Kapan Acquisition Completion

RNS Number : 5351O

Chaarat Gold Holdings Ltd

30 January 2019

 

30 January 2019

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ("MAR").

Not for release, publication or distribution to United States newswire services or for release, publication or dissemination in the United States and does not constitute an offer of the securities herein.        

This press release does not constitute an offer to sell, or a solicitation of an offer to buy, securities in the United States or any other jurisdiction.  Any securities described in this press release have not been, and will not be, registered under the US Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration except in transactions exempt from, or not subject to, registration under the US Securities Act and applicable US state securities laws. There is no public offering of the securities in the United States expected. 

Chaarat Gold Holdings Limited

("Chaarat" or the "Company")

Kapan Acquisition Completion

Further to the Company's announcement on 16 January 2019, Chaarat is pleased to confirm that it and its subsidiary Chaarat Gold International Limited ("CGIL") have completed the acquisition of Kapan Mining and Processing Company CJSC ("Kapan") from PMTL Holding Ltd ("PMTL"), a subsidiary of Polymetal International Plc.

Of the total consideration of US$ 55 million (subject to net debt and working capital adjustments), US$ 10 million was settled on completion in Convertible Loan Notes and US$5 million was previously paid as a deposit in November 2018. The remaining US$ 40 million is payable in cash following the execution of certain settlement procedures associated with the Kapan Acquisition Financing.  Payment is secured by a pledge over the Kapan shares in favour of PMTL, which will be released upon receipt of payment by PMTL anticipated on 1 February 2019.  As a result, trading in the Company's shares has been suspended with immediate effect with re-admission to AIM expected to take place on 4-5 February 2019.

Documentation has been finalised for the Kapan Acquisition Financing, which has been syndicated with Ameriabank CJSC (US$32m), HSBC Bank Armenia CJSC (US$5m) and Ararat Bank OJSC (US$3m) on substantially the same terms as the term sheet summarised at paragraph 7.24 of Part VI of the Company's Readmission Document published on 14 December 2018 ("Readmission Document") (updated terms are summarised in the appendix of this announcement).  In addition, the Kapan Offtake Agreements (paragraph 7.21 of Part VI of the Readmission Document) have been renewed and certain Kapan Drilling Agreements (paragraphs 7.22 (a) (ii) and (iii) of Part VI of the Readmission Document) have been extended, as disclosed in the Appendix to this announcement.

In 2017, the Kapan mine produced c.50 koz Au Eq. generating more than US$20 mm EBITDA and had gross assets of US$96 mm. The acquisition strengthens the Company's portfolio of assets, with an anticipated group production of approximately 65 Koz Au Eq in 2019.

Artem Volynets, Chief Executive Officer of Chaarat, said: "We are very pleased to announce completion of the Kapan transaction. Securing this high-quality, cash-generative asset under attractive terms bears testament to the strength of our M&A consolidation strategy. This acquisition is an excellent and complementary addition to Chaarat's portfolio, transforming the Company from a developer to producer with three solid assets in two jurisdictions."

Enquiries

Chaarat Gold Holdings Limited Martin Andersson (Executive Chairman)	[phone]
Artem Volynets (CEO)	[e-mail]
Numis Securities Limited
John Prior, Paul Gillam (NOMAD)	[phone]
James Black (Corporate Broking)
Powerscourt
Conal Walsh	[phone]
Matthew Attwood Isabelle Saber	[e-mail]

About Chaarat Gold

Chaarat Gold is an exploration and development company with a large, high grade resource - the Chaarat Gold Project. The Company has a clear strategy to build a leading emerging markets gold company with an initial focus on Central Asia and the FSU through organic growth and selective M&A.

On 30 October 2018, Chaarat announced that it had entered into a binding sale and purchase agreement to acquire the Kapan mine in Armenia from Polymetal, for a consideration of US$55 million, subject to adjustments (the "Kapan Acquisition"). On 14 December 2018, the Company issued the Readmission Document relating to the Kapan Acquisition ("Readmission Document").

Chaarat is engaged in an active community engagement programme to optimise the value of the Chaarat investment proposition.

Chaarat aims to create value for its shareholders, employees and communities from its high-quality gold and mineral deposits by building relationships based on trust and operating to the best environmental, social and employment standards.

Further information is available at www.chaarat.com.

NOTICE

This announcement includes statements that are, or may be deemed to be, "forward-looking statements".  These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "envisages", "estimates", "anticipates", "projects", "expects", "intends", "may", "will", "could", "seeks" or "should" or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy plans, objectives, goals, future events or intentions.  These forward-looking statements include statements regarding the Company's and the Directors' current intentions, beliefs or expectations concerning, amongst other things, investment strategy, financing strategy, performance, results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which the Group (which, where used in this announcement, shall have the meaning given to that term in the Readmission Document) will operate.

By their nature, forward-looking statements involve risks (including unknown risks) and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future.  Forward-looking statements are not an assurance of future performance.  The Company's actual performance, results of operations, financial condition, liquidity and dividend policy and the development of the business sector in which the Group will operate, may differ materially from those suggested by the forward-looking statements contained in this announcement.  In addition, even if the Company's performance, results of operations, financial condition, liquidity and dividend policy and the development of the industry in which the Group will operate, are consistent with the forward-looking statements contained in this document, those results or developments may not be indicative of results or developments in subsequent periods.

Any forward-looking statements in this announcement reflect the Company's and the Directors' current view with respect to future events and are subject to risks relating to future events and other risks, uncertainties and assumptions relating to the matters referred to above.  Other than in accordance with the Company's obligations under the AIM Rules for Companies, the Company does not undertake to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

 

APPENDIX

Terms used in this appendix have the same meanings as in the Company's Readmission Document.

Kapan Acquisition Financing

The documentation for the Kapan Acquisition Financing has been finalized on substantially the same terms as described in the summary of the terms of the definitive term sheet (the "Ameriabank TS") at paragraph 7.24 of Part VI of the Company's Admission Document, published on 14 December 2018.  All references to the Kapan Acquisition Financing and the Ameriabank TS in the Readmission Document should be interpreted accordingly.

The Company has now agreed definitive terms for the term loan agreement (the "Ameriabank TLA") with Ameriabank CJSC ("Ameriabank") in respect of the proposed US$40 million term loan facility (the "Ameriabank Term Loan"). Ameriabank will be acting as agent in respect of the loan and will be lending US$32 million. The other banks in the syndicate comprise HSBC Bank Armenia CJSC (whose commitments comprise US$5 million) ("HSBC") and Araratbank OJSC (whose commitments comprise US$3 million) ("Araratbank" and together with HSBC and Ameriabank being together the "Banks").

The obligations of the Borrower (as defined below) under the Ameriabank TLA will be guaranteed by (i) the Company and CGIL (the "Guarantors") and (ii) for a limited period of time ending on the first anniversary of the Utilization Date (as defined below) with a guarantee limit of US$5 million only, Labro Investments Ltd (the Company shall issue 250,000 shares to Labro as remuneration for issuance of the guarantee).

The main terms of the Ameriabank TLA are the same as those of the Ameriabank TS summarised in the Company's Admission Document, save for the following, which can be substituted for the corresponding paragraphs in the Admission Document:

Purpose & Use of Proceeds: Subject to execution and satisfaction of the remaining conditions precedent, the Banks agree to make available to the Borrower the Ameriabank Term Loan to finance the Kapan Acquisition. The Borrower shall be required to apply all amounts borrowed under the Ameriabank Term Loan to finance the Kapan Acquisition.

Principal Repayment: Principal will be repaid in quarterly instalments increasing over the term of the debt based on the amortization schedule set out in the Ameriabank TLA. The Borrower shall repay the outstanding Ameriabank Term Loan in full on the Maturity Date and in instalments in accordance with the repayment schedule set out in the Ameriabank TLA. The Borrower may not reborrow any part of the Ameriabank Term Loan which is repaid.

Cash Sweep: The Borrower shall, not later than 45 days after each 31 March, 30 June, 30 September and 31 December (or, if earlier, the date which is 10 days after the submission of the cash flow statement relating to such period) make a mandatory repayment of the Ameriabank Term Loan then outstanding in a principal amount equal to the cash sweep percentage of the cash flow available for debt service less debt service for such cash sweep calculation period. For the purposes of this summary, "Cash Sweep Percentage" means: (i) 60% for the period starting on the utilization date to  the relevant date following 12 months after the utilization date; (ii) 50% for the period starting on the second anniversary of the utilization date to the relevant date following 24 months after the utilization date; (iii) 35% for period starting on the third anniversary of  the utilization  date to the relevant date following 36 months after the utilization date; and (iv) 0% thereafter, as long as any portion of the Ameriabank Term Loan's principal remains outstanding.

Financial Covenants: The Ameriabank TLA includes the following financial covenants:

(i)        the Borrower shall ensure the leverage ratio does not exceed 2.5:1;

(ii)       the Borrower shall ensure the maximum financial indebtedness of the Borrower cannot exceed US$ 41,000,000 (save where the same arises as a result of ordinary course short term trade payables);

(iii)      the Borrower shall ensure the interest cover shall not be less than 1.2:1;

(iv)    reserves of copper/zinc ore will not be, on any date before the fourth anniversary of the Ameriabank TLA (and will not, at any date prior to the termination date be scheduled to be) less than 30% of the reserves as at the date of the Ameriabank TLA;

(v)      the Borrower has agreed to maintain certain minimum cash balances consistent with its expected cash flow profile.

(vi)   the aggregate amount expended by the Borrower in respect of social spending and donations commencing on the date of  the Ameriabank TLA shall not exceed the lesser  of AMD 150 million or US$ 300,000 each year; and

(vii)    from the beginning of 2019 onwards, the Borrower shall use its reasonable endeavors  to reduce social spending and donations.

Financial covenants i), ii) and iii) are to be tested twice a year starting from 30 June 2019 based on semi-annual financial statements and audited annual financial statements. Financial covenants iv) and vi) are to be tested on an annual basis starting from 31 December 2019. Financial covenant vii) is to be tested on a semi annual basis

Mandatory Prepayment: Mandatory pre-payment requirements standard for a facility of this type, including proceeds from liquidated damages, termination of material project contracts, compensation proceeds, insurance proceeds, illegality and change of control.

Conditions Precedent: The Ameriabank TLA contains a number standard conditions precedent for a facility of this type (and Ameriabank has confirmed that these have been satisfied or waived, save for any that can only be satisfied following completion of the Kapan Acquisition), including:

• full suite of transaction documents, including:

(i)          the Ameriabank TLA;

(ii)         security documents, comprising (subject to local law): (A) real estate mortgage over specific assets of the Borrower; (B) a moveable assets pledge agreement; (C) Borrower share pledge; (D) Buyer share pledge; and (E) Borrower's  cash flow pledge agreement;

(iii)        a fee letter; 

(iv)        all notices required under the security documents referred to above;

(v)         a guarantee to be entered into by the Guarantors, Ameriabank as security agent, each of the Banks and the Borrower; and

(vi)        a guarantee to be entered into by Labro Investments Ltd as guarantor, Ameriabank as security agent, each of the Banks and the Borrower.

• complete funding for the Kapan Acquisition being in place (see below at the end of  this section "Conditions Precedent").
• execution of the first hedge transaction by the Borrower with an Acceptable Hedge Counterparty in accordance with the Hedging Requirement;
• various legal opinions;
• payment of fees, costs and expenses;
• receipt of the Kapan Mine Action Plan to follow up on the CSA Fatal Flaw Analysis Report;
• air emission permits;
• valid technical and technological safety expertize positive conclusions on all mining facilities (including tailing dams and pipes and related facilities) as required under applicable law;
• all construction permits for the current construction activities (including land works) underway; and
• all related other permits required for the operation of the Kapan Mine and main activities of Kapan.

The Borrower and CGIL warrant to Ameriabank that the purchase price for the Kapan Acquisition is US$55,000,000, funded by US$40,000,000 of acquisition financing to be arranged by Ameriabank on a best effort basis, US$5,000,000 of cash from the Buyer (which was paid to PMTL as a deposit on or around 12 November 2018), and the remaining US$10,000,000 to be settled through PMTL subscribing for US$10,000,000 of Convertible Loan Notes.

The Ameriabank TLA notes that the Company and/or the Buyer have provided documentation to Ameriabank evidencing that US$15,000,000 of funding has been fully and irrevocably committed to finance the Kapan Acquisition (comprising the US$5,000,000 deposit paid to PMTL on/around 12 November 2018 and US$10,000,000 of Convertible Loan Notes to be subscribed by PMTL)

Conditions subsequent: The Ameriabank TLA contains a number of conditions subsequent, including as follows:

• a requirement on the Borrower to provide Ameriabank with an updated mine plan by  no later than 1 June 2019, including detailed design, development plan and production schedule.
• various requirements as regards a tailings management facility.
• certain requirements relating to an environmental management program report.
• a requirement on the Borrower to, no later than 1 January 2020, submit a Kapan Mine closure and reclamation plan for the Kapan Mine developed by a qualified consultant acceptable to Ameriabank.
• a requirement that the Borrower shall, on a best effort basis, seek to arrange   refinancing of  the Ameriabank TLA and Kapan Acquisition Financing by local banks  by negotiating a prepayment offtake facility with a commodity trader(s) and/or via increasing the Borrower's equity and/or arranging debt financing by a Guarantor.
• a requirement that the Borrower shall, within 3 months, take all action necessary to pledge the 189 plots of land in favor of the Banks.
• a requirement that, by 28 February 2019, the Borrower shall ensure that all the Banks are named as beneficiaries under the relevant insurances maintained by the Borrower.
• A requirement that the Borrower shall, within 2 months, provide all water usage permits and wastewater discharge permits in relation to the Kapan Mine.
• A requirement that the Borrower shall, within 6 months, provide the following in relation to the Kapan Mine:

o    valid EIA expertize positive conclusions (including when such conclusions are conditional upon existence of  certain circumstances or conduct of  certain activities,  the proof that such actions where conducted and circumstances occurred); and

o    technical safety declaration signed off by the State Water Committee for the  Geghanush tailing dam hydro-technical facility as required under applicable law.

Governing Law & Dispute Resolution: The governing law shall be the laws of the Republic of Armenia save that the guarantees are subject to English law. Any dispute shall be referred to, and finally resolved by, the First Instance Court of Yerevan, Republic of Armenia, save that under the guarantees dispute resolution is arbitration under the Arbitration Rules of the London Court of International Arbitration.

Kapan Offtake Agreements (paragraph 7.21 of Part VI of the Readmission Document)

These agreements have been renewed on the following terms:

(i)       On 21 January 2019, Kapan (as the seller) entered into an offtake agreement with Trafigura Pte. Ltd. (as the buyer) for the purchase of 15,000 wet metric tonnes +/-5% in Kapan's option of zinc concentrate. Shipments are to be made throughout 2019 in shipments of 650/800metric tonnes and the contract price for each shipment of concentrate is based on certain quoted prices for zinc, silver and gold less deductions for treatment charges and the presence of cadmium in the concentrate. This agreement is governed by English law.

(ii)      On 7 December 2018, Kapan (as the seller) entered into an offtake agreement with Glencore International AG (as the buyer) for the purchase of 10,000 wet metric tonnes +/-10% in Kapan's option of Kapan copper concentrates. Shipments are to be made from January 2019 to December 2019 in monthly shipments of 500/650 metric tonnes. The contract price for each shipment is based on certain quoted prices for copper, silver and gold less deductions for treatment and refining charges and penalties for the presence of arsenic, lead and zinc combined or fluorine. This agreement is governed by Swiss law.

Kapan Drilling Agreements (paragraphs 7.22 (a) (ii) and (iii) of Part VI of the Readmission Document)

Certain drilling agreements have been extended on the following terms.

(a)        Drilling Agreements

(ii)     Kapan is party to a further drilling agreement with AGRP dated 21 February 2017, which was amended on 11 January 2018, 15 January 2018 and 18 December 2018. The effective date of this agreement is 1 February 2017. Under this agreement, AGRP is to perform drilling works at the Kapan Mine and the services are to be completed by 31 December 2019. The consideration payable by Kapan is payable in monthly instalments based on the amount of works conducted by AGRP in the previous month. AGRP indemnifies Kapan on the same basis as under the first agreement and Kapan can terminate the agreement on the same terms as those set out in the agreement. The agreement is governed by Armenian law and subject to the jurisdiction of the Armenian courts.

(iii)    Kapan is party to a drilling agreement with S&A Mining LLC ("S&A") dated 20 May 2018 and amended on 25 October 2018 and 20 December 2018. The effective date of this agreement is 10 May 2018. Under this agreement, S&A is to perform underground works at the Kapan Mine (side no. 62 and no. 58) and the services are to be completed by 31 December 2020. The consideration payable by Kapan is payable in instalments and subject to changes based on the works actually performed by S&A during the term of the agreement. Under the agreement, Kapan has a right to terminate at any time and pay only for the works actually performed by S&A prior to the receipt of the relevant termination notice. The agreement is governed by Armenian law and subject to the jurisdiction of the Armenian courts.

 

END

 

 

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