FY 2021 Production, Operational & Financial Update

RNS Number : 0828B

Chaarat Gold Holdings Ltd

09 February 2022

 

9 February 2022

Chaarat Gold Holdings Limited

("Chaarat" or "the Company")

FY 2021 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 2021 (the "Year", "2021" or the "Period").

The Company has exceeded its 2021 production guidance at its Kapan Mine ("Kapan") in Armenia, however the development of the Tulkubash project was impacted by the events around Centerra Gold's Kumtor mine and ongoing COVID-19 pandemic in the Kyrgyz Republic.

2021 Highlights

Kapan Mine

· Finished the year with production of 63 thousand gold equivalent ounces ("koz"¹) including 14 koz from third-party ore production vs 2021 guidance of 57 koz (+10.5%).

· Exceeded processing target of 50 thousand tonnes ("kt") for third-party ore by 95 kt (+189%) in 2021, contributing to exceeding the production guidance of  57 koz.

· All-in-sustaining cost ("AISC"²) of USD 1,205/oz was higher than the USD 1,034/oz for 2020 (+16.5%) due to higher mining costs related to more selective mining and costs associated to processing a higher portion of third-party ore feed.

· A 19.5% increase in unaudited preliminary standalone EBITDA³ contribution of approximately USD 22.7 million at Kapan level in 2021 before group accounting adjustments and non-cash items (2020: USD 19 million).

Tulkubash Development Project
· Updated bankable feasibility study ("BFS") released in May 2021 confirming robust project economics which will be updated once the updated reserve model is completed and full construction resumes. · Successfully completed a 4,835-metre drilling programme including infill drilling and initial exploration drilling on new target areas. JORC-compliant resource and reserve estimates are being updated to reflect the infill drill results.  · Advanced camp construction, main construction preparation work and the exploration programme  with approximately USD8.5 million invested in 2021 despite the Kumtor events and the ongoing COVID-19 impact.
Kyzyltash Development Project · Successfully completed a 3,508-metre drilling programme to obtain representative core of the Kyzyltash deposit ready for metallurgical testing. The core is being sent to SGS Lakefield in Canada for a full suite of metallurgical test work as part of assessing the preferred processing route for the project.
Corporate Activities · Funding package of USD52.2 million closed in February 2021. · Extension of the convertible loan notes by one year to 31st October 2022. · Tulkubash debt financing delayed to 2022 due to ongoing market cautiousness pending a resolution of the Kumtor mine situation. · Reduced interest-bearing debt4 from USD70.5 million as at 31st December 2020 to USD38.7 million as at 31st December 2021 (-45.1%), primarily as result of converting investor and Labro loans into equity in February 2021 and reducing the Kapan acquisition loan by USD9 million from Kapan cash flows.
Outlook 2022 · Kapan - Mine production guidance of 50-53 koz5 of own-ore production and additional 6-9 koz5 of third-party ore production based on 100 kt milled during the year. · East Flank - Resource definition drilling ongoing as part of preparing an initial mineral resource estimate expected towards the end of 2022. · Tulkubash - Subject to a resolution of Centerra's Kumtor situation, debt financing expected to close in H2 2022. Ongoing project work will focus on engineering completion and appropriate construction activities to optimise full activities once debt financing is secured. · Kyzyltash - Metallurgical test results expected from SGS Lakefields late Q2 2022 to enable the Company to perform an economic assessment on the best processing route in the beginning of 2023. · Corporate - Chaarat will continue to review its existing balance sheet structure with a view to further reducing its interest cost and improving the balance sheet structure.

^{1 Gold equivalent ounces for 2020 recalculated on 2021 budget prices with Au at USD1,700/oz and gold ratios of 68 for silver, 7,287 for copper and 21,862 for zinc. In last year's FY 2020 operations update, 2020 oz were based on gold ratios of 83 for silver, 7,778 for copper and 20,968 for zinc leading to a lower AuEq number reported in that previous year. Includes third-party ore production.}

^{2 AISC on a gold oz produced basis exclude smelter TC/RC charges, others which add c. USD 148/oz. Sustaining capex of c. USD6 million p.a. is included in the AISC.}

^{3 In reporting financial information, the Group presents EBITDA as an alternative performance measure, "APM", which is not defined or specified under the requirements of IFRS. The Group believes that this measure provides stakeholders with additional useful information on the performance of the business and, within that, Kapan. EBITDA is calculated by adjusting profit/(loss) for depreciation and amortisation, income tax charges and any finance related transactions. The amount reported is unaudited and preliminary in nature given it may be subject to adjustments in the audit process.}

^{4 Excluding lease liabilities, contract liabilities and accrued interest on the convertible loan note.}

^{5 Gold equivalent ounces for 2022  calculated based on Au at USD1,775/oz and gold ratios of 75 for silver, 6,597 for copper and 20,381 for zinc.}

Martin Andersson, Executive Chairman, commented:
 

"I am pleased to report that we exceeded our 2021 production guidance at Kapan. The difficulties of the COVID pandemic and global supply chain issues created an ongoing set of challenges for the Company, but the team found ways to manage the conditions.

The Company benefitted significantly from the increased commodity prices seen in 2021. At the same time though we are seeing inflationary prices flowing through due to that same price environment. As has been the case since taking over Kapan, the team will continue to look for improvements and new methods of operating to minimise these impacts on the business.

Construction progress at Tulkubash was negatively impacted by the delay in our debt financing efforts. The Kumtor / Centerra situation led to cautiousness in the market and until this issue is resolved, funding remains a challenge. We expect the situation will be resolved shortly and investor confidence will be re-established. The emphasis for 2022 will be to conclude the debt financing for Tulkubash to achieve our first gold pour in 2024 target but also to progress work on Kyzyltash with a processing route decision in the beginning of 2023 to create substantial long-term value for Chaarat shareholders.

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

Detailed Update on our Operations

Kapan Mine ("Kapan")

• There was one fatality at our Kapan site on 4^th March 2021. The fatality occurred in the underground mining operations to a supervisor of our contract mining company while he was inspecting a blockage in an ore chute. Extensive awareness refresher training and discussions related to the importance of planning and executing work safely has taken place.  In addition, there was also one lost time injury, in the mining area when a contractor was injured in a fall. Lost time injury frequency rate ("LTIFR") was 0.74 (per one million hours worked) versus 0.37 in 2020.

Operational Summary

Kapan	2021	2020	% Change
Production (oz AuEq)	63,038	58,661	+7.5%
All-in sustaining cost (USD/oz) 1	1 ,205	1,034	+1 6 .5%
Sales (oz) incl. third-party ore	57,212	48,387	+18%
Sales (oz) excl. third-party ore	44,567	42,902	+4%
Gold production (oz)	35,405	29,770	+18.9%
Silver production (oz)	610,322	587,718	+3.8%
Copper production (t)	2,284	2,154	+6%
Zinc production (t)	5,836	7,641	-23.6%
Realised gold price (USD/oz)	1,784	1,773	+1%
Realised silver price (USD/oz)	25	20.4	+22.5%
Realised copper price (USD/t)	9,157	6,117	+50%
Realised zinc price (USD/t)	3,001	2,222	+35%

• Total tonnes mined were 600,246t down from 684,156t (-12.3%) in 2020. Mine head grade was 3.3g/t oz versus 3.0/t oz (+10%) in 2020. The decreased tonnes mined, and increased mine head grade are the result in a shift in mining method during 2021 to be able to better mine some of the narrower areas of the ore body.

• Mill throughput was stable at 729,473t compared to 744,705t (-2%) in 2020. Lower own-ore production was compensated by third-party ore feed. Throughput included 144,632t of third-party ore vs 54,637t (+165%) in 2020. 

• Kapan ore recoveries were 79.1% compared 79.9% (-1%) in 2020. Higher degrees of oxidation and finer grind size 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.

• This resulted in gold-equivalent production of 63,038 oz vs 58,178 oz in 2020 (+7.5%) due to the higher grades mined and the significant increase in third-party ore.

• Underground development was 23,823 metres, above the 21,985 metres in 2020 (+8.4%).

• All-in-sustaining cost of USD 1,205/oz was 16.5% higher than the USD 1,034/oz for 2020 due to higher mining costs. Supply side constraints and inflationary impacts are being seen across the supply chain and we expect this to have inflationary pressure on the cost base during 2022.

• The unaudited preliminary standalone EBITDA³ contribution at Kapan has improved from USD 19 million in 2020 to c. USD 22.7 million in 2021.

• The increase in EBITDA was mainly driven by a strong Q4 2021 where delayed concentrate shipments from Q3 2021 were sold after the conclusion with the Armenian Government that the new metals export regulation is not applicable to Kapan concentrates.

Tulkubash

Construction Update

Construction activities in 2021 were slowed down due to the delay in the debt financing caused by the dispute around the Kumtor mine. The construction season focused on detailed engineering advancements and preparation works on the heap leach facility and haul road as well as the installation of the first modules of the new employee accommodation units. Overall, a number of activities were completed in 2021 which will support a quick ramp up of construction activities once debt financing is secured. Main activities included progressing  detailed engineering on multiple fronts (mainly Principal Engineering, ADR Engineering, Crushing Facility Engineering), finishing part of the camp and related infrastructure, constructing the haul road 2 and ordering important long lead items for the 2022 construction season.  

The 2021 infill drilling programme, comprising 4,835 metres, targeted the Inferred and unclassified areas in the mid and east areas. The drill holes intersected consistent oxide gold intercepts as expected. The current Tulkubash Mineral Resource Estimate is in the process of being updated to include the results of the 2021 programme.

The revision to the BFS was completed in May 2021 and confirmed the robust economics of the project. The update to the Environmental and Social Impact Assessment was also completed in June 2021.

Debt Financing

The Company continues to progress with potential funding solutions for the development of the Tulkubash project. Despite having no direct impact on the Company's operations, the situation around the  Kumtor mine has affected the debt financing timeline significantly pushing it into H2 2022. Based on recent press releases by Centerra and the Kyrgyz Government, Chaarat expects a resolution of the situation shortly. This should enable the Company to continue discussions around a standalone financing or a comprehensive refinancing of its current debt outstanding and financing of the Tulkubash project.

Corporate Finance Update

In 2021, Chaarat focused on improving the balance sheet with successful initiatives to increase liquidity and an overall reduction in debt. 

· The Kapan acquisition loan of initially USD40 million was reduced by another USD9 million to USD19 million at the end of 2021 in accordance with the amortisation schedule.

· The Company completed a funding package in February 2021 for a total of USD52.2 million which included issuing USD30.0 million in equity to new investors and conversion of debt into equity of USD22.2 million.

· Chaarat also extended the maturity of its USD 19.68 million plus accrued interest of USD6.68 million secured convertible loan notes from 31 October 2021 to 31 October 2022.

Overall, the interest-bearing debt⁴ outstanding was reduced to USD38.7 million as at 31st December 2021  from USD70.5 million as of 31^st December 2020 (-45.1%).

In 2022, the Company is planning to further optimise its balance sheet, retaining an opportunistic approach to refinancing on favourable terms and funding the Tulkubash project and Kapan East Flank extension in order to maximise shareholder value.

Interim Chief Financial Officer

Pending the identification of a permanent successor to the role of Chief Financial Officer, the Company has appointed Chaarat's Group Financial Controller, David Mackenzie, as Interim Chief Financial Officer ("Interim CFO"), assuming responsibility for all financial planning and control processes. The Interim CFO will be a non-board position.

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 2021 in the first half of April 2022.

Enquiries

Chaarat Gold Holdings Limited	[phone]
Patrick Henze (VP CorpDev & IR)	[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 FSU through organic growth and selective M&A.

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/ .

2021 PRODUCTION & OPERATIONAL SUMMARY

	2021	2020
Tonnes ore mined (Kapan)	600,246	684,156
AuEq Grade (g/t)3 (Kapan)	3.1	3.0
Tonnes ore milled (Total)	729,473	744,705
Tonnes ore milled (Kapan)	584,841	676,867
Tonnes ore milled (Third-Party Ore)	144,632	54,637
AuEq Recovery Kapan (%)	79.1	79.9
Gold equivalent (oz)
Production,4	63,039	58,661
Incl. from Third-Party Ore	14,438	4,446
Sales4	57,212	48,387
Incl. from Third-Party Ore	12,645	5,485
Gold production (oz)	35,405	29,770
Silver production (oz)	610,322	587,718
Copper production (t)	2,284	2,154
Zinc production (t)	5,836	7,641
Realised gold price (USD/oz)	1,784	1,773
AISC (USD/oz)	1,205	1,034

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