Chaarat Gold Share Discussion Threads

[casual47] 26/2/2020 11:52

The Russians are coming. I suppose this is why they held back on Mr. Pilipenko's hire.

Not sure whether Dusty was up for retirement or whether it is to do with the 2019 drilling season. The new hire must be about the same age or even older but he does appear to have the pedigree and has overseen some major prospecting, including Nordgold's Gross mine in Kazakhstan. Let's hope he can communicate as well as Dusty, though with a bit more coyness on targets and deadlines.

[2pablo] 26/2/2020 07:48

Yes, I imagine all good, Oli, except 'We love Dusty!' - maybe he is just retiring and can't face the Krygyz winters anymore.

I think the removal of his email address last week when I wrote to him and quick replacement with a new one, spoke volumes

[oli12] 26/2/2020 07:14

Management changes.

[casual47] 25/2/2020 15:40

New today: Artem's review of 2019



Notes:

Kyzyltash metallurgy testing this year to start feasibility process next year (casual: will take several years I imagine)

Kapan East Flank could be as big as the existing mine (casual: AFAIK the bottleneck here will be the tailings dam which needs (1) reinforcing and (2) permits to increase height in order to support tonnage beyond current mine plan)

Otherwise nothing new/of note.

[casual47] 24/2/2020 14:39

Chaarat has been kiboshed twice before right at the crucial moment:

Once shortly after IPO when the financial crisis hit and once in 2010 when the Kyrgyz decided to have a bloody revolution.

[casual47] 24/2/2020 14:35

I'm sceptical about all the glee some PIs holding gold miner shares have about corona.

Miners are not immune to the swirl of knock-on effects resulting from the corona virus or indeed from the corona virus itself.

For Chaarat what we absolutely do not want is for things to get so febrile that even just one of the syndicate lenders gets cold feet and decides to remain in cash for now. We really do not need any major shocks right now.

[casual47] 24/2/2020 14:21

Hopefully news of the $17m loan refinance this week could provide further reassurance.

[jc2706] 24/2/2020 14:19

I suspect that you are correct in assuming that the waiver is there to support this in the high thirties. However, there is always the possibility that the current strength in gold together with the safety net of the waiver may persuade some renewed buying into the forties.

[casual47] 24/2/2020 13:49

Return of the AT-attack, in 10k and 15k chunks.

[casual47] 24/2/2020 12:07

The waiver should keep this in the high thirties while we wait for the finance piece to play out.

I suppose the not getting 100% on the performance based incentive scheme relates to the delay in Tulkubash financing? From q4 to q1 to q2.

[casual47] 23/2/2020 19:08

Interestingly, there is precedent for Kyrgyzaltyn investing in projects:

A Google search led me to this:

"Norox is expected to invest US$41 million to extract gold from the Jerooy deposit. Kyrgyzaltyn will also invest US $ 15 million in the project, and the partners plan to raise an additional US$44 million through bank credits."

This is about what's needed for Tulkubash.

$15m would correspond to ~6% of the Kyrgyz assets and would make the share: 6% Kyrgyzaltyn, 12.5% Ciftay, 81.5% Chaarat. I would be very happy with that. Given the size of Kyrgyzaltyn and its dominance in the country it would seriously derisks things if they came on board, imo.

It would also mean that ~40% of the initial capex would be settled through equity so will seriously derisks the project in terms of reducing debt repayments and interest etc.

[casual47] 23/2/2020 14:11

Typical capitalisation structure:
■ EBRD investment 35%
■ Foreign sponsor equity 25%
■ Local sponsor equity 15%
■ Syndicated loan 15%
■ Other lenders 10%

Apply this to Tulkubash:

Required: $110m

Ciftay (I suppose this would be the foreign sponsor equity) $31.5m - equals 28.63% ✓ DONE

EBRD 35% would be $38.5m

Left: $40m

Local sponsor equity at 15% would be ~$16.5m

Syndicated loan plus other lenders at combined 25% would be $27.5m

I am not sure who the local sponsor could be, and I doubt that the EBRD would insist on such a high percentage for a country like Kyrgyzstan where there is almost no money sloshing around, but perhaps it might be the Kyrgyz state mining company Kyrgyzaltyn and all or part of the needed contribution could be paid "in kind" similar to the Ciftay arrangement? (Or e.g. offsetting royalty/tax)

Perhaps the local sponsor equity could be in the form of a JV at around half of what Ciftay got? E.g. 5-7.5% of Kyrgyz assets, making Kyrgyz assets owned e.g. 80% Chaarat and 20% Ciftay/Kyrgyzaltyn.

Imo, it could be hugely advantageous if Kyrgyzaltyn became a JV partner because it would help protect the company from civil unrest around "foreigners taking all our gold" type of stupid thinking and firmly align the state with our interests.

Imo dyor etc

[casual47] 22/2/2020 14:39

During the webcast Artem mentioned that they got the tax stabilisation in time as there were talks within Kyrgyzstan to change the tax system for miners.

This again highlights to me how the timing of the tax stabilisation deal seems possibly indicative of the Kyrgyz government being pushed to sign the deal by e.g. the EBRD as tax changes could easily blow up the economics or create uncertainty right at the moment when they might be trying to close the deal with the syndicate, imo dyor etc

There are now so many "clues" that the outline of them all but spell E B R D

[casual47] 22/2/2020 14:19

Where do the 33k oz reserves from Shir Canyon fit in:

Area Reserve
----- -----
Main 586
Mid 95
East 68
----- -----
Total 749

As far as I know the Shir Canyon is well past the East Zone area.

[casual47] 22/2/2020 13:54

So more than a third of the newly added reserves comes from Shir Canyon, which is surprising. This could mean about 70-100k oz of the resource comes from there too? Not sure how that adds up with the 195k oz difference between current reserves and stated resources. If the Shir Canyon resources are 100k then that doesn't leave much for the $1600/oz shell pit which is supposed to sit underneath and around the existing pits.

[jc2706] 22/2/2020 12:43

That makes sense (almost). Thanks 2pablo.

[2pablo] 22/2/2020 11:48

Got my reply from dusty late yesterday, I copy my email and his replies which he inserted in red, which I now put in inverted commas as his words :

Dusty

I enjoyed the conf call and presentation but the conf call does not appear to be available on our website for repeat listening.

Which brings me to my query on the Tulkubash Resource and Reserves. It's all getting a bit confusing to the layman I'm afraid with a Resource decrease and yet a Reserve increase.

You are declaring resources without including reserves and resource has gone down because some previous is not now included in the defined pits?



"The Resource number includes Reserve. In other words, the Reserve is a subset of the Resource. The Resource is the mineralisation that would be economic within a pit at a gold price of $1,600. This is to satisfy the requirement of “reasonable prospect of eventual economic extractability”;. This Resource comprises Measured plus Indicated plus Inferred Resource. that The Reserve is that portion of the Measured and Indicated Resource that falls within the defined pits at a $1,300 gold price.



So, the Resource excludes 640,000 ounces of gold that was in Resource last year but is excluded this year because it does not fall within the $1,600 pit shells. However, as I pointed out in my interview, a significant amount of this could come back into Resource, and possibly Reserve, if future drilling widens the mineralisation, which would allow for a wider pit that would bring in deeper mineralisation. I actually think this is very likely in the hanging wall zone of the Main Pit and in the northeast portion of the current resource footprint, between East Pit and Northeast Pit."


I note from Page 16 of the presentation the reserve has gone up dramatically to 749 koz in 2020 - what was the previous figure?



"The Reserve has increased by 14% to 749 koz compared to 658 koz in the published bankable feasibility study."


The 2019 drilling program added considerable 'mineralisation'. Is this one stage lower than being able to define as resource? Shir Canyon which is very promising won't contribute to resource until further drilling to define the resource. However, will this be added to resources if outside defined pits?



"Yes, much of the Shir Canyon mineralisation, which in my opinion has potential to be another 1 million ounce Main Pit though at possibly higher grade, needs more drilling to be classified as Resource. At present, we were able to classify some of the mineralisation as Resource and it is adding about 33,000 ounces to Reserve. I believe further drilling will enhance this number substantially. When that drilling is done, new pits will be designed for the updated Resource and Reserve estimates. Much of what I believe will be added at Shir Canyon will fall outside the currently designed pits, but will fall inside new pits."

[casual47] 21/2/2020 22:18

This is why EBRD can unlock investment:

"In most emerging markets or economies, commercial banks can be expected to have initial concerns relating to country risk. This risk might embrace, among other things, risks such as debt rescheduling, nationalisation of assets, currency convertibility and hard currency transfer.

The country risk, while taken into account in the pricing, is to a degree mitigated by the EBRD's status as a preferred creditor. The EBRD's status as a preferred creditor does not mean that the EBRD guarantees against country risks.

Articles 21 and 49 of the Agreement Establishing the Bank, strengthen the case for preferred creditor status of loans made by the EBRD. All of the EBRD's shareholders are signatories to this Agreement, including the countries of operations."

=====
Every lender in the syndicate benefits from the EBRD's preferred creditor status:

"our preferred creditor status excludes us from sovereign debt reschedulings where the borrower’s inability to service their debt is due to a general foreign exchange shortage in their country. These legal privileges are also extended to other banks participating in EBRD loans, incentivising local investors to co-finance projects."

[casual47] 21/2/2020 20:35

Apropos of nothing:

[casual47] 21/2/2020 19:37

Some of my notes from the webcast call:

Kapan
2020 new exploration at the East flank target with potential to add significantly to LOM but more importantly add possibility to open up additional working faces allowing for increased flexibility of production and tonnage. Darin compared the current Central Zone mining area to a big underground car park which with only one portal restricts the possibilities to be flexible re. getting the tonnage out. So he's keen this year to get a second access into the mine which will debottleneck tonnage.

Tulkubash
The constrained resources are more akin to mineral resources rather than simply geological resources. (Casual: this basically means they are underpinned by a confidence in economical mineability)

Any ounces added latterally to strike will further open the width of the pit and give access to the currently excluded ounces which sit not much deeper. More than 80% of the 640k oz is situated at depth with less than 20% sitting around the satellite pits.

Finance
Chris seemed to expect most of the loan notes to flip into equity this year

Expects to announce the comprehensive syndicate for Tulkubash project finance within the next month and close by q2

Chris' comments re. Kapan refinance seemed to indicate to me that talks around it are less advanced / of lesser priority

The higher gold price will increase EBITDA but it seems from Chris's comments that they are happy to stick to $20m and e.g. invest more back into the Kapan mine through e.g. fleet upgrades etc.

[jc2706] 21/2/2020 19:19

I don't have a problem with it if they explain it effectively as it is not industry standard (it is actually more 'gold plated' than standard).

I don't know how long they would be able to extend the LOM based on this one pit. The strategy is likely to bring on new pits every few years. If you had three of these operating then the mine life increases enormously if the production profile is maintained.

[casual47] 21/2/2020 17:06

JC - what they have done with this constrained pit thing is basically provide a second tier of reserves - "if gold remains at or above $1600/oz then we can almost guaranteed deliver 917k oz"

Note that 917k oz at 70% recovery provides ~ 7 years of LOM