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Chaarat Gold Hlgs Ld (CGH)

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Tuesday 27 July, 2021

Chaarat Gold Hlgs Ld

H1 2021 Operational Update

RNS Number : 5217G
Chaarat Gold Holdings Ltd
27 July 2021
 

27 July 2021

Chaarat Gold Holdings Limited

("Chaarat" or "the Company")

H1 2021 Operational Update

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, announces its production and operational results for the half year ended 30 June 2021 ("H1" or the "Period") for its Kapan Mine ("Kapan") in Armenia and a general corporate update.

 

H1 2021 Highlights

 

Kapan

 

· Shahumyan mine production of 25,896 gold equivalent ounces1 ("oz") vs 27,140 oz in H1 2020 (-4.6%) in line with the mine plan and more than offset by third-party ore treatment

 

· Improved all-in-sustaining cost ("AISC"2) of USD1,063 /oz vs USD1,076 /oz in H1 2020 (1%)

 

· Strong financial performance with preliminary unaudited standalone EBITDA contribution of USD13.5 million vs USD4.1 million in H1 2020 (+229%)

 

· Significantly increased third-party ore production of 70kt for H1 2021 vs 10kt for H1 2020 (+600%), in turn contributing USD1.8 million to the above-mentioned EBITDA for H1 2021. This compares with a contribution of USD0 million for H1 2020 and is a result of management delivering on a key target of optimised plant utilisation

 

Tulkubash & Kyzyltash

 

· Updated bankable feasibility study ("BFS") released in May 2021 confirming robust project economics

 

· Exploration drilling programmes for Tulkubash and Kyzyltash commenced in May. Results of the drilling on Tulkubash are expected for Q4 2021 and should lead to a revised resource and reserve update prior to year-end

 

Corporate Finance

 

· Funding package of USD52.2 million closed in February 2020 reducing the net debt position from USD64.5 million as of 31 December 2020 to USD18.5 million as of 30 June 2021 (-71%).

 

· Simplified partnership structure with Çiftay İnşaat Taahhüt ve Ticaret A.Ş ("Çiftay") where they become a strategic investor at Chaarat level and Chaarat maintains 100% ownership in Tulkubash and Kyzyltash.

 

· Debt financing is progressing with ongoing discussions with potential fixed income investors to provide a comprehensive financing solution for Chaarat. The Company is targeting signing in Q3 2021

 

 

Kapan Polymetallic Mine - H1 Highlights and Outlook

 

· As previously disclosed, Kapan experienced a fatal workplace injury in early March. Recordable injury case rate (per one million hours worked) is 1.43 compared to 0.7 in H1 2020.

 

· COVID 19 measures remain in place throughout the site. The last wave in 2020 had minimal impact on operations. Despite the country wide lifting of restrictions, Chaarat Kapan continues to adhere to the COVID 19 protocols successfully used to date.

 

· Shahumyan mine ore production of 25,896 oz represents a 4.6% decrease on H1 2020 (27,140 oz). Fewer Shahumyan tonnes were treated as a result of delayed development work in Q4 2020 caused by last year's hostilities.

 

· Third-party ore treated was 70kt for H1 2021 vs 10kt for H1 2020 (+600%). Treatment was approximately 45kt above target as management was able to contract more material in order to maximize mill throughput for the period2.

 

· H1 2021 production consisted of:

13,466 ounces of gold;

272,635 ounces of silver;

852 tonnes of copper; and

3,170 tonnes of zinc;

 

· All-in-sustaining cost ("AISC" 3) of USD1,063 /oz slightly improved compared to H1 2020 (USD1,076 /oz, 1%).

 

· Realised gold price for the quarter of USD1,783 /oz versus USD1,665 /oz in H1 2020 (+7%) in line with the average gold price for H1 2021. Especially realised copper prices of USD9,230/t vs USD5,400 in H1 2020 (+71 % vs H1 2020) had a significant positive impact.

· Tonnes mined were down year on year by 16.4%. This was partly due to lower development mining during the hostilities, and changes in mining method that are reducing overall dilution resulting in a grade improvement of 13.3% with 3.33 g/t AuEq in H1 2021 vs 2.94 g/t AuEq in H1 2020.

· Mill throughput increased year on year by 2.5% as the reduced mining volumes were more than compensated by additional third-party ore treatment.

· AuEq recoveries were at 79.4% in H1 2021 compared with 79.2% in H1 2020.

· Despite the above-mentioned reduced development work, the team was able to return to the planned development schedule in H1 2021. 11,783 metres were achieved in the period compared to 11,216 metres in H1 2020 (+5%).

· Capital expenditure ("CAPEX") was USD2.5 million, 40% lower than expected due to timing of capital decisions in relation to the initial plan. Annual CAPEX is still expected to be in line with the original guidance of ca. USD8 million.

· The exploration work on the East flank started in May and is progressing well. First results are expected by year end. If positive, development of a decline and ordering of equipment will occur in 2022 with an expected increase in production from 2023.

· Unaudited H1 2021 Kapan standalone EBITDA contribution of USD13.5 million vs USD4.2 million in H1 2020 (+229%) of which third-party ore treatment contributed USD1.8 million vs USD0 million in H1 2020. The increase in EBITDA is mainly based on a more favourable commodity price environment and further improvements to the operational efficiency, especially on the transition period between own ore and third-party ore treatment.

 

Outlook for Kapan

 

· Chaarat remains on track to deliver on its AuEq 57koz guidance for the year4.

 

· Third-party ore supply is expected to remain in line with H1 for the remainder of 2021.

 

· An update to the current resource and reserve statement is in progress with completion and release of the new Life of Mine targeted for Q4 2021.

 

· East Flank drilling campaign is expected to deliver results leading to an initial JORC resource statement expected by end of year.

 

· The Company expects improved financial performance for the 2021 financial year vs 2020 due to increased commodity prices, higher-grade mining, and a consistent third-party ore supply.

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 H1 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.

2 Production from third-party ore is excluded from the production numbers in this release as this source of third-party ore was treated on a tolling basis whereas last year's source was purchased and sold by Kapan to the international markets.

3 AISC on a gold oz produced basis exclude smelter TC/RC, penalty, MTM charges, others which add c. USD164/oz. Sustaining capex of c. USD 8 million p.a. is included in the AISC, of which capex of USD2.5 million was spent in H1 2021.

4 57koz AuEq guidance includes third-party ore production based on the assumption that purchased ore was sold by Kapan, whereas in 2021 third-party ore is treated on a tolling basis.

 

 

Tulkubash and Kyzyltash Project Update

 

The updated BFS for the Tulkubash project was published along with revised mineral resource and ore reserve estimates summarising the progress achieved since the previous 2019 BFS. The full study is available on Chaarat's homepage.

 

Site infrastructure works and early construction works are limited pending completion of the debt financing.

 

The 2021 exploration programme commenced at the end of May with results expected late 2021 to early 2022. The focus is infill drilling of areas currently classified as inferred, as well as new exploration of nearby areas with high potential. By the end of June, 10 drill holes (out of 62 holes, 16%) and 1,633 metres (out of 9,540 metres, 17%) were completed. Out of the 4,000-metre trenching programme 2,484 metres were completed (62%).

 

Geotechnical drilling of the Tulkubash ore body is also being carried out this year to improve the final pit designs ahead of production.

 

Drilling to obtain core for metallurgical testing of Kyzyltash ore has also commenced.

 

 

Debt Financing

The Company continues to progress with a potential funding solution for the development of the Tulkubash project.  As previously announced, the Company completed an equity fundraise in February 2021 which included USD30 million of new capital with the majority to be allocated to the construction of the Tulkubash project. In addition, Chaarat is exploring a comprehensive refinancing of its current debt outstanding and financing of the Tulkubash project through a fixed income debt instrument.  

 

The debt financing is progressing with ongoing discussions with potential fixed income investors. Chaarat has received healthy interest in subscribing to a fixed income solution. The proceeds from this financing would be used for the refinancing of existing corporate debt and to finance the costs related to the Tulkubash gold project.

 

As previously indicated, the debt financing timeline has been impacted by external factors. Despite having no direct impact on our operations in the Kyrgyz Republic and continued support from the government for Chaarat and its development assets, the situation around the Kumtor mine has impacted the process timeline.  The delay on the debt financing schedule has not materially delayed the project timeline.  

 

As a result, first gold pour is still expected for H2 2023 while the debt financing is targeted to be signed in Q3 2021.

 

 

Corporate Finance

The Company received strong demand for a funding package in February 2021 for a total of USD52.2 million which included issuing USD30.0 million in equity to new institutional investors and family offices as well as existing shareholders and conversion of debt into equity of USD22.2 million.

 

The financing led to a significant improvement in the Company's debt position, reducing it from USD70.5 million as of 31 December 2020 to USD43.5 million on 30 June 2021, a reduction of 38%3. The net debt position has been reduced from USD64.5 million as of 31 December 2020 to USD18.5million in June 2021, a reduction of 71%. With the debt-to-equity conversion, the Labro Term Loan has been extinguished, saving the Company USD2.1 million a year in interest payments from 2021 to 2024.

 

The Kapan acquisition loan facility was reduced by USD4 million to USD24 million during H1 2021.

 

As announced on 21 June 2021, Çiftay and the Company have agreed a new investment agreement, in order to simplify the structure of the partnership and further align the interests of both parties. Chaarat will retain 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.

 

Chaarat continues to evaluate capital opportunities to either refinance existing financing facilities and/or reduce its overall cost of capital. One of the key priorities for the next months is to evaluate options to refinance the convertible bond due in October 2021.

 

3 Excluding lease liabilities, contract liabilities and accrued interest on the convertible loan note.

 

 

Artem Volynets, Chief Executive Officer, commented:

"I am pleased to report another strong half year with a significantly higher EBITDA and slightly improved AISC at Kapan supporting our deleveraging of the asset and supporting our East Flank extension plans. I am very happy with the performance of the Kapan team in delivering production and financial results ahead of budget to achieve our targets for 2021. The team did very well this period in reducing dilution and optimising grade, as well as pushing tonnage through the mill from third party supplies.

The slight delay in the Tulkubash debt financing process was caused by external factors, despite our strong support in country and the confirmation of strong project economics in the updated BFS 2021 but we target signing of this financing in Q3 2021. Operations in country are progressing well and we are on time with our exploration and construction timeline."

 

Enquiries




Chaarat Gold Holdings Limited

+44 (0)20 7499 2612

Artem Volynets (CEO)

[email protected]



Canaccord Genuity Limited (NOMAD and Joint Broker)

+ 44 (0)20 7523 8000

Henry Fitzgerald-O'Connor


James Asensio




finnCap Limited (Joint Broker)

+44 (0)20 7220 0500

Christopher Raggett




Panmure Gordon (UK) Limited (Joint Broker)

+44 (0)20 7886 2500

John Prior

Hugh Rich


 

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

 

Chaarat aims to create value for its shareholders, employees and communities from its high-quality gold and mineral deposits by building relationships based on trust and operating to the best environmental, social and employment standards. Further information is available at  www.chaarat.com/ .

 


H1 2021 PRODUCTION & OPERATIONAL SUMMARY


H1 2021

H1 2020

Tonnes ore mined

301,658

360,957

AuEq Grade (g/t)

3.33

2.94

Tonnes ore milled

374,794

365,650

Tonnes ore milled (Third-Party Ore)

70,005

10,127

AuEq Recovery Kapan (%)

79.4

79.2

Gold equivalent production (oz)

25,896

27,140

  Gold production (oz)

13,466

13,179

  Silver production (oz)

272,635

261,551

  Copper production (t)

852

960

  Zinc production (t)

3,170

3,997

AuEq Sales

22,909

25,825

Realised gold price

(USD/oz)

1,783

1,665

AISC (USD/oz)

1,063

1,076

 

 

ENDS

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