Chaarat Gold Share Discussion Threads

[casual47] 05/3/2020 12:08

Chaarat Gold* (LON:CGH) 34p, Mkt Cap £158m – Flash Note – Kapan is FCF positive and Tulkubash is on course for first gold in Q4/21

BUY – 44p (from 42p)

FY19 Kapan output update – production up, AISC down and EBITDA generation ramping up through 2019

The Kapan polymetallic operation in Armenia produced 60koz GE, +7%yoy (including 12 months of output) at $1,040/oz AISC (oz gross), -14%yoy, last year on the back of higher throughput helped by better mining rates and an improvement in recoveries in the grinding and flotation circuits more than compensating for slightly lower gold grades. Mining fleet availability improved through H2/19 while retendering of all services and goods that brought previously outsourced contracts in-house yielded cost efficiencies. Underground development meters climbed to >23,000m, +16%yoy, increasing the number of mine faces that in turn should help with mining flexibility and mining rates moving forwards.

Kapan Revised Mine Plan is implemented with 2020 guidance for 60koz GE and $20m in EBITDA at $1,400/oz Au, $6,000/t Cu and $2,400/t Zn prices

The seven year Life of Mine Plan based on the latest mineral reserve of 4.5mt at 3.26g/t* GE for 471koz GE has been put in place with 2020 guidance at 60koz (gross) production, $1,121/oz (pre-tax, per oz payable) AISC and $20m EBITDA (using MRE commodity price forecasts). Adjusting for our price deck (see table below) we estimate Kapan to produce 57koz GE (gross) at $1,162/oz AISC (pre-tax, per oz payable) generating $25m, including $1m assumed contribution from 3rd party concentrate utilising spare plant capacities. FCF post guided $4m in maintenance capex and $2m in taxes is expected to come in at ~$19m.

FCF generated from the mine covers the Kapan acquisition loan repayments and interest expenses as well as offers an opportunity to refinance other liabilities of the Group.

On our estimates, Kapan NPV8% stands at $141m or 23p/share accounting for ~40% of the Chaarat assets portfolio value with stronger commodity prices and adjustments to the USDGBP exchange rate compensating for higher operating costs. As previously stated, we run Kapan economics on +10y LoM through to 2030 reflecting the scope to expand the current mineral inventory given 7.6mt at 5.01g/t included in the Inferred mineral resource category (ie outside the mine plan).

Tulkubash development works to accelerate once project funding package is closed in Q2/20 with first gold pour remaining on target for Q4/21

At the Tulkubash heap leaching gold project in Kyrgyzstan, the team is gearing up pre-development works ahead of $80m debt funding completion in Q2/20.

The equity component of the $110m capex is covered by the Ciftay project level investment of $31.5m in return for a 12.5% interest in the Kyrgyzstan portfolio of assets, implying NAV for Tulkubash and Kyzyltash of $252m.

Access road has been upgraded, earthworks equipment mobilised, 360-man camp installation commenced for completion in Q3/20, ore haul road and stockpiling platform construction finished, and detailed design of leaching heaps, crushing circuit and ADR started.

Drilling at Tulkubash consistently intersects mineralisation with nearly 3/4s of the prospective 24km trend remaining untested

The latest mineral reserves estimate released in Feb/20 stands at 24.6mt at 0.95g/t for 749koz (Jan/20) marking a 60% increase in contained ounces at similar grades on an Apr/18 estimate of 468koz at 0.91g/t reflecting some 40,000m of drilling.

The focus is to extend the life of mine at Tulkubash to at least 15 years through a multi-year drilling programme proving up shallow oxide mineralisation running along the NE strike.

The team is planning to update the mine plan accommodating the latest mineral reserves in due course.

Life of mine extension drives the Tulkubash value appreciation

At ~4.9mtpa throughput rate, the current mineral reserve covers five-year mine life that, judging from latest exploration results, is likely to increase delivering improved project economics. We estimate Tulkubash to run at 110kozpa and $932/oz AISC (pre-tax) potentially generating $67m in EBITDA and $60m in FCF ($1,500/oz) per annum once fully ramped up using updated operating parameters including slightly better feed grades (0.95g/t v 0.92g/t) and gold recovery rates (73% v 69%) as well as higher waste stripping ratios (3.9x v 2.6x). While we look forward to mineral resources/reserves update, we continue to value Tulkubash and Kyzyltash assets using the Ciftay investment implied NAV at $221m or 36p/share, equivalent to ~60% of the Group NPV. We also highlight that the deal was agreed in Q1/19 when gold traded around $1,300/oz levels vs current >$1,600/oz.

Near term news flow and catalysts

Q1 Kapan operating update

FY19 financial results

Tulkubash debt funding update in Q2/20

Mar/20 $17m loan refinancing update

Expansion of the resources/reserve base at Tulkubash and Kapan

Valuation

We have updated our target price to account for new commodity price forecasts, changes to production and operating/capital costs profile as well as amended long term GBPUSD exchange rate (1.3 from 1.4) arriving at $267m or 44p/share and reiterating our buy recommendation.



Source: share price Angel, Company



*Reserves used$1,400/oz Au, $17.0/oz Ag, $6,000/t Cu and $2,400/t Zn commodity prices for conversion coefficients

*SP Angel acts as Broker to Chaarat Gold

[casual47] 05/3/2020 11:04

Nothing wrong with a placing if it is raised at the same or higher price than the last one - this is how they have done it so far.

Convertible notes are effectively potential future placings.

They may need to add further equitity to enable the Tulkubash finance so if that is the reason then it is even better.

We have seen before that raising funds via placing/loan notes was a bit like pulling teeth for them so I can't imagine any such new fundraise to be much more than e.g. $5-$10m, which would be peanuts

[2pablo] 05/3/2020 10:58

Appointing Joint Brokers (we now have 3) often seems to precede a share placing - hopefully not in our case

[casual47] 05/3/2020 10:15

Presumably they are adding Finncap to widen their access to high net worth individuals? Could this be a sign that e.g. new convertible notes are on their way?

[casual47] 05/3/2020 09:13

Out of the gate with a UT....of 2500 shares.

Would be interesting to read the Finncap broker note

[casual47] 04/3/2020 16:50

I think Kyrgyzstan may be a bit too risky for Gilman/QRC

[jc2706] 04/3/2020 16:22

I don't think that it is that wild but they will not stump up the whole amount required. I believe that your view on the EBRD is a good one but they will not fully fund either.

[casual47] 04/3/2020 16:12

Some wild speculation about Chaarat and QRC on twitter:

[casual47] 04/3/2020 14:21

Interesting: Chaarat will attend the Minex Kazakhstan conference

[casual47] 04/3/2020 12:14

Wonder who the AT-attack buyer is who has been keeping the share price up. Often buys in 10k, 15k, 20k chunks, sometimes broken up.

[casual47] 04/3/2020 10:48

Looks like Mr. A is still sitting on his full allocation of 3m waiver shares to buy. (At current share price £1m worth)

[casual47] 03/3/2020 20:57

While we wait....

$17m loan refinance - "by March"

Q1 *and* FY2019 results - April

Announce Tulku project finance syndicate - "coming months" (March? April? May?)

Kapan refinance - target Q2 ("optional")

Close Tulku project finance - Q2

Updated BFS for Tulku - Q2-Q3

Kapan East Flank exploration results - ?

[casual47] 03/3/2020 17:20

Fed interest rate cut. Sugar rush, imo. It's not going to fix Corona or the fallout from it if things will get much worse.

[2pablo] 03/3/2020 16:54

That's a decent leap in Pog about $50, back to $1640 an oz

[casual47] 28/2/2020 15:49

The next few weeks will be crunch time, so I imagine this is when he will be looking to support the share price

Next week or so we should hear about the $17m loan and then any time next month I would expect to hear about the names of who is in the lending syndicate.

Especially if there is a convertible element to any of this it will make sense to have the share price stable.

When/if the lending syndicate gets announced then I imagine there will be no need for Mr A to support the shareprice as it should have rerated, we hope!

[jc2706] 28/2/2020 14:09

Martin's buying has always been to support the price so I suspect that he will want to see this around 37p with or without panic over COVID-19

[2pablo] 28/2/2020 13:29

And up she goes, a little Martin buying perhaps?

[casual47] 28/2/2020 12:51

Stick to the tea leaves, Madam Juju.

[casual47] 28/2/2020 11:42

The odds of a deal seem pretty high to me. I think it's mainly a question of how attractive to Chaarat the deal will be, i.e. how expensive the debt. The corona virus will not help in that respect. But the bigger picture is the real desire for Chaarat to succeed by both EBRD and Kyrgyz government, imo. With Kumtor being phased out it will be critical to have Tulkubash come online. I think that is the biggest reason for this whole thing to succeed, ultimately.

When Centerra goes who will be a natural partner of sufficient scale for the EBRD in Kyrgyzstan? Chaarat is the only "Western" company this close to production and with a projected oz pa to really make a long-term difference.

[2pablo] 28/2/2020 11:34

Well, he better put his hand in his deep pocket then

[casual47] 28/2/2020 11:18

Pabs, the waiver was given for a reason. Same as before. I expect him to make use of it as needed. He is not going to sit on his hands until May just to get a good price. The objective is not for him to scoop up cheap shares, it is to have the shareprice sit where he needs it to sit to make a success of Chaarat. Success in the short term means funding - both the $17m loan refinancing and the biggie that is Tulkubash. I expect he doesn't want any investors to get needlessly spooked and pull out just as they are about to clinch the deal.

[casual47] 28/2/2020 11:11

An interview with the British Ambassador to Kyrgyzstan. Chaarat gets a mention. He's been there less than a year but already the ambassador has become somewhat of a social media star over there thanks to his tweets about his hiking trips in the Kyrgyz mountains and his clear love of the country and its people.



Also, today the first Ombudsman for Business in Kyrgyzstan started work. The role was set up with the help of the EBRD and follows earlier success in the Ukraine with this service. The objective is to give entrepreneurs and companies a means get recourse against corruption by state officials.

The ombudsman is Robin Ord-Smith, the previous British Ambassador to Kyrgyzstan who was also much liked and clearly also trusted by the locals.



It shows that the Brits still have a reputation for rule of law and fairness.

[2pablo] 28/2/2020 11:07

Yes it does, looks like his waiver was very timely. Thing is, what's the hurry? 31st May is a lifetime away in the current turmoil, he may well sit on his hands a while yet

[casual47] 28/2/2020 10:54

Looks like Mr. A will get a good price for his waiver shares.