TIDMCGH
RNS Number : 4239J
Chaarat Gold Holdings Ltd
09 April 2020
9 April 2020
Chaarat Gold Holdings Limited
("Chaarat" or the "Company")
PRELIMINARY ANNOUNCEMENT OF AUDITED FINANCIAL STATEMENTS FOR THE
YEARED 31 DECEMBER 2019
Chaarat (AIM:CGH), the AIM-quoted gold mining company with
assets in the Kyrgyz Republic and Armenia, today publishes its
results for the year ended 31 December 2019.
Highlights for the year
-- Acquired the Kapan Mine in Armenia transforming Chaarat from
a developer to a producer, highlighting the management team's
ability to execute on the company's strategy
-- Delivered on promised operational improvement areas at Kapan
resulting in 7% more AuEq production (60koz) and 14% reduction in
all-in sustaining cost ("AISC") compared to 2018
-- Published a new seven-year mine plan based on updated
reserves with resources defined sufficient for more than ten
years
-- Achieved an EBITDA, at the standalone Kapan Company level
before Group accounting and non-cash adjustments, of US$12.7
million for the full twelve-month period
-- Updated feasibility study for Tulkubash, resulting in a
significant capital expenditure optimization from US$132 million to
US$110 million
-- The project feasibility study confirmed an initial five-year
mine life based on a Proven and Probable Reserve of 24.6Mt grading
0.95g/t gold containing 749koz, an increase of 14% from the
published bankable feasibility study.
-- Conditional Joint Venture ("JV") agreement signed with Çiftay
İnsaat Tahhüt ve Ticaret A.S., a leading Turkish mining and mine
construction contractor, based on an agreed valuation for Tulkubash
and Kyzyltash of US$252 million (post money) for the assets
-- During the year we received strong support from our
shareholders and funders, including the raising of US$60.9 million,
excluding the Ciftay investment, comprising bank funding to acquire
Kapan and, in addition, other borrowings to fund the Group's
activities, together with equity raisings during 2019
-- Impact in our communities with strong cooperation and
initiatives building infrastructure, supporting child education and
hosting community events
-- Continuous environmental and social improvements to highest
international standards at our producing mine in Kapan, Armenia
-- Improved safety standards at Kapan resulting in only one LTI
reported since taking ownership down from seven in 2017 and two in
2018
-- Implemented the restrictive stock and option scheme for top management as planned
Post-period highlights
-- Rapid introduction of measures the early stages of the
COVID-19 outbreak to protect our employees and support the
communities and country's we work in
-- Extended existing investor loan from 31 March 2020 to 31 December 2020
Martin Andersson, Executive Chairman of Chaarat, commented:
"I am delighted with the successful integration of the Kapan
mine into the Company and the progress made at our assets in the
Kyrgyz Republic adding significant value for our shareholders and
all stakeholders in general.
Chaarat has attracted more than US$60 million of investment and
secured Ciftay, a leading mining construction company in Turkey who
has developed similar projects before, as an equity partner at our
Kyrgyz assets.
The new management team and majority independent board we
welcomed over the last 18 months have added significant value to
the business. Chaarat has since become a producer, delivered on its
promises and has enhanced its governance structure further. The
integration of Kapan and delivery of key performance improvements
as well as the delivery of the optimisation study on the Tulkbubash
feasibility study have been major milestones in the aggressive
growth strategy of Chaarat.
Moreover I am proud to see the impact Chaarat had on the safety
at our operations, the environmental improvements and the social
responsibility we practise in our communities. Our continuous
efforts strengthen the Company's relations in the country and
communities and are key aspects of our corporate social
responsibility programme. We have confirmed that by supporting the
communities in the still ongoing COVID 19 pandemic and provided
tests, masks and other equipment to employees, communities and
hospitals.
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
Chaarat Gold Holdings Limited +44 (0)20 7499 2612
Artem Volynets (CEO) info@chaarat.com
Numis Securities Limited +44 (0) 20 7260 1000
John Prior, Paul Gillam
(NOMAD)
James Black (Corporate Broking)
SP Angel Corporate Finance
LLP +44 (0) 20 3470 0470
Ewan Leggat (Joint Broker)
finnCap Limited +44 (0)20 7220 0500
Scott Mathieson (Joint Broker)
Camille Gochez (Joint Broker)
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 update all our stakeholders on what has been
another important year for Chaarat. During 2019 the Company
progressed well in several important workstreams, which have seen
Chaarat transform from developer to producer in a single step.
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.
With COVID-19 spreading globally, our priority is the safety and
health of our people and ensuring the resilience of the Company's
operations. While the impact of the coronavirus on the global
economy is significant, demand for our products has remained
relatively healthy. In addition, we are seeing positive trends in
cost reduction in both of our jurisdictions due to the declining
price of fuel and the depreciation of local currencies versus the
US Dollar.
Early in the financial year, we completed the acquisition of the
Kapan Mine, our first producing mine and our entry point into
Armenia. Securing this asset under attractive terms bears testament
to the strength in execution of our M&A strategy in the Former
Soviet Union ("FSU"), where we aim to be a leading consolidator of
the gold sector. This acquisition is an excellent and complementary
addition to Chaarat's portfolio, transforming the Company from a
developer to producer, with two solid assets in two jurisdictions
in the FSU and clearly shows the team's capability to implement
this strategy successfully.
Several successful fundraises were completed during the year,
not least the substantial amount raised for the Kapan acquisition,
which demonstrates Chaarat's ability to creatively fund the
business on accretive terms for the Company and its shareholders.
Our strategy as a Company is to continue to evaluate capital
opportunities to refinance existing financing facilities, to fund
working capital and reduce overall cost of capital, with a main
objective of maximising value for shareholders. What remains key,
however, is, where possible, to look for funding opportunities that
are the least dilutive for all our shareholders.
An example of this is our partnership with Çiftay, an appointed
construction and long-term mining contractor for the Tulkubash
project, which mobilised equipment to the Tulkubash site in the
Chatkal Valley last year. Under our conditional agreement, Çiftay
will progressively invest US$31.5 million for a 12.5% equity stake
in Chaarat's Tulkubash and Kyzyltash mining projects in the Kyrgyz
Republic. I, together with Çiftay, am delighted with this
conditional agreement - Çiftay's proposed investment and commitment
to acquire a direct equity stake represents a significant milestone
for the funding of Tulkubash and clearly demonstrates the Company's
inherent value. I look forward to the positive developments
expected at Kyzyltash and Tulkubash as we continue towards first
gold pour which, in light of the impact of COVID-19 on the Kyrgyz
Republic operations, is likely to be delayed from late 2021 to Q3
2022.
The stability of Chaarat's future operations with the Tulkubash
and Kyzyltash projects was endorsed by the Government of the Kyrgyz
Republic with the announcement of a stabilisation agreement between
the Company and the Government. The Agreement is based on the
Investment Law of the Kyrgyz Republic, which stimulates investors
to make substantial investments, including into the country's
mining industry, by providing investors with formal assurances on
the stability of the tax regime. Chaarat and its local subsidiary,
CJSC Chaarat Zaav, will be entitled to benefit from any future
changes in direct taxes and from several non-tax payments during
the 10 years from the date of the Agreement. In return, Chaarat
will invest US$20 million within 5 years from the date of the
Agreement.
The Company remains fully committed to developing strong local
and government ties in the countries in which we operate, whether
that is by providing jobs for the local community at both mining
operations, investing in local outreach programmes or by paying
fair tax to governments. We are pleased that work has started on a
good footing with all our stakeholders and look forward to building
even stronger relationships.
In March 2019, I was delighted to welcome Warren Gilman to the
Board as an independent Non-Executive Director. Warren brings
decades of experience and success in the mining sector and is a
welcome addition to our hugely experienced Board. At the same time,
Martin Wiwen-Nilsson decided to step down from his role as
Non-Executive Director of the Company and instead take on a role as
Senior Advisor to the Company. He remains a shareholder in Chaarat.
We have also made several appointments to strengthen the senior
management team, which are set out in the following CEO
Statement.
I can also report that the management incentive plan , which was
set out in last year's annual report , was implemented as planned
during the year. This ensures that the Chaarat management team will
be fully aligned with shareholders in creating value via stock
ownership through share options issued at a premium to the
prevailing share price and a performance based share incentive
programme.
The first quarter of 2020 has seen the outbreak of the COVID-19
virus, and countries around the globe are facing challenges in all
aspects of normal life. Chaarat has strong ties to its communities
and is proactively contributing towards solving the issues faced by
our communities and offering support where needed. The Company has
taken this virus seriously and, since early February, has
implemented precautionary measures by disinfecting at sites and
ensuring the availability of hand sanitisers for each department.
Our medical staff regularly checks the temperature of employees and
provides the necessary equipment. To date, there are no cases.
In Kapan, the Company has purchased multifunctional hospital
beds, disinfectants and face masks for the Kapan Medical Centre.
Together with the Kapan Medical Centre, Chaarat Kapan has started
the renovation of the first and second floors of the former
surgical building, which has been out of operation for 5 years. It
will become the Department of Infectious Diseases for those who
have contracted the virus. Chaarat Kapan will also provide the
centre with medical equipment and other necessities.
In Chatkal, Chaarat has purchased 10 tonnes of flour and
disinfectants to be disturbed to remote regions and vulnerable
groups. With the assistance of the Kyrgyz Embassy to the United
Kingdom, 5,000 rapid COVID-19 infection tests have been ordered and
are being delivered to our communities. Another 5,000 antibody
tests have been ordered from China to better understand when people
will be safe to continue their employment.
Health and safety are and remains the top priority for
Chaarat.
I would like to take this opportunity to thank all the Board and
the Company's employees for their continued hard work during what
has been another transformational year for Chaarat Gold. I would
also like to extend my thanks to all our stakeholders for their
continued backing over the years.
I look forward to 2020, which will be another important year for
the Company, as we continue to build on our strategy.
Martin Andersson
Executive Chairman
9 April 2020
CEO Statement
I am pleased to report on the events of the 2019 year, the
course of which has seen a transformation across all aspects of the
company.
Not only have we transformed from a developer to a producer with
the acquisition of the Kapan Gold Mine in Armenia early in the
year, but we also clearly demonstrated our operating abilities with
significant improvements in productivity and cost optimisations at
Kapan, as well as a significant promotion of a "safety first"
culture. We also made significant progress with the development of
Tulkubash project in Kyrgyz republic. We continued to add top
talent the management team and further refreshed the Board of
Directors, enhanced this year, to being majority independent.
COVID-19
As COVID-19 spreads globally, we are prioritising the safety and
health of our people and ensuring resilience of the Company's
operations. Supporting our communities in these difficult times is
equally important to us. Chaarat is currently implementing various
programmes, including delivery of essential goods to villages
located in the Chatkal region (Kyrgyz Republic), supplying the
regional hospital in Kapan (Armenia) with masks, sanitiser and
goggles, renovating additional building in Kapan for hospital use,
buying COVID-19 testing kits for distribution both countries of our
operations and other support measures as required.
The coronavirus pandemic has created a series of unprecedented
challenges with regards to future fundraising. We expect the
timelines for fundraisings to be impacted by, the uncertainty and
market turbulence stemming from the pandemic, liquidity constraints
on investors resulting in a reduced appetites to enter into new
long-term capital commitments and the challenges for investors to
undertake their due diligence (in particular, face-to-face
meetings), receive appropriate internal approvals and obtain
relevant signatories.
Our people
We continue to strengthen the management team; in early 2019 we
welcomed Vyacheslav Pilipenko as Vice President for Government
Relations and Security. Vyacheslav has 15 years of experience
working for major Russian and world leading companies as well as
working 7 years for the Presidential Administration of Russian
Federation.
In June we were pleased to welcome Darin Cooper, with more than
30 years' experience in the metals and mining industry, as Chief
Operating Officer of the Company. Darin has a proven track record
of increasing performance across a range of mining operations and
his expertise will be immensely valuable. Robert Benbow, previous
Chief Operating Officer of Chaarat, continues to serve on the Board
of the Company as a Non-Executive Director and will remain the
Chair of the Technical Committee.
As part of our continued focus on improving our corporate
governance, Frances Robinson joined Chaarat as company secretary in
January 2020. Mrs Robinson is a qualified lawyer in England and
Wales and has more than 15 years' experience as a FTSE company
secretary.
In February 2020, Vladimir Shvetsov joined the Chaarat team as
Senior Vice President for Geology and Exploration. Vladimir has
over 40 years of mining industry experience and has been involved
at every level of mineral exploration in the gold mining business.
Dorian Nicol, previous Senior Vice President for Geology and
Exploration will continue to take a role as senior advisor to the
Company. Dorian has been a key member of the Chaarat team, and we
are grateful that he will continue to play an important role.
As noted in the Chairman's Statement, we were delighted to
implement the management incentive plan set out in last year's
annual report during the year. This is a share-based plan which
ensures that the management team are fully aligned with
shareholders through share options and performance-based restricted
stock units. The management incentive plan comprises three
tranches, the first of which vested in September 2019, the second
of which vested between December 2019 and February 2020, and the
third of which is expected to vest at the end of 2020.
Consequently, approximately two-thirds of the cost of this plan,
which is entirely non-cash, has been accounted for in the 2019
accounts resulting in a significant charge of US$9.8 million this
year. Further details of the management incentive plan are given in
the Remuneration Report and the notes to the Financial
Statements.
Kapan Mine
At Kapan we have been able to achieve major increases in
productivity, cost optimisation and the addition of a new mine plan
since acquiring the asset. These gains were made due to
improvements in fleet availability, better grades and
recoveries.
For the full 2019 year, the Kapan Mine produced approximately
60,252 oz of gold equivalent, revenue of US$73 million, gross
profit of US$13.5 million, loss before tax of US$0.2 million and
generated an Earnings Before Tax, Interest, Depreciation and
Amortisation (EBITDA) of US$10.5 million. The EBITDA at the
standalone Company level, before Group accounting and non-cash
adjustments, was US$12.7 million for the full 2019 year. We include
commentary on the full year 2019 results and 2018 results for
comparable purposes however the results that have been consolidated
in the Group financial statements only include Kapan from the date
of acquisition being 30 January 2019.
In November we were pleased to announce a revised Mine Plan and
Reserves Update for Kapan, the first Ore Reserve statement from
Chaarat since acquiring the Mine in January 2019. The resource and
reserve update showed that depletion continued to be replaced with
new reserves through our well-developed and successful exploration
program.
In addition, the work in the year allowed us to improve mine
life while at the same time maintaining production levels. This
ongoing replacement of resource through exploration continues to
give us the confidence that the mine should have many years of
ongoing operation well beyond the current LOMP. When we bought the
Kapan Gold Mine in early 2019 it had a 5-year life of mine (LOM).
Now, net of depletion, we have increased this to 7-years,
supporting our confidence in extending the projects life.
We are also encouraged by the fact that there is still
significant exploration potential in the broader area including
areas flanking the existing workings. These areas of potential will
be investigated over the next year or two, as we continue to
develop the Kapan mine to its full potential.
While we have taken big strides in the turnaround process and
achieved much, there are still challenges to overcome and targets
to meet, all of which I am confident we will accomplish in the
coming months.
Additional upside will come from increased optimisation at the
plant, with improved grade control and maximising capacity. To do
so, we have started to process some third-party ore, in addition to
our own. In the long term, forward planning for the Kapan Gold
Mine, over the next few years rather than months, will see further
potential in extending the mine life, as well as investigating the
areas that flank the current mine.
As an operator, of course, we do not speculate on gold prices -
although we do see favourable factors affecting the current and
projected gold price, and are comfortable with the price dynamics
in the market, our focus must be the successful extraction and
processing of ore, maintaining, optimising and reducing where
possible our operating costs, and ultimately creating value for our
shareholders. Amidst the pandemic we are seeing potential benefits
for our operations derived from the oil price drop and the local
(AMD) devaluation versus the US Dollar for goods and services paid
in local currency.
Tulkubash & Kyzyltash
From an exploration and development perspective, the Tulkubash
project in the Kyrgyz Republic was the key focus of 2019. Our work
there included an updated feasibility study which included the cost
of capital expenditure.
Included in this report are the exploration results achieved
during the year's drilling programme, which revealed significant
potential of the overall licence area, over which only a relatively
small area has been delineated as a resource to date.
Importantly we entered into a conditional joint venture
agreement with Çiftay İnsaat Tahhüt ve Ticaret A.S ("Çiftay"), the
Turkish mining and mine construction contractor for the development
of Tulkubash and Kyzyltash. Under the conditional agreement, Çiftay
has committed to an investment of US$31.5 million in exchange for a
12.5% equity stake in the two Kyrgyz resources valuing them at
US$252m post money combined.
Kyzyltash, meanwhile, with its large well-defined resource which
will benefit from its close proximity to and the construction of
Tulkubash, is an exciting prospect for the future.
As the Kyrgyz Republic government has declared a state of
emergency, we have started to experience a slowdown in construction
speed at the Tulkubash project. This delay will likely cause the
first gold pour to be moved by six months from late 2021 to Q3
2022. The oil price drop and depreciation of the Kyrgyz SOM is
likely to have a favourable economic impact on the Tulkubash
Project.
Environmental, Social and Governance
This year we completed a thorough environmental audit of the
Kapan Mine and established methods of best practice in and around
the operation. As mentioned earlier, we have worked to establish a
safety-first culture at the mine which was a marked change from
previous management. We have also helped fund the renovation of a
hospital wing in the Kapan town, sponsored "Chaarat Cup" - a major
sport and community event in Chatkal, Kyrgyz Republic and continued
to organise the Kyrgyz Republic Investment forum held in London,
helping promote the country as an investment destination. Closer to
home we have changed the Board of Directors and management teams to
ensure that levels of governance are also kept at the highest
standard.
As ever, we continue to look ahead to new goals and targets. We
want to build on the foundation we have laid this year; further
enhancing our team and continually developing our overall company
structure, in addition to the construction of the Tulkubash
mine.
Financing / M&A
During the year we received strong support from our shareholders
and funders, including the raising of US$60.9 million comprising
bank funding to acquire Kapan and, in addition, other borrowings to
fund the Group's activities, together with equity raisings during
2019.
The Company continues with its efforts to advance project
financing for the Tulkubash Project. However, in the current
environment each funding institution is assessing the situation and
implications for their own businesses. The efforts to optimise the
funding structure, as well as the project financing discussions for
the construction of the Tulkubash gold project in the Kyrgyz
Republic are ongoing with interest from multiple parties . However,
the timeline on those discussions is likely to be impacted by the
pandemic. On 7 April 2020, t he Company agreed an extended maturity
date of 31 December 2020 from 31 March 2020 for the loan,
originally announced on 15 November 2018. T he working capital
facility from Chaarat's largest supporting shareholder, Labro
Investments Limited, provides a further US$ 7.0 million of
additional liquidity . Nevertheless, future financing will be
necessary and reconsidered when the COVID-19 pandemic subsides.
Please refer to the going concern disclosure in Note 2 for further
detail.
We are constantly reviewing M&A options and opportunities,
with focus on ensuring that any deals are brokered along the lines
of strict criteria and value creation which combined will enhance
the shareholder's portfolio.
In summary, we want to work towards building Chaarat into a
leading publicly listed gold company with its focus across the
countries of the Former Soviet Union. A Company with world class
assets and proven excellence in environmental standards, social
awareness and good governance.
I would like to thank all at Chaarat for their hard work during
a very rewarding year, a year where we have transformed into a
company with production, growth and vision.
Artem Volynets
Chief Executive Officer
9 April 2020
Operational review - Kapan
The acquisition of the Kapan Mining and Processing Company CJSC
(' Kapan ') in early 2019 was an important milestone for Chaarat.
Kapan was the first acquisition of an operating asset as part of
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.
Kapan is a n underground narrow vein polymetallic mine ,
producing copper and zinc concentrates containing high level of
gold and silver. The automated underground mine has a capacity of
700ktpa. Run of mine ore is treated via a crushing and grinding
facility followed by a conventional flotation circuit. The milling
and flotation circuits have a capacity of approximately
800ktpa.
The current reserve life extends to 202 6 following improvement
in the mine plan approved during the year . The Company believes
that conversion of inferred resources to reserves will continue via
the C ompany's ongoing exploration and that the mine life will
continue well beyond the current reserve.
2019 Kapan Highlights
-- For the twelve months ended December 2019, the Kapan Mine
produced 60,252 gold equivalent ounces(1) ("AuEq oz") up 7%
compared to 2018. All-in sustaining cost ("AISC") of US$ 1,040 per
AuEq oz compared to 56,424 oz at an AISC of US$ 1,183/oz in
2018
-- Published a new seven year mine plan based on updated
reserves with resources defined sufficient for more than ten
years
-- Since taking ownership of the Company in January 2019, there
was one Lost Time Injury ('LTI') including contractors. This is an
improvement on previous years. 2019 had a lost time injury
frequency rate (per one million hours worked) of 0.39.
-- EBITDA contribution was a positive US$8.6 million for the
eleven months ended 31 December 2019 versus US$9.2 million for the
full year in 2018. EBITDA contribution at the standalone Company
level, before Group accounting and non-cash adjustments, was
US$10.8 million for the eleven months ended 31 December 2019.
-- EBITDA has constantly improved from US$3.2 million during the
first five months under Chaarat ownership (Feb - June) to US$5.4
million in the second six months of 2019.
-- Revenue generated for the eleven months ended 31 December
2019 was US$68.1 million and a loss before income tax of US$0.7
million.
-- Mine tonnes improved 6% to 678,382, and Mill tonnes increased 15% to 733,860 y-o-y
-- Recoveries improved to 81.4% in 2019 versus 77.8% in 2018
following improvements achieved in the grinding and flotation
circuits.
-- Fleet availability improved as equipment issues seen at the
beginning of the year were resolved by the end of Q3 2019 and
improved further in Q4 2019 by 5%.
-- Cost improvements were achieved due to retendering all
services and goods, bringing outsourced contracts in-house and
monitoring use of consumables.
2019 full year production consists of :
Kapan 2019 2018 % Change
Production (oz) 60,252 56,424 7
-------- --------- ---------
All-in sustaining cost 1,040
(US$)1 / oz 1,183/oz (14)
-------- --------- ---------
Sales (oz) 55,255 50,915 9
-------- --------- ---------
Gold production (oz) 32,791 30,179 9
-------- --------- ---------
Silver production (oz) 557,001 486,963 14
-------- --------- ---------
Copper production (t) 1,719 1,583 9
-------- --------- ---------
Zinc production (t) 6,476 6,330 2.3
-------- --------- ---------
1,413
Realised gold price (US$) /oz 1,268/oz 11
-------- --------- ---------
*Full year production costs given for comparative purposes. The
Group consolidated results include 11 months of Kapan
operations.
Realised gold price for the year was US $ 1,4 13 /oz (2018:
US$1,268/oz), which is US$163/oz higher than the 2019 internal
budget price.
Recoveries improved to 81.4% in 2019 versus 77.8% in 2018
following improvements in the grinding and flotation circuits. The
Mill treated two types of ore during the year. 733,860t of Kapan
ore was treated which was a 15% increase over 2018. The higher
tonnage was due to a 6% improvement in mined tonnes and the
treatment of the ROM ore stockpile. In addition, 8,500t of
third-party gold ore was treated through the mill on a batch basis
to take advantage of the additional mill capacity. Third Party ore
is a straight gold containing ore making a gold concentrate that is
sold as a separate product. This ore contains high levels of clay
and refractory gold, both of which lead to lower recoveries
compared to the normal Kapan ore treated.
The fleet availability issues seen in Q2 were fully resolved at
the end of Q3. This allowed for improved mining rates. Replacement
of aging equipment will be an area of focus during 2020 to allow
for continued optimisation and cost reduction.
Cost improvements were achieved in 2019 thanks to an improved
tendering process, bringing outsourced contracts back in-house, and
improved monitoring and use of consumables. The tendering process
utilises the local company website to advise suppliers of all open
tenders and allows for a highly competitive and transparent
procedure.
Underground development was 23,136 metres for the year.
Increased meterage is improving flexibility and availability of
faces underground, allowing for consistent delivery of ore to the
plant.
Reserve and Resource U pdate
During the year the C ompany reported updated resources and
reserves for Kapan following the guidelines and requirements of the
Australasian Code for Reporting of Exploration Results, Mineral
Resources and Ore Reserves ('the JORC Code'), 2012 (JORC 2012).
The Mineral Resources account for depletion as well as new assay
and geological data derived from 24,321 meters of underground
drilling completed in 2019.
Mineral Resources
The following table summarizes the current Mineral
Resources:
Grade Metal
Classification Tonnes Density Au Ag Cu (%) Zn (%) AuEq Au Ag Cu (t) Zn (t) AuEq
(mt) (g/t) (g/t) (g/t) (koz) (koz) (koz)
Measured 0.76 3.04 4.23 68.62 0.74 3.24 8.21 103 1,674 5,640 24,648 200
Indicated 8.04 3.02 2.72 52.37 0.57 2.31 5.67 703 13,515 46,132 186,016 1,463
M & I 8.80 3.02 2.85 53.77 0.59 2.39 5.89 806 15,189 51,772 210,664 1,663
Inferred 7.64 3.01 2.46 51.22 0.58 2.16 5.29 602 12,562 44,034 164,792 1,298
1. The effective date of the Resources is 1st August 2019.
Mineral Resources that are not mineral Reserves do not have
demonstrated economic viability. Numbers may not sum due to
rounding.
2. The gold equivalency formula is: Au Eq = Au + ((Ag g/t * ($15.5 / $1,250) + ((Cu % * ($6,000*31.1035/$1,250)/100) + ((Zn % * ($2,500*31.1035/$1,250)/100 .
3. Mineral Resources are Inclusive of Ore Reserves
4. The resource estimate was classified following the
requirements of the JORC Code (2012) reporting code.
The Updated Mine Plan
The Mineral Resources formed the basis for the revised Ore
Reserves and Life of Mine plan (LOMP) announced during the
year:
The new LOMP increased mine life from 5 to 7 years and AuEq
production averaging 55 koz per annum. The Mine Plan was developed
to maximize both value and mine life. The Plan is based on an
average mine production of 700,000 tonnes per annum (tpa). Mill
throughput of 750,000t is planned to be achieved by purchasing and
treating an additional 50,000t of third-party ore per annum.
Ore Reserves
For the Kapan Ore Reserves, Chaarat developed a mining block
model by applying the modifying factors necessary for conversion of
Mineral Resources to Ore Reserves. Those factors included amongst
others, operating costs, mining dilution and extraction
factors.
Ore Reserves
The following table summarizes the current Ore Reserves :
Grade Metal
Classification Tonnes Au (g/t) Ag (g/t) Cu (%) Zn (%) AuEq Au (Koz) Ag (Koz) Cu (Kt) Zn (Kt) AuEq
(Mt) (g/t) (Koz)
Proven 0.17 2.65 40.39 0.42 2.06 4.8 14 220 0.71 3.49 26
Probable 4.34 1.65 31.38 0.34 1.31 3.19 230 4373 14.86 56.88 445
Total P & P 4.5 1.69 31.72 0.35 1.34 3.25 245 4594 15.57 60.38 471
Notes: The Ore Reserves have been compiled and reported
fulfilling the requirement of the JORC Code (2012) reporting
code.
Ore Reserves are based on long-term metal prices of US$1,400/oz
Au, US$17/oz Ag, US$6,000/t Cu, and US$2,400 Zn.
Ore Reserves are based on a gold equivalent cut-off of 2.5g/t
Au.
Mineral Resources which are not Ore Reserves do not have
demonstrated economic viability.
Table subject to rounding errors.
The average density of Measured and Indicated Resources is 3.02
t/m3. A density of 2.64 t/m3 was used for diluting waste
material.
Tones reported are in situ, dry tonnes.
The LOMP's average Operating Cash Cost and All in Sustaining
Cost ("AISC") are US$817/AuEq oz produced and US$1,032/AuEq oz
produced respectively. Pre-tax cash flow for the LOMP averages $ 16
million per annum and Pre-tax NPV is $78 million at a discount rate
of 10%. Sustaining Capex guidance for the LOMP is approximately $4
million per annum.
Geology, Exploration and Future Potential at Kapan
The Shahumyan mineralisation 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). There is one
Exploration Licence covering 90.7km(2) which draw s from the
Shahumyan deposit.
-- Total resources that presently sit outside of the Plan amount
to 7.64 Mt at 5.29 g/t AuEq for 1.298koz AuEq oz.
-- These resources will continue to be drilled to move Inferred Resource to M&I.
-- There are several known areas of satellite mineralization
that sit within the license area that have the potential for future
development.
-- Additional target areas exist in close proximity to the mine
that have future potential as exploration targets.
Significant production potential remains through the conversion
of resources currently outside the LOMP and as a result the actual
mine life is expected to be longer than 7 years. There is good
potential to add reserves from upgrading and conversion of these
resources. Historically Kapan reserve depletion has been
replenished through ongoing exploration and development. This is
expected to continue.
In addition, there are known exploration targets within the
existing licence area and further away but close to the current
mine infrastructure. Exploration and development of these areas
over the next few years should allow Kapan to develop new operating
areas with the potential to debottleneck mine production and allow
further expansion of the mill. Capacity for up to 1.2Mt of ore is
already installed in the mill and can be put into service with
minimal capital cost.
Operational Review - Kyrgyz Republic
Projects Overview
The Company's focus in the Kyrgyz Republic is on the development
of its Tulkubash Gold project. An extensive drilling programme and
feasibility studies carried out over many years have delineated a
Resource of over 940,000 ounces of gold in the Tulkubash deposit.
Mineralization remains open along strike, with only about 5.5 kms
of a prospective 24-kilometre trend having been drilled to
date.
2019 Tulkubash Highlights
-- The project feasibility study was updated and confirmed an
initial five-year mine life based on a Proven and Probable Reserve
of 24.6Mt grading 0.95g/t gold containing 749koz, an increase of
14% from the published bankable feasibility study.
-- Conditional Joint Venture ("JV") agreement signed with Çiftay
İnsaat Tahhüt ve Ticaret A.S., a Turkish mining and mine
construction contractor
-- No lost time injuries for the project
-- First year of significant construction on a year-round basis
-- 2019 drill program increased Proven & Probable Reserves
from 22Mt to almost 25Mt, with gold ounces increased by 14% to 749
koz compared to 658 koz in the published bankable feasibility
study
-- AISC of $802/oz at an annual average production rate of 94koz
-- Signed a Stabilisation Agreement with the Government of the
Kyrgyz Republic in respect of the Company's Tulkubash and Kyzyltash
projects. It is the first such agreement signed by the Government
of the Kyrgyz Republic
Reserve and Resource Update
Approximately 20,000 metres of drilling took place at Tulkubash
in 2019. Results continue to be encouraging and continue to
validate the belief that Tulkubash will grow into a world-class
gold deposit with the potential to become a new emerging gold
district host ing numerous gold deposits.
Early drilling in 2019 focused on infill and step-outs near the
existing resource. This drilling better defined the mineralization
in the north-eastern portion of the resource footprint and
identified new shallow mineralisation within and adjacent to the
current pit outlines.
In addition, roadcut and outcrop mapping and sampling
demonstrated extensions of gold mineralisation northeast along
strike from the current resource footprint, demonstrating that
Tulkubash is a significant gold system with extensive further
discovery potential. Drilling and district-scale exploration were
accelerated to better increase the understanding of district-scale
prospectivity. Satellite imagery interpretation was integrated with
geological mapping and geochemical sampling to define new
targets.
The roadcut and outcrop mapping and sampling along the strike
identified a broad area of >1 g/t Au in rock chip samples in
Shir Canyon, immediately to the northeast and along strike from the
current resource boundary. Surface mineralisation at Shir Canyon is
comparable in grade and extent to that over the Main pit zone of
Tulkubash (1 million ounces Au). Rock chip sampling in this area
demonstrated wide zones of continuous gold mineralization, defining
a corridor of 100 to 150m in width and at least 550m along the
strike.
Initial drilling in Shir Canyon has given encouraging results.
The year's drilling results were used as the basis for the updated
Mineral Resource Estimate and Reserve Estimate. The new Tulkubash
mine plan and economic model, will be released, incorporating the
new estimate.
The reserve and resource for the current mine life is derived
from approximately 5.5kms of a defined 24km strike length for the
Tulkubash trend, with mineralisation remaining open along
strike.
Resources as at 31 December 2019:
Tulkubash open pit heap leach Tonnes Au (g/t) Metal (Oz)
cut-off grade ("COG") 0.3g/t
AU
Measured 5,266,000 1.28 215,568
----------- --------- -----------
Indicated 18,080,000 1.21 701,976
----------- --------- -----------
M&I 23,346,000 1.22 917,545
----------- --------- -----------
Inferred 910,000 0.90 26,205
----------- --------- -----------
TOTAL 24,256,000 1.21 943,749
----------- --------- -----------
1. Chaarat has used a cut-off grade of 0.30 grams per tonne g/t
gold based on 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.
The pit shell constraint reduced the Tulkubash Resource by
approximately 640,000 ounces of gold that would otherwise have been
included in the Resource estimate. The loss in tonnage and ounces
with respect to the 2018 year-end Mineral Resource Estimate is due
principally to the pit shell constraint that was not applied in
2018 .
This excludes mineralisation that does not fall within the $1,600 gold price pit shell .
The focus of the 2020 program will entail infill drilling as
required within the current resource footprint to improve
confidence and allow finalisation of pit designs as well as further
drilling in the Shir Canyon area to further expand and develop the
resource there. Surface work on district-scale targets will
continue defining targets for the future.
Tulkubash Reserves as at 31 December 2019:
Classification Tonnes Au (g/t) Metal (Oz)
Proven 6 ,300,000 0.98 197
------------ --------- -----------
Probable 18 ,300,000 0.93 552
------------ --------- -----------
Total 24 ,600,000 0.95 749
------------ --------- -----------
1. Ore Reserves are reported with appropriate modifying factors
of dilution and recovery. The Reserve is higher tonnage than the
Resource due to dilution.
2. Numbers are rounded in accordance with disclosure guidelines and may not sum accurately.
3. Ore reserves based on a gold price of US$1300 per ounce.
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 . This has been
developed over a strike length of approximately 4kms.
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. Much of the Tulkubash Zone is strongly
oxidised and is amenable to heap leach processing.
Major P roject Developments
In March 2019, Chaarat signed a binding term sheet for a Joint
Venture ("JV") with Çiftay İnsaat Tahhüt ve Ticaret A.S., a Turkish
mining and mine construction contractor, to collaborate on its
assets in the Kyrgyz Republic. The conditional and non-binding
joint venture agreement was concluded in September 2019. Çiftay
will progressively invest up to US$31.5 million in cash for a
corresponding 12.5% equity stake in the two Kyrgyz assets.
In April 2019 Chaarat updated its Bankable Feasibility Study
(BFS). 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 feasibility study also confirmed average annual
production of 94koz, at an AISC of $802/oz.
In November 2019 Chaarat received formal permits to allow for
the removal of trees in the construction and mining areas of the
project. The fee for the permit provides for the replanting of the
same number and type of tree in other parts of the country.
Obtaining this permit was a critical milestone in the overall
project timeline.
In late December, Chaarat concluded a Stabilisation Agreement
with the Government of the Kyrgyz Republic in respect of the
Company's Tulkubash and Kyzyltash projects. The Agreement provides
formal assurances related to taxes and licence retention fees for
the 10-year period of the Agreement. Under the Agreement the parent
Company, Chaarat Gold Holdings Limited has a commitment to invest a
minimum of US$20 million in the share capital of its subsidiary
located and operating in the Kyrgyz Republic, Chaarat Zaav, within
the first five years of signing the stabilization agreement . This
is a very important step for the Company as it provides an
increased level of certainty for the project going forward. It is
the first such agreement signed by the Government in Kyrgyz
Republic.
Engineering and Construction Update
The Tulkubash oxide heap leach project has advanced well during
2019. The updated feasibility study confirmed an initial five-year
mine life based on a Proven and Probable Reserve of 24.6Mt grading
0.95g/t gold containing 749koz, an increase of 14% from the
published bankable feasibility study. 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).
The recently released Mineral Resource Estimate and Reserve
Estimate will be incorporated into an updated Tulkubash mine plan
and economic model.
LogiProc is engaged as the lead engineering company alongside
Ausenco, Azmet, YPT, Metso and Agrekko to develop the project to a
final detailed engineering level. In country adaptation and
legalisation to country codes is progressing well.
Detailed engineering has progressed, and several project
components have been finalized. These comprise Initial earthworks
including mobilization of equipment, second phase of equipment
mobilization, ore haul road and platforms construction, camp,
explosives and AN storage platform completed, site access road
upgrade to improve year-round access, installation of 360-man
advance construction camp, detailed design of HLF, Crushing Circuit
and ADR is advancing, local designs to ensure early start of
construction are advancing; and tree cutting permit for the whole
site has been secured and tree-cutting has commenced.
The significant global restrictions on the movement of people
due to COVID-19 will impact our workforce mobilization for the
summer construction period at our Tulkubash Project. This delay
will likely cause the first gold-pour to be moved by six months
from late 2021 to Q3 2022. Project cost is still estimated to be in
line with the BFS level of US$110 million, which includes a US$10
million contingency.
Since the start of works, 343,000m(3) of soil and rock have been
moved during the construction of haul roads and compacted platforms
for the camp area, crusher, and other areas. In late 2019 Pamir
Mining LLC (Çiftay's designated entity in the Kyrgyz Republic)
mobilised additional equipment to start the earthworks for the heap
leach area.
2019 drilling confirmed the Company's opinion that there is
significant potential to increase the existing Tulkubash resources
prior to the first gold pour in Q3 2022, and that this exploration
success is expected to add gold resources in future years.
Kyzyltash
The other project in country, is the Kyzyltash project, a higher
grade, refractory deposit adjacent to the Tulkubash oxide
mineralization, at which an additional 5 million ounces of gold has
been delineated. Its extraction will be more complex given the
refractory nature of the ore. There are a number of proven
technologies available to economically extract the gold from this
type of ore body. Over 40% of the annual world gold production
coming from this type of ore.
In 2019 our major focus in the region was on the exploration and
development of the Tulkubash oxide deposit. Our plan for 2020 is to
carry out drilling and metallurgical test work to further develop
this project.
The refractory Kyzyltash ore will be processed through a
refractory processing plant , recovering gold via pre-oxidation
followed by direct cyanidation. The exact processing method ha s
yet to be confirmed.
The currently defined resource remains 4.5 million ounces of
gold which is potentially capable of supporting a seven to
eight-year mine life at a production rate of 300,000 ounces of gold
per year.
The Kyzyltash ore body continues to offer Chaarat a clear path
to organic growth. In the medium term, subject to further
metallurgical work on Kyzyltash, the Company's plans remain to have
both Tulkubash and Kyzyltash in production in parallel, producing
up to 400,000 ounces of gold per annum.
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.
6.
Financial review
Income statement
Revenues during 2019 amounted to US $ 68.1 million, compared
with nil in the corresponding period in 2018. This represented
sales of concentrate at Kapan for the eleven-month period following
acquisition by the Group from 3 0 January to 31 December. During
this period, Kapan sold 4,025dmt of copper concentrate and 5,283dmt
of zinc concentrate, containing a combined 55,255 ounces Au Eq.
The operating loss for the Group for the year ended 31 December
2019 was US $ 1 8.4 million. This included a positive EBITDA
contribution from Kapan of US $8.6 million and loss before tax of
US$0.7 million (refer to Note 7 for further detail) , offset by
depreciation and amortisation of US$5.1 million as well as
corporate and overhead costs of US $21.4 million at head office and
in the Kyrgyz Republic . The EBITDA contribution at the standalone
Company level, before Group accounting and non-cash adjustments,
was US$10.8 million for the eleven months ended 31 December 2019.
The increased operating loss of US $18.4 million compared with US $
13.7 million for the 2018 financial resulted mainly from non-cash
charge of US$9.8 million for share-based payments in respect of the
Group's management incentive plan (2018: US$0.4 million).
Acquisition-related costs of US$3.5 million and US$1.4 million were
charged to administrative expenses in the consolidated income
statement for the years ended 31 December 2018 and 31 December
2019, respectively.
Finance costs were US $ 9. 4 million compared with US $ 3.4
million in 2018. This resulted from additional funding taken out
both in the second half of 2018 and the 2019 financial year to
finance the Group's activities, including the bank loans for the
acquisition of Kapan. Income taxes were US$1.5 million compared
with no taxes in the comparable year, which is as a result of the
acquisition of Kapan. Consequently, the Group made a loss for the
year after tax of US $ 2 9.4 million compared with US $ 17.0
million in the 2018 financial year.
Balance sheet
The Group's balance sheet at 31 December 2019 includes the
consolidation of Kapan following its acquisition on 30 January
2019. Kapan's assets and liabilities have been consolidated under
the acquisition accounting method using fair values at 3 0 January
2019.
Non-current assets increased from US $ 48.7 million at 31
December 2018 to US $ 10 3.1 million at 31 December 2019. The
increase was mainly due to the inclusion of property, plant and
equipment at Kapan and a deferred tax asset on acquisition fair
value adjustments which will be amortised over the life of the
Kapan operation. Additionally, exploration and evaluation costs of
US $ 1 1.5 million were capitalised in the period relating to the
asset in the Kyrgyz Republic.
Current assets are US $ 2 3 .9 million at 31 December 2019
compared with US $ 6.4 million at 31 December 2018. Th is increase
is mainly related to the inclusion of inventories (both spare parts
and concentrate stocks), receivables and prepayments at Kapan.
Current assets at 31 December 2019 included cash and cash
equivalents of US $ 3.6 million.
Total liabilities at 31 December 2019 were US $ 10 6.8 million
compared with US $ 31.4 million at 31 December 2019. This was
mainly due to an increase in borrowings of US $60.9 million, mainly
due to the third-party bank funding totalling US $ 40.0 million
used to fund the acquisition of Kapan , which has since been partly
repaid , as well as additional borrowings to fund the Group's
corporate and development activities and the issuing of
convertibles to new investors. The movement in borrowings is set
out in more detail in Note 22, Note 23 and Note 26. In addition,
there is a rehabilitation provision of US $8.6 million relating to
Kapan following its acquisition and consolidation.
Total equity was US $ 2 0.2 million at 31 December 2019 compared
with US $ 23.6 million at 31 December 2018 . This mainly reflect s
the loss for the period of US $ 2 9.4 million which has been offset
by the increase in the share option reserve of US $ 9. 2 million as
a result of the management incentive plan that was implemented
during 2019 as well as the increase in share premium of US $ 16.6
million. The movement in share capital is set out in more detail in
Note 20 (b).
Cash flow
During the year 2019, the Group generated operating cash flows
of US $2.6 million, compared with an operating cash flow consumed
of US $ 8.8 million in 2018. The positive cash generation mainly
represented the positive EBITDA contribution from Kapan and
favourable working capital movements, partly offset by expenditure
on corporate overheads and development costs.
Net cash used in investing activities in the 2019 financial year
was US $54.3 million, compared with US $ 19.3 million in the
corresponding 2018 financial year. This mainly reflected the
payment for the acquisition of Kapan together with capitalised
exploration and development spend in the Kyrgyz Republic.
Cash flow from financing activities in the period amounted to US
$54.1 million, compared with US $21.9 million in the corresponding
2018 financial year . This mainly related to the bank funding to
acquire Kapan and other borrowings to fund the Group's activities
as explained in the balance sheet section above , net of direct
transaction costs , together with the equity raise in the
period.
Cash and cash equivalents at 31 December 2019 were US $ 3.6
million compared with US $1.2 million at the start of the year.
Financing
In order to achieve the planned operational outlook management
will need to raise future financing. Apart from the funds still
available under the Labro facility agreement, t here are currently
no binding agreements in place in respect of any additional funding
and there is no guarantee that any course of funding will proceed.
Management is committed to raising additional funds and has an
established track record of successfully achieving this in the
past.
Going concern
Further details of the Group's status as a going concern and
expected future financing plans are set out below in N ote 2 to the
financial statements.
Consolidated Income Statement
For the year ended 31 December 2019
2019 2018
Note US$'000 US$'000
Revenue 3 68,088 -
Cost of Sales 4 (55,652) -
Gross Profit 12,436 -
Selling expenses (3,024) -
Administrative expenses 6 (27,834) (13,705)
Other operating income - 24
Operating loss 5 (18,422) (13,681)
Interest receivable 9 -
Interest payable 10 (9,447) (3,361)
--------------------------------------------- ------ ----------- --------------
Loss before tax for the year, attributable
to equity shareholders of the parent (27,860) (17,042)
Income tax credit/(charge) 11 (1,545) -
--------------------------------------------- ------ ----------- --------------
Loss after tax for the year, attributable
to equity shareholders of the parent (29,405) (17,042)
--------------------------------------------- ------ ----------- --------------
Loss per share (basic and diluted) - US$
cents 12 (7.06) (4.52)
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2019
2019 2018
US$'000 US$'000
Loss for the year, attributable to equity
shareholders of the parent (29,405) (17,042)
Other comprehensive income:
Items which have been reclassified to profit
and loss
Exchange differences on translating foreign
operations liquidated during the year
Items which may subsequently be reclassified
to profit and loss - 74
Exchange differences on translating foreign 523 -
operations and investments
Other comprehensive income for the year,
net of tax 523 74
Total comprehensive loss for the year attributable
to equity shareholders of the parent (28,882) (16,968)
----------------------------------------------------- ---------- ----------
Consolidated Balance Sheet
As at 31 December 2019 2019 2018
Note US$'000 US$'000
------------------------------------------- ------- ---------- ----------
Assets
Non-current assets
Exploration and evaluation costs 13 55,070 43,527
Other intangible assets 14 1,609 54
Property, plant and equipment 15 38,269 5,094
Prepayments for non-current assets 501 -
Deferred income tax assets 16 7,652 -
Total non - current assets 103,101 48,675
------------------------------------------- ------- ---------- ----------
Current assets
Inventories 17 9,676 -
Trade and other receivables 18 6,665 190
Prepayment on acquisition of Kapan 18 - 5,000
Deferred VAT receivable 837 -
Prepayments 3,117 -
Cash and cash equivalents 19 3,585 1,168
Total current assets 23,880 6,358
Total assets 126,981 55,033
------------------------------------------- ------- ---------- ----------
Equity and liabilities
* Equity attributable to shareholders
Share capital 20(b) 4,688 3,951
Share premium 20(b) 168,616 152,063
Own shares reserve 20 (g) (216) -
Share warrant reserve 20(d) - 1,352
Convertible loan note reserve 20(f) 2,493 2,360
Merger reserve 10,885 10,885
Share option reserve 20(c) 10,624 1,414
Shares to be issued 20(e) 217 -
Translation reserve (14,875) (15,398)
Accumulated losses (162,253) (132,984)
------------------------------------------- ------- ---------- ----------
Total equity 20,179 23,643
------------------------------------------- ------- ---------- ----------
Liabilities
Non-current liabilities
Provision for rehabilitation 21 8,638 -
Convertible loan note 22 19,994 16,303
Lease liabilities 25 302 -
Total non-current liabilities 28,934 16,303
------------------------------------------- ------- ---------- ----------
Current liabilities
Trade and other payables 24 16,759 4,924
Deferred VAT payable 837 -
Lease liabilities 25 276 -
Other loans 26 22,343 10,163
Borrowings 23 36,915 -
Other provisions for liabilities and
charges 27 738 -
Total current liabilities 77,868 15,087
------------------------------------------- ------- ---------- ----------
Total liabilities 106,802 31,390
------------------------------------------- ------- ---------- ----------
Total liabilities and equity 126,981 55,033
------------------------------------------- ------- ---------- ----------
The financial statements were approved and authorised for issue
by the Board of Directors on 9 April 2020.
Artem Volynets Chris Eger
Chief Executive Officer Chief Financial Officer
Consolidated Statement of Changes in Equity
For the Year Ended 31
December 2019 Own Share Convertible Share Shares
Share Share Shares Warrant Loan Note Merger Option To Be Translation Accumulated
Capital Premium Reserve Reserve Reserve Reserve Reserve Issued Reserve Losses Total
Note US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
As at 1
January 2018 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
gains 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 20 (b) 145 4,738 - - - - - (1,926) - - 2,957
Conversion of
loan notes 20 (f) 230 8,858 - - (1,153) - - - - 1,153 9,088
Equity element
of
convertible
loan note - - - - 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
--------------- ------ ---------- ------- -------- ------- ----------- ------- ------- ------- ----------- ----------- -----------
Loss for the
year - - - - - - - - - (2 9 ,405 ) (2 9 ,405 )
Translation
gains for the
year - - - - - - - - 523 - 523
--------------- ------ ---------- ------- -------- ------- ----------- ------- ------- ------- ----------- ----------- -----------
Total
comprehensive
income for
the year - - - - - - - - 523 (2 9 ,405 ) (2 8,882 )
--------------- ------ ---------- ------- -------- ------- ----------- ------- ------- ------- ----------- ----------- -----------
Share options
lapsed - - - - - - (204) - - 136 (68)
Share options
expense - - - - - - 9,847 - - - 9,847
Share options
exercised 3 95 - - - - (20) - - - 78
Share scheme
modification - - - - - - (413) - - - (413)
Issuance of
shares for
cash 20 (b) 157 6,387 - - - - - - - - 6,544
Issuance of
shares for
settlement of
liabilities 20 (b) 69 3,043 - - - - - - - - 3,112
Issuance of
treasury
shares 20 (g) 216 - (216) - - - - - - - -
Issuance of
shares for
acquisition
of Kapan 20 (b) 146 5,109 - - - - - - - - 5,255
Equity element
of
convertible
loan note 20 (f) - - - - 133 - - - - - 133
Warrants
exercised 20 (b) 146 1,921 - (1,352) - - - 217 - - 932
As at 31
December 2019 4,688 168,616 (216) - 2,493 10,885 10,624 217 (14,875) (16 2,253 ) 2 0,179
--------------- ------ ---------- ------- -------- ------- ----------- ------- ------- ------- ----------- ----------- -----------
Consolidated Cash Flow Statement
For the Year Ended 31 December 2019 2019 2018
Note US$'000 US$'000
----------------------------------------------------- ------ -------- --------
Cash flows from operating activities
Operating loss (18,422) (13,681)
Depreciation and amortisation 5 5,079 326
Loss/(gain) on disposal of property, plant
and equipment 5 185 (7)
Non-cash transactions - expenses 496 -
Change in provisions 18, 27 297 -
Foreign exchange gain/loss 5 (45) -
Translation losses for liquidated subsidiary - 74
Reversal of provision - (50)
Share based payments 5 9,780 377
Increase in interest payable on loans - 239
(Increase)/decrease in inventories 7,828 -
(Increase)/decrease in trade and other receivables (5,218) 4
Increase/(decrease) in trade and other payables 4,036 3,875
----------------------------------------------------- ------ -------- --------
Cash generated/(used) in operations 4,016 (8,843)
Income taxes paid (1,034) -
Cash payments for RSUs replaced (413) -
Net cash generated/(used) in operations 2,569 (8,843)
----------------------------------------------------- ------ -------- --------
Investing activities
Acquisition of subsidiary, net of cash acquired 31, 32 (38,479) -
Purchase of property, plant & equipment 15 (3,970) (2,165)
Purchase of intangible assets 14 (1,385) -
Exploration and evaluation costs 13 (10,482) (12,142)
Payment on acquisition of Kapan - (5,000)
Proceeds from sale of property, plant & equipment 31 8
Interest received - 11
----------------------------------------------------- ------ -------- --------
Net cash used in investing activities (54,285) (19,288)
----------------------------------------------------- ------ -------- --------
Financing activities
Proceeds from issue of share capital, net of
costs 20 6,622 3,004
Receipt of funds for shares to be issued 20 161 -
Receipt of funds for warrants exercised 20 49 -
Repayments of principal portion of lease liabilities 22 (120) -
Proceeds from convertible loan notes issued,
net of costs 22 1,072 13,554
Payment of funds for redemption of convertible
loans 22 - (4,620)
Repayments of principal amount of loan 23 (4,000) -
Repayments of interest 23 (2,727) -
Proceeds from loans, net of costs 22 53,000 9,924
----------------------------------------------------- ------ -------- --------
Net cash from financing activities 54,057 21,862
----------------------------------------------------- ------ -------- --------
Net change in cash and cash equivalents 2,341 (6,269)
Cash and cash equivalents at beginning of the
year 1,168 7,461
Effect of changes in foreign exchange rates 76 (24)
----------------------------------------------------- ------ -------- --------
Cash and cash equivalents at end of the year 19 3,585 1,168
----------------------------------------------------- ------ -------- --------
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 2019 and 31 December 2018.
The consolidated balance sheet at 31 December 2019, 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 2019 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 2018.
3. Loss per share
Loss per share is calculated by reference to the loss for the
year of US$29.4 million (2018: loss of US$17 million) and the
weighted average number of ordinary shares in issue during the year
of 416,466,724 (2018: 377,347,795).
At 31 December 2019 nil (2018: 22,367,521) warrants, 56,805,258
(2018: 18,922,066 ) share options and convertible loan notes have
been excluded from the diluted weighted average number of ordinary
shares calculation because their effect would have been
anti-dilutive.
4. Going concern
As at 30 March 2020 the Group had approximately US$ 2.2 million
of cash and cash equivalents and US$8 6.8 million of debt
(including accrued interest to the date of maturity, the terms of
which are disclosed in the notes) comprising the following:
- US$26.4 million Convertible loan note, repayable on 31 October
2021, including accrued interest to 31 October 2021 (Note 18)
- US$19.4 million loan including interest to 31 March 2020 (note
17). On 9 April 2020 the loan terms were amended, and the maturity
date was extended to December 31,2020 (Note 33).
- Term loan for US$34.8 million entered into in connection with
the acquisition of Kapan in January 2019. The loan is repayable
through quarterly instalments over a period of four years, the
final payment being January 2023 (Note 23)
- The revolving term loan facility agreement with Labro for a
total amount of US$15 million. To date US$8.0 million has been
drawn down, US$2.5 million has subsequently been repaid, US$6.1
million is outstanding and a further US$7.0 million remains
available to the Group. The facility is due for repayment on 14
July 2020 (Note 19).
The Board has reviewed the Group's cash flow forecast for the
period to 31 December 2021. The cash flow forecasts reviewed by the
Board exclude cash inflows from funding which is not contractually
committed. The forecasts show that the Labro loan will need to be
extended or refinanced before 14 July 2020, the $19.4m loan will
need to be extended or refinanced by 31 December 2020, and in
addition the Group forecasts it will require further funding before
Q3 to meet operational commitments and overheads. The forecasts
also show that if COVID 19 had an adverse impact on the Kapan mine
then a covenant on the Kapan term loan may be breached, and in
addition to that the Group would require further funding if the
mine was temporarily suspended for more than one month.
Kyrgyzstan
The significant global restrictions on the movement of people
will impact our workforce mobilisation for the summer construction
period at our Tulkubash Project. This delay will likely cause the
first gold pour to be moved by six months from late 2021 to Q3 2022
. For the purpose of making an assessment of going concern, the
cash flow forecasts do not include discretionary expenditure in
relation to the Kyrgyzstan projects, taking into account the delay
to the Project. The forecasts include minimum commitments in
respect overheads and, based on a non-binding agreement, exclude
payments to the mining contractor until further funding is
raised.
Kapan
The Board has reviewed the Group's cash flow forecast for the
period to 31 December 2021. For the purpose of making an assessment
of going concern, the cash flow forecasts reviewed by the Board
exclude additional funding which is not contractually committed and
also exclude discretionary expenditure in relation to the
Kyrgysztan projects and take into account the delay of the
Project.
The Board have based the cash flow forecasts for Kapan on the
most recent budgets. Chaarat Kapan has experienced minimal
disruptions to supply chains and shipment as a result of C OVID
-19. However, if there was an unexpected adverse combination of
factors or the temporary closure of Kapan for more than one month,
then a covenant on the Kapan loan may be breached and the Group
would require further additional funding .
US$ 19.4 million loan
On 9 April 2020, t he Group entered into an agreement with the
lender to extend the maturity date of the US$19.4 million loan to
31 December 2020 . The terms of the loan include a requirement to
repay the loan prior to or in conjunction with any additional debt
financing that the Group may raise with limited exceptions.
Labro loan
Matures in July. The Group is in advanced negotiations in
respect of extending the Labro loan and has a reasonable
expectation that an extension agreement will be agreed in due
course. However, there is no guarantee that an extension will be
received. Depending on the terms of the extension, the Labro loan
may need to be refinanced within the going concern period.
The Board has a reasonable expectation that the Group will be
able to raise additional funds as demonstrated by the Group's
established track record in historical fund raisings and
refinancing events. Since June 2018 or when the new management
joined the Company, the management team has successfully raised
over US$115 million through equity, debt or debt like instruments
and has established strong relationships with key stakeholders. As
a result of historical and ongoing proactive di scussions with
stakeholders, the Board has a reasonable
expectation that the Group will be able to raise fu rther funds in order to meet its obligations. Notwithstanding this, COVID-19 has had a significant negative impact on the global economy which may mean it is harder to secure additional funding than has historically been the case.
Subject to the above, which the Board has a reasonable
expectation 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 there is no guarantee that
any course of funding will proceed. Therefore, as set out above,
this indicates the existence of a material uncertainty which may
cast significant doubt over the Group's ability to continue as a
going concern and, therefore, it may be unable to realise its
assets and discharge its liabilities in the normal course of
business. The financial statements do not include the adjustments
that would result if the Group was unable to continue as a going
concern.
5. Post balance sheet events
Breach of loan covenant
This bank financing has certain covenants attached to it that
the Group needs to adhere to, one of which is the Net debt to last
twelve months ('LTM') EBITDA of 2.5x as at 3 1 December 2019. The
Company did not meet this covenant as at 3 1 December 2019 and as
such the full bank debt has been disclosed as a current liability.
The LTM EBITDA calculation is based on EBITDA from 1 January 201 9
to 31 December 2019. Chaarat ownership of Kapan commenced on 30
January 2019 and as such one month of the LTM calculation, is based
on Kapan whilst being operated by Polymetal International Plc.
A waiver was received in April 2020, with regards to the
relevant covenant not being met on 31 December 2019 and therefore
the Group remains in full compliance of the loan.
US$ 19.4 million loan
On 9 April 2020, t he Group entered into an agreement with the
lender to extend the maturity date of the US$19.4 million loan to
31 December 2020 . The terms of the Loan remain significantly
unchanged, including the interest charge of 13% per annum and the
requirement to repay the loan prior to or in conjunction with any
additional debt financing that the Group may raise with limited
exceptions. A fee of 150 basis points of the outstanding loan
amount will be paid in cash at closing of the extension agreement
to the Loan provider.
Labro, who has provided a guarantee and security package to the
lender, has agreed to extend and increase the guarantee and
security package directly to the lender for the full amount of the
Loan. As part of the extension agreement, Chaarat will compensate
Labro for providing an increased security package to the Loan
provider and is in advanced discussions to agree the respective
terms for such compensation.
COVID-19
Since 31 December 2019, the spread of COVID-19 has severely
impacted many local economies around the globe. In many countries,
businesses are being forced to cease or limit operations for long
or indefinite periods of time. Measures taken to contain the spread
of the virus, including travel bans, quarantines, social
distancing, and closures of non-essential services have triggered
significant disruptions to businesses worldwide, resulting in an
economic slowdown. Global stock markets have also experienced great
volatility and a significant weakening. Governments and central
banks have responded with monetary and fiscal interventions to
stabilise economic conditions.
COVID-19 has created a series of unprecedented challenges with
regards to future fundraising. We expect the timelines for
fundraisings to be impacted by, the uncertainty and market
turbulence stemming from the pandemic, liquidity constraints on
investors resulting in a reduced appetites to enter into new
long-term capital commitments and the challenges for investors to
undertake their due diligence (in particular, face-to-face
meetings), receive appropriate internal approvals and obtain
relevant signatories.
The Company however has determined that COVID-19 is a
non-adjusting post-balance sheet event. Accordingly, the financial
position and results of operations as of and for the year ended 31
December 2019 have not been adjusted to reflect its impact. The
duration and impact of the COVID-19 pandemic, as well as the
effectiveness of government and central bank responses, remains
unclear at this time. It is not possible to reliably estimate the
duration and severity of these consequences, as well as their
impact on the financial position and results of the Company for
future periods.
6. Timetable and distribution of accounts
The Annual General Meeting ("AGM") will be held on Wednesday, 20
May 2020 at 11am at 9-10 Savile Row, London W1S 3PF. The Board has
noted the guidance issued by the UK Government on 23 March 2020
restricting social gatherings due to the ongoing Covid-19 pandemic
and the fact that, if such guidance remains in place, shareholders
will be prohibited from attending the AGM. Given the current
guidance and the general uncertainty as to what additional and/or
alternative measures may be put in place, whilst it is the
Company's intention to proceed with holding an AGM, the Board
requests that shareholders do not attend the AGM but instead
appoint a proxy and provide voting instructions in advance of the
AGM. Given the current UK Government restrictions, the Board will
put in place a dial-in facility for shareholders to listen to the
AGM proceedings details of which will be provided in due course.
The Board will keep these AGM arrangements under review and will
update shareholders via a RNS.
Copies of the Annual Report and Notice of the Annual General
Meeting will be sent to shareholders by 24 April 2020.
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 ZKLFBBZLLBBX
(END) Dow Jones Newswires
April 09, 2020 10:30 ET (14:30 GMT)
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