Final results for year ended 31 December 2020

RNS Number : 7565U

Chaarat Gold Holdings Ltd

08 April 2021

8 April 2021

Chaarat Gold Holdings Limited

("Chaarat" or the "Company")

PRELIMINARY ANNOUNCEMENT OF AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020

Chaarat (AIM:CGH), the AIM-quoted gold mining company with assets in the Kyrgyz Republic and Armenia, today publishes its audited financial results for the year ended 31 December 2020.

Highlights for the year

2020 Group Financial Results

•	Revenue up 12.5% in 2020 to US$76.0 million (2019: US$68.1 million), reflecting increased production and the recovery in commodity prices in the second half of the year.
•	Group EBITDA of US$9.3 million in 2020 (2019: loss of US$12.8 million), reflecting the significantly improved operating performance at Kapan and lower overhead costs at both corporate and Kyrgyz Republic level. The Group achieved an operating profit of US$1.9 million (2019: loss of US$18.4 million).
•	Cash and cash equivalents at the end of 2020 were US$6.9 million (2019: US$3.6 million). At 1 March 2021, the Group had cash and cash equivalents of approximately US$31.2 million, following the successful equity raise in February 2021 described below.

Kapan Producing Mine

•	2020 production of 58.2koz¹ AuEq exceeding guidance by 6%, despite the ongoing COVID-19 situation and border hostilities in H2 of 2020.
•	All-in-sustaining cost² ("AISC") of US$1,034/oz was in line with US$1,040/oz for 2019.
•	A 126% increase in stand-alone EBITDA contribution of US$ 19.4 million at Kapan level in 2020 (2019: US$8.6 million). EBITDA contribution at Kapan in H2 2020 was US$15.3 million compared with US$4.1 million in 2020 H1, reflecting continued improvement in operations and the recovery in commodity prices in the second half of the year.
•	Limited impact from the COVID-19 pandemic with effective management protocols in place since February 2020.

Tulkubash Construction Project

•	Advanced the construction preparation work and detailed engineering with close to US$10 million invested in 2020 despite the COVID-19 restrictions and political unrest in Q4.
•	Successfully completed a 2,000-metre confirmatory drilling programme which is currently being included in an updated JORC-compliant resources and reserve statement.
•	First full winter of year-round construction activity completed at site (2019-20), without incident.
•	Tulkubash project finance discussions further advanced with several banks awaiting the Tulkubash Bankable Feasibility Study ("BFS") and ESIA updates before proceeding to documentation stage.

Kyzyltash Development Project

•	Comprehensive internal review completed, and external expert opinions received in June 2020 for the next stages and overall timeline to production, confirming the current preliminary timeline to 2026.
•	Independent assessment on metallurgy completed to help define the ideal processing route.

Corporate Activities

•	Strengthened balance sheet in 2020 through a US$13.8 million equity capital raise during the first wave of the COVID-19 pandemic, extended liabilities, decreased interest cost and reduced gross debt.
•	Continued strong support from major shareholder Labro Investments Ltd. ("Labro") through participation in the equity raise and the refinancing of the investor loan into a new US$22 million facility maturing on 31 December 2024.

Post-period highlights

•	In February 2021, the Group completed a financing package of US$52.2 million, comprising cash of US$30.0 million and a debt-to-equity conversion of the US$22.2 million Labro loan mentioned above, significantly reducing gearing.
•	Key financing targets for 2021 will include securing debt finance for the Tulkubash project and repaying or refinancing the convertible loan notes to the extent these are not converted. The Company anticipates publishing an updated bank feasibility study for Tulkubash by May.

¹ AISC on an oz produced basis exclude smelter TC/RC charges, others which add c. US$ 130/oz. Sustaining capex of c. US$ 6.9 million included in the AISC.

² Gold equivalent ounces for 2019 recalculated on 2020 budget prices with Au at $1,500/oz and gold ratios of 83 for silver, 7,778 for copper and 20,968 for zinc. In last years' FY 2019 operations update, 2019 oz were based on gold ratios of 81 for silver, 6,698 for copper and 16,075 for zinc leading to a higher AuEq number reported in that previous year.

Martin Andersson, Executive Chairman of Chaarat, commented:

" Considering the adverse conditions we faced last year, the strength of our people shone through and enabled a strong performance at Kapan, and flexibility in dealing with the various challenges we faced regarding our Tulkubash construction project.

From an ESG perspective, Chaarat has certainly proven its strong ties and commitment within its communities in 2020, not only supporting where measures against the pandemic were required but also ensuring that lives and business continue. The development in accordance with the best international standards has been documented in the Environmental and Social Impact Assessment update for our Tulkubash project and we have continued to improve the environmental footprint with several projects at our Kapan site. The independent board and management team have proven efficient in terms of setting a high governance standard.

Chaarat has seen strong shareholder support during the last two equity capital raises which shows that we are taking the right steps to lift Chaarat to the next level. I look forward to the next year which should see Tulkubash fully funded, Kapan in steady state production and Kyzyltash with a clear view on the optimal processing route to create a new feasibility study to international standards. We continue to build an industry-leading FSU focused low-cost gold producer with a sound organic growth strategy supported by value accretive M&A."

Enquiries

Chaarat Gold Holdings Limited	+44 (0)20 7499 2612
Artem Volynets (CEO)	info@chaarat.com

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

Executive Chairman ' s Statement

Overview

The past 12 months have been unlike any other period in the Company's history as the COVID-19 pandemic has disrupted the world and impeded the normal course of business activity.

This year we have demonstrated that we are a resilient business. I am pleased to be able to announce that the team at our Kapan mine exceeded our 55koz AuEq production guidance despite the dual impact of the pandemic and the hostilities in the neighbouring Nagorno-Karabakh region during the final quarter of the year.

The COVID-19 pandemic impacted the ability of potential funders to conduct due diligence on our assets and it was unfortunate that we had to postpone the date for first gold pour from Tulkubash due to material and personnel movement restrictions. However, we have made progress on the early construction, engineering and updates of our studies I am hopeful that we will secure project finance during the first half of 2021.

Our people

First and foremost, on behalf of the Board, I would like to extend my sincere thanks to all our employees, but in particular those at our Kapan mine. The team at Kapan met each new challenge it faced with agility and dedication to ensure that the mine remained operational. The hard work that they put in every day made the difference. Our employees at Kapan continued to work throughout the COVID-19 crisis, highlighting their commitment, dedication, and loyalty. It was their outstanding resilience and hard work that enabled us to exceed our production guidance.

2020 progress

Despite the disruption caused by the COVID-19 pandemic, we have made progress during the year in relation to each of the pillars of our strategy and details of that progress are included in our annual report which will be published shortly.

Health and safety

The health and safety of our employees and host communities remains one of our key values. Our lost time injury frequency rate at Kapan for the year was 0.37 per one million hours worked (2019: 0.39). Over 850,000 hours at Tulkubash were worked in 2020 with no lost time injuries.

Last month we reported the loss of life of an employee of our mining contracting company on 4 March 2021. Learnings from this tragic event will be used to further develop and improve the safety culture and performance not only at Kapan but throughout all areas of the Company.

During the year we implemented measures to minimise the risk of our employees contracting COVID-19 as a result of their work activities. Additionally, we supported hospitals and communities local to our operations to help contain the virus and to assist with medical treatment.

Sustainability

As a responsible business we are committed to treating people well, managing environmental issues and working with integrity. 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.

Corporate governance

My Board colleagues and I are firmly of the view that strong and functioning corporate governance and risk management are essential to the success of the Company. Chaarat has adopted the Quoted Companies Alliance Corporate Governance Code. 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.

Investors

In April 2020 we raised US$13.8 million via a share placement, welcoming new individual and institutional investors to the shareholder register. I was pleased to see that existing shareholders, the Company's directors, and senior management participated and showed strong belief in our story. I would like to take this opportunity to thank our loyal shareholders for their patience over the course of the year.

2021 and beyond

I was delighted with the response to our share subscription in February 2021, which raised US$30.0 million of new cash and reduced our indebtedness by US$22.2 million. Now that we have raised the equity portion of the funds required for our Tulkubash project, we will focus our efforts on raising the debt finance element of the project. I would like to thank our existing and new investors for their support in our recent fundraise.

Against the backdrop of a challenging and uncertain world, in the coming year our priorities will be to secure project finance for Tulkubash to take advantage of the full 2021 construction season, to progress Kyzyltash by conducting metallurgical testing to enable Chaarat to choose the appropriate technology for project development.

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Chief Executive Officer's Review

Overview

2020 was a challenging year in many respects. In addition to the pandemic, we had to operate during an active military conflict in one country and the political unrest in the other. However, we are pleased to report that Chaarat emerged as a much stronger company, outperforming on our operational and financial targets at Kapan in Armenia and continuing development of our prospective cluster in the Kyrgyz Republic. These achievements were made possible through proactive engagement with our host communities in both countries, strong Chaarat culture, lean set up and seamless integration between the teams in various countries.

Our team

I would like to reiterate the comments made by our Chairman in relation to our outstanding employees, whose hard work, dedication, and mutual support have contributed to our performance during the year by exceeding our production guidance of 55koz by 6%. I am proud of how our team has responded to the extreme circumstances of the past year.

Our impact

Health and safety - The health and safety of our employees and communities has been our main priority during the COVID-19 pandemic and we continue to monitor the situation daily in all our countries of operation. We have restricted travel by our employees, and limited visitors to our facilities. Our employees continue to work from home where possible and additional measures to protect our employees are in place for those still working at our operating sites. The team's proactive precautionary measures reduced the impact of COVID-19 to the minimum possible and continue during the current second wave of the pandemic. In the wake of the tragic fatal incident at our Kapan mine last month, we have been focused on reinforcing Chaarat's standards regarding attitudes and behaviours across the entire workforce, including employees of our contractors.

Environment - During the year COVID-19 did not get in the way of us continuing proactively to manage and improve environmental aspects at our operations

Community - We have strengthened community relations in our two countries of operation with our continued support during the COVID-19 pandemic and, in the final quarter of the year, with support in Kapan during the hostilities in the neighbouring Nagorno-Karabakh region, and in the Kyrgyz Republic during the political unrest.

Our strategy

In our strategic report, an extract from which is copied below, I outline the progress we have made during the year towards achieving our vision of building a leading emerging markets gold company with a focus on the former Soviet Union and which delivers value to all our stakeholders by adhering to the highest ESG standards. Whilst the COVID-19 pandemic has meant that we have not made as much progress as we would have liked, I am confident that, once that is behind us, we will be able to make significantly more progress.

Our performance

Kapan - We ended the year achieving production of 58.2koz AuEq, exceeding our production guidance by 6% and with revenues of US$76.0 million (2019: US$68.1 million) due to operational improvements, supported by strong commodity prices. Accordingly, EBITDA contribution from Kapan increased significantly to US$19.4 million in 2020 compared with US$8.6 million in 2019.

Tulkubash - Good progress has been made on the permitting and design/engineering fronts and the project is fully permitted now to produce. We are in the process of undertaking a full update of the 2019 bankable feasibility study ("BFS"). Pending the results of the updated BFS and completion of the debt financing, we continue to target the start of production in Q4 2022.

Kyzyltash - We completed a preliminary metallurgical assessment in April, and we have defined a metallurgical test programme for 2021 to identify the optimal processing method.

Funding and liquidity

In April, during the first wave of the COVID-19 pandemic, we raised US$13.8 million via an equity placement, US$6.3 million of which was used to reduce borrowings and interest accrued under our working capital facility to zero. We also extended the maturity of US$22.0 million of the Group's indebtedness; this was subsequently converted into equity in early 2021. We also repaid a further US$8.0 million of our Kapan loan in accordance with its planned repayment schedule. Additionally, during the year, we undertook an efficiency review and were successful in reducing our overheads.

Commodity prices

Given the polymetallic nature of our Kapan mining operation we are affected not only by gold prices but also by movements in copper, zinc, and silver. Copper and Zinc prices were strong in H2 2020 and have remained so into 2021. While the COVID-19 pandemic caused a significantly lower than expected base and precious metals environment in the first half of 2020, the recovery seen in the second half of 2020 has been stronger than expected resulting in a marginally better price environment for our Kapan operation compared to our forecast.

Since year end

In February of 2021 we were delighted with the results of our US$52.2 million financing, comprising an equity raise and loan conversion which has further strengthened our institutional, high net worth, and retail investor base and significantly reduced our gearing.

Our focus for 2021

Our key areas of focus for 2021 include the raising of project finance for Tulkubash and refinancing of the convertible loan notes. Chaarat has good quality assets with a highly skilled workforce. I have every confidence in the actions that we are taking to progress our strategy to realise our full potential in the current gold price environment.

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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)
•	Non-organic growth	We will selectively identify value-accretive opportunities in our target region which will deliver value to shareholders 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

Our ESG Strategy

ESG	2020 progress	2021 priorities
Safety	Implementation of a revised comprehensive health and safety policy, a vehicle safety policy, unified health and safety protocols, and integrated reporting	A review by the Board's HSEC Committee of the HSEC plans and procedures for Kapan
Safety	Development and implementation of COVID-19 emergency response plan	Improved reporting to include leading as well as lagging indicators
Environmental	Buttressing of the tailings storage facility (TSF) and raise of the north wall of the TSF completed	Development and implementation of a groupwide environmental policy
	Review of avalanche controls	Tailings management improvement measures with a view to demonstrating a pathway to compliance with new global industry standard on tailings management
	Acid rock drainage (ARD) - acid-base accounting (ABA) testing carried out to assist in the development of mitigation measures	Review of how to incorporate solar power at Tulkubash, and consideration of green water purification technology
	Installation of low energy lightbulbs throughout Kapan
	Near completion of the environmental and social impact assessment (ESIA) for Tulkubash
Community	New kindergarten at Kapan
Community	COVID-19 community support initiatives
Organic growth	2020 progress	2021 priorities
Kapan	Identified potential solutions to grade issues	Continued actions to improve grade and reduce dilution Optimise capacity at the mill
	Concluded contracts for treatment of third-party ore	Treat more third-party ore
	Work started on further developing the exploration of the area adjacent to the existing mine (East Flank)	Commence East Flank development
Tulkubash	Advancement of construction, permitting, and design and completed detailed pre-construction engineering	Finalisation of engineering work Continued advancement of construction: commencement of construction of major structures and purchase of long lead line items Completion of DFS level study of the project Update Mineral Resource and Ore Reserves estimates
	Progress in updating the 2019 bankable feasibility study to confirm the existing resource and exploration potential, cost estimates, and sound economics of the project	Further drilling programme to extend mine life Finalise joint venture arrangements with Ç iftay, our construction partner in the Kyrgyz Republic
	Completed a 2,000-metre confirmatory drilling programme and identified continuation of the mineralisation outside the pit boundaries and at depth
Kyzyltash	Completion of metallurgical assessment	Drill a representative sample and test for optimal processing route Metallurgical drilling campaign Assessment of optimal processing route
Non-organic growth	2020 progress	2021 priorities
M&A	Identified, evaluated, and progressed various opportunities	Continue to identify and evaluate value enhancing acquisition opportunities and, if appropriate, execute one or more
People	Safe and attractive work environment for all employees	Continued focus on cultural change including empowerment of employees to take decisions locally where appropriate Continued efforts to secure best in class people, deliver excellent training programmes, and act proactively in relation to changing environment
Finance	Raised US$13.8 million via an equity placement	Secure project finance for Tulkubash Raise equity - US$30m of new cash was raised in February 2021 and US$22.2m of debt was converted into equity
	Continued to reduce Kapan loan with a further US$8.0m repaid in accordance with planned schedule	Repay or refinance 2021 convertible loan notes
	Extended the maturity of US$22.0 million of the Group's indebtedness to 31 December 2024
	Strengthened institutional, high net worth and retail investor base

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Chief Operating Officer's Review

Kapan

2020 Kapan highlights

•	Lost time injury frequency rate ('LTIFR') of 0.37 (per one million hours worked) versus 0.39 in 2019 (-5.1%). Lost Time Injuries ('LTI') remain too high and further improvement of the safety performance at Kapan remains a continuous focus for the organisation.
•	An improved standalone EBITDA contribution of US$19.4 million for Kapan (2019: US$8.6 million, 11-month period).
•	2020 production of 58.2koz AuEq exceeding guidance by 6%, despite the ongoing COVID-19 situation and border hostilities in H2 of 2020.
•	Exceeded target of processing 50 thousand tonnes ("kt") of third-party ore by 17.8 kt (+36%) in 2020 .
•	All-in-sustaining cost ("AISC") of US$ 1,034/oz in line with 2019 of US$ 1,040/oz.
•	Limited impact from the COVID-19 pandemic and regional conflict.

2020 full-year production consists of:

Kapan	2020	2019	% Change
Production (oz AuEq)	58,178	56,513	+3
All-in sustaining cost (USD/oz) ¹	1,034	1,040	-0.6%
Sales (AuEq oz)	48,387	55,255	-12%
Gold production (oz)	30,837	32,791	-6
Silver production (oz)	587,718	557,001	+6
Copper production (t)	2,154	1,719	+25
Zinc production (t)	7,625	6,476	+18%

Realised gold price (USD/oz)	1,773	1,413	25%
Realised silver price (USD/oz)	20.4	16.4	24%
Realised copper price (USD/t)	6,117	6,008	+2%
Realised zinc price (USD/t)	2,222	2,444	-9%

¹ Full-year production costs given for comparative purposes. The Group consolidated results for 2019 include 11 months of Kapan operations.

Production comments

•	Total tonnes mined were 684,156 in line with 2019 (678,382t (+0.8%)). This is despite operational restrictions experienced during Q4 as a result of the imposition of martial law in the country and a significant number of employees called up for military duty.
•	Mine head grade was up 3% to 3.03g/t oz versus 2.93/t oz (+3%) in 2019. Significant work was carried out during the year to reduce mine dilution. This included a return to hand-held drilling in some areas not suitable for mechanised mining due to the narrowness of the veins.
•	Mill throughput was consistent at 744,705t compared to 742,402t (+0.3%) in 2019. Throughput included 67,838t of third-party ore vs 8,543t (+794%) in 2019. Third-party ore replaced stockpiled ore which was available for treatment and helped mill throughput exceed mine production in 2019.
•	Chaarat signed two new contracts with third-party ore producers in Q2 2020 and received continuous feed from June 2020. Supply is expected to remain strong for 2021.
•	Mill feed grade for Kapan ore was 3.03g/t vs 2.92g/t (+ 3.8%) in 2019. All ore mined was treated in 2020 providing a consistent mill and head grade.
•	Kapan metallurgical recoveries dropped in 2020 to 79.9% compared with 81.4% in 2019 (-1.8%). The areas mined in 2020 had higher proportions of oxidation and pyrite which adversely impact recoveries. Mineralogical work is being conducted to identify opportunities to improve recoveries when treating these ore types. The recovery drop was mitigated by the improvements to grind size control due to the start-up of two new cyclone clusters which were installed in early Q2.
•	Underground development was 21,985 metres, slightly lower than the 23,136 metres in 2019 (-5%). The lower development is a direct impact of the reduced workforce during the conflict. This will result in slightly lower production levels in Q1 2021 while additional work is carried out to catch up on access development.

2019 Ore Resources and Reserves

The last full review of resource and reserve was carried out in late 2019. There was no update performed in 2020 and the next full update will be conducted during 2021. Exploration drilling continued during 2020 at the same pace as previous years. Historically conversion of inferred to measured and indicated, and resource to reserve has been in line with depletion. The same is anticipated to have been the case in 2020.

Depletion since the last Reserve update is 114.5koz AuEq based on the same metal prices used for the Resource estimate. As depletion is calculated August 2019 to February 2021 inclusive using the Resource model, the depletion number will differ from stated production figures due to differences in actual areas mined versus the model.

The following table summarises the 2019 Ore Reserves:

		Grade					Metal
Classification	Tonnes (Mt)	Au (g/t)	Ag (g/t)	Cu (%)	Zn (%)	AuEq (g/t)	Au (Koz)	Ag (Koz)	Cu (Kt)	Zn (Kt)	AuEq (Koz)
Proven	0.17	2.65	40.39	0.42	2.06	4.8	14	220	0.71	3.49	26
Probable	4.34	1.65	31.38	0.34	1.31	3.19	230	4,373	14.86	56.88	445
Total Proven and Probable	4.5	1.69	31.72	0.35	1.34	3.25	245	4,594	15.57	60.38	471

Notes:

• The Ore Reserves have been compiled and reported fulfilling the requirement of the JORC Code (2012) reporting code.

• Ore Reserves are based on long-term metal prices of US$1,400/oz Au, US$17/oz Ag, US$6,000/t Cu, and US$2,400 Zn.

• Ore Reserves are based on a gold equivalent cut-off of 2.5g/t Au.

• Mineral Resources which are not Ore Reserves do not have demonstrated economic viability.

• Table subject to rounding errors.

• The average density of Measured and Indicated Resources is 3.02 t/m3. A density of 2.64 t/m3 was used for diluting waste material.

• Tones reported are in situ, dry tonnes.

Exploration and potential at Kapan

Within the existing exploration licence (covering 90.7km²) there are several mineralised exploration target areas that are in close proximity to the mine. One of these targets is known as East Flank. A full review of the historic drilling database of 62 drill holes comprising 22 km of drilling was carried out during 2020 and an exploration programme has been developed for implementation in 2021. Initial assessment of the East Flank Exploration Target* shows a potential of 5-6 million tonnes with Au grades of 2.2 - 2.6 g/t. Should the drill results be positive, access development would commence in 2022 via a decline from surface as well as from existing underground workings. Initial timeline to implementation is approximately two years subject to funding and capex requirements.

* An Exploration Target is a statement or estimate of the exploration potential of a mineral deposit in a defined geological setting where the statement or estimate, quoted as a range of tonnes and a range of grade (or quality), relates to mineralisation for which there has been insufficient exploration to estimate a mineral Resource. The potential quantity and grade are conceptual in nature, there has been insufficient exploration to estimate a mineral Resource and it is uncertain if further exploration will result in the estimation of a mineral Resource.

Tulkubash

2020 Tulkubash highlights

•	No lost time injuries since start of construction
•	First full winter of year-round construction activity completed at site (2019-20), without incident
•	Full revision of Mineral Resource estimate and Ore Reserves being finalized to support latest update to the Bank Feasibility Study
•	ESIA updated to reflect developments in project engineering and permitting
•	Completion of additional 80-bed temporary construction camp facility
•	Continuation of ore haul road and platforms construction including bridge (from concrete culverts) over Kumbeltash stream
•	Finalisation of Issued for Construction (IFC) Detailed Design Drawings for heap leach facility ("HLF") and completion of tree cutting to start construction of HLF
•	Partial delivery of Phase 1 shift camp modules
•	Delivery and storage of waste-water treatment plant ("WWTP")

Construction

Construction work during 2020 was significantly impacted by COVID-19 and the control measures implemented by the Kyrgyz national and regional governments. Travel restrictions for the first half of the year prevented mobilization of additional equipment and personnel from our construction partner Çiftay. Matters were further compounded later in the year when political instability led to unrest throughout the country and negativity towards international mining companies in particular. Most mining activity was shut down for a period of time following attacks on mine equipment and personnel. Chaarat was not targeted but we took the decision to remove our personnel from site until the situation in country improved. Pending completion of the project financing, work is expected to resume in H1 2021.

Çiftay progressed with planned work streams to the extent possible during the year. They remained on site during the initial in-country COVID restrictions.

Further work was carried out on haul road construction, preparatory earth moving for the heap leach facility ("HLF") and foundation pad construction for the permanent camp and crushing circuit buildings. Preparatory work also started by clearing the area of vegetation and trees for the HLF. The permanent camp for employees was ordered and fabricated in Turkey. Modular construction units were partially delivered to site and erected. The waste-water treatment plant was delivered and stored for future installation.

Camp construction was put on hold over the winter period this year. A small crew remains in place over winter to maintain essential services which will support a quick resumption of construction activity in 2021.

Resource and Reserves

Due to COVID travel restrictions and political unrest, the 2020 drilling programme was significantly shorter than previous years. 2,000 meters of infill drilling were carried out during Q3 to provide better confidence related to mineralised zones as well as better delineation of the Main Pit boundaries.

No exploration of new areas was carried out in 2020 due to the limited field season available. However, additional visual studies and mapping of target mineralisation was carried out to develop the scope of the 2021 exploration programme.

A new Mineral Resource Estimate ("MRE") and Ore Reserves ("OR") are being developed incorporating the 2020 exploration results. For the new MRE, the resource model has also been revised to incorporate the recommendations of the current geology team as well as recommendations from independent reviews of the model by SLR Consulting Ltd. and Wardell Armstrong International Ltd. These reports will be issued in Q2 2021, along with the revised project DFS.

Exploration potential

To date drilling has only been carried out on a small part of the exploration license area. Only 5.5kms of the 24km length have been extensively explored despite the fact that the Tulkubash mineralisation remains open along strike to the North East. The 2021 exploration programme will focus on two main areas:

•	Further definition drilling of the current resource to convert additional inferred and unclassified mineralisation to measured and Indicated
•	Further improving the Company's understanding of the extent of mineralisation across the whole licence area. This work will include geotechnical exploration in addition to drilling of any defined target areas.

Tulkubash Reserves as at 1 April 2019

Classification	Tonnes (Mt)	Au(g/t)	Metal (koz)
Proven	6.8	0.95	206
Probable	15.4	0.91	451
Total	22.2	0.92	658

• Ore Reserves are reported with appropriate modifying factors of dilution and recovery. The Reserve is higher tonnage than the Resource due to dilution,

• Numbers are rounded in accordance with disclosure guidelines and may not sum accurately.

• Ore reserves based on a gold price of US$1,300 per ounce.

Study updates

The results of the new mineral resource estimate ("MRE") and ore reserves ("OR") are the basis for the revision to the 2019 BFS. This is being updated by Logiproc of South Africa to reflect the latest stage of detailed engineering, design construction, and the comprehensive environmental and social studies that have been carried out since the last reports were finalised (2017 and 2019 respectively). The Environmental and Social Impact Assessment ("ESIA") for the project has also been revised to reflect all of the positive developments made in the last few years. The last ESIA was conducted in 2017 by WAI and they have carried out the revision as well.

These updates will provide a comprehensive update for the project finance lender due diligence process. Based on the information available to date, the conclusions of the updated BFS are expected to be similar to the 2019 bankable feasibility study.

Kyzyltash

Our initial plan for 2020 was to carry out a targeted drilling campaign designed to extract representative material for extensive metallurgical testing to define the optimum processing route for this type of refractory ore. The global pandemic resulted in us scaling back activities significantly until 2021.

We completed a comprehensive review, including external expert opinions on further test requirements. We also reviewed the engineering and project management routes that we would utilize to drive this large and transformational project to a successful completion. The strategy is to bring both Tulkubash and Kyzyltash into production by 2026, with a potential of producing up to 400,000 ounces of gold per annum together from then onwards.

Kyzyltash resources as at 19 October 2014

Resource statement JORC 2014 (cut-off grade 2g/t)	Tonnes (mt)	Au (g/t)	Metal (Moz)
Measured	6.72	3.26	0.7
Indicated	32.79	3.79	3.9
Measured and Indicated	39.52	3.70	4.6
Inferred	6.61	4.05	0.8
Total	46.12	3.75	5.4

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Environmental, social, and governance

Introduction

Environmental, social, and governance (ESG) lie at the heart of everything that we do at Chaarat. All meetings start with discussions on ESG issues to emphasise it as a core foundation of the business. We have also started publishing a monthly ESG newsletter so that all our employees have improved access to see the various ESG initiatives currently underway and to encourage further improvement.

Our communities

The pandemic made us really think about how best to ensure the welfare of our employees and our communities. We are proud of how our teams have worked during a very challenging year.

We worked with local health care professionals and community groups to target COVID-19 support to the most needed areas.

In the Kyrgyz Republic travel restrictions were imposed early on. In preparation for the difficulties the lockdown might create, we provided flour and sanitising products to the villages in the Chatkal region and to the local hospital in preparation for border closures and travel restrictions within the country. Early on, the country suffered an acute shortage of testing capacity, so we worked with the health authorities to purchase a PCR unit and test kits to help increase government testing capacity. As knowledge about treatment of the disease grew, we purchased oxygen concentrators to ensure appropriate health support in both Bishkek and Chatkal.

In Armenia we helped the local hospital by renovating an unused wing at the hospital and prepared it for use as a COVID ward. We provided beds and renovations to equip a rest facility for personnel in high-risk occupations, such as the police, so that they had a place to stay rather than risk taking COVID back to their families every day. We also helped children in the community by providing computer equipment to enable better access to distance learning.

During the conflict, Kapan's social aid programme was adjusted to provide support to various charities carrying out humanitarian work, such as providing food and shelter to people displaced by the conflict.

Thankfully there were positive events throughout the year also. Kapan is glad to say that work was completed on the new music and arts school and the facility opened for the benefit of children from Kapan and the neighbouring communities. Three new rubbish collection trucks were also delivered to the Kapan Municipality as part of the social assistance package agreed with local communities. Work was also completed on the Shmavon Movsisyan History Museum which is dedicated to showing the history of mining in the Kapan region over the ages.

For 2021, we plan to adjust the initial financial assistance programme to focus more on the legacy issues of 2020, including ongoing support for families displaced by the war, and on helping the region recover from the longer-term effects of COVID-19.

Sadly, the pandemic did impact several of our ongoing initiatives in the Kyrgyz Republic. The annual "Chaarat Cup" to support the growth of sporting activities in the region was cancelled due to restrictions on social gatherings. Hopefully, some form of this well-liked event can resume again in 2021.

During 2020 we completed an update of the Environmental and Social Impact Assessment ("ESIA"). We modified the normal engagement practices typical of the ESIA process to take account of COVID restrictions. Social gathering events were exchanged for video conferences, use of social media and other messaging, voice and video services. We also utilised the ESIA update to review and assess the effectiveness of our internal processes, procedures, and documents. As a result, we identified improvements we could make to aspects such as employee welfare, employment rights, equality, and prevention of harassment in the workplace. This review involves board-level oversight to ensure fit with our stated goals and requirements. The finalised ESIA will be ready for publication in Q2 2021.

Our people

The impacts of COVID-19, the political issues in the Kyrgyz Republic, and conflict in Armenia affected the ability to secure full project funding and ramp up operations as planned. The funding impact required Chaarat to take steps to optimise its costs. The Company carried out a comprehensive cost reduction exercise in Q2 2020, reviewing all aspects of the business. We took the decision to maintain full employment at our impacted operations despite extended periods when access to site in the Kyrgyz Republic was closed. We were able to keep affected personnel of Chaarat and our main contractor employed on reduced pay in line with country legislation during these periods. To ensure continued employment of all personnel we focused on equity of pay issues. Management agreed to a temporary reduction of salary for the duration to ensure that those most at risk from the economic impact of COVID were not affected.

The events of last year required us to refocus on the key priorities so as not to distract the efforts of our people. They also required us to rethink how we conduct training and engagement activities. Face-to-face meetings, training, and group sessions were adversely impacted in 2020, and our management systems are heavily based on these forms of interaction. During 2021 we will need to review and assess what changes we make going forward to be less dependent on such methods.

The ongoing cultural change at Kapan focused on replacing a traditional central office culture with one that focuses more on local ownership, entrepreneurship, and decision making was impacted by the two key events affecting Kapan last year. Less time had to be dedicated to this initiative to focus on the more immediate issues affecting the Company. This multi-year programme to provide improved skills, competencies, and ways of thinking about decision making will be a focus again in 2021.

Health and safety

The health and safety of our employees, contractors, and visitors has always been fundamental for Chaarat since starting work on the Kyzyltash and Tulkubash projects in the Kyrgyz Republic. That same commitment was at the forefront of our activities at Kapan since acquiring the mine in early 2019. We have made good progress over the last two years. Sadly, that progress was not sufficient as evidenced by a fatal incident on 4 March 2021. This event is a sad reminder that work on creating and maintaining a world class safety system never ends. Hazards and risks can always be present and appropriate controls and behaviours are always needed to prevent such tragic events from occurring again. This event will refocus and strengthen our efforts across the Company going forward.

For 2020 there was one lost time injury in Kapan (April 2020). A miner was struck by a piece of loose rock while carrying out scaling activities at the start of the shift. Fortunately, the injuries were not critical, and he was able to return to full duties shortly after the incident. The annual Lost Time Injury Frequency Rate ("LTIFR") for 2020 was 0.37 per one million hours worked (2019: 0.39).

Due to the unusual circumstances of 2020, Chaarat's health and safety ("H&S") focus for 2020 centred on three main areas:

• Maintaining the positive improvements built into our operations during 2019,

• Managing the health risks to our people, contractors, and visitors to our site from COVID-19.

• Ensuring that despite the significant distraction of COVID-19 our collective focus remained on working safely at all times.

We implemented policies and procedures at our workplaces at the start of the crisis to help reduce the risk of infection to our employees and their families. We implemented remote working in all our jurisdictions and took actions to implement increased protections in those areas where remote working was not an option. We introduced social distancing, carried out health screening, regular disinfection and mandatory face mask wearing in all workplaces. Face-to-face meetings were minimised or moved to outdoor environments to optimise ventilation. Canteen practices were changed to provide packed meals or staggered servings to minimize social contact. Our Kyrgyz operation supplemented the controls by requiring PCR screening tests prior to anyone entering the camp. These efforts were successful in keeping COVID from our workplaces for the first wave from March to July.

As global infections increased, our efforts were not able to prevent exposures, especially those from outside of the workplace. Infection rates increased in both our operations. When that occurred, we communicated to our employees to self-isolate rather than coming to work and further exposing their colleagues. Thankfully, all our employees have made a full recovery. Sadly, several of our team suffered the loss of loved ones from this terrible disease. We offer our heartfelt condolences to our team and all those around the world who have suffered such loss during this pandemic.

Chaarat Zaav continued its excellent safety performance record with no lost time injuries in 2020. Since the start of the project, Chaarat Zaav has gone 850,000 hours with no lost time injuries. The task for 2021 will be to further refine our safety managements systems as construction activities ramp up and new risks need to be managed.

Environment

Our key focus for 2020 was to carry out work to reduce the risk to our communities and the environment related to the Tailings Storage Facility ("TSF") at Kapan. The Kapan TSF is what is called an upstream tailings dam. This was the most common dam type built at the time of its construction. Although fully compliant with design standards at the time of construction, it is now recognised that there are inherent weaknesses with the upstream design. One method of improving the safety factors of this type of dam is to buttress the outside face of the dam. Buttressing work on the north wall of the TSF commenced in 2020. This work is part of a multi-year project to reinforce the dam stability and other safety factors to a higher level. Further work is planned for the next two to three years to finalise the north wall and then start on the south side of the dam.

In addition to the buttressing work, the team has made several other improvements to the dam structure during 2020. New raises to the dam walls have been installed with finger drains to increase water drainage from the tails closest to the wall. Old lifts have been retrofitted with horizontal drains as well to control the moisture seepage of existing dam structure.

In August 2020, new Global Industry Standards on Tailings Management were published. Chaarat has undertaken a high-level internal gap analysis to identify areas that need to be addressed to meet the standards. In 2021, a third-party assessment will be carried out to develop a detailed work plan on the additional steps needed to comply fully with the new standards and the time frame to achieve compliance.

As part of our actions related to climate change, Kapan continues to roll out its energy saving programme across the Company. The focus in 2020 was to replace the old energy-intensive lights in use almost exclusively both underground and at the processing plant with modern low-intensity bulbs and fixtures.

The mine has also undertaken a campaign to seal off old headings with simple block walls. This has the double benefit of improving air quality in working areas, and reduce the amount of air needed to be blown underground. This is one of the major electrical uses for the mine.

During 2021 we will be working on our reporting standards related to ESG metrics to better demonstrate the improvements being made across our operations.

Government relations

For the first time in four years Chaarat, the Government of the Kyrgyz Republic and the European Bank for Reconstruction and Development was unable to hold the Kyrgyz-British Investment Forum. This annual event has historically been held in London. The Forum was initially delayed due to COVID-19 and was then put on hold due to the political events in country in the latter part of the year. Chaarat looks forward to working with the new President and Government to resume the Forum once more in 2021.

The investment agreement between Chaarat Zaav and the Government that was expected to be signed early in 2020 was delayed as the Government focused heavily on COVID-19 management. Ongoing government support and commitment for the project was restated in March of this year during meetings held between Charaat's Chairman and member of the new government including the President, Prime Minister, and head of the country's Investment Agency.

In Armenia, relations with the government at both the local, regional, and national level remain positive. The Company's assistance during the COVID crisis was recognised at the highest levels. The social aid programme, developed jointly with the municipality, continues to be an excellent example of partnership. In addition to healthcare and education, the programme will likely include funding next year to support related to COVID-19 and help with humanitarian support for those displaced by the hostilities in Nagorno-Karabakh.

__________________________________________________________________________________

Company's principal risks and uncertainties

Risk

Existing mitigating actions

Environmental

Chaarat may suffer from reputational risk and may be liable for losses arising from environmental hazards associated with its activities and may be subject to fines and/or penalties.

Implementation of proper geohazard mitigation measures and maintenance of a proper hazard management programme, including engineering hazard mitigation measures.

Monitoring of tailings storage facility (TSF), pipelines, emergency pools, and treatment facilities, and analysis of monitoring data.

Annual identification of environmental hazards and planned internal reviews of hazard management.

Employee training on environmental issues,

in particular on waste control methods.

Community relations

Communities living in the areas surrounding the Group's operations may oppose the Group's activities.

Actions by those communities may result in loss of production, increased costs and decreased revenues, longer lead times, additional exploration costs and may have an adverse impact on the Group's ability to obtain permits.

Chaarat is committed to work to best international social practices as per the Equator Principles, EBRD, and IFC guidelines. In particular, our mitigation strategy includes:

Operation of social orientation assistance programmes to the communities in which we operate and ensure labour force involvement from affected communities. Conduct public hearings on social assistance packages.

Timely communication of relevant issues to avoid speculation and rumour. Ensure that decisions are clearly explained.

Health and safety ("H&S")

Chaarat's operations present inherent H&S risks to our employees and contractors. Failure to manage these risks may result in occupational illness, accidents, a work slowdown, or stoppage and/or may damage the reputation of the Group and hence its ability to operate.

Embedding of policies, standards, and procedures in place across Chaarat for systematic control of significant H&S risks.

Purchase of high quality personal protective equipment (PPE).

Conduct of planned preventative maintenance of equipment and upgrade equipment in a timely manner.

Targeted recruitment of experienced specialists and regular training of employees and contractors

Continuous monitoring of highest risk workplace areas.

Employee training.

Pandemics and national and/or regional epidemics

Chaarat's business is exposed to such risks which can impact its organic and non-organic growth strategy.

Implementation of extensive mitigation measures during the 2020 COVID-19 pandemic to ensure that our operations could continue whilst at the same time ensuring the safety of our employees and contractors, further details of which can be found in our ESG report on page 25.

In 2021, Chaarat will focus on continuing 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.

Government policy and legal and regulatory compliance

There remains potential for social, political, economic, legal, and fiscal instability. The laws and regulations in our areas of operation are still developing in some areas and some provide regulators and officials with substantial discretion in their application, interpretation, and enforcement.

A government decree in 2011 was passed revising the boundaries of the UNESCO world heritage site. Due to an administrative error these changes were not properly communicated to UNESCO and some areas of "highly protected territory" were not properly transferred to "industrial territory". The government has recognised this error, and all formal works in country have been completed to finalise the amendment. A prime ministerial decree addressing this issue is being prepared for public consultation and then formal signature in H1 2021 to correct this matter. Some areas of Chaarat's exploration licence and the area for heap leach operation are shown as being in these UNESCO and highly protected areas as a result of this 2011 error. However, Chaarat's mining licence agreement is compliant with Kyrgyz law and the Company 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.

Process in place to monitor prospective legislative changes, discuss them with competent state bodies and make suggestions.

Participation in working groups with other mining companies.

Stabilisation agreement in place In the Kyrgyz Republic.

Regular dialogue with ministerial departments.

Exploration

Exploration and development are time and capital-intensive activities and may involve high degrees of risk. Chaarat's long-term future operating margins and profitability depend upon its ability to find mineral resources through exploration or acquisition and to replenish reserves.

Development and implementation of a robust exploration plan.

Review of exploration plan by the Board's technical committee.

Identify attractive prospective areas to apply for or acquire.

Construction and development

Depending on the timing of completion of project financing, there is a possibility of delays to the start of production and cost overruns relating to Chaarat's development of its Tulkubash project.

Operation of a proper contractor, supplier, expert and other adviser selection and management process to ensure that they are reliable and meet required performance standards.

Non-organic growth - mergers and acquisitions ("M&A") strategy and delivery

Chaarat faces risks arising from its non-organic growth strategy such as lack of suitable targets. Acquisition integration risks and issues could arise impacting the delivery of expected benefits, either within expected time frames or to the extent anticipated. If anticipated benefits are not realised or if performance of an acquired asset falls below expectations, it may be necessary to impair the carrying value of those assets.

Clear delegated authority for the review and approval of all transactions by the Board.

Subject matter experts as senior stakeholders in acquisition process in place.

Regular board reviews and updates of pipeline of identified potential targets.

Due diligence undertaken for all M&A transactions, with involvement of the Board's technical and HSEC committees, and use of external advisers where required.

Acquisitions priced and structured so as to minimise impairment risk.

We will continue our efforts to identify suitable M&A opportunities and adopt the existing safeguards relative to our non-organic growth risks.

People - attraction, succession, retention

The loss of the services of key employees or if Chaarat encountered labour shortages or was unable to attract people for core business roles, could have an adverse effect on the Company's operations, financial condition, and prospects.

Integration of skilful personnel to train and develop new and less experienced employees.

Succession planning for specific positions.

Monitoring of working conditions to ensure that any issues are identified, and solutions provided promptly.

Fair and attractive remuneration policy.

Provision of career development opportunities. Partnership with colleges and training centres. Internship, on-the-job training, and mentoring. Employer brand development so that Chaarat becomes a local employer of choice.

In 2021 the Board will undertake a review of corporate culture.

The Board's remuneration committee will also undertake a review of the reward framework to ensure that it is competitively aligned to the market.

Future financing

The Group requires significant additional financing in the future to develop projects and to meet ongoing financial needs. 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.

Maintenance of discussions with existing lenders and potential finance providers.

Address potential gating items to securing project finance.

Looking for new funding options.

Commodity price volatility

Adverse movements in precious metals prices could materially impact the Group in various ways beyond a reduction in the financial results of operations. These include the feasibility of projects and the economics of mineral resources.

Hedging strategies are periodically considered.

Conservative long-term prices are used to evaluate projects.

AISC at Kapan remains below gold prices.

__________________________________________________________________________________

Financial Review

Income statement

Revenue during 2020 amounted to US$76.0 million (2019: US$68.1 million). This represented sales of concentrate at Chaarat Kapan for 12 months in 2020 compared to 11 months in 2019 following acquisition by the Group on 30 January 2019. During this period, Kapan sold 58,178 ounces of Au Eq (2019: 55,255 ounces) with a realised gold price per ounce of US$1,773 (2019: US$1,413).

The operating profit for the Group for the year ended 31 December 2020 was US$1.9 million (2019: loss of US$18.4 million) and the Group EBITDA was US$9.3 million (2019: negative US$12.8 million). The adjusted Group EBITDA, excluding non-cash items as detailed below, was US$13.6 million (2019: negative US$2.4 million).

	2020 Armenia	2020 Kyrgyz Republic & Corporate	2020 Total	2019 Armenia	2019 Kyrgyz Republic & Corporate	2019 Total
	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
Earnings before interest, tax, depreciation and amortisation	19,429	(10,126)	9,303	8,624	(21,404)	(12,780))
Change in provisions - non-cash	545	-	545	(563)	-	(563)
Unrealised foreign exchange loss	(2,649)	-	(2,649)	-	-	-
Depreciation and amortisation	(5,232)	(727)	(5,959)	(4,490)	(589)	(5,079)
Finance income	19	-	19	9	-	9
Finance costs	(3,149)	(17,628)	(20,777)	(4,287)	(5,160)	(9,447
Fair value gain on warrant	-	595	595	-	-	-
Loss before income tax expense	8,963	(27,886)	(18,923)	(707)	(27,153)	(27,860)
Income tax charge	(3,520)	-	(3,520)	(1,540)	(5)	(1,545)
Loss after income tax expense	5,443	(27,886)	(22,443)	(2,247)	(27,158)	(29,405)

The adjusted Group EBITDA, excluding non-cash items, was as follows:

	2020	2019
	US$'000	US$'000
Kapan EBITDA	19,429	8,624
Corporate/Kyrgyz Republic EBITDA	(10,126)	(21,404)
Group EBITDA	9,303	(12,780)
Corporate share-based payment expense	3,612	9,780
Unwinding of discount - provision for rehabilitation	655	621
Adjusted Group EBITDA	13,570	(2,379)

Finance costs in 2020 were US$21.4 million compared to US$9.4 million in 2019, due to refinancing activities that took place in relation to the Group's other loans. This was a combination of cash and non-cash transactions, including an amount of US$8.5 million settled through the issuance of 27.5 million shares to Labro, a US$1.1 million modification loss and US$1.4 million for the issue of warrants.

Income taxes were US$3.5 million compared with US$1.5 million in the comparable year, reflecting the improved profit achieved at Kapan. Consequently, the Group made a loss for the year after tax of US$22.4 million compared with US$29.4 million in the 2019 financial year.

Balance sheet

Non-current assets increased from US$103.1 million at 31 December 2019 to US$109.3 million at 31 December 2020. The increase was mainly due to capitalised exploration and evaluation costs of US$6.3 million relating to the asset in the Kyrgyz Republic.

Current assets were US$25.8 million at 31 December 2020 compared with US$23.9 million at 31 December 2019. The increase mainly related to inventories offset by a decrease in trade and other receivables. Current assets at 31 December 2020 included cash and cash equivalents of US$6.9 million.

Total liabilities at 31 December 2020 were US$110.7 million compared with US$106.8 million at 31 December 2019. This was mainly due to accrued interest on other loans, advances from Kapan's customers of US$5.3 million, offset by bank debt repayments of US$11.2 million. In addition, liabilities at 31 December 2020 included a rehabilitation provision of US$7.5 million (2019: US$8.6 million) relating to Kapan.

Total equity was US$24.4 million at 31 December 2020 compared with US$20.2 million at 31 December 2019. This mainly reflects the increase in share premium of $23.0 million and increase in the share option reserve of $3.6 million as a result of the "MIP" that was implemented in 2019 offset by the loss for the year of US$22.4 million (2019:US$29.4 million).

Cash flow

During 2020, the Group generated operating cash flows of US$15.9 million, compared with operating cash flows of US$2.6 million in 2019. The positive cash generation mainly represented the improved positive EBITDA contribution from Kapan and favourable working capital movements, partly offset by expenditure on corporate overheads and development costs.

Net cash used in investing activities in the 2020 financial year was US$11.9 million, compared with US$54.3 million in the corresponding 2019 financial year. This mainly reflected the purchase of property, plant and equipment at Kapan together with capitalised exploration and development spend in the Kyrgyz Republic. Investing activities in 2019 were significantly higher as they included US$38 million relating to the acquisition of Kapan.

Net cash used in financing activities amounted to US$0.9 million, compared with US$54.1 million generated in 2019. This mainly related to the funds received from the equity raise in the year of US$6.3 million and proceeds from other loans of US$5.3 million offset by bank repayments of US $11.2 million. Cash flow from financing activities in 2019 included the bank loan for the Kapan acquisition and amounts drawn on the working capital facility.

Cash and cash equivalents at 31 December 2020 were US$6.9 million compared with US$3.6 million at the start of the year.

Since year end

In February 2021, the Group completed an equity raise of US$52.2 million, comprising cash of US$30.0 million and loan conversion of US$22.2 million.

Consequently, at 1 March 2021, the Group had approximately US$31.2 million of cash and US$50.1 million of debt (excluding lease liabilities and contract liabilities).

Key targets for 2021 will include securing project or other finance for the Tulkubash project and repaying or refinancing the convertible loan notes to the extent these are not converted.

Financing

In order to achieve the planned future capital developments of assets and to refinance the convertible loan notes, 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. 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.

Going concern

The Directors have concluded that it is appropriate to prepare the financial statements on a going concern basis. 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. 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. Further details of the Group's status as a going concern and expected future financing plans are set out below in Note 4.

Consolidated Income Statement

For the year ended 31 December 2020

	2020	2019
	US$'000	US$'000

Revenue	75,994	68,088
Cost of Sales	(55,286)	(55,652)
Gross Profit	20,708	12,436
Selling expenses	(1,864)	(3,024)
Administrative expenses	(16,970)	(27,834)
Other income	21	-
-

Operating profit/(loss)	1,895	(18,422)
Finance income	19	9
Finance costs	(21,432)	(9,447)
Fair value gain on warrant	595	-
Loss before tax for the year, attributable to equity shareholders of the parent	(18,923)	(27,860)
Income tax charge	(3,520)	(1,545)
Loss after tax for the year, attributable to equity shareholders of the parent	(22,443)	(29,405)
Loss per share (basic and diluted) - US$ cents	(4.40)	(7.06)

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2020

	2020	2019
	US$'000	US$'000
Loss for the year, attributable to equity shareholders of the parent	(22,443)	(29,405)

Items which have been reclassified to profit and loss
Exchange differences on translating foreign operations disposed of during the year	73	-
Items which may subsequently be reclassified to profit and loss
Exchange differences on translating foreign operations and investments	(480)	523
Other comprehensive income for the year, net of tax	(407)	523
Total comprehensive loss for the year attributable to equity shareholders of the parent	(22,850)	(28,882)

Consolidated Balance Sheet
As at 31 December 2020	2020	2019
	US$'000	US$'000
Assets
Non-current assets
Exploration and evaluation costs	61,359	55,070
Other intangible assets	1,221	1,609
Property, plant and equipment	40,538	38,269
Prepayments for non-current assets	563	501
Deferred income tax assets	5,631	7,652
Total non - current assets	109,312	103,101
Current assets
Inventories	12,251	9,676
Trade and other receivables	6,646	9,782
Deferred VAT receivable	-	837
Cash and cash equivalents	6,928	3,585
Total current assets	25,825	23,880

Total assets	135,137	126,981
Equity and liabilities
Equity attributable to shareholders
Share capital	5,401	4,688
Share premium	191,594	168,616
Own shares reserve	(216)	(216)
Convertible loan note reserve	2,493	2,493
Merger reserve	10,885	10,885
Share option reserve	14,103	10,624
Shares to be issued	-	217
Translation reserve	(15,282)	(14,875)
Accumulated losses	(184,527)	(162,253)
Total equity	24,451	20,179
Liabilities
Non-current liabilities
Provision for rehabilitation	7,479	8,638
Convertible loan notes	-	19,994
Lease liabilities	771	302
Other loans	21,947	-
Total non-current liabilities	30,197	28,934
Current liabilities
Trade and other payables	17,400	16,759
Contract liabilities	5,328	-
Deferred VAT payable	-	837
Lease liabilities	654	276
Other loans	31,400	59,258
Warrant financial liability	814	-
Convertible loan notes	23,252	-
Other provisions for liabilities and charges	1,641	738
Total current liabilities	80,489	77,868
Total liabilities	110,686	106,802

Total liabilities and equity	135,137	126,981

	Consolidated Statement of Changes in Equity
For the Year Ended 31 December 2020		Share Capital	Share Premium	Own Shares Reserve	Share Warrant Reserve	Convertible Loan Note Reserve	Merger Reserve	Share Option Reserve	Shares To Be Issued	Translation Reserve	Accumulated Losses	Total
		US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
As at 1 January 2019		3,951	152,063	-	1,352	2,360	10,885	1,414	-	(15,398)	(132,984)	23,643
Loss for the year		-	-	-	-	-	-	-	-	-	(29,405)	(29,405)
Translation gains for the year		-	-	-	-	-	-	-	-	523	-	523
Total comprehensive loss for the year		-	-	-	-	-	-	-	-	523	(29,405)	(28,882)
Share options lapsed		-	-	-	-	-	-	(204)	-	-	136	(68)
Share options expense		-	-	-	-	-	-	9,847	-	-	-	9,847
Share options exercised		3	95	-	-	-	-	(20)	-	-	-	78
Share scheme modification		-	-	-	-	-	-	(413)	-	-	-	(413)
Issuance of shares for cash		157	6,387	-	-	-	-	-	-	-	-	6,544
Issuance of shares for settlement of liabilities		69	3,041	-	-	-	-	-	-	-	-	3,110
Issuance of treasury shares		216	-	(216)	-	-	-	-	-	-	-	-
Issuance of shares for acquisition of Kapan		146	5,109	-	-	-	-	-	-	-	-	5,255
Equity element of convertible loan note		-	-	-	-	133	-	-	-	-	-	133
Warrants exercised		146	1,921	-	(1,352)	-	-	-	217	-	-	932
As at 31 December 2019		4,688	168,616	(216)	-	2,493	10,885	10,624	217	(14,875)	(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	-	(1 5,282 )	(184,527)	24,451

Consolidated Cash Flow Statement
For the Year Ended 31 December 2020	2020	2019
	US$'000	US$'000
Cash flows from operating activities
Operating profit/(loss)	1,895	(18,422)

Depreciation and amortisation	5,959	5,079
Loss on disposal of property, plant and equipment	66	185
Non-cash expenses	335	496
Gain on disposal of subsidiary	(7)	-
Change in provisions	(897)	297
Foreign exchange losses/(gains)	2,456	(45)
Share based payments	3,612	9,780
(Increase)/decrease in inventories	(3,263)	7,828
Decrease/(increase) in trade and other receivables	2,330	(5,218)
(Decrease)/increase in trade and other payables	(1,682)	4,036
Increase in contract liabilities	5,334	-
Cash generated in operations	16,138	4,016
Income taxes paid	(205)	(1,034)
Cash payments for RSUs replaced	-	(413)
Net cash generated in operations	15,933	2,569

Investing activities
Acquisition of subsidiary, net of cash acquired	-	(38,479)
Purchase of property, plant & equipment	(7,417)	(3,970)
Purchase of intangible assets	(155)	(1,385)
Exploration and evaluation costs	(4,389)	(10,482)
Proceeds from sale of property, plant & equipment	51	31
Disposal of subsidiary	(5)	-
Interest received	19	-
Net cash used in investing activities	(11,896)	(54,285)

Financing activities
Proceeds from issue of share capital	6,255	6,622
Receipt of funds for shares to be issued	-	161
Receipt of funds for warrants exercised	-	49
Repayments of principal portion of lease liabilities	(573)	(120)
Proceeds from convertible loan notes issued, net of costs	-	1,072
Finance costs paid for modifications of other loans	(686)	-
Repayments of principal amount of loan	(8,000)	(4,000)
Repayments of interest	(3,185)	(2,727)
Proceeds from loans	5,300	53,000
Net cash (used in)/from financing activities	(889)	54,057

Net change in cash and cash equivalents	3,148	2,341
Cash and cash equivalents at beginning of the year	3,585	1,168
Effect of changes in foreign exchange rates	195	76
Cash and cash equivalents at end of the year	6,928	3,585

Notes:

1. Preparation of accounts

The financial information set out in this announcement does not constitute the Company's annual accounts for the years ended 31 December 2020 and 31 December 2019.

The consolidated balance sheet at 31 December 2020, the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity, consolidated cash flow statement and associated notes for the year then ended have been extracted from the Group's 2020 annual financial statements upon which the auditors' opinion is unqualified and includes a material uncertainty statement relating to going concern.

2. Significant accounting policies

The accounting policies and presentation followed in the preparation of these final results have been consistently applied to all periods in these financial statements and are the same as those applied by the Group in the preparation of its annual accounts for the year ended 31 December 2019.

3. Loss per share

Loss per share is calculated by reference to the loss for the year of US$22.4 million (2019: loss of US$29.4 million) and the weighted average number of ordinary shares in issue during the year of 510,466,838 (2019: 416,466,724).

At 31 December 2020, 8,920,341 (2019: nil) warrants, 55,027,006 (2019: 56,805,258 ) share options and convertible loan notes have been excluded from the diluted weighted average number of ordinary shares calculation because their effect would have been anti-dilutive.

4. Going concern

As at 1 March 2021 the Group had approximately US$31.2 million of cash and cash equivalents and US$50.1 million of debt (excluding lease liabilities and contract liabilities):

- US$23.8 million convertible loan notes including accrued interest to 1 March 2021

- US$26.3 million borrowings outstanding, including US$0.3 million accrued interest to 1 March 2021

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. Chaarat Kapan has experienced minimal disruptions to supply chains and shipment as a result of COVID-19 and the hostilities in the neighbouring Naborno-Karabakh region during the final quarter of the year. Based on the 2021 budget for Kapan, Kapan is expected to generate sufficient revenue to cover its operating costs and principal and interest payments. Based on current forecasts covenants will be met, however, performance of Kapan is sensitive to commodity prices and production. If these were to decrease, there is a risk that covenants will be breached.

Convertible Loan Notes

In October 2021 the convertible loan notes are due to be redeemed by conversion into equity at approximately £0.36 per ordinary share, at the holder's option, or will be repaid in cash for a total of US$26.4 million (which includes accrued interest and equity portion).

Labro Term Loan

In February 2021 Labro converted all of the outstanding US$22 million term loan due, as well as the US$0.2 million of accrued interest for US$22.2 million in equity. Labro subscribed for 62,380,154 ordinary shares of US$0.01 each in the Company at the Issue Price of 26 pence per share (non-cash). The loan therefore has been extinguished, avoiding any related financing required in future periods.

Labro Facility Loan

In February 2021 the company repaid the outstanding US$0.8 million owing under the Labro Facility Loan and does not expect to draw down anything in the future.

Conclusion

The forecasts show that 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 2021. To proceed with the development in Kyrgyz Republic further financing will also be required.

The Board has a reasonable expectation that the Group will be able to raise additional funds as demonstrated by the Group's established track record in historical fund raisings, most recently in the equity raise of February 2021 which raised US$30.0 million in cash.

Subject to the above, the Directors have concluded that it is appropriate to prepare the financial statements on a going concern basis. However, there are currently no binding agreements in place in respect of any additional funding and there is no guarantee that any course of funding will proceed. Therefore, as set out above, this indicates the existence of a material uncertainty which may cast significant doubt over the Group's ability to continue as a going concern and, therefore, it may be unable to realise its assets and discharge its liabilities in the normal course of business. The financial statements do not include the adjustments that would result if the Group was unable to continue as a going concern.

5. Post balance sheet events

Completion of US$52.2 million Financing Package Equity Raise and Debt Conversion

The Company announced on 5 February 2021 that it had completed a US$52.2 million financing package through an equity fundraise of US$30.0 million and a debt to equity conversion of the Term Loan with Labro Investments Ltd of US$22.2 million. A total of 62,380,154 new ordinary shares of US$0.01 each were issued at the Issue Price of 26p. The Company completed an equity raise of US$30.0 million from new and existing investors through the issue of 84,114,549 ordinary shares of US$0.01 each.

Labro Facility Loan

In February 2021 the company repaid the outstanding US$0.8 million owing under the Labro Facility Loan and does not expect to draw down anything in the future.

6. Timetable and distribution of accounts

The Annual General Meeting ("AGM") will be held on Tuesday, 18 May 2021 at 11am at the offices of Baker & McKenzie LLP, 100 New Bridge Street, London EC4V 6JA. The Board has noted the guidance issued by the UK Government regarding indoor gatherings due to the ongoing Covid-19 pandemic. Given the current guidance and the general uncertainty as to what additional and/or alternative measures may be put in place, whilst it is the Company's intention to proceed with holding an AGM, the Board requests that shareholders do not attend the AGM but instead appoint a proxy and provide voting instructions in advance of the AGM. Given the current UK Government restrictions, the Board will put in place a dial-in facility for shareholders to listen to the AGM proceedings details of which will be provided in due course. The Board will keep these AGM arrangements under review and will update shareholders via a RNS.

Copies of the Annual Report and Notice of the Annual General Meeting will be sent to shareholders by 22 April 2021.

Additional copies of the Annual Report and Accounts will be available for inspection at the registered office of the Company from the date of this notice until the conclusion of the Annual General Meeting and will be posted on the Company's website - www.chaarat.com

About Chaarat

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/ .

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.

END

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Chaarat Gold Holdings Ltd. (DI) (CGH.AMPX)

Wednesday, 6th November 2024

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