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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% | 2.85 | 2.80 | 2.90 | 2.85 | 2.80 | 2.85 | 153,930 | 08:00:16 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Gold Ores | 92.35M | -8.58M | -0.0124 | -2.30 | 19.66M |
From Apr 2019 to Apr 2024
TIDMCGH
RNS Number : 4121D
Chaarat Gold Holdings Ltd
26 June 2019
26 June 2019
Chaarat Gold Holdings Limited
("Chaarat" or the "Company")
PRELIMINARY ANNOUNCEMENT OF AUDITED FINANCIAL STATEMENTS FOR THE YEARED 31 DECEMBER 2018
Chaarat (AIM:CGH), the AIM-quoted gold mining company with assets in the Kyrgyz Republic and Armenia, today publishes its preliminary results for the year ended 31 December 2018.
Highlights for the year
-- New and enlarged senior management team with extensive industrial experience, incentivised by restrictive stock and option scheme planned to be approved in 2019
-- Majority independent Board in place, with the addition of two independent non-executive directors in 2018 and a further independent non-executive director in 2019, bringing the total number of independent non-executive board members to four
-- Tulkubash Measured and Indicated (M&I) Mineral Resource now over 1.6 million ounces of gold
-- 20,000 metres of diamond drilling completed at Tulkubash, adding more than 650,000 ounces of gold to the Measured and Indicated (M&I) Resource at a discovery cost of US$11.40/ounce
-- US$120 million secured in financing in 2018 and the first half of 2019, with minimal dilution to shareholders
-- Strengthened processes throughout the value chain to ensure adherence to the highest international environmental, social and corporate governance standards
Post-period highlights
-- Updated feasibility study for Tulkubash, resulting in a significant capital expenditure optimization from US$132 million to US$110 million
-- Over 3,800 (of planned 20,000) metres of drilling completed at Tulkubash this year; expected to exceed 2 million ounces of gold in Measured and Indicated JORC Resource categories in 2019
-- Acquisition of the Kapan mine turned the Company from a developer to a producer, highlighting the management team's ability to execute deals quickly, diligently and on accretive terms
-- Attracted an equity partner for Tulkubash and Kyzyltash, based on an agreed valuation of US$252 million (post money) for the two assets
Martin Andersson, Executive Chairman of Chaarat, commented:
"I am delighted with the progress we made in 2018, a year of transformation for Chaarat Gold. The Company has executed a full-scale management turnaround and we now have a world-class, industrial team in place to execute on our strategy to create a leading emerging markets gold company.
Last year's exploration drilling programme added a further 650,000 ounces of gold in Measured and Indicated Resource categories at a discovery cost of US$11.40 per ounce. We expect similar rates of success with this year's programme. Chaarat's successful acquisition of the Kapan mine in Armenia in early 2019 was also a critical moment, turning the Company from a developer to a producer in a single step.
This trajectory has continued into the first half of the year. The Joint Venture with Çiftay represents a significant milestone for the funding of Tulkubash and clearly demonstrates the Company's intrinsic value. Meanwhile, an almost 40% year-on-year increase in Tulkubash's gold reserves demonstrates the remarkable future growth potential of the project.
I look forward to the rest of the year as we continue to build an industry-leading Central Asia and FSU low cost gold producer with a sound organic growth strategy supported by selective M&A."
Enquiries
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Chaarat Gold Holdings Limited
Artem Volynets (CEO) +44 (0)20 7499 2612
info@chaarat.com
Numis Securities Limited
John Prior, Paul Gillam (NOMAD) +44 (0) 20 7260 1000
James Black (Corporate Broking)
Powerscourt
Conal Walsh +44 (0)20 7250 1446
Sam Austrums chaarat@powerscourt-group.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 Central Asia and 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.
Chairman's Statement
It is a pleasure to report to all our stakeholders on what has been a year of transformation for Chaarat Gold. We are moving purposefully towards our goal of building a leading emerging markets gold company focused on Central Asia and the Former Soviet Union.
To all our stakeholders, I would like to reiterate our firm commitment to adhering to the highest standards of sustainable development and responsible mining. We are dedicated to caring for the environment where we mine and the well-being of our employees. Our actions are informed by and based on understanding and respecting our local host communities. Being a responsible corporate citizen is at the very core of our strategic objectives.
The Company has executed a full-scale management turnaround and now has a completely new senior management team with extensive industrial expertise in building and managing mines, spotting untapped exploration potential, and optimising opportunities via cost-effective discovery.
Our two robust standalone projects, Tulkubash and Kyzyltash, have shown material growth potential. We are confident that our diversified portfolio of producing and developing mines will generate the cash flow to fund ongoing organic growth and deliver a strong equity return to investors.
Chaarat's successful acquisition of the Kapan mine in Armenia in early 2019 was also a key milestone and a first step in our M&A strategy. The acquisition turns the Company from a developer to a producer in a single step. It also bears testament to our management team's ability to execute deals quickly, diligently and on accretive terms.
In June 2018, we were delighted to appoint Artem Volynets as Chief Executive Officer. Artem's track record as a senior executive and dealmaker in the global mining sector, combined with his industry and investor connections in Russia and Asia, has been invaluable. He brings more than 20 years' experience to Chaarat, having led private and public transactions worth in excess of US$30 billion and managed leading businesses in the metals and mining industry.
Our management team has also been significantly enhanced by the addition of Chris Eger as Chief Financial Officer in August 2018. Chris has comprehensive financial, M&A and commercial expertise in the metals and mining sector, gained over a 20-year career in investment banking, metals trading and private equity.
In June 2019, we were pleased to appoint Darin Cooper as Chief Operating Officer. Darin has a career spanning more than 30 years in the metals and mining industry, encompassing operations, projects, restructuring and culture change.
Robert Benbow, previous Chief Operating Officer of Chaarat, will continue to serve on the Board of the Company as a non-executive director and he will remain chair of the Technical Committee. Robert has been instrumental to the recent success of Chaarat and will continue to play an important role at the Company, drawing on his life-long experience of building and operating mines.
In recognition of the need for strong independent non-executive director representation at Board level, we were pleased to welcome to the Board two new independent Non-Executive Directors in 2018, Robert Edwards in September and Hussein Barma in December, and one further independent Non-Executive Director, Warren Gilman, in March 2019. I can confirm that we now have a majority independent Board in place with a total of four independent Non-Executive Directors including Gordon Wylie, Deputy Chairman and Senior Independent Director.
Robert Edwards has worked in the global natural resources industry for 27 years, with a particular focus on frontier markets. His broad institutional and corporate experience, combined with his industry insights, complement Chaarat's rapid expansion in the Commonwealth of Independent States as we grow our asset base and production capacity across the region.
Hussein Barma brings deep knowledge of the global mining industry, compliance, audit and governance, having spent 15 years at Antofagasta.
Warren Gilman has acted as advisor to the largest mining companies in the world including BHP, Rio Tinto, Anglo American, Noranda, Falconbridge, Meridian Gold, China Minmetals, Jinchuan and Zijin and has been responsible for some of the largest equity capital markets financings in Canadian mining history.
In March 2019, Martin Wiwen-Nilsson stepped down from his role as non-executive director of the Company. He, instead, takes on a role as senior advisor of the Company. He remains a shareholder in Chaarat.
I believe we now have an effective, highly skilled and experienced Board and management team in place, who are focused on and collectively responsible for the long-term success of the Company. I am delighted that the Chaarat team will also be fully aligned with shareholders in creating value via direct stock ownership and a performance based incentive programme.
I would like to thank all the members of the Board, including its new and outgoing members, for their support and dedication, and our management team and employees for their undivided commitment and drive. I would like to extend my special thanks to all our stakeholders for their continued backing over the years.
We look forward, with confidence, to the year ahead.
Martin Andersson
Executive Chairman
CEO Statement
I am delighted to write my first annual review as the Chief Executive Officer of Chaarat Gold. 2018 has paved the way for an exciting 2019. We have a clear strategy and we are delivering on it. In the last 12 months, Chaarat has:
-- Fully refreshed its senior management
-- Transformed the Company from a developer to a producer through its acquisition of the Kapan mine
-- Secured more than US$120 million in debt, convertible debt, new equity and partner contributions
-- Increased the resource at Tulkubash by more than 60%, paving the way for further resource increases
-- Optimised its feasibility study for Tulkubash, resulting in a significant capital expenditure reduction of more than US$20m
-- Attracted an equity partner for Tulkubash, with a view to raising additional debt finance -- Relisted on the Alternative Investment Market (AIM), attracting new institutional investors
We are focused on producing organic growth through an ambitious and value-enhancing development programme for existing assets, and delivering shareholder-accretive, transformational M&A.
Environmental, social and governance
In 2018 we strengthened our processes throughout the value chain to ensure we adhere to the highest international environmental, social and corporate governance standards.
Safety remains at the forefront of our decision making, with international health and safety best practices used throughout our operations and construction sites, complemented by a clear reporting and remediation framework.
Environmental responsibility is a core value for Chaarat, and we take as much care as possible to ensure we minimise damage to the environments in which we work. We continuously measure the wider impact of our activities, ensuring we adhere to all local and international regulatory requirements, including recommendations set out by the IFC Performance Standards on Environmental and Social Sustainability.
Our long-term success relies on trusting and constructive relationships with the communities who live and work beside us. We have established a Regional Consultation Group to facilitate communication and consultation with local communities. We also continue to support the education and development of local employees and children, invest in local business projects and medical programmes and provide crucial infrastructure.
Alongside the European Bank for Reconstruction and Development (EBRD), we are proud to sponsor an annual conference in London promoting the benefits of doing business in the Kyrgyz Republic. This forms part of our ongoing work with the EBRD and others to promote responsible foreign direct investment in the region.
Kapan
2018 was a year of significant change for Chaarat, culminating in the successful acquisition of Kapan Mining and Processing for a consideration of US$55 million in early 2019, an attractive price for the Company and its shareholders. The Kapan acquisition is an excellent and complementary addition to Chaarat's portfolio, elevating the Company from a developer to a producer, now with three strong assets in two jurisdictions.
In 2017, the Kapan mine produced around 50 koz of gold equivalent, generating more than US$20 million EBITDA and had gross assets of US$96 million. In 2018, the Kapan mine produced around 51 koz of gold equivalent, generating a profit before tax of US$3.2 million, and had gross assets of US$93.3 million. Looking ahead, we anticipate group production of approximately 65 koz of gold equivalent in 2019.
We continue to pursue other selected M&A targets and believe Chaarat is well positioned to be a driver of consolidation in our target regions.
The Chaarat Project
Located in the prolific Tien Shan gold belt, the Chaarat Project has the potential to become a significant producer alongside other large mines in the area. An extensive drilling programme and feasibility studies carried out over many years have revealed a rich deposit of gold ore in the Tulkubash, Contact and Main zones of the deposit.
We are very encouraged by the ongoing results of our drilling at Tulkubash. Discovery costs per ounce and ounces discovered per metre drilled are excellent and validate our belief that Tulkubash will continue to grow into a world-class gold deposit. Indeed, we are confident that this is the beginning of an emerging new gold district.
The mineralisation remains open along strike, and we have drilled only a small portion of the prospective 24-kilometre trend of favorable geology and surface gold occurrences. We completed approximately 20,000 m of drilling in 2018, delivering a 67% increase in M&I resources. In June 2019, our most recent feasibility study update reported a significant increase in reserves and mine life. We also reported a reduction of more than U$20 million in capital expenditure at Tulkubash.
We look forward to commencing development of Tulkubash in 2019 through our Joint Venture with Çiftay, the Turkish mining and mine construction contractor. As announced in March 2019, Çiftay will invest up to US$31.5 million for an equity stake of up to 12.5% in Tulkubash and neighboring Kyzyltash based on an agreed valuation of US$252 million (post money) for the two assets.
Çiftay's investment provides a significant amount of the required equity for the Tulkubash project. Total capital expenditure for the project is approximately US$110 million, and after the Çiftay equity investment the vast majority of the remaining capital expenditure is expected to be debt funded, thus avoiding substantial dilution to Chaarat's shareholders, a key strategic objective for the Company.
Çiftay's investment clearly demonstrates the inherent value of Chaarat's assets in the Kyrgyz Republic and the significant potential share price upside for investors. I would like to express my sincere gratitude to the Çiftay team for their support for Chaarat and the Tulkubash project. This agreement further illustrates our focus on shareholder value and ability to creatively fund the business on accretive terms.
Whilst Tulkubash is being put in construction, and expanded through exploration, development of the large, high grade Kyzyltash ore body presents the Company with a clear avenue for organic growth. The Kyzyltash mineralisation also remains open along strike and at depth, and further exploration has the potential to vastly increase the size of the deposit.
I would like to thank both the Kyrgyz government and the local population for their support for the Chaarat Project during 2018 and look forward to working with both as we develop further in 2019 and beyond.
Financing
Our fundraising efforts in 2018 reflect our commitment to finance the Company's strategy while managing dilution and cost of capital through a combination of debt, hybrid and equity instruments.
In 2018 and the first half of 2019, we have secured more than US$120 million in financing, with minimal dilution to shareholders. This was achieved in a macro environment in which financing options for small mining companies have been limited.
To finance the acquisition of Kapan, which was completed for a total consideration of US$55 million on 30 January 2019, the Company raised US$40 million of third-party bank funding, and issued a convertible loan note for US$10 million. The US$5 million balance was provided for in cash.
As explained above, the Company also agreed an investment of up to US$31.5 million from Çiftay, its long-term mining and construction partner for up to a 12.5% equity stake in Tulkubash and Kyzyltash. It is intended that most of the remaining capital expenditure in respect of these projects will be debt funded, in order to avoid substantial dilution to Chaarat's shareholders.
Separately, Chaarat has secured circa US$45 million via convertible bond issuances in 2018 and the first half of 2019, secured a US$10 million loan agreement with a previous note holder in the Company in November 2018, and raised US$2.7 million via new equity issuance in May 2019, including director and management input.
I am grateful that nearly all Chaarat's long-term investors have taken the opportunity to increase their exposure in the Company. These fundraises represent a clear expression of confidence in Chaarat's growth trajectory from both internal and external investors, who have subscribed for equity and bonds at respective premiums to the share price. Management have also subscribed to these fundraises, keeping their interests in line with those of all investors.
Looking forward, Chaarat is well positioned to provide further growth capital for its expanding projects and portfolio. We remain firm in our commitment to growth and returns, catalysed by our success thus far and confident in our future strategy.
To everyone who has been a part of Chaarat in 2018 - our hardworking employees, investors, community partners and advisors - a special thank you for your contribution. Much has been accomplished. Much more remains to be done.
Artem Volynets
Chief Executive Officer
Operational review - Kapan
The Kapan Mine and Processing Company was acquired by Chaarat in early 2019 for a consideration of US$55 million. The acquisition was an important milestone in achieving Chaarat's goal of building a leading emerging markets gold company with an initial focus on Central Asia and the FSU through organic growth and selective M&A. In particular, the Kapan Acquisition:
-- Demonstrates the Company's ability to execute deals quickly, diligently and on accretive terms
-- Transformed Chaarat from a developer to a producer -- Provides a catalyst for a potential re-rating
-- Strengthens the Company's portfolio of assets, with an anticipated group production of approximately 65 koz Au Eq in 2019 (based on Chaarat management's analysis)
-- Provides the Company with additional finances for the development of Tulkubash and Kyzyltash at the Chaarat Gold Project
-- Vindicates Chaarat's ability to implement future mergers and acquisitions -- Transforms Chaarat into a cashflow generating company with a significant growth profile
-- Has a valuation which the Directors believe is attractive; anticipated to imply a P/ NPV 10 of 0.37x (based on Polymetal's analysis) and 0.78x (based on Chaarat management's analysis)
Kapan accelerates Chaarat's transformation from a developer to a producer with an anticipated group production of approximately 65 koz Au Eq in 2019. Chaarat is well placed to take advantage of the opportunities presented by this cash-generative asset, which, following significant investment in the asset over the last two years, is estimated to grow production by approximately 30% per annum in 2019 versus 2017.
Ownership 100% Measured & indicated 2,224 koz contained
Resources + Reserves metal; 10.59 Mt at
6.5 g/t (Au Eq)
Start 2003 Production c. 65 koz Au Eq/ year
Date
Extraction Underground Life of Mine 5+ years *
Process mining, 900kt
flotation
circuit
*The Life of Mine is expected to be extended beyond the 5 years.
Kapan Mining and Processing Company comprises one Mining Licence and one Exploration Licence covering 90.7km(2) which draw from the Shahumyan deposit. The Shahumyan mineralization is characterised by narrow veins (0.2-2.0 m), steeply dipping (70deg-85deg), east-west orientation, and contains gold-base metals (Cu-Zn-Pb-Au-Ag).
Meanwhile, Kapan comprises an automated underground mine with a capacity of 700 ktpa, feeding an on-site crushing and grinding facility followed by a conventional flotation circuit. The recently renovated milling and flotation circuits have a capacity of 2,100 tpd (750 ktpa) and 2,300 tpd (840 ktpa) respectively, with potential to expand capacity to 900 ktpa. Kapan produces copper and zinc concentrate which is trucked to the Poti seaport in Georgia (850km).
Production at Kapan commenced in 2003 and the current reserve life extends to 2023; however, the Company believes that conversion of current inferred resources to reserves and new exploration success is likely to further extend the mine life. Indeed, the Company's internal modelling assumes production will continue until 2029. For the year ended December 2018, the Kapan Mine produced around 51 koz of gold equivalent, generating a PBT of US$3.2 million, and had gross assets of US$93.3 million.
Chaarat is currently executing several improvement programmes for Kapan which prioritise safety, operating efficiency and cost discipline. By maintaining a focus on these actions along with active engagement with host communities, Chaarat believes that the benefits of the acquisition and new management approach will deliver considerable additional value to all stakeholders.
Operational review - Tulkubash
Overview: The Tulkubash oxide heap leach represents the first phase of development for the Chaarat project via a simple, low-cost processing method.
Resources: 1,624 koz at 1.20g/t defined within 4km of 24km trend
Reserves: 658 koz at 0.92g/t (June 2019 Feasibility Study)
The Tulkubash oxide heap leach represents the first stage of the development of the Chaarat Gold Project. The 2019 Feasibility Study envisages production of 453 koz of recovered gold and 459 koz of recovered silver over the life of mine, with average gold production of 94 koz per annum, with peak production during steady state operations in excess of 110 koz annually.
Chaarat retained LogiProc to update the existing Bankable Feasibility Study of the Tulkubash Project prepared by TetraTech in April 2018. There have been significant additions to the Resource since the Feasibility Study was updated, including an indicated initial five-year mine life.
The current mine plan and process facility design is based on a Proven and Probable reserve of 22.2 Mt grading 0.92 g/t gold containing 658 koz, an increase of 39% from the April 2018 Feasibility Study. The open pit mining schedule envisages an initial life of mine based on the current reserve of 5.3 years. The nominal processing rate is 4.9 million tonnes of ore per annum, at an average life of mine strip ratio of 2.64 (waste:ore).
Geology and Exploration
Gold mineralisation at Tulkubash, a thickly bedded massive quartzite, occurs in quartzite breccias, quartz stockwork zones, and intensely silicified quartz flooded zones that form multiple parallel lodes trending northeast and dipping 60-80deg to the northwest. The individual gold-bearing lodes combine to form a mineralised zone that varies from 110 to 250 metres wide that has been developed over a strike length of approximately 4 kms. Mineralisation is open to the northeast along strike and down dip below the limits of the current drilling (+/-150 metres). The gold is very fine grained and is associated with minor pyrite and stibnite. The Tulkubash Zone is strongly oxidised and contains free milling ore suitable for heap leach processing.
During 2018, approximately 20,000 metres of diamond drilling was completed at Tulkubash. This drilling extended strike length of the deposit to extend the strike extent of the heap leachable material by approximately 1.2 kilometres ("km") and added more than 650,000 ounces of gold to the Measured and Indicated (M&I) Resource at a discovery cost of about $11.40/ounce per kilometre. M&I Resource grade was increased to 1.20 g/t Au from 0.86 g/t Au in the 2017 year-end Resource estimate.
The 2019 drilling season has already commenced with ten rigs currently operating on site. The drilling continues to demonstrate the strong continuity along strike of the Tulkubash mineralisation and the Company expects similarly strong results to 2018.
Resources as at 31 December Tonnes Au grade Content
2018Tulkubash open pit heap (kt) (g/t) (koz)
leach
cut-off grade ("COG") 0.3
g/t Au
Measured 5,660 1.35 246
------- --------- --------
Indicated 36,300 1.18 1,378
------- --------- --------
Measured & Indicated 41,960 1.20 1,624
------- --------- --------
Inferred 2,330 0.46 33
------------------------------ ------- --------- --------
1. Chaarat has used a COG of 0.3 grams per tonne ("g/t") on the basis of the likely economic cut-off for open pit mining and heap leach processing.
2. Quantity and grade are estimates and are rounded to reflect the fact that the resource estimate is an approximation.
3. Mineral resources are not ore reserves and do not have demonstrated economic viability. There is no certainty that all or any part of the mineral resource will be converted to reserves.
Tulkubash Mineral Resource at 0.3g/t Cut-Off Grade
31 January 2018 31 December 2018
--------------------------- --------------------------
Tonnes Au grade Gold Tonnes Au grade Gold
(kt) (g/t) (koz) (kt) (g/t) (koz)
----------- -------- --------- ------ ------- --------- ------
Measured 22,915 0.88 647 5,660 1.35 246
----------- -------- --------- ------ ------- --------- ------
Indicated 12,329 0.82 324 36,300 1.18 1,378
----------- -------- --------- ------ ------- --------- ------
Total M&I 35,244 0.86 971 41,960 1.20 1,624
----------- -------- --------- ------ ------- --------- ------
Inferred 3,782 0.68 83 2,330 0.46 33
----------- -------- --------- ------ ------- --------- ------
Ongoing exploration
Pre-production mining is planned to start in December 2020 and continues until Q4 of 2021. In December 2021, gold production will start and continue for 5.3 years to the end of 2026.
The life of mine is expected to grow significantly from 5.3 years since the current resource and reserve is only based on drill testing around 4km of a 24km strike length of favourable geology. Chaarat management believe there is a high probability that additional resources and reserves will be added.
The reserve and resource for the current mine life is derived from approximately 4kms of a defined 24km strike length for the Tulkubash trend, with mineralisation remaining open along strike. Numerous occurrences of outcropping ore-grade gold mineralisation and high-grade gold in soil anomalies have been defined along this trend within the existing Chaarat mining and exploration licences. Tulkubash is now seen as an emerging gold district, with potential to host multiple gold deposits.
The 2019 drilling programme has already started, with a budget for 20,000m of drilling in the year. The 2019 drill programme will focus on extending mineralisation along strike from the current resource and on infill drilling to improve project economics in select areas within the current resource footprint. The Company anticipates an ongoing drill budget of 15,000m to 20,000m per year thereafter.
In March 2019, Chaarat entered into a Joint Venture with Çiftay İnsaat Tahhüt ve Ticaret A.S., the Turkish mining and mine construction contractor, to collaborate on its assets in the Kyrgyz Republic. Çiftay, a partner since 2017, mobilised equipment to the Tulkubash site in the Chatkal Valley in 2018 and will be appointed as construction and long-term mining contractor for the Tulkubash project in 2019.
Under the agreement, Çiftay will commence earthworks at Tulkubash in 2019, negotiated at arms-length rates, which represent an improvement to the terms indicated in the 2018 Feasibility Study.
Chaarat continues to advance detailed engineering and has finalized several project components for immediate construction readiness at Tulkubash. Çiftay has earthworks equipment at the mine site and constructed a temporary construction camp in 2018 to be ready to start major earthworks in 2019.
The Company sees potential to increase significantly the existing Tulkubash resources prior to the first gold pour in 2021 and believes that exploration success will continue to add gold resources in future years. The Company's upcoming and ongoing drill programmes are designed to maximise the ratio of Resources converted to Reserves, using enhanced understanding of the geological controls on mineralisation and economic constraints on Reserve classification as defined by the feasibility study.
Feasibility study
Chaarat retained LogiProc to update an existing Bankable Feasibility Study of the Tulkubash Gold Project prepared by TetraTech in April 2018, that details its scope, design features and economic viability.
The update confirmed an initial blueprint for the development of the Project:
-- Initial reserve base of 22.2 Mt ore grading 0.92g/t gold containing 658,000 ounces of gold, an increase of 39%
-- Average gold production of 94,000 ounces per annum, with peak production during steady state operations in excess of 111,000 ounces per annum
-- Average cash operating cost of US$678 per ounce -- All-in sustaining cost of US$819 per ounce, including all taxes -- Ongoing exploration in 2019 and beyond expected to significantly add to existing reserves
-- Tulkubash is now seen as an emerging gold district, with potential to host multiple gold deposits
-- Significant capital expenditure optimisation, which has resulted in an overall reduction from US$132 million to US$110 million
-- Improved post tax net present value of US$70 million (at 5% discount rate) and internal rate of return of 20%
-- Projected annual post tax free cash flow of US$44 million during steady state operational period
Completion of the 2019 Tulkubash Feasibility Study Update reaffirmed management's belief that the oxide gold project has the potential to deliver strong operational cash flow over several years.
The initial post-tax net present value for Tulkubash, using a 5% discount rate and a long-term gold price of US$1,300 per ounce, is projected to increase to US$70 million with an undiscounted total cash flow of US$114 million. These metrics are expected to be significantly enhanced as ongoing exploration extends the reserve base along strike. The deposit will be developed by a mining contractor using conventional open pit mining methods. Processed ore will be subject to three-stage crushing to produce 12.5 millimetres ("mm") product which will be stacked at a rate of 13,500 tonnes per day on a conventional valley fill heap leach pad with an initial capacity of 16 Mt. All personnel will be housed in an on-site camp. Diesel-generated power totalling 4MW will serve process and support facilities. Roads and infrastructure have been designed and sited to respect regulatory requirements, minimise risk, and promote efficient operation.
Gold production is expected to start In December 2021 and continue for 5.3 years until 2026. Operations will process 4.9 Mt of ore annually once ramp-up is complete in 2020. Silver totalling 459 koz will also be produced over the life of the project.
A significant outcome of the 2019 Feasibility Study is the reduction in anticipated initial capital investment from around US$132 million to US$109.7 million, which includes a US$10 million contingency.
The life of mine average mining cost for the project is US$1.88 per tonne mined. This cost covers both ore and waste as well as ex-pit haulage of 5km from the mine to the run-of-mine pad. Life of mine process costs are US$4.75 per tonne processed. General and administrative costs total US$1.55 per tonne processed over the life of mine including the owner's cost for mining management, technical support, and grade control. All costs are inclusive of 12% VAT where appropriate.
Reserves as at 1 April 2019
Tulkubash open pit heap Tonnes Au grade Content
leach (kt) (g/t) (koz)
COG 0.37-0.40 g/t Au
Proven 6,750 0.95 206
------- --------- --------
Probable 15,430 0.91 451
------- --------- --------
Proven & probable 22,180 0.92 658
------- --------- --------
1. Ore reserves are reported with appropriate modifying factors of dilution and recovery.
2. Quantities may not add or multiply due to rounding.
3. Ore reserves based on a gold price of US$1,250 per ounce.
Discovery costs per ounce and ounces discovered per metre drilled at Tulkubash are impressive and continue to validate management's belief that Tulkubash will continue to grow into a world-class gold deposit. Indeed, recent resource updates continue to suggest the emergence of a significant new gold district.
Operational review - Kyzyltash
Overview: The large, high grade Kyzyltash sulphide ore body will form the second phase of development at the Chaarat project.
Resources: 5,377 koz at 3.75g/t defined within 3km of 24km trend
The Kyzyltash ore body represents most of the currently defined mineralisation at the Chaarat project and provides Chaarat with a clear path to organic growth. The mineralised zones occur within two subparallel northeast-trending structural zones that have been traced for 10km along strike.
Due to the more complex, refractory nature of the mineralisation, Kyzyltash will be developed once the Tulkubash project is in production. Based on the work performed by NERIN, Kyzyltash has the potential to produce 200,000-300,000 ounces of gold per annum at low operating cash costs. In the medium term, the Company's expectation is to have both Kyzyltash and Tulkubash in production in parallel, producing up to 400,000 ounces of gold per annum from the Chaarat Gold Project.
Mineral Resources
Following the update to the 2016 resource for Tulkubash, the Kyzyltash resources were restated at a cut-off grade of 2.0 g/t. This is based on a block model which had been prepared on a basis suitable for selective mining in an underground environment.
Underground Tonnes Au grade Content
COG 2.0 g/t Au (kt) (g/t) (koz)
Measured 6,722 3.26 681
------- --------- --------
Indicated 32,794 3.79 3,864
------- --------- --------
Measured & Indicated 39,516 3.70 4,545
------- --------- --------
Inferred 6,611 4.05 832
------- --------- --------
Total 46,127 3.75 5,377
------- --------- --------
1. The Kyzyltash resource is based on the block model originally developed for the November 2014 resource update.
2. Resources have been stated on the basis of underground mining as this reflects the selectivity of mining consistent with the estimation parameters.
3. The potentially open pitable resources at Kyzyltash, previously announced in 2016, have not been re-estimated to understand the impact of dilution - all resources have been included within the underground mineable resource table.
4. A new block model would be required prior to reporting resources at Kyzyltash suitable for open pit mining.
5. The underground resources at Kyzyltash have been reported at a cut-off grade of 2.0g/t. The previously reported underground mineable resources in 2016 were reported at a cut-off grade of 1.8g/t.
Whilst the Kyzyltash resource constitutes a large ore body capable of generating a robust mine life for initial development, the mineralisation remains open both along strike and at depth.
Development options
Building on the foundation of the NERIN feasibility study, Chaarat will continue advancing technical studies on the Kyzyltash Project. Ongoing work will include further metallurgical testing, a review of the most appropriate mining method, and a review of the optimal processing plant layout given the infrastructure in place for the Tulkubash heap leach processing facility. This will develop an optimised and updated feasibility study.
Kyzyltash is expected to produce gold through a refractory processing plant recovering gold via pre-oxidation followed by direct cyanidation. Ore will be sourced from higher grade underground stopes accessible via simple adit development into the hillside, which could be augmented by ore accessible via open pit mining. The currently defined resource of 5.4million ounces of gold is potentially capable of supporting at least a seven to eight-year mine life at a production rate of 200,000-300,000 ounces of gold per year.
On completion of an updated feasibility study for Kyzyltash, the decision to commence construction will be dependent on the Group's cash flow and development plans, as the Company's balance sheet continues to be strengthened by Tulkubash production and the results of merger and acquisition activity.
Operational review - Regional exploration
Located in the prolific Tien Shan gold belt, the Chaarat Project has the potential to become a significant producer alongside other large mines in the area. Chaarat already has six million ounces of gold resources and a large, underexplored area with the potential to add significantly more.
The Chaarat mining and exploration licences are best viewed as comprising an emerging gold district, not simply two deposits. The Company believes that it has only just begun to develop the potential of this emerging district. As a rough comparison the Company's land position comprises a surface area approximately 40-50% the size of the Carlin trend in Nevada, which started with one mine in the 1960s and has since produced more than 50 million ounces of gold. Chaarat plan to use its internally generated free cash flow to explore and define the long-term potential of the Chaarat District.
In 2019, exploration work will continue in the large exploration licence to the north-east of the six-kilometre Chaarat mining licence.
-- Initial reconnaissance drilling will be undertaken on a large soil anomaly at Ishakuldy, approximately 10km along strike from the proposed Tulkubash open pit.
-- Detailed mapping, trenching and surface sampling to develop long-term drill targets will be carried out in the unexplored area between the mining licence boundary and the Ishakuldy soil anomaly.
-- Beyond the Ishakuldy soil anomaly, district scale exploration of the trend will continue. This will include a stream sediment and panned concentrate sampling programme supported by a remote camp.
Financial review
In August 2018, Chaarat received commitments for US$17.6 million in the first phase of a convertible debt placement with existing convertible investors, as well as select new investors. The Company received strong support from its long-term convertible investors holding existing convertible notes, substantially all of whom converted into new ordinary shares in the Company and/or rolled their convertible proceeds and subscribed to the new instrument, providing incremental growth capital to the Company.
In November 2018, Chaarat entered into a loan agreement with a previous note holder in the Company, to secure funding of US$10 million to support the Group's activities including the Kapan acquisition. The loan reflects Chaarat's commitment to finance the Company's strategy while managing dilution and cost of capital through a combination of debt, hybrid and equity instruments. In the same month, Chaarat entered into agreements with two investors for the subscription and issue of secured convertible notes for US$600,000 and US$400,000 respectively. Chaarat secured a further US$10.6 million in early 2019, which includes the US$10 million convertibles issued to PMTL as part of the acquisition of Kapan, bringing the total number of notes in issue to US$29.2 million. In addition, at 1 April 2019 the Group had received a signed commitment for a US$10 million subscription for convertible bonds by a new investor. In late May 2019 this commitment was increased to US$15 million. The Group expects to receive the subscription proceeds in early July 2019.
In December 2018, the Group entered into a committed revolving term loan facility agreement with Labro Investments Limited ("Labro") for a total amount of US$15 million (the "Labro Loan Agreement"). The facility is for the general corporate purposes of the Group and can be drawn down by the Group at any time before its maturity. To date US$2.5 million has been drawn down, US$0.5 million has subsequently been repaid, and US$12.5 million remains available to the Group.
Chaarat's fundraising has been, and will be, used to support the Company's M&A consolidation strategy and the development of Tulkubash. Investment in Chaarat in 2018 reflects a clear expression of confidence in the Company's management and its strategy and demonstrates Chaarat's inherent value. The Board and management team remain committed to appropriately fund the business on accretive terms whilst minimising shareholder dilution.
In early 2019, Chaarat completed the acquisition of Kapan Mining and Processing Company CJSC from PMTL Holding Ltd, a subsidiary of Polymetal International Plc for a total consideration of US$55 million (subject to net debt and working capital adjustments). This comprised US$10 million settled on completion in convertible loan notes; US$5 million paid as a deposit in November 2018; and US$40 million of third-party bank funding.
During 2019, Chaarat intends to invest further significant sums in the development of the Tulkubash project following the Company's Joint Venture with Çiftay İnsaat Tahhüt ve Ticaret A.S., the Turkish mining and mine construction contractor. Under the agreement, based on an agreed valuation of US$252 million (post money) for Tulkubash and Kyzyltash, Çiftay will progressively invest up to US$31.5 million for a 12.5% equity stake in Chaarat's mining projects in the Kyrgyz Republic.
Çiftay's investment provides a significant amount of the required equity for the Tulkubash project. Total capital expenditure for the project is approximately US$110 million, and after the Çiftay equity investment most of the remaining capital expenditure is expected to be debt funded, thus avoiding substantial dilution to Chaarat's shareholders. Chaarat is in the process of securing the remaining project financing which is targeted to close in Q4 2019. Further details of the Group's status as a going concern are set out in the Directors Report and note 2 to the financial statements.
Consolidated Income Statement
For the year ended 31 December 2018
2018 2017
Note US$'000 US$'000
Exploration expenses (1,692) (1,850)
Impairment of Assets under Construction 12 - (10,008)
Administrative expenses 4 (12,013) (4,746)
Total administrative expenses (13,705) (16,604)
Other operating income 24 8
Operating loss 3 (13,681) (16,596)
Interest receivable - 69
Interest payable 8 (3,361) (1,565)
Loss before and after tax for the year,
attributable to equity shareholders of the
parent (17,042) (18,092)
Loss per share (basic and diluted) - US$
cents 10 (4.52) (5.14)
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2018
2018 2017
US$'000 US$'000
Loss for the year, attributable to equity
shareholders of the parent (17,042) (18,092)
Other comprehensive income:
Items which have been reclassified to profit
and loss
Exchange differences on translating foreign 74 -
operations liquidated during the year
Items which may subsequently be reclassified
to profit and loss
Exchange differences on translating foreign
operations and investments - 455
Other comprehensive income for the year,
net of tax 74 455
Total comprehensive loss for the year attributable
to equity shareholders of the parent (16,968) (17,637)
----------------------------------------------------- ---------- ----------
Consolidated Balance Sheet
As at 31 December 2018 2018 2017
Note US$'000 US$'000
------------------------------------- ------ ---------- ----------
Assets
Non-current assets
Exploration and evaluation costs 11 43,527 31,385
Other Intangible assets 54 9
Property, plant and equipment 12 5,094 3,252
Total non - current assets 48,675 34,646
------------------------------------- ------ ---------- ----------
Current assets
Trade and other receivables 13 190 194
Prepayment on acquisition of Kapan 13 5,000 -
Cash and cash equivalents 14 1,168 7,461
Total current assets 6,358 7,655
Total assets 55,033 42,301
------------------------------------- ------ ---------- ----------
Equity and liabilities
Equity attributable to shareholders
Share capital 15(b) 3,951 3,569
Share premium 15(b) 152,063 138,184
Share warrant reserve 15(d) 1,352 1,352
Convertible loan note reserve 15(f) 2,360 867
Merger reserves 10,885 10,885
Share option reserve 15(c) 1,414 2,912
Shares to be issued 15(e) - 1,926
Translation reserve (15,398) (15,472)
Accumulated losses (132,984) (118,952)
------------------------------------- ------ ---------- ----------
Total equity 23,643 25,271
------------------------------------- ------ ---------- ----------
Liabilities
Non-current liabilities
Convertible loan note 18 16,303 -
------------------------------------- ------ ---------- ----------
Total non-current liabilities 16,303 -
------------------------------------- ------ ---------- ----------
Current liabilities
Trade and other payables 16 4,924 600
Other liabilities 17 10,163 1,000
Convertible loan note 18 - 15,430
------------------------------------- ------ ---------- ----------
Total current liabilities 15,087 17,030
------------------------------------- ------ ---------- ----------
Total liabilities 31,390 17,030
------------------------------------- ------ ---------- ----------
Total liabilities and equity 55,033 42,301
------------------------------------- ------ ---------- ----------
Consolidated Statement of Changes in Equity
For the Year Ended Share Convertible Share Shares
31 December 2018 Share Share warrant loan note Merger option to be Translation Accumulated
Capital Premium reserve reserve Reserve Reserve issued Reserve losses Total
Note US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
As at 1
January
2017 3,518 136,554 1,358 - 10,885 3,964 - (15,927) (102,755) 37,597
Loss for the
year - - - - - - - - (18,092) (18,092)
Currency
translation - - - - - - - 455 - 455
--------------- ------ ------- ------- ------- ----------- ------- ------- ------- ----------- ----------- --------
Total
comprehensive
income for
the
year - - - - - - - 455 (18,092) (17,637)
--------------- ------ ------- ------- ------- ----------- ------- ------- ------- ----------- ----------- --------
Share options
lapsed - - - - - (1,895) - - 1,895 -
Share options
expense - - - - - 875 - - - 875
Share options
exercised 4 109 - - - (32) - - - 81
Issuance of
shares
for cash 15 (b) 46 1,498 - - - - - - - 1,544
Shares to be
issued 15 (e) - - - - - - 1,926 - - 1,926
Exercise of
warrants 1 23 (6) - - - - - - 18
Equity element
of
convertible
loan note 15 (f) - - - 867 - - - - - 867
--------------- ------ ------- ------- ------- ----------- ------- ------- ------- ----------- ----------- --------
As at 31
December
2017 3,569 138,184 1,352 867 10,885 2,912 1,926 (15,472) (118,952) 25,271
--------------- ------ ------- ------- ------- ----------- ------- ------- ------- ----------- ----------- --------
Loss for the
year - - - - - - - - (17,042) (17,042)
Translation
losses
for
liquidated
subsidiary 74 74
--------------- ------ ------- ------- ------- ----------- ------- ------- ------- ----------- ----------- --------
Total
comprehensive
income for
the
year - - - - - - - 74 (17,042) (16,968)
--------------- ------ ------- ------- ------- ----------- ------- ------- ------- ----------- ----------- --------
Share options
lapsed - - - - - (1,857) - - 1,857 -
Share options
expense - - - - - 377 - - - 377
Share options
exercised 2 63 - - - (18) - - - 47
Issuance of
shares
for cash 15 (b) 145 4,738 - - - - (1,926) - - 2,957
Conversion of
loan notes 230 8,858 - (1,153) - - - - 1,153 9,088
Equity element
of
convertible
loan note 15 (f) - - - 2,646 - - - - - 2,646
Issuance of
shares
for a fee 5 220 - - - - - - - 225
As at 31
December
2018 3,951 152,063 1,352 2,360 10,885 1,414 - (15,398) (132,984) 23,643
--------------- ------ ------- ------- ------- ----------- ------- ------- ------- ----------- ----------- --------
Consolidated Cash Flow Statement
For the Year Ended 31 December 2018 2018 2017
Note US$'000 US$'000
------------------------------------------------------ ---- -------- -----------------
Cash flows used in operating activities
Operating loss (13,681) (16,596)
Depreciation and amortisation 3 326 333
(Gain) on disposal of property, plant and equipment 3 (7) (8)
Provision for inventories - 267
Translation losses for liquidated subsidiary 74 -
Reversal of provision (50) -
Impairment of assets under construction 12 10,008
Share based payments 3 377 875
Increase in interest payable 17 239 -
Increase in inventories - (58)
Decrease in accounts receivable 4 172
Increase in accounts payable 3,875 37
Net cash flow used in operations (8,843) (4,970)
------------------------------------------------------ ---- -------- -----------------
Investing activities
Purchase of tangible fixed assets 12 (2,165) (2,754)
Exploration and evaluation costs 11 (12,142) (7,879)
Prepayment on acquisition of Kapan 13 (5,000) -
Proceeds from sale of property, plant & equipment 8 27
Interest received 11 69
------------------------------------------------------ ---- -------- -----------------
Net cash used in investing activities (19,288) (10,537)
------------------------------------------------------ ---- -------- -----------------
Financing activities
Proceeds from issue of share capital, net of
costs 3,004 1,643
Receipt of funds for shares to be issued - 1,926
Proceeds from convertible loan notes issued,
net of costs 18 13,554 14,732
Receipt of funds for convertible loans to be
issued 17 - 1,000
Payment of funds for redemption
of convertible loans 18 (4,620) -
Proceeds from loans 17 9,924 -
------------------------------------------------------ ---- -------- -----------------
Net cash from financing activities 21,862 19,301
------------------------------------------------------ ---- -------- -----------------
Net change in cash and cash equivalents (6,269) 3,794
Cash and cash equivalents at beginning of the
year 7,461 3,285
Effect of changes in foreign exchange rates (2) 382
------------------------------------------------------ ---- -------- -----------------
Cash and cash equivalents at end of the year 14 1,168 7,461
------------------------------------------------------ ---- -------- -----------------
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 2018 and 31 December 2017.
The consolidated balance sheet at 31 December 2018, 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 2018 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 2017.
3. Loss per share
Loss per share is calculated by reference to the loss for the year of US$17,042,000 (2017: US$18,092,000) and the weighted average number of ordinary shares in issue during the year of 377,347,795 (2017: 351,912,981).
At 31 December 2018 22,367,521 (2017: 22,367,521) warrants, 18,922,066 (2017: 28,676,088) 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. Subsequent to the year-end the Company has issued additional equity, as set out in note 5, which would have affected the number of ordinary shares in issue.
4. Going concern
As at 31 May 2019 the Group had approximately US$2.7 million of cash and cash equivalents and US$80.7 million of debt (excluding accrued interest, the terms of which are disclosed in the notes) comprising the following:
- US$29.2 million Convertible loan note, repayable on 31 October 2021, excluding accrued interest to date (note 18 of the annual report)
o Of the total Convertible loans outstanding, $10 million, which was issued in connection with the acquisition of Kapan after the year end (note 5), has the same contractual terms as the other Convertible Notes however the lender also has an option to require early repayment of the loan on 30 September 2020.
- US$10 million loan, repayable on 13 August 2019, excluding interest to date (note 17 of the annual report).
- Remaining term loan for $39.5 million entered into in connection with the acquisition of Kapan after the year end. The loan is repayable through quarterly instalments over a period of four years, the final payment being January 2023.
- On 12 December 2018, the Group entered into a committed revolving term loan facility agreement with Labro Investments Limited ("Labro") for a total amount of US$15 million (the "Labro Loan Agreement"). The facility is for the general corporate purposes of the Group and can be drawn down at the full discretion of the Group at any time before its maturity. To date US$2.5 million has been drawn down, US$0.5 million has subsequently been repaid, US$2 million is still outstanding and a further US$ 12.5 million remains available to the Group (note 19 of the annual report).
In addition, at 1 April 2019 the Group had a received a signed commitment for a US$10 million subscription for convertible bonds by a new investor. In late May 2019 this commitment was increased to US$15 million. The Group expects to receive the subscription proceeds in early July 2019.
The Board has reviewed the Group's cash flow forecast for the period to 31 December 2020. As explained further below, the Board expects that additional funding will be received. However, for the purpose of making an assessment of going concern, the cash flow forecasts reviewed by the Board exclude additional funding which is not contractually committed and also exclude discretionary expenditure in relation to the Kyrgysztan projects.
Plans to develop the Tulkubash project remain subject to the Group raising sufficient funds. The Group plans a 20,000-metre exploration programme in 2019 to extend the Tulkubash heap leachable resources, and this also remains subject to the Group raising sufficient funds.
The Board have based the cash flow forecasts for Kapan on the most recent budgets, taking into account actual performance to date. The Group's cash flow forecasts show that the Group would have sufficient resources to fund a 10% decrease in gold prices or 5% decrease in the expected grade or recovery rate. If there was an unexpected adverse combination of these factors, the Group would require further additional funding.
Whilst Kapan is forecast to generate a minimal amount of free cash flow to fund the Group's other projects, additional fund raising is expected to be completed before the end of the fourth quarter of 2019 in order to maintain the growth projects across the group and repay the Group's loan obligations which fall due in 2019 and 2020. There are currently minimal commitments in respect of Tulkabash and should additional funds not be available, the Group has the discretion and ability to dramatically reduce cash expenditures across the group in order to conserve cash. On this basis, the Group forecasts it would be able to meet its liability obligations over the course of the next 13 months as a result of drawing on the Labro Loan facility. Additional funds would be required to repay the US$10 million term loan and the Labro Loan which are due on 13 August 2019 and 14 July 2020 respectively. Notwithstanding, the fact the Group has received confirmation from the new investor, if the US$15 million cash subscription to convertible bonds is not received then the Group will utilise the Labro facility and/or require additional debt funding in order to repay the US$10 million loan, repayable on 13 August 2019.
The Board has confidence in the Group's ability to raise additional funds as demonstrated by the Group's established track recorded in historical fund raisings and refinancing events. Furthermore, as a result of the updated Feasibility Study for Tulkubash, management has launched a Project Finance process which is expected to provide funding for the construction of Tulkubash.
Subject to the above, which the Board is confident can be achieved, 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 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
Kapan Acquisition
On 30 January 2019, Chaarat Gold International Limited, a subsidiary of Chaarat Gold Holdings Limited, acquired 100 percent of the issued share capital of Kapan Mining and Processing Company CJSC, a company incorporated in the Republic of Armenia which produces gold-copper-silver and zinc concentrates.
The cost of the acquisition was US$55 million (subject to net debt and working capital adjustments which are yet to be finalised) which comprised cash consideration of US45 million and convertible loan note of US$10 million. The convertible loan note was issued to the seller PMTL Holding Ltd and the terms of the loan note are as per the 2021 loan notes as disclosed in note 18 of the annual report however the lender also has an option to require early repayment of the loan on 30 September 2020. Acquisition-related costs of US$3,482,000 were charged to administrative expenses in the consolidated income statement as at 31 December 2018.
The provisional fair values of the assets and liabilities of Kapan Mining and Processing Company CJSC at 30 January 2019 are set below:
Provisional
fair value
at date
of acquisition
US$'000
Intangible fixed assets 88
Tangible fixed assets 58,794
Inventories 18,071
Trade receivables 5,504
Other receivables 2,697
Deferred income tax asset 4,019
Prepayments 488
Cash and cash equivalents 1,534
----------------------------- -----------------
Total assets 91,195
----------------------------- -----------------
Borrowings 11,130*
Trade payables 5,062
Other payables 4,173
Provisions 12,763
Total liabilities 33,128
----------------------------- -----------------
Net assets 58,067
----------------------------- -----------------
*This liability is payable to Chaarat Gold International Limited, a 100% owned subsidiary within the Chaarat Gold Group, and as such is US$ Nil on a consolidated basis.
As at the date these financial statements were authorised for issue, the fair value exercise had not been completed and as such the values above are the provisional fair values. The Company is currently is undertaking an assessment of the fair values of the assets and liabilities acquired, as required by IFRS 3. The consideration for the Kapan acquisition is also subject to adjustments for working capital and royalty obligation, the fair value of which is being assessed in line with terms of the contract.
Ciftay Joint Venture
On 15 March 2019 the Company announced that it has signed a binding term sheet to enter into a Joint Venture with Çiftay İnsaat Tahhüt ve Ticaret A.S. ("Çiftay"), the Turkish mining and mine construction contractor, to collaborate on the Tulkubash and Kyzyltash projects in the Kyrgyz Republic. The agreement is based on a valuation of US$252 million (post money) for the two assets, Çiftay will progressively invest up to US$31.5 million for up to 12.5% equity stake in Chaarat's mining projects Tulkubash and Kyzyltash in the Kyrgyz Republic.
Çiftay's investment provides a significant amount of the required equity for the Tulkubash project. Total capital expenditure for the project is circa US$110 million, and after the Çiftay equity investment most of the remaining capital expenditure is expected to be debt funded, thus avoiding substantial dilution to Chaarat's shareholders, a key strategic objective for the Company.
Chaarat is in the process of securing the remaining project financing which is targeted to close in Q4 2019. Çiftay has commenced earthworks in anticipation of this, negotiated at arms-length rates, as reflected in an updated Feasibility Study issued on 4 June 2019.
Construction is ongoing at Tulkubash and the first gold production remains on schedule for late 2021. The Company continues to advance detailed engineering and has finalized several project components for immediate construction readiness. Çiftay has earthworks equipment at the mine site and constructed a temporary construction camp this winter to be ready for an early spring start to major earthworks.
Ciftay has extensive experience as a mining and civil engineering contractor at multiple mine sites in Turkey including two major gold mines. Definitive agreements for the joint venture are expected to be concluded by summer 2019.
Financing
The subscription and issue of the secured convertible 2021 notes, as previously announced on 21 December 2018, was completed on 15 January 2019. The issue of US$350,000 additional notes has brought the total number of notes in issue to US$18.93 million, US28.93 million including the US$10 million issued as part of the consideration for the Kapan acquisition and a new subscription of US$250,000 on 7 May 2019 brings the total number of notes in issue to US$29.2 million.
On 1 April 2019 the Company had a secured commitment for a US$10 million subscription for convertible bonds by a new investor. The Company expects to receive the cash subscription in early July 2019 and the commitment is now US$15 million.
On 1 May 2019 the Company closed a placing, raising US$2.71 million from the issue of 6,927,563 new ordinary shares of US$0.01 each at US$0.30 per share. Directors and senior management participated in this placing.
The Company drew down on the Labro Facility in the amount of US$500,000 on 1 April 2019. The Company settled this amount through the issue of 1,276,666 shares to Labro on 5 April 2019 and an interest payment of US$685. The shares issued formed part of the 1,914,999 shares issued to Labro as part of the capital raising of 1 May 2019, the balance of which were settled by Labro in cash. On 16 May 2019 the Board authorised that 34,435 shares to Labro as settlement for the draw down fee in respect of this draw down. On 23 May 2019, the Company drew a further US$2 million.
On 16 May 2019 the Board authorised that in accordance with the resolution of the Board taken on 14 February 2019 the Company shall issue new ordinary shares of USD 0.01 each to Martin Wiwen-Nilsson as compensation amounting to GBP400,000 for the work he has done for Chaarat over the past years.
Incentive scheme
The Directors intend to implement an incentive scheme to reward Directors and certain employees in 2019. Its proposed terms were disclosed in the Company's admission document published on 14 December 2018. The incentive scheme now provides for two main elements: conversion of existing option plans into a new uniform scheme and a one-off grant of equity equal to 5 percent of the outstanding share capital at the date of Re-Admission and options equal to 3 times of equity granted under the scheme at a strike price of 42p per Ordinary Share to the Board and top managers which will be subject to a vesting schedule.
The first element of the scheme will require conversion of vested and unvested options into Ordinary Shares based on a price of 33p per Ordinary Share; these will have a one year lock-up (shares to be issued to replace unvested options will also have a one-year vesting period and if an employee leaves during this period the unvested shares will lapse). This first element requires consent from the existing option holders to join the new incentive plan and, if all holders consent, would result in around 6,100,000 new Ordinary Shares.
The second element of the scheme has a three-year vesting period, one-third of the award vests annually starting from 2019 for those participants who were engaged in the Company's business in the previous year and subject to achievement of individual key performance indicators by most employees with the same consequences if an employee leaves. Delivery of vested Ordinary Shares will be made on the basis of 50 percent of the entitlement at the date of vesting with the remaining part of the entitlement to be delivered at the end of year three, whether or not in employment at such time. All vested Ordinary Shares are subject to a two-year lock-up.
The board has full discretion to amend the incentive scheme or adjust unvested Ordinary Shares and options.
6. Timetable and distribution of accounts
The Annual General Meeting will be held at 11 A.M. on 26 July 2019 at the offices of Macfarlanes LLP, 20 Cursitor Street, LONDON, EC4A 1LT
Copies of the Annual Report and Notice of the Annual General Meeting will be sent to shareholders by 30 June 2019.
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 Gold
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 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.
END
FR FAMLTMBTTBML
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