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AIM listed wannabee gold miner Chaarat Gold (LSE:CGH) has issued an update on its operations in the Kyrgyz Republic which is – on balance – very encouraging but hidden at the bottom of the text are a couple of minor blemishes. On balance it supports the very strong buy case but it is worth reading the whole statement.
The good points are that by switching to heap leach production the company can reduce its up front capital cost and start pouring gold in the second half of this year. That is good – we want near term cashflows. The other good news is that following the 2012 drilling season Chaarat has increased its resource to 5.76 million ounces – it does have a highly commercial resource.
Now for the minor blemishes. Scroll down the RNS. No, not there yet, keep on scrolling past all the good news stuff. You given up? I guess the PR folks earned their money then. No, still going? Aha:
“However there have been unforeseen increases in other costs, which offset the savings in capital expenditure. The principal increase in costs arises from the change in the Kyrgyz tax regime. Tax payments are now accelerated as they are revenue based rather than profit based. An unbudgeted payment of tax was also due on the registration of the Kiziltash project resource with the Kyrgyz Government. “
In other words there is a new $15 million cash need pre cash generation which has been offset by savings elsewhere. We do not know the exact sums yet. So whereas before Chaarat needed to find an extra $20 million to get it into production it now needs to find, er…probably about $20 million to get it into production.
Given its new Chinese friends from the Autumn (see here) that should not be an issue. And the good news is that we will see gold poured and cash coming in well before Christmas. And so despite this latest glitch the company is well on the way to delivering the sort of numbers in the table below.
| Year & Output | $1200 Gold | $1500 Gold | $1750 Gold | $2000 Gold | $2500 Gold |
| 2014 – 30,000 oz | $15m | $24m | $31.5m | $39m | $54m |
| 2015 – 70,000 oz | $35m | $56m | $73.5m | $91m | $124m |
| 2017 onwards 200,000 oz | $140m | $200m | $250m | $300m | $400m |
That makes the shares cheap. Just a few more hurdles to jump and Chaarat shares should at last motor.
For further analysis of Chaarat go HERE
For analysis of another gold play operating in the same geo-political region which should come into production at the same time and which is lower risk but whose shares should at least double go HERE
Tom Winnifrith writes for 10 US and UK websites. To get alerts on all of his free to access material follow him on twitter @tomwinnifrith or register to get his free twice weekly alert newsletter at www.TomWinnifrith.com
Tom’s Premium service is the Nifty Fifty website which is co-produced with the UK’s most cerebral short seller Lucian Miers and with former t1ps senior writer Steve Moore. You can get full details of that service HERE
I’m in this one, which is probably a good warning to sell!
The business case looks good, although the politics remain a constant risk factor and as for the Chinese investors, they haven’t done much to support share price of companies such as Vatukoula Gold.