 18 - 15,430
------------------------------------- ------ ---------- ----------
Total current liabilities 15,087 17,030
------------------------------------- ------ ---------- ----------
Total liabilities 31,390 17,030
------------------------------------- ------ ---------- ----------
Total liabilities and equity 55,033 42,301
------------------------------------- ------ ---------- ----------
Consolidated Statement of Changes in Equity
For the Year Ended Share Convertible Share Shares
31 December 2018 Share Share warrant loan note Merger option to be Translation Accumulated
Capital Premium reserve reserve Reserve Reserve issued Reserve losses Total
Note US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
As at 1
January
2017 3,518 136,554 1,358 - 10,885 3,964 - (15,927) (102,755) 37,597
Loss for the
year - - - - - - - - (18,092) (18,092)
Currency
translation - - - - - - - 455 - 455
--------------- ------ ------- ------- ------- ----------- ------- ------- ------- ----------- ----------- --------
Total
comprehensive
income for
the
year - - - - - - - 455 (18,092) (17,637)
--------------- ------ ------- ------- ------- ----------- ------- ------- ------- ----------- ----------- --------
Share options
lapsed - - - - - (1,895) - - 1,895 -
Share options
expense - - - - - 875 - - - 875
Share options
exercised 4 109 - - - (32) - - - 81
Issuance of
shares
for cash 15 (b) 46 1,498 - - - - - - - 1,544
Shares to be
issued 15 (e) - - - - - - 1,926 - - 1,926
Exercise of
warrants 1 23 (6) - - - - - - 18
Equity element
of
convertible
loan note 15 (f) - - - 867 - - - - - 867
--------------- ------ ------- ------- ------- ----------- ------- ------- ------- ----------- ----------- --------
As at 31
December
2017 3,569 138,184 1,352 867 10,885 2,912 1,926 (15,472) (118,952) 25,271
--------------- ------ ------- ------- ------- ----------- ------- ------- ------- ----------- ----------- --------
Loss for the
year - - - - - - - - (17,042) (17,042)
Translation
losses
for
liquidated
subsidiary 74 74
--------------- ------ ------- ------- ------- ----------- ------- ------- ------- ----------- ----------- --------
Total
comprehensive
income for
the
year - - - - - - - 74 (17,042) (16,968)
--------------- ------ ------- ------- ------- ----------- ------- ------- ------- ----------- ----------- --------
Share options
lapsed - - - - - (1,857) - - 1,857 -
Share options
expense - - - - - 377 - - - 377
Share options
exercised 2 63 - - - (18) - - - 47
Issuance of
shares
for cash 15 (b) 145 4,738 - - - - (1,926) - - 2,957
Conversion of
loan notes 230 8,858 - (1,153) - - - - 1,153 9,088
Equity element
of
convertible
loan note 15 (f) - - - 2,646 - - - - - 2,646
Issuance of
shares
for a fee 5 220 - - - - - - - 225
As at 31
December
2018 3,951 152,063 1,352 2,360 10,885 1,414 - (15,398) (132,984) 23,643
--------------- ------ ------- ------- ------- ----------- ------- ------- ------- ----------- ----------- --------
Consolidated Cash Flow Statement
For the Year Ended 31 December 2018 2018 2017
Note US$'000 US$'000
------------------------------------------------------ ---- -------- -----------------
Cash flows used in operating activities
Operating loss (13,681) (16,596)
Depreciation and amortisation 3 326 333
(Gain) on disposal of property, plant and equipment 3 (7) (8)
Provision for inventories - 267
Translation losses for liquidated subsidiary 74 -
Reversal of provision (50) -
Impairment of assets under construction 12 10,008
Share based payments 3 377 875
Increase in interest payable 17 239 -
Increase in inventories - (58)
Decrease in accounts receivable 4 172
Increase in accounts payable 3,875 37
Net cash flow used in operations (8,843) (4,970)
------------------------------------------------------ ---- -------- -----------------
Investing activities
Purchase of tangible fixed assets 12 (2,165) (2,754)
Exploration and evaluation costs 11 (12,142) (7,879)
Prepayment on acquisition of Kapan 13 (5,000) -
Proceeds from sale of property, plant & equipment 8 27
Interest received 11 69
------------------------------------------------------ ---- -------- -----------------
Net cash used in investing activities (19,288) (10,537)
------------------------------------------------------ ---- -------- -----------------
Financing activities
Proceeds from issue of share capital, net of
costs 3,004 1,643
Receipt of funds for shares to be issued - 1,926
Proceeds from convertible loan notes issued,
net of costs 18 13,554 14,732
Receipt of funds for convertible loans to be
issued 17 - 1,000
Payment of funds for redemption
of convertible loans 18 (4,620) -
Proceeds from loans 17 9,924 -
------------------------------------------------------ ---- -------- -----------------
Net cash from financing activities 21,862 19,301
------------------------------------------------------ ---- -------- -----------------
Net change in cash and cash equivalents (6,269) 3,794
Cash and cash equivalents at beginning of the
year 7,461 3,285
Effect of changes in foreign exchange rates (2) 382
------------------------------------------------------ ---- -------- -----------------
Cash and cash equivalents at end of the year 14 1,168 7,461
------------------------------------------------------ ---- -------- -----------------
Notes:
1. Preparation of accounts
The financial information set out in this announcement does not
constitute the Company's annual accounts for the years ended 31
December 2018 and 31 December 2017.
The consolidated balance sheet at 31 December 2018, the
consolidated income statement, consolidated statement of
comprehensive income, consolidated statement of changes in equity,
consolidated cash flow statement and associated notes for the year
then ended have been extracted from the Group's 2018 annual
financial statements upon which the auditors' opinion is
unqualified and includes a material uncertainty statement relating
to going concern.
2. Significant accounting policies
The accounting policies and presentation followed in the
preparation of these final results have been consistently applied
to all periods in these financial statements and are the same as
those applied by the Group in the preparation of its annual
accounts for the year ended 31 December 2017.
3. Loss per share
Loss per share is calculated by reference to the loss for the
year of US$17,042,000 (2017: US$18,092,000) and the weighted
average number of ordinary shares in issue during the year of
377,347,795 (2017: 351,912,981).
At 31 December 2018 22,367,521 (2017: 22,367,521) warrants,
18,922,066 (2017: 28,676,088) share options and convertible loan
notes have been excluded from the diluted weighted average number
of ordinary shares calculation because their effect would have been
anti-dilutive. Subsequent to the year-end the Company has issued
additional equity, as set out in note 5, which would have affected
the number of ordinary shares in issue.
4. Going concern
As at 31 May 2019 the Group had approximately US$2.7 million of
cash and cash equivalents and US$80.7 million of debt (excluding
accrued interest, the terms of which are disclosed in the notes)
comprising the following:
- US$29.2 million Convertible loan note, repayable on 31 October
2021, excluding accrued interest to date (note 18 of the annual
report)
o Of the total Convertible loans outstanding, $10 million, which
was issued in connection with the acquisition of Kapan after the
year end (note 5), has the same contractual terms as the other
Convertible Notes however the lender also has an option to require
early repayment of the loan on 30 September 2020.
- US$10 million loan, repayable on 13 August 2019, excluding
interest to date (note 17 of the annual report).
- Remaining term loan for $39.5 million entered into in
connection with the acquisition of Kapan after the year end. The
loan is repayable through quarterly instalments over a period of
four years, the final payment being January 2023.
- On 12 December 2018, the Group entered into a committed
revolving term loan facility agreement with Labro Investments
Limited ("Labro") for a total amount of US$15 million (the "Labro
Loan Agreement"). The facility is for the general corporate
purposes of the Group and can be drawn down at the full discretion
of the Group at any time before its maturity. To date US$2.5
million has been drawn down, US$0.5 million has subsequently been
repaid, US$2 million is still outstanding and a further US$ 12.5
million remains available to the Group (note 19 of the annual
report).
In addition, at 1 April 2019 the Group had a received a signed
commitment for a US$10 million subscription for convertible bonds
by a new investor. In late May 2019 this commitment was increased
to US$15 million. The Group expects to receive the subscription
proceeds in early July 2019.
The Board has reviewed the Group's cash flow forecast for the
period to 31 December 2020. As explained further below, the Board
expects that additional funding will be received. However, for the
purpose of making an assessment of going concern, the cash flow
forecasts reviewed by the Board exclude additional funding which is
not contractually committed and also exclude discretionary
expenditure in relation to the Kyrgysztan projects.
Plans to develop the Tulkubash project remain subject to the
Group raising sufficient funds. The Group plans a 20,000-metre
exploration programme in 2019 to extend the Tulkubash heap
leachable resources, and this also remains subject to the Group
raising sufficient funds.
The Board have based the cash flow forecasts for Kapan on the
most recent budgets, taking into account actual performance to
date. The Group's cash flow forecasts show that the Group would
have sufficient resources to fund a 10% decrease in gold prices or
5% decrease in the expected grade or recovery rate. If there was an
unexpected adverse combination of these factors, the Group would
require further additional funding.
Whilst Kapan is forecast to generate a minimal amount of free
cash flow to fund the Group's other projects, additional fund
raising is expected to be completed before the end of the fourth
quarter of 2019 in order to maintain the growth projects across the
group and repay the Group's loan obligations which fall due in 2019
and 2020. There are currently minimal commitments in respect of
Tulkabash and should additional funds not be available, the Group
has the discretion and ability to dramatically reduce cash
expenditures across the group in order to conserve cash. On this
basis, the Group forecasts it would be able to meet its liability
obligations over the course of the next 13 months as a result of
drawing on the Labro Loan facility. Additional funds would be
required to repay the US$10 million term loan and the Labro Loan
which are due on 13 August 2019 and 14 July 2020 respectively.
Notwithstanding, the fact the Group has received confirmation from
the new investor, if the US$15 million cash subscription to
convertible bonds is not received then the Group will utilise the
Labro facility and/or require additional debt funding in order to
repay the US$10 million loan, repayable on 13 August 2019.
The Board has confidence in the Group's ability to raise
additional funds as demonstrated by the Group's established track
recorded in historical fund raisings and refinancing events.
Furthermore, as a result of the updated Feasibility Study for
Tulkubash, management has launched a Project Finance process which
is expected to provide funding for the construction of
Tulkubash.
Subject to the above, which the Board is confident can be
achieved, the Directors have concluded that it is appropriate to
prepare the financial statements on a going concern basis. However,
there are currently no binding agreements in place in respect of
any additional funding and therefore, as set out above, this
indicates the existence of a material uncertainty which may cast
significant doubt over the Group's ability to continue as a going
concern and, therefore, it may be unable to realise its assets and
discharge its liabilities in the normal course of business. The
financial statements do not include the adjustments that would
result if the Group was unable to continue as a going concern.
5. Post balance sheet events
Kapan Acquisition
On 30 January 2019, Chaarat Gold International Limited, a
subsidiary of Chaarat Gold Holdings Limited, acquired 100 percent
of the issued share capital of Kapan Mining and Processing Company
CJSC, a company incorporated in the Republic of Armenia which
produces gold-copper-silver and zinc concentrates.
The cost of the acquisition was US$55 million (subject to net
debt and working capital adjustments which are yet to be finalised)
which comprised cash consideration of US45 million and convertible
loan note of US$10 million. The convertible loan note was issued to
the seller PMTL Holding Ltd and the terms of the loan note are as
per the 2021 loan notes as disclosed in note 18 of the annual
report however the lender also has an option to require early
repayment of the loan on 30 September 2020. Acquisition-related
costs of US$3,482,000 were charged to administrative expenses in
the consolidated income statement as at 31 December 2018.
The provisional fair values of the assets and liabilities of
Kapan Mining and Processing Company CJSC at 30 January 2019 are set
below:
Provisional
fair value
at date
of acquisition
US$'000
Intangible fixed assets 88
Tangible fixed assets 58,794
Inventories 18,071
Trade receivables 5,504
Other receivables 2,697
Deferred income tax asset 4,019
Prepayments 488
Cash and cash equivalents 1,534
----------------------------- -----------------
Total assets 91,195
----------------------------- -----------------
Borrowings 11,130*
Trade payables 5,062
Other payables 4,173
Provisions 12,763
Total liabilities 33,128
----------------------------- -----------------
Net assets 58,067
----------------------------- -----------------
*This liability is payable to Chaarat Gold International
Limited, a 100% owned subsidiary within the Chaarat Gold Group, and
as such is US$ Nil on a consolidated basis.
As at the date these financial statements were authorised for
issue, the fair value exercise had not been completed and as such
the values above are the provisional fair values. The Company is
currently is undertaking an assessment of the fair values of the
assets and liabilities acquired, as required by IFRS 3. The
consideration for the Kapan acquisition is also subject to
adjustments for working capital and royalty obligation, the fair
value of which is being assessed in line with terms of the
contract.
Ciftay Joint Venture
On 15 March 2019 the Company announced that it has signed a
binding term sheet to enter into a Joint Venture with Çiftay İnsaat
Tahhüt ve Ticaret A.S. ("Çiftay"), the Turkish mining and mine
construction contractor, to collaborate on the Tulkubash and
Kyzyltash projects in the Kyrgyz Republic. The agreement is based
on a valuation of US$252 million (post money) for the two assets,
Çiftay will progressively invest up to US$31.5 million for up to
12.5% equity stake in Chaarat's mining projects Tulkubash and
Kyzyltash in the Kyrgyz Republic.
Çiftay's investment provides a significant amount of the
required equity for the Tulkubash project. Total capital
expenditure for the project is circa US$110 million, and after the
Çiftay equity investment most of the remaining capital expenditure
is expected to be debt funded, thus avoiding substantial dilution
to Chaarat's shareholders, a key strategic objective for the
Company.
Chaarat is in the process of securing the remaining project
financing which is targeted to close in Q4 2019. Çiftay has
commenced earthworks in anticipation of this, negotiated at
arms-length rates, as reflected in an updated Feasibility Study
issued on 4 June 2019.
Construction is ongoing at Tulkubash and the first gold
production remains on schedule for late 2021. The Company continues
to advance detailed engineering and has finalized several project
components for immediate construction readiness. Çiftay has
earthworks equipment at the mine site and constructed a temporary
construction camp this winter to be ready for an early spring start
to major earthworks.
Ciftay has extensive experience as a mining and civil
engineering contractor at multiple mine sites in Turkey including
two major gold mines. Definitive agreements for the joint venture
are expected to be concluded by summer 2019.
Financing
The subscription and issue of the secured convertible 2021
notes, as previously announced on 21 December 2018, was completed
on 15 January 2019. The issue of US$350,000 additional notes has
brought the total number of notes in issue to US$18.93 million,
US28.93 million including the US$10 million issued as part of the
consideration for the Kapan acquisition and a new subscription of
US$250,000 on 7 May 2019 brings the total number of notes in issue
to US$29.2 million.
On 1 April 2019 the Company had a secured commitment for a US$10
million subscription for convertible bonds by a new investor. The
Company expects to receive the cash subscription in early July 2019
and the commitment is now US$15 million.
On 1 May 2019 the Company closed a placing, raising US$2.71
million from the issue of 6,927,563 new ordinary shares of US$0.01
each at US$0.30 per share. Directors and senior management
participated in this placing.
The Company drew down on the Labro Facility in the amount of
US$500,000 on 1 April 2019. The Company settled this amount through
the issue of 1,276,666 shares to Labro on 5 April 2019 and an
interest payment of US$685. The shares issued formed part of the
1,914,999 shares issued to Labro as part of the capital raising of
1 May 2019, the balance of which were settled by Labro in cash. On
16 May 2019 the Board authorised that 34,435 shares to Labro as
settlement for the draw down fee in respect of this draw down. On
23 May 2019, the Company drew a further US$2 million.
On 16 May 2019 the Board authorised that in accordance with the
resolution of the Board taken on 14 February 2019 the Company shall
issue new ordinary shares of USD 0.01 each to Martin Wiwen-Nilsson
as compensation amounting to GBP400,000 for the work he has done
for Chaarat over the past years.
Incentive scheme
The Directors intend to implement an incentive scheme to reward
Directors and certain employees in 2019. Its proposed terms were
disclosed in the Company's admission document published on 14
December 2018. The incentive scheme now provides for two main
elements: conversion of existing option plans into a new uniform
scheme and a one-off grant of equity equal to 5 percent of the
outstanding share capital at the date of Re-Admission and options
equal to 3 times of equity granted under the scheme at a strike
price of 42p per Ordinary Share to the Board and top managers which
will be subject to a vesting schedule.
The first element of the scheme will require conversion of
vested and unvested options into Ordinary Shares based on a price
of 33p per Ordinary Share; these will have a one year lock-up
(shares to be issued to replace unvested options will also have a
one-year vesting period and if an employee leaves during this
period the unvested shares will lapse). This first element requires
consent from the existing option holders to join the new incentive
plan and, if all holders consent, would result in around 6,100,000
new Ordinary Shares.
The second element of the scheme has a three-year vesting
period, one-third of the award vests annually starting from 2019
for those participants who were engaged in the Company's business
in the previous year and subject to achievement of individual key
performance indicators by most employees with the same consequences
if an employee leaves. Delivery of vested Ordinary Shares will be
made on the basis of 50 percent of the entitlement at the date of
vesting with the remaining part of the entitlement to be delivered
at the end of year three, whether or not in employment at such
time. All vested Ordinary Shares are subject to a two-year
lock-up.
The board has full discretion to amend the incentive scheme or
adjust unvested Ordinary Shares and options.
6. Timetable and distribution of accounts
The Annual General Meeting will be held at 11 A.M. on 26 July
2019 at the offices of Macfarlanes LLP, 20 Cursitor Street, LONDON,
EC4A 1LT
Copies of the Annual Report and Notice of the Annual General
Meeting will be sent to shareholders by 30 June 2019.
Additional copies of the Annual Report and Accounts will be
available for inspection at the registered office of the Company
from the date of this notice until the conclusion of the Annual
General Meeting and will be posted on the Company's website -
www.chaarat.com
About Chaarat Gold
Chaarat is a gold mining company which owns the Kapan operating
mine in Armenia as well as Tulkubash and Kyzyltash Gold Projects in
the Kyrgyz Republic. The Company has a clear strategy to build a
leading emerging markets gold company with an initial focus on
Central Asia and the FSU through organic growth and selective
M&A.
Chaarat is engaged in active community engagement programmes to
optimise the value of the Chaarat investment proposition.
Chaarat aims to create value for its shareholders, employees and
communities from its high-quality gold and mineral deposits by
building relationships based on trust and operating to the best
environmental, social and employment standards. Further information
is available at www.chaarat.com.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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