Kapan Resource and Operational Update

RNS Number : 0415H

Chaarat Gold Holdings Ltd

29 July 2019

 

29 July 2019

Chaarat Gold Holdings Limited ("Chaarat" or “the Company")

Kapan Resource and Operational Update
February-June 2019 inclusive (five months)

Chaarat (AIM:CGH), gold mining company with assets in the Kyrgyz Republic and Armenia, provides an update regarding the Kapan mine which the Company acquired on 30th January, 2019. All the statistics below relate to the period ending 30 June 2019.

Operational highlights 

-  Environmental Social and Governance ("ESG") statistics for 2019 year to date reflect a safe working environment. One lost time injury ("LTI") involving a contractor was reported for the period under review. The Company has started introducing the same ESG requirements for contractors

-  Run of mine (RoM) ore production increased by 8% year on year relative to the same five-month period in 2018

-  RoM grade in gold equivalent (AuEq) terms declined 14% year on year, resulting in a 6% decline in contained RoM metal

-  Contained AuEq adjusted for all payable metals increased 9% year on year Mill throughput in the first 5 months of ownership is up 23% year on yeardue to the processing of RoM stockpile material

-  Production of copper concentrates was up 12% year on year in conjunction with a 16% increase in AuEq ounces recovered to copper concentrate

-  Production of zinc concentrate was down 10% year on year due to lower RoM zinc grades and slightly lower mill recoveries

-  Milling rates of approximately 800,000 tonnes on an annualized basis have been achieved for sustained periods over the period under review, which gives us confidence that a further 5% increase in mill throughput is achievable

-  Costs per tonne of ore treated was 10% lower year on year. This has enabled the Company not only to absorb the impact of the lower RoM ore grades but also positions the company well for an anticipated recovery in RoM grade as management develops a better understanding of the ore body

- Legacy issues: a number of legacy issues and operational challenges have been identified by the Chaarat management team. These have had a negative effect on operations in the near term. Management has installed mitigation measures to offset these challenges and they are delivering results. Based on the current work programme the Company believes the mine will reach its operational targets by the end of Q3

- New Mineral Resource Estimate ("MRE"). New Mineral Resource of 1.775Moz AuEq (Measured & Indicated based on the results of 69,000 meters of drilling completed in 2018. The MRE gives Management confidence based on historical resource to reserve conversion rates at Kapan that the mine will continue to replace mined reserves and should continue to extend mine-life for several years beyond the current life of the mine. This work programme has improved the Company's understanding of the ore body and will help to optimize short, medium and long-term operational planning and execution

-  With the new team now fully integrated at the asset, the Company is confident that Kapan will reach full year operational target run rates by the end of Q3 2019, including our target of 65 Koz of AuEq for 2019

Artem Volynets, Chief Executive Officer of Chaarat Gold, said:

“I’m pleased with the progress that the new management team are making at Kapan. Our ESG statistics have been outstanding, showing solid management commitment to establishing a safe operating environment.

“Also positive is a revised and more accurate Mineral Resource Estimate of 1.775Moz Au Eq in M&I Resource. This, based on 69,000m of exploration drilling done in 2018, better reflects the underlying potential and value of the asset. We are especially encouraged by the significant increase in M&I Resource of 54 per cent from 1.15 to 1.775Moz Au Eq, which supports our belief that we will be able to replace reserves at Kapan on a continuous bases going forward.

“Although this year has seen a challenging start to ownership due to a number of legacy issues, our experienced management and mine-site team identified these early and began remedial work immediately with encouraging results.

“As we continue to streamline operations and drive other improvements, we are confident that Kapan will achieve our targeted operational results in Q3 of this year”.

ESG update

 

There were no LTIs related to direct employees in the period under review although there was one LTI involving a contractor. Prior to Chaarat taking over the business, no data was recorded on contractors’ injuries. As part of an improved ESG management system, the Company now includes contract employees in all aspects of the new safety management programme.

Safety performance and safety culture on site are improving overall with significant management focus applied to potentially unsafe conditions, working practices and behaviours. The Company is carrying out reinforcement work on the tailings facility to reduce the risks related to the historic construction of the dam walls. A full and independent assessment of the longer-term work requirements is in progress.

Chaarat attaches great importance to sustainable community development programmes, and is in partnership with the local government on the various social projects considered most necessary by the communities involved. For example, Chaarat is focused on helping the wellbeing of children in the community, providing donations to fund the establishment of new nursery facilities and classrooms.

Operational update

Production Data: Feb - June		2018	2019	Delta
Ore Mined	Tonnes	255,323	276,378	8 %
Head grade	AuEq (gpt)	3.76	3.25	-14 %
Contained Metal	AuEq (oz)	30,884	28,909	-6 %
Ore milled	Tonnes	261,750	321,538	23 %
Head grade	AuEq (gpt)	3.74	3.24	-13 %
Contained Metal	AuEq (oz)	31,455	33,479	6 %
Copper Conc Produced	Tonnes	3,505	3,925	12 %
Grade	AuEq (gpt)	145.71	151.20	4 %
Recovery Au Eq	%	52.20	57.00	9 %
Contained Metal	AuEq (oz)	16,418	19,082	16 %
Zinc Conc Production	Tonnes	5,213	4,689	-10 %
Grade	AuEq (gpt)	50.79	52.17	3 %
Recovery Au Eq	%	27.1	23.5	-13 %
Contained Metal	AuEq (oz)	8,512	7,865	-8 %
Contained Metals	AuEq to all concs (oz)	24,931	26,947	8%
Payable Metals	AuEq to all concs (oz)	22,881	24,927	9 %

The asset has presented more operational challenges than was anticipated before the acquisition was finalized, resulting in medium-term pressure on Kapan's financial performance. Because of the lower grades in the ore, profitability in the first months of ownership has been below the Company's initial expectations.

Following completion of the acquisition, actions were taken immediately to stabilize the operations and mitigate production and processing issues. Management is streamlining both mine planning and maintenance programmes, as well as improving the metallurgical performance of the mill.

These measures are being taken without delay. For example; to redress a temporary shortfall in ore mined due to legacy haul truck constraints, the Company has taken immediate action to obtain the required engine replacements on an expedited basis. To balance the interim period Chaarat's mining contractor has assisted by increasing its fleet size resulting in increased trucking rates.

Mill throughput has increased by 23% in the first five months compared to the same period for 2018.

The production of copper concentrate is 12% up on the same period last year. Operational improvements have also resulted in a 16% increase in AuEq ounces being recovered to copper concentrates. Improved recovery of precious metals to copper concentrates has also, in turn, improved profitability, due to the higher payable levels for Au and Ag.

Zinc concentrate production is down 10% year on year due to lower zinc grades in mined ore and slightly lower recoveries. Actions are underway to replace one of the cyclone packs on the mill circuit to resolve this issue. AuEq ounces in concentrate are also down (-8%), mostly due to the improvements in the copper circuit which have resulted in higher metal pulls to the copper concentrate.

Additional efforts are also in place to achieve targeted grades, reduce costs, and increase margins:

•  A cost reduction program is underway to review all major expenditure areas and identify operational efficiencies. This will include reviewing all contracts and procurement plans.

•  Additional sources of feed are being identified to allow the excess capacity of the mill to be fully utilized.

•  A review of Mining Methods and Mine Planning is in progress to identify ways to improve ore grade and reduce dilution.

•  Mill improvements through equipment and reagents are ongoing to continue to improve recoveries and enhance concentrate values.

The Company is confident that these initiatives will generate additional profit for the business. A comprehensive financial update will be provided with the H1 2019 results.

Overview of exploration and Mineral Resource Estimates

The Company announces an updated Mineral Resource Estimate ("MRE") demonstrating an increase in resources at Kapan. These have been identified from previous exploration campaigns. The Company is confidenct that the discovery of additional resources is likely to maintain the life of the asset well beyond the current reserve estimate.

The MRE is based on 69,000 metres of underground drilling conducted during 2018. Through future exploration, it is expected that annual replacement of depleted resources will be maintainable on an ongoing basis. There also exists numerous exploration opportunities for discovery of additional ore proximal to the current workings. 

The MRE update involved geological assessment of the exploration drilling, and optimization of the modelling methodology. Since taking ownership of the Kapan mine, Chaarat has been working to develop a JORC-compliant resource model that better reflects historical mining results. Sampling methods and practices have been reviewed and modified to correct the previous resource model's historical tendency to overestimate grade in order to achieve a more realistic estimate. This has also led to an increase in M&I tonnage compared to the last published Polymetal Resource Estimate (effective 1 January, 2018).

The Company considers the current MRE to be a more technically robust and realistic grade model than the previous one used by Polymetal. As more mine to mill reconciliation data is obtained, the grade estimation methodology will be further optimized to continue improving the model.

An updated reserve statement is being developed as part of the Midyear LoM planning process, and will be issued on completion

The new model is fully JORC-compliant and yields 8.9mt in the Measured and Indicated category with a gold equivalent grade of 6.20g/t. The updated MRE now comprises:

Cut-off 2.5g/t AuEq			Grade					Metal
Class	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	0.65	3.05	4.01	74.88	0.88	3.44	9.01	83	1,550	5,645	22,167	186
Indicated	8.27	3.02	2.57	51.70	0.59	2.37	5.99	681	13,725	48,726	195,835	1,589
M&I	8.92	3.03	2.67	53.38	0.61	2.45	6.20	764	15,275	54,370	218,002	1,775
Inferred	8.69	3.02	2.30	50.78	0.56	2.07	5.42	641	14,164	48,298	179,995	1,513

Notes: The figures above are effective as of 10 June 2019. The results are reported at a cut-off grade of 2.5g/t AuEq. The AuEq is calculated AuEq = Au + Ag/84 + Cu/0.6 + Zn/1.3 based on metals prices of $1,250/ounce Au, $15.50/ounce Ag, $6,000/tonne Cu, and $2,500/tonne Zn and on metallurgical recoveries as determined at site.

Conference call and Web cast:

Chaarat will hold a conference call and webcast on Wednesday, 31^st July, 2019 at 09:00 BST. Please see the below dial-in and webcast details.

Dial-in: [phone]

Webcast: https://secure.emincote.com/client/chaarat/chaarat002

Competent Person

The Competent Person with responsibility for technical content of 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.

Enquiries

Chaarat Gold Holdings Limited                              [phone]

Martin Andersson (Executive Chairman)     

Artem Volynets (CEO)                                                  [e-mail]     

Numis Securities Limited    

John Prior, Paul Gillam (NOMAD)                                [phone]

James Black (Corporate Broking)     

Powerscourt 

Conal Walsh                                                               [phone]

Sam Austrums                                                             [e-mail]

About Chaarat Gold

Chaarat Gold 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 Central Asia and the FSU through organic growth and selective M&A.

Chaarat is engaged in active community engagement programs 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.

Glossary of Technical Terms

"Au"	chemical symbol for gold
"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)
"Reserve"	the economically mineable part of a Measured and/or Indicated Mineral Resource
"t"	tonne (= 1 million grammes)

 

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