Kapan Mine Revised Mine Plan and Reserves Update

RNS Number : 8856S

Chaarat Gold Holdings Ltd

11 November 2019

 

11 November 2019

Chaarat Gold Holdings Limited

("Chaarat" or the "Company")

Kapan Mine Revised Mine Plan and Reserves Update

Chaarat (AIM:CGH), an AIM-listed gold mining company (the Company) with assets in Armenia and the Kyrgyz Republic, is pleased to announce an update for their Kapan polymetallic mine (the Mine) located in the Republic of Armenia. This is the first Ore Reserve statement from Chaarat since acquiring the Mine in February 2019.

The mineral resources and ore reserves, detailed in this press release, have been reported following the guidelines and requirements of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves ('the JORC Code'), 2012 (JORC 2012).

In July 2019 (see press release dated 29 July 2019), the Company provided an update to the Kapan Mineral Resource Estimate.

The Mineral Resources have since been updated to account for depletion as well as new assay and geological data derived from 627 meters of underground drilling completed since the July update, included within the 24,321 meters of underground drilling completed to date in 2019 (of a budget of 48,000 meters for 2019). This updated Mineral Resource Estimate forms the basis for the revised Ore Reserves and mine plan presented here.

Highlights:

·     The Life of Mine Plan (LOMP) has a life of 7 years, with AuEq production averaging 60 koz per annum.

·     The overall contained gold equivalent ounces (AuEq oz) in the Measured and Indicated Resource ("M&I") is 1,663k AuEq oz indicating that near-mine exploration continues to replace the mined tonnes.

·     The average grade of the Kapan M&I resource has decreased from 6.20 grammes per tonne (g/t) gold equivalent (AuEq) (July 19), to 5.89 g/t AuEq, due to an update in the gold equivalence formula in order to reflect revised pricing and estimation parameters that match mill results through reconciliation exercises.

·     The LOMP delivers an EBITDA averaging $20 million.

·     Updated Ore Reserves comprise of 4.5 Mt of Proven and Probable ore at grades of 1.69g/t Au, 31.72g/t Ag, 0.35% Cu and 1.34% Zn at a cut off of 2.5g/t AuEq.

·     The LOMP's average Operating Cash Cost and All in Sustaining Cost ("AISC") are US$817/AuEq oz produced and US$1,032/AuEq oz produced respectively.

·     Sustaining Capex guidance for the LMP is approximately $4 million per annum. This will be primarily focused on mining fleet replacement.

·     Pre-tax cash flow for the LOMP averages $ 16 million per annum.

·     Pre-tax NPV for the LOM is $102 million at a discount rate of 5%.

·     Historical upgrade of Inferred Resource to M&I Resource that can be converted to reserves suggests that the life of mine can be further extended from the anticipated upgrading of a portion of the current Inferred Resource.  Ongoing exploration is expected to continue adding to this inventory.

·     We are confident that significant upside potential remains on the property through the conversion of Mineral Resources to Ore Reserves that are not currently included in the 2019 LOMP.

Summary information on the LOMP can be found in appendix 1.

Significant production potential remains through the conversion of resources currently outside the LOMP. As a result, the actual mine life is expected to be longer than 7 years. There is good potential to add reserves from upgrading and conversion of these resources. Historically Kapan reserve depletion has been replenished through ongoing exploration and development.  This is expected to continue.

In addition, there are known exploration targets within the existing license area and others further away but still close to the current mine infrastructure. Exploration and development of these areas over the next few years should allow Kapan to open up new operating areas with the potential to debottleneck mine production and allow further expansion of the mill. Capacity for up to 1.2Mt of ore is already installed in the mill and can be put into service with minimal capital cost.

Artem Volynets, the Company's CEO, commented:

"We are very pleased with this update for Kapan. The resource and reserve update show that depletion continues to be replaced with new reserves through our well-developed and successful exploration program. In addition, the work this year has allowed us to improve mine life while at the same time maintaining our target of $20 million run-rate EBITDA from the operation. This ongoing replacement of resource through exploration continues to give us the confidence that this mine should have many years of ongoing operation well beyond the current LOMP.  Indeed, the fact that we bought the Kapan Mine in early 2019 with a 5-year LOM and now, net of depletion, we have a 7-year LOM, supports this confidence.

"We are also encouraged by the fact that there is still significant exploration potential in the broader area, including the existing flank areas to the main workings. These are areas of potential we will look to further scope over the next year or two as we look to continue to develop the Kapan mine."

Enquiries

Chaarat Gold Holdings Limited Artem Volynets (CEO)	[phone]
	[e-mail]
Numis Securities Limited
John Prior, Paul Gillam (NOMAD)	[phone]
James Black (Corporate Broking)
SP Angel	[phone]
Ewan Leggat (Joint Broker)
Tavistock
Charles Vivian	[phone]
Gareth Tredway Barney Hayward	[e-mail]

Mineral Resources

The following table summarizes the current Mineral Resources:             

			Grade					Metal
Classification	Tonnes (mt)	Density	Au (g/t)	Ag (g/t)	Cu (%)	Zn (%)	AuEq (g/t)	Au (koz)	Ag (koz)	Cu (t)	Zn (t)	AuEq (koz)
Measured	0.76	3.04	4.23	68.62	0.74	3.24	8.21	103	1,674	5,640	24,648	200
Indicated	8.04	3.02	2.72	52.37	0.57	2.31	5.67	703	13,515	46,132	186,016	1,463
M & I	8.80	3.02	2.85	53.77	0.59	2.39	5.89	806	15,189	51,772	210,664	1,663
Inferred	7.64	3.01	2.46	51.22	0.58	2.16	5.29	602	12,562	44,034	164,792	1,298

Notes: The effective date of the Resources is 1^st August 2019. Mineral Resources that are not mineral Reserves do not have demonstrated economic viability. Numbers may not sum due to rounding.

The gold equivalency formula is:Au Eq = Au + ((Ag g/t * ($15.5 / $1,250) + ((Cu % * ($6,000*31.1035/$1,250)/100) + ((Zn % * ($2,500*31.1035/$1,250)/100

Mineral Resources are Inclusive of Ore Reserves

The resource estimate was classified following the requirements of the JORC Code (2012) reporting code.

Ore Reserves

For the Kapan Ore Reserves, Chaarat developed a mining block model by applying the modifying factors necessary for conversion of Mineral Resources to Ore Reserves. Those factors included amongst others, operating costs, mining dilution and extraction factors.

The total Proven and Probable Ore Reserves are 4.5 Mt at a grade of 1.69g/t Au, 31.72g/t Ag, 0.35% Cu and 1.34% Zn at a cut off grade of 2.5g/t AuEq. A summary of the Ore Reserves by category is shown in the following Table:

			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	4373	14.86	56.88	445
Total P & P	4.5	1.69	31.72	0.35	1.34	3.25	245	4594	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 USD1,400/oz Au, USD17/oz Ag, USD6,000/t Cu, and USD2,400 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.

Revised Mine Plan (the Plan)

·     Mine design and planning were completed using Mineable Shape Optimizer (MSO) and Datamine Studio 5D Planner.

·     The Mine Plan has been developed to maximize both value and mine life. The Plan is based on an average mine production of 700,000 tonnes per annum (tpa).

·     Mill throughput of 750,000t is achieved by purchasing and treating an additional 50,000t of third-party ore per annum.

Exploration and Future Potential at Kapan

·     Total resources that presently sit outside of the Plan amount to 7.64 Mt at 5.29 g/t AuEq for 1.298koz AuEq oz.

·     These resources will continue to be drilled to move Inferred Resource to M&I.

·     There are several known areas of satellite mineralization that sit within the license area that have the potential for future development.

·     Additional target areas exist in close proximity to the mine that have future potential as exploration targets.

Historically, underground development and drilling has enabled Resources to be converted to Reserves at a rate that matches depletion, and so maintaining an approximately 5 year LOM. It is expected that the current exploration drilling program should provide for future conversion of Resource to Reserve at least the same rates. 

Resources are estimated in Datamine by Ordinary Kriging in a 10m * 10m * 10m block, sub-blocked to match the geometry of the wireframe interpretation. Search parameters and variogram parameters are derived per vein, of which there are more than 200, and estimated as independent domains. Where numbers of samples are low, veins are aggregated into groups to get sufficient sample support for grade estimation. 

Quality Assurance/Quality Control Procedures: Sampling Methodology and Quality Control

All results are from diamond core holes.  Samples are shipped to the ALS Global Laboratory in Kara-Balta, Kyrgyz Republic for sample preparation and assay. Gold is analysed using a 30-gramme fire assay with an atomic absorption spectroscopy (AAS) finish. A quality control/quality assurance protocol is employed in the programme which includes standards and blanks in every batch of assays. Check assays are conducted on every 20^th sample by a second independent laboratory.  

Geological Modelling Procedures

Geological interpretation of potentially economic mineralization is done in Leapfrog geo. Data used includes, but is not limited to, drill hole samples, channel samples, underground mapping (face and backs). Where appropriate, a minimum mining width is applied to the interpretation.

Mineral Resource Estimates

Tonnages and grades were estimated using Datamine Studio 3 software. Grade and other data was interpolated by Ordinary Kriging into 10m x 10m x 10m block, sub-blocked to match the geometry of the wireframe interpretation. Search parameters and variogram parameters are derived for each vein, of which there are more than 200, and estimated as independent domains. Where numbers of samples are low, veins are aggregated into groups to get sufficient sample support for some veins. 

Competent Persons

The updated Mineral Resource Estimate was prepared by Mr. Joe Hirst, B.Sc., M.Sc. European Geologist (EurGeol) and Chartered Geologist (CGeol). Mr. Hirst is Senior Resource Geologist at Chaarat and is a "Competent Person" as such term is defined by the JORC code. Mr. Hirst has reviewed the technical and scientific information in this press release relating to the Mineral Resource Estimates and has approved the use of the information contained herein.

The updated Ore Reserves were prepared by Chaarat and reviewed by Alan Turner, CEng MIMMM. Mr. Turner is Principal Mining Engineer at AMC Consultants (AMC) and is a "Competent Person" as defined by the JORC code. Mr. Turner has reviewed the technical and scientific information in this press release relating to the Ore Reserves and has approved the use of the information contained herein.

The Competent Person with overall responsibility for this press release for the Company, and who has reviewed the information contained herein, is Dorian L. (Dusty) Nicol (FAussIMM), the Company's Senior Vice President, Exploration. He is a geologist with more than 40 years of experience in the resource industry who has sufficient experience relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2012 Edition of the 'Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves'. He has supervised the work which is the subject of this release. Mr. Nicol consents to the inclusion in the report of the matters based on this information in the form and context in which it appears.

Appendix 1 LOMP Summary

		Year	2020	2021	2022	2023	2024	2025	2026
Summary
Production
	AuEq Produced	oz	60,363	60,138	59,016	57,886	61,093	56,796	43,064
Sales
	AuEq Payable	oz	52,960	52,711	51,900	51,240	53,816	50,298	37,791
3rd party ore
	EBITDA Contribution	USDk	1,000	1,000	1,000	1,000	1,000	1,000	1,000
Operating Cash Cost
	AuEq produced	USD/oz	(842)	(840)	(824)	(845)	(798)	(752)	(531)
	AuEq sold	USD/oz	(959)	(958)	(938)	(955)	(906)	(850)	(605)
All In Sustaining Cost
	AuEq produced	USD/oz	(1,051)	(1,049)	(1,038)	(1,056)	(1,016)	(985)	(823)
	AuEq sold	USD/oz	(1,198)	(1,196)	(1,180)	(1,193)	(1,153)	(1,112)	(938)
Price assumptions					Implied conversion rates
	Zinc	USD/t	2,400		Ag/Au	78
	Copper	USD/t	6,000		Cu/Au	7,502
	Silver	USD/oz	18.0		Zn/Au	18,755
	Gold	USD/oz	1,400

¹ Operating Cash Cost - back of mine operating, administrative and commercial costs excl. royalty

² AISC - Cash cost plus royalty, tax, stay in business capital expenditure and others

³ Average production and cost calculated on 2020 - 2025 basis as 2026 is not a full year in the LOMP

Appendix 2: Glossary of Technical Terms

Ag	chemical symbol for silver
Au	chemical symbol for gold
AuEq	the value of a tonne of mineralised material calculated by summing the value of each contained payable metal and expressing it as an equivalent gold content at a given set of metals prices
Cu	the chemical symbol for copper
Cut off	the lowest grade value that is included in a Resource statement. It must comply with JORC requirement 19: "reasonable prospects for eventual economic extraction" the lowest grade, or quality, of mineralised material that qualifies as economically mineable and available in a given deposit. It may be defined on the basis of economic evaluation, or on physical or chemical attributes that define an acceptable product specification
g/t	grammes per tonne, equivalent to parts per million
Inferred Resource	that part of a Mineral Resource for which tonnage, grade and mineral content can be estimated with a low level of confidence. It is inferred from geological evidence and assumed but not verified geological and/or grade continuity. It is based on information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes which may be limited or of uncertain quality and reliability
Indicated Resource	that part of a Mineral Resource for which tonnage, densities, shape, physical characteristics, grade and mineral content can be estimated with a reasonable level of confidence. It is based on exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes. The locations are too widely or inappropriately spaced to confirm geological and/or grade continuity but are spaced closely enough for continuity to be assumed
JORC	The Australasian Joint Ore Reserves Committee Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves 2012 (the "JORC Code" or "the Code"). The Code sets out minimum standards, recommendations and guidelines for Public Reporting in Australasia of Exploration Results, Mineral Resources and Ore Reserves
Koz	thousand troy ounces of gold
Measured Resource	that part of a Mineral Resource for which tonnage, densities, shape, physical characteristics, grade and mineral content can be estimated with a high level of confidence. It is based on detailed and reliable exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes. The locations are spaced closely enough to confirm geological and grade continuity
Mineral Resource	a concentration or occurrence of material of intrinsic economic interest in or on the Earth's crust in such form, quality and quantity that there are reasonable prospects for eventual economic extraction. The location, quantity, grade, geological characteristics and continuity of a Mineral Resource are known, estimated or interpreted from specific geological evidence and knowledge. Mineral Resources are sub-divided, in order of increasing geological confidence, into Inferred, Indicated and Measured categories when reporting under JORC
Mt	million tonnes
oz	troy ounce (= 31.103477 grammes)
Pb	the chemical symbol for lead
Probable Reserve	the part of Indicated and in some cases Measured Resource that can be mined at a profit.  It includes diluting materials and allowances for losses that may occur during mining.
Proven Reserve	the part of Indicated Measured Resource that can be mined at a profit.  It includes diluting materials and allowances for losses that may occur during mining.
Reserve	the part of a Measured and/or Indicated Mineral Resource that can be mined at a profit.  Reserves are subdivided in order of increasing confidence into Probable and Proven categories when reporting under JORC.
t	tonne (= 1 million grammes)
Zn	the chemical symbol for zinc

 

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