Final Results

RNS Number : 6460H

Chaarat Gold Holdings Ltd

24 June 2013

 



Chaarat Gold Holdings Limited

("Chaarat" or "the Company")

PRELIMINARY ANNOUNCEMENT OF AUDITED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2012

Road Town, Tortola, British Virgin Islands (24 June 2013)

Chaarat Gold Holdings Limited today publishes its preliminary results for the year ended 31 December 2012.

Highlights for the year

·      Mining licence for the whole Chaarat deposit secured

·      Experienced respected mining professionals join the Board and senior management

·      Data collection for Definitive Feasibility Study underway

·      Power line to grid and new section of access road surveyed and designed

·      Resource increased to 5.76 Moz @ 4.03 g/t

Dekel Golan, CEO of Chaarat, commented:

"We are pleased to present the results of our activities in 2012 which marked further solid progress on the development of the infrastructure of the Chaarat deposit. We are now working on the Definitive Feasibility Study to optimise the Chaarat investment proposition and its attraction to strategic partners."

Enquiries:

Chaarat Gold Holdings Limited                                        [phone]

c/o Central Asia Services Limited

Dekel Golan CEO                                                  [e-mail] 

Linda Naylor FD                                                                   [e-mail]

Numis Securities Limited                                                 [phone]

John Prior, Stuart Skinner (NOMAD)

James Black (Broker)

Chairman's Report

During the year under review we focused our activities on two main objectives; the move towards early production from the Tulkubash project during the second half of 2013 and the grant of a mining licence for the much larger Kiziltash section of the Chaarat deposit.

Significant progress was made towards bringing the Company closer to production, both in terms of infrastructure as well as permitting sections of the development.  The mining licence was indeed secured.

Earlier this year your Company conducted a thorough review of the changed conditions in financial markets and in the Kyrgyz Republic.  This led to a revised development strategy which we announced in early May. Arising from our strategic review we decided to bring forward the Definitive Feasibility Study of the Chaarat deposit and, as a result, we shall be able to accelerate its development. 

It is important to note that the modified strategy does not deviate from our originally stated objective.  Our strategy has always relied on two premises; that the Chaarat deposit appears to be one of the world's best undeveloped deposits, and, that Chaarat Gold as a junior company should not attempt to develop such a large project itself.  We always maintained that the Chaarat deposit warrants development with a partner having the appropriate technical and financial capability.  Your Company's role is to add value to the project in order to maximize its share of any potential partnership for the benefit of its shareholders. 

With that in mind we prepared the Pre-Feasibility Study during 2010-11.  Following upon it, we aimed to commence a small scale production on site with the view of "de-risking" the entire project. In today's markets we now believe that undertaking a definitive feasibility study of the entire project is a more effective tactic than small scale production, especially in the light of the additional working capital that would be required. Our funds are sufficient for these purposes.  To raise money for working capital, by either equity subscription or debt, would in current conditions reduce value rather than add to it.

It was made public during November 2012 that of the three large Chinese gold producers, all interested in Chaarat, Shandong Gold was "awarded" the right to negotiate a deal with us by the National Reform and Development Commission of China.  As mentioned in our public announcements discussions with Shandong Gold Mineral Resource were at an advanced stage when they were interrupted by a change of senior management. We have no reason to believe that the interest of these gold producers in us has vanished.  Your Board remains convinced that a strategic partnership is the best option to ensure the value of Chaarat is optimised.

I am delighted to welcome Mac DeGuire to our Board.  He has the credentials we have long been seeking to assist both in the supervision of the definitive feasibility study and negotiations with strategic partners.

In conclusion, I am reminded of the strength of the Chaarat investment proposition: we have a high grade, large resource which is capable of generating low cost production of gold and we are fully funded to crystallise that value. As  Keynes said; "When my information changes, I alter my conclusions.  What do you do, sir?"  The situation changed, we modified our plans; we have the funds and the management to execute them and I wholeheartedly believe that this is the best way to deliver strongly positive returns to our shareholders.

It would be remiss of me not to thank just as wholeheartedly all the Chaarat employees for their efforts this year.

Christopher Palmer-Tomkinson

Chairman

Chief Executive Officer's Report

During 2012 and early 2013, Chaarat made significant progress towards becoming a gold producer.  As explained in the Chairman's Report, we have now determined that rather than moving to small scale production, the best way to add value to the Chaarat Project, for the benefit of our shareholders, is to develop a Definitive Feasibility Study (DFS) demonstrating the full value and potential of Chaarat. 

A "typical" mining project life cycle follows a pattern of early stage exploration, resource identification and definition, leading to a Pre-Feasibility Study (PFS), then a Definitive Feasibility Study (DFS), development and production. 

The Chaarat deposit is large (c6M ounces of gold) and high grade (c4 g/t). The  PFS published in June 2011 showed that the deposit (based on drilling up to 2010 and a resource of c4Mounces) was potentially capable of supporting production of c200,000 ounces per year at a cash cost of  $501 per ounce. A PFS looks at the best way to extract the resource as well as starting to examine environmental and permitting issues.  The results of a PFS can often be used to determine reserves, i.e. the portion of the resource which can be shown, with a good degree of certainty, to be economically extractable.  In Chaarat's case, of 2.5 million ounces, more than 1.6 million ounces were converted to reserves, with a further 0.9 million ounces of inferred resource shown as potentially mineable, supporting a potential mine life of more than 12 years.

A DFS is a more detailed study which incorporates the more detailed and comprehensive engineering, technical and economic analyses as well as social and environmental analysis of the project to such a level of accuracy and detail as to give the financing institutions, and prospective buyers, the comfort that the assumptions in the study are robust and accurate. Unlike the PFS which is based on estimates, the DFS is typically and predominantly based on actual firm quotes. After the many disappointments in the mining industry of the last two years, projects will be subject to much more rigorous scrutiny so a robust DFS will be essential to any evaluation of Chaarat.

Achievements during 2012

Our focus has been on infrastructure development; design, permitting and construction.   The PFS showed that the Chaarat deposit is capable of supporting gold production of at least 2 million tonnes of ore per annum (c 200,000 ounces p.a.) and requires the appropriate infrastructure.  

Work on infrastructure included:

Road - The road to site had to be upgraded from an exploration road to one capable of supporting movement of heavy trucks and delivery of supplies, equipment and materials.  Two thirds of the road has been upgraded to this standard and now only requires surfacing to be completed.  The final section needs to be rebuilt on a different more direct route which will reduce significantly exposure to avalanches; this section of the road has been designed and is now in the process of being permitted by the authorities.

Power - An agreement has been signed with the national electricity company to allocate a quota of 25MW to the Company. The general design parameters have been agreed and an engineering company has been retained to carry out the surveying, environmental data collection, geotechnical work and design of the line.  The design has been reviewed and approved by the authorities. We have now started negotiations with the relevant bodies to secure the right of way for the line.

The total distance from the grid to Chaarat is 106 km for the first phase (which can support at least 10 MW). One of the sections of the power line, a 20 km section has been partially completed.

Re-engineering the processing strategy

Our initial processing strategy consisted of a standard Carbon in Leach (CIL) plant to process the oxidized ore of the Tulkubash deposit.  We originally estimated there was enough ore for three years of processing at which time we intended to add either a flotation unit (to generate and sell concentrate) or increase the size of the plant and add an oxidation unit to oxidize the "refractory ore" which would then be treated by the same CIL unit. The general design of the plant and the more detailed engineering and tender for construction of the first phase had been completed before our decision to delay production.

We suspended investment activities for a few months during 2012 pending clarification from the Parliament on the fiscal regime to be introduced in the Kyrgyz Republic.  Once the new amendments to the Tax Code, which affect the fiscal regime as well as introducing a simplified land allocation process and licensing regulations, were published we were encouraged that the government has tried to make the relationship between state and industry clearer, more predictable and transparent.  However, the amendments to the Tax Code, which has now moved to a revenue based system, would have had a negative impact of $15 million before the Chaarat project became cash generative.  We therefore undertook some careful value engineering to ensure we did not have to raise additional funds above the $20 million we had already identified was required for working capital.

The solution was provided by the results of metallurgical work carried out whilst completing the design and adaptation to local standards of a mill to process up to 2,500 tpd of ore and carrying out a tender to Engineer, Procure and Construct (EPC) the plant.  We learnt that the first phase of production did not have to include the whole CIL plant but that a small heap leach operation was sufficient to process most of the oxidized material.

Gold recovery would have been reduced but the ability to process material with a lower cutoff grade meant that the same amount of gold would be produced.  The capital costs of building the heap leach plant as well as the operating cost of production were also lower than our original estimates. The fall in the price of gold had made this result even more important.

Accordingly we retained an engineering company to design the heap leach facility. The design took into account the full scale plant, so that each element will be located in its appropriate final location without obstructing the future development of the whole plant. The basic design was completed in March 2013.

Design and permitting of mining waste dumps

The topography of the Sandalash river valley, where the mine will be located, is very challenging.  The valley is narrow and the storage of mining waste is therefore also a challenge. We have been working with a Local Design Institute (as licenced engineering companies are called in the Kyrgyz Republic), to identify a location near the mine and secure permission to use this location for waste.  This location will be sufficient for waste storage from early production and we are confident that we can increase the waste storage capacity as needed.

Environmental and social impact analysis and mitigation

The Company has voluntarily decided to comply with current best practice. In order to ensure we design the systems and procedures to meet the required standards the Company has retained the services of AMEC.

Following a visit to site by a number of AMEC specialists we have been able to identify the gaps in our preparedness and to initiate a process ensuring that we will be compliant with all relevant principles throughout our activity in the region. No major issues were identified. A dedicated professional team has been recruited and mandated to ensure we continue to maintain and build on our high standard of operations and improve their documentation.

Modest exploration effort but resource continues to grow

In preparation for production, our exploration team focused on infill drilling of the Tulkubash project in 2012 with some step out work to increase the open pit potential of the deposit.  A total of 10,700 metres was drilled which effectively converted the open pit section of the deposit to resource in the measured category.  The total measured, indicated and inferred resource was increased to 5.76Moz at a grade of 4.03 g/t.

Plans for 2013

The Company's strategy has been amended to reflect the new realities of the market and the country of operation. Your board and management believe, as explained by the Chairman, that it is better to develop a robust DFS for the whole project rather than move to small scale production and prepare a DFS at a later stage. We believe that preparing this study now will enable us to reach full scale, larger production, earlier and with less risk and dilution to our shareholders.

The management team, led by David McNee the General Director of our local subsidiary, is focusing now on collecting information for the DFS. This will include a 13,000 metre drilling campaign, more geotechnical work and much more metallurgical work to ensure we have the best solution for the deposit as a whole.  We will appoint a consultant to supervise the DFS in Q3 2013 and expect the DFS to be completed in Q3 2014.  We will keep the market updated on our progress.

We will continue and expand our work in the community which is described in our Social Responsibility Report and in particular the establishment of the Community Consultation Group is an exciting development.

We also intend to continue to design and secure permitting for parts of the project so that the work on the development of the project can continue without delay as soon as we have secured Project Finance.  A number of strategic partners have already expressed an interest in participating in this lucrative project, which we consider the best way to achieve the optimal development of the Chaarat Project.

Our funding position

The registration of our resource with the government to obtain a mining licence over the whole deposit led to an unbudgeted payment of tax of $6 million.  We have continued to develop the infrastructure as outlined in this report and more than 50% of our expenditure since our fund raising in 2011 has been capitalised for the Tulkubash project.  We have continued exploration of our other projects as well as the Kiziltash portion of the Chaarat deposit.  We continue to seek partners for the Chontash and Mironovskoye projects (where we also obtained a mining licence).

The Company is financed to cover the costs of the drilling campaign, the DFS and overheads, as well as an active community engagement programme, for two years from the date of this report. 

In conclusion I would like to remind our loyal shareholders that Chaarat remains an exceptional value proposition.  I appreciate your patience while we realise the potential of that proposition.

Dekel Golan

Chief Executive Officer

Consolidated income statement
For the years ended 31 December
		2012	2011
		USD	USD
Exploration expenses		(6,301,714)	(5,984,284)
Administrative expenses		(5,905,089)	(5,278,133)
Administrative expenses- Share options expense		(588,514)	(1,590,898)
Administrative expenses- Foreign exchange gain/(loss)		229,581	(331,856)
Total administrative expenses		(6,264,022)	(7,200,887)
Other operating income		345,862	97,254
Operating loss		(12,219,874)	(13,087,917)
Financial income	§	730,086	719,868
Taxation		-	-
Loss for the year, attributable to equity shareholders of the parent		(11,489,788)	(12,368,049)
Loss per share (basic and diluted) - USD cents		(4.59)c	(5.31)c

Consolidated statement of comprehensive income
For the years ended 31 December
		2012	2011
		USD	USD
Loss for the year, attributable to equity shareholders of the parent		(11,489,788)	(12,368,049)
Other comprehensive income:
Exchange differences on translating foreign operations		(918,873)	13,154
Other comprehensive income for the year, net of tax		(918,873)	13,154
Total comprehensive income for the year attributable to equity shareholders of the parent		(12,408,661)	(12,354,895)

Consolidated Balance Sheet
At 31 December
		2012 USD	2011 USD
Assets
Non-current assets
Intangible assets		129,740	34,297
Mining exploration assets		8,349,367	8,349,367
Mine properties		8,400,984	3,949,756
Property, plant and equipment		4,685,330	2,134,419
Assets in construction		15,598,101	6,510,020
Other receivables		-	1,543,050
		37,163,522	22,520,909
Current assets
Inventories		2,783,323	1,328,367
Trade and other receivables		3,143,397	6,521,197
Cash and cash equivalents		36,944,060	61,184,915
		42,870,780	69,034,479
Total assets		80,034,302	91,555,388
Equity and liabilities
Equity attributable to shareholders
Share capital		2,504,778	2,504,778
Share premium		128,551,662	128,551,662
Other reserves		14,618,604	14,308,874
Translation reserve		(1,989,053)	(1,070,180)
Accumulated  losses		(66,631,199)	(55,420,195)
Total equity		77,054,792	88,874,939
Non-current liabilities
Deferred tax		472,620	460,189
		472,620	460,189
Current liabilities
Trade and other payables		754,951	1,096,066
Accrued liabilities		1,751,939	1,124,194
		2,506,890	2,220,260
Total liabilities		2,979,510	2,680,449
Total liabilities and equity		80,034,302	91,555,388

Consolidated Statement of Changes in Equity
For the Years Ended 31 December
		Share Capital USD	Share Premium USD	Accumulated Losses USD	Other Reserves USD	Translation Reserve USD	Total USD
Balance at 31 December 2010		1,470,339	48,949,592	(44,173,760)	13,839,590	(1,083,334)	19,002,427
Currency translation		-	-	-	-	13,154	13,154
Other comprehensive income		-	-	-	-	13,154	13,154
Loss for the year ended 31 December 2011		-	-	(12,368,049)	-	-	(12,368,049)
Total comprehensive income for the year		-	-	(12,368,049)	-	13,154	(12,354,895)
Share options lapsed		-	-	1,121,614	(1,121,614)	-	-
Share options expense		-	-	-	1,590,898	-	1,590,898
Issuance of shares for cash		1,034,439	83,036,336	-	-	-	84,070,775
Share issue costs		-	(3,434,266)	-	-	-	(3,434,266)
Balance at 31 December 2011		2,504,778	128,551,662	(55,420,195)	14,308,874	(1,070,180)	88,874,939
Currency translation		-	-	-	-	(918,873)	(918,873)
Other comprehensive income		-	-	-	-	(918,873)	(918,873)
Loss for the year ended 31 December 2012		-	-	(11,489,788)	-	-	(11,489,788)
Total comprehensive income for the year		-	-	(11,489,788)	-	(918,873)	(12,408,661)
Share options lapsed		-	-	278,784	(278,784)	-	-
Share options expense		-	-	-	588,514	-	588,514
Balance at 31 December 2012		2,504,778	128,551,662	(66,631,199)	14,618,604	(1,989,053)	77,054,792

Consolidated Cash Flow Statement
For the Years Ended 31 December
		2012 USD	2011 USD
Operating activities
Loss for the year		(11,489,788)	(12,368,049)
Adjustments:
Amortisation expense - intangible assets		53,372	18,545
Depreciation expense - property, plant and equipment		902,531	576,871
(Profit) on disposal of property, plant and equipment		(359,991)	(97,254)
Finance income		(730,086)	(719,868)
Share based payments		588,514	1,590,898
(Gains)/loss on foreign exchange		(229,581)	329,805
(Increase) in inventories		(1,454,957)	(942,364)
Decrease/(Increase) in accounts receivable		4,920,850	(6,359,430)
Increase in accounts payable		299,059	24,337
Net cash flow used in operations		(7,500,077)	(17,946,509)
Investing activities
Purchase of computer software		(138,354)	(34,086)
Purchase of tangible assets		(17,160,389)	(12,156,715)
Acquisition of subsidiary (net of cash acquired)		-	(143,847)
Proceeds from sale of equipment		-	293,263
Interest received		730,086	719,868
Net cash used in investing activities		(16,468,657)	(11,321,517)
Financing activities
Proceeds from issue of share capital		-	84,070,775
Issue costs		-	(3,434,266)
Net cash from financing activities		-	80,636,509
Net change in cash and cash equivalents		(23,968,734)	51,368,483
Cash and cash equivalents at beginning of the year		61,184,915	10,124,977
Effect of changes in foreign exchange rates		(272,121)	(308,545)
Cash and cash equivalents at end of the year		36,944,060	61,184,915

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 2012 or 2011.

The consolidated balance sheet at 31 December 2012, the consolidated income statement, consolidated statement of changes in equity, consolidated cash flow statement and associated notes for the year then ended have been extracted from the Group's 2012 annual financial statements upon which the auditors' opinion is unqualified.

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 2012. 

Going Concern

In May 2013 the Board announced a revised development strategy for the Chaarat project which now involves the completion of a Definitive Feasibility Study.  This change in strategy removes the requirement to raise funding for working capital, which had previously been identified, if a strategy of reaching small scale production was pursued.

Accordingly, the Board has reviewed the revised budgets and cash flow forecasts, which have been prepared following the change in strategy, and include an element of discretionary expenditure.  At 31 December 2012, the Group had cash and cash equivalents of USD 36.9 million and no borrowings and the Board is satisfied that it has sufficient funds to complete the Definitive Feasibility Study and to maintain the Group as a going concern for a period of over twelve months from the date of signing the annual report and accounts.

. 

Project Funding Requirements
After completion of the Definitive Feasibility Study in 2014, further funding will be required to complete the mine development project which has been in progress since2012. If this funding cannot be secured the carrying value of the mine development costs and related plant and equipment , which  at 31 December 2012 amounted toapproximately  $25 million,  may become impaired.

3. Loss per share

Loss per share is calculated by reference to the loss for the year of USD 11,489,788 (2011: USD 12,368,049) and the weighted number of shares in issue during the year of 250,477,868 (2011: 232,963,591)

There is no dilutive effect of share options.

4. Timetable and distribution of accounts

The Annual General Meeting will be held at 10:00 on 23^rd July 2013 at the offices of Numis Securities Limited, The London Stock Exchange Building, 10 Paternoster Square, London EC4M 7LT.

Copies of the Annual Report and Notice of the Annual General Meeting will be sent to shareholders on 28 June 2013.

Additional copies of the Annual Report and Accounts will be available, free of charge, from Central Asia Services Limited, 6 Conduit Street, London, W1S 2XE, for a period of 14 days from the date of posting and will be available on the Company's website - www.chaarat.com 

Note to Editors:

About Chaarat Gold

Chaarat Gold is an exploration and development company operating in the Kyrgyz Republic. Situated in the highly prospective Tien Shan gold belt, a JORC compliant resource of 5.76Moz at a grade of 4.03g/t has been delineated at the Chaarat Gold Project. The Company's key objective is to become a low cost gold producer targeting annual production of 200,000 ounces from the development of the Chaarat Gold Project.

 Chaarat has several other promising prospects also located within the Kyrgyz Republic. An exploration programme is underway at the Company's Chontash project, located in the Akshirak range of mountains.  A mining licence has been obtained for the Mironovskoye asset.

Further information is available at www.chaarat.com 

 

END

 

 

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