TIDMCGH
RNS Number : 3186K
Chaarat Gold Holdings Ltd
24 June 2014
Chaarat Gold Holdings Limited
("Chaarat" or "the Company")
PRELIMINARY ANNOUNCEMENT OF AUDITED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013
Road Town, Tortola, British Virgin Islands (24(th) June
2014)
Chaarat (AIM - CGH), the AIM quoted exploration and development
company with assets in the Kyrgyz Republic, today publishes its
preliminary results for the year ended 31 December 2013.
Highlights for the year
-- Mining licence issued for the whole deposit
-- Definitive feasibility study (DFS) for the whole deposit in progress
-- Board and technical skill base strengthened
-- New layout for the Project agreed to reduce operating cost and complexity
-- Collection of field and technical data for DFS in progress
-- Continued and substantial engagement with host communities
Dekel Golan, CEO of Chaarat, commented:
"We are very encouraged by the early results of the DFS which
supports our view that Chaarat is one of the largest and best
undeveloped deposits in the world. The DFS will demonstrate both
the economic merit of the Project and establish a clear route for
its development."
Enquiries:
Chaarat Gold Holdings Limited + 44 23 800 11747
c/o Central Asia Services Limited info@chaarat.com
Dekel Golan CEO
Linda Naylor FD
Numis Securities Limited +44 20 7260 1000
John Prior, Stuart Skinner (NOMAD)
James Black (Broker)
About Chaarat Gold
Chaarat Gold is an exploration and development company operating
in the Kyrgyz Republic with a large, high grade resource - the
Chaarat Gold Project. The Company's key objective is to become a
low cost gold producer generating significant production from the
development of the Chaarat Gold Project. Chaarat is preparing a
Definitive Feasibility Study (DFS) and continuing its active
community engagement programme to optimise the value of the Chaarat
investment proposition.
Further information is available at www.chaarat.com
Chairman's Report
Last year saw a dramatic change in the price of gold and more
generally in the market's sentiment towards gold companies.
Investors dumped their shares in gold companies which sent share
prices plunging to levels not seen for years, and in some cases
decades. Chaarat was not spared and although we did better than
many of our peers, by the end of 2013, our share price had dropped
by 10p from 19.5p at the beginning of the year. The general trend
was exacerbated for Kyrgyz based companies due to the eruption in
tension between Centerra (the largest gold producer in the country)
and the Government. Many shareholders have recognized the
undisputed advantage of Chaarat as a large high grade deposit with
considerable upside for growth. It is at the end the grade which
makes the difference. We appreciate the support of all our
shareholders and in 2013 we welcomed a couple of new significant
entrants to our register.
Having identified the change in market sentiment early in 2013,
and conscious of the need to raise more money to reach production,
which would have been possible but highly dilutive, your Board
decided to change direction. We stopped the push towards production
and commissioned a comprehensive Definitive Feasibility Study (DFS)
for the whole Project. We believe this will allow the company to
demonstrate the true potential of the Chaarat Deposit rather than
investing all its efforts into establishing a small scale
production unit which, due to its size, would generate minimal
cash.
The DFS is beingcoordinated by our recent appointee to the
Board, Marcel (Mac) DeGuire, who joined the Board in May 2013. Mac
brings with him a wealth of experience and knowledge which
shouldresult in a high quality and reliable DFS.
During the year we therefore focused on collecting the
information which is required for a robust DFS. Extensive
drillingincreasedour oxide (low cost to produce) resource and
ensuredwe have a good understanding of the parameters underpinning
the work.
We are often asked "what is it like to work in the Kyrgyz
Republic"? Throughout the last year, countries which used to be
considered as "traditional mining jurisdictions" have seen an
increase in the tensions between mining companies, governments,
local residents, the environment and its protectors, employees and
other stakeholders. We have seen strikes, strife and shareholders'
feuds. The mining industry in terms of rules and regulation and
indeed in its actual practice in the Kyrgyz Republic is still in
its earlier stages of evolution. Legislation is updated regularly;
stakeholders are engaged in significant, sometimes vocal, debates.
The availability of trained experienced public servants is limited
and delays are not uncommon. But a general positive trend is
crystallising. The process does work and rules, regulations and
permits are issued. Engagement with both community level and
national level representatives is taking place. We are very proud
of our stakeholders' engagement program. We have been working with
the local communities for years to establish trust and mutual
respect.
Having released the results of the DFS we will work towards
financing the Project as well as securing the necessary
construction permits to build the Project. There has been interest
from other parties to participate in the Project and once we have a
clearer understanding of the potential returns from the Project we
can take a view on the best way to move forward. You will be kept
posted.
I wish to record my thanks for the contribution of Rob Weinberg
to the Board over the last three years and to welcome Mac DeGuire
and Richard Rae who are both making a significant impact in their
respective areas of expertise. It just remains for me to thank our
shareholders and employees for their support and invaluable
contribution to Chaarat's success to date.
Christopher Palmer Tomkinson
Chairman
Chief Executive Officer's Report
The achievements of your company in 2013 were underpinned by two
major events; one global and the other corporate. Globally, the
markets, reacting both to the fall in the price of gold as well as
to the understanding that the sector was ill prepared for the fall,
lost faith with gold and gold companies and dumped their shares.
Any company, with cash in hand and plans to raise more capital,
would have been wise to seriously review its expenditure plans to
avoid raising money at punitive prices and causing major dilution
to existing shareholders.
In 2014 the two licences were consolidated to one and we now
have fullrights to exploit the deposit subject only to the
submission of a development plan for approval by the Government
within three years. The contents of the development plan are very
similar to a Definitive Feasibility Study (DFS) which we have now
started to compile.
Development strategy
As a junior company with a large deposit which is capable of
supporting a significant production base, the development strategy
of the Company had attempted to strike a balance between raising
funds to achieve the appropriate pace of development and
shareholders' resulting dilution. Chaarat's management initially
intended to seek to unlock the value of the Chaarat deposit in
stages by constructing a production facility; a first stage of
limited capacity, which would be expanded as additional funding
opportunities become available; such as by way of cash from
operations, project finance or the introduction of a partner. Once
in production, the execution risk profile of the project would have
been decreased and the Board believed that the next stages of
development would be easier to implement as raising funds, or
finding the partners to increase production capacity would be more
straightforward and reflect a higher value for the Company.
We raised money in 2011 to reach early small scale production
during 2013. It was clear from the outset that we would need an
additional amount, probably $20 million, to reach production and we
assumed this money would be raised as a working capital facility.
However, the change in sentiment by the markets towards gold
producers combined with the periodic tension between Centerra and
the Kyrgyz Parliament meant that the cost of this facility would be
punitive. These facts combined with a sliding gold price made it
clear that we were unlikely to generate significant free cash flow
from such a small production capacity.
The Board, having secured the mining licence for the whole
Chaarat deposit, decided therefore to conduct a comprehensive DFS
so that we could devise the optimal way forward for the whole
Project. The DFS will also satisfy the regulatory requirement to
submit a development plan to the Government. The DFS team led by
Mac DeGuire includes specialists from GBM, Gustavson Associates,
Golder Associates and RDI.
Initial conclusions from work associated with the DFS
The DFS will establish a development strategy which keeps our
options open. There will be two options: one which focuses on
minimizing upfront capital investment whilst maintaining acceptable
returns and the second focused on a large production base which
generates the maximum return from the development of the whole
Project from the outset. This can be achieved by designing the
Project in two stages which can be developed simultaneously or
sequentially. Simultaneous development of the Project will produce
much more gold but require larger upfront investment.
The Chaarat deposit is located in a narrow valley which could
limit development options for the Project. A trade-off study
determined that economically, environmentally and operationally the
process plant and associated infrastructure should be located in
the adjacent valley and a 10 km tunnel constructed to connect the
plant to the mine site. The initial significant capital investment
in building the tunnel will be more than justified by the
significant reduction in haulage costs and environmental
benefits.We have revised the first stage Project to ensure it
generates the returns to cope with the capital outlay of the tunnel
and power line.
In view of the required initial capital investment, production
of about 120koz of gold per year will be required to justify the
heap leach project as a standalone. In order to achieve that level
of production the available open pittable, low strip-ratio, heap
leachable resource base needs to be increased. Drilling during the
2013 season increased the resource of the shallow open pittable
section of the Tulkubash to 6.37 million tonnes of resource at a
grade of 1.95 g/t (from 2.7 million tonnes in 2012). Although this
is a significant increase over the previously delineated volume, we
need to drill further along strike both to increase the quantity of
material available for lower cost processing as well as the
projected annual throughput of the mine. The necessary drilling has
commenced already and, to allow sufficient time to analyse the
results of the drilling, we now expect the DFS to be completed in
early 2015.
The low sulphide clean ore of the Tulkubash zone willbe
processed by heap leach which is less capital intensive than the
alternative Carbon in Leach (CIL)method. The low cost of processing
by the heap leach method will enable us to add already mined lower
grade materialto the pad;material which would otherwise be
sub-economic to process. The gold generated from this material will
have a significant positive impact on the project returns.
Achievements in 2013
Work in 2013 focused on four major areas of activity:
1. The preparation of the DFS including identifying the land requirements of the project
2. Securing land for the project layout (including the power line)
3. Developing the power scheme design
4. Engagement with the community, consultation, support and development
DFS
The priority during 2013 was data collection for the feasibility
study. A total of 16,500 metres of drilling provided data for the
geotechnical studies, the hydrological investigations and increased
the delineated resource.
The geological database has undergone a careful audit by
Gustavson in order to produce the latest resource estimate.
Drilling in the shallower, more weathered and therefore more
oxidized layer of the deposit was designed to increase the Measured
and Indicated resource which will be mined by the open pit method.
More material was delineated in the near surface oxide open
pittable sections but at a slightly lower grade than the deeper
material. The grade of the predominantly underground non-oxide
material section of the deposit has been reduced from 4.03 g/t to
3.36 g/t using a 2 g/t cut-off grade. The grade of the shallow
oxide and open pittable section of the deposit is currently 1.97
g/t using 1 g/t cut off. The change of grade was also a result of
the more conservative approach adopted in the construction of the
solid model. As a result of the additional drilling a larger part
of the resource can be categorised as Measured and Indicated. At
the same time stricter criteria for inclusion of material in the
Inferred category reduced the proportion of Inferred resource from
48% to 27% of the total resource.
Considerable metallurgical work has been conducted by RDI to
enable the Company to differentiate the optimal metallurgy of the
different types of mineralisation.
Having concluded that the best site for the plant is outside the
Sandalash valley in the adjacent Chatkal valley, we secured
permission to carry out investigation work in this area. Initial
environmental work to establish the "base-line" status of the
location has commenced and will be completed during the spring and
autumn of 2014.
Consultants have been appointed for all aspects of the DFS work:
Gustavson Associates are appointed to execute the mine and tunnel
design, GBM commissioned for the engineering and Golder Associates
are responsible for the geotechnical and environmental work as well
as the tailings design.
Land
The land laws in the Kyrgyz Republic relating to mining projects
have been revised to be more investor friendly but implementation
is likely to take time until the new procedures are well embedded.
The law states that land for mining projects once recognised as
such reverts to the state and is then allocated to the mining
company. We decided to approach the existing owners of the land
plots we require and negotiate leases with them directly to
facilitate the process. Whilst this procedure may be slightly more
expensive we will at least have "ownership" and access to the land
we need and can start the planning process. We are pleased to
report that the required land has been delineated and that progress
has been made in negotiations with land owners.
Power
Chaarathas designed the power line and signed a quota agreement
with the national electricity company (NESK). We are now in the
process of securing land for the pylons (as outlined above) and the
right of way from four provinces. We have been given three years to
complete the design and construction of the line. The line will
have the capacity to transmit 70MW of low cost hydropower generated
electricity to the Chaarat Project.
Stakeholders' engagement
The activities in relation to our engagement with the
communities around us and other stakeholders are described in
detail in the Corporate Social Responsibility Report in Chaarat's
2013Annual Report.
Finance
As part of the revised strategy to prepare a DFS before
production we have as a Board reviewed all expenditure to date on
the small scale Tulkubash Project. All investment to date on
infrastructure, such as access roads and power lines, will benefit
the enlarged Project. However certain design and engineering costs
incurred when small scale production was envisaged have been
written off.
We continue to focus on minimising discretionary expenditure and
reducing headcount where it does not compromise safety at site or
impede the progress of the DFS. We are actively seeking additional
funding from the sale of plant and equipment not immediately
required as well as the sale of exploration assets which are not
our priority to develop, to cover the impact of the additional work
and enlargement of scope of the DFS.
Exploration assets
We are pursuing petrographical work on our Chontash asset to
improve understanding of the intrusive body in the porphyry. We are
in discussions about the sale of the other two assets. Mironovskoye
is a fully permitted gold mine and a number of entities have
expressed an interest. We relinquishedone of the licences relating
to the Kyzil Ompul project and have decided to impair this
greenfield prospect to the indicativeoffer we received to buy the
remaining licences.
Looking forward
We are very encouraged by the early results of the DFS which
supports our view that Chaarat is one of the largest and best
undeveloped deposits in the world. The DFS will demonstrate both
the economic merit of the Project and establish a clear route for
its development. As always I would like to thank our shareholders
and staff who never give less than their total commitment to the
development of the Chaarat Project.
Dekel Golan
Chief Executive Officer
Consolidated income statement
For the years ended 31 December
2013 2012
USD USD
Exploration expenses (4,780,317) (6,301,714)
Impairment of assets (4,061,949) -
Administrative expenses (4,962,471) (5,905,089)
Administrative expenses- Share options
expense (756,356) (588,514)
Administrative expenses- Foreign exchange
gain 8,309 229,581
Total administrative expenses (5,710,518) (6,264,022)
Other operating (expense)/income (43,027) 345,862
------------------------------------------------- -------------- --------------
Operating loss (14,595,811) (12,219,874)
Finance income 219,601 730,086
Taxation -
-------------------------------------------- --- -------------- --------------
Loss for the year, attributable to equity
shareholders of the parent -- (14,376,210) (11,489,788)
-------------------------------------------- --- -------------- --------------
Loss per share (basic and diluted) -
USD cents (5.74) (4.59)
Consolidated statement of comprehensive income
For the years ended 31 December
2013 2012
USD USD
Loss for the year, attributable to equity
shareholders of the parent (14,376,210) (11,489,788)
Other comprehensive income:
Exchange differences on translating
foreign operations (528,755) (918,873)
Other comprehensive income for the year,
net of tax (528,755) (918,873)
Total comprehensive income for the year
attributable to equity shareholders
of the parent (14,904,965) (12,408,661)
------------------------------------------- ------------- -------------
Consolidated Balance Sheet
At 31 December
2013 2012
USD USD
------------------------------------- ------------- -------------
Assets
Non-current assets
Intangible assets 103,718 129,740
Mining exploration assets 7,192,913 8,349,367
Mine properties 21,657,042 8,400,984
Property, plant and equipment 7,691,266 4,685,330
Assets in construction 14,477,613 15,598,101
Other receivables - -
51,122,552 37,163,522
------------------------------------- ------------- -------------
Current assets
Inventories 1,753,802 2,783,323
Trade and other receivables 857,903 3,143,397
Cash and cash equivalents 11,163,079 36,944,060
13,774,784 42,870,780
Total assets 64,897,336 80,034,302
------------------------------------- ------------- -------------
Equity and liabilities
Equity attributable to shareholders
Share capital 2,504,778 2,504,778
Share premium 128,551,662 128,551,662
Other reserves 15,013,806 14,618,604
Translation reserve (2,517,808) (1,989,053)
Accumulated losses (80,646,255) (66,631,199)
------------------------------------- ------------- -------------
Total equity 62,906,183 77,054,792
------------------------------------- ------------- -------------
Non-current liabilities
Deferred tax 475,772 472,620
------------------------------------- ------------- -------------
475,772 472,620
------------------------------------- ------------- -------------
Current liabilities
Trade and other payables 617,181 754,951
Accrued liabilities 898,200 1,751,939
------------------------------------- ------------- -------------
1,515,381 2,506,890
------------------------------------- ------------- -------------
Total liabilities 1,991,153 2,979,510
------------------------------------- ------------- -------------
Total liabilities and equity 64,897,336 80,034,302
------------------------------------- ------------- -------------
Consolidated Statement of Changes in Equity
For the Years Ended 31 December
Share Capital Share Premium Accumulated Other Reserves Translation
USD USD Losses USD Reserve Total
USD USD USD
---------------------- ------------- ------------- ------------ -------------- ----------- ------------
Balance at 31
December 2011 2,504,778 128,551,662 (55,420,195) 14,308,874 (1,070,180) 88,874,939
---------------------- ------------- ------------- ------------ -------------- ----------- ------------
Currency translation - - - - (918,873) (918,873)
Other comprehensive
income - - - - (918,873) (918,873)
Loss for the
year ended
31 December 2012 - - (11,489,788) - - (11,489,788)
Total comprehensive
income for the
year - - (11,489,788) - (918,873) (12,408,661)
Share options
lapsed - - 278,784 (278,784) - -
Share options
expense - - - 588,514 - 588,514
Balance at 31
December 2012 2,504,778 128,551,662 (66,631,199) 14,618,604 (1,989,053) 77,054,792
---------------------- ------------- ------------- ------------ -------------- ----------- ------------
Currency translation (528,755) (528,755)
Other comprehensive
income (528,755) (528,755)
Loss for the
year ended
31 December 2013 (14,376,210) (14,376,210)
Total comprehensive
income for the
year (14,376,210) (528,755) (14,904,965)
Share options
lapsed 361,154 (361,154) -
Share options
expense 756,356 756,356
---------------------- ------------- ------------- ------------ -------------- ----------- ------------
Balance at 31
December 2013 2,504,778 128,551,662 (80,646,255) 15,013,806 (2,517,808) 62,906,183
---------------------- ------------- ------------- ------------ -------------- ----------- ------------
Consolidated Cash Flow Statement
For the Years Ended 31 December
2013 2012
USD USD
---------------------------------------- ------------ ------------
Operating activities
---------------------------------------- ------------ ------------
Loss for the year (14,376,210) (11,489,788)
Adjustments:
Amortisation expense - intangible
assets 50,914 53,372
Depreciation expense - property,
plant and equipment 1,076,025 902,531
(Profit) on disposal of property,
plant and equipment 9,349 (359,991)
Impairment of assets 4,416,403 -
Finance income (219,601) (730,086)
Share based payments 756,356 588,514
(Gains) on foreign exchange (8,309) (229,581)
Decrease/(increase) in inventories 1,029,521 (1,454,957)
Decrease in accounts receivable 2,285,494 4,920,850
(Decrease)/increase in accounts
payable (988,359) 299,059
---------------------------------------- ------------ ------------
Net cash flow used in operations (5,968,327) (7,500,077)
---------------------------------------- ------------ ------------
Investing activities
---------------------------------------- ------------ ------------
Purchase of computer software (24,892) (138,354)
Purchase of tangible assets (19,486,920) (17,060,389)
Interest received 219,601 730,086
---------------------------------------- ------------ ------------
Net cash used in investing activities (19,292,211) (16,468,657)
---------------------------------------- ------------ ------------
Financing activities
---------------------------------------- ------------ ------------
Proceeds from issue of share capital -
Issue costs -
---------------------------------------- ------------ ------------
Net cash from financing activities -
---------------------------------------- ------------ ------------
Net change in cash and cash equivalents (25,260,538) (23,968,734)
Cash and cash equivalents at beginning
of the year 36,944,060 61,184,915
Effect of changes in foreign exchange
rates (520,443) (272,121)
---------------------------------------- ------------ ------------
Cash and cash equivalents at end
of the year 11,163,079 36,944,060
---------------------------------------- ------------ ------------
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 2013 or 2012.
The consolidated balance sheet at 31 December 2013, the
consolidated income statement, 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 2013
annual financial statements upon which the auditors' opinion is
unqualified.
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 2013.
Going concern and project funding requirements
In May 2013 the Board announced a revised development strategy
for the Chaarat Project which now involves the completion of a
Definitive Feasibility Study ("DFS") for the whole Project rather
than pursuing production from the Tulkubash Project alone. Early
small stage production as originally envisaged would have required
funds to be raised for working capital.
In light of the decision not to pursue production before
completion of the DFS, the Board has reviewed the revised budgets
and cash flow forecasts for the period to 31 December 2015, which
include an element of discretionary expenditure. At 31 December
2013, the Group had cash and cash equivalents of USD 11.2 million
and no borrowings. Since the original budget for the DFS was
completed, additional areas of work have been identified which if
undertaken will add value to the Chaarat Project by increasing
production, reducing operating costs and reducing the environmental
impact. Accordingly the Board decided to commission the DFS
consultants to undertake the additional work with a consequent
increase in the costs of the DFS. The additional work also requires
further drilling and data collection during the 2014 season which
is now underway. As a result further funds may be required to cover
the shortfall between the original budget and revised budgets for
completion of the DFS, which due to enlargement of scope is now
scheduled for completion in 2015.
The Board has a reasonable expectation that these funds will be
made available by selling certain equipment and other assets of the
Group, cutting discretionary expenditure, reviewing the timing of
other expenditure and pursuing other fund raising options. Subject
to the successful realisation of these expectations, the Board is
satisfied that it has sufficient funds to complete the DFS and to
maintain the Group as a going concern for a period of over twelve
months from the date of signing the annual report and accounts.
However, in the absence of such arrangements being in place these
conditions indicate the existence of a material uncertainty which
may cast significant doubt over the Group's ability to continue as
a going concern and, therefore, that 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.
After completion of the DFS in 2015, further funding will be
required to complete the Chaarat Project, which has been in
progress since 2011, and bring it to production. If this funding
cannot be secured the Group may not be able to fully develop the
Project and the carrying values of the mine properties, related
plant and equipment and assets in construction, which at 31
December 2013 amounted to approximately $44 million, may become
impaired.
3. Loss per share
Loss per share is calculated by reference to the loss for the
year of USD 14,367,210 (2012: USD 11,489,788) and the weighted
number of shares in issue during the year of 250,477,868 (2012:
250,477,868)
There is no dilutive effect of share options.
4. Timetable and distribution of accounts
The Annual General Meeting will be held at 11am on 23 July 2014
at the offices of BDO, 55 Baker Street, London W1U 7EU.
Copies of the Annual Report and Notice of the Annual General
Meeting will be sent to shareholders on 27 June 2014.
Additional copies of the Annual Report and Accounts will be
available, free of charge, from Central Asia Services Limited, 6
Conduit Street, London, W1S 2XE, for a period of 14 days from the
date of posting and will be available on the Company's website -
www.chaarat.com
Note to Editors:
About Chaarat Gold
Chaarat Gold is an exploration and development company operating
in the Kyrgyz Republic with a large, high grade resource - the
Chaarat Gold Project. The Company's key objective is to become a
low cost gold producer generating significant production from the
development of the Chaarat Gold Project. Chaarat is preparing a
Definitive Feasibility Study (DFS) and continuing its active
community engagement programme to optimise the value of the Chaarat
investment proposition.
Further information is available at www.chaarat.com
This information is provided by RNS
The company news service from the London Stock Exchange
END
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