TIDMCGH
RNS Number : 5538H
Chaarat Gold Holdings Ltd
07 April 2022
7 April 2022
Chaarat Gold Holdings Limited
("Chaarat" or the "Company")
ANNOUNCEMENT OF FULL YEAR RESULTS
FOR THE YEARED 31 DECEMBER 2021
Chaarat (AIM:CGH), the AIM-quoted gold mining company with an
operating mine in Armenia, and assets at various stages of
development in the Kyrgyz Republic, is pleased to announce its
audited full-year results for the 12 months ended 31 December
2021.
The Company will provide a live presentation relating to 2021
Annual Results via the Investor Meet Company platform today at
10:00am BST. If you wish to listen to the presentation, please
register via
https://www.investormeetcompany.com/chaarat-gold-holdings-ltd/register-investor
Highlights
Group Financial Highlights
-- US$92.4 million generated revenues from concentrate sales in
2021, US$72.8 million relates to own ore revenue (+4%) and US$19.6
million relates to third-party ore revenue (+221%) (2020: US$69.9
million and US$6.1 million) with increases driven by more
favourable commodity prices and higher third-party ore
throughput.
-- The Group EBITDA(3) was US$13.5 million, 45% higher compared
to last year (2020: US$9.3 million).
-- The Group loss after tax was US$3.6 million, an improvement
of 84% from a loss after tax of US$22.4 million in 2020.
-- Cash and cash equivalents increased from US$6.9 million to
US$11.1 million year over year (+61%).
-- The Group's net debt decreased from US$77.2 million to
US$39.6 million (-49%) due to a debt-to-equity conversion and
equity raise in February 2021 as well as the ongoing repayment of
the Kapan acquisition loan.
ESG Highlights
-- Further development of a fully integrated health and safety
system inclusive of all contractors
-- Improved hazard identification, risk assessment and procedural controls across the operation
-- Completed sections of buttressing of the tailings storage
facility ("TSF") as part of a multiyear improvement programme to
improve seismic stability
-- Updated the environmental and social impact assessment ("ESIA") for the Tulkubash project
-- Ongoing reviews assessing best available technologies for the
project regarding environment control and energy savings
-- Strengthened community relations in both countries further
through personal and financial support in various activities and
for various stakeholders.
Kapan Operating Highlights
-- Finished the year with production of 63 thousand gold
equivalent ounces ("koz"(1) ) including 14 koz from third party ore
production vs 2021 guidance of 57 koz (+10.5%).
-- Exceeded processing target of 50 thousand tonnes ("kt") for
third-party ore by 95 kt (+189%) in 2021, contributing to exceeding
the production guidance of 57 koz.
-- Kapan sold 57,212 ounces of AuEq (2020: 48,387 ounces),
including third-party sales, with a realised gold price per ounce
of US$1,784 (2020: US$1,773).
-- All-in-sustaining cost ("AISC"(2) ) of USD 1,205/oz was
higher than the USD 1,034/oz for 2020 (+16.5%) due to higher mining
costs related to more selective mining, increases to energy costs
and costs associated to processing a higher portion of third-party
ore feed.
-- A 17% increase in standalone EBITDA(3) contribution to
approximately US$22.7 million at Kapan level in 2021 (2020: US$19.4
million).
Tulkubash Construction Project
-- Updated bankable feasibility study ("BFS") released in May
2021 confirming robust project economics.
-- Successfully completed a 4,835-metre drilling programme
including infill drilling and initial exploration drilling on new
target areas. JORC-compliant resource and reserve estimates are
being updated to reflect the infill drill results.
-- Advanced camp construction, main construction preparation
work and the exploration programme with approximately US$8.5
million invested in 2021 despite the Kumtor events and the ongoing
COVID-19 impact.
Kyzyltash Development Project
-- Successfully completed a 3,508-metre drilling programme to
obtain representative core of the Kyzyltash deposit ready for
metallurgical testing. The core has been sent to SGS Lakefield in
Canada for a full suite of metallurgical test work as part of
assessing the preferred processing route for the project.
Corporate Activities
-- Funding package of US$52.2 million closed in February 2021.
-- Extension of the convertible loan notes by one year to 31st October 2022.
-- Tulkubash debt financing delayed to 2022 due to ongoing
market cautiousness related to the resolution of the Kumtor mine
situation.
-- Reduced Group net debt from US$77.2 million as at 31st
December 2020 to US$39.6 million as at 31st December 2021 (-49%),
primarily as a result of converting the Labro Term Loan into equity
in February 2021 and reducing the Kapan acquisition loan from Kapan
cash flows.
Post-year end
-- Mike Fraser started as new Chief Executive Officer and member
of the Board on 17(th) January and since then completed a
comprehensive strategic and operational review. Key elements of the
strategy will be implemented within 2022.
-- The Kapan Mineral Resource Estimate ("MRE") and Ore Reserves
("OR") were updated in 2021 and signed off in April 2022. The 2022
MRE was developed on a constrained basis. The application of the
constraining factors and a 2.0 g/t cut-off grade limits any direct
comparison to the previously reported unconstrained resource in
2019.
o The overall contained koz in the Measured and Indicated
Resource ("M&I") is 579koz at 9.03 g/t AuEq applying a 2.0 g/t
cut-off grade.
o Updated Ore Reserves comprise of 2.55 Mt of Proven and
Probable ore at grades of 1.66g/t Au, 33.17g/t Ag, 0.34% Cu and
1.25% Zn with contained metal of 264koz at a cut-off of 2.0g/t
AuEq.
-- A resolution of the Kumtor mine situation was announced on
the 4(th) of April 2022 and Chaarat is re-entering financing
discussions on the Tulkubash project as planned.
Outlook for 2022
-- Macro - The conflict in Ukraine and associated sanctions
against Russia have the potential to impact the supply chain,
costs, and commodity prices in our region and we are monitoring the
developments closely. So far, the conflict has had no direct impact
on our operations, and we do not expect a material impact in
2022.
-- Kapan - Confirmed mine production guidance of 50-53 koz(5) of
own-ore production and additional 6-9 koz(5) of third-party ore
production based on 100 kt milled during the year.
-- East Flank - Resource definition drilling ongoing as part of
preparing an initial mineral resource estimate expected in
2023.
-- Tulkubash - Updated mineral resource and reserve statements
are expected to be released in H1 2022. Given the resolution of
Centerra's Kumtor situation, debt financing is expected to close in
H2 2022. Ongoing project work will focus on engineering completion
and appropriate construction activities to optimise full activities
once debt financing is secured.
-- Kyzyltash - Metallurgical test results expected from SGS
Lakefield in Q3 2022 to enable the Company to perform an economic
assessment on the best processing route in 2023.
-- Corporate - Chaarat will continue to review its existing
balance sheet structure with a view to further reducing its
interest cost and improving the balance sheet structure.
(1 Gold equivalent ounces for 2020 recalculated on 2021 budget
prices with Au at USD1,700/oz and gold ratios of 68 for silver,
7,287 for copper and 21,862 for zinc. In last year's FY 2020
operations update, 2020 oz were based on gold ratios of 83 for
silver, 7,778 for copper and 20,968 for zinc leading to a lower
AuEq number reported in that previous year. Includes third party
ore production.)
(2 AISC on a gold oz produced basis exclude smelter TC/RC
charges, others which add c. USD 148/oz. Sustaining capex of c.
USD6 million p.a. is included in the AISC.)
(3) In reporting financial information, the Group presents
EBITDA as an alternative performance measure, "APM", which is not
defined or specified under the requirements of IFRS. The Group
believes that this measure provides stakeholders with additional
useful information on the performance of the business and, within
that, Kapan. EBITDA is calculated by adjusting profit/(loss) for
depreciation and amortisation, net finance costs, unrealised
foreign exchange gain/(loss), fair value gain on warrant and change
in provisions. A reconciliation is provid (ed in the Financial
Review section below.)
(4 In reporting financial information, the Group presents Net
debt as an alternative performance measure, "APM", which is not
defined or specified under the requirements of IFRS. The Group Net
debt comprises convertible loan notes, other loans, contract
liabilities, lease liabilities and warrant financial liabilities,
net of cash and cash equivalents. Further detail is provided in the
Financial Review section below.)
(5 Gold equivalent ounces for 2022 calculated based on Au at
USD1,775/oz and gold ratios of 75 for silver, 6,597 for copper and
20,381 for zinc.)
Martin Andersson, Executive Chairman of Chaarat, commented:
"I am pleased to report that we exceeded our 2021 production
guidance at Kapan as well as achieved another set of strong
financial results for the Company.
The difficulties of the COVID pandemic and global supply chain
issues created an ongoing set of challenges for the Company, but
the continued strong macro-economic environment and an excellent
job by our team helped manage these conditions.
The year 2022 started with a good steady operational performance
but we are seeing more and more inflationary pressure flowing
through due to the strong price environment. As has been the case
since taking over Kapan, the team will continue to look for
improvements and new methods of operating to minimise these impacts
on the business.
On 4(th) April 2022, Centerra and the Kyrgyz Government
announced an agreement on the Kumtor mine had been reached. We were
pleased to see this situation being resolved and are re-engaging
with potential lenders on our Tulkubash financing efforts. We will
update the market as soon as further progress has been made."
Forward-looking Statements
This announcement contains certain forward-looking statements
that are subject to the usual risk factors and uncertainties
associated with the Company's business. Whilst the Company believes
the expectations reflected herein to be reasonable considering the
information available to them at this time, the actual outcome may
be materially different owing to factors beyond the Company's
control or within the Company's control where, for example, the
Company decides on a change of plan or strategy. Accordingly, no
reliance may be placed on the figures contained in such
forward-looking statements. The forward-looking statements
contained in this document speak only as of the date of this
announcement, and Biffa does not undertake to update any
forward-looking statement to reflect events or circumstances after
the date hereof or to reflect the occurrence of unanticipated
events.
Publication of Annual Report
The Company will publish its Annual Report and Financial
Statements 2021 on 22 April 2022. This document will be available
to view on the Company's website at www.chaarat.com/investors and
will be posted to shareholders who have elected to receive hard
copies on 22 April 2022.
Annual General Meeting
The Annual General Meeting ("AGM") will be held on Tuesday, 17
May 2022 at 10am at the offices of Watson Farley & Williams
LLP, 15 Appold Street, London EC2A 2HB, United Kingdom .
About Chaarat
Chaarat is a gold mining company which owns the Kapan operating
mine in Armenia as well as Tulkubash and Kyzyltash Gold Projects in
the Kyrgyz Republic. The Company has a clear strategy to build a
leading emerging markets gold company with an initial focus on the
FSU through organic growth and selective M&A.
Chaarat 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/ .
Enquiries
+44 (0)20 7499
Chaarat Gold Holdings Limited 2612
Michael Fraser (CEO) info@chaarat.com
Canaccord Genuity Limited (NOMAD and + 44 (0)20 7523
Joint Broker) 8000
Henry Fitzgerald-O'Connor
James Asensio
+44 (0)20 7220
finnCap Limited (Joint Broker) 0500
Christopher Raggett
Panmure Gordon (UK) Limited (Joint +44 (0)20 7886
Broker) 2500
John Prior
Hugh Rich
Executive Chairman ' s Statement
Two years have now passed since the beginning of the pandemic.
Like the rest of the world, Chaarat has had to adapt to doing
business differently. This year we have continued to demonstrate
that we are a resilient business that can withstand external
factors as we continue on our path towards becoming a mid-tier
producer.
Safety and health
The safety and health of our employees and host communities
remains one of our key values. Learnings from the tragic loss of
life of an employee of our mining contracting company in March 2021
that we reported last year have been used to further develop and
improve the already high standards we have and further emphasise
the safety culture and performance throughout Chaarat.
Our lost time injury frequency rate at Kapan for the year was
0.74 per one million hours worked (2020: 0.37). 392,000 hours were
worked at Tulkubash in 2021 with no lost time injuries.
Sustainability
We place significant importance on sustainable development and
social investment programmes in the countries in which we operate.
We genuinely believe that respectful and open dialogue and
partnership with local stakeholders is essential for the long-term
success of our operations. In keeping with our ESG guidance
principles, our main areas of focus in our host communities
continue to be health, education, and sustainable development
opportunities.
2021 progress
I am pleased to be able to announce that the team at our Kapan
mine has again exceeded production guidance, this year by 11 %,
achieving 63koz AuEq production guidance (including 14koz from
third-party ore).
During the year we continued our efforts to progress a potential
funding solution for our Tulkubash development project. Despite
having no direct impact on our own operations, ongoing market
cautiousness pending a resolution of the ongoing issues at the
Kumtor gold mine in Kyrgyz Republic have led to a further delay in
securing the project funding required and a consequential delay to
the date for first gold pour. Given the recent resolution of the
Kumtor issues, I am hopeful that we will secure project finance
during 2022. Nevertheless, we have made progress with camp
construction, main construction preparation, and exploration.
We have also progressed our Kyzyltash development project with
completion of a drilling programme to obtain representative core of
the deposit ready for metallurgical testing. This testing will
provide us with the information necessary to progress to the stage
of determining the optimum processing route during 2023.
2021 results
Our 2021 Financial Results reflect the increase in commodity
prices, with an increase in Group EBITDA of 45% compared to 2020.
EBITDA in the last months of 2021 were impacted by increasing
inflationary pressure as a result of the strong commodity price
environment. The team is renewing its efforts with regards to
finding mitigations to these new cost pressures.
While the majority of equity raised was utilised for ongoing
exploration and construction preparation for our Tulkubash project,
the metallurgical drill programme on our Kyzyltash project and
overhead expenses, the year-end cash balance increased from US$6.9
million in 2020 to US$11.1 million in 2021.
Together with our existing shareholder and debtholder base and a
number of new investors to Chaarat, we managed to significantly
improve our balance sheet in 2021. Our net debt decreased by almost
50% from US$77.2 million to US$39.6 million as a result of
continued debt repayments, debt conversion and equity
commitments.
Board and senior management changes
I would like to welcome Mike Fraser who joined our Board as
Chief Executive Officer in January 2022. Mike brings over 20 years
of extensive experience in the global mining and metals industry
and I am delighted that he has joined Chaarat. His impressive track
record for driving operational performance and culture will mean
that he is well-equipped to drive our performance going
forward.
It is also my pleasure to welcome Sandy Stash, who joined the
Board in May 2021 as an independent non-executive director. Sandy
brings decades of experience in the energy and hard rock mining
industries, particularly in ESG matters.
Our former Chief Executive Officer, Artem Volynets, resigned
from that role and as a member of the Board in August 2021. Chris
Eger also resigned as Chief Financial Officer in November 2021. I
would like to thank them both for their service throughout their
respective three-year tenures. I am grateful to our Group Financial
Controller, David Mackenzie, for agreeing to act as Interim Chief
Financial Officer.
Our people
On behalf of the Board, I would like to extend my sincere thanks
to all our employees for their commitment, dedication, and loyalty.
I would especially like to thank our senior management team for
their unfaltering support and flexibility during the period whilst
I served as interim Chief Executive Officer. I would also like to
extend a special thanks to all employees at our Kapan mine who,
despite the operational challenges posed by the ongoing pandemic,
enabled us again to exceed our production guidance.
Corporate governance
As Chair, I am responsible for leading and ensuring an effective
Board. The role of the Board remains that of setting strategy,
ensuring the right resources are in place to deliver it, promoting
long-term success, generating value, and contributing to wider
society. I believe that the Board has the right balance of skills
and expertise to continue to support and challenge management as
Chaarat enters a new chapter of its history under Mike Fraser's
leadership.
Investors
I was delighted that, in February 2021, we were able to raise
US$30.0 million of new cash for our Tulkubash project and reduce
our indebtedness by US$22.2 million.
In October 2021 we extended the maturity of our convertible loan
notes by one year to 31 October 2022 and I am very grateful to our
noteholders for their patience and understanding.
2022 and beyond
In the coming year, our development priorities will be to secure
project finance for Tulkubash, to progress Kyzyltash by determining
the optimal processing route, and preparing an initial mineral
resource estimate for the East Flank of our Kapan mine. Our
financing priority is to address the upcoming convertible bond, due
in October 2022, in a timely manner.
On 4(th) April, Centerra and the Kyrgyz Government announced an
agreement on the Kumtor mine had been reached. We were pleased to
see this situation being resolved and are re-engaging with
potential lenders on our Tulkubash financing efforts. We will
update the market as soon as further progress has been made.
The conflict in Ukraine and the associated sanctions against
Russia have not impacted our operations, and given our focus on
local sourcing, any impact would be minimal. We are continuously
monitoring the situation and will take the necessary steps to
ensure any impact on our operations is minimised.
Finally, I would like to take this opportunity again to thank
our loyal investors for their patience and steadfast and continuing
support.
Chief Executive Officer's Review
I was drawn to Chaarat by the potential of where it could go in
the future. Whilst there are a number of challenges to be faced
there are also significant opportunities, and a very capable Board
and management team well placed to embrace these opportunities.
Many assets in the gold sector are mispriced and we believe that
the sector is overdue for further consolidation.
I have been with Chaarat almost three months now and I am
impressed by the dedication and commitment of its employees. As
with any company, Chaarat needs to embrace change and evolve. What
has been encouraging so far is that there is a real appetite for
reflection on how we do things and organise ourselves. A
willingness and desire to reflect on areas for improvement is a
great base from which to start.
Setting the right strategic focus for the Group is paramount. I
am keen to ensure that everyone in the business knows where we are
heading, what is important to us, and what we are trying to
achieve. During the coming year, the immediate priorities will be
to continue to drive reliable and safe operating performance at
Kapan, secure project financing for Chaarat's Tulkubash development
project, and progress the studies of our Kyzyltash project. We will
be uncompromising on safety, and this will be a key area of focus
for me, particularly following the tragic fatal incident last year
to which Martin refers to in his letter.
Chaarat's vision is to build a leading emerging markets gold
company which delivers value to all our stakeholders by adhering to
the highest environmental, social, and governance standards.
Creating a shared purpose and unifying around aligned objectives,
values and behaviours will be vital to the successful delivery of
that vision. To this end I will also be focusing on our
organisational capabilities and priorities to ensure strategic
alignment.
Finally, I would like to thank Chaarat's employees for their
support to me in my early months with the Company.
Our Strategy
-- ESG We will work responsibly to:
* provide a safe work environment built on the highest
standards of safety management
* operate to the highest standards of environmental
stewardship
* enhance the infrastructure, education, and healthcare
in our host communities and to improve the living
standards and opportunities for those communities
-- Organic growth We will maximise our production via:
* operational improvements, mine life extension, and
brownfield development at our Kapan mine in Armenia
* staged development of the assets at our Kyrgyz
Republic operations (Tulkubash and Kyzyltash)
----------------- -------------------------------------------------------------
-- Inorganic growth We will selectively identify value-accretive
opportunities in our target regions
if we see the potential for those to
deliver value to shareholders by utilising
Chaarat's experience and skillsets in
both the short term and through longer-term
exploration and development potential
----------------- -------------------------------------------------------------
-- People We will attract, retain, and develop
a skilled and diverse workforce across
all levels of our organisation with
a focus on developing local talent in
our host communities and creating an
environment in which those employees
can thrive and learn
----------------- -------------------------------------------------------------
-- Finance We will identify opportunities to secure
funding and reduce the cost of capital
with the main objective of maximising
value for shareholders with appropriate
consideration to levels of shareholder
dilution
----------------- -------------------------------------------------------------
Strategy Progress and Priorities for 2022
ESG 2021 progress 2022 priorities
--------------------------------------------------
Safety Further development of a fully Increased focus on the
integrated health and safety management of health-related
system inclusive of all contract risks such as hearing loss
companies and particulate exposure
Improved hazard identification, through the use of baseline
risk assessment and procedural assessments, personal monitoring,
controls across the operation and area surveys
--------------------------------------------------
Environmental Ongoing Buttressing of the
tailings storage facility
(TSF) as part of a multiyear
improvement programme
--------------------------------------------------
Completion of internal
assessment of performance
against global industry
standard on tailings management
------------------------------------------ ------
Completion of revised Environmental
& Social Impact Assessment Ongoing dialogue with the
(ESIA) for the Tulkubash project regulatory bodies regarding
approvals of new proven
Ongoing energy reduction upgrades technologies
via switch gear renewal and
Installation of low energy
lightbulbs throughout Kapan
Ongoing reviews assessing
best available technologies
for the project regarding
environment control and energy
savings
--------------------------------------------------
Community Strengthened community relations The 2022 activities will
in the countries and regions be in line with 2021 and
we operate in further through targeted towards the community
personal and financial support needs. The strong relations
in various activities and with our communities allow
for various stakeholders. an open and honest dialogue
Initiatives are coordinated on required initiatives.
and approved with the stakeholders
in the beginning of the year
and then acted upon to create
alignment and commitment.
Key activities can be reviewed
on https://www.chaarat.com/esg-sustainability/
There was no opposition to
our operations in 2021.
Organic growth 2021 progress 2022 priorities
--------------------------------------------------
Kapan Increased treatment of third-party Optimise mill throughput
ore via increasing own production
and sourcing additional
third-party ore supply
--------------------------------------------------
East Flank infill drilling Start of multiyear drill
commenced programme to develop a
JORC compliant resource,
reserve, and mine plan
for East Flank (subject
to funding)
--------------------------------------------------
Tulkubash Advancement of construction Maximise execution preparedness
equipment selection and design ready for funding availability
engineering and updating capital estimates
Completion of 2021 exploration
programme targeting those
areas referred to as mid and
East zones to convert additional
tonnage to M&I
Initial exploration of Karator
and Ishakuldy areas to confirm
their attractiveness for further
exploration
Completion of BFS update incorporating
the 2020 drilling results,
revising cost estimates, and
demonstrating the sound economics
of the project
Completion of contract discussions
with Çiftay
Kyzyltash Completion of metallurgical Metallurgical test work
drill program programme to be carried
out to assess performance
of flotation and various
oxidation processes on
representative samples
of Kyzyltash ore. Key step
in optimizing project economics
--------------------------------------------------
Inorganic 2021 progress 2022 priorities
growth
--------------------------------------------------
M&A Identified, evaluated, Continue to identify and
and progressed various evaluate value enhancing
opportunities through acquisition opportunities
due diligence via a systematic and, if appropriate, execute
staged gate approach. one or more
Some opportunity reviews
and the underlying assessment
and engagement processes
are ongoing.
------------------------------------------ ------ -----------------------------------
People On a group level restructured Continued focus on local
the executive team to empowerment of employees
account for the required to take decisions where
skillset for the next appropriate
stages of the company
with strong construction Continued efforts to secure
and operational skills the required skillsets,
being required during deliver top training programmes,
the construction of Tulkubash and act proactively in
and development of Kyzyltash relation to improving the
as well as the potential work environment
integration of M&A targets.
Enhanced measures to ensure
a safe and attractive
work environment for all
employees, with additional
measures performed at
Kapan level after the
fatality accident.
Ongoing COVID precaution
measures throughout the
year.
------------------------------------------ ------ -----------------------------------
Finance 2021 progress Page 2022 priorities
------------------------------------------ ------ -----------------------------------
Funding package of US$52.2 Secure project finance
million closed in February for Tulkubash
2021 which included issuing
US$30.0 million in equity
to new investors and conversion
of debt into equity of
US$22.2 million
Repay or refinance convertible
loan notes due on 31 October
2022
Extended the maturity
of the convertible loan
notes by one year to 31
October 2022
Reduced principal interest-bearing Ensure existing debt financing
debt from US$70.5 million is efficiently structured
as at 31 December 2020
to US$38.7 million at
31 December 2021, primarily
as a result of converting
the Labro Term Loan into
equity in February 2021
and reducing the Kapan
acquisition loan by US$9.0
million from Kapan cash
flows
------------------------------------------ ------ -----------------------------------
Environmental, Social, and Governance ("ESG")
Safety and Health
On 4 March 2021, a tragic fatal incident occurred at Chaarat's
Kapan operation. The event occurred during activities to clear a
blocked ore pass. A management review of the incident identified
that despite recognizing the hazards of the activity and
effectively communicating the required control measures, the
supervisor overseeing the work took actions that sadly led to the
loss of his life. Independent investigations by the Armenian labour
authority and police came to the same conclusion.
Despite ongoing activities to improve risk identification and
risk management on site, this event highlighted that there were
still elements of the safety culture that had an inappropriate
level of risk tolerance. Companywide safety meetings were held with
all employees and contractors immediately after the incident to
discuss the issue of unacceptable risk tolerance and the need for
improvement in the business. The incident has acted as a catalyst
for change within the company and has enabled us to make good
progress on improving the underlying safety culture at Kapan.
There was one lost time injury in March at Kapan related to an
employee who suffered a medical condition while accessing a work
platform. The employee suffered serious injuries when he fell and
landed in an awkward position.
Since March, the safety record at Kapan has been good with no
serious incidents occurring for the last 11 months. Lost time
Injury Frequency for 2021 was 0.70 compared to 0.37 for 2020 due to
two incidents in 2021 compared to one in 2020.
As a result of the fatality, our ongoing cultural change at
Kapan refocused slightly to build on responsibility for each other,
as well as focusing on a sense of local ownership,
entrepreneurship, and decentralized assessment and decision making.
Since our acquisition of the mine, we have been working to create a
unified approach to health and safety where no difference exists
regarding values, standards, and practices whether direct or
contract employee. The tragic incident refocused everyone on this
essential transformation. It allowed us to challenge the cultural
barriers that existed in Kapan and to rethink how everyone that
goes to work at our sites has the same rights regarding being able
to go to home to their families safe and healthy at the end of
their workday.
Safety at our Kyrgyz operations remains strong with no lost time
injuries or high potential incidents for the year.
As a group, we worked approximately 3.25M hours in 2021 with an
overall lost time injury frequency rate of 0.61 per million hours.
Lessons learnt from the Kapan fatality were shared with in our
Kyrgyz operations to ensure the key lessons could be proactively
incorporated.
Environment and Cultural Resource Protection
Work on the Tailings Storage Facility (TSF) buttressing has been
ongoing throughout 2021. The known areas of highest risk have been
reinforced and the work of adding compacted fill to the slope of
the north dam wall has progressed well. The risk of any failure of
the TSF due to seismic activity has been reduced as a result of
these actions.
Our focus has been on using appropriate fill from our mining
operations rather than mining new material from somewhere else in
Armenia. Suitable waste material is hauled direct from the mine to
the TSF. In this way we avoid the need to quarry new materials,
minimize transportation distances, reduce fuel consumption and
greenhouse gas emissions. Onsite waste dumps of appropriate
material have been emptied and the rock moved to the TSF as well.
Our approach requires longer to complete, but is significantly more
environmentally responsible, while at the same time managing the
risks associated with the historical legacy issues of the TSF.
Approximately 366 thousand tonnes of rock have been piled and
compacted to design specifications as part of the buttress
construction to date.
The third-party assessment against the Global Industry Standards
on Tailings Management was not completed in 2021 as travel
restrictions related to COVID-19 made such work difficult. As a
first step, Chaarat will undertake a more detailed internal
assessment in 2022 and determine what additional activities need to
be undertaken on a priority basis.
In Kapan we continue to operate our annual reforestation program
in conjunction with the local community. Each year staff and
volunteers from the community spend time planting seedling in
suitable areas and to address past environmental damage from a long
history of mining in the area. To date, approximately 1,300 trees
have been planted as part of this initiative.
In the Kyrgyz Republic we work with the regional and national
government to offset the impact of our project development. A
licence needs to be obtained and a fee paid based on the type and
age of the trees and bushes that need to be removed during the
development of the mine and processing areas. This fee is then used
by the Government for reforestation projects across the country on
a prioritized basis.
During the original Environmental and Social Impact Assessment
("ESIA") process it was determined that there was one species of
plant that needed to be relocated due to our activities. Government
representatives visited the site and in conjunction with our
environmental team relocated the Kaufman's tulip bulbs identified
to suitable locations outside of the area affected by our
activities.
Work was also undertaken to stabilize and protect an area of
archaeological interest that was close to our proposed heap leach
area. Members of the archaeological team from the government came
to site to supervise stabilization and fencing works. This work is
not only intended to protect the area from our operations but also
visitors to the area during the year. Herders move through the
valley to suitable vegetation in other areas, and many people from
the local community come at various times of the year to pick herbs
and medicinal roots and leaves. The work carried out helps protect
the area from inadvertent contact or disturbance of any kind.
Climate change
Work has been ongoing throughout the year to replace the old
energy-intensive lights in use both underground and in the
processing plant with modern low-intensity lights. We have also
been replacing some of the old switchgear and wiring on site with
new equipment. This new equipment includes the latest technology
regarding energy saving technologies. They also offer improved
safety for our electrical teams regarding arc flash risk.
As part of every capital project, we assess what improvements
are possible with regard to the reduction in energy use and of GHG
emissions.
Further work will be undertaken in 2022 to better understand and
define the physical and transition risks to the company from
climate change.
Community Relations
Operations throughout 2021 continued to be impacted by the
various waves of COVID-19 infection travelling around the
globe.
The various control and mitigation measures we implemented at
the start of the pandemic remained in place throughout the year. In
general, our controls proved to be effective, especially when
supported by general societal controls such as mask wearing and
social distances. As societal controls reduced, the challenges
faced by the operations became more challenging. At our Tulkubash
site, pre travel testing continued to prove effective, but for our
town and city-based activities they proved less so. With almost no
controls in place outside of the workplace, employee infection
rates increased significantly. Infection rates peaked in the Kyrgyz
republic in the summer and in Armenia in late 2021. Vaccination
levels amongst our staff are significantly above the national
averages for both countries. We encouraged vaccination through
educational programs and worked with the local health authority in
Kapan to provide access to vaccinations via the onsite health
clinic. Thankfully, severity levels were low in workforce and in
our local communities.
Throughout the year we maintained our social programs in
conjunction with the local authorities and community groups.
As a border town, Kapan's focus was assisting local Armenian
families affected by the war in 2020. We have provided funds that
have been used to purchase family dwellings and livestock for
displaced families. Our focus on education continued with support
provided to various school and educational groups in the greater
Kapan area.
Normal face to face activities resumed in late Q3 in Chatkal
when Chaarat was able to resume their sponsorship of the Chaarat
Cup games. After last year's absence the regional communities were
very happy to resume the event.
The revised ESIA for the Tulkubash project was published in May
2021 and is available on our website.
Government Relations
For the second year in a row, Chaarat, the Government of the
Kyrgyz Republic and the European Bank for Reconstruction and
Development were unable to hold the Kyrgyz British Investment
Forum. COVID travel restrictions prevented travel and in person
events in London.
Relations with the governments in both countries remains
positive. The government of the Kyrgyz Republic continues to
support the development of the Tulkubash project, and our Chairman
has had several constructive in-country discussions at Ministerial
and Presidential level during the year.
In Armenia, relations with the government at the local,
regional, and national level continue to be strong. Our support of
the local community, assistance in encouraging COVID vaccination in
the region and other ongoing activities were recognized and
rewarded at the highest levels. Our Country Director received
several commendations and rewards from both the regional and
national governments.
Chief Operating Officer's Review
Kapan
2021 is the third year of operation for Chaarat of the Kapan
mine.
The Kapan ore body is made up of a network of narrow variable
steeply dipping polymetallic veins. The ore body is currently
worked using a combination of mechanized and handheld mining
techniques to optimize the geology of the mine.
The Mill produces 2 flotation concentrates. One high in gold,
copper, and silver, the second is a zinc concentrate with some
contained gold and silver. The mine has a capacity of approximately
600-700kt pa depending on mining method used. The milling and
flotation circuits have a capacity of approximately 800kt pa
expandable to 1Mt per year with minor capital investment.
Kapan Operational Highlights
-- Tonnes mined for 2021 were 600,246t compared to 684,156t in
2020. The 12% reduction in tonnage was the result of a change in
mining method. Many areas of the mine currently being worked do not
lend themselves to fully mechanized mining methods due to the size
and nature of the veins. Trial work on different methods including
shrinkage method, started at the end of 2020 and is now in use in
many parts of the mine.
-- Mine head grade increased to 3.3 g/t as a result of the
changes, from 3.0 g/t in 2019 and 2020. Mill grade for own ore was
in line with mine production.
-- Mill throughput was relatively constant at 729,473t compared
to 744,705t in 2020. Own ore treated was lower due to the reduction
in mine output, but third-party ore increased. 144,632t of
third-party ore were treated in the year compared to only 67,838t
in 2020.
-- Supply of third-party ore is expected to remain at the
current levels in 2022. The mill still has additional capacity, and
this can be filled by additional third-party ore while internal
growth projects work on ways to fill the mill with higher value own
ores.
-- Recoveries from own ore declined slightly in 2021 to 79.1%
compared to 79.9% in 2020. The reduction was due to a combination
of higher oxidation and ner grain size in some of the areas mined
during the year. As Kapan is a polymetallic mine, increased
oxidation of the sphalerite and chalcopyrite alter the potential of
the minerals to float in the mill circuit. In some areas of the
mine, the grain size of the minerals has reduced from the
historical norm. Despite the mill circuits improvements made in
2020, it was not possible to achieve the grind size necessary to
fully liberate sphalerite from the chalcopyrite and zinc levels in
the gold/copper concentrate increased.
-- In Q3 the government of Armenia introduced a new sales tax on
copper concentrates to allow the country to benefit from the
highest prices seen since 2011. Due to the nature of the
polymetallic mineralogy at the Kapan mine, the concentrate produced
is not a classic copper or gold concentrate but a mixed gold/copper
concentrate. After lengthy discussions with the government, they
issued an exemption to Kapan and one other mine related to the new
tax. Sales of gold/copper concentrate were put on hold by the
company during Q3 pending final resolution of the tax issue. All
concentrates accumulated during the period were shipped before year
end, but the delay did impact cash flow to the business during that
period. Kapan management did an excellent job of working with its
suppliers and lenders to minimize impacts across the supply
chain.
-- Kapan experienced issues during the year related to logistics
and supply chain challenges that affected global trade. Delivery
costs for incoming goods increased as did the costs of shipping our
concentrated. Although commodity price increases helped revenue,
they did adversely affect operating costs. The costs of consumables
and reagents based on steel, copper, and zinc all increased. This
had a negative effect of all in sustaining costs. Initiatives are
ongoing to minimise the impact of these inflationary pressures on
the business.
2021 full-year production consists of:
Kapan 2021 2020
Production (oz
AuEq) 63,039 58,661 (1)
-------- -------------
Own ore (oz AuEq) 48,601 54,215
-------- -------------
Third-Party ore
(oz AuEq) 14,438 4,446
-------- -----------
All-in sustaining
cost (USD/oz) 1,205 1,034
-------- -------------
Sales (AuEq oz) 57,212 48,387
-------- -------------
Gold production
(oz) 35,405 30,837
-------- -------------
Silver production
(oz) 610,322 587,718
-------- -------------
Copper production
(t) 2,284 2,154
-------- -------------
Zinc production
(t) 5,836 7,641
-------- -------------
Realised gold price
(USD/oz) 1,784 1,773
-------- -------------
Realised silver
price (USD/oz) 25 20.4
-------- -------------
Realised copper
price (USD/t) 9,157 6,117
-------- -------------
Realised zinc price
(USD/t) 3,001 2,222
-------- -------------
(1) Not adjusted for changes in price desk, as per reported in
2020.
Kapan - Exploration Potential
Work is continuing on the East Flank target area adjacent to the
current Kapan mine. An underground development drive has been mined
to provide access to the East Flank from the current mine workings.
Diamond drilling will start in 2022 from several drilling chambers
installed off the development drive. A total of 13,400m metres of
drilling are planned over the next 2 years with almost 15,000 core
and channel samples to be tested. The East Flank area is currently
developed to a P2 resource level, and the new drill program is
designed to bring the most prospective area of the East Flank to an
inferred level of certainty under JORC classifications.
Work is also ongoing to assess additional exploration and
development opportunities in the region around the Kapan mine. Our
first priority is to look if additional tonnage suitable for
treatment in the Kapan mine can be identified and developed. Second
priority is to identify new growth opportunities in Armenia
suitable for future development.
Ore Resources and Reserves
Resource drilling increased significantly in 2021 to help
improve resource modelling. Drilling increased from 37,400 metres
in 2020 to 69,300 metres in 2021.
The work has improved the accuracy of the resource model, and
mine reconciliation is now much closer to mill production. This
helps improve accuracy of budgeting and forecasting of grade and
tonnes compared to the old model, which is always a challenging
activity in a narrow vein, variable underground mine.
The mineralised areas at Kapan are well understood from many
years of drilling. Exploration drilling has defined extensive
mineralisation, but in certain areas this cannot be converted into
a resource estimate at this time as drill hole density is not
sufficient to classify mineralisation as inferred. To be effective,
all resource drilling needs to be carried out underground
preferentially perpendicular to the vein orientation.
Resource development drives and drilling occurs in advance of
mining to ensure sufficient areas are converted to Measured and
Indicated and sufficient new inferred tonnage is added for future
infill drilling. This is the case with all such narrow vein mining
operations. This type of resource development effectively limits
the size of the reserve that can be sensibly developed to a much
shorter horizon than is the case with large more homogeneous ore
bodies, either open pit or underground.
The Company updated its Mineral Resources and Ore Reserves in
June 2021 which was signed off by independent consultant AMC and
the Chaarat board in March 2022. The Mineral Resources and Ore
Reserves, detailed in this press release, have been reported
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 following table summarises the updated 2021 Mineral Resource
Estimate:
Grade Metal
Classification Tonnes Density Au Ag Cu Zn AuEq Au Ag Cu Zn AuEq
(Mt) (g/t) (g/t) (%) (%) (g/t) (Koz) (Koz) (Kt) (Kt) (Koz)
------- -------- ------ ------- ----- ----- ------- ------- ------- ------ ------ -------
Measured 0.24 2.72 6.55 107.9 1.24 5.10 12.17 50 826 2.95 12.1 93
------- -------- ------ ------- ----- ----- ------- ------- ------- ------ ------ -------
Indicated 1.76 2.76 4.43 88.31 0.92 3.51 8.60 250 4,989 16.2 61.6 486
------- -------- ------ ------- ----- ----- ------- ------- ------- ------ ------ -------
M & I 2.00 2.76 4.69 90.65 0.96 3.70 9.03 301 5,815 19.2 73.7 579
------- -------- ------ ------- ----- ----- ------- ------- ------- ------ ------ -------
Inferred 3.50 2.80 3.37 76.46 0.79 2.71 6.89 379 8,596 27.6 94.8 775
------- -------- ------ ------- ----- ----- ------- ------- ------- ------ ------ -------
-- The effective date of the resource is 1st June, 2021. The
Mineral Resources that are not Mineral reserve do not demonstrate
economic viability. Numbers may not sum due to rounding.
-- The gold equivalency formula is: Au Eq = Au + (Ag g/t * ($25
/ $1,700) + (Cu % * ($8,000 * 31.1035 / $1,700) / 100) + (Zn % *
($2,500 * 31.1035 / $1,700) / 100
-- Wireframes defined by a mineralized cut-off with a parent
block size of 4 m x 4 m x 4 m, Grades interpolation is by Ordinary
Kriging method.
-- MSO applied assuming: minimum width 2.2m; COG 2.0g/t Au Eq
-- Mineral Resources are with applied depletion and inclusive of Ore Reserves.
-- The resource estimate and classification is according the JORC Code (2012) reporting code.
This update of the Mineral Resource estimate from 2019 is
reflecting the mining depletion and mine development and grade
control drilling conducted in the subsequent 2020-2021 period.
It is the CP's opinion that the Measured and Indicated Mineral
resource herein is a reliable basis for the Ore Reserve Estimate
update.
The following table summarises the 2021 Ore Reserves:
Grade Metal
Classification Tonnes Au Ag Cu Zn AuEq Au Ag (Koz) Cu Zn AuEq
(Mt) (g/t) (g/t) (%) (%) (g/t) (Koz) (Kt) (Kt) (Koz)
------- ------- ------- ----- ----- ------- ------- --------- ------ ------ -------
Proven 0.15 2.21 37.55 0.45 1.60 4.07 10.4 184.1 0.7 2.4 19.9
------- ------- ------- ----- ----- ------- ------- --------- ------ ------ -------
Probable 2.39 1.63 32.90 0.33 1.23 3.17 125.6 2,531.7 8.0 29.5 243.8
------- ------- ------- ----- ----- ------- ------- --------- ------ ------ -------
Total Proven
and Probable 2.55 1.66 33.17 0.34 1.25 3.22 136.0 2,715.9 8.7 31.9 263.7
------- ------- ------- ----- ----- ------- ------- --------- ------ ------ -------
-- Ore Reserves, fulfilling the requirement of the JORC Code
(2012), are contingent on completion of a formal Mineral Resource
report and application of reasonable prospects for eventual
economic extraction to Mineral Resource statement.
-- Ore Reserves are based on long-term metal prices of
USD1,700/oz Au, USD25/oz Ag, USD8,000/t Cu, and USD2,500 Zn.
-- Ore Reserves are based on a gold equivalent cut-off of 2.0g/t Au.
-- Mineral Resources which are not Ore Reserves do not have demonstrated economic viability.
-- Table is subject to rounding errors.
-- The average density of Measured and Indicated Resources is
2.67 t/m3. A density of 2.64 t/m3 was used for unmodelled diluting
waste material.
-- Tones reported are in situ, dry tonnes.
The historical upgrade of Inferred Resource to M&I Resource
that can be converted to reserves suggests that the life of mine
can be further extended from the anticipated upgrading of a portion
of the current Inferred Resource. Ongoing exploration is expected
to continue adding to this inventory.
Outlook for 2022
Kapan Mine production guidance for 2022 is 50-53 koz of own-ore
production with an additional 6-9 koz of third-party ore
production. This is based on 100,000t of third-party ore treated
during 2022.
East Flank resource definition drilling is planned, as part of
preparing an initial mineral resource estimate and results are
expected in 2023.
Tulkubash
Introduction
Tulkubash is an oxide gold deposit suitable for open pit mining,
and extraction using standard heap leach gold extraction
technology. It has a well drilled JORC compliant proven and
probable reserve which has been reviewed by external parties as
part of the funding initiatives carried out to date. The 2021
reserve showed an estimated life of mine of five years. Additional
drilling in 2021 was carried out to add additional ounces to this
reserve. Further potential exists to the northeast along strike.
Initial exploration was carried out in 2021 to start defining the
potential of these extension areas.
2021 Tulkubash Project Highlights
There were no lost time injuries or major safety incidents
during the year. The project has worked 1.38M hours since 2018
without a lost time injury.
Logiproc, an engineering consultancy from South Africa,
completed the revision of the project bankable feasibility study
("BFS") in May. An update of the Environmental and Social Impact
Assessment (ESIA) was completed in June. Both reports are available
on the Chaarat website.
Construction activities in 2021 were slowed due to the delay in
project funding. Activities focused on furthering detailed
engineering of the process plant (Absorption / Desorption /
Recovery plant, Reagent Storages, Crushing and Conveying Circuit)
and infrastructure including in-country legalization of detailed
design documentation. Construction focused on the installation of
camp modules, haul road and process platforms construction. The
full project team remains in place ready for a quick ramp up of
activities once project nancing is secured.
Studies were carried this year on the geotechnical and
hydrogeological elements of the proposed pits. The reports are
being finalized but results were as anticipated from prior
assessment of the area.
Resource and Reserves
The Tulkubash Mineral Resource Estimate (MRE) and Ore Reserves
Estimate (ORE) were updated as part of the BFS update. As the
project remains in the construction phase, these estimates
accurately reflect the current estimates for the Tulkubash
project.
Tulkubash Mineral Resource Statement (Effective 7 November
2020)
Classification Quantity (kt) Grade Au (g/t) Contained metal
Au (koz)
Measured - 0 -
-------------- --------------- ----------------
Indicated 28,505 0.86 789
-------------- --------------- ----------------
Inferred 21,412 0.56 388
-------------- --------------- ----------------
Tulkubash Ore Reserves (at Year end 2020)
Category Quantity (Mt) Grade (g/t) Metal Au (kg) Metal Au (koz)
Proven - - - -
-------------- ------------ -------------- ---------------
Probable 20.9 0.85 17,760 571
-------------- ------------ -------------- ---------------
Total P&P 20.9 0.85 17,760 571
-------------- ------------ -------------- ---------------
A revised MRE and ORE including the results of the 2021
programme is being developed and will be released in Q2 2022.
Exploration Highlights
The 2021 exploration programme was completed on schedule. 4,835
metres of in ll drilling was carried out in the Mid and East areas
aimed at reclassifying Inferred and unclassi ed areas to Indicated.
The drill holes intersected consistent oxide gold intercepts as
expected.
Additional drilling and trenching were carried out in areas to
the northeast of the current reserve in the Karator and Ishakuldy
areas. The work is early-stage exploration to assess the potential
of the continuation of the Tulkubash mineralization on strike. The
early work returned some positive intercepts and encouraging
results. Further exploration will be carried out in these areas in
the future. The full 2021 exploration results are available on the
Chaarat web page.
The wide area potential work planned for 2021 could not be
completed as planned. This work is now being arranged for the 2022
season. The work will consist of an aerial drone based magnetic
survey of the entire exploration licence area. The survey will
target delineation of prospective anomalies related to Tulkubash
and Kyzyltash style mineralisation along approximately 8km of
strike, as well as potential porphyry/scarn systems further
northeast. Further reconnaissance trenching and scout drill testing
of structurally most prospective Kyzyltash style targets are also
planned.
Kyzyltash
The Kyzyltash sulphide ore body has an unconstrained Measured
and Indicated resource of 4.6M ounces of gold. As the next step in
progressing towards the development of this high potential project,
over 3,500 metres of large diameter diamond drilling comprising 16
holes was carried out to obtain core from across the deposit. This
core will be used to develop representative composite samples on
which to undertake suitable metallurgical testing to develop a
detailed process understanding of how best to treat and recover the
gold contained in the Kyzyltash deposit.
The core has been sent to SGS Lakefield in Canada for a full
suite of metallurgical tests. SGS Lakefield was selected due to
their expertise in metallurgical testing and the fact they were
able to undertake testing on pressure oxidation (POX), biological
oxidation (BIOX) and Albion oxidation of refractory sulphide gold
ores in the same facility. Results from this comprehensive test
programme are expected around mid 2022. The results will enable
assessment of which technologies are suitable to take to the next
stage of project assessment for an initial determination of
operating and capital costs.
Kyzyltash Mineral Resource Estimate
The Kyzyltash Unconstrained Resource was prepared in accordance
with JORC standard as of 19 October 2014
Resource statement Tonnes (mt) Au (g/t) Metal (koz)
JORC 2014
(cut-off grade 2g/t)
Measured 6.72 3.26 700
------------- ---------- -------------
Indicated 32.79 3.79 3,900
------------- ---------- -------------
Measured and Indicated 39.52 3.70 4,600
------------- ---------- -------------
Inferred 6.61 4.05 800
------------- ---------- -------------
Principal Risks and Uncertainties
Risk Existing mitigating actions
Liquidity Maintain discussions with existing
The Group requires significant lenders and potential finance
additional financing in the providers.
future to develop projects Address potential gating items
and to meet ongoing financial to securing project finance.
needs. The Group's GBP25.6m Looking for new funding options.
convertible loan notes fall
due on 31 October 2022. There
can be no assurance that additional
financing will be available,
or if available, that it will
be on acceptable or favourable
terms. The failure to obtain
additional financing as needed
on reasonable terms, or at
all, may require the Group
to reduce the scope of its
operations or anticipated expansion,
dispose of or forfeit its interest
in some or all of its properties
and licences, incur financial
penalties or reduce or terminate
its operations.
-----------------------------------------
Jurisdiction Process in place to monitor prospective
The existence of Armenia and legislative changes, discuss
the Kyrgyz Republic as independent them with competent state bodies
states resulted from the break-up and make suggestions.
of the FSU. As such, they have Participation in working groups
relatively short histories with other mining companies.
as independent nations and Stabilisation agreement in place
there remains potential for in respect of the Kyrgyz Republic.
social, political, economic, Regular dialogue with ministerial
legal, and fiscal instability. departments.
The laws and regulations in Operation of an ethics and compliance
Chaarat's areas of operation programme with annual refresher
are still developing in some training.
areas and some provide regulators Ensuring that all permits and
and officials with substantial licences necessary for the construction
discretion in their application, and operation of the Tulkubash
interpretation, and enforcement. project are complied with.
In 2011, a Kyrgyz Government Ensuring that all laws an regulations
decree transformed land categorised of the Kyrgyz Republic are complied
as 'highly protected territory' with.
into 'industrial territory'
but mistakenly omitted a small
part of Chaarat's licence area
from the transformed 'industrial
territory'.
The Kyrgyz Government continues
to progress activities to rectify
this administrative error.
The final decree is with Government
Ministers for approval and
UNESCO is aware of the that
the decree is reaching the
final stages of approval. Chaarat's
mining licence agreement remains
compliant with Kyrgyz law and
Chaarat has all permits and
licences necessary for the
construction and operation
of the Tulkubash project within
its entire licensed area, including
the land that is in the process
of being correctly reclassified.
-----------------------------------------
Environmental Implementation of proper geohazard
Effective environmental management mitigation measures and maintenance
is critical to maintain regulatory of a proper hazard management
approvals and social license programme, including engineering
to operate. Key risk area at hazard mitigation measures.
Kapan is related to the historical Monitoring of tailings storage
upstream construction tailings facility (TSF), pipelines, emergency
storage facility. Active mitigation pools, and treatment facilities,
measures are in place. Risks and analysis of monitoring data.
for Tulkubash currently relate Annual identification of environmental
to construction activities. hazards and planned internal
Management plans are developed reviews of hazard management.
related to operations as per Kapan is ISO 14000 certified
project ESIA. with successful recertification
carried out in 2021
Employee training on environmental
issues, in particular on waste
control methods.
-----------------------------------------
Safety and health ("S&H") Embedding of policies, standards,
Chaarat's operations have inherent and procedures in place across
S&H risks to our employees Chaarat for systematic control
and contractors. Failure to of significant S&H risks.
manage these risks may result Purchase of high quality personal
in occupational illness, injuries, protective equipment (PPE).
and loss of life. Management Conduct of planned preventative
systems maintenance of equipment and
Chaarat's business is exposed upgrade equipment in a timely
to pandemics and national and/or manner.
regional epidemics which can Targeted recruitment of experienced
impact its organic and inorganic specialists and regular training
growth strategy. of employees and contractors
Continuous monitoring of highest
risk workplace areas.
Employee training.
Implementation of extensive mitigation
measures during the ongoing COVID-19
pandemic to ensure that our operations
could continue whilst at the
same time ensuring the safety
of our employees and contractors.
In 2022, Chaarat will continue
to monitor World Health Organisation
and local government advice regarding
precautionary measures and ensure
that we implement all measures
necessary to ensure the safety
of our people.
-----------------------------------------
Construction and development Operation of a proper contractor,
Depending on the timing of supplier, expert and other adviser
completion of project financing, selection and management process
there is a possibility of delays to ensure that they are reliable
to the start of production and meet required performance
and cost overruns relating standards.
to Chaarat's development of
its Tulkubash project.
-----------------------------------------
Commodity price volatility Hedging strategies are periodically
Adverse movements in precious considered.
metals prices could materially Conservative long-term prices
impact the Group in various are used to evaluate projects.
ways beyond a reduction in AISC at Kapan remains below gold
the financial results of operations. prices.
These include the feasibility
of projects and the economics
of mineral resources.
-----------------------------------------
Financial Review
Income statement
Revenue during 2021 amounted to US$92.4 million (2020: US$76.0
million), comprising US$72.8 million of own ore revenue and US$19.6
million third-party revenue (2020: US$69.9 million own ore and
US$6.1 million third-party revenue). During the year, Kapan sold
57,212 ounces of AuEq (2020: 48,387 ounces), including third-party
sales, with a realised gold price per ounce of US$1,784 (2020:
US$1,773), a realised silver price per ounce of US$25 (2020:
US$20), a realised copper price per tonne of US$9,157 (2020:
US$6,117) and a realised zinc price per tonne of US$3,001 (2020:
US$2,222).
The Group operating profit for the year was US$7.8 million
(2020: US$1.9 million) and the Group EBITDA(1) was US$13.5 million
(2020: US$9.3 million). The increase in EBITDA was mainly due to a
more favourable commodity price environment.
2021 Armenia 2021 2021 2020 2020 2020
Kyrgyz Republic & Total Armenia Kyrgyz Republic & Total
Corporate Corporate
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
----------------------- ------------- ---------------------- -------- --------- ---------------------- ---------
EBITDA(1) 22,653 (9,167) 13,486 19,429 (10,126) 9,303
Depreciation and
amortisation (6,621) (494) (7,115) (5,232) (727) (5,959)
Net finance costs (3,026) (4,847) (7,873) (3,130) (17,628) (20,758)
Unrealised foreign
exchange gain/(loss) 2,090 - 2,090 (2,649) - (2,649)
Fair value gain on
warrant - 434 434 - 595 595
Change in provisions (673) - (673) 545 - 545
Profit/(loss) before
tax 14,423 (14,074) 349 8,963 (27,886) (18,923)
----------------------- ------------- ---------------------- -------- --------- ---------------------- ---------
Income tax charge (3,937) - (3,937) (3,520) - (3,520)
----------------------- ------------- ---------------------- -------- --------- ---------------------- ---------
Profit/(loss) after
tax 10,486 (14,074) (3,588) 5,443 (27,886) (22,443)
----------------------- ------------- ---------------------- -------- --------- ---------------------- ---------
The adjusted Group EBITDA, excluding the share-based payment
expense, which is a non-cash item, was as follows:
2021 2020
US$'000 US$'000
---------------------------------------------------- ------- --------
Kapan EBITDA 22,653 19,429
Kyrgyz Republic & Corporate EBITDA (9,167) (10,126)
Group EBITDA(1) 13,486 9,303
Corporate share-based payment expense 1,251 3,612
Unwinding of discount - provision for environmental
obligations - 655
Adjusted Group EBITDA(1) 14,737 13,570
---------------------------------------------------- ------- --------
Finance costs in 2021 were US$7.9 million (of which US$5.6
million was non-cash) compared to US$21.4 million in 2020 (of which
US$18.7 million was non-cash). The decrease in costs was mainly due
to the refinancing of the Investor Loan at the end of 2020, which
resulted in increased financing costs that year, and settlement of
the Labro working capital facility and Labro Term Loan in early
2021 resulting in less accrued interest in 2021.
Income taxes in 2021 were US$3.9 million compared to US$3.5
million in 2020. Consequently, the Group made a loss after tax of
US$3.6 million compared to a loss after tax of US$22.4 million in
the 2020 financial year.
Balance sheet
The borrowings at the balance sheet date comprised US$25.6
million of convertible loan notes due in October 2022 (2020:
US$23.3 million), US$21.3 million of other loans (US$53.3 million),
US$2.4 million of contract liabilities (2020: US$5.3 million),
US$1.0 million of lease liabilities (2020: US$1.4 million) and
US$0.4 million of warrant financial liabilities (2020: US$0.8
million).
The Group's net debt(2) decreased from US$77.2 million at 31
December 2020 to US$39.6 million at 31 December 2021, primarily as
a result of converting the Labro Term Loan into equity in February
2021 and reducing the Kapan acquisition loan from Kapan cash flows.
The Kapan acquisition loan has certain covenants attached to it.
All covenants were met as at 31 December 2021 and as such the Group
remains in full compliance.
Non-current assets increased from US$109.3 million at 31
December 2020 to US$119.7 million at 31 December 2021. The increase
was mainly due to the purchase of property, plant, and equipment at
Kapan. Additionally, exploration and evaluation costs of US$5.7
million were capitalised relating to the asset in the Kyrgyz
Republic.
Current assets were US$51.8 million at 31 December 2021 compared
to US$25.8 million at 31 December 2020. The increase mainly related
to trade receivables from Kapan's customers due to the timing of
sales close to year-end. Current assets at 31 December 2021
included cash and cash equivalents of US$11.1 million (2020: US$6.9
million).
Total liabilities at 31 December 2021 were US$94.7 million
compared to US$110.7 million at 31 December 2020. This reduction
was mainly due to repayments of bank debt and the Labro Facility in
the amount of US$12.1 million (including interest) and settlement
of the Labro Term Loan in the amount of US$22.1 million through
shares issued, offset by accrued interest on loans during the year.
Further, on 21 October 2021, the maturity date of the convertible
loan notes was extended from 31 October 2021 to 31 October 2022 and
the conversion price reduced from GBP0.37 to GBP0.30 per share. In
addition, liabilities at 31 December 2021 included a provision for
environmental obligations at Kapan of US$10.5 million (2020: US$7.5
million). This increase was as a result of a reassessment of the
Company's obligations under international legislation requirements
that took place in 2021 by an independent third party.
Total equity was US$76.9 million at 31 December 2021 compared to
US$24.5 million at 31 December 2020. This mainly reflects the
increase in share capital and premium of US$52.6 million as a
result of the equity raise in February 2021 and other share
issues.
Cash flow
Cash and cash equivalents increased from US$6.9 million at 1
January 2021 to US$11.1 million at 31 December 2021. The movement
comprised of:
-- net operating cash flows of US$3.3 million (2020: US$15.9
million), mainly due to improved operating performance offset by
working capital movements at Kapan (e.g. increase in trade
receivables due to the timing of sales close to year-end) and
expenditure on corporate overheads
-- net cash used in investing activities of US$15.5 million
(2020: US$11.9 million) relating to the purchase of property,
plant, and equipment at Kapan and in the Kyrgyz Republic together
with capitalised exploration and development spend in the Kyrgyz
Republic
-- cash inflows from financing activities of US$16.7 million
(2020: cash used of US$0.9 million) mainly relating to the funds
received from the equity raise of US$29.6 million offset by
external debt repayments, including interest, of US$12.1
million
Going concern
In order to achieve the planned future capital developments of
the assets and to repay the convertible loan notes due on 31
October 2022, management will need to raise future financing. There
are currently no binding agreements in place in respect of any
additional funding and there is no guarantee that any course of
funding will proceed such that the ability to refinance the US$25.6
million of convertible loan notes prior to 31 October 2022
represents a material uncertainty. However, management is committed
to raising additional funds and has an established track record of
successfully achieving this in the past as demonstrated by the
fundraising activities in early 2021. Accordingly, the Directors
have adopted the going concern basis of accounting in preparing the
consolidated financial statements.
(1) (In reporting financial information, the Group presents
EBITDA and adjusted EBITDA as alternative performance measures,
"APMs", which are not defined or specified under the requirements
of IFRS. The Group believes that these measures provide
stakeholders with additional useful information on the performance
of the business.)
(2 In reporting financial information, the Group presents Net
debt as an alternative performance measure, "APM", which is not
defined or specified under the requirements of IFRS. The Group Net
debt comprises convertible loan notes, other loans, contract
liabilities, lease liabilities and warrant financial liabilities,
net of cash and cash equivalents.)
Financial Statements
Consolidated Income Statement
For the year ended 31 December 2021
2021 2020
US$'000 US$'000
Revenue 92,434 75,994
Cost of sales (69,258) (55,286)
Gross p rofit 23,176 20,708
Selling expenses (2,444) (1,864)
Administrative expenses (12,966) (16,970)
Other income 22 21
Operating profit 7,788 1,895
Finance income 23 19
Finance costs (7,896) (21,432)
Fair value gain on warrant 434 595
-------------------------------------------- ---------- ----------
Profit/(loss) before tax for the year 349 (18,923)
Income tax charge (3,937) (3,520)
-------------------------------------------- ---------- ----------
Loss for the year (3,588) (22,443)
-------------------------------------------- ---------- ----------
Loss per share (basic and diluted) - US$
cents (0.53) (4.40)
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2021
2021 2020
US$'000 US$'000
Loss for the year (3,588) (22,443)
Items which have been reclassified to the
income statement
Exchange differences on translating foreign
operations disposed of during the year - 73
Items which may subsequently be reclassified
to the income statement
Exchange differences on translating foreign
operations and investments 849 (480)
Other comprehensive income/(loss) for the
year, net of tax 849 (407)
Total comprehensive loss for the year (2,739) (28,850)
----------------------------------------------- --------- ----------
Consolidated Balance Sheet
As at 31 December 2021 2021 2020
US$'000 US$'000
------------------------------------------- ---------- ----------
Assets
Non-current assets
Exploration and evaluation costs 66,305 61,359
Other intangible assets 1,213 1,221
Property, plant and equipment 47,306 40,538
Prepayments for non-current assets 530 563
Deferred tax assets 4,381 5,631
Total non - current assets 119,735 109,312
-------------------------------------------- ---------- ----------
Current assets
Inventories 18,442 12,251
Trade and other receivables 22,247 6,646
Cash and cash equivalents 11,134 6,928
Total current assets 51,823 25,825
Total assets 171,558 135,137
-------------------------------------------- ---------- ----------
Equity and liabilities
* Equity attributable to shareholders
Share capital 6,894 5,401
Share premium 242,695 191,594
Own shares reserve (132) (216)
Convertible loan note reserve 1,420 2,493
Merger reserve 10,885 10,885
Share option reserve 11,383 14,103
Translation reserve (14,433) (15,282)
Accumulated losses (181,836) (184,527)
-------------------------------------------- ---------- ----------
Total equity 76,876 24,451
-------------------------------------------- ---------- ----------
Liabilities
Non-current liabilities
Provision for environmental obligations 10,521 7,479
Lease liabilities 732 771
Other loans 9,688 21,947
Total non-current liabilities 20,941 30,197
-------------------------------------------- ---------- ----------
Current liabilities
Trade and other payables 30,717 17,400
Contract liabilities 2,379 5,328
Lease liabilities 246 654
Other loans 11,640 31,400
Warrant financial liability 380 814
Convertible loan notes 25,625 23,252
Other provisions for liabilities and
charges 2,754 1,641
Total current liabilities 73,741 80,489
-------------------------------------------- ---------- ----------
Total liabilities 94,682 110,686
-------------------------------------------- ---------- ----------
Total liabilities and equity 171,558 135,137
-------------------------------------------- ---------- ----------
Consolidated Statement of Changes in Equity
For the Year
Ended 31
December 2021
Share Share Own Convertible Merger Share Shares Translation Accumulated Total
Capital Premium Shares Loan Note Reserve Option To Be Reserve Losses
Issued
Reserve Reserve Reserve
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
---------------- ------- -------- -------- -------- ------------ -------- -------- -------- ------------ ------------ ---------
As at 1 January 2020 4,688 168,616 (216) 2,493 10,885 10,624 217 (14,875) (162,253) 20,179
--------------------- ------------ -------- -------- ------------ -------- -------- -------- ------------ ------------ ---------
Loss for the
year - - - - - - - - (22,443) (22,443)
Translation
losses for the
year - - - - - - - (407) - (407)
---------------- ------- -------- -------- -------- ------------ -------- -------- -------- ------------ ------------ ---------
Total
comprehensive
loss for the
year - - - - - - - (407) (22,443) (22,850)
---------------- ------- -------- -------- -------- ------------ -------- -------- -------- ------------ ------------ ---------
Share options
lapsed - - - - - (159) - - 159 -
Share options
expense - - - - - 3,612 - - - 3,612
Share options
exercised 1 21 - - - (10) - - 10 22
Share scheme
modification - - - - - 36 - - - 36
Issuance of
shares for
cash 191 6,041 - - - - - - - 6,232
Issuance of
shares for
settlement of
liabilities 513 16,707 - - - - - - - 17,220
Issuance of
shares for
exercised
warrants 8 209 - - - - (217) - - -
As at 31
December 2020 5,401 191,594 (216) 2,493 10,885 14,103 - (15,282) (184,527) 24,451
---------------- ------- -------- -------- -------- ------------ -------- -------- -------- ------------ ------------ ---------
Loss for the
year - - - - - - - - (3,588) (3,588)
Translation
gains for the
year - - - - - - - 8 49 - 849
----------------
Total
comprehensive
loss for the
year - - - - - - - 8 49 (3,588) (2,739)
---------------- ------- -------- -------- -------- ------------ -------- -------- -------- ------------ ------------ ---------
Share options
lapsed - - - - - (715) - - 715 -
Share-based
payment charge - - - - - 1,251 - - - 1,251
Issuance of
shares for
cash 841 28,711 - - - - - - - 29,552
Issuance of
shares for
settlement of
liabilities 652 22,390 - - - - - - (101) 22,941
Transfer of
treasury
shares - - 84 - - (3,256) - - 3,172 -
Modification of
convertible
loan notes - - - ( 1,073) - - - - 2,493 1,420
As at 31
December 2021 6,894 242,695 (132) 1,420 10,885 11,383 - (14,4 33 ) ( 181,836) 76,876
---------------- ------- -------- -------- -------- ------------ -------- -------- -------- ------------ ------------ ---------
Consolidated Cash Flow Statement
For the Year Ended 31 December 2021 2021 2020
US$'000 US$'000
--------------------------------------------------- -------- --------
Cash flows from operating activities
Operating profit 7,788 1,895
Depreciation and amortisation 7,115 5,959
Loss on disposal of property, plant and
equipment 4 66
Non-cash expenses 87 335
Gain on disposal of subsidiary - (7)
Change in provisions 75 (897)
Unrealised foreign exchange (gains) /losses (1,475) 2,456
Share-based payments 1,251 3,612
Increase in inventories (6,507) (3,263)
(Increase)/decrease in trade and other receivables (15,915) 2,330
Increase/(decrease) in trade and other payables 15,920 (1,682)
(Decrease)/Increase in contract liabilities (3,250) 5,334
---------------------------------------------------- -------- --------
Cash generated in operations 5,093 16,138
Income taxes paid (1,806) (205)
Net cash generated in operations 3,287 15,933
---------------------------------------------------- -------- --------
Investing activities
Purchase of property, plant & equipment (9,117) (7,417)
Purchase of intangible assets (152) (155)
Exploration and evaluation costs (6,212) (4,389)
Proceeds from sale of property, plant &
equipment 1 51
Disposal of subsidiary - (5)
Interest received 17 19
---------------------------------------------------- -------- --------
Net cash used in investing activities (15,463) (11,896)
---------------------------------------------------- -------- --------
Financing activities
Proceeds from issue of share capital 29,983 6,255
Share issue costs paid (431) -
Repayments of principal portion of lease
liabilities (674) (573)
Finance costs paid for modifications of
other loans (104) (686)
Repayments of principal amount of loan (9,800) (8,000)
Payments of interest (2,295) (3,185)
Proceeds from loans - 5,300
Net cash from/(used in) financing activities 16,679 (889)
---------------------------------------------------- -------- --------
Net change in cash and cash equivalents 4,503 3,148
Cash and cash equivalents at beginning of
the year 6,928 3,585
Effect of changes in foreign exchange rates (297) 195
---------------------------------------------------- -------- --------
Cash and cash equivalents at end of the
year 11,134 6,928
---------------------------------------------------- -------- --------
Notes:
1. General information and group structure
Chaarat Gold Holdings Limited (the "Company") (registration
number 1420336) was incorporated in the British Virgin Islands
(BVI) and is the ultimate holding company for the companies set out
below (the "Group"). The Company's shares are admitted to trading
on the Alternative Investment Market of the London Stock Exchange
(AIM:CGH).
The registered address of the Company is: Palm Grove House, PO
Box 438, Road Town, Tortola, British Virgin Islands, VG1110.
As at 31 December 2021 the Group consisted of the following
companies all of which are wholly owned:
Group company Country of incorporation Principal activity
Chaarat Gold Holdings BVI Ultimate holding company
Limited
Zaav Holdings Limited BVI Holding company
Chon-tash Holdings Limited BVI Holding company
At-Bashi Holdings Limited BVI Holding company
Akshirak Holdings Limited BVI Holding company
Goldex Asia Holdings Limited BVI Holding company
Chon-tash Mining LLC* Kyrgyz Republic Exploration
At-Bashi Mining LLC* Kyrgyz Republic Exploration
Akshirak Mining LLC* Kyrgyz Republic Exploration
Goldex Asia LLC* Kyrgyz Republic Exploration
Chaarat Zaav CJSC* Kyrgyz Republic Exploration
Chaarat Gold International Cyprus Holding company
Limited
Chaarat Gold Services England and Wales Services company
Limited Armenia Production company
Chaarat Kapan CJSC*
*Companies owned indirectly by the Company.
2. Going concern
As at 31 March 2022 the Group had approximately US$6.6 million
of cash and cash equivalents and US$45.1 million of debt (excluding
lease liabilities, contract liabilities and warrants) comprising
the following:
-- US$26.5 million convertible loan notes including accrued interest to 31 March 2022
-- US$18.6 million other loans outstanding, including accrued interest to 31 March 2022
Kyrgyz Republic
In order to achieve the planned (though as yet uncommitted)
capital developments of assets in the Kyrgyz Republic, future
financing will need to be raised.
Kapan
The Board has based the cash flow forecasts for Kapan on the
most recent budgets which show that Kapan is expected to generate
sufficient revenue to cover its operating costs and principal and
interest payments and meet its covenants. Based on current
forecasts, covenants will be met, however, performance of Kapan is
sensitive to commodity prices and production.
Convertible Loan Notes
By 31 October 2022, the convertible loan notes are due to be
redeemed by conversion into equity at approximately GBP0.30 per
ordinary share, at the holder's option, or will be repaid in cash
for a total of US$28.8 million (which includes accrued
interest).
Conclusion (including material uncertainty)
The convertible loan notes will need to be refinanced with cash
or alternative funding, to the extent that loan note holders do not
choose to convert to equity, prior to 31 October 2022. To proceed
with the development in Kyrgyz Republic further financing will also
be required.
Notwithstanding the above, the directors consider there is a
reasonable expectation that sufficient funding will be raised and
therefore have continued to adopt the 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, 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. Should the project
funding not be available for the Kyrgyz Republic development
projects there may be a material impairment of the US$78 million
carrying value of the related assets. The financial statements do
not include the adjustments that would result if the Group were
unable to continue as a going concern.
3. Accounting policies
The significant accounting policies which have been consistently
applied in the preparation of these consolidated financial
statements are summarised below:
Basis of preparation
The consolidated financial information has been prepared in
accordance with United Kingdom adopted international accounting
standards and International Financial Reporting Standards (IFRSs)
as issued by the International Accounting Standards Board (IASB)
and on a historical cost basis.
New standards, interpretations and amendments adopted by the
Group
Adoption of new and revised Standards
In the current year, the Company has adopted all new and revised
IFRS standards that became effective as of 1 January 2021, the
changes being:
(i) Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS
9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) The amendments introduce a
practical expedient for modifications required by the reform,
provide an exception that hedge accounting is not discontinued
solely because of the IBOR reform, and introduces disclosures that
allow users to understand the nature and extent of risks arising
from the IBOR reform to which the entity is exposed to and how the
entity manages those risks as well as the entity's progress in
transitioning from IBOR's to alternative benchmark rates, and how
the entity is managing this transition;
(ii) Amendments to IFRS 4 Insurance Contracts - Extension of the
Temporary Exemption from Applying IFRS 9; and
(iii) Amendments to IFRS 16 Leases - Covid-19-Related Rent Concessions beyond 30 June 2021.
These amendments did not have a material impact on the Company.
It is expected that where applicable, these standards and
amendments will be adopted on each respective effective date.
Revised standards not yet effective
At the date of the authorisation of these consolidated financial
statements, the following revised IFRS standards, which are
applicable to the Company, were issued but not yet effective:
(i) Onerous Contracts - Cost of Fulfilling a Contract
(Amendments to IAS 37) - effective for year ends beginning on or
after 1 January 2022
The amendments specify that the 'cost of fulfilling' a contract
comprises the 'costs that relate directly to the contract'. Costs
that relate directly to a contract can either be incremental costs
of fulfilling that contract or an allocation of other costs that
relate directly to fulfilling contracts. The Company will apply the
amendments to contracts for which the Company has not yet fulfilled
all its obligations at the beginning of the annual reporting period
in which the entity first applies the amendments. Comparatives will
not be restated.
(ii) Deferred Tax related to Assets and Liabilities arising from
a Single Transaction (Amendments to IAS 12) - effective for year
ends beginning on or after 1 January 2023
The amendments specify how companies should account for deferred
tax on transactions such as leases and decommissioning obligations,
and clarify that the initial recognition exception does not apply
to transactions where both an asset and a liability are recognised
in a single transaction. Accordingly, deferred tax is required to
be recognised on such transactions.
(iii) Definition of Accounting Estimates (Amendments to IAS 8) -
effective for year ends beginning on or after 1 January 2023
The amendments introduce the definition of accounting estimates
and include other amendments to IAS 8 to help entities distinguish
changes in accounting estimates from changes in accounting
policies.
(iv) Materiality of Accounting Policy Disclosure (Amendments to
IAS 1) - effective for year ends beginning on or after 1 January
2023
The amendments require companies to disclose their material
accounting policy information rather than their significant
accounting policies.
No significant changes to presentation or disclosures within
these financial statements are expected following the adoption of
these amendments.
Basis of consolidation
The consolidated financial statements of the Group include the
financial statements of the Company and its subsidiaries, from the
date that control effectively commenced until the date that control
effectively ceased. Control is achieved where the Company is
exposed, or has rights, to variable returns from its involvement
with the investee and has the ability to affect those returns
through its power over the investee.
Income and expenses of subsidiaries acquired or disposed of
during the period are included in the consolidated income statement
from the effective date of acquisition and up to the effective date
of disposal, as appropriate.
When the Group loses control of a subsidiary, the gain or loss
on disposal recognised in the income statement is calculated as the
difference between (i) the aggregate of the fair value of the
consideration received and the fair value of any retained interest
and (ii) the previous carrying amount of the assets (including
goodwill), less liabilities of the subsidiary and any
non-controlling interests.
When necessary, adjustments are made to the financial statements
of subsidiaries to bring their accounting policies into line with
those used by the Group.
All intra-group balances, transactions and any unrealised
profits or losses arising from intra-group transactions are
eliminated on consolidation.
Business Combinations
IFRS 3 Business Combinations applies to a transaction or other
event that meets the definition of a business combination. When
acquiring new entities or assets, the Group applies judgement to
assess whether the assets acquired and liabilities assumed
constitute an integrated set of activities, whether the integrated
set is capable of being conducted and managed as a business by a
market participant, and thus whether the transaction constitutes a
business combination, using the guidance provided in the standard.
Acquisitions of businesses are accounted for using the acquisition
method. The consideration for each acquisition is measured at the
aggregate of the fair values (at the date of exchange) of assets
given, liabilities incurred or assumed, and equity instruments
issued by the Group in exchange for control of the acquiree.
Acquisition-related costs are recognised in the consolidated income
statement as incurred. Transaction costs incurred in connection
with the business combination are expensed. Provisional fair values
are finalised within 12 months of the acquisition date.
Where applicable, the consideration for the acquisition may
include an asset or liability resulting from a contingent
consideration arrangement. Contingent consideration is measured at
its acquisition date fair value and included as part of the
consideration transferred in a business combination. Subsequent
changes in such fair values are adjusted against the cost of
acquisition retrospectively with the corresponding adjustment
against the fair value of the assets and liabilities acquired.
Measurement period adjustments are adjustments that arise from
additional information obtained during the measurement period about
facts and circumstances that existed at the acquisition date. The
measurement period may not exceed one year from the effective date
of the acquisition. The subsequent accounting for contingent
consideration that does not qualify for as a measurement period
adjustment is based on how the contingent consideration is
classified. Contingent consideration that is classified as equity
is not subsequently remeasured. Contingent consideration that is
classified as an asset or liability is remeasured at subsequent
reporting dates in accordance with IAS 37 Provisions, Contingent
Liabilities and Contingent Assets or IFRS 9 Financial Instruments
with the corresponding amount being recognised in profit or
loss.
The identifiable assets acquired, and the liabilities assumed
are recognised at their fair value at the acquisition date, except
that:
-- Deferred tax assets or liabilities and liabilities or assets
related to employee benefit arrangements are recognised and
measured in accordance with IAS 12 Income Taxes and IAS 19 Employee
Benefits, respectively;
-- Liabilities or equity instruments related to share-based
payment arrangements of the acquiree or share-based payment
arrangements of the Group entered into to replace share-based
payment arrangements of the acquiree are measured in accordance
with IFRS 2 Share-based Payment at the acquisition date; and
-- Assets (or disposal groups) that are classified as held for
sale in accordance with IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations are measured in accordance with that
Standard.
Revenue recognition
Revenue is recognised in a manner that depicts the pattern of
the transfer of goods and services to customers. The amount
recognised reflects the amount to which the Group expects to be
entitled in exchange for those goods and services. Sales contracts
are evaluated to determine the performance obligations, the
transaction price and the point at which there is transfer of
control. The transactional price is the amount of consideration due
in exchange for transferring the promised goods or services to the
customer and is allocated against the performance obligations and
recognised in accordance with whether control is recognised over a
defined period or a specific point in time.
Performance obligation and timing of revenue recognition
The revenue arises from extraction of complex ore as well as ore
purchased from third parties and production of copper and zinc
concentrates to wholesale customers. Though in all contracts the
total transaction value mainly depends on the market prices of the
metals based on the preliminarily estimated contents in the
concentrates, those separate materials are not distinct but
represent a bundle of materials. As there are no other significant
promises, each contract contains one performance obligation to
which the total transaction value is allocated.
The control passes to the customers and the revenue is
recognized either on a Cost, Insurance and Freight "CIF" basis
meaning that control passes to the buyer when the concentrate is
loaded on the vessel in the port of shipment (e.g., port of Poti,
Georgia) or on the Ex Works basis meaning that control passes to
the buyer at the point the concentrate is loaded on the truck at
the Kapan mine. In respect of freight revenues, these are
recognised over time.
Determining the transaction price
Consideration is variable and depends on the fluctuations of
metal prices for the quotation period (usually one or three months)
and the changes in estimated metal contents and price
deductions.
At the date the concentrate is loaded on the truck at the Kapan
mine or the vessels at the specified port the provisional invoice
is issued based on the estimates of the amount of
consideration.
Sales are based on provisional 1-3 month commodity forward
prices on the London Metal Exchange (LME) and as such, contain an
embedded derivative which is marked-to-market at each month end
using the forward price for the month of price finalisation. The
estimated transaction price is updated for the quotational period
(usually one or three months) and any changes in the estimates of
the metal content. The change is recognised as an increase in
revenue, or as a reduction of revenue, in the period in which the
estimated transaction price is finalised.
Final prices of copper and zinc concentrates are determined at
the contract settlement date based on the LME commodity market
prices at that date and final adjustments for weighting, sampling,
or moisture determination changes.
Third-party revenue
In addition to own concentrates, the Group also processes third
party ore into concentrate and sells it to customers. The revenue
from these sales is recognised in accordance with the revenue
recognition principles above.
Advance payments from customers
The Group receives advance payments from its customers which
represent prepayments for the future transfer of concentrate. These
are either classified as contract liabilities or financial
liabilities under IFRS 15 and IFRS 9, respectively, depending on
the terms of the customer agreements and how the prepayments are
settled. If settled in cash, they are classified as financial
liabilities and if offset against final invoices, they are
classified as contract liabilities. The contract liabilities are
unwound, and revenue is recognised when shipments take place and
control passes to the customers. The advance payments accrue
interest which is separately recognised from revenue in the
Consolidated Income Statement.
Royalties
Under Armenian law a royalty is payable to the state, the base
of which is driven by the revenue earned from the supply of
concentrates. Royalty expense is included in cost of sales.
Government grants
Government grants are not recognised until there is reasonable
assurance that the Group will comply with the conditions attaching
to them and that the grants will be received. Government grants are
recognised in profit or loss on a systematic basis over the periods
in which the Group recognizes as expenses the related costs for
which the grants are intended to compensate. Government grants are
presented as "other income" in the Statement of Comprehensive
Income and cash inflows from operating activities in the Statement
of Cash Flows.
Interest
Interest is recognised using the effective interest method which
calculates the amortised cost of a financial asset or liability and
allocates the interest income or payments over the relevant period.
The effective interest rate is the rate that exactly discounts
estimated future cash receipts or payments through the expected
life of the financial asset or liability to the net carrying amount
of the financial asset or liability.
Taxation
The income tax expense includes the current tax and deferred tax
charge recognised in the income statement.
The current tax charge is calculated on the basis of the tax
laws enacted or substantively enacted at the balance sheet date in
the countries where the Company and its subsidiaries operate. The
Group is not subject to corporate tax in the British Virgin
Islands, therefore as at 31 December 2021 the Group's operations in
this region have an effective tax rate of 0%. Companies engaged in
the production and sale of gold in the Kyrgyz Republic pay a
revenue-based tax on the sales of gold rather than tax on profit.
The remaining Group's operations are subject to income tax at a
rate of 18% in Armenia, 19% in the United Kingdom and 12.5% in
Cyprus (Note 13). Non-profit based taxes are included within
administrative expenses and Kapan's royalty taxes are included
within cost of sales.
Deferred tax is recognised in respect of temporary differences
between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation
purposes. Deferred tax liabilities are generally recognised for all
taxable temporary differences and deferred tax assets are
recognised to the extent that it is probable that taxable profits
will be available against which deductible temporary differences
can be utilised. Probable taxable profits are based on evidence of
historical profitability and taxable profit forecasts limited by
reference to the criteria set out in IAS 12 Income Taxes. Such
assets and liabilities are not recognised if the temporary
differences arise from the initial recognition of goodwill or of an
asset or liability in a transaction (other than a business
combination) that affects neither taxable profit nor accounting
profit.
Deferred tax liabilities are recognised for taxable temporary
differences arising on investments in subsidiaries, joint
arrangements, and associates except where the Group is able to
control the reversal of the temporary difference and it is probable
that the temporary difference will not reverse in the foreseeable
future.
The carrying amount of deferred tax assets is reviewed at each
reporting date and is adjusted to the extent that it is no longer
probable that sufficient taxable profit will be available to allow
all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset is
realised, based on the laws that have been enacted or substantively
enacted by the reporting date. Deferred tax is charged or credited
to the income statement, except when it relates to items charged or
credited directly to equity, in which case the deferred tax is also
taken directly to equity.
Deferred tax assets and liabilities are offset when they relate
to income taxes levied by the same taxation authority and the Group
intends to settle its current tax assets and liabilities on a net
basis with that taxation authority.
Non-current Assets
Intangible Assets
Exploration and evaluation costs
During the initial stage of a project, exploration costs are
expensed in the income statement as incurred.
Exploration expenditure incurred in relation to those projects
where such expenditure is considered likely to be recoverable
through future extraction activity or sale or where the exploration
activities have not reached a stage that permits a reasonable
assessment of the existence of reserves, are capitalised and
recorded on the balance sheet within exploration and evaluation
assets for mining projects at the exploration stage. Capitalised
evaluation and exploration costs are classified as intangible
assets.
Exploration and evaluation expenditure comprise costs directly
attributable to:
-- Researching and analysing existing exploration data;
-- Conducting geological studies, exploratory drilling, and sampling;
-- Examining and testing extraction and treatment methods;
-- Compiling pre-feasibility and feasibility studies; and
-- Costs incurred in acquiring mineral rights, the entry
premiums paid to gain access to areas of interest and amounts
payable to third parties to acquire interests in existing
projects.
Exploration and evaluation assets are subsequently valued at
cost less impairment. In circumstances where a project is
abandoned, the cumulative capitalised costs related to the project
are written off in the period when such decision is made.
Exploration and evaluation assets are not depreciated. These
assets are transferred to mine development costs within property,
plant and equipment when a decision is taken to proceed with the
development of the project which is when a bankable feasibility
study is obtained, and project finance is in place.
Other intangible assets (excluding goodwill)
Intangible assets acquired by the Group are measured on initial
recognition at cost or at fair value when acquired as part of a
business combination. Following initial recognition, intangible
assets are carried at cost less accumulated amortisation and
accumulated impairment losses. Intangible assets are amortised over
the estimated useful lives using the straight-line-basis and
assessed for impairment whenever there is an indication that the
intangible asset may be impaired. The estimated useful life and
amortisation method are reviewed at the end of each annual
reporting period, with the effect of any changes in estimate being
accounted for on a prospective basis.
Other intangible assets comprise computer software and other
intangible assets, which are initially capitalised at cost.
Amortisation is provided on a straight-line basis over a period of
1 to 10 years.
Property, plant and equipment
Property, plant and equipment is stated at cost, excluding the
costs of day-to-day servicing, less any subsequent accumulated
depreciation and impairment losses. The historical cost of
property, plant and equipment comprises its purchase price,
including import duties and non-refundable purchase taxes and any
directly attributable costs of bringing the assets to their working
condition and location for their intended use. Depreciation of
these assets commences when the assets are ready for their intended
use.
Depreciation is charged on each part of an item of property,
plant and equipment so as to write off the cost or valuation of
assets over their estimated useful lives, using the straight-line
method. Depreciation is charged to the income statement, unless it
is considered to relate to the construction of another asset, in
which case it is capitalised as part of the cost of that asset.
Land and assets in the course of construction are not depreciated.
The estimated useful lives are as follows:
-- Land and buildings 5 to 20 years
-- Mining Properties Mining properties that are used in
production are depreciated under the unit of
production basis, and other physical assets depreciated
over their useful lives which are 5 to 20 years
-- Fixtures and fittings 2 to 20 years
-- Motor vehicles 2 to 7 years
-- Right-of-use assets 5 to 20 years
Residual values, remaining useful lives and depreciation methods
are reviewed annually and adjusted if appropriate.
Expenses incurred in respect of the maintenance and repair of
property, plant and equipment are charged against income when
incurred. Refurbishments and improvements expenditure, where the
benefit enhances the capabilities or extends the useful life of an
asset, is capitalised as part of the appropriate asset.
An item of property, plant and equipment is derecognised upon
disposal or when no future economic benefits are expected from its
use. Any gain or loss arising on derecognition of the asset
(calculated as the difference between the net disposal proceeds and
the carrying amount of the asset) is included in the income
statement in the year the asset is derecognised.
Mining properties
Mining properties include the cost of acquiring and developing
mining assets and mineral rights. Mining properties, which include
development structures, are depreciated to their residual values
using the unit-of-production method based on proven and probable
ore reserves according to the JORC Code, which is the basis on
which the Group's mine plans are prepared. Changes in proven and
probable reserves are dealt with prospectively. Depreciation is
charged on new mining ventures from the date that the mining asset
is capable of commercial production.
Mineral rights for the assets not ready for production are
included within Exploration and evaluation costs. When a production
phase is started, mineral rights are transferred into Mining assets
and are depreciated as described above.
Assets under construction
Assets under construction are measured at cost less any
recognised impairment. Depreciation commences when the assets are
ready for their intended use.
Assets under construction include costs incurred for the
development of tangible assets that will form part of a category of
property, plant and equipment which is not yet complete. Once the
project ready for use capitalisation will cease (other than for
large development programmes), the asset will be reclassified to
the respective property, plant and equipment category it relates to
from assets under construction, and depreciation will commence.
Estimated ore reserves
Estimated proven and probable ore reserves reflect the
economically recoverable quantities which can be legally recovered
in the future from known mineral deposits. The Group's reserves are
estimated in accordance with JORC Code.
Impairment of exploration and evaluation assets
All capitalised exploration and evaluation assets and other
intangible assets are monitored for indications of impairment.
Where a potential impairment is indicated, assessment is made for
the group of assets representing a cash generating unit ("CGU").
Indicators of impairment include:
-- the period for which the entity has the right to explore in
the specific area has expired during the period or will expire in
the near future, and is not expected to be renewed;
-- substantive expenditure on further exploration of mineral
resources in the specific area is nether budgeted nor planned;
-- exploration for and evaluation of mineral resources in the
specific area have not led to the discovery of commercially viable
quantities of mineral resources and the entity has decided to
discontinue such activities in the specific area; and
-- sufficient data exist to indicate that, although a
development in the specific area is likely to proceed, the carrying
amount of the exploration and evaluation asset is unlikely to be
recovered in full from successful development or by sale.
If any indication of impairment exists, the recoverable amount
of the asset is estimated, being the higher of fair value less
costs to sell and value in use. If the recoverable amount of an
asset (or CGU) is estimated to be less than its carrying amount,
the carrying amount of the asset (or CGU) is reduced to its
recoverable amount. Such impairment losses are recognised in profit
or loss for the year.
Impairment of property, plant and equipment
An impairment review of property, plant and equipment is carried
out when there is an indication that those assets have suffered an
impairment loss or there are impairment reversal indicators. If any
such indication exists, the carrying amount of the asset is
compared to the estimate recoverable amount of the asset in order
to determine the extent of the impairment loss or reversal (if
any). Where it is not possible to estimate the recoverable amount
of an individual asset, the Group estimates the recoverable amount
of the cash-generating unit ("CGU") to which the asset belongs.
Recoverable amount is the higher of fair value less costs to
sell and value in use. The carrying amounts of all cash-generating
units are assessed against their recoverable amounts determined on
a fair value less costs to sell calculation. Fair value is based on
the applicable Discounted Cash Flow ("DCF") method using post-tax
cash flows. The DCF method is attributable to the development of
proved and probable reserves.
If the recoverable amount of an asset (or CGU) is estimated to
be less than its carrying amount, the carrying amount of the asset
(or CGU) is reduced to its recoverable amount. An impairment loss
is recognised as an expense immediately in the consolidated income
statement.
Where an impairment loss subsequently reverses, the carrying
amount of the asset (or CGU) is increased to the revised estimate
of its recoverable amount, but only to the extent that the
increased carrying amount does not exceed the original carrying
amount that would have been determined had no impairment loss been
recognised in prior periods. Impairment loss may be subsequently
reversed if there has been significant change in estimates used to
determine the asset's recoverable amount since the last impairment
loss was recognised.
A reversal of impairment loss is recognised in the consolidated
income statement immediately.
Leases
The Group assesses whether a contract is or contains a lease, at
inception of the contract. The Group recognised a right-of-use
asset and a corresponding lease liability with respect to all lease
arrangements in which it is the lessee, except for short-term
leases (defined as leases with a lease term of 12 months or less),
leases of low value assets and leases for the purposes of mining
and exploration activities, which qualify for an exemption under
IFRS 16 which the Group has applied. For these leases, the Group
recognises the lease payments as operating expenses on a
straight-line basis over the term of the lease.
The lease liability is initially measured at the present value
of the lease payments that are not paid at the commencement date,
discounted by using the rate implicit in the lease. If this rate
cannot be readily determined, the Group uses its incremental
borrowing rate.
The lease liability is presented as a separate line in the
consolidated statement of financial position. The lease liability
is subsequently measured by increasing the carrying amount to
reflect interest on the lease liability based on the effective
interest method and by reducing the carrying amount to reflect the
lease payments made. The right-of-use assets comprise the initial
measurement of the corresponding lease liability, lease payments
made at or before the commencement day and any initial direct
costs. They are subsequently measured at cost less accumulated
depreciation and impairment losses and are presented as a separate
line in the consolidated financial statements.
Right-of-use assets are depreciated over shorter period lease
term and useful life of the underlying asset. The Group applies IAS
36 to determine whether the right-of use asset is impaired and
accounts for any identifiable impairment loss as described
above.
When the Group revises its estimate of the term of any lease, it
adjusts the carrying amount of the lease liability to reflect the
payments to make over the revised term, which are discounted at the
same discount rate that applied on lease commencement. An
equivalent adjustment is made to the carrying value of the
right-of-use asset, with the revised carrying amount being
amortised over the remaining (revised) lease term. Any gain or loss
relating to the partial or full termination of any lease is
recognised in profit or loss.
Inventories
Copper and zinc concentrates
Inventories including metals in concentrate and in process are
stated at the lower of production cost or net realisable value.
Cost of finished goods and work in progress are determined on
the first-in-first-out (FIFO) method. The cost comprises raw
material, direct labour, other direct costs, and related production
overheads (based on normal operating capacity), excluding borrowing
costs.
Consumables and spare parts
Consumables and spare parts are stated at the lower of cost or
net realisable value. Costs are determined on the
first-in-first-out (FIFO) method.
The Company's policy is to write-down to nil the items that have
not been utilised for more than two years. This is done on a
quarterly basis.
Inventory items used in the production process are recognised as
cost of sales when the related sale of concentrate takes place.
This includes the cost of purchased ore and consumables and spare
parts.
Cost of purchased ore
The Group purchases ore from third parties which is processed
and sold to Kapan's customers. The amount expensed in cost of sales
is equal to the price paid to third parties in line with the
purchase agreements.
Cost of purchased concentrate
The Group processes third party ore into concentrate and then
purchases the concentrate to sell to Kapan's customers. The
substance and accounting for these transactions is that of an ore
purchase agreement with the amount expensed in cost of sales equal
to the price paid to third parties in line with the purchase
agreements, which is net of a processing fee charged by Kapan.
Cash and cash equivalents
Cash includes petty cash and cash held in current bank accounts.
Cash equivalents include short-term investments that are readily
convertible to known amounts of cash and which are subject to
insignificant risk of changes in value.
Equity
Equity comprises the following:
-- "Share capital" represents the nominal value of equity shares.
-- "Share premium" represents the excess over nominal value of
the fair value of consideration received for equity shares, net of
transactions costs directly related to the share issue.
-- "Own shares reserve" represents the nominal value of equity
shares that have been repurchased by the company.
-- "Convertible loan note reserve" represents the equity
component of convertible loan notes issued by the Company.
-- "Merger reserve" represents the difference between the issued
share capital and share premium of the Company and its former
subsidiary Chaarat Gold Limited arising as a result of the reverse
acquisition.
-- "Share option reserve" represents the equity component of share options issued.
-- "Translation reserve" represents the differences arising from
translation of investments in overseas subsidiaries.
-- "Accumulated losses" includes all current and prior period
results as disclosed in the income statement.
Functional and presentational currency
The functional currency for each entity in the Group is
determined as the currency of the primary economic environment in
which it operates. The functional currency of the Group's entities
located in the Kyrgyz Republic, Cyprus and BVI is US Dollars (US$)
as the current exploration and evaluation expenditure is currently
primarily in USD. The functional currency of the subsidiary located
and operating in Armenia is the Armenian Dram (AMD). The functional
currency of the parent company Chaarat Gold Holdings Limited is the
US Dollar.
The Group has chosen to present its consolidated financial
statements in US Dollars (US$), as management believe it is a more
comparable presentation currency for international users of
consolidated financial statements of the Group as it is a common
presentation currency in the mining industry. The translation of
the financial statements of the Group entities from their
functional currencies to the presentation currency is performed as
follows:
-- All assets and liabilities are translated at closing exchange
rates at each reporting period end date;
-- All income and expenses are translated at the average
exchange rates for the periods presented, except for significant
transactions that are translated at rates on the date of such
transactions;
-- Resulting exchange differences are recognised in other
comprehensive income and presented as movements relating to the
effect of translation to the Group's presentation currency within
the Translation reserve in equity; and
-- In the consolidated statement of cash flows, cash balances at
the beginning and end of each reporting period presented are
translated using exchange rates prevalent at those respective
dates. All cash flows in the period are translated at the average
exchange rates for the period presented, except for significant
transactions that are translated at rates on the date of the
transaction.
Foreign currency transactions
Transactions entered into by Group entities in a currency other
than the currency of the primary economic environment in which they
operate (the "functional currency") are recorded at the rates
ruling when the transactions occur. Foreign currency monetary
assets and liabilities are translated at the rates ruling at the
balance sheet date. Exchange differences arising on the
retranslation of unsettled monetary assets and liabilities are
similarly recognised immediately in the income statement.
Non-monetary assets and liabilities that are measured in terms
of historical cost in a foreign currency are translated using the
exchange rate at the date of the transaction.
On consolidation, the assets and liabilities of the Group's
foreign operations are translated into the presentation currency of
the Group at exchange rates prevailing on the reporting date.
Income and expense items are translated at the average exchange
rates for the period where these approximate the rates at the dates
of the transactions. Any exchange differences arising are
classified within the statement of comprehensive income and
transferred to the Group's cumulative translation adjustment
reserve. Cumulative translation differences are recycled from
equity and recognised as income or expense on disposal of the
operation to which they relate.
Share-based payments
The Company operates equity-settled share-based remuneration
plans for directors and some employees. The Company awards share
options to certain Company directors and employees to acquire
shares of the Company.
All goods and services received in exchange for the grant of any
share-based payment are measured at their fair values. Where
employees are rewarded using share-based payments, the fair values
of employees' services are determined indirectly by reference to
the fair value of the instrument granted to the employee.
The fair value is appraised at the grant date and excludes the
impact of non-market vesting conditions. Fair value of restricted
stock units is measured by reference to the share price at the date
of grant. Fair value of options is measured by use of the Black
Scholes model. The expected life used in the model has been
adjusted, based on management's best estimate, for the effects of
non-transferability, exercise restrictions, and behavioural
considerations.
All equity-settled share-based payments are ultimately
recognised as an expense in the income statement with a
corresponding credit to "other reserves".
If vesting periods or other non-market vesting conditions apply,
the expense is allocated over the vesting period, based on the best
available estimate of the number of share options expected to vest.
Estimates are subsequently revised if there is any indication that
the number of share options expected to vest differs from previous
estimates. Any cumulative adjustment prior to vesting is recognised
in the current period. No adjustment is made to any expense
recognised in prior periods if the number of share options
ultimately exercised are different to that estimated on
vesting.
Upon exercise of share options and through settlement of the
issue of new shares, the proceeds received net of attributable
transaction costs are credited to share capital and, where
appropriate, share premium.
After the vesting date, no subsequent adjustments are made to
total equity. In the year when the share options lapse the total
accumulated charge to the share-based payment reserve is
transferred to retained earnings.
When the terms and conditions of equity-settled share-based
payments at the time they were granted are subsequently modified,
the fair value of the share-based payment under the original terms
and conditions (the "original fair value") and under the modified
terms and conditions (the "modified fair value") are both
determined at the date of the modification. Any excess of the
modified fair value over the original fair value is recognised over
the remaining vesting period in addition to the grant date fair
value of the original share-based payment. The share-based payment
expense is not adjusted if the modified fair value is less than the
original fair value.
In certain instances, the Company issues shares to satisfy
outstanding financial liabilities. The measurement of these
equity-settled share-based payment transactions is outlined below.
Shares are also issued to satisfy obligations under warrant
agreements whereby the estimated fair value of the warrants issued
is measured by use of the Black Scholes model as detailed in Note
30.
The Company operates an Employee Benefit Trust ("the Trust") and
has de facto control of the shares held by the Trust and bears
their benefits and risks. The Trust is consolidated into the group
accounts with a debit to equity for the cost of shares acquired.
Finance costs and administrative expenses are charged as they
accrue.
Exchange of financial liabilities for equity
When equity instruments are issued to extinguish all or part of
a financial liability, the Group measures them at the fair value of
the equity instruments issued, unless that fair value cannot be
reliably measured. The difference between the carrying amount of
the financial liability (or part of a financial liability)
extinguished, and the consideration paid, is recognised in profit
or loss. The equity instruments are recognised initially and
measured at the date the financial liability (or part of that
liability) is extinguished. This does not include transactions with
a creditor who is also a direct or indirect shareholder and is
acting in its capacity as a direct or indirect shareholder, in
accordance with IFRIC 19.
Retirement and Other Benefit Obligations
The Group offers pension arrangements in the United Kingdom as
well as under the State pension system of the Kyrgyz Republic,
which requires current contributions by the employer, calculated as
a percentage of current gross salary payments. Such expense is
charged in the period the related salaries are earned. The Group
does not have any obligations in respect of post-retirement or
other significant compensation benefits.
Financial Instruments
Financial assets and financial liabilities are recognised when a
Group entity becomes a party to the contractual provisions of the
instrument.
Financial assets and financial liabilities are initially
measured at fair value. Transaction costs that are directly
attributable to the acquisition or issue of financial assets and
financial liabilities (other than financial assets and financial
liabilities at fair value through profit or loss) are added to or
deducted from the fair value of the financial assets or financial
liabilities, as appropriate, on initial recognition.
Financial assets
All recognised financial assets are measured subsequently in
their entirety at either amortised cost or fair value, depending on
the classification of the financial assets. Financial assets are
classified as either financial assets at amortised cost, at fair
value through other comprehensive income (FVTOCI) or at fair value
through profit or loss (FVTPL) depending upon the business model
for managing the financial assets and the nature of the contractual
cash flow characteristics of the financial asset.
Trade receivables without provisional pricing that do not
contain provisional price features, loans and other receivables are
held to collect the contractual cash flows and therefore are
carried at amortised cost adjusted for any loss allowance. The loss
allowance is calculated in accordance with the impairment of
financial assets policy described below.
Trade receivables arising from sales of copper and zinc
concentrates with provisional pricing features are exposed to
future movements in market prices and have contractual cash flow
characteristics that are not solely payments of principal and
interest and are therefore measured at fair value through profit or
loss and do not fall under the expected credit losses model (ECL)
described below.
Effective interest rate method
The effective interest rate method is a method of calculating
the amortised cost of a financial instrument and of allocating
interest income or expense over the relevant period. The effective
interest rate is the rate that discounts estimated future cash
receipts or payments (including all commitment, drawdown and other
fees and points paid or received that form an integral part of the
effective interest rate, transaction costs and other premiums or
discounts) through the expected life of the financial instrument,
or, where appropriate, a shorter period, to the net carrying amount
on initial recognition.
Impairment of financial assets
The Group recognises a loss allowance for expected credit losses
on investments in debt instruments that are measured at amortised
cost, trade and other receivables and contract assets, except for
trade accounts receivable with provisional pricing. The amount of
expected credit losses is updated at each reporting date to reflect
changes in credit risk since initial recognition of the respective
financial instrument.
The Group always recognises lifetime ECL for trade receivables
and other receivables. The expected credit losses on these
financial assets are estimated using a provision matrix based on
the Group's historical credit loss experience, adjusted for factors
that are specific to the debtors, general economic conditions, and
assessment of both the current as well as the forecast direction of
conditions at the reporting date, including time value of money
where appropriate.
For all other financial instruments, the Group recognises
lifetime ECL when there has been a significant increase in credit
risk since initial recognition. However, if the credit risk on the
financial instrument has not increased significantly since initial
recognition, the Group measures the loss allowance for that
financial instrument at an amount equal to 12-month ECL.
Lifetime ECL represents the expected credit losses that will
result from all possible default events over the expected life of a
financial instrument. In contrast, 12-month ECL represents the
portion of lifetime ECL that is expected to result from default
events on a financial instrument that are possible within 12 months
after the reporting date.
The Group writes off a financial asset when there is information
indicating that the debtor is in severe financial difficulty and
there is no realistic prospect of recovery, e.g., when the debtor
has been placed under liquidation or has entered into bankruptcy
proceedings, or in the case of trade receivables, when the amounts
are over two years past due, whichever occurs sooner. Financial
assets written off may still be subject to enforcement activities
under the Group's recovery procedures, taking into account legal
advice where appropriate. Any recoveries made are recognised in
profit or loss.
Derivative financial instruments
Derivatives embedded in the Group's sale contracts are accounted
for at fair value with gains or losses reported in the statement of
comprehensive income. These embedded derivatives are not separated
from the sale contracts and therefore any gains or losses are
included in the lines of sale of concentrates in the year.
Derecognition of financial assets
The Group derecognises a financial asset only when the
contractual rights to the cash flows from the asset expire, or when
it transfers the financial asset and substantially all the risks
and rewards of ownership of the asset to another entity. If the
Group neither transfers nor retains substantially all the risks and
rewards of ownership and continues to control the transferred
asset, the Group recognises its retained interest in the asset and
an associated liability for amounts it may have to pay. If the
Group retains substantially all the risks and rewards of ownership
of a transferred financial asset, the Group continues to recognise
the financial asset and also recognises a collateralised borrowing
for the proceeds received.
Financial liabilities
The Group's financial liabilities consist of financial
liabilities measured subsequently at amortised cost using the
effective interest rate method (including trade payables, other
loans, and borrowings) and financial liabilities at fair value
through profit or loss.
Warrant financial liability
The Group's warrant financial liability relates to warrants to
purchase ordinary shares. The warrants are recognised initially at
their fair value using the Black-Scholes model and subsequently
remeasured at each reporting date with the corresponding fair value
gains or losses recognised through profit or loss.
Convertible loan notes
The convertible loan notes are compound financial instruments
that can be converted to ordinary shares at the option of the
holder.
The liability component of convertible loan notes is initially
recognised at the fair value of a similar liability that does not
have an equity conversion option. The equity component is initially
recognised at the difference between the fair value of the
convertible loan note as a whole and the fair value of the
liability component. Any directly attributable transaction costs
are allocated to the liability and equity components in proportion
to their initial carrying amounts.
The modification of a standard loan is considered substantial
where a conversion option is included. Upon modification, the
original liability is extinguished, new liability and equity
components are recognised at the fair values with a difference
attributed to profit or loss.
Subsequent to initial recognition, the liability component of a
compound financial instrument is measured at amortised cost using
the effective interest method. The equity component of a
convertible loan note is not remeasured.
Interest related to the financial liability is recognised in
profit and loss. On conversion at maturity, the financial liability
is reclassified to equity and no gain or loss is recognised. When
conversion option is not exercised, the equity element is
transferred to accumulated losses.
Derecognition of financial liabilities
A financial liability is removed from the balance sheet when it
is extinguished, being when the obligation is discharged,
cancelled, or expired. On extinguishment of a financial liability,
any difference between the carrying amount of the liability and the
consideration paid, including any non-cash assets transferred or
liabilities assumed, is recognised in profit or loss.
A modification or exchange of a financial liability is either
accounted for as an extinguishment of the original financial
liability or a renegotiation of the original financial liability.
An extinguishment or substantial modification of a financial
liability results in de-recognition of the original financial
liability and any unamortised transaction costs associated with the
original financial liability are immediately expensed to the profit
and loss account. Where the change in the terms of the modified
financial liability is not substantial, it is accounted for as a
modification of the original liability, with the modified financial
liability measured at amortised cost using the original effective
interest rate. Part of the assessment includes consideration
whether the discounted present value of the cash flows under the
new terms, including any fees paid net of any fees received and
discounted using the original effective interest rate, is at least
10% different from the discounted present value of the remaining
cash flows of the original financial liability.
If an exchange of debt instruments or modification of terms is
accounted for as an extinguishment, any costs or fees incurred are
recognised as part of the gain or loss on the extinguishment. If
the exchange or modification is not accounted for as an
extinguishment, any costs or fees incurred adjust the carrying
amount of the liability and are amortised over the remaining term
of the modified liability.
Borrowing costs
Borrowing costs directly attributable to the acquisition,
construction, or production of qualifying assets, which are assets
that necessarily take a substantial period of time to get ready for
their intended use or sale, are added to the cost of those assets,
until such time as the assets are substantially ready for their
intended use or sale.
Investment income earned on the temporary investment of specific
borrowings pending their expenditure on qualifying assets is
deducted from the borrowing costs eligible for capitalisation.
All other borrowing costs are recognised in the consolidated
income statement in the period in which they are incurred.
Provisions
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event, it
is probable that the Group will be required to settle the
obligation, and a reliable estimate can be made of the amount of
the obligation.
The amount recognised as a provision is the best estimate of the
consideration required to settle the present obligation at the
reporting date, taking into account the risks and uncertainties
surrounding the obligation. Where a provision is measured using the
cash flows estimated to settle the present obligation, its carrying
amount is the present value of those cash flows.
Contingent liability
Contingent liabilities are recognised when the Group has a
probable obligation that may arise from an event that has not yet
occurred. A contingent liability which is not probable is not
recognised in the Group's financial statements however disclosure
within the notes to the financial statements will be included
unless the possibility of payment is remote.
Provision for environmental obligations
An obligation to incur environmental restoration, rehabilitation
and decommissioning costs arises when disturbance is caused by the
development or ongoing production of mining assets. Such costs
arising from the decommissioning of plant and other site
preparation work, discounted to their net present value using a
risk-free rate applicable to the future cash flows, are provided
for and capitalised at the start of each project, as soon as the
obligation to incur such costs arises. These decommissioning costs
are recognised in the consolidated income statement over the life
of the operation, through the depreciation of the asset in the cost
of sales line and the unwinding of the discount on the provision in
the finance costs line.
Changes in the measurement of a liability relating to the
decommissioning of plant or other costs for restoration of
subsequent site damage which is created on an ongoing basis during
production are provided for at their net present values and
recognised in the consolidated income statement as extraction
progresses . If a decrease in the liability exceeds the carrying
amount of the asset, the excess is recognised immediately as a
reduction in the consolidated income statement.
The provision for closure cost obligations is remeasured at the
end of each reporting period for changes in estimates and
circumstances. Changes in estimates and circumstances include
changes in legal or regulatory requirements, increased obligations
arising from additional mining and exploration activities, changes
to cost estimates and changes in risk free interest rate.
Value Added Tax
Output value added tax (VAT) related to sales generated in
Armenia is payable to tax authorities on the delivery of goods and
services to customers. The standard rate of VAT on domestic sales
of goods and services and the importation of goods is 20%. Input
VAT is recoverable against output VAT upon receipt of the VAT
invoice. VAT related to sales and purchases is recognised in the
statement of financial position on a gross basis and disclosed
separately as an asset and liability. The VAT assets and
liabilities are short term and will be settled within 12 months and
are therefore not discounted.
Under the Kyrgyz Republic Tax Code, the supply and export of
metal-containing ores, concentrates, alloys, and refined metals are
considered to be a VAT exempt supply and therefore all VAT is
expensed as incurred.
Critical accounting judgements and key sources of estimation
uncertainty
In the course of preparing the financial statements, management
necessarily makes judgements and estimates that can have
significant impact on those financial statements. The determination
of estimates requires judgements which are based on historical
experience, current and expected economic conditions, and all other
available information.
Estimated and underlying assumptions are reviewed on an ongoing
basis, with revisions recognised in the period in which the
estimates are revised and in the future periods affected. The
judgements involving a higher degree of estimation or complexity
are set out below.
Critical accounting judgements
The following are the critical accounting judgements (apart from
judgements involving estimation which are dealt with separately
below), made in the process of applying the Group's accounting
policies during the year that have the most significant effect on
the amounts recognized in the financial statements.
Recoverability of exploration and evaluation assets
Exploration and evaluation assets include mineral rights and
exploration costs, including geophysical, topographical,
geological, and similar types of costs. Exploration and evaluation
costs are capitalised if management concludes that future economic
benefits are likely to be realised and determines that economically
viable extraction operation can be established as a result of
exploration activities and internal assessment of mineral
resources.
According to IFRS 6 Exploration for and evaluation of mineral
resources, the potential indicators of impairment include:
management's plans to discontinue the exploration activities, lack
of further substantial exploration expenditure planned, expiry of
exploration licences in the period or in the nearest future, or
existence of other data indicating the expenditure capitalised is
not recoverable. At the end of each reporting period, management
assesses whether such indicators exist for the exploration and
evaluation assets capitalised, which requires significant
judgement.
At 31 December 2021, the capitalised costs of the exploration
and evaluation assets amounted to US$66.3 million, details of which
are set out in Note 15.
The assets relate to the Chaarat Gold Project in the Kyrgyz
Republic, which comprises two distinct mineralised zones: Tulkubash
and Kyzyltash, which will be developed separately. Both zones are
located on a single mining licence and are therefore not capable of
being independently sold.
At 31 December 2021, management does not consider there to be
any indications of impairment in respect of the assets included in
the Chaarat Gold Project CGU. Management has budgeted the costs for
further development of these assets however their recoverability is
dependent on future funding.
As set out in the Going concern conclusion per Note 2, a
material uncertainty exists in relation to the Group's ability to
obtain the additional funding needed to develop the Kyrgyz Republic
development projects as 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. Should that
funding not be available there would be an indication of impairment
which could result in a material provision against the carrying
value of the related exploration and evaluation assets and assets
under construction.
Costs capitalised to exploration and evaluation assets
The costs capitalised to exploration and evaluation assets in
2021 was US$5.7 million (2020: US$6.3 million). Judgement is
applied in the determination of the type of costs that are
capitalised to exploration and evaluation assets as described in
the accounting policy note above. Payroll costs that are directly
attributable to exploration and evaluation related activities are
capitalised.
Costs capitalised to property, plant and equipment (mining
properties)
The costs capitalised to mining properties in 2021 was US$7.9
million (2020: US$5.9 million). Judgement is applied in the
determination of the type of costs that are capitalised to mining
properties as described in the accounting policy note above.
Functional currency of Kapan
The functional currency of the subsidiary located and operating
in Armenia is the Armenian Dram (AMD), as this is the currency of
the primary economic environment in which it operates.
Treatment of royalty expense
Royalties paid in Armenia of US$5.7 million (2020: US$6.5
million) are included in cost of sales as they are calculated on
the basis of revenue earned from the supply of concentrates. As the
royalties expense is not a charge on profit or loss before tax,
management does not consider it to be an income tax expense within
the scope of IAS 12 Income Taxes. Whilst the royalty rate is
applied to revenue, the formula to determine this rate can be split
into two components, a base amount applied to revenue, and a
further amount based on the level of profit in the period. In these
circumstances, an accounting policy choice is required to determine
whether the entire amount will be classified as a royalty expense,
or a component separately recognised as an income tax expense
within the scope of IAS 12. If the Group had elected to recognise a
component of this royalty within the scope of IAS 12, the royalty
expense would have been reduced and EBITDA for the year would have
been increased by US$2.5 million (2020: US$3.1 million) with a
corresponding increase in the income tax charge, and the deferred
tax asset recognized at 31 December 2021 would have increased by
US$1.3 million (2020: US$1.5 million).
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources
of estimation uncertainty at the reporting period that may have a
significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year,
are discussed below.
Accounting for the concentrate purchase agreement
In 2021 the Group entered into a new contractual arrangement
under which third party ore has been received, processed, purchased
and sold to the customer.
The substance of this arrangement was considered to be an ore
purchase agreement such that inventory recognition occurs from that
point and the processing fee recoverable is deducted from the cost
of the material purchased.
Ore reserves
An ore reserve estimate is an estimate of the amount of product
that can be economically and legally extracted from the Group's
properties. Ore reserve estimates are used by the Group in the
calculation of depreciation of mining assets using the
units-of-production method; impairment charges and in forecasting
the timing of the payment of decommissioning and land restoration
costs. Also, for the purpose of impairment review and the
assessment of the timing of the payment of decommissioning and land
restoration costs, management may take into account mineral
resources in addition to ore reserves where there is a high degree
of confidence that such resources will be extracted.
In order to calculate ore reserves, estimates and assumptions
are required about geological, technical, and economic factors,
including quantities, grades, production techniques, recovery
rates, production costs, transport costs, commodity demand,
commodity prices, discount rates and exchange rates. Estimating the
quantity and/or grade of ore reserves requires the size, shape, and
depth of ore bodies to be determined by analysing geological data
such as the logging and assaying of drill samples. This process may
require complex and difficult geological judgements and
calculations to interpret the data.
Ore reserve estimates may change from period to period as
additional geological data becomes available during the course of
operations or if there are changes in any of the aforementioned
assumptions. Such changes in estimated reserves may affect the
Group's financial results and financial position in a number of
ways, including the following:
-- Assets' carrying values due to changes in estimated future
cash flows;
-- Depreciation charged in the consolidated income statement
where such charges are determined by using the units-of-production
method;
-- Provisions for decommissioning and land restoration costs
where changes in estimated reserves affect expectations about the
timing of the payment of such costs; and
-- Carrying value of deferred tax assets and liabilities where
changes in estimated reserves affect the carrying value of the
relevant assets and liabilities.
Inventory impairment policy and estimate
For concentrate and ore stockpiles the net realisable value
represents the estimated selling price for that product based on
forward metal prices according to the applicable contract terms,
less the estimated costs to complete production and selling costs,
including royalty. Production cost is determined as the sum of the
applicable expenditures incurred directly or indirectly in bringing
inventories to their existing condition and location. The estimated
costs to complete and selling costs are obtained from the current
production budgets, approved for the reporting year. The carrying
value of inventory at 31 December 2021 was US$16.2 million (2020:
US$12.3 million) and the inventory write-down provision to net
realisable value amounted to US$1.9 million as at 31 December 2021
(2020: US$0.8 million), relating mainly to consumables and spare
parts.
Provision for environmental obligations
A provision for the costs to restore working areas on the Kapan
mine, including decommissioning of plant and securing of the
tailings dam, requires estimates and assumptions to be made. These
include estimates and assumptions around the relevant environmental
and regulatory requirements, inflation, the magnitude of the
possible disturbance and the timing, extent, and costs of the
required decommissioning activities.
In calculating the provision, cost estimates of the future
potential cash outflows based on current assessments of the
expected decommissioning activities and timing thereof, are
prepared. These forecasts are then discounted to their present
value using a discount rate of 9.91% as disclosed in Note 23. The
works and technical studies are continuing and as the actual future
costs can differ from the estimates due to changes in regulations,
technology, costs and timing, the provision including the estimates
and assumptions contained therein are regularly reviewed by
management. The current estimate reviewed by management is based on
a new estimate completed in 2021. The provision at 31 December 2021
is US$10.5 million (2020: US$7.5 million). A 25% increase or
decrease in the potential cash flows would increase or decrease the
provision by US$2.6 million. The basis of the provision recognised
is an assumed mine closure date of 2026 with rehabilitation being
primarily completed in the subsequent year. An acceleration or
deferral of this expenditure by one year would increase/decrease
the provision by US$1 million.
Legal claim provisions
As disclosed in Note 31, legal claim provisions totalling US$2.8
million have been recognised as the Group has a present obligation
as a result of a past event, it is probable that an outflow of
resources will be required to settle the disputes, a reliable
estimate can be made of the amount of the obligation however there
is uncertainty around the timing of payments to be made. US$0.8
million of the employment dispute provision is covered by an
indemnity included in the original Kapan acquisition agreement. The
directors consider recoverability virtually certain and accordingly
have recognised a corresponding contingent asset within other
receivables as shown within note 20.
4. Revenue
The revenue recognised from contracts with customers consisted
of the following:
2021 2020
US$'000 US$'000
------------------------- ------- -------
Copper concentrate 77,134 61,827
Zinc concentrate 13,114 14,167
Zinc concentrate freight 2,186 -
Total 92,434 75,994
------------------------- ------- -------
The Group's sales of copper and zinc concentrate are based on
provisional 1-3 month commodity forward prices and as such, contain
an embedded derivative which is marked-to-market at each month
end.
The Group's sales are to internationally well-established
commodity traders under standard offtake terms.
In 2021, Copper concentrate sales were made on an Ex Works basis
meaning that control passes to the buyer when the concentrate is
loaded on the truck at the Kapan mine. Zinc concentrate sales were
made on a cost, insurance, and freight ("CIF") basis meaning that
control passes to the buyer when the concentrate is loaded on the
vessel in the port of shipment (e.g., port of Poti, Georgia).
In addition to the Group's own concentrates, it processes third
party ore into concentrate and sells it to customers. Of the
US$92.4 million generated from concentrate sales in 2021, US$72.8
million relates to own concentrate sales and US$19.6 million
relates to third-party concentrate sales (2020: US$69.9 million and
US$6.1 million).
In 2021, the Group has continued to recognise contract
liabilities in relation to its contracts with customers for
prepayments received for the future transfer of concentrates, as
set out in Note 26.
5. Cost of sales
2021 2020
US$'000 US$'000
---------------------------------------- -------- ----------
Depreciation and amortisation 5,941 4,851
Employee benefit expenses 8,817 9,467
Materials 12,973 10,183
Services 14,616 13,566
Royalties 5,665 6,473
Energy and fuel 4,103 4,169
Cost of purchased ore and concentrate* 16,143 5,451
Short-term lease charges 951 1,075
Other 49 51
Total 69,258 55,286
---------------------------------------- -------- ----------
*In 2021, the Group started processing third party ore into
concentrate for a fee. The Group purchases the processed
concentrate and sells it to customers, resulting in third-party
revenue, which is recognised in addition to own ore revenue, as
disclosed in note 4. The amount expensed in cost of sales is equal
to the price paid to the third party, which is net of the
processing fee charged by the Group on the basis the substance of
these arrangements is that of an ore purchase agreement. on the
basis that the substance of these arrangements is that of an ore
purchase agreement.
6. Operating profit
The operating profit is stated after charging/(crediting):
2021 2020
US$'000 US$'000
--------------------------------------------------- -------- --------
Depreciation of property, plant and equipment 6,841 5,693
Amortisation of intangible assets 274 266
Short-term/low value lease charges 1,083 1,219
Share based payment charges 1,251 3,612
Loss on the sale of fixed assets 4 66
(Gain)/loss on foreign exchange (1,475) 2,456
Fees payable to Group auditors for the audit
of the Group financial
statements 234 162
Fees payable to associated firms of the
auditor for the audit of subsidiaries 83 48
Change in legal provision 75 (29)
Change in provision for environmental obligations
(income) - Note 23 - (1,088)
Selling expenses 2,444 1,864
Loss on termination of lease - 22
7. Selling expenses
Selling expenses consisted of the following:
2021 2020
US$'000 US$'000
------------------------------ ------- -------
Transportation expenses 1,099 1,214
Sampling and inspection 125 125
Staff costs 246 233
Customs clearance 675 36
Utilities 30 28
Depreciation and amortisation 6 13
Material 77 180
Services 27 -
Other 159 35
Total 2,444 1,864
------------------------------ ------- -------
8. Administrative expenses
The administrative expenses consisted of the following:
2021 2020
US$'000 US$'000
-------------------------------------------------- ------- -------
Readmission and acquisition costs 242 65
Legal and compliance 422 128
Regulatory 359 263
Investor relations 363 382
Salaries 6,383 6,274
Change in provision for environmental obligations
(income) - Note 23 - (1,088)
Corporate support 3,787 7,171
Travel and subsistence 159 163
Share-based payment charges 1,251 3,612
Total 12,966 16,970
-------------------------------------------------- ------- -------
9. Segmental analysis
Operating segments are identified based on internal reports
about components of the Group that are regularly reviewed by the
Board, in order to allocate resources to the segments and to assess
their performance.
Based on the proportion of revenue and profit within the Group's
operations and on the differences in principal activities, the
Board considers there to be two operating segments:
-- Exploration for mineral deposits in the Kyrgyz Republic with
support provided from the British Virgin Islands ('Kyrgyz
Republic')
-- Exploration and production of copper and zinc concentrates at Kapan in Armenia ('Armenia')
Kyrgyz Republic Armenia Corporate Total
31 December 2021 US$'000 US$'000 US$'000 US$'000
Revenue
Sales to external customers - 92,434 - 92,434
Total segment revenue - 92,434 - 92,434
---------------- -------- ---------- --------
Operating profit/(loss) (2,299) 17,448 (7,361) 7,788
Finance income - 17 6 23
Finance costs - (3,043) (4,853) (7,896)
Fair value gain on warrant - - 434 434
Profit/(loss) before income tax (2,299) 14,422 (11,774) 349
---------------- -------- ---------- --------
Income tax charge - (3,937) - (3,937)
---------------- -------- ---------- --------
Profit/(loss) after income tax (2,299) 10,485 (11,774) (3,588)
---------------- -------- ---------- --------
Assets
Segment assets - non-current 78,562 41,173 - 119,735
Segment assets - current 277 43,797 7,749 51,823
Total assets 78,839 84,970 7,749 171,558
---------------- -------- ---------- --------
Liabilities
Segment liabilities 2,253 65,753 26,675 94,682
Total liabilities 2,253 65,753 26,675 94,682
---------------- -------- ---------- --------
Kyrgyz Republic Armenia Corporate Total
31 December 2020 US$'000 US$'000 US$'000 US$'000
Revenue
Sales to external customers - 75,994 - 75,994
Total segment revenue - 75,994 - 75,994
---------------- -------- ---------- ---------
Operating profit/(loss) (2,277) 12,747 (8,575) 1,895
Finance income - 19 - 19
Finance costs - (3,804) (17,628) (21,432)
Fair value gain on warrant - - 595 595
Loss before income tax (2,277) 8,962 (25,608) (18,923)
---------------- -------- ---------- ---------
Income tax charge - (3,520) - (3,520)
---------------- -------- ---------- ---------
Loss after income tax (2,277) 5,442 (25,608) (22,443)
---------------- -------- ---------- ---------
Assets
Segment assets - non-current 71,604 37,708 - 109,312
Segment assets - current 135 24,544 1,146 25,825
Total assets 71,739 62,252 1,146 135,137
---------------- -------- ---------- ---------
Liabilities
Segment liabilities 5,571 56,860 48,255 110,686
Total liabilities 5,571 56,860 48,255 110,686
---------------- -------- ---------- ---------
10. Staff numbers and costs
2021 2020
Number Number
--------------------------------------------- ------- -------
Management and administration 167 169
Exploration and evaluation 54 45
Production and service 948 980
Total 1,169 1,194
--------------------------------------------- ------- -------
The aggregate payroll costs of these persons US$'000 US$'000
were as follows:
Staff wages and salaries 17,725 17,032
Employee share-based payment charges 966 1,354
Directors' remuneration as detailed in the
Remuneration Report
Wages and salaries 880 1,097
Termination benefits 575 -
Share-based payment charges 285 2,258
--------------------------------------------- ------- -------
Total 20,431 21,741
--------------------------------------------- ------- -------
The share-based payment charges relate to the remaining fair
value attributed to restricted stock units ("RSUs") granted under
the Management Incentive Plan ("MIP") in 2019. The vesting of the
tranche 3 RSUs took place in April 2021 following final
determination by the remuneration committee of the extent to which
performance criteria had been achieved, in the case of awards
subject to performance conditions. Tranche 3 RSUs not subject to
performance conditions vested at the same time.
The staff wages and salaries include amounts capitalised to
exploration and evaluation assets of US$3.1 million (2020: US$2.2
million).
11. Directors' remuneration
The costs of certain Directors' services were charged to the
Company via consultancy companies, as separately detailed below and
in the related party transactions Note 32, rather than directly as
short-term employment costs. These arrangements are in place purely
for administrative convenience and are not methods to mitigate,
reduce or remove liabilities to taxation in the respective
Director's country of residence. Details of Directors' remuneration
are provided in the Remuneration Report.
Total remuneration 2021 2020
US$'000 US$'000
--------------------------------------------------- ------- -------
Salary and fees paid directly 830 1,041
Salary and fees paid via related party consultancy
companies 50 56
Termination benefits 575 -
Share-based payment charges 285 2,258
--------------------------------------------------- ------- -------
Total 1,740 3,355
--------------------------------------------------- ------- -------
The share-based payment charge in 2021 relates to the fair value
charge attributed to tranche 3 RSUs which vested in April 2021.
12. Finance costs
2021 2020
US$'000 US$'000
--------------------------------------- --- -------- --------
Interest on convertible loan notes 25 3,793 3,258
Interest on other loans 29 2,184 5,763
Interest on lease liabilities 28 128 169
Interest on contract liabilities 26 204 102
Unwinding of discount - provision for
environmental obligations 23 705 655
Financing costs 29 867 11,485
Other 15 -
Total 7,896 21,432
--------------------------------------- --- -------- --------
The interest on other loans of US$2.2 million includes interest
on borrowings of US$1.9 million, interest on other borrowings of
US$0.1 million and interest on the Labro Term Loan of US$0.2
million. The interest charge in the comparative year was higher as
it included interest on the Investor Loan and the Labro Facility of
US$2.6 million. Both of these loans were extinguished in 2021.
The financing costs of US$0.9 million, a non-cash cost, relates
to the amortisation of the Labro Facility commitment fee as
disclosed in Note 29. In 2020, the financing costs of US$11.5
million related to the refinance of the Investor Loan and the Labro
Term Loan, which were expensed as part of the substantial
modification of these loans.
13. Taxation
The Group is not subject to corporate tax in the British Virgin
Islands. Companies engaged in the production and sale of gold in
the Kyrgyz Republic pay a revenue-based tax on the sales of gold
rather than tax on profit. Accordingly, the Group has an effective
rate of tax on profit of 0% in these jurisdictions. In the
remaining jurisdictions in which the Group operates, being Armenia,
Cyprus and the United Kingdom, profits are subject to corporate
income tax at a rate of 18%, 12.5% and 19%, respectively.
Within Armenia, the rate of corporate income tax is 18% for
resident companies (with a worldwide tax base) for 2021. The tax
period of corporate income tax is one calendar year (1 January - 31
December). Advance payments of corporate income tax are required to
be made quarterly by the 20(th) day of the third month of each
quarter. The advance payment is equal to 20% of the corporate
income tax reported in the previous tax year. The balance of tax
due must be paid by 20 April of the year following the reporting
year. Corporate income tax is determined based on rules and
principles of accounting defined by the law or other legal
acts.
Within the Kyrgyz Republic, a fixed royalty is payable on the
sale of gold. In 2021, the fixed royalty percentage remained at 8%,
comprising a royalty of 5% and a contribution to local
infrastructure of 3% (2020: 5% and 3%). However, due to the
Stabilisation Agreement that was signed in 2019 which entitled the
Company's local subsidiary, Chaarat Zaav, to benefit from any
future changes in direct taxes during the 10 years from the date of
the agreement, the fixed royalty percentage is capped at 7%. A
further percentage rate of tax is based on the average monthly
international gold price, being 1% if the gold price is below
US$1,300 per ounce and up to 20% when the gold price exceeds
US$2,501 per ounce. The maximum royalty payable when the gold price
is above US$2,501 per ounce is therefore 27%. However, as the
Group's assets in the Kyrgyz Republic are at an exploration stage,
the Group has no royalty payable in respect of these assets for the
years ended 31 December 2021 or 31 December 2020.
Further, under the Article 301 of the Tax Code of the Kyrgyz
Republic, an entity is subject to a taxation in payment of the
right to use subsoil, including for the purpose of developing a
mineral deposit. The tax base for calculating this is the amount of
geological reserves and forecast resources taken into account by
the State Balance of deposits of mineral resources of the Kyrgyz
Republic.
At the balance sheet date, the Group has received no tax claims
and the Directors believe that the Group is in compliance with the
tax laws affecting its operations.
The Group has recognised deferred tax assets which relate to
temporary differences arising at the Kapan mine in Armenia, as
detailed in Note 18.
Analysis of tax charge for the year
2021 2020
US$'000 US$'000
--------------------------------------- --- -------- --------
Armenian tax 2,269 1, 979
Current tax 2,269 1,979
Origination and reversal of temporary
differences 1,668 1,541
Deferred tax 18 1,668 1,541
--------------------------------------- --- -------- --------
Income tax expense 3,937 3,520
--------------------------------------- --- -------- --------
Reconciliation of tax charge for the year
2021 2020
US$'000 US$'000
Profit/(loss) before tax 349 (18,923)
---------------------------------------- -------- ---------
Tax calculated at applicable
corporation tax rate:
Armenian corporation tax at
18% (2020:18%) 63 3,406
Tax effects of:
Items non-deductible/(non-taxable)
for tax purposes 127 (696)
Income eliminated on consolidation (566) (614)
Different tax rates applied
in overseas jurisdictions (2,188) (4,468)
Current tax losses not recognised (345) (551)
Write-down of previously recognised
deferred tax assets (1,028) (597)
---------------------------------------- -------- ---------
Income tax expense (3,937) (3,520)
---------------------------------------- -------- ---------
Tax losses
2021 2020
US$'000 US$'000
----------------------------------------- -------- --------
Unused tax losses for which no deferred
tax asset has been recognized
United Kingdom 278 313
Tax benefit at 19 % 53 59
Deferred tax assets are only recognised to the extent that it is
probable that taxable profits will be available against which
unused tax losses and unused tax credits can be utilised.
14. Loss per share
Loss per share is calculated by reference to the loss for the
year of US$3.6 million (2020: loss of US$22.4 million) and the
weighted average number of ordinary shares in issue during the year
of 673,320,329 (2020: 510,466,838).
At 31 December 2021, 8,920,341 (2020: 8,920,341) warrants,
49,692,252 (2020: 55,027,006) share options and convertible loan
notes have been excluded from the diluted weighted average number
of ordinary shares calculation because their effect would have been
anti-dilutive.
15. Exploration and evaluation costs
Tulkubash Kyzyltash Total
US$'000 US$'000 US$'000
------------------------------- ---------- ---------- --------
At 1 January 2020 45,868 9,202 55,070
Additions 6,289 - 6,289
------------------------------- ---------- ---------- --------
At 31 December 2020 52,157 9,202 61,359
Additions 4,775 899 5,674
Reclassification to property,
plant & equipment (728) - (728)
------------------------------- ---------- ---------- --------
At 31 December 2021 56,204 10,101 66,305
------------------------------- ---------- ---------- --------
Exploration and evaluation assets comprise costs associated with
exploration for, and evaluation of, mineral resources together with
costs to maintain mining and exploration licences for mining
properties that are considered by the Directors to meet the
requirements for capitalisation under the Group's accounting
policies as disclosed in Note 3. As at 31 December 2021, management
does not consider there to be any indicators of impairment in
respect of these assets.
In 2021, the Company entered into a new investment agreement
("The Investment Agreement") with Çiftay which supersedes the
previous agreement that was signed in September 2019. Çiftay and
the Company decided to replace the previous agreement with the
Investment Agreement, in order to simplify the structure of the
partnership and further align the interests of both parties. Under
the Investment Agreement, Chaarat retains 100% ownership of the
Tulkubash and Kyzyltash projects with Çiftay becoming a strategic
investor at the Company level, through the issuance of new ordinary
shares. In July 2021, the Company issued 2.8 million new ordinary
shares to Çiftay with a fair value of US$0.8 million in settlement
of accrued expenses relating to Tulkubash construction activities.
Further shares issues will only take place once certain terms of
the agreement are triggered by securing project finance.
16. Intangible assets
Computer Other intangible
Software assets Total
US$'000 US$'000 US$'000
Cost
At 1 January 2020 1,405 480 1,885
Additions 155 44 199
Disposals - (214) (214)
Effect of translation
to presentation
currency (109) (29) (138)
At 31 December 2020 1,451 281 1,732
Prior year reclassification
from PPE 18 - 18
Additions 152 - 152
Effect of translation
to presentation
currency 120 26 146
At 31 December 2021 1,741 307 2,048
---------------------- --------- ---------------- ---------
Accumulated
amortisation
At 1 January 2020 276 - 276
Charge for the year 245 21 266
Effect of translation
to presentation
currency (30) (1) (31)
At 31 December 2020 491 20 511
Charge for the year 246 28 274
Effect of translation
to presentation
currency 45 5 50
At 31 December 2021 782 53 835
---------------------- --------- ---------------- ---------
Net book value
---------------------- --------- ---------------- ---------
At 31 December 2021 959 254 1,213
At 31 December 2020 960 261 1,221
At 1 January 2020 1,129 480 1,609
---------------------- --------- ---------------- ---------
17. Property, plant and equipment
Land and Mining Fixtures and Motor Assets under Right-of-use
buildings properties fittings vehicles construction Assets Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Cost
At 1 January 2020 9,144 29,931 1,597 663 2,755 616 44,706
Additions 6 4,789 10 39 4,570 1,565 10,979
Transfers 203 666 - - (869) - -
Changes in
estimates of
provision for
environmental
obligations - (29) - - - - (29)
Disposals - (916) (34) (35) - (272) (1,257)
Reclassification
from inventories - 418 - - 57 - 475
Effect of
translation to
presentation
currency (339) (2,636) (106) (19) (66) (128) (3,294)
At 31 December
2020 9,014 32,223 1,467 648 6,447 1,781 51,580
Additions - 4,35 8 16 - 2,955 - 7,32 9
Transfers 32 510 1 - (543) - -
Changes in
estimates of
provision for
environmental
obligations - 1,566 - - - - 1,566
Disposals - (508) (2) - - - (510)
Reclassification f
rom inventories - 1,499 - - 165 - 1,6 64
Reclassification
from exploration
and evaluation
asset - - - - 728 - 728
Effect of
translation to
presentation
currency 330 3,05 5 105 19 120 157 3,78 6
At 31 December
2021 9,376 42, 703 1,587 667 9,872 1,938 66 ,143
------------------ ------------- ------------- ------------- ------------- ------------ ------------- -------
Accumulated
depreciation
------------------ ------------- ------------- ------------- ------------- ------------ ------------- -------
At 1 January 2020 1,231 4,428 403 271 - 104 6,437
Charge for the
year 1,078 4,229 319 116 - 608 6,350
Disposals - (915) (27) (35) - (164) (1,141)
Effect of
translation to
presentation
currency (67) (461) (32) (9) - (35) (604)
At 31 December
2020 2,242 7,281 663 343 - 513 11,042
Charge for the
year 802 5 ,431 375 109 - 590 7 ,307
Disposals - (503) (2) - - - (505)
Effect of
translation to
presentation
currency 100 75 4 54 11 - 74 99 3
At 31 December
2021 3,144 12 ,963 1,090 463 - 1,177 18 ,837
------------------ ------------- ------------- ------------- ------------- ------------ ------------- -------
Net book value
----------------- ------------- ------------- ------------- ------------- ------------ ------------- -------
At 31 December
2021 6,232 2 9,740 497 204 9,872 761 47,3 06
At 31 December
2020 6,772 24,942 804 305 6,447 1,268 40,538
At 1 January 2020 7,913 25,503 1,194 392 2,755 512 38,269
------------------ ------------- ------------- ------------- ------------- ------------ ------------- -------
The Group's property, plant and equipment relating to the
operations in Armenia, Kapan, are pledged as security to the
respective banks that have supplied bank debt to the Group.
As at 31 December 2021, management does not consider there to be
any indicators of impairment in respect of the Group's property,
plant and equipment.
18. Deferred Tax
Deferred tax assets have been recognized as a result of
temporary differences where the directors believe it is probable
that these assets will be recovered. The Group's deferred tax
balance relates to the Kapan mine in Armenia. No deferred tax has
been recognized in respect of the Group's operations in the Kyrgyz
Republic. As disclosed in Note 13, unused tax losses for which no
deferred tax asset has been recognised amounts to US$0.3 million
(2020: US$0.3 million).
The movement in net deferred tax assets during the year is as
follows:
2021 2020
US$'000 US$'000
-------------------------------- ------- -------
At 1 January 5,631 7,652
Charged to the income statement (1,668) (1,541)
Effect of currency translation 418 (480)
At 31 December 4,381 5,631
-------------------------------- ------- -------
Comprising:
Deferred tax assets 4,381 5,631
Deferred tax liabilities - -
-------------------------------- ------- -------
Movements in temporary differences during the years ended 31
December are presented as follows:
2021 At 1 January Charged Effect Total
to the of currency
income translation
statement
US$'000 US$'000 US$'000 US$'000
----------------------------- ------------- ----------- ------------- --------
Property, plant and
equipment 4,516 (706) 365 4,175
Trade and other receivables 49 119 9 177
Inventories 684 (892) 18 (190)
Other provisions 48 2 4 54
Trade and other payables 108 (61) 7 54
Lease liabilities 226 (130) 15 111
Total 5,631 (1,668) 418 4,381
----------------------------- ------------- ----------- ------------- --------
2020 At 1 January Charged Effect Total
to the of currency
income translation
statement
US$'000 US$'000 US$'000 US$'000
----------------------------- ------------- ----------- ------------- --------
Property, plant and
equipment 5,760 (885) (359) 4,516
Trade and other receivables 35 18 (4) 49
Inventories 1,402 (637) (81) 684
Other provisions 57 (5) (4) 48
Trade and other payables 101 17 (10) 108
Lease liabilities 297 (49) (22) 226
----------------------------- ------------- ----------- ------------- --------
Total 7,652 (1,541) (480) 5,631
----------------------------- ------------- ----------- ------------- --------
19. Inventories
Inventories represent goods held for sale in the ordinary course
of business (copper and zinc concentrate), ore being processed into
a saleable condition (ore stockpiles) and consumables and spares to
be used in the production process.
2021 2020
US$'000 US$'000
--------------------------------------- ------- -------
Consumables and spare parts 8,861 7,211
Copper and zinc concentrate in stock 5,984 3,844
Copper and zinc concentrate in transit 1,432 -
Ore stockpiles extracted 2,157 749
Other 8 447
At 31 December 18,442 12,251
--------------------------------------- ------- -------
The cost of inventories recognised as an expense and included in
cost of sales amounted to US$13.2 million (2020: US$10.2 million)
for raw materials and consumables and spare parts and US$16.1
million (2020: US$5.5 million) for purchased ore and concentrate.
The inventory write-down provision to net realisable value amounted
to US$1.9 million as at 31 December 2021 (2020: US$0.8 million),
relating mainly to consumables and spare parts.
20. Trade and other receivables
2021 2020
US$'000 US$'000
----------------------------- ------- -------
Trade receivables 18,620 3,447
Other receivables 2,856 1,055
Unpaid shares issued* 6 122
Prepayments 766 2,293
Less: expected credit losses (1) (271)
At 31 December 22,247 6,646
----------------------------- ------- -------
*Shares were issued to key management personnel ("KMPs") and
other employees in April 2020 upon terms that the subscription
price would be satisfied by way of set-off against a proportion of
fees and salaries due and to become due until such time as the
subscription price was fully paid. The total amount set-off against
fees and salaries during the year was US$0.1 million (2020: US$0.5
million). Amounts relating to KMPs are disclosed in Note 32.
The movement in the loss allowance for expected credit losses is
detailed below:
2021 2020
US$'000 US$'000
------------------------------- ------- -------
At 1 January 271 101
Movement during the year (270) 191
Effect of currency translation - (21)
At 31 December 1 271
------------------------------- ------- -------
21. Cash and cash equivalents
2021 2020
US$'000 US$'000
---------------------------------------- ------- -------
Cash on hand 2 5
Current accounts in UK 7,646 132
Current accounts in the Kyrgyz Republic 264 118
Current accounts in Armenia 3,222 6,673
At 31 December 11,134 6,928
---------------------------------------- ------- -------
There are no amounts of cash and cash equivalents which are not
available for use by the Group. All amounts held in current
accounts can be drawn on demand if required.
22. Capital and reserves
The share capital of the Company consists of shares of US$0.01
par value of a single class. All shares have equal rights to
receive dividends or capital repayments and all shares represent
one vote at meetings of shareholders of the Company.
22(a) Capital management policies and procedures
The Group's objectives for the management of capital have not
changed in the year. The Directors seek to ensure that the Group
will continue to operate as a going concern in order to pursue the
development of its mineral properties, to sustain future
development and growth as well as to maintain a flexible capital
structure which optimises the cost of capital at an acceptable
risk. The Company manages the capital structure and adjusts it in
light of changes in economic conditions and the risk
characteristics of the underlying assets. In order to maintain or
adjust the capital structure, the Company may issue shares, seek
debt financing, or acquire or dispose of assets. The Company,
following approval from the Board of Directors, will make changes
to its capital structure as deemed appropriate under specific
circumstances.
The Group considers equity to be all components included in
shareholders' funds and net debt to be short and long-term
borrowings including convertible loan notes less cash and cash
equivalents. The Group's net debt to equity ratio at 31 December
was as follows:
2021 2020
US$'000 US$'000
-------------------------------- -------- -------
Total Equity 76,876 24,449
Convertible loan notes 25,625 23,252
Other loans 21,328 53,347
Contract liabilities 2,379 5,328
Lease liabilities 978 1,425
Warrant financial liability 380 814
Less: cash and cash equivalents (11,134) (6,928)
-------------------------------- -------- -------
Net debt 39,556 77,238
-------------------------------- -------- -------
Net debt to equity ratio 51% 316%
-------------------------------- -------- -------
Other loans include borrowings which relate to external bank
financing obtained for the acquisition of Kapan. This bank
financing has certain covenants attached to it that the Group needs
to adhere to, all of which were met as at 31 December 2021.
The convertible loan notes, as disclosed in Note 25,
respectively, do not have covenants attached to them. As the
convertible loan notes are repayable within the next 12 months,
they have been disclosed as a current liability as at 31 December
2021.
22 (b) Share capital
2021 2020
Ordinary shares of US$0.01 Number of Nominal Number of Nominal
each Shares ('000) Value US$'000 Shares ('000) Value US$'000
----------------------------- -------------- -------------- -------------- --------------
Authorised 1,395,167 13,952 1,395,167 13,952
----------------------------- -------------- -------------- -------------- --------------
Issued and fully paid
At 1 January 540,061 5,401 468,811 4,688
Issued for cash 84,115 841 19,046 191
Issued to settle liabilities 65,235 652 51,259 513
Exercise of warrants - - 825 8
Exercise of share options - - 120 1
----------------------------- -------------- -------------- -------------- --------------
At 31 December 689,411 6,894 540,061 5,401
----------------------------- -------------- -------------- -------------- --------------
On 5 February 2021, the Company issued 55,240 ordinary shares to
Labro to satisfy outstanding drawdown fees under the Labro Facility
agreement. On the same day, a further 62,380,154 ordinary shares
were issued to Labro to set off the outstanding amount owed by the
Company on the Labro Term Loan.
Later in February 2021, as part of an equity fundraise the
Company issued a further 84,114,549 ordinary shares of US$0.01 each
to new and existing investors for cash (US$30.0 million).
On 30 July 2021, the Company issued 2.8 million new ordinary
shares of US$0.01 each in the Company to Çiftay under the new
investment agreement entered into on 21 June 2021 (see note
15).
22 (c) Share options and share-based payments
Share options
The Group operates a share option plan under which directors,
employees, consultants, and advisers have been granted options to
subscribe for ordinary shares. All options are share settled. The
number and weighted average exercise price of share options are as
follows:
2021 2020
Weighted
average Weighted
exercise average
Number of price Number of exercise
Options (US$) Options price (US$)
---------------------------- ------------ ---------- ------------ -------------
Outstanding at 1 January 55,027,006 0.523 56,925,258 0.522
Exercised during the
year - - (120,000) 0.187
Granted during the - - - -
year
Replaced during the - - - -
year
Lapsed during the year (5,334,754) 0.578 (1,778,252) 0.523
---------------------------- ------------ ---------- ------------ -------------
Outstanding at 31 December 49,692,252 0.567 55,027,006 0.523
---------------------------- ------------ ---------- ------------ -------------
Exercisable at 31 December 49,692,252 0.567 55,027,006 0.523
---------------------------- ------------ ---------- ------------ -------------
The share options outstanding at 31 December 2021 had a weighted
average remaining contractual life of 2.7 years (2020: 3.7 years).
Maximum term of the options granted was 5 years from the grant
date. The share options outstanding at 31 December 2021 had an
exercise price of GBP0.42 (2020: GBP0.42).
All goods and services received in exchange for the grant of any
share-based payment are measured at their fair values. Where
employees are rewarded using share-based payments, the fair values
of employees' services are determined indirectly by reference to
the fair value of the instrument granted to the employee. This
estimate is based on a Black-Scholes model which is considered most
appropriate considering the effects of the vesting conditions and
expected exercise period.
The total number of options over ordinary shares outstanding at
31 December 2021 was as follows:
Exercise
Exercise period Number price
-------------------------------------- ---------- --------
18 September 2019 to 18 September 2024 49,692,252 GBP0.42
-------------------------------------- ---------- --------
Total 49,692,252 GBP0.42
-------------------------------------- ---------- --------
Management Incentive Plan
On 18 September 2019, the Group adopted a new Management
Incentive Plan ("MIP") whereby 56,805,258 share options exercisable
at GBP0.42 per share and 21,494,198 restricted stock units ("RSUs")
were granted to key management personnel ("KMPs") and other
employees (subject to performance conditions for executives in the
case of the RSUs). 33% of the share options and RSUs vested on 15
October 2019 (Tranche 1), 33% on 31 December 2019 and (in the case
of RSUs subject to performance conditions) on 21 February 2020
(Tranche 2), and the remaining 33% of share options vested on 31
December 2020 subject to a vesting condition of continued
employment by the Group. On 15 April 2021, 5,308,640 RSUs (Tranche
3) vested following final determination by the remuneration
committee of the extent to which performance criteria had been
achieved, in the case of awards subject to performance conditions.
RSUs not subject to performance conditions in Tranche 3 vested at
the same time.
On 22 April 2021, a further 2,122,466 RSUs were granted to KMPs
and other employees which vested immediately on this date. As a
result, a total share-based payment charge of US$1.3 million was
recognised during 2021, US$0.5 million of which related to the
remaining Tranche 3 RSUs and US$0.8 million to the additional RSUs
granted on 22 April 2021.
There was no exercise of share options during 2021, however
5,334,754 share options lapsed due to two employees leaving the
Company during the year.
No further share awards were granted in 2021, however as
disclosed in Note 35, a further 5 million share options were
granted under the MIP to the Company's new Chief Executive Officer
on joining in January 2022.
Trust
On 7 October 2019, the Group established the Chaarat Gold
Holdings Limited Employee Benefit Trust in order to acquire and
hold sufficient shares to satisfy the awards under the new Plan.
The Company has control over the Trust and therefore the results of
the Trust were consolidated within these financial statements.
During the year, expenses of US$0.05 million were incurred by the
Trust (2020: US$0.1 million). At 31 December 2021, the Trust held
1,070,194 shares (2020: 8,504,596 shares).
22 (d) Convertible loan note reserve
The convertible loan note reserve represents the equity
component of convertible loan notes issued by the Company. Refer to
Note 25 for further information.
2021 2020
US$'000 US$'000
--------------------------------------- ------- -------
At 1 January 2,493 2,493
Modification of convertible loan notes (1,073) -
At 31 December 1,420 2,493
--------------------------------------- ------- -------
22 (e) Own shares reserve
The own shares reserve represents the nominal value of equity
shares that have been repurchased by the company. The movement in
the reserve is as follows:
2021 2020
US$'000 US$'000
---------------------------- ------- -------
At 1 January (216) (216)
Transfer of treasury shares 84 -
At 31 December (132) (216)
---------------------------- ------- -------
23. Provision for environmental obligations
The provision for environmental obligations relates to the Kapan
mine in Armenia. According to Armenian legislation and licence
agreements, the Company is committed to restoring working areas on
the mine, including decommissioning of plant and securing of the
tailings dam. Movements in the provision are as follows:
2021 2020
US$'000 US$'000
-------------------------------------- ------- -------
At 1 January 7,479 8,638
Change in provision 1,566 (1,088)
Unwinding of discount 705 655
Reclassification to deferred expenses - (44)
Effect of currency translation 771 (682)
-------------------------------------- ------- -------
At 31 December 10,521 7,479
-------------------------------------- ------- -------
The change in provision of US$1.6 million in 2021 was as a
result of a reassessment of the Company's obligations under
international good practice requirements that took place in 2021 by
an independent third party.
Further details relating to the calculation of the balance as at
31 December 2021 are as follows:
31/12/2021 31/12/2020
------------------------------------------------------------------ ---------------- --------------
Discount rates 9 .91% 8.63%
Provision settlement date 3 1/12/2027 31/12/2027
Estimated undiscounted cash flow required to settle the provision U S$14.1 million US$9.6 million
------------------------------------------------------------------ ---------------- --------------
24. Reconciliation of liabilities
Contract Other loans Total
Convertible loans liabilities Lease liabilities
Li abilities from financing US$'000 US$'000
activities US$'000 US$'000 US$'000
-------------------------------------- ------------------ ------------- ------------------ ------------ ---------
At 1 January 2020 19,994 - 578 59,258 79,830
-------------------------------------- ------------------ ------------- ------------------ ------------ ---------
Cash flows:
Cash proceeds - 7,000 - 5,300 12,300
Transaction costs paid - - - (209) (209)
Payment of interest - - - (3,185) (3,185)
Payment of principal amount - - - (8,000) (8,000)
Lease payments - - (573) - (573)
-------------------------------------- ------------------ ------------- ------------------ ------------ ---------
Net proceeds - 7,000 (573) (6,094) 333
-------------------------------------- ------------------ ------------- ------------------ ------------ ---------
Non-cash items:
Loan modification - - - (20,665) (20,665)
Interest capitalised - - - 587 587
Interest accrued 3,258 102 169 5,176 8,705
Additions - - 1,565 21,788 23,353
Reclassification - - (126) - (126)
Lease termination - - (80) - (80)
Converted to equity - - - (6,338) (6,338)
Settlement of interest against
receivables - (71) - - (71)
Transaction costs - (361) (361)
Amounts recognised as revenue during
the year - (1,667) - - (1,667)
Effect of currency translation - (36) (108) (4) (148)
-------------------------------------- ------------------ ------------- ------------------ ------------ ---------
Total liabilities from financing
activities at 31 December 2020 23,252 5,328 1,425 53,347 83,352
-------------------------------------- ------------------ ------------- ------------------ ------------ ---------
Non-current - - 771 21,947 22,718
Current 23,252 5,328 654 31,400 60,634
-------------------------------------- ------------------ ------------- ------------------ ------------ ---------
Cash flows:
Cash proceeds - - - - -
Payment of interest - - - (2,295) (2,295)
Payment of principal amount - - - (9,800) (9,800)
Lease payments - - (674) - (674)
Net proceeds - - (674) (12,095) (12,769)
Non-cash items:
Loan modification (1,420) - - 8 (1,412)
Converted to equity - - - (22,117) (22,117)
Interest accrued 3,793 204 128 2,184 6,309
Settlement of interest against
receivables - (120) - - (120)
Amounts recognised as revenue during
the year - (3,250) - - (3,250)
Effect of currency translation 217 99 1 317
-------------------------------------- ------------------ ------------- ------------------ ------------ ---------
Total liabilities from financing
activities at 31 December 2021 25,625 2,379 978 21,328 50,310
-------------------------------------- ------------------ ------------- ------------------ ------------ ---------
Non-current - - 732 9,688 10,420
Current 25,625 2,379 246 11,640 39,890
-------------------------------------- ------------------ ------------- ------------------ ------------ ---------
25. Convertible loan notes
During the year no new convertible loan notes were issued,
however the maturity date was extended by one year from 31 October
2021 to 31 October 2022 and the conversion price of the notes was
decreased from GBP0.37 per share to GBP0.30 per share. The only
other transaction during the year was accrued interest of US$3.8
million (2020: US$3.3 million).
2021 Notes US$'000
----------------------------- --------
At 31 December 2019 19,994
Cash proceeds -
Transaction costs -
----------------------------- --------
Net proceeds -
----------------------------- --------
Amount classified as equity -
Accrued interest 3,258
----------------------------- --------
At 31 December 2020 23,252
----------------------------- --------
Cash proceeds -
Transaction costs -
----------------------------- --------
Net proceeds -
----------------------------- --------
Loan modification (1,420)
Accrued interest 3,793
----------------------------- --------
At 31 December 2021 25,625
----------------------------- --------
The number of shares to be issued on conversion is fixed. There
are no covenants attached to the convertible loan notes.
The 2021 notes accrued interest at 10% p.a. until 30 April 2020
and then at a rate of 12% p.a. until 31 October 2021. The notes are
secured on the shares of the Group's principal operating
subsidiary, Chaarat Zaav CJSC via the intermediate holding company
Zaav Holdings Limited. The notes are repayable on 31 October 2022
and can be redeemed by the Company at any time subject to paying a
minimum of 5% interest. The notes, including accrued interest, can
be converted at any time at the holder's option at a price of
GBP0.30 per ordinary share. If not converted, the notes will be
repaid in cash for a total of US$28.8 million in October 2022, as
disclosed in Note 2.
On 21 October 2021, the maturity date of the convertible loan
notes was extended from 31 October 2021 to 31 October 2022 and the
conversion price reduced from GBP0.37 to GBP0.30 per share, which
was treated as a substantial modification for accounting purposes.
The coupon interest rate remains at 12% p.a.
The value of the liability and equity conversion component was
reassessed at the date of the modification. The fair value of the
liability component was calculated using a market interest rate of
15% for an equivalent instrument without conversion option.
As the notes fall due in October 2022, they have been classified
as current liabilities at 31 December 2021.
26. Contract liabilities
The movements in the Group's contract liabilities for the year
are presented below:
2021
US$'000
------------------------------------------- -------
At 1 January 2021 5,328
Interest on contract liabilities 204
Settlement of interest against receivables (120)
Amounts recognised as revenue during the
year (3,250)
Effect of currency translation 217
At 31 December 2021 2,379
-------------------------------------------- -------
Non-current -
Current 2,379
-------------------------------------------- -------
The contract liabilities balance relates to prepayments received
from one of Chaarat Kapan's customers for the future sale of
concentrates. The prepayments accrue interest at a rate defined in
the sales contract of 6-month LIBOR plus 5% p.a. and are settled by
way of deduction against future outstanding invoices.
7. Trade and other payables
Trade and other payables at 31 December consisted of the
following:
2021 2020
US$'000 US$'000
Trade payables 27,799 11,414
Social security and employee taxes 1,951 1,698
Accruals 967 4,288
As at 31 December 30,717 17,400
----------------------------------- ------- -------
Trade and other payables are all unsecured.
28. Leases
The Group's leases are accounted for by recognising a
right-of-use asset and a lease liability except for leases of low
value assets and leases with a duration of 12 months or less.
The Group leases equipment and land in the jurisdictions from
which it operates, the most notable being the land that is leased
in Armenia. Certain items of property, plant and equipment are also
leased in the Kyrgyz Republic which contain variable payments over
the lease terms, therefore these leases do not fall within the
scope of IFRS 16, and right-of-use assets and lease liabilities are
not recognised as a result.
The movements in the Group's right-of-use assets and lease
liabilities for the year are presented below:
Right-of-use assets
Land Property Equipment Total
US$'000 US$'000 US$'000 US$'000
----------------------------------------------- ------- -------- --------- -------
At 1 January 2020 315 197 - 512
Additions 666 - 899 1,565
Depreciation charge (111) (89) (408) (608)
Lease termination - (102) - (102)
Effect of translation to presentation currency (62) (6) (31) (99)
At 31 December 2020 808 - 460 1,268
------------------------------------------------ ------- -------- --------- -------
Land Property Equipment Total
US$'000 US$'000 US$'000 US$'000
----------------------------------------------- ------- -------- --------- -------
At 1 January 2021 808 - 460 1,268
Depreciation charge (114) - (476) (590)
Effect of translation to presentation currency 66 19 85
At 31 December 2021 760 - 3 763
------------------------------------------------ ------- -------- --------- -------
Lease liabilities
Land Property Equipment Total
US$'000 US$'000 US$'000 US$'000
----------------------------------------------- ------- -------- --------- -------
At 1 January 2020 302 276 - 578
Additions 666 - 899 1,565
Reclassification 29 (155) - (126)
Interest expense 98 2 69 169
Lease payments (171) (38) (364) (573)
Lease termination - (80) - (80)
Effect of translation to presentation currency (65) (5) (38) (108)
At 31 December 2020 859 - 566 1,425
------------------------------------------------ ------- -------- --------- -------
Land Property Equipment Total
US$'000 US$'000 US$'000 US$'000
----------------------------------------------- ------- -------- --------- -------
At 1 January 2021 859 - 566 1,425
Interest expense 97 - 31 128
Lease payments (189) - (485) (674)
Effect of translation to presentation currency 72 - 27 99
At 31 December 2021 839 - 139 978
------------------------------------------------ ------- -------- --------- -------
The maturity of the gross contractual undiscounted cash flows
due on the Group's lease liabilities is set out below based on the
period between 31 December and the contractual maturity date.
Within 6 months 6 months 1 to 5 Over 5 Total at
to 1 years years 31 December
year 2021
US$'000 US$'000 US$'000 US$'000 US$'000
------------- ---------------- --------- -------- -------- -------------
Land leases 98 99 774 189 1,160
Equipment
leases 139 - - - 139
------------- ---------------- --------- -------- -------- -------------
Total 237 99 774 189 1,299
------------- ---------------- --------- -------- -------- -------------
Within 6 months 6 months 1 to 5 Over 5 Total at
to 1 years years 31 December
year 2020
US$'000 US$'000 US$'000 US$'000 US$'000
------------- ---------------- --------- -------- -------- -------------
Property
leases 90 91 719 347 1,247
Land leases 3 41 2 55 - - 5 96
------------- ---------------- --------- -------- -------- -------------
Total 431 346 719 347 1, 843
------------- ---------------- --------- -------- -------- -------------
As at 31 December 2021, the gross contractual discounted cash
flows due on the Group's lease liabilities amounts to US$1.0
million (2020: US$1.4 million).
The discount rate used in calculating the lease liabilities is
the rate implicit in the lease, unless this cannot readily be
determined, in which case the Group's incremental rate of borrowing
is used instead. In 2021, a discount rate of 12% per annum has been
used to calculate the Group's lease liabilities for its land and
equipment leases.
29. Other loans
Other loans at 31 December consisted of the following:
Labro Facility Labro Term Loan Borrowings Other Borrowings Total
US$'000 US$'000 US$'000 US$'000 US$'000
------------------------------------- -------------- --------------- ---------- ---------------- --------
At 1 January 2021 791 21,947 28,583 2,026 53,347
Interest accrued 17 177 1,857 133 2,184
Loan modification 14 (6) - - 8
C onverted to equity - (22,117) - - (22,117)
P ayment of interest in cash (22) - (2,154) (119) (2,295)
P ayment of principal amount in cash (800) - (9,000) - (9,800)
Effect of currency translation - - - 2 2
------------------------------------- -------------- --------------- ---------- ---------------- --------
At 31 December 2021 - - 19,286 2,042 21,328
------------------------------------- -------------- --------------- ---------- ---------------- --------
Non-current - - 9,688 - 9,688
Current - - 9,598 2,042 11,640
------------------------------------- -------------- --------------- ---------- ---------------- --------
Labro Facility
In February 2021, the Company repaid the outstanding US$0.8
million on the Labro Facility. The consideration paid exceeded the
carrying amount extinguished and therefore a loss of US$13,900 was
recognised in profit or loss as a financing cost under IFRS 9. No
further drawdowns took place from this point until the maturity
date of the facility on 30 June 2021. The remaining commitment fee
of US$0.9 million was amortised and recognised as a financing cost
in profit or loss on this date.
Labro Term Loan
In February 2021, the outstanding US$22 million on the Labro
Term Loan as well as the US$0.2 million of accrued interest was
converted into equity. Labro subscribed for 62,380,154 ordinary
shares of US$0.01 each in the Company at the issue price of GBP0.26
per share.
Borrowings
On 30 January 2019, the documentation was finalised for the
Kapan Acquisition Financing totalling US$40 million, which is
syndicated with Ameriabank CJSC (US$32 million), HSBC Bank Armenia
CJSC (US$5 million) and Ararat Bank OJSC (US$3 million). The loan
incurs interest at LIBOR plus 8% and was originally repayable
through quarterly payments over a four-year period however in July
2021, the maturity date of the facility was extended from 31
January 2023 to 2 October 2023.
This bank financing has certain covenants attached to it that
the Group needs to adhere to. All covenants were met as at 31
December 2021 and as such the Group remains in full compliance with
the loan.
Other borrowings
Other borrowings include an amount owing to one of Chaarat
Kapan's customers in respect of prepayments for the future sale of
concentrates. The prepayments accrue interest at 1-month LIBOR plus
6% p.a. and are expected to be settled in cash in accordance with a
repayment schedule defined in the sales contract. The prepayments
can be requested upon notice and therefore are repayable on
demand.
The contractual maturities of other loans (representing
undiscounted cash-flows) are disclosed in Note 34.
30. Warrant financial liability
In October 2020, as compensation for the extension option of the
Investor Loan, 8,920,341 warrants were issued with an exercise
price of GBP0.26, expiring on 5 October 2023. The warrants are
revalued at each reporting date. In 2021, a fair value gain of
US$0.4 million was recognised in profit or loss due to a decline in
the share price. The movement in the balance is set out below:
2021 2020
US$'000 US$'000
At 1 January 814 -
Issue of warrants - 1,409
Fair value gain (434) (595)
As at 31 December 380 814
------------------ ------- -------
The warrants to purchase ordinary shares remain outstanding at
31 December 2021 as follows:
2021 2020
Exercise
Number of price Number of Exercise
Expiry date Warrants (GBP) Warrants price (GBP)
---------------- ---------- --------- ---------- -------------
5 October 2023 8,920,342 0.26 8,920,342 0.26
Total 8,920,342 0.26 8,920,342 0.26
---------------- ---------- --------- ---------- -------------
The estimated fair value of the warrants was measured based on
the Black-Scholes model. The inputs used in the calculation of the
fair value of the warrants at 31 December 2021, using an exchange
rate of 1.35, were as follows:
31 December 2021
-------------------------------- ----------------
Fair value US$0.04
Share price US$0.26
Weighted average exercise price US$0.35
Expected volatility 57.20%
Expected life 1.38 years
Expected dividend yield 0.00%
Risk-free interest rate 0.52%
-------------------------------- ----------------
The expected volatility is based on the historical share price
of the Company.
31. Other provisions for liabilities and charges
Other provisions for liabilities and charges relate mainly to
employment disputes in Armenia ("Legal Claims Provision") of US$1.2
million at 31 December 2021 (2020: US$0.3 million) and a legal
claim of US$1.3 million at 31 December 2021 (2020: US$1.4 million)
that was charged against Chaarat in the Kyrgyz Republic whereby
compensation for agricultural losses was demanded ("Land
Provision"). US$0.8 million of the employment dispute provision is
covered by an indemnity included in the original Kapan acquisition
agreement. The Directors consider recoverability virtually certain
and accordingly have recognised a corresponding within other
receivables as shown within Note 20.
The provisions have been recognised as, based on the Group's
legal views, it is considered probable that an outflow of resources
will be required to settle the disputes, however there is
uncertainty around the timing of payments to be made. There are no
expected reimbursements relating to these provisions.
The movement in provisions in 2021 is as follows:
Legal Land Other Total
Claims Provision Provision
Provision
US$'000 US $'000 US$'000 US$'000
--------------------- ----------- ----------- ----------- --------
At 1 January
2021 266 1,375 - 1,641
Change in provision 875 - 205 1,080
Foreign exchange
on conversion 66 (33) - 33
-------------------------- ----------- ----------- ----------- --------
At 31 December
2021 1,207 1,342 205 2,754
-------------------------- ----------- ----------- ----------- --------
32. Related party transactions
Remuneration of key management personnel
Remuneration of key management personnel is as follows:
2021 2020
US$'000 US$'000
Short term employee benefits 1,618 1,684
Termination benefits 575 -
Share-based payments charge 856 2,970
Total 3,049 4,654
----------------------------- ------- -------
Included in the above key management personnel are 8 directors
and 2 key managers (2020: 7 and 2).
Entities with significant influence over the Group
At 31 December 2021, Labro Investments Limited, Chaarat's
largest shareholder, owned 44.17% (2020: 40.57%) of the ordinary
US$0.01 shares in Chaarat ("Ordinary Shares") and US$1.0 million of
10% secured convertible loan notes 2021 which, assuming full
conversion of principal and interest to maturity on 31 October
2022, are convertible into 3,579,088 Ordinary Shares. If converted,
Labro's ownership would increase to 44.46% of the ordinary shares
in Chaarat at 31 December 2021.
For all share issues to Labro, the independent directors of the
Company considered, having consulted with the Company's nominated
adviser at the time of the transactions, that the terms were fair
and reasonable insofar as the Company's shareholders are
concerned.
Labro Facility Agreement
The Company has issued the following Ordinary Shares in the
Company to Labro, payment for which was offset against commitment
and drawdown fees incurred under the Labro Facility and reduction
of indebtedness under the Labro Term Loan:
Date payment Amount to Type of payment of shares Date shares
due be paid under under Labro Loan issued to issued to
Labro Loan Agreement Labro in Labro
Agreement satisfaction
30 June 5 February
2021 US$ 24,000 Drawdown fee 55,240 2021
----- ----------- ----------------------- -------------- ------------
5 February
n/a US$ 22,123,195 Indebtedness reduction 62,380,154 2021
----- ----------- ----------------------- -------------- ------------
Refer to Note 29 above for a reconciliation of the Labro
Facility during the year, showing a nil balance as at 31 December
2021.
On 5 February 2021, the Company issued 55,240 Ordinary Shares at
GBP0.33 per share to Labro to settle the drawdown fees that were
incurred on the US$0.8 million drawdown that took place in November
2020.
On the same date, the Company issued 62,380,154 Ordinary shares
at GBP0.26 per share to Labro. Labro's obligation to deliver cash
in respect of these shares was offset against the Company's
indebtedness under the Labro Term Loan with the consequence that
the Company's obligations under the Labro Term Loan decreased by
US$22.1 million to nil, as disclosed in Note 29.
Shares issued to Key Management Personnel
In April 2020, 1,286,839 Ordinary Shares were subscribed for by,
and issued to, key management personnel ("KMPs") at a price of
GBP0.26 per Ordinary Share upon terms that the subscription price
would be satisfied by way of set-off against a proportion of fees
and salaries due and to become due until such time as the
subscription price was fully paid. As at 31 December 2021, the
subscription price of these shares was fully repaid as outlined
below:
Category Total No. Total amount Total repayments Outstanding
of Placing balance at
Shares issued 31 December
2021
Directors 1,073,635 US$ 352,500 US$ 352,500 US$ nil
(including
the Executive
Chair)
--------------- ------------- ----------------- -------------
Other KMPs 213,204 US$ 70,000 US$ 70,000 US$ nil
--------------- ------------- ----------------- -------------
Total 1,286,839 US$ 422,500 US$ 422,500 US$ nil
--------------- ------------- ----------------- -------------
33. Commitments and contingencies
Capital expenditure commitments
The Company had a commitment of US$4.9 million at 31 December
2021 (2020: US$6.3 million) in respect of capital expenditure
contracted for but not provided for in these financial
statements.
Lease liability commitments
Details of lease liability commitments are set out in Note
28.
Licence retention fee commitments
The Company has calculated a commitment of US$0.10 million at 31
December 2021 (2020: US$0.10 million) in respect of licence
retention fees not provided in these financial statements. The
amount to be paid will be determined by the Kyrgyz authorities and
is not payable until a demand for payment is received by the
Company. No demand in respect of extant licences had been received
at the date of these financial statements.
Licence agreements
There are minimum expenditure commitments under the exploration
and mining licence agreements. These minimum levels of investment
have always been achieved. The commitment recognised in 2021 is
US$0.06 million (2020: US$0.02 million).
34. Financial instruments and financial risk management
The Group is exposed to a variety of financial risks which
result from its operating activities. The Group's risk management
is coordinated by the executive Directors, in close co-operation
with the Board of Directors, and focuses on actively securing the
Group's short to medium term cash flows by minimising the exposure
to financial markets. The Group does not actively engage in the
trading of financial assets for speculative purposes. The most
significant financial risks to which the Group is exposed are
described below.
Categories of financial instruments
2021 2020
Financial assets measured at fair value US$'000 US$'000
Trade and other receivables 22,247 6,646
Cash and cash equivalents 11,134 6,928
--------------------------------------------- ------- -------
Total financial assets 33,381 13,574
--------------------------------------------- ------- -------
Financial liabilities measured at amortised
cost
Trade and other payables 28,766 15,703
Contract liabilities 2,379 5,328
Lease liabilities 978 1,425
Other loans 21,328 53,347
Convertible loan notes 25,625 23,252
Financial liabilities measured at fair value
through profit or loss
Warrant financial liability 380 814
Total financial liabilities 79,456 99,869
--------------------------------------------- ------- -------
Credit risk
Credit risk is the risk that a customer may default or not meet
its obligations to the Group on a timely basis, leading to
financial losses to the Group. The Group's financial instruments
that are potentially exposed to concentration of credit risk
consist primarily of cash and cash equivalents and loans and
receivables.
Trade accounts receivable at 31 December 2021 are represented by
provisional copper and zinc concentrate sales transactions. A
significant portion of the Group's trade accounts receivable is due
from reputable export trading companies. With regard to other loans
and receivables the procedures of accepting a new customer include
checks by a security department and responsible on-site management
for business reputation, licences and certification,
creditworthiness, and liquidity. Generally, the Group does not
require any collateral to be pledged in connection with itg cs
investments in the above financial instruments. Credit limits for
the Group as a whole are not set up. In line with 2020, COVID-19
did not significantly impact the credit risk of the Group's
customers in 2021 and therefore no changes were required to the
Group's credit risk management in response to the pandemic.
The credit risk on liquid funds is limited because the
counterparties are banks with high credit-ratings assigned by
international credit rating agencies. The major financial assets at
the balance sheet date other than trade accounts receivable
presented in Note 21 are cash and cash equivalents at 31 December
2021 of US$11.1 million (2020: US$6.9 million).
Market risk
Market risk arises from the Group's use of interest bearing,
tradable and foreign currency financial instruments. It is the risk
that the fair value or future cash flows of a financial instrument
will fluctuate because of changes in interest rates (interest rate
risk) or foreign exchange rates (currency risk). The Group's
financial instruments affected by market risk include bank
deposits, trade and other receivables and trade payables.
The Group holds short term bank deposits on which short term
fluctuations in the interest rate receivable are to be expected but
are not deemed to be material.
Foreign currency risk
The Group carries out expenditure transactions substantially in
US dollars (USD), Armenian Dram (AMD), British Pounds (GBP) and
Kyrgyz Som (KGS). Equity fund-raising has taken place mainly in US
dollars, with debt denominated in US dollars as well. Any resulting
gains or losses are recognised in the income statement.
Foreign currency risk arises principally from the Group's
holdings of cash in GBP.
The Group's presentation and subsidiary's functional currency is
the US dollar, except for Chaarat Kapan, which has a functional
currency of AMD.
To mitigate the Group's exposure to foreign currency risk, cash
holdings are maintained to closely represent the expected
short-term profile of expenditure by currency. Apart from these
resultant offsets, no further hedging activity is undertaken.
As at 31 December the Group's net exposure to foreign exchange
risk was as follows:
Net foreign currency financial assets/(liabilities) 2021 2020
-----------------------------------------------------
US$'000 US$'000
----------------------------------------------------- -------- ---------
GBP 5,866 (1 51)
AMD (3) ( 883)
KGS 268 (5 8)
Other (7) (1 )
----------------------------------------------------- -------- ---------
Total net exposure 6,124 (1 ,093)
----------------------------------------------------- -------- ---------
The table below sets out the impact of changes in exchange rates
on the financial assets of the Group due to monetary assets
denominated in GBP, AMD, and KGS, with all other variables held
constant:
2021 Income 2020 Income
Move statement Move statement
US$ '000 (%) Profit/(loss) Equity (%) Profit/(loss) Equity
---------------------- ------ --------------- ------- ------ --------------- -------
Fall in value of GBP
vs US$ 5 309 309 5 8 8
Increase in value of
GBP vs US$ 5 (279) (279) 5 (7) (7)
Fall in value of AMD
vs US$ 5 - - 5 (42) (42)
Increase in value of
AMD vs US$ 5 - - 5 46 46
Fall in value of KGS
vs US$ 10 30 30 10 5 5
Increase in value of
KGS vs US$ 10 (24) (24) 10 (6) (6)
---------------------- ------ --------------- ------- ------ --------------- -------
The percentage change for each currency represents management's
assessment of the reasonable possible exposure given the current
level of exchange rates and the volatility observed both on a
historical basis and market expectations for the future.
Fair value of financial instruments
The fair value of the Group's financial instruments at 31
December 2021 and 2020 did not differ materially from their
carrying values.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to
settle its liabilities as they fall due.
The Group's liquidity position is carefully monitored and
managed. The Group manages liquidity risk by maintaining detailed
budgeting, cash forecasting processes and matching the maturity
profiles of financial assets and liabilities to help ensure that it
has adequate cash available to meet its payment obligations.
The Group, at its present stage, generates sales revenue from
the mining operations in Armenia. The Company still relies on
financing its operations through the issue of equity share capital
and debt in order to ensure sufficient cash resources are
maintained to meet short-term liabilities. The Group aims to
mitigate liquidity risk by monitoring availability of funds in
relation to forecast expenditures in order to ensure timely
fundraising. Funds are raised in discrete tranches to finance
activities for limited periods. Funds surplus to immediate
requirements are placed in liquid, low risk investments. The Group
has prepared financial forecasts for the foreseeable future, and
these indicate that the Group should be able to operate and
continue to grow within the level of its current working capital
availability.
The Group's ability to raise finance is partially subject to the
price of gold, from which sales revenues are derived. There can be
no certainty as to the future gold price.
The following table details the Group's remaining contractual
maturity for its financial liabilities with agreed repayment
periods. The table has been drawn up based on the undiscounted cash
flows of financial liabilities based on the earliest date on which
the Group can be required to pay. The table includes both interest
and principal cash flows. To the extent that interest flows are
floating rate, the undiscounted amount is derived from interest
rate curves at the end of the reporting period. The contractual
maturity is based on the earliest date on which the Group may be
required to pay.
At 31 December Between Between Between
2021 Up to 3 3 and 12 1 and 2 2 and 5
months months years years Over 5 years
US$'000 US$'000 US$'000 US$'000 US$'000
------------------- -------- ---------- --------- --------- -------------
Trade and 30,717 - - - -
other payables
Contract - 2 ,379 - - -
liabilities
Lease liabilities 175 162 196 577 189
Other loans 3 ,072 9 ,425 1 0,223 - -
Convertible - 2 8,777 - - -
loan notes
------------------- -------- ---------- --------- --------- -------------
Total 3 3,964 40,743 10,419 577 189
------------------- -------- ---------- --------- --------- -------------
At 31 December Between Between Between
2020 Up to 3 3 and 12 1 and 2 2 and 5
months months years years Over 5 years
US$'000 US$'000 US$'000 US$'000 US$'000
------------------- -------- ---------- --------- --------- -------------
Trade and 17,400 - - - -
other payables
Contract - 5,328 - - -
liabilities
Lease liabilities 259 519 208 509 347
Other loans 2 ,684 1 1,025 1 4,000 34,127 -
Convertible - 26,357 - - -
loan notes
------------------- -------- ---------- --------- --------- -------------
Total 2 0,343 43,229 14,208 3 4,636 347
------------------- -------- ---------- --------- --------- -------------
As a result of the maturity date extension that took place in
2021, the Group's convertible loan notes are repayable on 31
October 2022.
35. Post balance sheet events
Share options and shares issued to the Company's Chief Executive
Officer, Mr. Michael Fraser
In January 2022, the Company granted options over five million
ordinary shares of US$0.01 each in the Company to the newly
appointed Chief Executive Officer, Mr. Michael Fraser, under the
Chaarat Gold Holdings Limited Management Incentive Plan 2019 (the
"MIP"). The options are exercisable at a price of GBP0.42 per share
between 18 January 2022 and 18 January 2027 subject to the rules of
the MIP.
The Company also agreed to pay Mr Fraser a sign-on bonus of
US$62,500. It was agreed that this would be satisfied by the issue
of ordinary shares of US$0.01 each in the capital of the Company at
GBP0.185 per share, being the average middle market quotation (MMQ)
over the three dealing days immediately prior to the issue of the
shares. Due to human error, one of the MMQs used to calculate the
three-day average MMQ was incorrect which resulted in 255,935
shares being issued to Mr Fraser rather than 247,368 shares. Mr
Fraser rectified this by paying the Company a cash subscription
price for the additional 8,567 shares at the three-day average
MMQ.
Ukraine conflict and Russian sanctions
The conflict in Ukraine and the associated sanctions against
Russia have had no material impact on our operations so far, and
therefore no impact on these financial statements.
36. Timetable and distribution of accounts
The Annual General Meeting ("AGM") will be held on Tuesday, 17
May 2022 at 10am at the offices of Watson Farley & Williams
LLP, 15 Appold Street, London EC2A 2HB, United Kingdom .
Copies of the Annual Report and Notice of the Annual General
Meeting will be sent to shareholders by 22 April 2022.
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
Kapan Resources and Reserves Update
The Company updated its Mineral Resources and Ore Reserves in
June 2021 which was signed off by independent consultant AMC and
the Chaarat board in March 2022. The Mineral Resources and Ore
Reserves, detailed in this press release, have been reported
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 following table summarises the 2021 Constrained Mineral
Resource Estimate:
Grade Metal
Classification Tonnes Density Au Ag Cu Zn AuEq Au Ag Cu Zn AuEq
(Mt) (g/t) (g/t) (%) (%) (g/t) (Koz) (Koz) (Kt) (Kt) (Koz)
------- -------- ------ ------- ----- ----- ------- ------- ------- ------ ------ -------
Measured 0.24 2.72 6.55 107.9 1.24 5.10 12.17 50 826 2.95 12.1 93
------- -------- ------ ------- ----- ----- ------- ------- ------- ------ ------ -------
Indicated 1.76 2.76 4.43 88.31 0.92 3.51 8.60 250 4,989 16.2 61.6 486
------- -------- ------ ------- ----- ----- ------- ------- ------- ------ ------ -------
M & I 2.00 2.76 4.69 90.65 0.96 3.70 9.03 301 5,815 19.2 73.7 579
------- -------- ------ ------- ----- ----- ------- ------- ------- ------ ------ -------
Inferred 3.50 2.80 3.37 76.46 0.79 2.71 6.89 379 8,596 27.6 94.8 775
------- -------- ------ ------- ----- ----- ------- ------- ------- ------ ------ -------
-- The effective date of the resource is 1st June, 2021. The
Mineral Resources that are not Mineral reserve do not demonstrate
economic viability. Numbers may not sum due to rounding.
-- The gold equivalency formula is: Au Eq = Au + (Ag g/t * ($25
/ $1,700) + (Cu % * ($8,000 * 31.1035 / $1,700) / 100) + (Zn % *
($2,500 * 31.1035 / $1,700) / 100
-- Wireframes defined by a mineralized cut-off with a parent
block size of 4 m x 4 m x 4 m, Grades interpolation is by Ordinary
Kriging method.
-- MSO applied assuming: minimum width 2.2m; COG 2.0g/t Au Eq
-- Mineral Resources are with applied depletion and inclusive of Ore Reserves.
-- The resource estimate and classification is according the JORC Code (2012) reporting code.
This update of the Mineral Resource estimate from 2019 is
reflecting the mining depletion and mine development and grade
control drilling conducted in the subsequent 2020-2021 period.
It is the CP's opinion that the Measured and Indicated Mineral
resource herein is a reliable basis for the Ore Reserve Estimate
update.
The following table summarises the 2021 Ore Reserves:
Grade Metal
Classification Tonnes Au Ag Cu Zn AuEq Au Ag (Koz) Cu Zn AuEq
(Mt) (g/t) (g/t) (%) (%) (g/t) (Koz) (Kt) (Kt) (Koz)
------- ------- ------- ----- ----- ------- ------- --------- ------ ------ -------
Proven 0.15 2.21 37.55 0.45 1.60 4.07 10.4 184.1 0.7 2.4 19.9
------- ------- ------- ----- ----- ------- ------- --------- ------ ------ -------
Probable 2.39 1.63 32.90 0.33 1.23 3.17 125.6 2,531.7 8.0 29.5 243.8
------- ------- ------- ----- ----- ------- ------- --------- ------ ------ -------
Total Proven
and Probable 2.55 1.66 33.17 0.34 1.25 3.22 136.0 2,715.9 8.7 31.9 263.7
------- ------- ------- ----- ----- ------- ------- --------- ------ ------ -------
-- Ore Reserves, fulfilling the requirement of the JORC Code
(2012), are contingent on completion of a formal Mineral Resource
report and application of reasonable prospects for eventual
economic extraction to Mineral Resource statement.
-- Ore Reserves are based on long-term metal prices of
USD1,700/oz Au, USD25/oz Ag, USD8,000/t Cu, and USD2,500 Zn.
-- Ore Reserves are based on a gold equivalent cut-off of 2.0g/t Au.
-- Mineral Resources which are not Ore Reserves do not have demonstrated economic viability.
-- Table is subject to rounding errors.
-- The average density of Measured and Indicated Resources is
2.67 t/m3. A density of 2.64 t/m3 was used for unmodelled diluting
waste material.
-- Tones reported are in situ, dry tonnes.
Historical upgrade of Inferred Resource to M&I Resource that
can be converted to reserves suggests that the life of mine can be
further extended from the anticipated upgrading of a portion of the
current Inferred Resource. Ongoing exploration is expected to
continue adding to this inventory.
Quality Assurance/Quality Control Procedures: Sampling
Methodology and Quality Control
The CP, Dimitar Dimitrov, has visited Kapan operation and Kapan
technical services team in the period of September 26 to October 1,
2021 and confirms the approaches used for data collection, resource
modeling and mineral resource estimation at Kapan meet the
international standards, and are considered appropriate for Mineral
Resource Estimation.
Geological Modelling Procedures
The Mineral Resource update is based on technical data,
exploration and technical reports, maps and sections, and are
source block model provided by the Kapan technical department. Mr.
Khoren Harutunyan and Nikolay Dimitrov from Chaarat are the lead
technical geological experts involved in the resource block model,
geostatistical analysis, and verification procedures.
Glossary of Technical Terms
"Central Pit" Tulkubash deposit area as defined in the bankable
feasibility study 2021
"FA / ICP 35" Fire Assay gold assay method / Inductively Coupled
Plasma is a multi-element analytical method for
determination of the element content in materials,
used to assay silver, base metals etc.
"g/t" grammes per tonne, equivalent to parts per million
"Inferred Resource" that part of a Mineral Resource for which tonnage,
grade and mineral content can be estimated with
a low level of confidence. It is inferred from
geological evidence and assumed but not verified
geological and/or grade continuity. It is based
on information gathered through appropriate techniques
from locations such as outcrops, trenches, pits,
workings and drill holes which may be limited
or of uncertain quality and reliability
"Indicated Resource" that part of a Mineral Resource for which tonnage,
densities, shape, physical characteristics, grade
and mineral content can be estimated with a reasonable
level of confidence. It is based on exploration,
sampling and testing information gathered through
appropriate techniques from locations such as
outcrops, trenches, pits, workings and drill
holes. The locations are too widely or inappropriately
spaced to confirm geological and/or grade continuity
but are spaced closely enough for continuity
to be assumed
"JORC" The Australasian Joint Ore Reserves Committee
Code for Reporting of Exploration Results, Mineral
Resources and Ore Reserves 2012 (the "JORC Code"
or "the Code"). The Code sets out minimum standards,
recommendations and guidelines for Public Reporting
in Australasia of Exploration Results, Mineral
Resources and Ore Reserves
"koz" thousand troy ounces of gold
"Measured Resource" that part of a Mineral Resource for which tonnage,
densities, shape, physical characteristics, grade
and mineral content can be estimated with a high
level of confidence. It is based on detailed
and reliable exploration, sampling and testing
information gathered through appropriate techniques
from locations such as outcrops, trenches, pits,
workings and drill holes. The locations are spaced
closely enough to confirm geological and grade
continuity
a concentration or occurrence of material of
"Mineral Resource" intrinsic economic interest in or on the Earth's
crust in such form, quality and quantity that
there are reasonable prospects for eventual economic
extraction. The location, quantity, grade, geological
characteristics and continuity of a Mineral Resource
are known, estimated or interpreted from specific
geological evidence and knowledge. Mineral Resources
are sub-divided, in order of increasing geological
confidence, into Inferred, Indicated and Measured
categories when reporting under JORC
"MRE" Mineral Resource Estimate
"Mt" million tonnes
"oz" troy ounce (= 31.103477 grammes)
"PQ Core" Diamond drill core with 122.6mm hole diameter
"O re Reserves" the part of a Measured and/or Indicated Mineral
Resource that can be mined at a profit. Reserves
are subdivided in order of increasing confidence
into Probable and Proven categories when reporting
under JORC.
"Probable Reserve" the part of Indicated and in some cases Measured
Resource that can be mined at a profit. It includes
diluting materials and allowances for losses
that may occur during mining.
"Proven Reserve" the part of Indicated and Measured Resource that
can be mined at a profit. It includes diluting
materials and allowances for losses that may
occur during mining.
"t" tonne (= 1 million grammes)
"QA/QC" Quality assurance and quality control (QA/QC)
procedures during exploration ensures the trustworthiness
of the data produced.
Quality assurance (QA) and quality control (QC)
are procedures used in the laboratory to ensure
that all analytical measurements made are accurate.
Appendix 1 - JORC Code, 2012 Edition - Table 1 report
Section 1 Sampling Techniques and Data
Criteria JORC Code explanation Commentary
========================================
Sampling Nature and quality of sampling Sampling comprises of historical
techniques (e.g., cut channels, random surface drilling, historical
chips, or specific specialized and current underground drilling
industry standard measurement and channel sampling
tools appropriate to the Predominantly diamond drilling,
minerals under investigation, and channel cut from the
such as down hole gamma sondes, face, with a chisel saw,
or handheld XRF instruments, according to a marked channel
etc.). These examples should boundary
not be taken as limiting Core was drilled along the
the broad meaning of sampling. full mineralization intersection,
Include reference to measures as normal to the mineralization
taken to ensure sample representivity strike as possible
and the appropriate calibration Channel rock chips are providing
of any measurement tools representative data collection
or systems used. of the sampled face.
Aspects of the determination All sampling practices are
of mineralization that are meeting the industry standards
Material to the Public Report.
In cases where 'industry
standard' work has been done
this would be relatively
simple (e.g. 'reverse circulation
drilling was used to obtain
1 m samples from which 3
kg was pulverized to produce
a 30 g charge for fire assay').
In other cases, more explanation
may be required, such as
where there is coarse gold
that has inherent sampling
problems. Unusual commodities
or mineralization types (eg
submarine nodules) may warrant
disclosure of detailed information.
=============== ======================================== ========================================
Drilling Drill type (eg core, reverse Historical RC sampling comprises:
techniques circulation, open-hole hammer, 13105.samples (14.3 km)
rotary air blast, auger, Channel sampling comprises:
Bangka, sonic, etc.) and 116965 samples (112.1 km)
details (e.g. core diameter, Diamond drill hole sampling
triple or standard tube, comprises:614819 samples
depth of diamond tails, face-sampling (900.6km)
bit or other type, whether Total sampling: 744889.samples
core is oriented and if so, (approx. 1027km)
by what method, etc.) Core is predominantly HQ
and NQ diameter, singe barrel
drilled.
Channel samples are chipped
along the marked face with
a pneumatic hammer and collected
by the sampler in one-meter
intervals. All channel samples
are taken from south to north,
in a horizontal fashion,
rather than perpendicular
to the mineralized dip angle.
The results from the channel
sampling are used for grade
control, modelling, mine
design, resource estimation,
and for mine reconciliation
data.
The samples are contoured
along all major lithological
breaks.
=============== ======================================== ========================================
Drill Method of recording and assessing The core recovery is assessed
sample core and chip sample recoveries by regular measurements of
recovery and results assessed. each drill run and generally
Measures taken to maximize excess 95 %. Core recovery
sample recovery and ensure is based on recovered core
representative nature of length vs drill run length,
the samples. and RC is based on recovered
Whether a relationship exists weights
between sample recovery and There doesn't appear to be
grade and whether sample a relationship bias between
bias may have occurred due grade and length, or sample
to preferential loss/gain weight or recovery.
of fine/coarse material. The average grade of the
channel samples is higher
compared to the drilling.
This is primarily attributed
to the frequency of channel
samples in high grade open
areas of the mine, compared
to drilling
=============== ======================================== ========================================
Logging Whether core and chip samples Once the hole is finished,
have been geologically and the core is transported to
geotechnically logged to the core storage area for
a level of detail to support logging. The core trays are
appropriate Mineral Resource plastic, and are covered
estimation, mining studies with a plastic cover as well,
and metallurgical studies. to prevent core losses or
Whether logging is qualitative extra moving.
or quantitative in nature. Core recovery measuring;
Core (or costean, channel, Sample interval marking;
etc) photography. Geological and Geotechnical
The total length and percentage logging; Photo documentation;
of the relevant intersections Sampling and later destruction
logged. of non-mineralized part
Core logging is including
lithology, alteration, mineralization,
and structures, geotechnical
features for assess RMR and
Q-index.
Sampling is primarily based
on the visible mineralization,
and minimum 2 meters are
taken from either side of
the sampled interval.
The maximum sampling interval
is 1 meter, the minimum is
0.2m
Once the sampling intervals
are outlined, currently a
full core diameter is used
for assaying. Areas of non-visible
mineralization, outside of
the expected mineralization
zone are not sampled.
In absence of visible mineralization,
but in areas where mineralization
interception is expected
the material is sampled depending
of the field geologist's
decision, taking into account
all the available information.
The collection of geological
data is meeting the industrial
standards.
The core logging keeps a
high standard, and the involved
geologists have sufficient
knowledge for Shahumyan mineralization
system.
=============== ======================================== ========================================
Sub-sampling If core, whether cut or sawn Prior to July 2017 core was
techniques and whether quarter, half halved with a diamond saw
and or all core taken. and half was sent for analysis
sample If non-core, whether riffled, and the other half was retained.
preparation tube sampled, rotary split, Since then, the whole core
etc and whether sampled wet is processed and only the
or dry. pulps are retained for future
For all sample types, the analysis.
nature, quality and appropriateness The laboratory prepares samples
of the sample preparation according to industry standard
technique. of drying crushing, pulverizing,
Quality control procedures splitting and analysis.
adopted for all sub-sampling All samples are analysed
stages to maximise representivity in the local Kapan's mine
of samples. laboratory
Measures taken to ensure The laboratory is providing
that the sampling is representative Fire Assay with AAS for gold
of the in situ material collected, (0.2 g/t-1000g/t), and AAS
including for instance results for Ag (0.2 g/t -20000g/t),
for field duplicate/second-half Cu (0.005%-9.9%), Pb (0.005%-19.9%)
sampling. and Zn (0.005%-29.9%).
Whether sample sizes are Duplicates are run as part
appropriate to the grain of QA / QC protocol
size of the material being
sampled.
=============== ======================================== ========================================
Quality The nature, quality and appropriateness The assaying is meeting the
of assay of the assaying and laboratory industry standards and it
data procedures used and whether is suitable to support Mineral
and the technique is considered Resource estimate.
laboratory partial or total. The current QA/QC scheme
tests For geophysical tools, spectrometers, is including blank sample
handheld XRF instruments, at the beginning of each
etc, the parameters used new drill hole and reference
in determining the analysis material (standard) at each
including instrument make 20-th sample. As core is
and model, reading times, no longer halved, no field
calibrations factors applied duplicate are assessed, and
and their derivation, etc. historically these results
Nature of quality control were no good due to highly
procedures adopted (eg standards, variable nature of mineralization.
blanks, duplicates, external QA/QC achieves acceptable
laboratory checks) and whether levels of accuracy and precision.
acceptable levels of accuracy
(ie lack of bias) and precision
have been established.
=============== ======================================== ========================================
Verification The verification of significant Yearly, in each quarter,
of sampling intersections by either independent between 3 and 5 percent of
and or alternative company personnel. the pulps are sent to Yerevan
assaying The use of twinned holes. state laboratory for reference
Documentation of primary the results.
data, data entry procedures, A twin analysis has been
data verification, data storage conducted during 2017-2018
(physical and electronic) by local geology team for
protocols. channel and diamond drilling
Discuss any adjustment to (DD) holes and shows potential
assay data. bias that could be attributed
to highly variable nature
of mineralization
=============== ======================================== ========================================
Location Accuracy and quality of surveys Grid system is ARM_WGS-84
of data used to locate drill holes Survey is completed underground,
points (collar and down-hole surveys), with high precision tools
trenches, mine workings and which meets the industrial
other locations used in Mineral standards: Leica TS16 (3"
Resource estimation. accuracy), Ranger Explorer
Specification of the grid II R2231, IMMN_32A.
system used. The available digital elevation
Quality and adequacy of topographic model of the area topography
control. is used in the Mineral Resource
estimation process (surveyed
via GPS by expatriate and
local surveyors in 2013)
=============== ======================================== ========================================
Data Data spacing for reporting Along the drive advancing,
spacing of Exploration Results. a channel sampling is taken
and Whether the data spacing every blast.
distribution and distribution is sufficient Typically, the space between
to establish the degree of two blasts is 4 -6m
geological and grade continuity The grade control drilling
appropriate for the Mineral net is 20 X 20 m, adjusted
Resource and Ore Reserve to denser grid, where required
estimation procedure(s) and The geostatistical analysis
classifications applied. and trial blast unit drilling
Whether sample compositing data have shown that thicker
has been applied. data spacing, and distribution
don't add any sufficient
value in accuracy of geological
and grade continuity.
As majority of samples have
1m in length, the 1m composite
is being applied.
=============== ======================================== ========================================
Orientation Whether the orientation of Geometry is derived and interpreted
of data sampling achieves unbiased from underground mapping
in relation sampling of possible structures and sampling. True thickness
to geological and the extent to which this is calculated from apparent
structure is known, considering the thickness, during the interpretation.
deposit type. No bias has been introduced
If the relationship between through the geometry of the
the drilling orientation sampling and subsequent geological
and the orientation of key interpretation
mineralised structures is
considered to have introduced
a sampling bias, this should
be assessed and reported
if material.
=============== ======================================== ========================================
Sample The measures taken to ensure The mine process plant and
security sample security. laboratory are sufficiently
secured, with security guards
and entry, requiring personal
ID cards
=============== ======================================== ========================================
Audits The results of any audits Independent reviews have
or reviews or reviews of sampling techniques considered the sampling process
and data. to meet industry best practices:
NI 43-101 Technical Report
in 2014 (Galen White - QP,
Julian Bennett- QP, Simon
Meik - QP) and Global Report
(Galen White - QP) in 2018
by CSA, report by AMC (Alan
Turner, Bryan Pullman) in
2019
=============== ======================================== ========================================
Section 3 Estimation and Reporting of Mineral Resources
(Criteria listed in section 1, and where relevant in section 2,
also apply to this section.)
Criteria JORC Code explanation Commentary
=======================================
Database Measures taken to ensure Data is logged and digitized
integrity that data has not been corrupted by trained geologists
by, for example, transcription The used software is providing
or keying errors, between several stages of cross validation,
its initial collection and initial through the logging
its use for Mineral Resource process, second when the
estimation purposes. logging data is imported
Data validation procedures to main database platform
used. (acQuire) and one more time
prior the Mineral Resource
estimation
================ ======================================= =============================================
Site Comment on any site visits The last site visit of competent
visits undertaken by the Competent person (Dimitar Dimitrov)
Person and the outcome of for the Mineral Resource
those visits. was from 25.09.2021 to 01.10.2021
If no site visits have been Mr.Dimitar Dimitrov P. Geo,
undertaken indicate why this AIG member and a Competent
is the case. Person as defined in the
2012 edition of the JORC
Code 'Australasian Code for
Reporting of Exploration
Results, Mineral Resources
and Ore Reserves', is a full-time
employee of the company.
================ ======================================= =============================================
Geological Confidence in (or conversely, Based on lithological evidence
interpretation the uncertainty of) the geological (drill core logging and underground
interpretation of the mineral mapping data) the veins and
deposit. veinlets are being interpreted.
Nature of the data used and The Mineral Resource is controlled
of any assumptions made. by hard boundaries of the
The effect, if any, of alternative interpreted geological structures,
interpretations on Mineral including faults and post
Resource estimation. mineralization barren dykes.
The use of geology in guiding The geological continuity
and controlling Mineral Resource is reasonable, but grade
estimation. variability is high, often
The factors affecting continuity within the mineralized structure
both of grade and geology.
================ ======================================= =============================================
Dimensions The extent and variability The Resource includes a series
of the Mineral Resource expressed of E_W striking orebodies
as length (along strike or (246 veins). Vein strike
otherwise), plan width, and lengths reach 0.5km, down
depth below surface to the dip extents from 45(o) to
upper and lower limits of 90(o) (mainly south direction)
the Mineral Resource. and true thickness ranges
from several cm to 2m.
The Resources goes near the
surface (950masl) to average
of 500 - 600 m asl deep.
Further mineralization potential
exists below 600msal, and
to the flanks of current
Resource, explored historically
================ ======================================= =============================================
Estimation The nature and appropriateness The Mineral Resource estimation
and modelling of the estimation technique(s) was completed in Datamine
techniques applied and key assumptions, Studio by Kapan's geological
including treatment of extreme department
grade values, domaining, The wireframes were prepared
interpolation parameters in Leapfrog Geo
and maximum distance of extrapolation The grades were interpolated
from data points. If a computer by Ordinary Kriging
assisted estimation method Top-cuts were applied for
was chosen include a description each vein (based on statistical
of computer software and analysis).
parameters used. The search radii were defined
The availability of check by variogram modelling of
estimates, previous estimates veins
and/or mine production records The estimate was constrained
and whether the Mineral Resource into the hard boundary of
estimate takes appropriate the mineralization interpretation
account of such data. Parent cell dimensions are
The assumptions made regarding 4*4*4 (as the smallest blast
recovery of by-products. unit is 2*2m and channel
Estimation of deleterious sample distance is 4-6m)
elements or other non-grade As minimum sub-celling dimensions
variables of economic significance 0.25*0.1*0.25 are used
(eg sulphur for acid mine The composite length is 1m
drainage characterisation). The validation methods currently
In the case of block model show high level of correspondence
interpolation, the block between forecasted and actual
size in relation to the average data:
sample spacing and the search Visual inspection in section
employed. and plan comparing the block
Any assumptions behind modelling model grade distribution
of selective mining units. to the original drillhole
Any assumptions about correlation and other sample grades.
between variables. Creation of swath plots.
Description of how the geological Global summary statistics
interpretation was used to comparing the composite grades
control the resource estimates. to the block grades.
Discussion of basis for using Comparison with previous
or not using grade cutting Mineral Resource estimates
or capping. Reconciliation that includes
The process of validation, comparing forecasted data
the checking process used, and measurements in different
the comparison of model data phases of mining process
to drill hole data, and use
of reconciliation data if Mineral Inventory, depleted
available. up to 06-2021, COG 1.5g/t
AuEq: Tonnes
Classification (mt) AuEq (g/t)
Measured 0.574 8.88
------- -----------
Indicated 5.712 5.04
------- -----------
M & I 6.287 5.39
------- -----------
Inferred 7.696 4.69
------- -----------
AuEq = Au(grade) + Ag(grade)
x Ag(price)/Au(price) + Cu(grade)
xCu(price)x 31.1035/(Au(price)
x 100) + Zn(grade) x Zn(price)
x 31.1035/(Au(price) x 100)
================ ======================================= =============================================
Moisture Whether the tonnages are Tonnage is reported on dry
estimated on a dry basis basis
or with natural moisture,
and the method of determination
of the moisture content.
================ ======================================= =============================================
Cut-off The basis of the adopted
parameters cut-off grade(s) or quality 1.5g/t Aueq cut off grade
parameters applied. was used in the process of
wireframing and Mineral Inventory
estimate. Cut off grade of
2g/tAueq is applied MSO Mineral
Resource estimate
Parameter Units Ore Reserves
Assumptions
Metal Prices
-------- -------------
USD/oz
Gold price Au 1700.00
-------- -------------
USD/oz
Silver price Ag 25.00
-------- -------------
USD/t
Copper price Cu 8000.00
-------- -------------
USD/t
Zinc price Zn 2500.00
-------- -------------
Gold Recoveries
and Refining
Costs
-------- -------------
Gold recovery % 71.88
-------- -------------
Gold offsite USD/g
charges Au 15.22
-------- -------------
% of
Gold royalties NSR 6.0
-------- -------------
Operating costs
-------- -------------
USD/t
Mine ore 51.9
-------- -------------
USD/t
Mill ore 12.9
-------- -------------
USD/t
G&A ore 5.4
-------- -------------
USD/t
Total Cost ore 70.1
-------- -------------
================ ======================================= =============================================
Mining Assumptions made regarding The Resource model is based
factors possible mining methods, on geology
or assumptions minimum mining dimensions The reasonable prospects
and internal (or, if applicable, for eventual economic extraction
external) mining dilution. were achieved by running
It is always necessary as Mineable Stope Optimization
part of the process of determining (MSO) and report the Resource
reasonable prospects for incorporated in it
eventual economic extraction The assumed minimum mining
to consider potential mining width is 2.2m (accounted
methods, but the assumptions in MSO run) for sublevel
made regarding mining methods mechanized mining method,
and parameters when estimating and cut off grade 2.0 g/t
Mineral Resources may not AuEq.
always be rigorous. Where
this is the case, this should Mineral Resource Tonnes
be reported with an explanation Classification (mt) AuEq (g/t)
of the basis of the mining Measured 0.238 12.17
assumptions made. ------- -----------
Indicated 1.757 8.60
------- -----------
M & I 1.995 9.03
------- -----------
Inferred 3.497 6.89
------- -----------
================ ======================================= =============================================
Metallurgical The basis for assumptions The reported Resource estimates
factors or predictions regarding assumes 72% gold recovery
or assumptions metallurgical amenability. to determined reasonable
It is always necessary as prospects.
part of the process of determining
reasonable prospects for
eventual economic extraction
to consider potential metallurgical
methods, but the assumptions
regarding metallurgical treatment
processes and parameters
made when reporting Mineral
Resources may not always
be rigorous. Where this is
the case, this should be
reported with an explanation
of the basis of the metallurgical
assumptions made.
================ ======================================= =============================================
Environmental Assumptions made regarding There no known factors which
factors possible waste and process may inhibit the extraction
or assumptions residue disposal options. of the Resource
It is always necessary as
part of the process of determining
reasonable prospects for
eventual economic extraction
to consider the potential
environmental impacts of
the mining and processing
operation. While at this
stage the determination of
potential environmental impacts,
particularly for a greenfields
project, may not always be
well advanced, the status
of early consideration of
these potential environmental
impacts should be reported.
Where these aspects have
not been considered this
should be reported with an
explanation of the environmental
assumptions made.
================ ======================================= =============================================
Bulk Whether assumed or determined. Currently the density estimation
density If assumed, the basis for is using polynomial regression
the assumptions. If determined, model based on modelled sulphur
the method used, whether grade:
wet or dry, the frequency If S >= 19.8 %, Density ==
of the measurements, the exp [0.2587x + 0.4835], for
nature, size and representativeness x = ln (S grades)
of the samples. If S > 1 and S <19.8%, Density
The bulk density for bulk == exp [0.0114169x6 - 0.0891652x5
material must have been measured + 0.26951043x4 + 0.38060004x3
by methods that adequately + 0.23832052x2 + 0.0052027x
account for void spaces (vugs, + 0.9070334], for x = ln
porosity, etc), moisture (S grades)
and differences between rock If S<1, Density = 2.65 g/cm3
and alteration zones within In dykes Density = 2.65 g/cm3
the deposit.
Discuss assumptions for bulk
density estimates used in
the evaluation process of
the different materials.
================ ======================================= =============================================
Classification The basis for the classification The model is classified according
of the Mineral Resources to the quantity and quality
into varying confidence categories. of the data.
Whether appropriate account The Measured Mineral Resource
has been taken of all relevant category was assigned to
factors (ie relative confidence portions of the ore bodies
in tonnage/grade estimations, in the following cases:
reliability of input data, In the areas of current mine
confidence in continuity development workings, informed
of geology and metal values, by both channel sampling
quality, quantity and distribution data and drilling data and
of the data). where the data spacing is
Whether the result appropriately less than 20x20 m.
reflects the Competent Person's
view of the deposit. The Indicated category was
assigned to the portions
of the ore bodies in the
following cases:
-In the areas with the exploration
grid spacing up to 20×20
m, provided there was enough
confidence in the continuity
of the ore body mineralization
between the drill holes.
-In the areas of extrapolation
to up to 30 m distance from
the last sublevel drift in
down-dip/up-dip direction
of the ore body, provided
there was enough confidence
in the continuity of its
mineralization. The intersections
of extrapolation areas by
exploration drill holes are
not required in this case.
-In the areas of extrapolation
to up to 30 m distance from
the last sublevel drift in
the downdip /up-dip direction
of the ore body. In case
of any doubts in continuity
of this ore body mineralization,
the exploration grid spacing
of not more than 20-30 m
is required to classify the
mineralization as an Indicated
Mineral Resource.
The Inferred category was
assigned to the portions
of the ore bodies if they
could not be classified as
an Indicated Mineral Resource.
================ ======================================= =============================================
Audits The results of any audits A high-level review of the
or reviews or reviews of Mineral Resource Mineral Resource block model
estimates. and supporting data was carried
out by AMC at November 2021.
AMC concluded that block
model is providing sufficient
representatives, but makes
certain recommendation, described
below, which were used by
Kapan's team to improve the
Resource Estimation.
4. To improve the Sulphur
and density estimates, via
additional Sulphur sampling
5. Inclusion of field and
coarse duplicates as part
of the QA/QC procedures
================ ======================================= =============================================
Discussion Where appropriate a statement The effective date of the
of relative of the relative accuracy Resource is 01.06.2021
accuracy/ and confidence level in the Model estimates were checked
confidence Mineral Resource estimate by QQ plots, swath plots,
using an approach or procedure and by comparing the volumes
deemed appropriate by the of the wireframes and the
Competent Person. For example, block model, statistically
the application of statistical and visually.
or geostatistical procedures
to quantify the relative
accuracy of the resource
within stated confidence
limits, or, if such an approach
is not deemed appropriate,
a qualitative discussion
of the factors that could
affect the relative accuracy
and confidence of the estimate.
The statement should specify
whether it relates to global
or local estimates, and,
if local, state the relevant
tonnages, which should be
relevant to technical and
economic evaluation. Documentation
should include assumptions
made and the procedures used.
These statements of relative
accuracy and confidence of
the estimate should be compared
with production data, where
available.
================ ======================================= =============================================
Section 4 Estimation and Reporting of Ore Reserves
Criteria JORC Code explanation Commentary
Mineral Description of the The Mineral Resource Estimate was
Resource Mineral Resource estimate produced by Mr Dimitar Dimitrov,
estimate used as a basis for Senior VP Exploration of Chaarat,
for the conversion to an with an effective date of 1 June
conversion Ore Reserve. 2021 as described in Section 3.
to Clear statement as The Mineral Resources are reported
Ore to whether the Mineral inclusive of the Ore Reserves.
Reserves Resources are reported
additional to, or inclusive
of, the Ore Reserves.
============================================= ======================================================
Site Comment on any site A site visit, of four days, was undertaken
visits visits undertaken by by the Ore Reserves Competent Person
the Competent Person (CP), Mr James Town of AMC Consultants
and the outcome of (UK) Limited, in July 2019.
those visits. No recent site visits have been undertaken
If no site visits have due to COVID travel restrictions.
been undertaken indicate
why this is the case.
============================================= ======================================================
Study The type and level Shahumyan mine has been operating
status of study undertaken since 1994 and at full production
to enable Mineral Resources for more than 15 years. Information
to be converted to gathered during the production period
Ore Reserves. has been used to update and inform
The Code requires that the current Ore Reserve. Production,
a study to at least sales, and other data from the previous
Pre-Feasibility Study five years were used as a basis for
level has been undertaken assessing the ore reserve calculation.
to convert Mineral The Ore Reserve is based on the
Resources to Ore Reserves. life-of-mine
Such studies will have design, schedule, and cost model
been carried out and generated by the Mine Technical Services
will have determined Department (effective date of 31
a mine plan that is December 2021), which has been reviewed
technically achievable by AMC.
and economically viable,
and that material Modifying
Factors have been considered.
============================================= ======================================================
Cut-off The basis of the cut-off Cut-off grades are calculated using
parameters grade(s) or quality a gold equivalent (AuEq) calculation
parameters applied. using the revenue contributions of
the four payable metals Au, Ag, Cu,
and Zn.
The AuEq calculation includes all
site operating costs associated with
the mine, process plant, and G&A
along with royalties, transport and
concentrate treatment, and refining
charges and penalties.
Mining areas are considered for inclusion
in the Ore Reserve if the diluted
AuEq is greater than, or equal to,
2.0 g/t AuEq.
============================================= ======================================================
Mining The method and assumptions Ore Reserves are based on an operating
factors used as reported in mine design generated by the on-site
or the Pre-Feasibility technical staff, which has been reviewed
assumptions or Feasibility Study by AMC.
to convert the Mineral The mining method used is longhole
Resource to an Ore open-stoping, which is an appropriate
Reserve (i.e. either method for the narrow-vein deposit.
by application of appropriate The mining method has been refined
factors by optimisation with operational experience.
or by preliminary or Grade control consists of pre-development
detailed design). diamond drilling at approximately
20 m spacing followed by mapping
and face channel sampling at approximately
4 m spacing during vein drive development.
The choice, nature All samples are processed at the
and appropriateness on-site laboratory with 5% control
of the selected mining samples sent to external international
method(s) and other laboratories.
mining parameters including SRK completed a geotechnical study
associated design issues in 2013, from which site geotechnical
such as pre-strip, personnel have developed procedures
access, etc. with operational experience. All
development headings and stopes are
assessed before and during development
by the Geotechnical Engineer and
have geotechnical specifications
The assumptions made detailing support requirements.
regarding geotechnical Individual stopes have a maximum
parameters (eg pit length of 80 m and maximum height
slopes, stope sizes, of 18 m, with a maximum of three
etc), grade control stopes forming a panel between a
and pre-production crown pillar, with surface and sill
drilling. pillars between levels.
The major assumptions A minimum mining width of 2.2 m has
made and Mineral Resource been applied to the Ore Reserve using
model used for pit Mineable Shape Optimizer(TM) (MSO).
and stope optimisation Current mining areas are accessed
(if appropriate). via portals located at the south
of the deposit and multiple declines
located across the deposit.
The mining dilution Dilution is accounted for in the
factors used. Ore Reserve on a vein-by-vein basis,
The mining recovery based on geometry and historic production
factors used. statistics. The average dilution
Any minimum mining factors in the Ore Reserve are:
widths used. Internal geological dilution in Resource
The manner in which model: 1%
Inferred Mineral Resources Primary mining dilution (minimum
are utilised in mining mining width): 47%
studies and the sensitivity Secondary mining dilution (unplanned
of the outcome to their in stope): 15%
inclusion. Additional dilution of 10% has been
The infrastructure included in the Ore Reserve for vein
requirements of the drive development headings to account
selected mining methods. for overbreak in development and
waste derived from development off
vein during block definition.
Mining losses are estimated to be
1% of the Ore Reserve.
Inferred Mineral Resources were treated
as waste and are not included in
the Ore Reserves.
============================================= ======================================================
Metallurgical The metallurgical process Gold and zinc concentrates are produced
factors proposed and the appropriateness through conventional crushing, grinding,
or of that process to flotation, thickening, and filtration.
assumptions the style of mineralisation. The process is well-tested and has
Whether the metallurgical been in operation at Kapan for more
process is well-tested than 15 years.
technology or novel The process plant has two primary
in nature. jaw crushers capable of crushing
The nature, amount 2 Mtpa. The grinding and flotation
and representativeness circuits have a maximum capacity
of metallurgical test of approximately 900 ktpa.
work undertaken, the Metallurgical recoveries are based
nature of the metallurgical on historical plant performance data.
domaining applied and The Ore Reserve is based on the Mineral
the corresponding metallurgical Resource Estimate which includes
recovery factors applied. individual estimation parameters
Any assumptions or for the payable metals Au, Ag, Cu,
allowances made for and Zn; and as such, is appropriate
deleterious elements. to the mineralogy being processed.
The existence of any Operational metallurgical testwork
bulk sample or pilot is carried out daily at the plant
scale test work and metallurgical test laboratory.
the degree to which Deleterious elements Pb and S are
such samples are considered also modelled in the Mineral resource
representative of the model; however, with the current
orebody as a whole. mining locations and for the remainder
For minerals that are of the mine plan, the grades are
defined by a specification, not high enough to warrant corrective
has the ore reserve measures in the process plant.
estimation been based
on the appropriate
mineralogy to meet
the specifications?
============================================= ======================================================
Environmen-tal The status of studies Chaarat possesses the required permits
of potential environmental and planning permissions to effectively
impacts of the mining operate the Shahoumyan mine, in accordance
and processing operation. with Armenian environmental regulations.
Details of waste rock To the best of the CP's knowledge,
characterisation and all sites for waste rock and process
the consideration of tailings and their design and construction
potential sites, status have complied with all environmental
of design options considered regulations, permits, and recommendations.
and, where applicable,
the status of approvals
for process residue
storage and waste dumps
should be reported.
============================================= ======================================================
Infrastructure The existence of appropriate All infrastructure required for the
infrastructure: availability processing and mining of ore is in
of land for plant development, place and has been in place since
power, water, transportation exploration of the deposit in Soviet
(particularly for bulk times (1980s). The mine is located
commodities), labour, adjacent to the town of Kapan on
accommodation; or the the main trunk-road connecting southern
ease with which the Armenia to the capital city, Yerevan.
infrastructure can
be provided, or accessed.
============================================= ======================================================
Costs The derivation of, Operating costs are based on site
or assumptions made, operating costs. AMC has reviewed
regarding projected historical cost reports including
capital costs in the copies of major contractor invoices.
study. Treatment and refining costs are
The methodology used based on current concentrate sales
to estimate operating terms. AMC has reviewed historical
costs. gold and zinc concentrate sales invoices
Allowances made for to confirm the inputs used in the
the content of deleterious calculations.
elements. Penalty elements are accounted for
The source of exchange in the concentrate treatment charges.
rates used in the study. Government royalties are included
Derivation of transportation at 6% of NSR.
charges.
The basis for forecasting
or source of treatment
and refining charges,
penalties for failure
to meet specification,
etc.
The allowances made
for royalties payable,
both Government and
private.
============================================= ======================================================
Revenue The derivation of, Head grades are based on the block
factors or assumptions made model generated by Chaarat in June
regarding revenue factors 2021.
including head grade, Revenue has been based on metal prices
metal or commodity of USD1,700/oz Au, USD25.00/oz Ag,
price(s) exchange rates, USD8,000/t Cu and USD2,500/t Zn applied
transportation and to the concentrate sales terms. These
treatment charges, figures are representative of economic
penalties, net smelter forecasts for the period.
returns, etc. Transportation, treatment charges
The derivation of assumptions and penalties for both gold and zinc
made of metal or commodity concentrates are accounted for in
price(s), for the principal the AuEq cut-off grade calculation.
metals, minerals and
co-products.
============================================= ======================================================
Market The demand, supply Chaarat has agreements with long-term
assessment and stock situation established customers for concentrate
for the particular sales.
commodity, consumption Gold concentrate is sold to Industrial
trends and factors Minerals in Montreal, Canada. Gold
likely to affect supply concentrate is bagged on-site, loaded
and demand into the into containers and transported by
future. road to Poti, Georgia. From Poti,
A customer and competitor the containers are sea-freighted
analysis along with to Montreal, Canada.
the identification Zinc concentrate is sold to Trafigura
of likely market windows in Antwerp, Belgium. Zinc concentrate
for the product. is bagged on-site, loaded into containers
Price and volume forecasts and transported by road to Poti,
and the basis for these Georgia. From Poti, the containers
forecasts. are sea-freighted to Antwerp.
For industrial minerals
the customer specification,
testing and acceptance
requirements prior
to a supply contract.
============================================= ======================================================
Economic The inputs to the economic No separate NPVs have been generated
analysis to produce as part of the Ore Reserves determination;
the net present value however, all material contained within
(NPV) in the study, the reserve is deemed to generate
the source and confidence positive cashflow based on the economic
of these economic inputs input parameters.
including estimated A life of mine plan (LOMP) has been
inflation, discount generated from the December 2021
rate, etc. mine design. Analysis of the LOMP
NPV ranges and sensitivity physicals within the current Chaarat
to variations in the financial model has been shown to
significant assumptions yield a net positive cashflow and
and inputs. NPV.
============================================= ======================================================
Social The status of agreements To the best of the CP's knowledge,
with key stakeholders all agreements with the local authorities
and matters leading are in place and are current with
to social licence to all key stakeholders.
operate.
============================================= ======================================================
Other To the extent relevant, To the best of the CP's knowledge,
the impact of the following Chaarat is currently compliant with
on the project and/or all legal and regulatory requirements
on the estimation and and there is no reason to assume
classification of the any further government or local council
Ore Reserves: permits, licences, or statutory approvals
Any identified material will not be granted, if required.
naturally occurring
risks.
The status of material
legal agreements and
marketing arrangements.
The status of governmental
agreements and approvals
critical to the viability
of the project, such
as mineral tenement
status, and government
and statutory approvals.
There must be reasonable
grounds to expect that
all necessary Government
approvals will be received
within the timeframes
anticipated in the
Pre-Feasibility or
Feasibility study.
Highlight and discuss
the materiality of
any unresolved matter
that is dependent on
a third party on which
extraction of the reserve
is contingent.
============================================= ======================================================
Classification The basis for the classification The Ore Reserves have been broken
of the Ore Reserves down into Proved and Probable categories
into varying confidence as per JORC Code (2012) guidelines.
categories. It is the CP's opinion that the Ore
Whether the result Reserves reflect the deposit accurately
appropriately reflects given the current level of geological
the Competent Person's and geotechnical knowledge.
view of the deposit. No Probable Ore Reserves have been
The proportion of Probable derived from Measured Mineral Resources.
Ore Reserves that have Inferred resources have not been
been derived from Measured included in the Ore Reserve.
Mineral Resources (if
any).
============================================= ======================================================
Audits The results of any The Competent Person completed a
or audits or reviews of "best practices" review of the mine
reviews Ore Reserve estimates. planning as part of the Ore Reserves.
The Ore Reserve has been peer-reviewed
internally and is in line with current
industry standards.
============================================= ======================================================
Discussion Where appropriate a Shahumyan mine is in production and
of statement of the relative has more than fifteen years of historic
relative accuracy and confidence process production data and costs.
accuracy/ level in the Ore Reserve The deposit is well-understood by
confidence estimate using an approach the on-site technical team which
or procedure deemed consists of locals with long-term
appropriate by the experience of the deposit.
Competent Person. For Owner and contractor costs are based
example, the application on current actual costs.
of statistical or geostatistical All modifying factors have been applied
procedures to quantify to the Ore Reserves with updated
the relative accuracy dilution parameters for each individual
of the reserve within vein based on widths and geotechnical
stated confidence limits, assessments.
or, if such an approach Work is ongoing on-site to reconcile
is not deemed appropriate, and better-account for unplanned
a qualitative discussion mining dilution.
of the factors which Geological mapping and survey of
could affect the relative vein drives is supporting the validity
accuracy and confidence of the resource model to a level
of the estimate. of confidence consistent with Ore
The statement should Reserve reporting.
specify whether it Historical mine-to-mill reconciliation
relates to global or on an annual and quarterly basis
local estimates, and, supports the validity of the resource
if local, state the model to a level of confidence consistent
relevant tonnages, with Ore Reserve reporting.
which should be relevant Reconciliation exercises, including
to technical and economic batch processing of individual mining
evaluation. Documentation blocks, are currently ongoing in
should include assumptions an effort to further refine Resource
made and the procedures and Reserve estimation parameters.
used. Reconciliation has shown some
Accuracy and confidence discrepancies
discussions should in Cu grade which has been accounted
extend to specific for by call factors in the past.
discussions of any Ongoing reconciliation exercises
applied Modifying Factors are being planned to increase accuracy.
that may have a material Current AuEq cut-off grade practice
impact on Ore Reserve at the mine might have an impact
viability, or for which on mining areas where grade variations
there are remaining in different metals are encountered.
areas of uncertainty AMC recommends development of a net
at the current study smelter return (NSR) based valuation
stage. and cut-off grade calculation for
It is recognised that use in future Ore Reserves.
this may not be possible
or appropriate in all
circumstances. These
statements of relative
accuracy and confidence
of the estimate should
be compared with production
data, where available.
============================================= ======================================================
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END
FR EAELKEAPAEAA
(END) Dow Jones Newswires
April 07, 2022 02:01 ET (06:01 GMT)
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