TIDMCGH
Chaarat Gold Holdings Limited
("Chaarat" or "the Company")
PRELIMINARY ANNOUNCEMENT OF AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31
DECEMBER 2011
Road Town, Tortola, British Virgin Islands (1 June 2012)
Chaarat Gold Holdings Limited today publishes its preliminary results for the
year ended 31 December 2011.
Highlights for the year
* Additional drilling takes resource up 27% to over 5.5m ounces at 4.08g/t
* Permitting and construction progress at Tulkubash
* Pre-Feasibility Study for Chaarat Project demonstrates robust economics and
that Project can support production of 200,000 ounces of gold per annum
* GBP50 million fund raising in March 2011 means that the Company is fully
funded until first production
Post balance sheet
* Temporary halt to expenditure on plant whilst the Company seeks to negotiate
stable terms with the Kyrgyz authorities
* Progress continues on major infrastructure items
Dekel Golan, CEO of Chaarat, commented:
"We have made considerable progress over the year on all major items and expect
to achieve first production in 2013, albeit slightly later than expected due to
the need to negotiate stable fiscal terms with the government. We are confident
that the funds raised in March 2011 will be adequate to complete the
construction of all elements to commence production."
Enquiries:
Chaarat Gold Holdings Limited +44 (0) 20 7499 2612
c/o Central Asia Services Limited
Dekel Golan CEO dekel@chaarat.com
Linda Naylor FD linda.naylor@chaarat.com
Numis Securities Limited +44 (0) 20 7260 1000
Alastair Stratton, Stuart Skinner (NOMAD)
James Black (Broker)
Bankside Consultants +44 (0) 20 7367 8888
Simon Rothschild simon.rothschild@bankside.com
Smith's Corporate Advisory +44 (0) 20 7601 6100
Dominic Palmer- Tomkinson tomkinson@smiths-ca.com
Chairman's Report
Early in 2011 the Board of your company took a strategic decision to change the
focus of Chaarat from exploration to production.
I am pleased to report on the solid progress which has been achieved since then:
the mineralisation of the Tulkubash Zone was confirmed as extending over a
strike length of several kilometres and comprising mostly non-refractory ore;
together with additional drilling within the existing envelope on the Contact
and Main Zones, Chaarat now has more than 5.5 million ounces of gold in resource
at an average grade of 4.08g/t. The extent of known mineralisation in these
three zones points to a gold deposit considerably larger than our declared
resource.
Progress was made towards the production of gold from the mostly oxide ore from
the Tulkubash Zone with the advancement of the permitting and construction
programmes, in addition to developing the infrastructure components of the
project and completion of the design and engineering works. The raising of GBP50
million of new equity in March 2011 by way of a private placing to a spread of
London institutions means that the Company is fully funded until first
production.
In addition to the progress towards production, we also released the results of
the Pre-Feasibility Study for the whole Chaarat Project. The results
demonstrate to investors and possible future partners the broader potential of
the project and establish a framework within which the results can be improved
upon. The study showed that the project can support production of 200,000 ounces
of gold per annum based on the existing resource. With more drilling and better
understanding of the process and mining costs, we believe that there is
considerable scope for improvement on the production rate and cost.
Following the drilling in the 2011 season we were pleased to announce an
increase in the resource of 27%. Chaarat is becoming a very significant deposit.
During 2012 management's focus will be on laying the groundwork for first
production rather than on further increasing the resource base.
The political system in the Kyrgyz Republic continues to stabilise and 2011 saw
parliamentary elections which resulted in a coalition government. The
presidential election two months later promoted the incumbent Prime Minister to
President, which resulted in a reshuffle of the coalition. This process caused
delay in the review of our permit application.
At the time of writing we have called a temporary halt to expenditure on
building the process plant while we discuss with the government of the Kyrgyz
Republic a long term arrangement on royalty and taxation.
The backdrop to this is the likelihood that the new Kyrgyz coalition government
will follow the trend of governments elsewhere in seeking larger contributions
from extractive industries. The Chaarat project will not only be amongst the
first to move into production in the country, but is also of sufficient scale to
merit, on the part of both government and Chaarat shareholders, a long term
agreement that is mutually beneficial to both parties. There are presently
indications that this can be achieved. The benefits to be derived from a
certainty of the long term conditions under which the Project operates will
considerably outweigh the delay to first production and interruption to current
progress on site.
Chaarat staff have worked with determination over the year. I thank them all
for their efforts which I am sure will continue unabated as we move ever closer
to production.
Christopher Palmer- Tomkinson
Chairman
Chief Executive Officer's Report
In 2011 Chaarat continued to focus on activities to achieve our strategic target
established in 2010 to move to production.
During the year the Company continued to make progress towards its main
operational objectives of facilitating early production during 2013, increasing
and improving the resource base at Chaarat and developing Chontash into another
major deposit.
The following report records our progress to date.
Project update
The Chaarat project will be developed in two principal stages; the Tulkubash
Project, which involves the processing of oxide material, and the Kiziltash
refractory stage. At first production will be on a small scale at 1,200 tonnes
per day (tpd) which equates to 30,000 -35,000 ounces of gold per annum,
increasing to 5,000 tpd (equivalent to 180,000 - 200,000 ounces of gold per
annum) as the whole project is brought on stream.
In 2011 we completed a Pre-Feasibility Study across the entire project which
will be updated this year to reflect our improved knowledge of Chaarat. In
accordance with local requirements we also completed a Feasibility Study for the
Tulkubash Project. This will be submitted for approval to meet one of the
conditions for the granting of a mining permit.
A major refinement to our strategy, with a consequent effect on the design
process, was the decision to build the plant to process the ore from early stage
production at the same location as the plant required for full production,
rather than as a standalone in a different location. We had originally planned
to build a small modular 700-1,000 tpd plant in a separate location to precede
construction of a new facility for the larger plant. This modification of the
strategy reflected our desire to increase production from this first phase to
generate early cash flow and also to reduce the impact of the fixed costs
associated with a production rate of 5,000 tpd or more envisaged for the second
phase.
The Pre-Feasibility Study was prepared on the basis of the plant being required
to process 5,000 tpd of sulphide ore. From this full production design,
development has been planned to allow for construction to be implemented in four
phases which can be added without disrupting ongoing operations. With this
design, production and construction will commence at a production rate of 1,200
tpd of free milling ore and be increased, when funds permit and without
interruption, to process 5,000 tpd of refractory ore. This "reverse
engineering" will ensure a smooth transition between the phases with the minimum
of redundant plant and the maximum utilisation of the limited space available.
The start-up phase for 1,200 tpd of free milling ore is a conventional flow
sheet used in many gold operations. It consists of primary and secondary
crushing, milling, carbon in leach (CIL), elution, electro-winning and smelting
to produce gold doré.
This change will lower costs and facilitate a smoother increase in production.
Studies have shown that doubling production from 1,200 tpd to 2,500 tpd will
cost approximately USD 15-20 million (including the necessary additions to the
mining fleet).
Detailed engineering works have commenced and most elements of the project have
been designed. This has enabled us to issue tenders to suppliers for the power
supply, road access, processing plant, tailings facility, mining fleet,
explosive supply systems and other elements of the operation.
Permits have been granted for the construction of the power line, roads, and the
temporary camp site which will be used until the permanent camp is built.
External power supply
Power supply is critical for any mining project and fortunately the Kyrgyz
Republic is well endowed with power generation capacity. Chaarat has already
secured an allocation of 25 megawatt (MW) from the Kristal substation. We also
managed to agree with the national power company that an allocation of at least
10 MW will be made available from the Karavan substation which is much closer to
Chaarat. We are currently considering whether we should build a generating
station in the Chatkal valley, as originally planned, or build a line direct to
Karavan. We are evaluating the cost implications and establishing whether one of
the neighbouring companies may be interested in sharing this cost. Connecting
to the very low cost Kyrgyz grid supply will add significant value to the
Chaarat project by considerably reducing the operating costs of production.
Permitting
The new Kyrgyz government, formed early in 2012 after the previous Prime
Minister was elected President, is contemplating, like many governments, the
right approach towards the taxation of extractive companies. Rather than set
clear rules the government has decreed that the fiscal terms of a project will
be determined by direct negotiations between the applicant and the government.
Chaarat has decided it is better to determine the terms prior to pressing ahead
and committing the finance required to bring the project into production.
Chaarat has commenced discussions with the government and we believe that the
outcome of these discussions will be both timely and positive. We will keep
shareholders updated on progress.
We originally expected to commence mining during 2012 and produce gold in April
2013. This was always subject to having secured permits on time. We still
believe we will be producing gold during 2013 with a slight delay caused by the
requirement to negotiate an investment agreement with the government.
Funding
As work has progressed, uncertainty over budget has decreased. Cost inflation in
the mining industry is a hot topic and many of our investors have been
concerned that we may have underestimated costs. We believe that using standard
equipment has helped us avoid the significant cost inflation which has occurred
in more dedicated highly specialised equipment, which is produced by a few large
suppliers.
We are confident that the funds raised in March 2011 will be adequate to
complete the construction of all elements to commence production at the lower
rate. We have already commenced negotiations for a working capital facility of
c$20million, which we currently intend to raise from non equity sources.
Chaarat will seek to increase its mostly free milling, open pittable Tulkubash
Reserve Base by further drilling and, if the results of the drilling are as
expected, develop a Definitive Feasibility Study underpinning a significantly
higher production rate for this phase of the project.
Additional investment will be required to achieve both an increased production
rate and access to a lower cost source of power, both of which are expected to
further improve the project's NPV. The board will consider the options
available when the results of the Definitive Feasibility Study are known. A
number of alternative financing options are available, should the board decide
to pursue the upgraded project.
We continue to strengthen and build our core management and I am privileged to
work with an exceptional team of people who continue to drive Chaarat ever
onwards towards production; for which I thank them.
Dekel Golan
Chief Executive Officer
Consolidated income statement
For the years ended 31 December
2011 2010
USD USD
Exploration expenses (5,984,284) (7,242,318)
Administrative expenses (5,278,133) (3,451,225)
Administrative expenses- Share options expense (1,590,898) (588,587)
Administrative expenses- Foreign exchange loss (331,856) (168,336)
=------------------------------------------------------------------------------
Total administrative expenses (7,200,887) (11,450,466)
=------------------------------------------------------------------------------
Other operating income 97,254 -
=------------------------------------------------------------------------------
Operating loss (13,087,917) (11,450,466)
Financial income 719,868 14,363
Taxation - -
=------------------------------------------------------------------------------
Loss for the year, attributable to equity
shareholders of the parent (12,368,049) (11,436,103)
=------------------------------------------------------------------------------
Loss per share (basic and diluted) - USD cents (5.31)c (9.12)c
=------------------------------------------------------------------------------
Consolidated statement of comprehensive income
For the years ended 31 December
2011 2010
USD USD
Loss for the year, attributable to equity (12,368,049) (11,436,103)
shareholders of the parent
Other comprehensive income:
Exchange differences on translating foreign 13,154 (143,478)
operations
=------------------------------------------------------------------------------
Other comprehensive income for the year, net of tax 13,154 (143,478)
=------------------------------------------------------------------------------
Total comprehensive income for the year attributable
to equity shareholders of the parent (12,354,895) (11,579,581)
=------------------------------------------------------------------------------
Consolidated Balance Sheet
At 31 December
2011 2010
USD USD
=-------------------------------------------------------------------
Assets
Non-current assets
Intangible assets 34,297 20,082
Mining exploration assets 8,349,367 8,349,367
Mine properties 3,949,756 -
Property, plant and equipment 2,134,419 596,502
Assets in construction 6,510,020 -
Other receivables 1,543,050 50,456
=-------------------------------------------------------------------
22,520,909 9,016,407
=-------------------------------------------------------------------
Current assets
Inventories 1,328,367 150,035
Trade and other receivables 6,521,197 1,619,590
Cash and cash equivalents 61,184,915 10,124,977
=-------------------------------------------------------------------
69,034,479 11,894,602
=-------------------------------------------------------------------
Total assets 91,555,388 20,911,009
=-------------------------------------------------------------------
Equity and liabilities
Equity attributable to shareholders
Share capital 2,504,778 1,470,339
Share premium 128,551,662 48,949,592
Other reserves 14,308,874 13,839,590
Translation reserve (1,070,180) (1,083,334)
Accumulated losses (55,420,195) (44,173,760)
=-------------------------------------------------------------------
Total equity 88,874,939 19,002,427
=-------------------------------------------------------------------
Non-current liabilities
Deferred tax 460,189 487,000
=-------------------------------------------------------------------
460,189 487,000
=-------------------------------------------------------------------
Current liabilities
Trade and other payables 1,096,066 646,788
Accrued liabilities 1,124,194 774,794
=-------------------------------------------------------------------
2,220,260 1,421,582
=-------------------------------------------------------------------
Total liabilities 2,680,449 1,908,582
=-------------------------------------------------------------------
Total liabilities and equity 91,555,388 20,911,009
=-------------------------------------------------------------------
Consolidated Statement of Changes
in Equity
For the Years Ended 31 December
Share Share Accumulated Other Translation
Capital Premium USD Losses Reserves Reserve USD Total
USD USD USD USD
=-------------------------------------------------------------------------------------
Balance at
31 December 1,129,110 27,499,843 (32,798,843) 13,312,190 (939,856) 8,202,444
2009
=-------------------------------------------------------------------------------------
Currency - - - - (143,478) (143,478)
translation
Other
comprehensive - - - - (143,478) (143,478)
income
Loss for the
year ended - - (11,436,103) - - (11,436,103)
31 December
2010
Total
comprehensive - - (11,436,103) - (143,478) (11,579,581)
income for
the year
Share options - - 61,186 (61,186) - -
lapsed
Share options - - - 588,586 - 588,586
expense
Issuance of
shares for 119,282 7,500,134 - - - 7,619,416
acquisition
Issuance of
shares for 221,947 14,386,364 - - - 14,608,311
cash
Share issue - (436,749) - - - (436,749)
costs
=-------------------------------------------------------------------------------------
Balance at
31 December 1,470,339 48,949,592 (44,173,760) 13,839,590 (1,083,334) 19,002,427
2010
=-------------------------------------------------------------------------------------
Currency - - - - 13,154 13,154
translation
Other
comprehensive - - - - 13,154 13,154
income
Loss for the
year ended - - (12,368,049) - - (12,368,049)
31 December
2011
Total
comprehensive - - (12,368,049) - 13,154 (12,354,895)
income for
the year
Share options - - 1,121,614 (1,121,614) - -
lapsed
Share options - - - 1,590,898 - 1,590,898
expense
Issuance of
shares for 1,034,439 83,036,336 - - - 84,070,775
cash
Share issue - (3,434,266) - - - (3,434,266)
costs
=-------------------------------------------------------------------------------------
Balance at
31 December 2,504,778 128,551,662 (55,420,195) 14,308,874 (1,070,180) 88,874,939
2011
=-------------------------------------------------------------------------------------
Consolidated Cash Flow Statement
For the Years Ended 31 December
2011 2010
USD USD
=------------------------------------------------------------------------------
Operating activities
=------------------------------------------------------------------------------
Loss for the year (12,368,049) (11,436,103)
Adjustments:
Amortisation expense - intangible assets 18,545 25,520
Depreciation expense - property, plant and equipment 576,871 490,024
(Profit)/loss on disposal of property, plant and (97,254) 5,094
equipment
Finance income (719,868) (14,363)
Share based payments 1,590,898 588,587
Losses/(gains) on foreign exchange 329,805 (42,590)
(Increase)/decrease in inventories (942,364) 8,553
Increase in accounts receivable (6,359,430) (1,080,142)
Increase in accounts payable 24,337 688,041
=------------------------------------------------------------------------------
Net cash flow used in operations (17,946,509) (10,767,379)
=------------------------------------------------------------------------------
Investing activities
=------------------------------------------------------------------------------
Purchase of computer software (34,086) (3,664)
Purchase of tangible assets (12,156,715) (98,445)
Acquisition of subsidiary (net of cash acquired) (143,847) 5,865
Proceeds from sale of equipment 293,263 -
Loans repaid - 4,407
Interest received 719,868 14,363
=------------------------------------------------------------------------------
Net cash used in investing activities (11,321,517) (77,474)
=------------------------------------------------------------------------------
Financing activities
=------------------------------------------------------------------------------
Proceeds from issue of share capital 84,070,775 14,608,310
Issue costs (3,434,266) (436,749)
=------------------------------------------------------------------------------
Net cash from financing activities 80,636,509 14,171,561
=------------------------------------------------------------------------------
Net change in cash and cash equivalents 51,368,483 3,326,708
Cash and cash equivalents at beginning of the year 10,124,977 6,812,046
Effect of changes in foreign exchange rates (308,545) (13,777)
=------------------------------------------------------------------------------
Cash and cash equivalents at end of the year 61,184,915 10,124,977
=------------------------------------------------------------------------------
Notes:
1. Preparation of accounts
The financial information set out in this announcement does not constitute the
Company's statutory accounts for
the years ended 31 December 2011 or 2010. The statutory accounts for the year
ended 31 December 2011 have
been finalised on the basis of the financial information presented by the
directors in this preliminary
announcement.
The consolidated balance sheet at 31 December 2011, the consolidated income
statement, consolidated statement of changes in equity, consolidated cash flow
statement and associated notes for the year then ended have been extracted from
the Group's 2011 annual financial statements upon which the auditors' opinion is
unqualified.
2. Loss per share
Loss per share is calculated by reference to the loss for the year of USD
12,368,049 (2010: USD 11, 436,103) and the weighted number of shares in issue
during the year of 232,963,591 (2010: 125,387,960)
There is no dilutive effect of share options.
3. Selected accounting policies
BASIS OF PREPARATION
The financial information has been prepared in accordance with IFRS as adopted
by the European Union. As detailed under the Basis of consolidation note, the
acquisition of the Company in 2007 was treated as a reverse acquisition by its
then operating subsidiary, without the presence of goodwill. The principal
accounting policies adopted in the preparation of the annual financial
statements are set out below. The policies have been consistently applied.
There are no new and revised Standards and Interpretations issued by the
International Accounting Standards Board ("IASB") that are relevant to its
operations and effective for accounting periods beginning 1 January 2011.
The Group has not adopted any standards or interpretations in advance of the
required implementation dates. It is not expected that adoption of standards or
interpretations which have been issued by the International Accounting Standards
Board but have not been adopted will have a material impact on the financial
statements.
GOING CONCERN AND FUNDING REQUIREMENTS
In common with many exploration and development groups, the Group raises finance
for its exploration, appraisal and development activities in discrete tranches.
A fund raising was completed in March 2011 which raised GBP 51.6 million before
expenses (approximately USD 81.5 million). The funds were raised to fast track
the Tulkubash Project to production including developing the required
infrastructure. The Company is satisfied that the original budget, as presented
when the funds were raised in March 2011, remains adequate to complete
construction of all elements to commence production.
As announced on 16 April 2012, pending negotiations with the Kyrgyz government
regarding the fiscal terms of the project, further capital investment activities
(other than the infrastructure projects relating to power and roads and certain
other key procurements which have already commenced and will be completed) will
be suspended until agreement is reached. Chaarat has entered into direct
negotiation with the government of the Kyrgyz Republic, the aim of which is to
secure long term stability for the Chaarat Project by the development of a
mutually agreed Investment Agreement, containing a "stabilisation clause",
protecting the Group from changes to taxation, ownership structure and
royalties.
Based on a review of the Group's budgets and cash flow plans and the flexibility
to alter these to suit prevailing circumstances, the Board considers this is
sufficient to maintain the Group as a going concern for a period of over twelve
months from the date of signing the annual report and accounts. The Board is
satisfied that it has sufficient funds for going concern purposes whether or not
agreement is reached with the government on a timely basis. However, additional
funds of approximately $20m will be required for working capital purposes to
reach production. The Board believes, based on early indications from suitable
sources, that the funding will be available but no such facility is currently in
place. If a working capital facility is not put in place the Group may not be
able to fully develop the Tulkubash project and the carrying value of the
project may become impaired.
At 31 December 2011, the Group had cash and cash equivalents of USD 61.1million
and no borrowings.
4. Timetable and distribution of accounts
The Annual General Meeting will be held at 10:00 on 12th July 2012 at the
offices of the Company's Nominated Adviser, Numis Securities Limited, The London
Stock Exchange Building,
10 Paternoster Square, London EC4M 7LT.
Additional copies of the Annual Report and Accounts, Notice of AGM and Proxy
form will be available, free of charge, from Central Asia Services Limited, 6
Conduit Street, London, W1S 2XE, for a period of 14 days from the date of
posting and will be made available on the Company's website - www.chaarat.com.
Note to Editors:
About Chaarat Gold
Chaarat Gold is an exploration and development company operating in the Kyrgyz
Republic. The Company's main activity is the development of the Chaarat Gold
Project situated within the Middle Tien Shan Mountains of Kyrgyzstan, which form
part of the Tien Shan gold belt. The Company has delineated a JORC compliant
mineral resource of 5.59Moz at a grade of 4.08g/t gold. Chaarat's key objective
is to become a low cost gold producer; with initial production from the
Tulkubash project, targeting increased combined annual production of over
200,000 ounces as the full project comes on stream.
Further information is available at www.chaarat.com
This announcement is distributed by Thomson Reuters on behalf of
Thomson Reuters clients. The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and
other applicable laws; and
(ii) they are solely responsible for the content, accuracy and
originality of the information contained therein.
Source: Chaarat Gold Holdings Ltd via Thomson Reuters ONE
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