Prelim audited results for year ended 31 Dec 13

RNS Number : 3186K

Chaarat Gold Holdings Ltd

24 June 2014

 



Chaarat Gold Holdings Limited

("Chaarat" or "the Company")

PRELIMINARY ANNOUNCEMENT OF AUDITED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2013

Road Town, Tortola, British Virgin Islands (24^th June 2014)

Chaarat (AIM - CGH), the AIM quoted exploration and development company with assets in the Kyrgyz Republic, today publishes its preliminary results for the year ended 31 December 2013.

Highlights for the year

·      Mining licence issued for the whole deposit

·      Definitive feasibility study (DFS) for the whole deposit in progress

·      Board and technical skill base strengthened

·      New layout for the Project agreed to reduce operating cost and complexity

·      Collection of field and technical data for DFS in progress

·      Continued and substantial engagement with host communities

Dekel Golan, CEO of Chaarat, commented:

"We are very encouraged by the early results of the DFS which supports our view that Chaarat is one of the largest and best undeveloped deposits in the world. The DFS will demonstrate both the economic merit of the Project and establish a clear route for its development."

Enquiries:

Chaarat Gold Holdings Limited	+ 44 23 800 11747
c/o Central Asia Services Limited	[e-mail]
Dekel Golan   CEO Linda Naylor  FD

  Numis Securities Limited                                                         [phone]

  John Prior, Stuart Skinner (NOMAD)

  James Black (Broker)

About Chaarat Gold

Chaarat Gold is an exploration and development company operating in the Kyrgyz Republic with a large, high grade resource - the Chaarat Gold Project. The Company's key objective is to become a low cost gold producer generating significant production from the development of the Chaarat Gold Project. Chaarat is preparing a Definitive Feasibility Study (DFS) and continuing its active community engagement programme to optimise the value of the Chaarat investment proposition. 

Further information is available at www.chaarat.com 

Chairman's Report

Last year saw a dramatic change in the price of gold and more generally in the market's sentiment towards gold companies. Investors dumped their shares in gold companies which sent share prices plunging to levels not seen for years, and in some cases decades. Chaarat was not spared and although we did better than many of our peers, by the end of 2013, our share price had dropped by 10p from 19.5p at the beginning of the year. The general trend was exacerbated for Kyrgyz based companies due to the eruption in tension between Centerra (the largest gold producer in the country) and the Government. Many shareholders have recognized the undisputed advantage of Chaarat as a large high grade deposit with considerable upside for growth. It is at the end the grade which makes the difference. We appreciate the support of all our  shareholders and in 2013 we welcomed a couple of new significant entrants to our register.

Having identified the change in market sentiment early in 2013, and conscious of the need to raise more money to reach production, which would have been  possible but highly dilutive, your Board decided to change direction. We stopped the push towards production and commissioned a comprehensive Definitive Feasibility Study (DFS) for the whole Project. We believe this will allow the company to demonstrate the true potential of the Chaarat Deposit rather than investing all its efforts into establishing a small scale production unit which, due to its size, would generate minimal cash.

The DFS is beingcoordinated by our recent appointee to the Board, Marcel (Mac) DeGuire, who joined the Board in May 2013. Mac brings with him a wealth of experience and knowledge which shouldresult in a high quality and reliable DFS. 

During the year we therefore focused on collecting the information which is required for a robust DFS. Extensive drillingincreasedour oxide (low cost to produce) resource and ensuredwe have a good understanding of the parameters underpinning the work.

We are often asked "what is it like to work in the Kyrgyz Republic"? Throughout the last year, countries which used to be considered as "traditional mining jurisdictions" have seen an increase in the tensions between mining companies, governments, local residents, the environment and its protectors, employees and other stakeholders. We have seen strikes, strife and shareholders' feuds. The mining industry in terms of rules and regulation and indeed in its actual practice in the Kyrgyz Republic is still in its earlier stages of evolution. Legislation is updated regularly; stakeholders are engaged in significant, sometimes vocal, debates. The availability of trained experienced public servants is limited and delays are not uncommon. But a general positive trend is crystallising. The process does work and rules, regulations and permits are issued. Engagement with both community level and national level representatives is taking place.  We are very proud of our stakeholders' engagement program. We have been working with the local communities for years to establish trust and mutual respect.

Having released the results of the DFS we will work towards financing the Project as well as securing the necessary construction permits to build the Project.  There has been interest from other parties to participate in the Project and once we have a clearer understanding of the potential returns from the Project we can take a view on the best way to move forward. You will be kept posted.

I wish to record my thanks for the contribution of Rob Weinberg to the Board over the last three years and to welcome Mac DeGuire and Richard Rae who are both making a significant impact in their respective areas of expertise. It just remains for me to thank our shareholders and employees for their support and invaluable contribution to Chaarat's success to date.

Christopher Palmer Tomkinson
Chairman

Chief Executive Officer's Report

The achievements of your company in 2013 were underpinned by two major events; one global and the other corporate.  Globally, the markets, reacting both to the fall in the price of gold as well as to the understanding that the sector was ill prepared for the fall, lost faith with gold and gold companies and dumped their shares. Any company, with cash in hand and plans to raise more capital, would have been wise to seriously review its expenditure plans to avoid raising money at punitive prices and causing major dilution to existing shareholders.

In 2014 the two licences were consolidated to one and we now have fullrights to exploit the deposit subject only to the submission of a development plan for approval by the Government within three years. The contents of the development plan are very similar to a Definitive Feasibility Study (DFS) which we have now started to compile.

Development strategy

As a junior company with a large deposit which is capable of supporting a significant production base, the development strategy of the Company had attempted to strike a balance between raising funds to achieve the appropriate pace of development and shareholders' resulting dilution. Chaarat's management initially intended to seek to unlock the value of the Chaarat deposit in stages by constructing a production facility; a first stage of limited capacity, which would be expanded as additional funding opportunities become available; such as by way of cash from operations, project finance or the introduction of a partner. Once in production, the execution risk profile of the project would have been decreased and the Board believed that the next stages of development would be easier to implement as raising funds, or finding the partners to increase production capacity would be more straightforward and reflect a higher value for the Company.

We raised money in 2011 to reach early small scale production during 2013. It was clear from the outset that we would need an additional amount, probably $20 million, to reach production and we assumed this money would be raised as a working capital facility. However, the change in sentiment by the markets towards gold producers combined with the periodic tension between Centerra and the Kyrgyz Parliament meant that the cost of this facility would be punitive. These facts combined with a sliding gold price made it clear that we were unlikely to generate significant free cash flow from such a small production capacity.

The Board, having secured the mining licence for the whole Chaarat deposit, decided therefore to conduct a comprehensive DFS so that we could devise the optimal way forward for the whole Project.  The DFS will also satisfy the regulatory requirement to submit a development plan to the Government. The DFS team led by Mac DeGuire includes specialists from GBM, Gustavson Associates, Golder Associates and RDI.

Initial conclusions from work associated with the DFS

The DFS will establish a development strategy which keeps our options open. There will be two options: one which focuses on minimizing upfront capital investment whilst maintaining acceptable returns and the second focused on a large production base which generates the maximum return from the development of the whole Project from the outset. This can be achieved by designing the Project in two stages which can be developed simultaneously or sequentially. Simultaneous development of the Project will produce much more gold but require larger upfront investment.

The Chaarat deposit is located in a narrow valley which could limit development options for the Project. A trade-off study determined that economically, environmentally and operationally the process plant and associated infrastructure should be located in the adjacent valley and a 10 km tunnel constructed to connect the plant to the mine site. The initial significant capital investment in building the tunnel will be more than justified by the significant reduction in haulage costs and environmental benefits.We have revised the first stage Project to ensure it generates the returns to cope with the capital outlay of the tunnel and power line.

In view of the required initial capital investment, production of about 120koz of gold per year will be required to justify the heap leach project as a standalone.  In order to achieve that level of production the available open pittable, low strip-ratio, heap leachable resource base needs to be increased. Drilling during the 2013 season increased the resource of the shallow open pittable section of the Tulkubash to 6.37 million tonnes of resource at a grade of 1.95 g/t (from 2.7 million tonnes in 2012). Although this is a significant increase over the previously delineated volume, we need to drill further along strike both to increase the quantity of material available for lower cost processing as well as the projected annual throughput of the mine. The necessary drilling has commenced already and, to allow sufficient time to analyse the results of the drilling, we now expect the DFS to be completed in early 2015.

The low sulphide clean ore of the Tulkubash zone willbe processed by heap leach which is less capital intensive than the alternative Carbon in Leach (CIL)method. The low cost of processing by the heap leach method will enable us to add already mined lower grade materialto the pad;material which would otherwise be sub-economic to process. The gold generated from this material will have a significant positive impact on the project returns.

Achievements in 2013

Work in 2013 focused on four major areas of activity:

1.     The preparation of the DFS including identifying the land requirements of the project

2.     Securing land for the project layout (including the power line)

3.     Developing the power scheme design

4.     Engagement with the community, consultation, support and development

DFS
The priority during 2013 was data collection for the feasibility study. A total of 16,500 metres of drilling provided data for the geotechnical studies, the hydrological investigations and increased the delineated resource.

The geological database has undergone a careful audit by Gustavson in order to produce the latest resource estimate.  Drilling in the shallower, more weathered and therefore more oxidized layer of the deposit was designed to increase the Measured and Indicated resource which will be mined by the open pit method. More material was delineated in the near surface oxide open pittable sections but at a slightly lower grade than the deeper material. The grade of the predominantly underground non-oxide material section of the deposit has been reduced from 4.03 g/t to 3.36 g/t using a 2 g/t cut-off grade. The grade of the shallow oxide and open pittable section of the deposit is currently 1.97 g/t using 1 g/t cut off. The change of grade was also a result of the more conservative approach adopted in the construction of the solid model. As a result of the additional drilling a larger part of the resource can be categorised as Measured and Indicated. At the same time stricter criteria for inclusion of material in the Inferred category reduced the proportion of Inferred resource from 48% to 27% of the total resource.

Considerable metallurgical work has been conducted by RDI to enable the Company to differentiate the optimal metallurgy of the different types of mineralisation.

Having concluded that the best site for the plant is outside the Sandalash valley in the adjacent Chatkal valley, we secured permission to carry out investigation work in this area. Initial environmental work to establish the "base-line" status of the location has commenced and will be completed during the spring and autumn of 2014.

Consultants have been appointed for all aspects of the DFS work: Gustavson Associates are appointed to execute the mine and tunnel design, GBM commissioned for the engineering and Golder Associates are responsible for the geotechnical and environmental work as well as the tailings design.

Land
The land laws in the Kyrgyz Republic relating to mining projects have been revised to be more investor friendly but implementation is likely to take time until the new procedures are well embedded. The law states that land for mining projects once recognised as such reverts to the state and is then allocated to the mining company.  We decided to approach the existing owners of the land plots we require and negotiate leases with them directly to facilitate the process. Whilst this procedure may be slightly more expensive we will at least have "ownership" and access to the land we need and can start the planning process. We are pleased to report that the required land has been delineated and that progress has been made in negotiations with land owners.

Power

Chaarathas designed the power line and signed a quota agreement with the national electricity company (NESK). We are now in the process of securing land for the pylons (as outlined above) and the right of way from four provinces. We have been given three years to complete the design and construction of the line. The line will have the capacity to transmit 70MW of  low cost hydropower generated electricity to the Chaarat Project.

Stakeholders' engagement
The activities in relation to our engagement with the communities around us and other stakeholders are described in detail in the Corporate Social Responsibility Report in Chaarat's 2013Annual Report.

Finance

As part of the revised strategy to prepare a DFS before production we have as a Board reviewed all expenditure to date on the small scale Tulkubash Project. All investment to date on infrastructure, such as access roads and power lines, will benefit the enlarged Project. However certain design and engineering costs incurred when small scale production was envisaged have been written off.

We continue to focus on minimising discretionary expenditure and reducing headcount where it does not compromise safety at site or impede the progress of the DFS. We are actively seeking additional funding from the sale of plant and equipment not immediately required as well as the sale of exploration assets which are not our priority to develop, to cover the impact of the additional work and enlargement of scope of the DFS. 

Exploration assets

We are pursuing petrographical work on our Chontash asset to improve understanding of the intrusive body in the porphyry.  We are in discussions about the sale of the other two assets.  Mironovskoye is a fully permitted gold mine and a number of entities have expressed an interest.  We relinquishedone of the licences relating to the Kyzil Ompul project and have decided to impair this greenfield prospect to the indicativeoffer we received to buy the remaining licences. 

Looking forward

We are very encouraged by the early results of the DFS which supports our view that Chaarat is one of the largest and best undeveloped deposits in the world. The DFS will demonstrate both the economic merit of the Project and establish a clear route for its development. As always I would like to thank our shareholders and staff who never give less than their total commitment to the development of the Chaarat Project.

Dekel Golan
Chief Executive Officer

Consolidated income statement
For the years ended 31 December
		2013	2012
		USD	USD
Exploration expenses		(4,780,317)	(6,301,714)
Impairment of assets		(4,061,949)	-
Administrative expenses		(4,962,471)	(5,905,089)
Administrative expenses- Share options expense		(756,356)	(588,514)
Administrative expenses- Foreign exchange gain		8,309	229,581
Total administrative expenses		(5,710,518)	(6,264,022)
Other operating (expense)/income		(43,027)	345,862
Operating loss		(14,595,811)	(12,219,874)
Finance income		219,601	730,086
Taxation			-
Loss for the year, attributable to equity shareholders of the parent	§	(14,376,210)	(11,489,788)
Loss per share (basic and diluted) - USD cents		(5.74)	(4.59)

Consolidated statement of comprehensive income
For the years ended 31 December
		2013	2012
		USD	USD
Loss for the year, attributable to equity shareholders of the parent		(14,376,210)	(11,489,788)
Other comprehensive income:
Exchange differences on translating foreign operations		(528,755)	(918,873)
Other comprehensive income for the year, net of tax		(528,755)	(918,873)
Total comprehensive income for the year attributable to equity shareholders of the parent		(14,904,965)	(12,408,661)

Consolidated Balance Sheet
At 31 December
		2013 USD	2012 USD
Assets
Non-current assets
Intangible assets		103,718	129,740
Mining exploration assets		7,192,913	8,349,367
Mine properties		21,657,042	8,400,984
Property, plant and equipment		7,691,266	4,685,330
Assets in construction		14,477,613	15,598,101
Other receivables		-	-
		51,122,552	37,163,522
Current assets
Inventories		1,753,802	2,783,323
Trade and other receivables		857,903	3,143,397
Cash and cash equivalents		11,163,079	36,944,060
		13,774,784	42,870,780
Total assets		64,897,336	80,034,302
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		15,013,806	14,618,604
Translation reserve		(2,517,808)	(1,989,053)
Accumulated  losses		(80,646,255)	(66,631,199)
Total equity		62,906,183	77,054,792
Non-current liabilities
Deferred tax		475,772	472,620
		475,772	472,620
Current liabilities
Trade and other payables		617,181	754,951
Accrued liabilities		898,200	1,751,939
		1,515,381	2,506,890
Total liabilities		1,991,153	2,979,510
Total liabilities and equity		64,897,336	80,034,302

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 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
Currency translation						(528,755)	(528,755)
Other comprehensive income						(528,755)	(528,755)
Loss for the year ended 31 December 2013				(14,376,210)			(14,376,210)
Total comprehensive income for the year				(14,376,210)		(528,755)	(14,904,965)
Share options lapsed				361,154	(361,154)		-
Share options expense					756,356		756,356
Balance at 31 December 2013		2,504,778	128,551,662	(80,646,255)	15,013,806	(2,517,808)	62,906,183

Consolidated Cash Flow Statement
For the Years Ended 31 December
		2013 USD	2012 USD
Operating activities
Loss for the year		(14,376,210)	(11,489,788)
Adjustments:
Amortisation expense - intangible assets		50,914	53,372
Depreciation expense - property, plant and equipment		1,076,025	902,531
(Profit) on disposal of property, plant and equipment		9,349	(359,991)
Impairment of assets		4,416,403	-
Finance income		(219,601)	(730,086)
Share based payments		756,356	588,514
(Gains) on foreign exchange		(8,309)	(229,581)
Decrease/(increase) in inventories		1,029,521	(1,454,957)
Decrease in accounts receivable		2,285,494	4,920,850
(Decrease)/increase in accounts payable		(988,359)	299,059
Net cash flow used in operations		(5,968,327)	(7,500,077)
Investing activities
Purchase of computer software		(24,892)	(138,354)
Purchase of tangible assets		(19,486,920)	(17,060,389)
Interest received		219,601	730,086
Net cash used in investing activities		(19,292,211)	(16,468,657)
Financing activities
Proceeds from issue of share capital			-
Issue costs			-
Net cash from financing activities			-
Net change in cash and cash equivalents		(25,260,538)	(23,968,734)
Cash and cash equivalents at beginning of the year		36,944,060	61,184,915
Effect of changes in foreign exchange rates		(520,443)	(272,121)
Cash and cash equivalents at end of the year		11,163,079	36,944,060

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 2013 or 2012.

The consolidated balance sheet at 31 December 2013, 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 2013 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 2013. 

Going concern and project funding requirements
In May 2013 the Board announced a revised development strategy for the Chaarat Project which now involves the completion of a Definitive Feasibility Study ("DFS") for the whole Project rather than pursuing production from the Tulkubash Project alone. Early small stage production as originally envisaged would have required funds to be raised for working capital.

In light of the decision not to pursue production before completion of the DFS, the Board has reviewed the revised budgets and cash flow forecasts for the period to 31 December 2015, which include an element of discretionary expenditure.  At 31 December 2013, the Group had cash and cash equivalents of USD 11.2 million and no borrowings.  Since the original budget for the DFS was completed, additional areas of work have been identified which if undertaken will add value to the Chaarat Project by increasing production, reducing operating costs and reducing the environmental impact.  Accordingly the Board decided to commission the DFS consultants to undertake the additional work with a consequent increase in the costs of the DFS.  The additional work also requires further drilling and data collection during the 2014 season which is now underway. As a result further funds may be required to cover the shortfall between the original budget and revised budgets for completion of the DFS, which due to enlargement of scope is now scheduled for completion in 2015. 

The Board has a reasonable expectation that these funds will be made available by selling certain equipment and other assets of the Group, cutting discretionary expenditure, reviewing the timing of other expenditure and pursuing other fund raising options.  Subject to the successful realisation of these expectations, the Board is satisfied that it has sufficient funds to complete the DFS 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. However, in the absence of such arrangements being in place these conditions indicate the existence of a material uncertainty which may cast significant doubt over the Group's ability to continue as a going concern and, therefore, that it may be unable to realise its assets and discharge its liabilities in the normal course of business. The financial statements do not include the adjustments that would result if the Group was unable to continue as a going concern.

After completion of the DFS in 2015, further funding will be required to complete the Chaarat Project, which has been in progress since 2011, and bring it to production.  If this funding cannot be secured the Group may not be able to fully develop the Project and the carrying values of the mine properties, related plant and equipment and assets in construction, which at 31 December 2013 amounted to approximately $44 million, may become impaired.

3. Loss per share

Loss per share is calculated by reference to the loss for the year of USD 14,367,210 (2012: USD 11,489,788) and the weighted number of shares in issue during the year of 250,477,868 (2012: 250,477,868)

There is no dilutive effect of share options.

4. Timetable and distribution of accounts

The Annual General Meeting will be held at 11am on 23 July 2014 at the offices of BDO, 55 Baker Street, London W1U 7EU.

Copies of the Annual Report and Notice of the Annual General Meeting will be sent to shareholders on 27 June 2014.

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 with a large, high grade resource - the Chaarat Gold Project. The Company's key objective is to become a low cost gold producer generating significant production from the development of the Chaarat Gold Project. Chaarat is preparing a Definitive Feasibility Study (DFS) and continuing its active community engagement programme to optimise the value of the Chaarat investment proposition.

Further information is available at www.chaarat.com

 

END

 

 

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