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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 | 112,673 | 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 : 6814Y
Chaarat Gold Holdings Ltd
11 September 2020
11 September 2020
Chaarat Gold Holdings Limited
("Chaarat" or "the Company")
Interim results for the six months ended 30 June 2020
Chaarat Gold Holdings Limited (AIM: CGH), the AIM-quoted gold mining company with an operating mine in Armenia, and assets at various stages of development in the Kyrgyz Republic, today publishes its unaudited results for the six-month period ended 30 June 2020.
Hot Features
Premium
COVID-19 update
* The precautionary measures Chaarat implemented in
mid-February to control COVID-19 transmission helped
to achieve zero cases in H1 2020 amongst our
employees. There were a small number of COVID-19
cases in July, despite rigorous pretesting of all
arrivals at the Tulkubash construction site. The
incident was well managed to minimise transmission
and both personnel recovered fully.
* Continuous initiatives and support for the hospitals
and communities surrounding the mining operations
have helped to contain the virus and assist with
medical treatment in our regions.
* Chaarat is continuing to follow best practice to
minimise the risk of our employees contracting
COVID-19 as a result of their work activities, and to
support our communities on an ongoing basis.
Operating and project highlights
Kapan
-- On track to deliver on our AuEq 55k oz guidance for the
year.
-- H1 2020 had a total recordable injury case rate (per one
million hours worked) of 0.7.
-- Gold equivalent production of 26,960 ounces ("oz") including
543 oz produced from third-party ore (H1 2019: 29,607 oz
(- 9%); H2 2019: 26,906 (+0.2%)).
-- The grades in H1 2020 were still impacted by mining in lower
grade areas and we are now in the process of developing
towards higher grade areas.
-- AISC costs improved quarter on quarter continuing the positive
trend from H2 2019 with efficiency gains throughout the
operation.
-- Work has started to further develop the exploration potential
of the area ("East Flank") adjacent to the existing Kapan
mine, with the potential to realise additional ore to the
mill from H2 2022.
Tulkubash
-- People and equipment restrictions as a result of COVID-19
have led to the expected date of the first gold pour being
moved by approximately 12 months from yearend 2021 to Q4
2022. Despite these challenges, construction has advanced,
and good progress has been made on the permitting and design/engineering
fronts.
Kyzyltash
-- A preliminary metallurgical assessment was completed in
April 2020. Subsequent to this a drilling and metallurgical
test programme has been defined to confirm an optimal processing
route.
Financial highlights (unaudited)
-- Revenues in the period amounted to US$29.9 million (H1 2019:
US$31.0 million), which is wholly attributable to the ownership
of Kapan. The comparable 2019 period includes Kapan results
for a five-month period from the date of acquisition.
-- A positive EBITDA contribution from Kapan of US$4.1 million,
a +28% increase when compared with the EBITDA contribution
of US$3.2 million from Kapan for the 2019 comparable period.
Resulting in a group EBITDA of negative US$2.2 million,
a 33% increase when compared with a negative group EBITDA
of US$3.3 million. However, the adjusted Group EBITDA, excluding
non-cash share-based payment expense of US$2.7 million is
positive US$0.5 million for H1 2020 (H1 2019: negative US$3.1
million) as a result of the increased EBITDA from Kapan
and lower corporate expenses.
-- During the first six months of 2020, the Group generated
net operating cash flows of US$5.9 million compared with
US$2.8 million for the 2019 comparable period. This is mainly
represented by a positive EBITDA contribution from Kapan
and favourable working capital movements, partly offset
by expenditure on corporate overheads and development costs.
-- Cash and cash equivalents as at 30 June 2020 were US$5.9
million (H1 2019: US$4.9 million).
-- Various financing initiatives remain in progress, including
discussions with a number of institutions regarding project
finance for the Tulkubash project. Further financing updates
will be given throughout H2 2020.
Corporate and development highlights
-- Balance sheet strengthened via a US$13.8 million equity
placing in April 2020.
-- Total borrowings have decreased from US$79.8 million at
1 January 2020 to US$72.2 million at 30 June 2020 mainly
due to the settlement of the working capital facility to
nil as a result of the equity placing in April 2020 and
the quarterly repayment of both principal debt and interest
during the period.
-- Extensions were agreed relating to the US$19.4 million investor
loan and working capital facility of which US$6.5 million
remains available for drawdown to 31 December 2020.
Post period highlights
-- Run of mine grades at Kapan improved both in July and August
and are expected to be above H1 2020 levels for the rest
of the year. This is a result of the targeted development
work carried out year to date focussed on identifying higher
grade ore blocks that require minimal development.
-- The two new cyclone clusters which were installed in late
Q2 to replace old inefficient units have already resulted
in improvements in recoveries in July and August. Further
improvements are expected in H2 2020.
-- Third party ore contracts resulted in US$0.4 million positive
EBITDA contribution to Kapan in July and the Company expects
to meet the projected US$1.0 million positive EBITDA contribution
in 2020.
-- Higher commodity prices, postponed shipments of June 2020
concentrates and improving operational factors led to an
unaudited US$4.2m EBITDA contribution from Kapan in the
month of July, more than doubling the Kapan EBITDA year
to date.
-- The Board has reviewed the Group's cash flow forecast for
the period to 31 December 2021 and has determined that it
will require further funding before the end of 2020 to refinance
its existing liabilities and as required to meet other corporate
expenses.
Artem Volynets , Chief Executive Officer, commented: "We continue to make progress towards achieving our goal of becoming a leading emerging markets gold company with a focus on Central Asia and the Former Soviet Union. Kapan had a better first half compared to last year, despite June shipment delays, as a result of the optimisation initiatives we have implemented since we acquired this operation. The rapidly implemented programmes to support our communities during the challenging times created by the COVID-19 pandemic have led to no cases being recorded onsite in H1 2020 and a continuous excellent safety record and recognition by our employees and the communities. The cases in July 2020 at the Tulkubash construction site were handled very efficiently with the individuals affected fully recovering within weeks.
At Kapan, we are pleased to report that we are on track to meet our operational guidance of 55koz for 2020. Continuous improvements on the AISC and the benefits of higher utilisation and new equipment have shown positive results since June. With US$4.2m Kapan EBITDA contribution in July and a similar expected profitability for the remainder of the year, we look to the second half of the year with confidence.
At Tulkubash, the project is being advanced in accordance with the budget and updated schedule. The restrictions on people and equipment mobilisation persist and we will keep precautionary measures for employees and contractors in place for the moment. This will likely delay first gold pour until the end of 2022 as previously announced. However, the time will be used wisely as it allows us to optimise critical aspects of this first stage of our existing Kyrgyz project."
Analyst and Investor conference call and presentation
Chaarat will host an analyst and investor conference call and presentation Monday, 14 September 2020, at 9:00 BST. Participants can register via the link below and will receive a link to the Zoom presentation and dial-in numbers in their inbox.
https://us02web.zoom.us/webinar/register/WN_Xvnik3kCTlWJNATx6Jp_rg
Participants are invited to submit questions prior to the presentation to IR@chaarat.com .
The presentation will be available for download from the Company's website two hours before the call at https://www.chaarat.com/report_category/presentations/ .
A recording of the conference call will subsequently be available on the Company's website.
Enquiries
+44 (0)20 7499
Chaarat Gold Holdings Limited 2612
Artem Volynets (CEO) info@chaarat.com
Canaccord Genuity Limited (NOMAD + 44 (0)20
and Joint Broker) 7523 8000
Henry Fitzgerald-O'Connor
James Asensio
+44 (0)20 7220
finnCap Limited (Joint Broker) 0500
Christopher Raggett
SP Angel Corporate Finance LLP (Joint +44 (0)20 3470
Broker) 0470
Ewan Leggat
Competent Person - East Flank Exploration Target
The updated target Estimate for further exploration of the East Flank target area of the Kapan project was prepared Chaarat technical staff under the supervision of Mr. Joe Hirst, B.Sc. (hons), M.Sc., EurGeol. CGeol. Mr. Hirst is former Senior Resource Geologist at Chaarat and now an Independent Geological Consultant to Chaarat. Mr Hirst is a Chartered geologist with more than 17 years of experience in the mineral Resource industry who has sufficient experience relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2012 Edition of the 'Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves'. He has supervised the work which is the subject of this release. Mr. Hirst consents to the inclusion in the report of the matters based on this information in the form and context in which it appears.
About Chaarat
Chaarat is a gold mining company which owns the Kapan operating mine in Armenia as well as Tulkubash and Kyzyltash Gold Projects in the Kyrgyz Republic. The Company has a clear strategy to build a leading emerging markets gold company with an initial focus on Central Asia and the Former Soviet Union 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 .
Forward-looking statements
This announcement may include or incorporate by reference statements that may constitute "forward-looking statements" in respect of the Chaarat's operations, performance, prospects, and/or financial condition. Forward-looking statements are sometimes, but not always, identified by their use of a date in the future or such words and words of similar meaning as "anticipates", "aims", "due", "could", "may", "will", "should", "expects", "believes", "intends", "plans", "potential", "targets", "goal" or "estimates". By their nature, forward-looking statements involve a number of risks, uncertainties and assumptions and actual results or events may differ materially from those expressed or implied by those statements. Accordingly, no assurance can be given that any particular expectation will be met, and reliance should not be placed on any forward-looking statement. Additionally, forward-looking statements regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. No responsibility or obligation is accepted to update or revise any forward-looking statement resulting from new information, future events or otherwise. Nothing in this announcement should be construed as a profit forecast. This announcement does not constitute or form part of any offer or invitation to sell, or any solicitation of any offer to purchase any shares or other securities in the Company, nor shall it or any part of it or the fact of its distribution form the basis of, or be relied on in connection with, any contract or commitment or investment decisions relating thereto, nor does it constitute a recommendation regarding the shares or other securities of the Company. Past performance cannot be relied upon as a guide to future performance and persons needing advice should consult an independent financial adviser. Statements in this announcement reflect the knowledge and information available at the time of its preparation. Liability arising from anything in this announcement shall be governed by English law. Nothing in this announcement shall exclude any liability under applicable laws that cannot be excluded in accordance with such laws.
OPERATIONAL REVIEW
The health and safety of our employees and communities has been our main priority during the COVID-19 pandemic and we have been monitoring the situation daily in all our countries of operation. We have restricted all travel by our employees, and limited visitors to our facilities. Our employees have been working from home where possible and additional measures to protect our employees have been implemented for those still working at our operating sites. Later in this review, we outline the support that we have been giving the communities in which we operate during these challenging times.
Kapan
As we reported in our Q1 2020 operational and production update, lower than expected grades were mined due to complex geology in the period and gold produced has been negatively impacted as a result. Our technical team has been assisting Kapan's operational team with its 2020/21 mine plan focussing on early access to higher grade areas for the rest of 2020 and beyond. Much of the period under review has been spent addressing grade issues and identifying how to achieve improved mill performance so that good recoveries can be obtained on a sustainable basis. Grades are expected to improve in the upcoming quarters, as seen in July and August as a result of the targeted access development.
Two new cyclone clusters were installed in June 2020 to improve grind optimisation and associated recovery. These replaced old inefficient units and are showing improved results thus far.
Chaarat was able to sign two new contracts with third-party ore providers in Q2 2020 and received continuous feed from June 2020. This additional ore will help to increase economics in the mill and support Chaarat in achieving its annual targets.
The Chaarat technical team has been focussing on the East Flank mineralisation, adjacent to the current Kapan mine workings and within the project licence, which was explored by drilling and development historically. This target is based on historical development mapping and drilling comprising a database of 62 drill holes totalling 22 km of drilling. The East Flank Exploration Target(1) is based on a management estimate and indicates a potential 5-6 million tonnes with AuEq grades of 2.2 - 2.6 g/t. Resource definition drilling will be required, and evaluation, to develop a compliant Resource followed by access development in order to increase throughput in the mill currently expected by H2 2022.
Further detail regarding our Kapan mine performance during H1 2020 is below:
-- Lost time injury frequency rate ("LTIFR") of 0.7 (per one
million hours worked) (H1 2019: 0.7)(2)
-- Gold equivalent production was 26,960 oz (H1 2019: 29,607
oz)(3) . H1 2020 production consisted of:
- Gold: 13,723 oz, including third party ore (H1 2019:
17,706 oz)(2)
- Silver: 261,551 oz (H1 2019: 275,302 oz)
- Copper: 960 t (H1 2019: 896 t)
- Zinc 3,997 t (H1 2019: 3,191 t)
-- Average realised gold price was up 25.5% to US$1,665 /oz
(H1 2019: US$1,327 /oz)(2) . However, base metals saw significant
declines in prices in Q1, before improving in late Q2:
- Realised silver price up 7.9% to US$16.4 /oz (H1 2019:
US$15.2 /oz)
- Realised copper price down 11.8% to US$5,400/t (H1 2019:
US$6,123/t)
- Realised zinc price down 23.7% to US$1,959/t (H1 2019:
2,568/t)
-- Kapan EBITDA (unaudited) of US$4.1 million (H1 2019: US$3.2
million)(2)
- Total tonnes mined up 10.6% to 360,957t (H1 2019: 326,278t)
- AuEq recoveries 79.2% (H1 2019: 81.3%)
-- Gold equivalent grades mined in H1 2020 were down 5% to
2.84 g/t (H1 2019: 3.02 g/t)(2) . H1 2020 was impacted
by mining in lower-grade areas and we are now in the process
of developing towards higher-grade areas.
-- Copper and zinc recoveries increased year on year (by 1%
and 2% respectively), but gold to Cu concentrate was down
due to the lower gold head grade in ore. Third-party ore
recovery is tracked separately due to it being of a completely
different nature to our own polymetallic ore.
-- All-in sustaining cost ("AISC"(4) ) of US$1,076 /oz (H1
2019: US$1,108 /oz). Although unit costs improved quarter
on quarter with efficiency gains throughout the operation,
this has not yet materialised in the AISC.
-- Underground development of 11,216 metres achieved (H1 2019:
11,521 metres)(2)
-- Outlook
- Chaarat remains on track to deliver on its AuEq 55koz
guidance for the year.
- A portion of the copper concentrate and third-party
concentrate produced in June was not financially recognised
in H1 2020 due to late shipment. This led to lower AuEq
sold in H1 2020 but has contributed positively to results
in July 2020. Further, a stronger H2 is expected with
improved economic performance as new higher-grade zones
are mined from development in H1 2020.
- Chaarat's focus is on access to more "value adding"
areas of the mine for the rest of 2020. The technical
team is making good progress on updating the mining
plan for H2 2020 and the years to come.
- New mine equipment is providing immediate operational
improvements. Along with mill circuit upgrades and the
treatment of third-party ore these will help increase
operational efficiency in H2 2020.
- Higher commodity prices, postponed shipments from June
2020 and improved operational factors led to an unaudited
US$4.2m Kapan EBITDA contribution in the month of July,
more than doubling the Kapan EBITDA contribution year
to date.
(1) 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.
(2) The comparable 2019 period includes Kapan results for a five-month period from the date of acquisition.
(3) Gold equivalent ounces based on gold price of USD 1,500/oz and gold ratios of 83 for silver (Au/Ag), 7,778 for copper (Au/Cu) and 20,968 for zinc (Au/Zn).
(4) AISC on a gold oz produced basis exclude smelter TC/RC charges, others which add c. US$234/oz. Sustaining capex of c. US$2.3 million in H1 2020 is included in the AISC.
Tulkubash
Tulkubash will be a simple, proven technology heap leach project and the first stage of development of our project in the Kyrgyz Republic. We were able to progress the early construction phase in the first half with construction completed now close to 10 percent. However, the declaration of a state of emergency by the government of the Kyrgyz Republic and the significant global restrictions on the movement of people have impacted our workforce mobilization for the summer construction period. As previously announced, this will likely cause the first gold pour to be moved by a year from late 2021 to Q4 2022. Capital expenditure remains the same at approximately US$110 million. The Company has to date been advancing the project from equity funding only. Nevertheless, we have progressed several project components including:
-- initial earthworks including equipment mobilization, further
de-risking the project as it heads towards first production;
-- ore haul road and platform construction, to allow for early
stockpiling ahead of processing;
-- upgrading of access road to site to ensure year-round access;
-- installation of advance construction camp, including the
first phase of the 360-man camp;
-- tree cutting permit for the whole site has been secured
and work significantly completed to clear area ahead of
mining; and
-- detailed design of the heap leach facility ("HLF") and adsorption-desorption
recovery ("ADR") plant which is almost complete and work
on the crushing circuit and equipment selection is ongoing.
The Tulkubash construction capex of US$110 million will be fully funded once project finance has been secured. We continue discussions with several parties and are working to secure project financing by the end of 2020. Interest from newly contacted banks has led to a thorough review of additional proposals to further optimise the financing structure for the Tulkubash asset.
As previously announced, we have an agreement with the Turkish mining and mine construction contractor, Çiftay İnsaat Taahh t ve Ticaret A. ., pursuant to which it will progressively invest up to US$31.5 million in cash for a corresponding 12.5% equity stake in the Tulkubash and Kyzyltash projects.
Kyzyltash
A preliminary metallurgical assessment was completed in April 2020 and we are now able to further develop our high-grade Kyzyltash project. We are working towards an update of Kyzyltash's standalone 2016 feasibility study to Western standards in 2022.
Environmental, Social and Governance ("ESG")
We continue to attach great importance to sustainable development and social investment programmes in the countries in which we operate. We believe that partnership with local communities is essential for the long-term success of our operations. During the COVID-19 pandemic we have implemented various programmes to support our communities in these challenging times, including the procurement of a PCR unit to help with testing capacity in the Kyrgyz Republic. Several other ESG initiatives have been implemented by us during the period under review including:
Kapan (Armenia)
-- supplied diagnostic test kits, face masks, sanitiser, and
goggles to the regional hospital in cooperation with local
companies;
-- donated beds and equipment to the medical centre of Kapan;
-- provided computers to help school children attend remote
lessons;
-- gave gifts to nurses of Kapan for their contribution during
the pandemic;
-- opened a music and art school; and
-- continued construction of new kindergarten for 100 children.
Tulkubash - Chatkal, Kyrgyz Republic
-- maintained employment for affected workers during the crisis;
-- supplied 10 tonnes of flour, one tonne of disinfectant and
face masks to the Chatkal region;
-- donated face masks and hand sanitisers to hospitals; and
-- donated PCR thermocyclers and PCR tests for COVID-19 to
the Kyrgyz Ministry of Health.
FINANCIAL REVIEW
Income statement
Revenues in the period amounted to US$29.9 million (H1 2019: US$31.0 million). This represented sales of concentrates at Kapan for the 6-month period in H1 2020 (H1 2019: 5-month period). During this period Kapan sold 20,882 ounces of AuEq (H1 2019: 28,331 ounces) with a realised gold price per ounce of US$1,665 (US$1,327 in H1 2019).
The operating loss for the Group during the period was US$5.2 million (H1 2019: US$7.5 million) and the Group EBITDA during the period was negative US$2.2 million (H1 2019: negative US$3.3 million). This included a positive EBITDA contribution from Kapan of US$4.1 million (H1 2019: US$3.2 million), offset by depreciation and amortisation of US$2.8 million (H1 2019: US$4.0 million) as well as corporate and overhead costs of US$6.0 million (H1 2019: US$6.5 million) at head office and in the Kyrgyz Republic to fund the ongoing development of the Group. The corporate and overhead costs in H1 2020 included a non-cash charge of US$2.7 million for share-based payments in respect of the Group's management incentive plan which was implemented in H2 2019 (H1 2019: US$0.2 million). Excluding the share-based charges, corporate and overhead costs at head office were US$2.8 million less than H1 2019. The operating costs in H1 2019 were higher owing to the professional fees associated with the Kapan acquisition. All of these factors contribute to a lower operating loss in H1 2020 when compared with H1 2019. The adjusted Group EBITDA, excluding shared based payment expense, a non-cash item, is positive US$0.5 million for the six months ended 30 June 2020 (H1 2019: negative US$3.1 million).
Finance costs were US$8.0 million compared with US$4.9 million in the first half of 2019. This resulted from fees associated with the debt extensions relating to the US$19.4 million investor loan and working capital facility to 31 December 2020 as well as ongoing interest accrued on bank loans and convertible loan notes. Income taxes were US$0.4 million compared with US$0.1 million in the comparable period. Consequently, the Group made a loss for H1 2020 after tax of US$13.5 million compared with US$12.3 million in the comparative H1 2019 period.
Balance sheet
Non-current assets increased from US$103.1 million at 31 December 2019 to US$109.1 million at 30 June 2020. The increase was mainly due to the purchase of property, plant, and equipment at Kapan. Additionally, exploration and evaluation costs of US$2.2 million were capitalised in the period relating to the asset in the Kyrgyz Republic
Current assets of US$21.1 million at 30 June 2020 compared with US$23.9 million at 31 December 2019. The decrease mainly related to trade receivables and prepayments offset by an increase in cash and cash equivalents and inventory. Current assets at 30 June 2020 included cash and cash equivalents of US$5.9 million (31 December 2019: US$3.6 million).
Total liabilities at 30 June 2020 were US$101.4 million compared with US$106.8 million at 31 December 2019. This was mainly due to repayment of the bank debt in the amount of US$5.8 million including interest, settlement of the working capital facility in the amount of US$6.3 million through shares issued, offset by an increase in lease liabilities of US$1.2 million and capitalisation of interest of US$5.6 million for the H1 2020 period. The movement in liabilities is set out in more detail in Note 9 to the interim financial statements, including the split between long-term and short-term components, information relating to covenants and the treatment of the extensions to the investor loan and the working capital facility. In addition, there was an increase in the rehabilitation provision relating to Kapan of US$1.2 million.
Total equity was US$28.9 million at 30 June 2020 compared with US$20.2 million at 31 December 2019. This mainly reflects the increase in the share option reserve of US$2.7 million as a result of the management incentive scheme that was implemented during H2 2019 as well as the increase in share capital and premium of US$18.8 million, which was offset by the loss for the period of US$13.5 million. On 29 April 2020, the group closed a placing having raised approximately US$13.8 million (comprising proceeds of US$6.2 million and indebtedness reduction of US$7.6 million) from the issue of 42,115,025 ordinary shares of US$0.01 each.
Cash flow
During the first six months of 2020, the Group generated operating cash flows of US$5.9 million, compared with operating cash flow consumed of US$2.8 million in the first six months of 2019. The positive cash generation mainly represented increased 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 period was US$5.8 million, compared with US$44.2 million in the corresponding period for 2019. This mainly reflected the purchase of property, plant, and equipment at Kapan together with capitalised exploration and development spend in the Kyrgyz Republic during the period. Investing activities in H1 2019 were significantly higher as they included US$40 million relating to the acquisition of Kapan.
Cash flow from financing activities in the period amounted to US$2.2 million, compared with US$45.2 million in the first half of 2019. This mainly related to the funds received from the equity raise in the period and drawn from the working capital facility offset by repayments of principal and interest related to the external bank funding. Cash flow from financing activities in H1 2019 included the bank loans for the Kapan acquisition and amounts drawn on the working capital facility.
Cash and cash equivalents at 30 June 2020 were US$5.9 million compared with US$3.6 million at the start of the period. At 31 August 2020, the Group had approximately US$2.3 million of cash and cash equivalents.
Further details of the Group's status as a going concern and expected future financing plans are set out below in Note 2 to the interim financial statements.
Cost Optimisation Programme
To enable the Company to continue to progress its projects in accordance with the updated schedules in the coming months of global economic uncertainty due to the COVID-19 pandemic, the Company completed a comprehensive cost reduction exercise in reviewing all expenses across the business. This included compensation-based adjustments for the board members and senior management aligning with shareholders interest. As a consequence of this, the payment period for shares subscribed by some executives in the April placing through offset against future salaries has been extended from six months to 19 months.
Corporate Finance
In April, the previous peak period of the COVID-19 situation, we were able to raise c. US$13.8 million on the upper end of the US$13-14 million target range from existing and new investors via a placing of 42,112,025 new ordinary shares of US$0.01 each at a placing price of 26 pence per share. The prime motivation for this placing was to strengthen the balance sheet and to allow us to continue our strategy amidst the current macro-economic factors.
In April we also extended the maturity dates of two of our facilities to 31 December 2020:
-- US$19.4 million investor loan (including US$2.4 million
of accrued interest at 31 March 2020); and
-- Working capital facility from our major shareholder, Labro
Investments Limited, which is currently undrawn and of which
US$6.5 million remains available for drawdown.
The proceeds of the placing together with the loan extensions and our overall indebtedness reduction enhanced our liquidity buffer in H1 2020 and has enabled us to continue to progress our Tulkubash project to the extent that the COVID-19 pandemic permits and to advance further our high-grade, 5.4 million ounces Resource, Kyzyltash project as set out earlier in this Review.
To achieve the planned operational outlook management will need to raise future financing. Apart from the funds available under the Labro working capital facility, there are currently no binding agreements in place in respect of any additional funding. Management is committed to raising additional funds and has an established record of successfully achieving this in the past. Further details of the Group's going concern and expected future financing plans are set out below in Note 2 to the condensed interim financial statements.
Artem Volynets Chris Eger Chief Executive Officer Chief Financial Officer
10 September 2020
Unaudited Consolidated Income Statement
For the six months ended 30 June 2020
6 months
6 months ended ended
30 June 2020 30 June 2019
US$'000 US$'000
Revenue 29,886 30,956
Cost of Sales (24,448) (27,968)
---------------------------------------------- ---------------- -------------
Gross profit 5,438 2,988
Selling expenses (935) (1,443)
Administrative expenses (9,657) (9,052)
Operating loss (5,154) (7,507)
Interest receivable 13 8
Interest payable (8,024) (4,929)
Loss before tax for the year, attributable
to equity shareholders of the parent (13,165) (12,428)
Income tax credit/(charge) (355) 81
Loss after tax for the year, attributable
to equity shareholders of the parent (13,520) (12,347)
Loss per share (basic and diluted) - US$
cents (2.76) (3.06)
Unaudited Consolidated Statement of Comprehensive Income
For the six months ended 30 June 2020
6 months 6 months
ended ended
30 June 30 June
2020 2019
US$'000 US$'000
Loss for the year, attributable to equity
shareholders of the parent (13,520) (12,347)
Items which may subsequently be reclassified
to profit and loss
Exchange differences on translating foreign
operations and investments (386) 1,108
Other comprehensive income for the year,
net of tax (386) 1,108
Total comprehensive loss for the year attributable
to equity shareholders of the parent (13,906) (11,239)
----------------------------------------------------- ---------- ----------
Unaudited Consolidated Balance Sheet
As at 30 June 2020
As at
As at 31 December
30 June 2020 2019
(Unaudited) (Audited)
Note US$'000 US$'000
------------------------------------------- -------- ----------- ------------
Assets
Non-current assets
Exploration and evaluation costs 7 57,240 55,070
Other Intangible assets 1,407 1,609
Property, plant, and equipment 41,690 38,269
Prepayments for non-current assets 1,431 501
Deferred income tax assets 7,380 7,652
Total non - current assets 109,148 103,101
------------------------------------------- -------- ----------- ------------
Current assets
Inventories 10,396 9,676
Trade and other receivables 2,250 6,665
Deferred VAT receivable 570 837
Prepayments 1,915 3,117
Cash and cash equivalents 5,933 3,585
Total current assets 21,064 23,880
Total assets 130,212 126,981
------------------------------------------- -------- ----------- ------------
Equity and liabilities
* Equity attributable to shareholders
Share capital 8 5,246 4,688
Share premium 8 186,780 168,616
Own shares reserve (216) (216)
Convertible loan note reserve 3,042 2,493
Merger reserve 10,885 10,885
Share option reserve 13,357 10,624
Shares to be issued - 217
Translation reserve (15,261) (14,875)
Accumulated losses (174,981) (162,253)
------------------------------------------- -------- ----------- ------------
Total equity 28,852 20,179
------------------------------------------- -------- ----------- ------------
Liabilities
Non-current liabilities
Provision for rehabilitation 9,867 8,638
Convertible loan note 9 21,552 19,994
Lease liabilities 9 1,308 302
------------------------------------------- -------- ----------- ------------
Total non-current liabilities 32,727 28,934
------------------------------------------- -------- ----------- ------------
Current liabilities
Trade and other payables 17,972 16,759
Deferred VAT payable 570 837
Convertible loan note 9 16,606 -
Lease liabilities 9 76 276
Other loans 9 - 22,343
Borrowings 9 32,687 36,915
Other provisions for liabilities and
charges 722 738
Total current liabilities 68,633 77,868
------------------------------------------- -------- ----------- ------------
Total liabilities 101,360 106,802
------------------------------------------- -------- ----------- ------------
Total liabilities and equity 130,212 126,981
------------------------------------------- -------- ----------- ------------
Unaudited Consolidated Statement
of Changes in Equity
For the six
months
ended 30 June
2020
Own Share Convertible Share Shares
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 31
December
2018
(Audited) 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
income 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 notes - - - - 133 - - - - - 133
Warrants
exercised 146 1,921 - (1,352) - - - 217 - - 932
As at 31
December
2019
(Audited) 4,688 168,616 (216) - 2,493 10,885 10,624 217 (14,875) (162,253) 20,179
--------------- ------------------- ------------ ---------------- ----------- ---------------------- --------------- --------------- ----------- ------------ ------------ ---------
Loss for the
period - - - - - - - - - (13,520) (13,520)
Translation
gains
for the
period - - - - - - - - (386) - (386)
---------------
Total
comprehensive
income for
the period - - - - - - - - (386) (13,520) (13,906)
--------------- ------------------- ------------ ---------------- ----------- ---------------------- --------------- --------------- ----------- ------------ ------------ ---------
Share options
expense - - - - - - 2,697 - - - 2,697
Share options
exercised 1 21 - - - - - - - - 22
Share scheme
modification - - - - - - 36 - - - 36
Issuance of
shares
for cash 191 6,041 - - - - - - - - 6,232
Issuance of
shares
for
settlement of
current and
future
liabilities 358 11,893 - - - - - - - - 12,251
Warrants
exercised 8 209 - - - - - (217) - - -
Equity element
of
other loans - - - - 549 - - - - 792 1,341
As at 30 June
2020 5,246 186,780 (216) - 3,042 10,885 13,357 - (15,261) (174,981) 28,852
--------------- ------------------- ------------ ---------------- ----------- ---------------------- --------------- --------------- ----------- ------------ ------------ ---------
Unaudited Consolidated Cash Flow Statement
For the six months ended 30 June 2020 6 months 6 months
ended 30 ended 30
June 2020 June 2019
US$'000 US$'000
----------------------------------------------------- ---------- ----------
Cash flows from operating activities
Operating loss (5,154) (7,507)
Depreciation and amortisation 2,954 4,213
Loss/(gain) on disposal of property, plant,
and equipment (2) 156
Loss/(gain) on sale of inventories 44 145
Change in provisions 1,133 1,163
Unrealised foreign exchange (gain)/losses 141 -
Share based payments 2,697 153
(Increase)/decrease in inventories (858) 4,627
Decrease/(increase) in trade and other receivables 4,732 (5,387) Decrease in prepayments 311 341 Increase/(decrease) in trade and other payables (344) 4,892 Cash generated/(used) in operations 5,654 2,796 ------------------------------------------------------ ---------- ---------- Income taxes (paid)/refund 273 - Net cash generated/(used) in operations 5,927 2,796 Investing activities Purchase of property, plant & equipment (3,569) (299) Acquisition of subsidiary, net of cash acquired - (40,000) Exploration and evaluation costs (2,104) (3,044) Purchase of intangible assets (140) (887) Proceeds from sale of property, plant & equipment 2 5 Interest received 13 8 ------------------------------------------------------ ---------- ---------- Net cash used in investing activities (5,798) (44,217) ------------------------------------------------------ ---------- ---------- Financing activities Proceeds from issue of share capital, net of costs 6,232 2,286 Receipt of funds for share options exercised 22 - Proceeds from convertible loan notes issued, net of costs - 572 Repayments of principal portion of lease liabilities (322) - Proceeds from loans, net of costs 2,500 43,500 Transaction costs paid (521) - Repayments of principal amount of loan (4,000) (500) Repayments of interest (1,758) (694) Net cash from financing activities 2,153 45,164 ------------------------------------------------------ ---------- ---------- Net change in cash and cash equivalents 2,282 3,743 Cash and cash equivalents at beginning of the period 3,585 1,168 Effect of changes in foreign exchange rates 66 (6) ------------------------------------------------------ ---------- ---------- Cash and cash equivalents at end of the period 5,933 4,905 ------------------------------------------------------ ---------- ----------
Notes to the Financial Statements
1 General information and group structure
Chaarat Gold Holdings Limited (the "Company") (registration number 1420336) is incorporated in the British Virgin Islands (BVI) and is the ultimate holding company for the companies set out below (the "Group"). The Company's shares are admitted to trading on the Alternative Investment Market of the London Stock Exchange (AIM:CGH).
The registered office address of the Company is: Palm Grove House, PO Box 438, Road Town, Tortola, British Virgin Islands, VG1110.
As at 30 June 2020 the Group consisted of the following companies all of which are wholly owned:
Group company Country of incorporation Principal activity Chaarat Gold Holdings BVI Ultimate holding company Limited Zaav Holdings Limited BVI Holding company Chon-tash Holdings Limited BVI Holding company At-Bashi Holdings Limited BVI Holding company Akshirak Holdings Limited BVI Holding company Goldex Asia Holdings Limited BVI Holding company Chon-tash Mining LLC* Kyrgyz Republic Exploration At-Bashi Mining LLC* Kyrgyz Republic Exploration Akshirak Mining LLC* Kyrgyz Republic Exploration Goldex Asia LLC* Kyrgyz Republic Exploration Chaarat Zaav CJSC* Kyrgyz Republic Exploration Chaarat Gold International Cyprus Holding company Limited Chaarat Gold Services England & Wales Services company Limited Armenia Production company Chaarat Kapan CJSC* Russia Services company Chaarat Eurasia Limited
*Companies owned indirectly by the Company.
2 Accounting policies
Basis of preparation of interim financial statements
The consolidated interim financial information has been prepared using policies based on International Financial Reporting Standards (IFRS and IFRIC interpretations) issued by the International Accounting Standards Board ("IASB") as adopted for use in the European Union. It does not include all disclosures that would otherwise be required in a complete set of financial statements and should be read in conjunction with the 2019 Annual Report. The results for the period are derived from continuing activities. The figures for the period ended 31 December 2019 have been extracted from the statutory financial statements, prepared under IFRS as adopted by the European Union, which are available on the Group's website www.chaarat.com. The auditor's report on those financial statements was unqualified and noted a material uncertainty in respect of the Group's ability to continue as a going concern.
The consolidated interim financial information for the six months ended 30 June 2020 and 30 June 2019 is unreviewed and unaudited and does not constitute statutory accounts as defined in Section 435 of the Companies Act 2006.
As Chaarat Kapan was acquired on 30 January 2019, the consolidated interim financial information for the six months ended 30 June 2019 includes Kapan's financial information for five months whereas for the six months ended 30 June 2020, Kapan's financial information for the full six months is included.
The unaudited results for the period ended 30 June 2020 have been prepared on the basis of the accounting policies adopted in the audited accounts for the year ended 31 December 2019 and in addition, as disclosed below.
Convertible loan notes
Convertible loan notes are compound financial instruments that can be converted to ordinary shares at the option of the holder.
The liability component of convertible loan notes is initially recognised at the fair value of a similar liability that does not have an equity conversion option. The equity component is initially recognised at the difference between the fair value of the convertible loan note as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts.
The modification of a standard loan is considered substantial where a conversion option is included. Upon modification, the original liability is extinguished, new liability and equity components are recognised at the fair values with a difference attributed to profit or loss.
Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortised cost using the effective interest method. The equity component of a convertible loan note is not remeasured.
Interest related to the financial liability is recognised in profit and loss. On conversion at maturity, the financial liability is reclassified to equity and no gain or loss is recognised. When conversion option is not exercised, the equity element is transferred to accumulated losses.
Critical accounting judgements and key sources of estimation uncertainty
The preparation of interim financial information requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income, and expenses. Actual results may differ from these estimates.
In preparing the consolidated interim financial information, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 December 2019 and in addition as disclosed below.
Convertible loan notes
The fair value of the liability component of the convertible loan notes has been calculated based on management's best estimate of the equivalent market rate for a loan without a conversion option. In case of modification, the fair value of the equity component of the convertible loan notes has been calculated using Black-Scholes option pricing model. The cost of the corporate guarantee in respect of the modified loan note was included in the transaction costs and amortised over the term of the loan The guarantee fee in relation to the extended maturity date of the working capital facility was considered to be a substantial modification and recognised in profit and loss.
New standards, interpretations and amendments adopted by the Group
The accounting policies adopted in the preparation of the consolidated interim financial information are consistent with those adopted in the preparation of the Group's annual consolidated financial statements for the year ended 31 December 2019. There were no new standards that became effective on 1 January 2020 and the Group has not early adopted any amendment, standard or interpretation that has been issued but is not yet effective. It is expected that where applicable, these standards and amendments will be adopted on each respective effective date.
Going Concern
As at 31 August 2020 the Group had approximately US$2.3 million of cash and cash equivalents and US$81.4 million of debt (including accrued interest to the date of maturity, the terms of which are disclosed in the notes) comprising the following:
- US$26.4 million convertible loan note, repayable on 31
October 2021, including accrued interest to 31 October
2021, unless converted into equity by the noteholder (note
9).
- US$21.2 million investor loan, including interest to 8
January 2021 (the "Investor Loan") (note 9).
- Term loan for US$33.8 million, including interest, entered
into in connection with the acquisition of Kapan in January
2019. The loan is being repaid through quarterly instalments
over a period of four years, the final payment being January
2023. As disclosed in note 9, the loan has certain covenants
attached to it which the Company did not meet as at 30
June 2020 and as such the full bank debt has been disclosed
as a current liability. A waiver was received in August
2020, with regards to the relevant covenant not being
met on 30 June 2020 and therefore the Group remains in
full compliance with the loan.
The Group also has a revolving term loan facility agreement with Labro Investments Limited ("Labro") for a total initial amount of US$15 million (the "Labro Facility"). To date US$8.5 million has been drawn down which has subsequently been repaid, and a further US$6.5 million remains available to the Group. The facility matures on 31 December 2020 (note 9).
The Board has reviewed the Group's cash flow forecast for the period to 31 December 2021. The cash flow forecasts reviewed by the Board exclude cash inflows from funding which is not contractually committed. The forecasts show that the US$21.2 million loan will need to be extended or refinanced by 8 January 2021 and the Group forecasts it will require further funding before the end of 2020 to meet operational commitments and overheads for Tulkubash and Corporate. The forecasts also show that if COVID-19 had an adverse impact on the Kapan mine then the Group would require further funding if operation of the mine were suspended for more than one month.
Kyrgyz Republic
The significant global restrictions on the movement of people have impacted the workforce mobilisation for the summer construction period at the Tulkubash Project. As previously announced, this delay has caused the first expected gold pour to be moved from late 2021 to Q4 2022. For the purpose of making an assessment of going concern, the cash flow forecasts do not include discretionary expenditure in relation to the Kyrgyz Republic projects, taking into account the delay to the Tulkubash Project. The forecasts include minimum commitments in respect of overheads and based on a non-binding agreement, exclude payments to the mining contractor until further funding is 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. However, if there was an unexpected adverse combination of factors or the temporary closure of Kapan for more than one month, then a future covenant on the Kapan loan may be breached and the Group would require further additional funding.
Investor loan
On 7 April 2020, the Group entered into an agreement with the lender to extend the maturity date of the US$19.4 million loan to 8 January 2021 at which stage US$21.2 million will be due including interest accrued to the maturity date. The terms of the loan include a requirement to repay the loan prior to or in conjunction with any additional debt financing that the Group may raise with limited exceptions.
Labro Facility
The Labro facility matures on 31 December 2020. The outstanding amount is currently nil and an amount of US$6.5 million remains available for drawdown until the date of maturity.
The Board has a reasonable expectation that the Group will be able to raise additional funds as demonstrated by the Group's established track record in historical fund raisings and refinancing events and ongoing proactive discussions with stakeholders. Notwithstanding this, COVID-19 has had a significant negative impact on the global economy which may mean it is harder to secure additional funding than has historically been the case.
Subject to the above the Directors have concluded that it is appropriate to prepare the financial statements on a going concern basis. However, there are currently no binding agreements in place in respect of any additional funding. Therefore, as set out above, this indicates the existence of a material uncertainty which may cast significant doubt over the Group's ability to continue as a going concern and, therefore, it may be unable to realise its assets and discharge its liabilities in the normal course of business. The financial statements do not include the adjustments that would result if the Group were unable to continue as a going concern.
Impact of COVID-19
COVID-19 has a significant impact on the global economy and management has applied judgement in deciding what impact it has on the going concern assessment including future economic impact on suppliers, operations, customers, demand, commodity prices, foreign exchange rates and operating costs. Further disclosure is included in the going concern disclosure within this note above.
3 Revenue
The revenue recognised from contracts with customers for the 6 months ended 30 June 2020 and 5 months ended 30 June 2019 (from the date of acquisition of the Kapan mine) consisted of the following:
2020 2019
US$'000 US$'000
-------------------- -------- --------
Copper concentrate 23,794 23,345
Zinc concentrate 6,092 7,611
Total 29,886 30,956
-------------------- -------- --------
The Group's sales of copper and zinc concentrate are based on provisional 1-3-month commodity forward prices and as such, contain an embedded derivative which is marked to market at each month end.
The Group's sales are to internationally well-established commodity traders under standard offtake terms.
In 2020, Copper concentrate sales are made on an ex works basis meaning that control passes to the buyer when the concentrate is loaded on the truck at the Kapan mine. Whereas in 2019, sales were made on a cost, insurance and freight ("CIF") basis meaning that control passes to the buyer when the concentrate is loaded on the vessel in the port of shipment (e.g. port of Poti, Georgia). Zinc concentrate sales were made on a CIF basis in both 2020 and 2019.
In 2020, the Group did not recognise any contract assets or liabilities in relation to its contracts with customers. Further, no impairment losses on receivables arising from contracts with customers were recognised in 2020.
4 Segmental analysis
Operating segments are identified based on internal reports about components of the Group that are regularly reviewed by the Board, in order to allocate Resources to the segments and to assess their performance.
Based on the proportion of revenue and profit within the Group's operations and on the differences in principal activities, the Board considers there to be two operating segments:
-- Exploration for mineral deposits in the Kyrgyz Republic with support provided from the corporate function ('Kyrgyz Republic')
-- Exploration and production of copper and zinc concentrates at Kapan in Armenia ('Armenia')
Kyrgyz Republic Armenia Corporate Total
30 June 2020 US$'000 US$'000 US$'000 US$'000
Revenue
Sales to external customers - 29,886 - 29,886
Total segment revenue - 29,886 - 29,886
---------------- -------- ---------- ---------
Earnings before interest, tax, depreciation, and amortisation (882) 4,102 (5,441) (2,221)
Unwinding of discount - provision for rehabilitation - 332 - 332
Inventory provision - (445) - (445)
Income on reversal of payable - 134 - 134
Depreciation and amortisation (378) (2,487) (89) (2,954)
Interest receivable - 13 - 13
Interest payable - (2,003) (6,021) (8,024)
---------------- -------- ---------- ---------
Profit/(loss) before income tax expense (1,260) (354) (11,551) (13,165)
---------------- -------- ---------- ---------
Income tax expense - (355) - (355)
---------------- -------- ---------- ---------
Profit/(loss) after income tax expense (1,260) (709) (11,551) (13,520)
---------------- -------- ---------- ---------
Assets
Segment assets - non-current 48,609 42,103 18,436 109,148
Segment assets - current 491 16,828 3,745 21,064
Total assets 49,100 58,931 22,181 130,212
---------------- -------- ---------- ---------
Liabilities
Segment liabilities 4,426 58,287 38,647 101,360
Total liabilities 4,426 58,287 38,647 101,360
---------------- -------- ---------- ---------
*On 18 September 2019, the Group adopted a new Management Incentive Plan ("MIP") whereby 6,295,481 of options vested or vesting under the old plan were replaced with 1,543,959 of new restricted stock units ("RSUs") and a cash settlement of US$0.4 million. 50% of the replacement restricted stock units vested on 15 October 2019 and 50% will vest on 31 December 2020 subject to a vesting condition of continued employment by the Group.
On the same date 56,805,258 share options exercisable at 42p per share and 21,494,198 RSUs were granted under the new MIP (subject to performance conditions for executives in the case of the RSUs), 33% of the share options and RSUs vested on 15 October 2019 (Tranche 1), 33% on 31 December 2019 and (in the case of RSUs subject to performance conditions) on 21 February 2020 (Tranche 2), and the remaining 33% are expected to vest on 31 December 2020 subject to a vesting condition of continued employment by the Group and performance conditions in the case of the RSUs (Tranche 3).
In addition, on 27 April 2020 a further 1,500,000 options and 500,000 RSUs were awarded to a new employee on the same terms as Tranche 3.
Consequently, a share-based payment expense of US$2.7 million was recognised for the six months period ended 30 June 2020 and US$0.2 million for comparable 2019 period. The adjusted Group EBITDA, excluding shared based payment expense, a non-cash item, is positive US$0.5 million for the six months ended 30 June 2020 (H1 2019: negative US$3.1 million).
Kyrgyz Republic Armenia Corporate Total
30 June 2019* US$'000 US$'000 US$'000 US$'000
Revenue
Sales to external customers - 30,956 - 30,956
Total segment revenue - 30,956 - 30,956
---------------- -------- ---------- ---------
Earnings before interest, tax, depreciation, and amortisation (1,034) 3,199 (5,459) (3,294)
Depreciation and amortisation (252) (3,961) - (4,213)
Interest receivable - 8 - 8
Interest payable - (2,312) (2,617) (4,929)
---------------- -------- ---------- ---------
Profit/(loss) before income tax expense (1,286) (3,066) (8,076) (12,428)
---------------- -------- ---------- ---------
Income tax expense - 81 - 81
---------------- -------- ---------- ---------
Profit/(loss) after income tax expense (1,286) (2,985) (8,076) (12,347)
---------------- -------- ---------- ---------
Assets
Segment assets - non-current 33,862 42,978 17,662 94,502
Segment assets - current 930 27,750 5,463 34,143
Total assets 34,792 70,728 23,125 128,645
---------------- -------- ---------- ---------
Liabilities
Segment liabilities 1,283 60,843 49,994 112,120
Total liabilities 1,283 60,843 49,994 112,120
---------------- -------- ---------- ---------
*As the Kapan mine was acquired on 30 January 2019, the segmental analysis for the six months ended 30 June 2019 includes Kapan's financial information for five months.
5 Interest payable
The interest payable for the 6 months ended 30 June consisted of the following:
2020 2019
US$'000 US$'000
--------------------------------------- -------- --------
Interest on convertible loan notes 3,048 1,799
Interest on loans 2,496 3,130
Interest on lease liabilities 83 -
Unwinding of discount - provision for 345 -
rehabilitation
Financing costs 2,006 -
Other 46 -
--------------------------------------- -------- --------
Total 8,024 4,929
---------------------------------------- -------- --------
The interest on convertible loans has increased due to the reclassification of the investor loan from "Other loans" to "Convertible loans", further detail in Note 9 below.
The interest on loans of US$2.5 million includes interest on other loans of US$1.0 million and interest on borrowings of US$1.5 million, refer to Note 9 for further detail.
The financing costs of US$2.0 million comprise the modification loss on the refinancing of the investor loan of US$1.1 million and the Labro security fee of US$0.9 million
6 Loss per share
Loss per share is calculated by reference to the loss for the 6 months ended 30 June 2020 of US$13.5 million (2019: loss of US$12.3 million) and the weighted average number of ordinary shares in issue during the period of 490,694,593 (2019: 402,094,578).
At 30 June 2020, share options and convertible loan notes have been excluded from the diluted weighted average number of ordinary shares calculation because their effect would have been anti-dilutive.
7 Exploration and evaluation costs
Tulkubash Kyzyltash Total
US$'000 US$'000 US$'000
------------------- ---------- ---------- --------
At 1 January 2020 45,868 9,202 55,070
Additions 2,170 - 2,170
------------------- ---------- ---------- --------
At 30 June 2020 48,038 9,202 57,240
------------------- ---------- ---------- --------
Exploration and evaluation assets comprise costs associated with exploration for, and evaluation of, mineral Resources together with costs to maintain mining and exploration licences for mining properties that are considered by the Directors to meet the requirements for capitalisation under the Group's accounting policies.
8 Share capital
Share Capital Share Premium
Ordinary shares of US$0.01 Number of Nominal Nominal Value
each Shares ('000) Value US$'000 US$'000
------------------------------ --------------- --------------- --------------
Authorised 1,395,167 13,952 -
------------------------------ --------------- --------------- --------------
Issued and fully paid
At 1 January 2020 468,811 4,688 168,616
Issued for cash 19,047 191 6,041
Issued to settle liabilities 35,759 358 11,893
Exercise of warrants 825 8 209
Exercise of share options 120 1 21
------------------------------ --------------- --------------- --------------
At 30 June 2020 524,562 5,246 186,780
------------------------------ --------------- --------------- --------------
On 20 January 2020, the Company issued 516,525 shares to Labro to satisfy an outstanding commitment fee under the Labro Facility agreement, as disclosed in note 10. On the same day, the Company issued 825,000 shares to satisfy the Company's obligations under a warrant agreement.
On 14 April 2020, the Company issued 12 million shares to Labro to satisfy the fee associated with the guarantee and security package that Labro has provided in respect of the investor loan, as disclosed in note 10.
On 29 April 2020, the Company issued a further 42,112,025 shares comprised of:
-- 12,954,962 shares issued to existing shareholders and new investors for cash (US$4.2 million);
-- 25,396,945 shares issued to Labro, of which 19,305,407 shares were issued to set off the outstanding amount owed by the Company to Labro on the Labro Loan Facility of US$6.34 million (per note 10), and the remaining 6,091,538 shares were issued for a cash payment of US$2 million;
-- 3,760,118 shares issued to directors and senior management, of which 1,998,786 shares were issued to the Company's Executive Chairman to set off the outstanding amount owed by the Company for directors fees, and 1,286,839 shares were issued to KMPs as disclosed in note 10 and 474,493 shares were issued to other employees.
On 29 April 2020, the Company also issued 177,330 shares to Labro to satisfy outstanding fees pursuant to drawdowns made by the Company on the Labro Facility and 120,000 shares were issued to satisfy the Company obligations under the Company's 2017 incentive plan to a former director on the exercise by that director of previously vested options.
9 Liabilities
Reconciliation of liabilities
Convertible Other loans Borrowings Total
loans Lease liabilities
Convertible loan notes US$'000 US$'000 US$'000
and other liabilities US$'000 US$'000
-------------------------------- ------------- ------------------ -------------- ------------ -------------
At 1 January 2020 19,994 578 22,343 36,915 79,830
-------------------------------- ------------- ------------------ -------------- ------------ -------------
Cash flows:
Cash proceeds - - 2,500 - 2,500
Transaction costs paid (521) - - - (521)
Payment of interest - - - (1,758) (1,758)
Payment of principal
amount - - - (4,000) (4,000)
Lease payments - (322) - - (322)
Net proceeds (521) (322) 2,500 (5,758) (4,101)
Non-cash items:
Amount classified as
equity (1,341) - - - (1,341)
Loan modification 20,480 - (19,357) - 1,123
Interest capitalised
to principal loan - - 587 - 587
Interest accrued 3,048 83 379 1,530 5,040
Acquisition of subsidiary - (36) - - (36)
Additions - 1,208 - - 1,208
Reclassification - (115) - - (115)
Repayments through shares
issued - - (6,338) - (6,338)
Transaction costs (3,502) - (114) - (3,616)
Effect of currency translation - (12) - - (12)
-------------------------------- ------------- ------------------ -------------- ------------ -------------
Total liabilities from
financing activities
at 30 June 2020 38,158 1,384 - 32,687 72,229
-------------------------------- ------------- ------------------ -------------- ------------ -------------
Non-current 21,552 1,308 - - 22,860
Current 16,606 76 - 32,687 49,369
-------------------------------- ------------- ------------------ -------------- ------------ -------------
Convertible loan notes
During the period:
- there were no new issues of 2021 convertible loan notes. The only movement in the period was accrued interest of US$1.6 million (2019: US$1.8 million).
- The investor loan was reclassified from "Other loans" to "Convertible loans" following its extension and modification to include a conversion option, as explained below.
2 021 Notes I nvestor T otal
loan
US$'000 US$'000 U S$'000
----------------------------- ------------ ---------- ---------
At 1 January 2020 19,994 - 19,994
Cash proceeds - - -
Transaction costs - (521) (521)
----------------------------- ------------ ---------- ---------
Net proceeds - (521) (521)
----------------------------- ------------ ---------- ---------
Amount classified as equity - ( 1,341) ( 1,341)
Loan modification - 2 0,480 2 0,480
Accrued interest 1,558 1,490 3,048
Transaction costs - (3,502) (3,502)
----------------------------- ------------ ---------- ---------
At 30 June 2020 21,552 16,606 38,158
----------------------------- ------------ ---------- ---------
2021 Notes
The number of shares to be issued on conversion is fixed. There are no covenants attached to the convertible loan notes.
The 2021 notes accrued interest at 10% p.a. until 30 April 2020 and then at a rate of 12% p.a. until 31 October 2021. The notes are secured on the shares of the Group's principal operating subsidiary, Chaarat Zaav CJSC via the intermediate holding company Zaav Holdings Limited. The notes are repayable on 31 October 2021 and can be redeemed by the Company at any time subject to paying a minimum of 5% interest. The notes, including accrued interest, can be converted at any time at the holder's option at a price of GBP0.36 per ordinary share.
The value of the liability and equity conversion component was determined at the date of issue. The fair value of the liability component at inception was calculated using a market interest rate of 15% for an equivalent instrument without conversion option.
Investor Loan
In April 2020, the Group modified the Investor Loan of US$19.4 million to include a conversion option. The modification was considered to be substantial under IFRS 9 and therefore the Group derecognised the original loan of US$19.4 million, recognised a liability component of US$19.1 million, an equity component of US$1.3 million and a loss on modification of US$1.1 million. The loan accrues interest at 13% p.a until 8 January 2021 and at maturity date the outstanding amount of the loan, including interest, will be US$21.2 million. Transaction costs included US$0.5 million of cash and US$3.5 million of shares issued and are amortised over the term of the loan.
The modified loan contained three conversion options as follows:
- option to convert US$5.0 million of principal and accrued interest into ordinary shares any time up to 1 June 2020;
- option to convert US$5.0 million of principal and accrued interest into ordinary shares any time up to 6 June 2020;
- option to convert US$2.5 million of principal and accrued interest into ordinary shares any time up to 8 January 2021.
The options to convert US$10.0 million of the loan into ordinary shares of the Company were not exercised by 30 June 2020 therefore US$0.8 million of the equity element was transferred to accumulated losses.
The value of the liability and equity conversion component was determined at the date of modification. The fair value of the liability component was calculated using a market interest rate of 15% for an equivalent instrument without conversion option. The fair value of the equity component was calculated using the Black-Scholes option pricing model using 1-year volatility of 76.13% and a risk-free rate of 0.16%.
Lease liabilities
The Group's leases are accounted for by recognising a right-of-use asset and a lease liability except for leases of low value assets and leases with a duration of 12 months or less.
The Group leases property and land in the jurisdictions from which it operates, the most notable being the office space that is leased in the United Kingdom and the land that is leased in Armenia. These leases fall within the scope of IFRS 16 and therefore right-of-use assets and lease liabilities are recognised. The Group also leases certain items of property, plant and equipment in the Kyrgyz Republic which contain variable payments over the lease terms, therefore these leases do not fall within the scope of IFRS 16, and right-of-use assets and lease liabilities are not recognised as a result.
The movements in the Group's right-of-use assets and lease liabilities for the period are presented below:
Right-of-use assets
Land Property Total
US$'000 US$'000 US$'000
-------------------------- -------- --------- --------
At 1 January 2020 315 197 512
Additions 1,203 - 1,203
Depreciation charge (323) (89) (412)
Effect of translation
to presentation currency - - -
At 30 June 2020 1,195 108 1,303
--------------------------- -------- --------- --------
Lease liabilities
Land Property Total
US$'000 US$'000 US$'000
-------------------------- -------- --------- --------
At 1 January 2020 302 276 578
Additions 1,208 - 1,208
Interest expense 81 2 83
Net off debt inherited
with receivable (36) - (36)
Lease payments (243) (79) (322)
Reclassification - (115) (115)
Effect of translation
to presentation currency (4) (8) (12)
At 30 June 2020 1,308 76 1,384
--------------------------- -------- --------- --------
Non-current 1,308 - 1,308
Current - 76 76
--------------------------- -------- --------- --------
The maturity of the gross contractual undiscounted cash flows due on the Group's lease liabilities is set out below based on the period between 30 June 2020 and the contractual maturity date:
Within 6 months 6 months 1 to 5 Over 5 Total at
to 1 years years 30 June
year 2020
US$'000 US$'000 US$'000 US$'000 US$'000
------------- ---------------- --------- -------- -------- ---------
Property
leases 66 - - - 66
Land leases 453 45 473 402 1,373
------------- ---------------- --------- -------- -------- ---------
Total 519 45 473 402 1,439
------------- ---------------- --------- -------- -------- ---------
As at 30 June 2020, the gross contractual discounted cash flows due on the Group's lease liabilities amounts to US$1.4 million (2019: nil).
The discount rate used in calculating the lease liabilities is the rate implicit in the lease, unless this cannot readily be determined, in which case the Group's incremental rate of borrowing is used instead. In 2020, a discount rate ranging between 4.10% and 4.75% per annum and 12% per annum has been used to calculate the Group's lease liabilities for its property and land leases, respectively.
Other loans
Other loans at 30 June consisted of the following:
Investor Labro Facility 2020
loan
US$'000 US$'000 US$'000
------------------------------------ ---------- ---------------- ----------
At 1 January 2020 18,771 3,572 22,343
Additional funds received - 2,500 2,500
Interest capitalised to principal
loan 587 - 587
Interest accrued - 379 379
Transaction costs - (114) (114)
Loan modification (19,357) - (19,357)
Repayments through shares issued - (6,338) (6,338)
------------------------------------ ---------- ---------------- ----------
At 30 June 2020 - - -
------------------------------------ ---------- ---------------- ----------
Investor Loan
On 17 April 2020, the Investor Loan agreement originally entered into on 13 November 2018 was further amended which resulted in the capitalisation of the current period interest of US$587k as well as all interest accrued to date since the inception of the Investor Loan resulting in an increased principal amount of US$19.4 million and the Investor Loan's maturity date was extended to 8 January 2021. The modification to the Investor Loan included conversion options and has therefore been classified as a convertible loan, as disclosed above.
Labro Facility
During March and April 2020, the Company drew down US$2 million and US$0.5 million, respectively, from the US$15 million revolving term loan facility granted by Labro to the Company on 12 December 2018 . On 14 April 2020, the maturity date of the Labro Facility was extended to 31 December 2020. On 29 April 2020, the total amount then outstanding under the Labro Facility including interest was repaid through the issue of ordinary shares of US$0.01 each in the capital of the Company ("Ordinary Shares"). At 30 June 2020 US$6.5 million remained available for draw down under the Labro Facility. The costs associated with the extension, including the appropriate portion of the 12 million shares issued to Labro, have been expensed.
Borrowings
Borrowings at 30 June 2020 and 31 December 2019 consisted of the following:
Currency Date of maturity Interest rate 2020 2019
(%) US$'000 US$'000
------------------------------------- ---------- ------------------ ---------------- -------- --------
Syndicated loan from Armenian banks US$ 31/12/2022 Libor 3m+8% 32,687 36,915
------------------------------------- ----------- ------------------- -------------- -------- --------
Total 32,687 36,915
----------------------------------------------------------------------------------------- -------- --------
The movements of borrowings are presented below:
2 020
US$'000
--------------------------------------------- ---------
At 1 January 2020 36,915
Borrowing attracted in cash -
Interest expense in profit or loss 1,530
Payment of interest in cash, net of taxes (1,758)
Payment of principal amount in cash, net of
taxes (4,000)
Effect of currency translation -
--------------------------------------------- ---------
At 30 June 2020 32,687
--------------------------------------------- ---------
On 30 January 2019, the documentation was finalised for the Kapan Acquisition Financing totalling US$40 million, which is syndicated with Ameriabank CJSC (US$32 million), HSBC Bank Armenia CJSC (US$5 million) and Ararat Bank OJSC (US$3 million). The loan is repayable through quarterly payments over a four-year period and incurs interest at Libor plus 8%.
This bank financing has certain covenants attached to it that the Group needs to adhere to, one of which is the Net debt to last 12 months ('LTM') EBITDA of 2.5x as at 30 June 2020. The Company did not meet this covenant as at 30 June 2020 and as such the full bank debt has been disclosed as a current liability. The LTM EBITDA calculation is based on EBITDA from 1 July 2019 to 30 June 2020.
In addition, the loan maintains a first line ranking to the Kapan assets. The loan also contains a cash sweep mechanism whereby Chaarat must make a mandatory repayment of the loan equal to the cash sweep percentage of the free cash flow after existing debt service. The cash sweep Percentage means: (i) 60% for the period starting on the utilisation date to the relevant date following 12 months after the utilisation date; (ii) 50% for the period starting on the second anniversary of the utilisation date to the relevant date following 24 months.
A waiver was received in August 2020, with regards to the relevant covenant not being met on 30 June 2020 and therefore the Group remains in full compliance with the loan.
10 Related party transactions
Remuneration of key management personnel
Remuneration of key management personnel for the 6 months ended 30 June 2020 and 30 June 2019 is as follows:
2020 2019
US$'000 US$'000
Short term employee benefits 950 767
Share based payments charge 2,185 38
Total 3,135 805
----------------------------- ------------- -----------
Included in the above key management personnel are 7 directors and 2 key managers (31 December 2019: 8 and 1).
Entities with significant influence over the Group
At 30 June 2020, Labro, Chaarat's largest shareholder, owned 38.67% (2019: 35.14%) of the Ordinary Shares and US$1.0 million of 10% secured convertible loan notes 2021 which, assuming full conversion of principal and interest to maturity on 31 October 2021, are convertible into 2,849,330 Ordinary Shares (comprised of 2,111,484 Ordinary Shares in respect of principal and around 737,846 Ordinary Shares in respect of interest).
Labro Facility Agreement
The Company has issued the following Ordinary Shares in the Company to Labro, payment for which was offset against commitment and drawdown fees incurred and reduction of indebtedness under the Labro Facility:
Date payment Amount to Type of payment of shares Date shares
due be paid under under Labro Loan issued to issued to
Labro Loan Agreement Labro in Labro
Agreement satisfaction
29 March 20 January
2019 US$ 225,000 Commitment fee 516,525 2020
------ ---------- ----------------------- -------------- --------------
3 March
to 8 April
2020 US$ 75,000 Drawdown fee 177,330 29 April 2020
------ ---------- ----------------------- -------------- --------------
n/a US$ 6,338,434 Indebtedness reduction 19,305,407 29 April 2020
------ ---------- ----------------------- -------------- --------------
Refer to note 9 above for a reconciliation of the Labro Facility during the period, showing a nil balance as at 30 June 2020, US$6.5 million remains available for draw down. On 14 April 2020, the Company entered into an agreement with Labro whereby the maturity date for the Labro Facility was extended to 31 December 2020. As noted below, 20% of the 12 million shares issued to Labro has been allocated to the cost of this extension.
On 29 April 2020, Labro subscribed for 25,396,945 Ordinary Shares at GBP0.26 per share pursuant to the placing announced by the Company on 27 April 2020 ("the Placing Shares"). Labro's obligation to deliver cash in respect of 19,305,407 of the Placing Shares was offset against the Company's indebtedness under the Labro Facility with the consequence that the Company's obligations under the Labro Facility decreased by US$6.4 million to nil.
Labro Guarantee and Security Fee Agreement
On 14 April 2020 the Company and Labro entered into a Security Fee Agreement pursuant to which Labro agreed to provide an increased security package (including a personal guarantee from the Company's Executive Chairman) to support a US$2.4 million increase in the principal amount of the Investor Loan relating to accrued interest to US$19.4 million and an extension of the maturity date of the Investor Loan from 31 March 2020 to 8 January 2021. On 15 April 2020 the Company issued to Labro 12 million new Ordinary Shares of which 80% has been attributed as consideration for Labro agreeing to provide the increased security package and (as noted above) the remaining 20% has been attributed as consideration for the extension of the Labro facility agreement. A further 8 million Ordinary Shares will be issued to Labro on 31 October 2020 if the Investor Loan has not been repaid in full by that date.
Shares issued to Key Management Personnel
Pursuant to the placing announced by the Company on 27 April 2020 (the "Placing"), the following Ordinary Shares were subscribed for by, and issued to, key management personnel ("KMPs") at a price of GBP0.26 per Ordinary Share:
1,998,786 Ordinary Shares were subscribed for by, and issued to, the Company's Executive Chairman. The subscription price therefore was satisfied in full by way of set-off of US$0.7 million of unpaid director fees that were due to him in respect of the seven calendar quarters ended 31 March 2020.
A further 1,286,839 Ordinary Shares were subscribed for by, and issued to, KMPs in the Placing upon terms that the subscription price therefore would be satisfied by way of set-off against a proportion of fees and salaries due and to become due until such time as the subscription price was fully paid:
Category Total No. Total amount Total repayments Outstanding
of Placing balance at
Shares issued 30 June 2020
Directors 1,073,635 US$ 352,500 US$ 166,382 US$ 186,118
(including
the Executive
Chairman)
--------------- ------------- ----------------- --------------
Other KMPs 213,204 US$ 70,000 US$ 14,737 US$ 55,263
--------------- ------------- ----------------- --------------
Total 1,286,839 US$ 422,500 US$ 181,119 US$ 241,381
--------------- ------------- ----------------- --------------
11 Post balance sheet events
Breach of loan covenant
The bank financing has certain covenants attached to it that the Group needs to adhere to, one of which is the net debt to last 12 months ('LTM') EBITDA of 2.5x as at 30 June 2020. The Company did not meet this covenant as at 30 June 2020 and as such the full bank debt has been disclosed as a current liability. The LTM EBITDA calculation is based on EBITDA from 1 July 2019 to 30 June 2020.
A waiver was received in August 2020, with regards to the relevant covenant not being met on 30 June 2020 and therefore the Group remains in full compliance with the loan.
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END
IR EAFNEFEXEEAA
(END) Dow Jones Newswires
September 11, 2020 02:00 ET (06:00 GMT)
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