FY 2020 Production, Operational & Financial Update

RNS Number : 3891M

Chaarat Gold Holdings Ltd

21 January 2021

 

21 January 2021

Chaarat Gold Holdings Limited

("Chaarat" or "the Company")

FY 2020 Production, Operational and Financial Update

Chaarat (AIM:CGH), the AIM-quoted gold mining Company with an operating mine in Armenia, and assets at various stages of development in the Kyrgyz Republic, is pleased to announce its production and operational results for the full year ended 31 December 2020 (the "Year", "2020" or the "Period").

The Company has exceeded its production guidance at its Kapan Mine ("Kapan") in Armenia and made good progress on the development of the business despite the COVID-19 pandemic, and earlier cross-border hostilities in Armenia and protests in the Kyrgyz Republic.

Highlights

Kapan Gold Mine

· FY 2020 production guidance of 55 thousand gold ounces equivalent ("koz") exceeded by 6%, finishing the year at 58.2 koz despite the ongoing COVID-19 situation and hostilities in H2 of 2020.

· Exceeded processing target of 50 thousand tonnes ("kt") for third party ore by 17.8 kt (+36%) in 2020, contributing significantly to exceeding the production guidance of  55 koz.

· All-in-sustaining cost ("AISC"²) of USD 1,034/oz was in line with USD 1,040/oz for 2019.

· A 50% increase in unaudited preliminary stand-alone EBITDA contribution of approximately USD 19 million at Kapan level in 2020 before group accounting adjustments and non-cash items (2019: USD 12.7 million).

· Peace deal signed in November 2020 between Armenia and Azerbaijan led to stabilisation in country resuming sooner than expected.

· Limited impact from the COVID-19 pandemic with effective management protocols in place since February 2020 continuing at all of Chaarat's assets.

Tulkubash Development Project
· Advanced the construction preparation work and detailed engineering with close to USD10 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 implemented in an updated JORC-compliant resources and reserve statement.
· Tulkubash bankable feasibility study ("BFS") and environmental and social impact assessment ("ESIA") updates are now expected in Q1 2021 and the Kyzyltash planned drilling programme later in 2021 due to prevailing COVID-19 constraints.
· Tulkubash project finance discussions further advanced with several banks awaiting the Tulkubash 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 capital raise, extension of liabilities, decrease of interest cost and reduction in debt. · Raised USD13.8 million of equity in April 2020 in the midst of the first COVID-19 pandemic. · 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 USD22 million facility maturing on 31 December 2024. · Decreased average interest cost from 10.9% to 9.7% as a result of refinancing and reduction in debt going forward. · Diversified the shareholder base with further high-net-worth-individuals and retail shareholders. · Reduced total debt from USD76.2 million as at 31st December 2019 to USD70.5 million as at 31st December 2020, primarily as result of reducing the Kapan acquisition loan by USD8 million from Kapan cash flows.
Outlook 2021 · Kapan - mine production guidance of 57 koz3 including treated third-party ore of 50 kt during the year. · Tulkubash - subject to further COVID-19 delays, project financing expected to close in H1 2021 enabling the Company to utilise some of the 2021 construction season. · Kyzyltash - drilling programme with metallurgical test work during 2021 for the optimal processing route decision by end of the year. · Corporate - Chaarat will continue to appraise M&A opportunities matching the target criteria and review its existing balance sheet structure with a view to further reducing its interest cost and improving the balance sheet structure.

Update on our countries of operation

Armenia

On 27^th September military action started in the Nagorno-Karabakh region, 150km away from our Kapan operation and lasted for more than a month. On 9^th November, a peace deal brokered by Russia was agreed between Azerbaijan and Armenia in relation to the Nagorno-Karabakh region and Russia deployed resources to keep the peace in the region for an initial period of five years.

The situation in country is stable and people are back to their normal lives following the cessation of hostilities in November. The Company's precautionary measures in relation to the situation and actions taken resulted in a limited operational impact on the 2020 performance but reduced the required development in the mine that will impact Q1 2021 production. As a result, it is expected that the output in Q1 2021 will be lower than previous quarters' due to development lead times at the mine, although full-year production is expected to be 57 koz Au Eq.

Kyrgyz Republic

In early October 2020 democratic elections were held in the Kyrgyz Republic followed by protests concerning the election results. Fortunately, these political disruptions following the elections have not had any material impact on our operations. The political situation in Kyrgyz Republic stabilised rapidly culminating in a new president being elected in January 2021 and a new government to be formed within the coming weeks.

COVID-19 update

COVID-19 prevention measures were implemented in February 2020 and remain in place at all Chaarat offices and sites. The Company is continuing to follow best practice to prevent our employees contracting or spreading COVID-19 in the workplace.

These measures have been successful to date in minimising the number of cases at our sites, and operations were not significantly impacted due to illness as a result. We will continue these practices to ensure preparedness during this 20/21 winter season and any future surges in cases in our countries of operation. We are continuing to work with our local communities to help them with their activities.

Kapan Mine ("Kapan")

•	Lost time injury frequency rate ('LTIFR') of 0.37 (per one million hours worked) versus 0.39 in 2019 (-5.1%). Since taking ownership in January 2019, there have been two Lost Time Injuries ('LTI'), still significantly below the 4.17 five-year average LTIFR of the 27 members of the International Council of Metals and Mining (ICMM); 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 (oz) 48,387 55,255 oz -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%
•	Gold equivalent production up 3% to 58,178 gold equivalent ounces ("oz") from 56,513 oz in 2019 and above the 2020 guidance of 55,000 oz (+6%) due to improved grades in Q4 2020 and more third-party ore treated than budgeted.
•	All-in-sustaining cost ("AISC"2) of USD 1,034/oz was in line with USD 1,040/oz for 2019.
•	Total tonnes mined were 684,156t in line with 678,382t (+0.8%) in 2019.
•	Mine head grade was 3.03g/t oz versus 2.93/t oz (+3%) in 2019. Mine schedule and shift changes were made to mining in Q4 to adjust for the number of people called up for military service. Lower tonnes were mined but with higher grade.
•	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.
•	Mill feed grade for Kapan ore was 3.03g/t oz vs 2.92g/t oz (+ 3.8%) in 2019.
•	Kapan ore recoveries were 79.9% compared 81.4% (-1.8%) in 2019. Higher degrees of oxidation and pyrite levels in the areas mined in H2 impacted mill performance. Mineralogy work is being conducted to identify improved ways of treating this type of material going forward.
•	Underground development was 21,985 metres, slightly lower than the 23,136 metres in 2019 (-5%) as a result of the hostilities in Q4 temporarily reducing the workforce.
•	A 50% increase in unaudited preliminary stand-alone EBITDA contribution of c. USD19 million at Kapan level in 2020 before group accounting adjustments and non-cash items (2019: USD 12.7 million).
•	The unaudited preliminary stand-alone EBITDA contribution at Kapan has improved from USD 4.2 million in H1 2020 to c. USD 14.8 million in H2 2020. The strong second half performance was supported by the strong gains in precious and base metals prices realising an average gold price of USD 1,905/oz in H2 2020 versus USD1,665/oz in H1 2020 (+14%).

¹ AISC on an oz produced basis exclude smelter TC/RC charges, others which add c. USD$ 130/oz. Sustaining capex of c. USD$ 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.

³ Gold equivalent ounces for 2021 calculated 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 for comparison. 2021 AuEq based on 2021 budgeted prices will be 55.8 koz based on gold ratios of 88 for silver, 8,656 for copper and 23,443 for zinc.

Tulkubash

Construction Update

Construction in 2020 was slowed down due to the COVID-19 pandemic and from October 2020 onwards due to the political disruptions in the country. Nevertheless, early construction led by equity and construction partner Çiftay progressed to the extent possible with approximately USD10 million of investment made progressing project engineering and initial construction. Overall, a number of activities were completed in 2020 which will support a quick resumption of construction activity in 2021:

· Completion of additional 80 bed temporary construction camp facilities

· Continuation of ore haul road and platforms construction

· Construction of bridge (from concrete culverts) over Kumbeltash stream

· Finalisation of Issued for Construction (IFC) Detailed Design Drawings for heap leach facility ("HLF")

· Tree cutting in Dry Valley (HLF and process facilities)

· Partial delivery of Phase 1 of shift camp

· Delivery and storage of waste-water treatment plant ("WWTP")

The shortened 2020 drilling programme, comprising 2,000 meters, started in July, and was successfully completed in October. This additional infill drilling targeted increasing confidence in the ore body and follows more conservative international best practice. The results will be included in the upcoming mineral resource estimate ("MRE") and ore reserves ("OR") updates. The construction season focused on planned preparation works on the HLF and haul road as well as the installation of first modules of the new employee accommodation units.

The updates to the Environmental and Social Impact Assessment ("ESIA") and bankable feasibility study ("BFS") have been delayed due to COVID restrictions mainly driven by delays caused by external parties affected by COVID-19 related travel policies and office restrictions. The studies will reflect the advances in 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).

Preparations are underway to optimise work for the 2021 season dependent on the project finance timing. The updated BFS and ESIA documents are expected to be completed in Q1 2021 and are the key outstandings for the project finance discussions. Based on the information available to date, the conclusions of the updated BFS are expected to be similar to the 2019 BFS.

Project Financing

While the COVID-19 situation impacted the decision-making process for all banking groups earlier in the year, the Company has managed to further advance its project financing efforts in 2020 having received three non-binding term sheets. As of year end, discussions were in detailed due diligence stage awaiting the BFS and ESIA update to complete due diligence efforts.

Chaarat is working to implement a debt facility that will fully fund construction and bring the asset into production. It is envisioned that the debt facility will comprise standard project finance clauses regarding customary conditions precedent to closing, including the requirement for the Company to contribute an amount of equity to the project. This equity amount will be funded through a combination of resources provided through the Çiftay partnership, together with other funding alternatives the Company is exploring.

The Tulkubash construction Capex of USD110 million will be fully funded once the project finance is closed and based on discussions with potential lenders it is expected that the financing facilities will be concluded in H1 2021.

Corporate Finance Update

In 2020, Chaarat focused on improving the balance sheet with successful initiatives to increase liquidity, refinancing of and an overall reduction in debt.

In the midst of the COVID-19 pandemic first wave, Chaarat completed an equity raise of USD13.8 million within the target range of USD13-14 million and with confirmed support from existing shareholder including Labro and other significant shareholders committing further funds but also attracting new high-net-worth-individuals and retail investors to the shareholder register.

On the debt side, Chaarat successfully refinanced its maturing investor loan of USD19 million with Labro at a reduced interest cost of 9.5% versus the 14% on the investor loan. The overall interest cost of the business was reduced from 10.9% to 9.7% in 2020 going forward. At the same time the maturity on the loan was extended to 2024, when the Tulkubash project is expected to be in full production. This refinancing further simplified the debt and security profile outstanding providing further flexibility on the balance sheet for the next years. In 2021, the only maturing debt is the convertible loan with a conversion price of GBP 37 (October 2021).

Overall, the principal debt outstanding was reduced to USD70.5 million as of 31^st December 2020 from USD76.2 million as of 31^st December 2019. The Kapan acquisition loan of initially USD40 million was reduced to USD28 million outstanding, of which USD8 million was repaid in 2020, delivering on the agreed amortisation schedule with AmeriaBank.

In 2021, the Company is planning to further optimise its balance sheet, retaining an opportunistic approach to refinancing at favourable terms and funding the Tulkubash project and Kapan East Flank extension in order to maximise shareholder value.

Environmental, Social and Governance ("ESG")

Due to COVID-19, 2020 was in many ways a very different year to those before. It was about putting the welfare of our employees, our communities, and our key stakeholders first and foremost. As a priority over other ESG initiatives, we worked with local health care professionals and community groups to target providing COVID-19 support to the most needed areas and also implemented strict guidelines and measures to protect our employees, communities, and other stakeholder from getting infected.

During the cross-border unrest in Armenia, Kapan's social aid program was adjusted to provide support to various charities carrying out humanitarian work such as providing food and shelter to people displaced by the hostilities. A welcome initiative with presents to the children arriving from the Nagorno-Karabakh region to Kapan helped to integrate them into the community despite the COVID-19 restrictions.

In financial terms, Chaarat has spent approximately USD 0.7 million for social and community support in 2020.

Chaarat will provide a more comprehensive update on our ESG activities in our ESG report expected to be published around the same time as the annual report.

Notice of audited Full Year Results

Any numbers mentioned in this press release are subject to year-end closing process and audit. The Company will be announcing its audited full year results for the period ended 31 December 2020 in April 2021.

Artem Volynets, Chief Executive Officer, commented:

"I am pleased to report that we exceeded our 2020 production guidance at Kapan despite the challenges presented during the year.

The ongoing COVID-19 pandemic and events in our countries of operation have presented unprecedented challenges for Chaarat in the period under review. In addition, a low commodity price environment in H1 2020 had its impact on our first half performance but the strong rebound in prices in H2 2020 supported the strong performance overall despite the unrest in Armenia.

Thanks to the outstanding efforts of our employees, we continue to deliver on our Kapan development plan and the mine has shown stable production levels for almost two years running.

Construction progress at Tulkubash was heavily impacted by the COVID-19 movement restrictions leading to a shift in first gold pour date as previously reported. The hiatus did provide time to carefully and conservatively assess the project to ensure its robustness. The emphasis of 2021 will be to ramp up construction on Tulkubash but also be to progress work on Kyzyltash to create substantial long-term value for Chaarat shareholders.

Chaarat will continue placing great importance on sustainable development and social investment programmes in the countries in which we operate. We truly believe that respectful and open dialogue and partnership with local communities is essential for the long terms success of our operations."

Enquiries

Chaarat Gold Holdings Limited	[phone]
Artem Volynets (CEO)	[e-mail]
Canaccord Genuity Limited (NOMAD and Joint Broker)	+ 44 (0)20 7523 8000
Henry Fitzgerald-O'Connor
James Asensio
finnCap Limited (Joint Broker)	[phone]
Christopher Raggett
Panmure Gordon (UK) Limited (Joint Broker)	[phone]
John Prior Hugh Rich

About Chaarat

Chaarat is a gold mining company which owns the Kapan operating mine in Armenia as well as Tulkubash and Kyzyltash Gold Projects in the Kyrgyz Republic. The Company has a clear strategy to build a leading emerging markets gold company with an initial focus on the Former Soviet Union 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/ .

2020 PRODUCTION & OPERATIONAL SUMMARY

Production Summary

	2020	2019
Tonnes ore mined (Kapan)	684,156	678,382
Tonnes ore milled (Kapan)	676,867	733,859
AuEq Grade (g/t)3 (Kapan)	3.03	3.23
Tonnes ore milled (Third-Party Ore)	67,838	8,543
Au Grade (g/t) (Third-Party Ore)	5.86	4.70
AuEq Recovery Kapan (%)	79.9	81.4
Gold equivalent (oz)
Production,4	58,178	56,513
Incl. from Third-Party Ore	5,512	650
Sales4	48,387	55,255
Gold production (oz)	30,837	32,791
Silver production (oz)	587,718	557,001
Copper production (t)	2,154	1,719
Zinc production (t)	7,625	6,476
Realised gold price (USD/oz)	1,773	1,413
AISC (USD/oz)	1,034	1,040

⁴ AuEq calculated on 2020 budget prices based on gold price of USD 1,500/oz and gold ratios of 83 for silver (Au/Ag), 7,778 for copper (Au/Cu) and 20,968 for zinc (Au/Zn). Please note difference in price assumptions used in 2019 press release may lead to different numbers.

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