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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Chaarat Gold Holdings Ltd | LSE:CGH | London | Ordinary Share | VGG203461055 | ORD USD0.01 (DI) |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 2.95 | 2.90 | 3.00 | 2.95 | 2.95 | 2.95 | 6,673 | 08:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Gold Ores | 92.35M | -8.58M | -0.0124 | -2.38 | 20.35M |
From Apr 2019 to Apr 2024
TIDMCGH
RNS Number : 7565U
Chaarat Gold Holdings Ltd
08 April 2021
8 April 2021
Chaarat Gold Holdings Limited
("Chaarat" or the "Company")
PRELIMINARY ANNOUNCEMENT OF AUDITED FINANCIAL STATEMENTS FOR THE YEARED 31 DECEMBER 2020
Chaarat (AIM:CGH), the AIM-quoted gold mining company with assets in the Kyrgyz Republic and Armenia, today publishes its audited financial results for the year ended 31 December 2020.
Highlights for the year
2020 Group Financial Results
Hot Features
Premium
-- Revenue up 12.5% in 2020 to US$76.0 million (2019: US$68.1
million), reflecting increased production and the recovery
in commodity prices in the second half of the year.
-- Group EBITDA of US$9.3 million in 2020 (2019: loss of US$12.8
million), reflecting the significantly improved operating
performance at Kapan and lower overhead costs at both corporate
and Kyrgyz Republic level. The Group achieved an operating
profit of US$1.9 million (2019: loss of US$18.4 million).
-- Cash and cash equivalents at the end of 2020 were US$6.9
million (2019: US$3.6 million). At 1 March 2021, the Group
had cash and cash equivalents of approximately US$31.2
million, following the successful equity raise in February
2021 described below.
Kapan Producing Mine
-- 2020 production of 58.2koz(1) AuEq exceeding guidance by
6%, despite the ongoing COVID-19 situation and border hostilities
in H2 of 2020.
-- All-in-sustaining cost(2) ("AISC") of US$1,034/oz was in
line with US$1,040/oz for 2019.
-- A 126% increase in stand-alone EBITDA contribution of US$
19.4 million at Kapan level in 2020 (2019: US$8.6 million).
EBITDA contribution at Kapan in H2 2020 was US$15.3 million
compared with US$4.1 million in 2020 H1, reflecting continued
improvement in operations and the recovery in commodity
prices in the second half of the year.
-- Limited impact from the COVID-19 pandemic with effective
management protocols in place since February 2020.
Tulkubash Construction Project
-- Advanced the construction preparation work and detailed
engineering with close to US$10 million invested in 2020
despite the COVID-19 restrictions and political unrest
in Q4.
-- Successfully completed a 2,000-metre confirmatory drilling
programme which is currently being included in an updated
JORC-compliant resources and reserve statement.
-- First full winter of year-round construction activity completed
at site (2019-20), without incident.
-- Tulkubash project finance discussions further advanced
with several banks awaiting the Tulkubash Bankable Feasibility
Study ("BFS") and ESIA updates before proceeding to documentation
stage.
Kyzyltash Development Project
-- Comprehensive internal review completed, and external expert
opinions received in June 2020 for the next stages and
overall timeline to production, confirming the current
preliminary timeline to 2026.
-- Independent assessment on metallurgy completed to help
define the ideal processing route.
Corporate Activities
-- Strengthened balance sheet in 2020 through a US$13.8 million
equity capital raise during the first wave of the COVID-19
pandemic, extended liabilities, decreased interest cost
and reduced gross debt.
-- Continued strong support from major shareholder Labro Investments
Ltd. ("Labro") through participation in the equity raise
and the refinancing of the investor loan into a new US$22
million facility maturing on 31 December 2024.
Post-period highlights
-- In February 2021, the Group completed a financing package
of US$52.2 million, comprising cash of US$30.0 million
and a debt-to-equity conversion of the US$22.2 million
Labro loan mentioned above, significantly reducing gearing.
-- Key financing targets for 2021 will include securing debt
finance for the Tulkubash project and repaying or refinancing
the convertible loan notes to the extent these are not
converted. The Company anticipates publishing an updated
bank feasibility study for Tulkubash by May.
(1) AISC on an oz produced basis exclude smelter TC/RC charges, others which add c. US$ 130/oz. Sustaining capex of c. US$ 6.9 million included in the AISC.
(2) Gold equivalent ounces for 2019 recalculated on 2020 budget prices with Au at $1,500/oz and gold ratios of 83 for silver, 7,778 for copper and 20,968 for zinc. In last years' FY 2019 operations update, 2019 oz were based on gold ratios of 81 for silver, 6,698 for copper and 16,075 for zinc leading to a higher AuEq number reported in that previous year.
Martin Andersson, Executive Chairman of Chaarat, commented:
" Considering the adverse conditions we faced last year, the strength of our people shone through and enabled a strong performance at Kapan, and flexibility in dealing with the various challenges we faced regarding our Tulkubash construction project.
From an ESG perspective, Chaarat has certainly proven its strong ties and commitment within its communities in 2020, not only supporting where measures against the pandemic were required but also ensuring that lives and business continue. The development in accordance with the best international standards has been documented in the Environmental and Social Impact Assessment update for our Tulkubash project and we have continued to improve the environmental footprint with several projects at our Kapan site. The independent board and management team have proven efficient in terms of setting a high governance standard.
Chaarat has seen strong shareholder support during the last two equity capital raises which shows that we are taking the right steps to lift Chaarat to the next level. I look forward to the next year which should see Tulkubash fully funded, Kapan in steady state production and Kyzyltash with a clear view on the optimal processing route to create a new feasibility study to international standards. We continue to build an industry-leading FSU focused low-cost gold producer with a sound organic growth strategy supported by value accretive M&A."
Enquiries
+44 (0)20 7499
Chaarat Gold Holdings Limited 2612
Artem Volynets (CEO) info@chaarat.com
Canaccord Genuity Limited (NOMAD and + 44 (0)20 7523
Joint Broker) 8000
Henry Fitzgerald-O'Connor
James Asensio
+44 (0)20 7220
finnCap Limited (Joint Broker) 0500
Christopher Raggett
Panmure Gordon (UK) Limited (Joint +44 (0)20 7886
Broker) 2500
John Prior
Hugh Rich
Executive Chairman ' s Statement
Overview
The past 12 months have been unlike any other period in the Company's history as the COVID-19 pandemic has disrupted the world and impeded the normal course of business activity.
This year we have demonstrated that we are a resilient business. I am pleased to be able to announce that the team at our Kapan mine exceeded our 55koz AuEq production guidance despite the dual impact of the pandemic and the hostilities in the neighbouring Nagorno-Karabakh region during the final quarter of the year.
The COVID-19 pandemic impacted the ability of potential funders to conduct due diligence on our assets and it was unfortunate that we had to postpone the date for first gold pour from Tulkubash due to material and personnel movement restrictions. However, we have made progress on the early construction, engineering and updates of our studies I am hopeful that we will secure project finance during the first half of 2021.
Our people
First and foremost, on behalf of the Board, I would like to extend my sincere thanks to all our employees, but in particular those at our Kapan mine. The team at Kapan met each new challenge it faced with agility and dedication to ensure that the mine remained operational. The hard work that they put in every day made the difference. Our employees at Kapan continued to work throughout the COVID-19 crisis, highlighting their commitment, dedication, and loyalty. It was their outstanding resilience and hard work that enabled us to exceed our production guidance.
2020 progress
Despite the disruption caused by the COVID-19 pandemic, we have made progress during the year in relation to each of the pillars of our strategy and details of that progress are included in our annual report which will be published shortly.
Health and safety
The health and safety of our employees and host communities remains one of our key values. Our lost time injury frequency rate at Kapan for the year was 0.37 per one million hours worked (2019: 0.39). Over 850,000 hours at Tulkubash were worked in 2020 with no lost time injuries.
Last month we reported the loss of life of an employee of our mining contracting company on 4 March 2021. Learnings from this tragic event will be used to further develop and improve the safety culture and performance not only at Kapan but throughout all areas of the Company.
During the year we implemented measures to minimise the risk of our employees contracting COVID-19 as a result of their work activities. Additionally, we supported hospitals and communities local to our operations to help contain the virus and to assist with medical treatment.
Sustainability
As a responsible business we are committed to treating people well, managing environmental issues and working with integrity. In keeping with our ESG guidance principles, our main areas of focus in our host communities continue to be health, education, and sustainable development opportunities.
Corporate governance
My Board colleagues and I are firmly of the view that strong and functioning corporate governance and risk management are essential to the success of the Company. Chaarat has adopted the Quoted Companies Alliance Corporate Governance Code. The role of the Board remains that of setting strategy, ensuring the right resources are in place to deliver it, promoting long-term success, generating value, and contributing to wider society.
Investors
In April 2020 we raised US$13.8 million via a share placement, welcoming new individual and institutional investors to the shareholder register. I was pleased to see that existing shareholders, the Company's directors, and senior management participated and showed strong belief in our story. I would like to take this opportunity to thank our loyal shareholders for their patience over the course of the year.
2021 and beyond
I was delighted with the response to our share subscription in February 2021, which raised US$30.0 million of new cash and reduced our indebtedness by US$22.2 million. Now that we have raised the equity portion of the funds required for our Tulkubash project, we will focus our efforts on raising the debt finance element of the project. I would like to thank our existing and new investors for their support in our recent fundraise.
Against the backdrop of a challenging and uncertain world, in the coming year our priorities will be to secure project finance for Tulkubash to take advantage of the full 2021 construction season, to progress Kyzyltash by conducting metallurgical testing to enable Chaarat to choose the appropriate technology for project development.
__________________________________________________________________________________
Chief Executive Officer's Review
Overview
2020 was a challenging year in many respects. In addition to the pandemic, we had to operate during an active military conflict in one country and the political unrest in the other. However, we are pleased to report that Chaarat emerged as a much stronger company, outperforming on our operational and financial targets at Kapan in Armenia and continuing development of our prospective cluster in the Kyrgyz Republic. These achievements were made possible through proactive engagement with our host communities in both countries, strong Chaarat culture, lean set up and seamless integration between the teams in various countries.
Our team
I would like to reiterate the comments made by our Chairman in relation to our outstanding employees, whose hard work, dedication, and mutual support have contributed to our performance during the year by exceeding our production guidance of 55koz by 6%. I am proud of how our team has responded to the extreme circumstances of the past year.
Our impact
Health and safety - The health and safety of our employees and communities has been our main priority during the COVID-19 pandemic and we continue to monitor the situation daily in all our countries of operation. We have restricted travel by our employees, and limited visitors to our facilities. Our employees continue to work from home where possible and additional measures to protect our employees are in place for those still working at our operating sites. The team's proactive precautionary measures reduced the impact of COVID-19 to the minimum possible and continue during the current second wave of the pandemic. In the wake of the tragic fatal incident at our Kapan mine last month, we have been focused on reinforcing Chaarat's standards regarding attitudes and behaviours across the entire workforce, including employees of our contractors.
Environment - During the year COVID-19 did not get in the way of us continuing proactively to manage and improve environmental aspects at our operations
Community - We have strengthened community relations in our two countries of operation with our continued support during the COVID-19 pandemic and, in the final quarter of the year, with support in Kapan during the hostilities in the neighbouring Nagorno-Karabakh region, and in the Kyrgyz Republic during the political unrest.
Our strategy
In our strategic report, an extract from which is copied below, I outline the progress we have made during the year towards achieving our vision of building a leading emerging markets gold company with a focus on the former Soviet Union and which delivers value to all our stakeholders by adhering to the highest ESG standards. Whilst the COVID-19 pandemic has meant that we have not made as much progress as we would have liked, I am confident that, once that is behind us, we will be able to make significantly more progress.
Our performance
Kapan - We ended the year achieving production of 58.2koz AuEq, exceeding our production guidance by 6% and with revenues of US$76.0 million (2019: US$68.1 million) due to operational improvements, supported by strong commodity prices. Accordingly, EBITDA contribution from Kapan increased significantly to US$19.4 million in 2020 compared with US$8.6 million in 2019.
Tulkubash - Good progress has been made on the permitting and design/engineering fronts and the project is fully permitted now to produce. We are in the process of undertaking a full update of the 2019 bankable feasibility study ("BFS"). Pending the results of the updated BFS and completion of the debt financing, we continue to target the start of production in Q4 2022.
Kyzyltash - We completed a preliminary metallurgical assessment in April, and we have defined a metallurgical test programme for 2021 to identify the optimal processing method.
Funding and liquidity
In April, during the first wave of the COVID-19 pandemic, we raised US$13.8 million via an equity placement, US$6.3 million of which was used to reduce borrowings and interest accrued under our working capital facility to zero. We also extended the maturity of US$22.0 million of the Group's indebtedness; this was subsequently converted into equity in early 2021. We also repaid a further US$8.0 million of our Kapan loan in accordance with its planned repayment schedule. Additionally, during the year, we undertook an efficiency review and were successful in reducing our overheads.
Commodity prices
Given the polymetallic nature of our Kapan mining operation we are affected not only by gold prices but also by movements in copper, zinc, and silver. Copper and Zinc prices were strong in H2 2020 and have remained so into 2021. While the COVID-19 pandemic caused a significantly lower than expected base and precious metals environment in the first half of 2020, the recovery seen in the second half of 2020 has been stronger than expected resulting in a marginally better price environment for our Kapan operation compared to our forecast.
Since year end
In February of 2021 we were delighted with the results of our US$52.2 million financing, comprising an equity raise and loan conversion which has further strengthened our institutional, high net worth, and retail investor base and significantly reduced our gearing.
Our focus for 2021
Our key areas of focus for 2021 include the raising of project finance for Tulkubash and refinancing of the convertible loan notes. Chaarat has good quality assets with a highly skilled workforce. I have every confidence in the actions that we are taking to progress our strategy to realise our full potential in the current gold price environment.
__________________________________________________________________________________
Our Strategy
-- ESG We will work responsibly to:
* provide a safe work environment built on the highest
standards of safety management
* operate to the highest standards of environmental
stewardship
* enhance the infrastructure, education, and healthcare
in our host communities and to improve the living
standards and opportunities for those communities
-- Organic growth We will maximise our production via:
* operational improvements, mine life extension, and
brownfield development at our Kapan mine in Armenia
* staged development of the assets at our Kyrgyz
Republic operations (Tulkubash and Kyzyltash)
--------------- ----------------------------------------------------------------
-- Non-organic We will selectively identify value-accretive
growth opportunities in our target region which will
deliver value to shareholders in both the
short term and through longer-term exploration
and development potential
--------------- ----------------------------------------------------------------
-- People We will attract, retain, and develop a skilled
and diverse workforce across all levels of
our organisation with a focus on developing
local talent in our host communities and creating
an environment in which those employees can
thrive and learn
--------------- ----------------------------------------------------------------
-- Finance We will identify opportunities to secure funding
and reduce the cost of capital with the main
objective of maximising value for shareholders
with appropriate consideration to levels of
shareholder dilution
--------------- ----------------------------------------------------------------
Our ESG Strategy
ESG 2020 progress 2021 priorities
------------------------------------
Safety Implementation of a revised A review by the Board's HSEC
comprehensive health Committee of the HSEC plans
and safety policy, a and procedures for Kapan
vehicle safety policy,
unified health and safety
protocols, and integrated
reporting
Development and implementation Improved reporting to include
of COVID-19 emergency leading as well as lagging
response plan indicators
------------------------------------
Environmental Buttressing of the tailings Development and implementation
storage facility (TSF) of a groupwide environmental
and raise of the north policy
wall of the TSF completed
Review of avalanche controls Tailings management improvement
measures with a view to demonstrating
a pathway to compliance with
new global industry standard
on tailings management
Acid rock drainage (ARD) Review of how to incorporate
- acid-base accounting solar power at Tulkubash,
(ABA) testing carried and consideration of green
out to assist in the water purification technology
development of mitigation
measures
Installation of low energy
lightbulbs throughout
Kapan
Near completion of the
environmental and social
impact assessment (ESIA)
for Tulkubash
------------------------------------
Community New kindergarten at Kapan
COVID-19 community support
initiatives
------------------------------------
Organic 2020 progress 2021 priorities
growth
------------------------------------
Kapan Identified potential Continued actions to improve
solutions to grade issues grade and reduce dilution
Optimise capacity at the mill
Concluded contracts for Treat more third-party ore
treatment of third-party
ore
Work started on further Commence East Flank development
developing the exploration
of the area adjacent
to the existing mine
(East Flank)
------------------------------------
Tulkubash Advancement of construction,
permitting, and design Finalisation of engineering
and completed detailed work
pre-construction engineering Continued advancement of construction:
commencement of construction
of major structures and purchase
of long lead line items
Completion of DFS level study
of the project
Update Mineral Resource and
Ore Reserves estimates
------------------------------------
Progress in updating Further drilling programme
the 2019 bankable feasibility to extend mine life
study to confirm the Finalise joint venture arrangements
existing resource and with Ç iftay, our construction
exploration potential, partner in the Kyrgyz Republic
cost estimates, and sound
economics of the project
Completed a 2,000-metre
confirmatory drilling
programme and identified
continuation of the mineralisation
outside the pit boundaries
and at depth
------------------------------------
Kyzyltash Completion of metallurgical Drill a representative sample
assessment and test for optimal processing
route
Metallurgical drilling campaign
Assessment of optimal processing
route
------------------------------------
Non-organic 2020 progress 2021 priorities
growth
------------------------------------
M&A Identified, evaluated, Continue to identify and evaluate
and progressed various value enhancing acquisition
opportunities opportunities and, if appropriate,
execute one or more
------------------------------------
People Safe and attractive work Continued focus on cultural
environment for all employees change including empowerment
of employees to take decisions
locally where appropriate
Continued efforts to secure
best in class people, deliver
excellent training programmes,
and act proactively in relation
to changing environment
------------------------------------
Finance Raised US$13.8 million Secure project finance for
via an equity placement Tulkubash
Raise equity - US$30m of new
cash was raised in February
2021 and US$22.2m of debt
was converted into equity
------------------------------------
Continued to reduce Kapan Repay or refinance 2021 convertible
loan with a further US$8.0m loan notes
repaid in accordance
with planned schedule
Extended the maturity
of US$22.0 million of
the Group's indebtedness
to 31 December 2024
Strengthened institutional,
high net worth and retail
investor base
------------------------------------
__________________________________________________________________________________
Chief Operating Officer's Review
Kapan
2020 Kapan highlights
-- Lost time injury frequency rate ('LTIFR') of 0.37 (per
one million hours worked) versus 0.39 in 2019 (-5.1%).
Lost Time Injuries ('LTI') remain too high and further
improvement of the safety performance at Kapan remains
a continuous focus for the organisation.
-- An improved standalone EBITDA contribution of US$19.4 million
for Kapan (2019: US$8.6 million, 11-month period).
-- 2020 production of 58.2koz AuEq exceeding guidance by 6%,
despite the ongoing COVID-19 situation and border hostilities
in H2 of 2020.
-- Exceeded target of processing 50 thousand tonnes ("kt")
of third-party ore by 17.8 kt (+36%) in 2020 .
-- All-in-sustaining cost ("AISC") of US$ 1,034/oz in line
with 2019 of US$ 1,040/oz.
-- Limited impact from the COVID-19 pandemic and regional
conflict.
2020 full-year production consists of:
Kapan 2020 2019 % Change
Production (oz AuEq) 58,178 56,513 +3
-------- -------- ---------
All-in sustaining
cost (USD/oz) (1) 1,034 1,040 -0.6%
-------- -------- ---------
Sales (AuEq oz) 48,387 55,255 -12%
-------- -------- ---------
Gold production (oz) 30,837 32,791 -6
-------- -------- ---------
Silver production
(oz) 587,718 557,001 +6
-------- -------- ---------
Copper production
(t) 2,154 1,719 +25
-------- -------- ---------
Zinc production (t) 7,625 6,476 +18%
-------- -------- ---------
Realised gold price
(USD/oz) 1,773 1,413 25%
-------- -------- ---------
Realised silver price
(USD/oz) 20.4 16.4 24%
-------- -------- ---------
Realised copper price
(USD/t) 6,117 6,008 +2%
-------- -------- ---------
Realised zinc price
(USD/t) 2,222 2,444 -9%
-------- -------- ---------
(1) Full-year production costs given for comparative purposes. The Group consolidated results for 2019 include 11 months of Kapan operations.
Production comments
-- Total tonnes mined were 684,156 in line with 2019 (678,382t
(+0.8%)). This is despite operational restrictions experienced
during Q4 as a result of the imposition of martial law
in the country and a significant number of employees called
up for military duty.
-- Mine head grade was up 3% to 3.03g/t oz versus 2.93/t oz
(+3%) in 2019. Significant work was carried out during
the year to reduce mine dilution. This included a return
to hand-held drilling in some areas not suitable for mechanised
mining due to the narrowness of the veins.
-- Mill throughput was consistent at 744,705t compared to
742,402t (+0.3%) in 2019. Throughput included 67,838t of
third-party ore vs 8,543t (+794%) in 2019. Third-party
ore replaced stockpiled ore which was available for treatment
and helped mill throughput exceed mine production in 2019.
-- Chaarat signed two new contracts with third-party ore producers
in Q2 2020 and received continuous feed from June 2020.
Supply is expected to remain strong for 2021.
-- Mill feed grade for Kapan ore was 3.03g/t vs 2.92g/t (+
3.8%) in 2019. All ore mined was treated in 2020 providing
a consistent mill and head grade.
-- Kapan metallurgical recoveries dropped in 2020 to 79.9%
compared with 81.4% in 2019 (-1.8%). The areas mined in
2020 had higher proportions of oxidation and pyrite which
adversely impact recoveries. Mineralogical work is being
conducted to identify opportunities to improve recoveries
when treating these ore types. The recovery drop was mitigated
by the improvements to grind size control due to the start-up
of two new cyclone clusters which were installed in early
Q2.
-- Underground development was 21,985 metres, slightly lower
than the 23,136 metres in 2019 (-5%). The lower development
is a direct impact of the reduced workforce during the
conflict. This will result in slightly lower production
levels in Q1 2021 while additional work is carried out
to catch up on access development.
2019 Ore Resources and Reserves
The last full review of resource and reserve was carried out in late 2019. There was no update performed in 2020 and the next full update will be conducted during 2021. Exploration drilling continued during 2020 at the same pace as previous years. Historically conversion of inferred to measured and indicated, and resource to reserve has been in line with depletion. The same is anticipated to have been the case in 2020.
Depletion since the last Reserve update is 114.5koz AuEq based on the same metal prices used for the Resource estimate. As depletion is calculated August 2019 to February 2021 inclusive using the Resource model, the depletion number will differ from stated production figures due to differences in actual areas mined versus the model.
The following table summarises the 2019 Ore Reserves:
Grade Metal
Classification Tonnes Au Ag Cu Zn AuEq Au Ag Cu Zn AuEq
(Mt) (g/t) (g/t) (%) (%) (g/t) (Koz) (Koz) (Kt) (Kt) (Koz)
------- ------- ------- ----- ----- ------- ------- ------- ------ ------ -------
Proven 0.17 2.65 40.39 0.42 2.06 4.8 14 220 0.71 3.49 26
------- ------- ------- ----- ----- ------- ------- ------- ------ ------ -------
Probable 4.34 1.65 31.38 0.34 1.31 3.19 230 4,373 14.86 56.88 445
------- ------- ------- ----- ----- ------- ------- ------- ------ ------ -------
Total Proven
and Probable 4.5 1.69 31.72 0.35 1.34 3.25 245 4,594 15.57 60.38 471
------- ------- ------- ----- ----- ------- ------- ------- ------ ------ -------
Notes:
-- The Ore Reserves have been compiled and reported fulfilling the requirement of the JORC Code (2012) reporting code.
-- Ore Reserves are based on long-term metal prices of US$1,400/oz Au, US$17/oz Ag, US$6,000/t Cu, and US$2,400 Zn.
-- Ore Reserves are based on a gold equivalent cut-off of 2.5g/t Au. -- Mineral Resources which are not Ore Reserves do not have demonstrated economic viability. -- Table subject to rounding errors.
-- The average density of Measured and Indicated Resources is 3.02 t/m3. A density of 2.64 t/m3 was used for diluting waste material.
-- Tones reported are in situ, dry tonnes.
Exploration and potential at Kapan
Within the existing exploration licence (covering 90.7km(2) ) there are several mineralised exploration target areas that are in close proximity to the mine. One of these targets is known as East Flank. A full review of the historic drilling database of 62 drill holes comprising 22 km of drilling was carried out during 2020 and an exploration programme has been developed for implementation in 2021. Initial assessment of the East Flank Exploration Target* shows a potential of 5-6 million tonnes with Au grades of 2.2 - 2.6 g/t. Should the drill results be positive, access development would commence in 2022 via a decline from surface as well as from existing underground workings. Initial timeline to implementation is approximately two years subject to funding and capex requirements.
* An Exploration Target is a statement or estimate of the exploration potential of a mineral deposit in a defined geological setting where the statement or estimate, quoted as a range of tonnes and a range of grade (or quality), relates to mineralisation for which there has been insufficient exploration to estimate a mineral Resource. The potential quantity and grade are conceptual in nature, there has been insufficient exploration to estimate a mineral Resource and it is uncertain if further exploration will result in the estimation of a mineral Resource.
Tulkubash
2020 Tulkubash highlights
-- No lost time injuries since start of construction
-- First full winter of year-round construction activity completed
at site (2019-20), without incident
-- Full revision of Mineral Resource estimate and Ore Reserves
being finalized to support latest update to the Bank Feasibility
Study
-- ESIA updated to reflect developments in project engineering
and permitting
-- Completion of additional 80-bed temporary construction
camp facility
-- Continuation of ore haul road and platforms construction
including bridge (from concrete culverts) over Kumbeltash
stream
-- Finalisation of Issued for Construction (IFC) Detailed
Design Drawings for heap leach facility ("HLF") and completion
of tree cutting to start construction of HLF
-- Partial delivery of Phase 1 shift camp modules
-- Delivery and storage of waste-water treatment plant ("WWTP")
Construction
Construction work during 2020 was significantly impacted by COVID-19 and the control measures implemented by the Kyrgyz national and regional governments. Travel restrictions for the first half of the year prevented mobilization of additional equipment and personnel from our construction partner Çiftay. Matters were further compounded later in the year when political instability led to unrest throughout the country and negativity towards international mining companies in particular. Most mining activity was shut down for a period of time following attacks on mine equipment and personnel. Chaarat was not targeted but we took the decision to remove our personnel from site until the situation in country improved. Pending completion of the project financing, work is expected to resume in H1 2021.
Çiftay progressed with planned work streams to the extent possible during the year. They remained on site during the initial in-country COVID restrictions.
Further work was carried out on haul road construction, preparatory earth moving for the heap leach facility ("HLF") and foundation pad construction for the permanent camp and crushing circuit buildings. Preparatory work also started by clearing the area of vegetation and trees for the HLF. The permanent camp for employees was ordered and fabricated in Turkey. Modular construction units were partially delivered to site and erected. The waste-water treatment plant was delivered and stored for future installation.
Camp construction was put on hold over the winter period this year. A small crew remains in place over winter to maintain essential services which will support a quick resumption of construction activity in 2021.
Resource and Reserves
Due to COVID travel restrictions and political unrest, the 2020 drilling programme was significantly shorter than previous years. 2,000 meters of infill drilling were carried out during Q3 to provide better confidence related to mineralised zones as well as better delineation of the Main Pit boundaries.
No exploration of new areas was carried out in 2020 due to the limited field season available. However, additional visual studies and mapping of target mineralisation was carried out to develop the scope of the 2021 exploration programme.
A new Mineral Resource Estimate ("MRE") and Ore Reserves ("OR") are being developed incorporating the 2020 exploration results. For the new MRE, the resource model has also been revised to incorporate the recommendations of the current geology team as well as recommendations from independent reviews of the model by SLR Consulting Ltd. and Wardell Armstrong International Ltd. These reports will be issued in Q2 2021, along with the revised project DFS.
Exploration potential
To date drilling has only been carried out on a small part of the exploration license area. Only 5.5kms of the 24km length have been extensively explored despite the fact that the Tulkubash mineralisation remains open along strike to the North East. The 2021 exploration programme will focus on two main areas:
-- Further definition drilling of the current resource to
convert additional inferred and unclassified mineralisation
to measured and Indicated
-- Further improving the Company's understanding of the extent
of mineralisation across the whole licence area. This work
will include geotechnical exploration in addition to drilling
of any defined target areas.
Tulkubash Reserves as at 1 April 2019
Classification Tonnes (Mt) Au(g/t) Metal (koz)
Proven 6.8 0.95 206
------------ -------- ------------
Probable 15.4 0.91 451
------------ -------- ------------
Total 22.2 0.92 658
------------ -------- ------------
-- Ore Reserves are reported with appropriate modifying factors of dilution and recovery. The Reserve is higher tonnage than the Resource due to dilution,
-- Numbers are rounded in accordance with disclosure guidelines and may not sum accurately. -- Ore reserves based on a gold price of US$1,300 per ounce.
Study updates
The results of the new mineral resource estimate ("MRE") and ore reserves ("OR") are the basis for the revision to the 2019 BFS. This is being updated by Logiproc of South Africa to reflect the latest stage of detailed engineering, design construction, and the comprehensive environmental and social studies that have been carried out since the last reports were finalised (2017 and 2019 respectively). The Environmental and Social Impact Assessment ("ESIA") for the project has also been revised to reflect all of the positive developments made in the last few years. The last ESIA was conducted in 2017 by WAI and they have carried out the revision as well.
These updates will provide a comprehensive update for the project finance lender due diligence process. Based on the information available to date, the conclusions of the updated BFS are expected to be similar to the 2019 bankable feasibility study.
Kyzyltash
Our initial plan for 2020 was to carry out a targeted drilling campaign designed to extract representative material for extensive metallurgical testing to define the optimum processing route for this type of refractory ore. The global pandemic resulted in us scaling back activities significantly until 2021.
We completed a comprehensive review, including external expert opinions on further test requirements. We also reviewed the engineering and project management routes that we would utilize to drive this large and transformational project to a successful completion. The strategy is to bring both Tulkubash and Kyzyltash into production by 2026, with a potential of producing up to 400,000 ounces of gold per annum together from then onwards.
Kyzyltash resources as at 19 October 2014
Resource statement Tonnes (mt) Au (g/t) Metal (Moz)
JORC 2014
(cut-off grade 2g/t)
Measured 6.72 3.26 0.7
------------- ---------- -------------
Indicated 32.79 3.79 3.9
------------- ---------- -------------
Measured and Indicated 39.52 3.70 4.6
------------- ---------- -------------
Inferred 6.61 4.05 0.8
------------- ---------- -------------
Total 46.12 3.75 5.4
------------- ---------- -------------
__________________________________________________________________________________
Environmental, social, and governance
Introduction
Environmental, social, and governance (ESG) lie at the heart of everything that we do at Chaarat. All meetings start with discussions on ESG issues to emphasise it as a core foundation of the business. We have also started publishing a monthly ESG newsletter so that all our employees have improved access to see the various ESG initiatives currently underway and to encourage further improvement.
Our communities
The pandemic made us really think about how best to ensure the welfare of our employees and our communities. We are proud of how our teams have worked during a very challenging year.
We worked with local health care professionals and community groups to target COVID-19 support to the most needed areas.
In the Kyrgyz Republic travel restrictions were imposed early on. In preparation for the difficulties the lockdown might create, we provided flour and sanitising products to the villages in the Chatkal region and to the local hospital in preparation for border closures and travel restrictions within the country. Early on, the country suffered an acute shortage of testing capacity, so we worked with the health authorities to purchase a PCR unit and test kits to help increase government testing capacity. As knowledge about treatment of the disease grew, we purchased oxygen concentrators to ensure appropriate health support in both Bishkek and Chatkal.
In Armenia we helped the local hospital by renovating an unused wing at the hospital and prepared it for use as a COVID ward. We provided beds and renovations to equip a rest facility for personnel in high-risk occupations, such as the police, so that they had a place to stay rather than risk taking COVID back to their families every day. We also helped children in the community by providing computer equipment to enable better access to distance learning.
During the conflict, Kapan's social aid programme was adjusted to provide support to various charities carrying out humanitarian work, such as providing food and shelter to people displaced by the conflict.
Thankfully there were positive events throughout the year also. Kapan is glad to say that work was completed on the new music and arts school and the facility opened for the benefit of children from Kapan and the neighbouring communities. Three new rubbish collection trucks were also delivered to the Kapan Municipality as part of the social assistance package agreed with local communities. Work was also completed on the Shmavon Movsisyan History Museum which is dedicated to showing the history of mining in the Kapan region over the ages.
For 2021, we plan to adjust the initial financial assistance programme to focus more on the legacy issues of 2020, including ongoing support for families displaced by the war, and on helping the region recover from the longer-term effects of COVID-19.
Sadly, the pandemic did impact several of our ongoing initiatives in the Kyrgyz Republic. The annual "Chaarat Cup" to support the growth of sporting activities in the region was cancelled due to restrictions on social gatherings. Hopefully, some form of this well-liked event can resume again in 2021.
During 2020 we completed an update of the Environmental and Social Impact Assessment ("ESIA"). We modified the normal engagement practices typical of the ESIA process to take account of COVID restrictions. Social gathering events were exchanged for video conferences, use of social media and other messaging, voice and video services. We also utilised the ESIA update to review and assess the effectiveness of our internal processes, procedures, and documents. As a result, we identified improvements we could make to aspects such as employee welfare, employment rights, equality, and prevention of harassment in the workplace. This review involves board-level oversight to ensure fit with our stated goals and requirements. The finalised ESIA will be ready for publication in Q2 2021.
Our people
The impacts of COVID-19, the political issues in the Kyrgyz Republic, and conflict in Armenia affected the ability to secure full project funding and ramp up operations as planned. The funding impact required Chaarat to take steps to optimise its costs. The Company carried out a comprehensive cost reduction exercise in Q2 2020, reviewing all aspects of the business. We took the decision to maintain full employment at our impacted operations despite extended periods when access to site in the Kyrgyz Republic was closed. We were able to keep affected personnel of Chaarat and our main contractor employed on reduced pay in line with country legislation during these periods. To ensure continued employment of all personnel we focused on equity of pay issues. Management agreed to a temporary reduction of salary for the duration to ensure that those most at risk from the economic impact of COVID were not affected.
The events of last year required us to refocus on the key priorities so as not to distract the efforts of our people. They also required us to rethink how we conduct training and engagement activities. Face-to-face meetings, training, and group sessions were adversely impacted in 2020, and our management systems are heavily based on these forms of interaction. During 2021 we will need to review and assess what changes we make going forward to be less dependent on such methods.
The ongoing cultural change at Kapan focused on replacing a traditional central office culture with one that focuses more on local ownership, entrepreneurship, and decision making was impacted by the two key events affecting Kapan last year. Less time had to be dedicated to this initiative to focus on the more immediate issues affecting the Company. This multi-year programme to provide improved skills, competencies, and ways of thinking about decision making will be a focus again in 2021.
Health and safety
The health and safety of our employees, contractors, and visitors has always been fundamental for Chaarat since starting work on the Kyzyltash and Tulkubash projects in the Kyrgyz Republic. That same commitment was at the forefront of our activities at Kapan since acquiring the mine in early 2019. We have made good progress over the last two years. Sadly, that progress was not sufficient as evidenced by a fatal incident on 4 March 2021. This event is a sad reminder that work on creating and maintaining a world class safety system never ends. Hazards and risks can always be present and appropriate controls and behaviours are always needed to prevent such tragic events from occurring again. This event will refocus and strengthen our efforts across the Company going forward.
For 2020 there was one lost time injury in Kapan (April 2020). A miner was struck by a piece of loose rock while carrying out scaling activities at the start of the shift. Fortunately, the injuries were not critical, and he was able to return to full duties shortly after the incident. The annual Lost Time Injury Frequency Rate ("LTIFR") for 2020 was 0.37 per one million hours worked (2019: 0.39).
Due to the unusual circumstances of 2020, Chaarat's health and safety ("H&S") focus for 2020 centred on three main areas:
-- Maintaining the positive improvements built into our operations during 2019,
-- Managing the health risks to our people, contractors, and visitors to our site from COVID-19.
-- Ensuring that despite the significant distraction of COVID-19 our collective focus remained on working safely at all times.
We implemented policies and procedures at our workplaces at the start of the crisis to help reduce the risk of infection to our employees and their families. We implemented remote working in all our jurisdictions and took actions to implement increased protections in those areas where remote working was not an option. We introduced social distancing, carried out health screening, regular disinfection and mandatory face mask wearing in all workplaces. Face-to-face meetings were minimised or moved to outdoor environments to optimise ventilation. Canteen practices were changed to provide packed meals or staggered servings to minimize social contact. Our Kyrgyz operation supplemented the controls by requiring PCR screening tests prior to anyone entering the camp. These efforts were successful in keeping COVID from our workplaces for the first wave from March to July.
As global infections increased, our efforts were not able to prevent exposures, especially those from outside of the workplace. Infection rates increased in both our operations. When that occurred, we communicated to our employees to self-isolate rather than coming to work and further exposing their colleagues. Thankfully, all our employees have made a full recovery. Sadly, several of our team suffered the loss of loved ones from this terrible disease. We offer our heartfelt condolences to our team and all those around the world who have suffered such loss during this pandemic.
Chaarat Zaav continued its excellent safety performance record with no lost time injuries in 2020. Since the start of the project, Chaarat Zaav has gone 850,000 hours with no lost time injuries. The task for 2021 will be to further refine our safety managements systems as construction activities ramp up and new risks need to be managed.
Environment
Our key focus for 2020 was to carry out work to reduce the risk to our communities and the environment related to the Tailings Storage Facility ("TSF") at Kapan. The Kapan TSF is what is called an upstream tailings dam. This was the most common dam type built at the time of its construction. Although fully compliant with design standards at the time of construction, it is now recognised that there are inherent weaknesses with the upstream design. One method of improving the safety factors of this type of dam is to buttress the outside face of the dam. Buttressing work on the north wall of the TSF commenced in 2020. This work is part of a multi-year project to reinforce the dam stability and other safety factors to a higher level. Further work is planned for the next two to three years to finalise the north wall and then start on the south side of the dam.
In addition to the buttressing work, the team has made several other improvements to the dam structure during 2020. New raises to the dam walls have been installed with finger drains to increase water drainage from the tails closest to the wall. Old lifts have been retrofitted with horizontal drains as well to control the moisture seepage of existing dam structure.
In August 2020, new Global Industry Standards on Tailings Management were published. Chaarat has undertaken a high-level internal gap analysis to identify areas that need to be addressed to meet the standards. In 2021, a third-party assessment will be carried out to develop a detailed work plan on the additional steps needed to comply fully with the new standards and the time frame to achieve compliance.
As part of our actions related to climate change, Kapan continues to roll out its energy saving programme across the Company. The focus in 2020 was to replace the old energy-intensive lights in use almost exclusively both underground and at the processing plant with modern low-intensity bulbs and fixtures.
The mine has also undertaken a campaign to seal off old headings with simple block walls. This has the double benefit of improving air quality in working areas, and reduce the amount of air needed to be blown underground. This is one of the major electrical uses for the mine.
During 2021 we will be working on our reporting standards related to ESG metrics to better demonstrate the improvements being made across our operations.
Government relations
For the first time in four years Chaarat, the Government of the Kyrgyz Republic and the European Bank for Reconstruction and Development was unable to hold the Kyrgyz-British Investment Forum. This annual event has historically been held in London. The Forum was initially delayed due to COVID-19 and was then put on hold due to the political events in country in the latter part of the year. Chaarat looks forward to working with the new President and Government to resume the Forum once more in 2021.
The investment agreement between Chaarat Zaav and the Government that was expected to be signed early in 2020 was delayed as the Government focused heavily on COVID-19 management. Ongoing government support and commitment for the project was restated in March of this year during meetings held between Charaat's Chairman and member of the new government including the President, Prime Minister, and head of the country's Investment Agency.
In Armenia, relations with the government at both the local, regional, and national level remain positive. The Company's assistance during the COVID crisis was recognised at the highest levels. The social aid programme, developed jointly with the municipality, continues to be an excellent example of partnership. In addition to healthcare and education, the programme will likely include funding next year to support related to COVID-19 and help with humanitarian support for those displaced by the hostilities in Nagorno-Karabakh.
__________________________________________________________________________________
Company's principal risks and uncertainties
Risk Existing mitigating actions
Environmental Implementation of proper
Chaarat may suffer from reputational geohazard mitigation measures
risk and may be liable for losses and maintenance of a proper
arising from environmental hazards hazard management programme,
associated with its activities and including engineering hazard
may be subject to fines and/or penalties. mitigation measures.
Monitoring of tailings storage
facility (TSF), pipelines,
emergency pools, and treatment
facilities, and analysis
of monitoring data.
Annual identification of
environmental hazards and
planned internal reviews
of hazard management.
Employee training on environmental
issues,
in particular on waste control
methods.
-------------------------------------
Community relations Chaarat is committed to work
Communities living in the areas to best international social
surrounding the Group's operations practices as per the Equator
may oppose the Group's activities. Principles, EBRD, and IFC
Actions by those communities may guidelines. In particular,
result in loss of production, increased our mitigation strategy includes:
costs and decreased revenues, longer Operation of social orientation
lead times, additional exploration assistance programmes to
costs and may have an adverse impact the communities in which
on the Group's ability to obtain we operate and ensure labour
permits. force involvement from affected
communities. Conduct public
hearings on social assistance
packages.
Timely communication of relevant
issues to avoid speculation
and rumour. Ensure that decisions
are clearly explained.
-------------------------------------
Health and safety ("H&S") Embedding of policies, standards,
Chaarat's operations present inherent and procedures in place across
H&S risks to our employees and contractors. Chaarat for systematic control
Failure to manage these risks may of significant H&S risks.
result in occupational illness, Purchase of high quality
accidents, a work slowdown, or stoppage personal protective equipment
and/or may damage the reputation (PPE).
of the Group and hence its ability Conduct of planned preventative
to operate. maintenance of equipment
and upgrade equipment in
a timely manner.
Targeted recruitment of experienced
specialists and regular training
of employees and contractors
Continuous monitoring of
highest risk workplace areas.
Employee training.
-------------------------------------
Pandemics and national and/or regional Implementation of extensive
epidemics mitigation measures during
Chaarat's business is exposed to the 2020 COVID-19 pandemic
such risks which can impact its to ensure that our operations
organic and non-organic growth strategy. could continue whilst at
the same time ensuring the
safety of our employees and
contractors, further details
of which can be found in
our ESG report on page 25.
In 2021, Chaarat will focus
on continuing to monitor
World Health Organisation
and local government advice
regarding precautionary measures
and ensure that we implement
all measures necessary to
ensure the safety of our
people.
-------------------------------------
Government policy and legal and Process in place to monitor
regulatory compliance prospective legislative changes,
There remains potential for social, discuss them with competent
political, economic, legal, and state bodies and make suggestions.
fiscal instability. The laws and
regulations in our areas of operation Participation in working
are still developing in some areas groups with other mining
and some provide regulators and companies.
officials with substantial discretion
in their application, interpretation, Stabilisation agreement in
and enforcement. place In the Kyrgyz Republic.
A government decree in 2011 was
passed revising the boundaries of Regular dialogue with ministerial
the UNESCO world heritage site. departments.
Due to an administrative error these
changes were not properly communicated
to UNESCO and some areas of "highly
protected territory" were not properly
transferred to "industrial territory".
The government has recognised this
error, and all formal works in country
have been completed to finalise
the amendment. A prime ministerial
decree addressing this issue is
being prepared for public consultation
and then formal signature in H1
2021 to correct this matter. Some
areas of Chaarat's exploration licence
and the area for heap leach operation
are shown as being in these UNESCO
and highly protected areas as a
result of this 2011 error. However,
Chaarat's mining licence agreement
is compliant with Kyrgyz law and
the Company has all permits and
licences necessary for the construction
and operation of the Tulkubash project
within its entire licensed area,
including the land that is in the
process of being correctly reclassified.
-------------------------------------
Exploration Development and implementation
Exploration and development are of a robust exploration plan.
time and capital-intensive activities Review of exploration plan
and may involve high degrees of by the Board's technical
risk. Chaarat's long-term future committee.
operating margins and profitability Identify attractive prospective
depend upon its ability to find areas to apply for or acquire.
mineral resources through exploration
or acquisition and to replenish
reserves.
-------------------------------------
Construction and development Operation of a proper contractor,
Depending on the timing of completion supplier, expert and other
of project financing, there is a adviser selection and management
possibility of delays to the start process to ensure that they
of production and cost overruns are reliable and meet required
relating to Chaarat's development performance standards.
of its Tulkubash project.
-------------------------------------
Non-organic growth - mergers and Clear delegated authority
acquisitions ("M&A") strategy and for the review and approval
delivery of all transactions by the
Chaarat faces risks arising from Board.
its non-organic growth strategy Subject matter experts as
such as lack of suitable targets. senior stakeholders in acquisition
Acquisition integration risks and process in place.
issues could arise impacting the Regular board reviews and
delivery of expected benefits, either updates of pipeline of identified
within expected time frames or to potential targets.
the extent anticipated. If anticipated Due diligence undertaken
benefits are not realised or if for all M&A transactions,
performance of an acquired asset with involvement of the Board's
falls below expectations, it may technical and HSEC committees,
be necessary to impair the carrying and use of external advisers
value of those assets. where required.
Acquisitions priced and structured
so as to minimise impairment
risk.
We will continue our efforts
to identify suitable M&A
opportunities and adopt the
existing safeguards relative
to our non-organic growth
risks.
-------------------------------------
People - attraction, succession, Integration of skilful personnel
retention to train and develop new
The loss of the services of key and less experienced employees.
employees or if Chaarat encountered Succession planning for specific
labour shortages or was unable to positions.
attract people for core business Monitoring of working conditions
roles, could have an adverse effect to ensure that any issues
on the Company's operations, financial are identified, and solutions
condition, and prospects. provided promptly.
Fair and attractive remuneration
policy.
Provision of career development
opportunities. Partnership
with colleges and training
centres. Internship, on-the-job
training, and mentoring.
Employer brand development
so that Chaarat becomes a
local employer of choice.
In 2021 the Board will undertake
a review of corporate culture.
The Board's remuneration
committee will also undertake
a review of the reward framework
to ensure that it is competitively
aligned to the market.
-------------------------------------
Future financing Maintenance of discussions
The Group requires significant additional with existing lenders and
financing in the future to develop potential finance providers.
projects and to meet ongoing financial Address potential gating
needs. There can be no assurance items to securing project
that additional financing will be finance.
available, or if available, that Looking for new funding options.
it will be on acceptable or favourable
terms. The failure to obtain additional
financing as needed on reasonable
terms, or at all, may require the
Group to reduce the scope of its
operations or anticipated expansion,
dispose of or forfeit its interest
in some or all of its properties
and licences, incur financial penalties
or reduce or terminate its operations.
-------------------------------------
Commodity price volatility Hedging strategies are periodically
Adverse movements in precious metals considered.
prices could materially impact the Conservative long-term prices
Group in various ways beyond a reduction are used to evaluate projects.
in the financial results of operations. AISC at Kapan remains below
These include the feasibility of gold prices.
projects and the economics of mineral
resources.
-------------------------------------
__________________________________________________________________________________
Financial Review
Income statement
Revenue during 2020 amounted to US$76.0 million (2019: US$68.1 million). This represented sales of concentrate at Chaarat Kapan for 12 months in 2020 compared to 11 months in 2019 following acquisition by the Group on 30 January 2019. During this period, Kapan sold 58,178 ounces of Au Eq (2019: 55,255 ounces) with a realised gold price per ounce of US$1,773 (2019: US$1,413).
The operating profit for the Group for the year ended 31 December 2020 was US$1.9 million (2019: loss of US$18.4 million) and the Group EBITDA was US$9.3 million (2019: negative US$12.8 million). The adjusted Group EBITDA, excluding non-cash items as detailed below, was US$13.6 million (2019: negative US$2.4 million).
2020 2020 2020 2019 2019 2019
Armenia Kyrgyz Republic & Total Armenia Kyrgyz Republic & Total
Corporate Corporate
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Earnings before
interest, tax,
depreciation and
amortisation 19,429 (10,126) 9,303 8,624 (21,404) (12,780))
Change in provisions
- non-cash 545 - 545 (563) - (563)
Unrealised foreign
exchange loss (2,649) - (2,649) - - -
Depreciation and
amortisation (5,232) (727) (5,959) (4,490) (589) (5,079)
Finance income 19 - 19 9 - 9
Finance costs (3,149) (17,628) (20,777) (4,287) (5,160) (9,447
Fair value gain on
warrant - 595 595 - - -
--------- -------------------- --------- --------- --------------------- ----------
Loss before income
tax expense 8,963 (27,886) (18,923) (707) (27,153) (27,860)
--------- -------------------- --------- --------- --------------------- ----------
Income tax charge (3,520) - (3,520) (1,540) (5) (1,545)
--------- -------------------- --------- --------- --------------------- ----------
Loss after income tax
expense 5,443 (27,886) (22,443) (2,247) (27,158) (29,405)
--------- -------------------- --------- --------- --------------------- ----------
The adjusted Group EBITDA, excluding non-cash items, was as follows:
2020 2019
US$'000 US$'000
----------------------------------------------------- -------- --------
Kapan EBITDA 19,429 8,624
Corporate/Kyrgyz Republic EBITDA (10,126) (21,404)
Group EBITDA 9,303 (12,780)
Corporate share-based payment expense 3,612 9,780
Unwinding of discount - provision for rehabilitation 655 621
Adjusted Group EBITDA 13,570 (2,379)
----------------------------------------------------- -------- --------
Finance costs in 2020 were US$21.4 million compared to US$9.4 million in 2019, due to refinancing activities that took place in relation to the Group's other loans. This was a combination of cash and non-cash transactions, including an amount of US$8.5 million settled through the issuance of 27.5 million shares to Labro, a US$1.1 million modification loss and US$1.4 million for the issue of warrants.
Income taxes were US$3.5 million compared with US$1.5 million in the comparable year, reflecting the improved profit achieved at Kapan. Consequently, the Group made a loss for the year after tax of US$22.4 million compared with US$29.4 million in the 2019 financial year.
Balance sheet
Non-current assets increased from US$103.1 million at 31 December 2019 to US$109.3 million at 31 December 2020. The increase was mainly due to capitalised exploration and evaluation costs of US$6.3 million relating to the asset in the Kyrgyz Republic.
Current assets were US$25.8 million at 31 December 2020 compared with US$23.9 million at 31 December 2019. The increase mainly related to inventories offset by a decrease in trade and other receivables. Current assets at 31 December 2020 included cash and cash equivalents of US$6.9 million.
Total liabilities at 31 December 2020 were US$110.7 million compared with US$106.8 million at 31 December 2019. This was mainly due to accrued interest on other loans, advances from Kapan's customers of US$5.3 million, offset by bank debt repayments of US$11.2 million. In addition, liabilities at 31 December 2020 included a rehabilitation provision of US$7.5 million (2019: US$8.6 million) relating to Kapan.
Total equity was US$24.4 million at 31 December 2020 compared with US$20.2 million at 31 December 2019. This mainly reflects the increase in share premium of $23.0 million and increase in the share option reserve of $3.6 million as a result of the "MIP" that was implemented in 2019 offset by the loss for the year of US$22.4 million (2019:US$29.4 million).
Cash flow
During 2020, the Group generated operating cash flows of US$15.9 million, compared with operating cash flows of US$2.6 million in 2019. The positive cash generation mainly represented the improved positive EBITDA contribution from Kapan and favourable working capital movements, partly offset by expenditure on corporate overheads and development costs.
Net cash used in investing activities in the 2020 financial year was US$11.9 million, compared with US$54.3 million in the corresponding 2019 financial year. This mainly reflected the purchase of property, plant and equipment at Kapan together with capitalised exploration and development spend in the Kyrgyz Republic. Investing activities in 2019 were significantly higher as they included US$38 million relating to the acquisition of Kapan.
Net cash used in financing activities amounted to US$0.9 million, compared with US$54.1 million generated in 2019. This mainly related to the funds received from the equity raise in the year of US$6.3 million and proceeds from other loans of US$5.3 million offset by bank repayments of US $11.2 million. Cash flow from financing activities in 2019 included the bank loan for the Kapan acquisition and amounts drawn on the working capital facility.
Cash and cash equivalents at 31 December 2020 were US$6.9 million compared with US$3.6 million at the start of the year.
Since year end
In February 2021, the Group completed an equity raise of US$52.2 million, comprising cash of US$30.0 million and loan conversion of US$22.2 million.
Consequently, at 1 March 2021, the Group had approximately US$31.2 million of cash and US$50.1 million of debt (excluding lease liabilities and contract liabilities).
Key targets for 2021 will include securing project or other finance for the Tulkubash project and repaying or refinancing the convertible loan notes to the extent these are not converted.
Financing
In order to achieve the planned future capital developments of assets and to refinance the convertible loan notes, management will need to raise future financing. There are currently no binding agreements in place in respect of any additional funding and there is no guarantee that any course of funding will proceed. However, management is committed to raising additional funds and has an established track record of successfully achieving this in the past as demonstrated by the fundraising activities in early 2021.
Going concern
The Directors have concluded that it is appropriate to prepare the financial statements on a going concern basis. There are currently no binding agreements in place in respect of any additional funding and there is no guarantee that any course of funding will proceed. This indicates the existence of a material uncertainty which may cast significant doubt over the Group's ability to continue as a going concern and, therefore, it may be unable to realise its assets and discharge its liabilities in the normal course of business. Further details of the Group's status as a going concern and expected future financing plans are set out below in Note 4.
Consolidated Income Statement
For the year ended 31 December 2020
2020 2019
US$'000 US$'000
Revenue 75,994 68,088
Cost of Sales (55,286) (55,652)
Gross Profit 20,708 12,436
Selling expenses (1,864) (3,024)
Administrative expenses (16,970) (27,834)
Other income 21 -
-
Operating profit/(loss) 1,895 (18,422)
Finance income 19 9
Finance costs (21,432) (9,447)
Fair value gain on warrant 595 -
--------------------------------------------- ---------- ---------------
Loss before tax for the year, attributable
to equity shareholders of the parent (18,923) (27,860)
Income tax charge (3,520) (1,545)
---------------------------------------------- ---------- ---------------
Loss after tax for the year, attributable
to equity shareholders of the parent (22,443) (29,405)
---------------------------------------------- ---------- ---------------
Loss per share (basic and diluted) - US$
cents (4.40) (7.06)
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2020
2020 2019
US$'000 US$'000
Loss for the year, attributable to equity
shareholders of the parent (22,443) (29,405)
Items which have been reclassified to profit
and loss
Exchange differences on translating foreign 73 -
operations disposed of during the year
Items which may subsequently be reclassified
to profit and loss
Exchange differences on translating foreign
operations and investments (480) 523
Other comprehensive income for the year,
net of tax (407) 523
Total comprehensive loss for the year attributable
to equity shareholders of the parent (22,850) (28,882)
----------------------------------------------------- ---------- ----------
Consolidated Balance Sheet
As at 31 December 2020 2020 2019
US$'000 US$'000
---------------------------------------------------- ---------- ----------
Assets
Non-current assets
Exploration and evaluation costs 61,359 55,070
Other intangible assets 1,221 1,609
Property, plant and equipment 40,538 38,269
Prepayments for non-current assets 563 501
Deferred income tax assets 5,631 7,652
Total non - current assets 109,312 103,101
----------------------------------------------------- ---------- ----------
Current assets
Inventories 12,251 9,676
Trade and other receivables 6,646 9,782
Deferred VAT receivable - 837
Cash and cash equivalents 6,928 3,585
Total current assets 25,825 23,880
Total assets 135,137 126,981
----------------------------------------------------- ---------- ----------
Equity and liabilities
Equity attributable to shareholders
Share capital 5,401 4,688
Share premium 191,594 168,616
Own shares reserve (216) (216)
Convertible loan note reserve 2,493 2,493
Merger reserve 10,885 10,885
Share option reserve 14,103 10,624
Shares to be issued - 217
Translation reserve (15,282) (14,875)
Accumulated losses (184,527) (162,253)
----------------------------------------------------- ---------- ----------
Total equity 24,451 20,179
----------------------------------------------------- ---------- ----------
Liabilities
Non-current liabilities
Provision for rehabilitation 7,479 8,638
Convertible loan notes - 19,994
Lease liabilities 771 302
Other loans 21,947 -
Total non-current liabilities 30,197 28,934
----------------------------------------------------- ---------- ----------
Current liabilities
Trade and other payables 17,400 16,759
Contract liabilities 5,328 -
Deferred VAT payable - 837
Lease liabilities 654 276
Other loans 31,400 59,258
Warrant financial liability 814 -
Convertible loan notes 23,252 -
Other provisions for liabilities and
charges 1,641 738
Total current liabilities 80,489 77,868
----------------------------------------------------- ---------- ----------
Total liabilities 110,686 106,802
----------------------------------------------------- ---------- ----------
Total liabilities and equity 135,137 126,981
----------------------------------------------------- ---------- ----------
Consolidated Statement of Changes in Equity
For the Year
Ended 31 Own Share Convertible Share Shares
December 2020 Share Share Shares Warrant Loan Note Merger Option To Be Translation Accumulated
Capital Premium Reserve Reserve Reserve Reserve Reserve Issued Reserve Losses Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
--------------- ------- ------- -------- ------- ----------- ------- ------- ------- ----------- ----------- --------
As at 1 January
2019 3,951 152,063 - 1,352 2,360 10,885 1,414 - (15,398) (132,984) 23,643
---------------- ------- ------- -------- ------- ----------- ------- ------- ------- ----------- ----------- --------
Loss for the
year - - - - - - - - - (29,405) (29,405)
Translation
gains for the
year - - - - - - - - 523 - 523
---------------- ------- ------- -------- ------- ----------- ------- ------- ------- ----------- ----------- --------
Total
comprehensive
loss for the
year - - - - - - - - 523 (29,405) (28,882)
---------------- ------- ------- -------- ------- ----------- ------- ------- ------- ----------- ----------- --------
Share options
lapsed - - - - - - (204) - - 136 (68)
Share options
expense - - - - - - 9,847 - - - 9,847
Share options
exercised 3 95 - - - - (20) - - - 78
Share scheme
modification - - - - - - (413) - - - (413)
Issuance of
shares for
cash 157 6,387 - - - - - - - - 6,544
Issuance of
shares for
settlement of
liabilities 69 3,041 - - - - - - - - 3,110
Issuance of
treasury
shares 216 - (216) - - - - - - - -
Issuance of
shares for
acquisition of
Kapan 146 5,109 - - - - - - - - 5,255
Equity element
of convertible
loan note - - - - 133 - - - - - 133
Warrants
exercised 146 1,921 - (1,352) - - - 217 - - 932
---------------- ------- ------- -------- ------- ----------- ------- ------- ------- ----------- ----------- --------
As at 31
December 2019 4,688 168,616 (216) - 2,493 10,885 10,624 217 (14,875) (162,253) 20,179
---------------- ------- ------- -------- ------- ----------- ------- ------- ------- ----------- ----------- --------
Loss for the
year - - - - - - - - - (22,443) (22,443)
Translation
losses for the
year - - - - - - - - ( 407 ) - (407)
---------------- ------- ------- -------- ------- ----------- ------- ------- ------- ----------- ----------- --------
Total
comprehensive
loss for the
year - - - - - - - - ( 407 ) (22,443) (22,850)
---------------- ------- ------- -------- ------- ----------- ------- ------- ------- ----------- ----------- --------
Share options
lapsed - - - - - - (159) - - 159 -
Share options
expense - - - - - - 3,612 - - - 3,612
Share options
exercised 1 21 - - - - (10) - - 10 22
Share scheme
modification - - - - - - 36 - - - 36
Issuance of
shares for
cash 191 6,041 - - - - - - - - 6,232
Issuance of
shares for
settlement of
liabilities 513 16,707 - - - - - - - - 17,220
Issuance of
shares for
exercised
warrants 8 209 - - - - - (217) - - -
As at 31
December 2020 5,401 191,594 (216) - 2,493 10,885 14,103 - (1 5,282 ) (184,527) 24,451
---------------- ------- ------- -------- ------- ----------- ------- ------- ------- ----------- ----------- --------
Consolidated Cash Flow Statement
For the Year Ended 31 December 2020 2020 2019
US$'000 US$'000
--------------------------------------------------- -------- --------
Cash flows from operating activities
Operating profit/(loss) 1,895 (18,422)
Depreciation and amortisation 5,959 5,079
Loss on disposal of property, plant and
equipment 66 185
Non-cash expenses 335 496
Gain on disposal of subsidiary (7) -
Change in provisions (897) 297
Foreign exchange losses/(gains) 2,456 (45)
Share based payments 3,612 9,780
(Increase)/decrease in inventories (3,263) 7,828
Decrease/(increase) in trade and other receivables 2,330 (5,218)
(Decrease)/increase in trade and other payables (1,682) 4,036
Increase in contract liabilities 5,334 -
---------------------------------------------------- -------- --------
Cash generated in operations 16,138 4,016
Income taxes paid (205) (1,034)
Cash payments for RSUs replaced - (413)
Net cash generated in operations 15,933 2,569
---------------------------------------------------- -------- --------
Investing activities
Acquisition of subsidiary, net of cash acquired - (38,479)
Purchase of property, plant & equipment (7,417) (3,970)
Purchase of intangible assets (155) (1,385)
Exploration and evaluation costs (4,389) (10,482)
Proceeds from sale of property, plant &
equipment 51 31
Disposal of subsidiary (5) -
Interest received 19 -
---------------------------------------------------- -------- --------
Net cash used in investing activities (11,896) (54,285)
---------------------------------------------------- -------- --------
Financing activities
Proceeds from issue of share capital 6,255 6,622
Receipt of funds for shares to be issued - 161
Receipt of funds for warrants exercised - 49
Repayments of principal portion of lease
liabilities (573) (120)
Proceeds from convertible loan notes issued,
net of costs - 1,072
Finance costs paid for modifications of
other loans (686) -
Repayments of principal amount of loan (8,000) (4,000)
Repayments of interest (3,185) (2,727)
Proceeds from loans 5,300 53,000
Net cash (used in)/from financing activities (889) 54,057
---------------------------------------------------- -------- --------
Net change in cash and cash equivalents 3,148 2,341
Cash and cash equivalents at beginning of
the year 3,585 1,168
Effect of changes in foreign exchange rates 195 76
---------------------------------------------------- -------- --------
Cash and cash equivalents at end of the
year 6,928 3,585
---------------------------------------------------- -------- --------
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 2020 and 31 December 2019.
The consolidated balance sheet at 31 December 2020, 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 2020 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 2019.
3. Loss per share
Loss per share is calculated by reference to the loss for the year of US$22.4 million (2019: loss of US$29.4 million) and the weighted average number of ordinary shares in issue during the year of 510,466,838 (2019: 416,466,724).
At 31 December 2020, 8,920,341 (2019: nil) warrants, 55,027,006 (2019: 56,805,258 ) 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.
4. Going concern
As at 1 March 2021 the Group had approximately US$31.2 million of cash and cash equivalents and US$50.1 million of debt (excluding lease liabilities and contract liabilities):
- US$23.8 million convertible loan notes including accrued interest to 1 March 2021
- US$26.3 million borrowings outstanding, including US$0.3 million accrued interest to 1 March 2021
Kyrgyz Republic
In order to achieve the planned (though as yet uncommitted) capital developments of assets in the Kyrgyz Republic, future financing will need to be raised.
Kapan
The Board has based the cash flow forecasts for Kapan on the most recent budgets. Chaarat Kapan has experienced minimal disruptions to supply chains and shipment as a result of COVID-19 and the hostilities in the neighbouring Naborno-Karabakh region during the final quarter of the year. Based on the 2021 budget for Kapan, Kapan is expected to generate sufficient revenue to cover its operating costs and principal and interest payments. Based on current forecasts covenants will be met, however, performance of Kapan is sensitive to commodity prices and production. If these were to decrease, there is a risk that covenants will be breached.
Convertible Loan Notes
In October 2021 the convertible loan notes are due to be redeemed by conversion into equity at approximately GBP0.36 per ordinary share, at the holder's option, or will be repaid in cash for a total of US$26.4 million (which includes accrued interest and equity portion).
Labro Term Loan
In February 2021 Labro converted all of the outstanding US$22 million term loan due, as well as the US$0.2 million of accrued interest for US$22.2 million in equity. Labro subscribed for 62,380,154 ordinary shares of US$0.01 each in the Company at the Issue Price of 26 pence per share (non-cash). The loan therefore has been extinguished, avoiding any related financing required in future periods.
Labro Facility Loan
In February 2021 the company repaid the outstanding US$0.8 million owing under the Labro Facility Loan and does not expect to draw down anything in the future.
Conclusion
The forecasts show that the convertible loan notes will need to be refinanced with cash or alternative funding, to the extent that loan note holders do not choose to convert to equity, prior to 31 October 2021. To proceed with the development in Kyrgyz Republic further financing will also be required.
The Board has a reasonable expectation that the Group will be able to raise additional funds as demonstrated by the Group's established track record in historical fund raisings, most recently in the equity raise of February 2021 which raised US$30.0 million in cash.
Subject to the above, 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 there is no guarantee that any course of funding will proceed. 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
Completion of US$52.2 million Financing Package Equity Raise and Debt Conversion
The Company announced on 5 February 2021 that it had completed a US$52.2 million financing package through an equity fundraise of US$30.0 million and a debt to equity conversion of the Term Loan with Labro Investments Ltd of US$22.2 million. A total of 62,380,154 new ordinary shares of US$0.01 each were issued at the Issue Price of 26p. The Company completed an equity raise of US$30.0 million from new and existing investors through the issue of 84,114,549 ordinary shares of US$0.01 each.
Labro Facility Loan
In February 2021 the company repaid the outstanding US$0.8 million owing under the Labro Facility Loan and does not expect to draw down anything in the future.
6. Timetable and distribution of accounts
The Annual General Meeting ("AGM") will be held on Tuesday, 18 May 2021 at 11am at the offices of Baker & McKenzie LLP, 100 New Bridge Street, London EC4V 6JA. The Board has noted the guidance issued by the UK Government regarding indoor gatherings due to the ongoing Covid-19 pandemic. Given the current guidance and the general uncertainty as to what additional and/or alternative measures may be put in place, whilst it is the Company's intention to proceed with holding an AGM, the Board requests that shareholders do not attend the AGM but instead appoint a proxy and provide voting instructions in advance of the AGM. Given the current UK Government restrictions, the Board will put in place a dial-in facility for shareholders to listen to the AGM proceedings details of which will be provided in due course. The Board will keep these AGM arrangements under review and will update shareholders via a RNS.
Copies of the Annual Report and Notice of the Annual General Meeting will be sent to shareholders by 22 April 2021.
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
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 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.
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