PRELIMINARY AUDITED FINANCIAL STATEMENTS

RNS Number : 8455Q

Chaarat Gold Holdings Ltd

11 June 2018

 

Chaarat Gold Holdings Limited

("Chaarat" or "the Company")

PRELIMINARY ANNOUNCEMENT OF AUDITED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2017

Road Town, Tortola, British Virgin Islands (11^th June 2017)

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 2017.

Highlights for the year

·      Revised strategy implemented to develop the Chaarat Project through a phased approach, and to conduct selective accretive M&A, with the aim to become a leading mid-tier gold producer focused in Central Asia and the Former Soviet Union

·      A series of Board and management appointments made to deliver the new strategy

·      US$15 million raised in convertible loan notes to fund the exploration and feasibility study work for Tulkubash

·      A 17,240 metre drill programme was completed at Tulkubash and metallurgical test work, geotechnical studies and environmental and social impact assessments were also carried out to support the Tulkubash feasibility study

·      Construction permit granted in September 2017, an important milestone to continue development at the project

·      Construction work commenced with upgrades to the main site access road, the bridge across the Sandalash river and the communications infrastructure

Post period highlights

·      Following the drill programme carried out in 2017, 319,000 ounces was added to the Tulkubash resource

·      2017 drill programme delivered a 43 per cent increase in contained gold at a 25 per cent increase in grade for an average all-in discovery cost of US$20 per ounce

·      Chaarat made an offer to acquire the Kumtor mine from Centerra, one of the largest gold mines in Central Asia

·      In April 2018 Chaarat published its feasibility study which highlighted an annual post-tax free cash flow of US$58.6 million during steady state operations

·      The Company announced an aggressive exploration programme for 2018 and 2019 to encompass 30,000 metres of diamond drilling per annum, with the 2018 programme ramping up on schedule since drilling commenced on 25^th April

·      Construction is expected to commence for the Tulkubash project in 2018

Martin Andersson, Chairman of Chaarat, commented:

"I am delighted with the progress made during 2017, and excited by the plans we have for the next 12 months.  Good progress was made at the Tulkubash project, with construction of infrastructure having commenced and an extended drill programme that upgraded the Tulkubash resource being carried out.  This, in addition to the promising Kyzyltash deposit, has provided us with what we think is a very strong defined gold resource and the potential for sustained production in the future.

"The exciting potential acquisition of the Kumtor mine is something we believe will propel the Company to the next level.  We understand the frustrations surrounding the current share suspension, however, these things take time.  The Chaarat Board and management team are very focussed on a successful outcome for all stakeholders and have a firm belief that it will be beneficial to the Company in achieving its goals.  Our operational track-record in the Kyrgyz Republic, as well as the expertise and experience within our management team, position us well to complete this acquisition.

"We continuously explore accretive opportunities that will complement the Chaarat Project, and like with everything we do, have a firm focus on due diligence.  We expect further construction on the Tulkubash project during 2018 and have commenced our extensive exploration programme at Tulkubash.  We look forward to updating shareholders, and the market, on the drill results along with any other developments when appropriate."

Enquiries:  

Chaarat Gold Holdings Limited	+ 44 (0)20 7499 2612
Martin Andersson (Chairman)	[e-mail]
Linda Naylor (FD/Company Secretary)
Numis Securities Limited	[phone]
John Prior, Paul Gillam (NOMAD) James Black (Broker)
BMO Capital Markets Limited	[phone]
Jeffrey Couch, Neil Haycock Thomas Rider (Joint Broker)
Blytheweigh (Financial PR)	[phone]
Tim Blythe
Megan Ray

Chairman's Statement:

It is a pleasure to report to all our stakeholders on what has been a pivotal year of change for Chaarat Gold.  I believe that the most important attributes to building a successful company are to create a clear and unambiguous strategic vision and recruit a team capable of executing that vision.  The changes at Chaarat in 2017 have delivered on both.

The Chaarat Project has always exhibited the qualities required to allow for successful development.  It contains a significant defined gold resource, at six million ounces, with a strong grade, averaging 2.42 grammes per tonne, and has the potential to sustain production of 300,000-400,000 ounces of gold per annum.  Our newly defined strategy extends well beyond the development of this property for the benefit of all our stakeholders: shareholders, bondholders, employees and host communities.  I am excited by the opportunity to develop a leading mid-tier gold producer focused in Central Asia and the Former Soviet Union.

Growth strategy

I have long standing ties to the CIS region, which has a highly fragmented gold industry comprising both world class assets and smaller, profitable producers.  Due to perceived risk, most of the assets in this region trade at a significant discount compared to equivalent assets in other emerging market locations.  This delivers the opportunity for industry consolidation, which Chaarat intends to lead.  Ultimately, a diversified portfolio of producing and developing mines will generate the cashflow to fund ongoing organic growth and deliver a strong equity return to investors.  By maintaining a focus on active engagement with host communities, the benefits of this strategy will flow to all stakeholders, helping to manage ongoing risks.

In April 2018 our offer for the Kumtor Gold mine in the Kyrgyz Republic was made public.  The Kumtor mine is one of the largest gold mines in Central Asia with a history of 21 years of uninterrupted profitable production.  Chaarat's offer provides a route to directly align the interests of the Government, which will benefit from a 50 per cent interest in the post-tax cash flow from the mine, with investors.  Significant amounts from the ongoing cash flow from Kumtor will be re-invested in the country to further extend the Kumtor mine life and develop the Chaarat project, whilst the existing owners of the project can realise the value of their asset for investment in other regions.

The Kumtor deal, whilst significant, represents only one of a number of potential deals.  Our focus is on gold producing or near-term development projects in geographical clusters that provide operational synergies.  Each deal will be judged on its ability to deliver accretive value to Chaarat shareholders in both the short term and through longer term exploration potential to extend and enhance production profiles.

The Kyrgyz Republic

Our offer for the Kumtor mine underlines our belief in the Kyrgyz Republic as a stable destination for mining investment.  My visits to the country in 2017 to meet local people and political leaders reinforced the support for Chaarat's strategic plans.  We have worked with the government to improve the international investor perception of the country's operating environment and are co-hosting a Kyrgyz Investment Forum with the European Bank for Reconstruction and Development in London.

In September 2017 an important milestone was achieved with the signing of Chaarat's licence agreement, allowing the development of the Chaarat project.  Negotiations for an investment stabilisation agreement continue, which will stabilise tax rates for the life of the project and define procedures to resolve disputes.

I would like to thank both the Kyrgyz government and the local population for their support of the Chaarat project during 2017 and look forward to working with both as we develop further in 2018 and beyond.

Our team

Forming a team capable of building and operating profitable mines is integral to our business development plans.  During 2017 (and continuing in 2018) a number of changes have been made to strengthen our team and its ability to successfully execute our vision.

I would like to thank Dekel Golan for his many years of service as Chief Executive Officer of Chaarat, delivering the strong resource base which underpins the value of our business.  I would also like to thank Alex Novak for his ongoing service to the Company.  In July 2017, Alex retired from the holding company board to focus on the important job of managing relationships in the Kyrgyz Republic, which is integral to our long-term success.

In July 2017 Bob Benbow took over as Chief Executive Officer.  During his 40 year career Bob has worked with junior exploration companies to transform them into operating companies, taking three green field gold projects into production.  Prior to joining Chaarat, Bob was part of the team that developed Alacer Gold Corp's Çöpler Gold Mine in Eastern Turkey, which has produced over one million ounces as one of the lowest cost producers in the world and has many similarities to the Chaarat Project.

Bob has recruited a capable team, including Peter Carter, who joined Chaarat as Chief Operating Officer in February 2018 and Davron Vakhabov, who joined Chaarat as General Director of our local operating subsidiary, Chaarat Zaav, in May 2017.

Exploration remains a key focus, and our team has been significantly enhanced by the addition of Dusty Nicol as a non-executive director to our board, in November 2017, to provide oversight of our exploration strategy.  Our exploration is led by Frank Fenne, who joined Chaarat in July 2017, supported by a strong in-country team.

With our renewed focus on mergers and acquisitions, Artem Volynets joined our board in March 2018.  Artem brings over 20 years' experience to the board, having led private and public transactions worth more than US$30 billion.

We have also strengthened our board and management team with the addition of Gordon Wylie as a non-executive director and Pete Gardner as Chief Financial Officer.

I would like to thank the entire Chaarat team for their hard work and dedication in 2017 and look forward to a year of transformational change in 2018.

Martin Andersson
Chairman

Chief Executive Officer's Statement:

When I first became involved with Chaarat in September 2016 I was excited by the opportunity to bring another green field mine to life.  I firmly believe that the Chaarat Project has the potential to benefit the local communities, the Kyrgyz Republic, and the shareholders of Chaarat for many years to come.  Our company and stakeholders will also benefit from the wider exploration potential of our licences in the Kyrgyz Republic, which comprise an emerging gold district.  The expanded corporate strategy to develop a true mid-tier gold producer focused on Central Asia and the former Soviet Union delivers a truly innovative business with a long-term, sustainable future.

Tulkubash heap leach development

Our strategy starts with the development of the Tulkubash heap leach project, with an initial reserve comprising 16 million tonnes of ore with an average gold grade of 0.91 grammes per tonne for 470,000 ounces of contained gold.  A feasibility study was completed in April 2018 which sets out a blueprint for the development of the project.  The design is based on processing 13,500 tonnes of ore per day to produce over 100,000 ounces of gold per annum during steady state operations with an average post tax free annual cash flow of US$58.6 million for an initial four year mine life.

During 2017 we conducted 17,240 metres of diamond drilling at Tulkubash, adding 319,000 ounces of resources within a one kilometre extension of the previously defined ore-body at an all-in discovery cost of under US$20 per ounce, as announced in January 2018.  In 2018 and 2019 a significant ongoing exploration programme is planned, comprising 30,000 metres of diamond drilling per annum.  This will focus on defining the extent of mineralisation within the six kilometre long mining licence, of which the current drilling covers approximately two kilometres.  Substantial gold in soil anomalies, at or above the reserve grade, have already been defined in this area, and we are confident that we can more than double the existing Tulkubash mine life ahead of first gold production in 2020.

Construction of mine infrastructure for Tulkubash commenced in 2017, with a new access road and bridge over the Sandalash river.  During 2018, subject to raising sufficient finance, construction activities are expected to start in earnest.  Mobilisation of the mining contractor will allow work to commence on the earthworks for the site infrastructure and pre-stripping of the ore-body.  Critical long lead items will be ordered, a long-term mining camp established, and communications infrastructure upgraded to support both the construction and exploration activities on site.

Building our operational capabilities

As we progress towards construction, we continue to build a team with the experience to develop the mine on time and on budget.  The addition of Peter Carter as Chief Operating Officer in February 2018, who has over 30 years' experience in open pit engineering, mine management and project development, marks an important milestone.  Peter's experience includes leadership roles in the construction and operation of the Kumtor and Boroo gold mines in the Kyrgyz Republic and Mongolia, and the fast-track development of the Karma heap leach project in Burkina Faso.  He will augment the leadership of Davron Vakhabov, who I worked with at the Çöpler Gold Mine in Turkey.  I believe we form a formidable mine development team.

In 2018 we are also undertaking a significant project to upgrade our procurement and financial reporting systems in preparation for both the construction and operational phases of our business.  This will be critical in ensuring we can construct the mine within budget and control the operating costs going forward.  It will form a platform for the long term development of our business.

Kyzyltash

Whilst I was working in Turkey I led the team to develop the refractory sulphide processing plant for the Çöpler Gold Mine.  Chaarat's Kyzyltash project is similar, a high grade refractory ore body requiring pre-oxidation to liberate gold.  In parallel with the construction of the Tulkubash heap leach, we will consider the optimal route for the Kyzyltash development, building on the existing NERIN feasibility study released in 2016.

The Kyzyltash project has a large, high grade defined resource comprising 46.1 million tonnes of ore at a gold grade of 3.75 grammes per tonne for 5.4 million ounces of contained gold.  Whilst this is a substantial ore body, it remains open both along strike and down-dip.  Based on the work performed by NERIN, Kyzyltash has the potential to produce 200,000-300,000 ounces of gold per annum at low operating cash costs.  We plan to develop the Kyzyltash project once the Tulkubash project is in operation, but plan to have both projects in production in parallel in the medium term, producing up to 400,000 ounces of gold per annum from the Chaarat project.

Financing

Our Chairman, Martin Andersson, has led Chaarat's fundraising process to advance our ambitious growth plans.  In 2017 we raised US$15 million in convertible loan notes to fund the exploration and feasibility study work for Tulkubash.  This was augmented by a further issue of convertible loan notes and equity in December 2017 and the first half of 2018, with a further US$15 million of funds committed, including expressions of interest totalling US$3.6 million from directors and management.

During 2018, we expect to raise further capital to fund our ongoing exploration plans, accelerate the construction of Tulkubash, re-pay existing borrowings due September 2018 and allow our mergers and acquisition activity to advance.  Our fundraising process is well underway, with potential term sheets for debt, equity and alternative financing solutions having been received.  We are encouraged by the relationships and quality dialogues we have had with both local and global institutions.

We expect 2018 to be a busy year for Chaarat as we transform our company into a substantial gold producer, through internal development and external transactions.  I look forward to helping deliver this ambitious vision and would like to thank my fellow team members for their ongoing commitment.  I look forward to providing regular updates to all our stakeholders in 2018.

Robert Benbow
Chief Executive Officer

Operational review - Tulkubash

The Tulkubash oxide heap leach represents the first stage of the development of the Chaarat Gold Project.  This has been designed to produce approximately 100,000 ounces of gold per year, generating c.US$40 - 60 million free cash flow per year at current gold price, during steady state operation, for an initial four year mine life.

Geology and Exploration

Gold mineralisation at Tulkubash, a thickly bedded massive quartzite, occurs in quartzite breccias, quartz stockwork zones, and intensely silicified quartz flooded zones that form multiple parallel lodes trending northeast and dipping 60 to 80 degrees to the northwest.  The individual gold-bearing lodes combine to form a mineralised zone that varies from 110 to 250 metres wide that has been developed over a strike length of 2,160 metres.  Mineralisation is open to the northeast along strike and down dip below the limits of the current drilling (±150 metres).  The gold is very fine grained and is associated with minor pyrite and stibnite.  The Tulkubash Zone is strongly oxidised and contains free milling ore suitable for heap leach processing.

Prior to 2017, a total of 299 drill holes had been completed on the Tulkubash deposit.  During 2017, a 17,240 metre drilling programme consisting of an additional 135 diamond drill holes was completed at Tulkubash to extend the strike extent of the heap leachable material by approximately one kilometre.  An initial programme was planned for 11,000 metres of diamond drilling, which was extended by almost 60 per cent as encouraging results were released.  The drill programme demonstrated the strong continuity along strike of the Tulkubash mineralisation.  The updated resource resulting from the drilling was announced in January 2018.

Resources as at 31 January 2018

Tulkubash open pit heap leach COG 0.3 g/t Au	Tonnes (kt)	Au grade (g/t)	Content (koz)
Measured	22,915	0.88	647
Indicated	12,329	0.82	324
Measured & Indicated	35,244	0.86	971
Inferred	3,782	0.68	83
Total	39,026	0.84	1,054

1.      Chaarat has used a cut-off grade of 0.3 grammes per tonne ("g/t") on the basis of the likely economic cut-off for open pit mining and heap leach processing

2.      Quantity and grade are estimates and are rounded to reflect the fact that the resource estimate is an approximation

3.      Mineral resources are not ore reserves and do not have demonstrated economic viability.  There is no certainty that all or any part of the mineral resource will be converted to reserves

4.      Inferred mineral resources have a high degree of uncertainty and have not been drilled enough to warrant their categorisation as Measured or Indicated mineral resources. There is no guarantee that any portion of the Inferred Resources will be upgraded to Indicated or Measured resources.

5.      Quantities may not add or multiply due to rounding

6.      Resources are stated constrained within a US$1,500/oz open pit shell

7.     The resource estimate is suitable for mining selectivity typical for an open pit mining environment

Chaarat's new management team, which has significant experience in bringing mines into production, made a number of changes to the reporting basis of the Tulkubash resource in 2018 to ensure that it reflects the new information made available from the work on the feasibility study and the Company's proposed mining and processing methods.  To this end, a block model was also created using the updated estimation methodology excluding the 2017 drill data to ensure that the impact of the 2017 drilling could be properly understood.  This demonstrated that the 2017 drilling had led to a 43 per cent increase in measured and indicated resources at a total discovery cost of less than US$20 per ounce.

Tulkubash Mineral Resource, Diluted and Constrained, at 0.3g/t Cut-Off Grade
	2016 (re-calculated)			2018			Increase in Resources
	Tonnes	Au grade	Gold	Tonnes	Au grade	Gold	Tonnes	Au grade	Gold
	(kt)	(g/t)	(koz)	(kt)	(g/t)	(koz)	(kt)	(g/t)	(koz)
Measured	18,435	0.83	489	22,915	0.88	647	4,480	1.10	158
Indicated	7,995	0.76	195	12,329	0.82	324	4,334	0.93	129
Total M&I	26,430	0.81	684	35,244	0.86	971	8,814	1.01	287
Inferred	2,340	0.67	50	3,782	0.68	83	1,442	0.71	33
Total MI&I	28,770	0.79	735	39,026	0.84	1,054	10,256	0.97	319

1.      The original 2016 resource update for Tulkubash was based on a block model developed for the November 2014 resource update with the following key attributes:

a.     All mineralisation constrained within a 0.3g/t wireframe

b.     Drill hole data composited to 1.5 metre ("m") intervals

c.     Gold grades in Tulkubash estimated via Indicator Modified Ordinary Kriging

d.     Block model constructed from sub-cells with a minimum size of 2m x 2m x 2m with a parent block size of 10m x 10m x 10m. 

e.     Grades were estimated into sub-cells.  The reported resource was based on the undiluted sub-celled grades assuming that it would be mined by selective underground mining methods

2.      The 2016 resource as originally reported represented an in-situ resource above a 0.5g/t cut-off grade and was not constrained within a conceptual open pit shell

3.      The re-calculated 2016 resource has been prepared using all data available up to November 2014 on the same basis as the 2018 resource update with the following key attributes:

a.     Wireframes prepared on the basis of a 0.25g/t grade boundary

b.     Drill hole data composited to 3m intervals

c.     Gold grades in Tulkubash estimated via Ordinary Kriging

d.     Block model constructed with a parent block size of 10m x 10m x 5m, with sub-celling to the geological boundaries to increase the resolution of the contacts in the block model

e.     Grades reported on the basis of the diluted parent blocks suitable for mining in an open pit environment

4.     The re-calculated 2016 resource has been constrained within a US$1,500/oz pit shell on the same basis as the 2018 resource update and reported above a 0.3g/t cut-off grade

Ongoing exploration

The reserve and resource for the current mine life is derived from approximately 2.2 kilometres ("km") of a defined 24 km strike length for the Tulkubash trend, with mineralisation remaining open along strike.  Numerous occurrences of outcropping ore-grade gold mineralisation and high-grade gold in soil anomalies have been defined along this trend within the existing Chaarat mining and exploration licences.

Extensive exploration is planned in 2018 and 2019, with a total budget for 60,000m of drilling over the next two drill seasons.  The Company anticipates an ongoing drill budget of 15,000m to 20,000m per year after that.

The Company sees the potential to more than double the existing Tulkubash resources prior to the first gold pour in 2020 and believes that exploration success will continue to add gold resources in future years.  The Company's upcoming and ongoing drill programmes are designed to maximise the ratio of Resources converted to Reserves, using enhanced understanding of the geological controls on mineralisation and economic constraints on Reserve classification as defined by the feasibility study.

Feasibility study

Throughout 2017 technical work to support the Tulkubash feasibility study was carried out.  This included a full suite of metallurgical test work, geotechnical studies for the proposed sites of the heap leach pad and other elements of the project, and an environmental and social impact assessment to full international standards.

The full feasibility study for the Tulkubash project was completed by Tetra Tech Inc. and published on 30 April 2018.  This confirmed an initial blueprint for the development of the Project:

·      Initial reserve base of 16.0 million tonnes ("Mt") ore grading 0.91 g/t gold containing 470,000 ounces of gold with 76.5 per cent recovery via heap leaching

·      Average gold production of 95,200 ounces per annum, with peak production during steady state operations in excess of 100,000 ounces per annum

·      Annual post-tax free cash flow of US$58.6 million during steady state operational period

·      Average cash operating cost of US$726 per ounce

·      All-in sustaining cost of US$831 per ounce, including all taxes

·      Initial capital expenditure of US$132 million paid back over 3.2 years

The initial post-tax Net Present Value for Tulkubash, using a five per cent discount rate and a long-term gold price of US$1,300 per ounce, totals US$12.1 million with an undiscounted total cash flow of US$36.7 million.  These metrics are expected to be significantly enhanced as ongoing exploration extends the reserve base along strike, delivering Tulkubash as a steady cash generator to support Chaarat's ambitions.

The deposit will be developed by a mining contractor using conventional open pit mining methods.  Processed ore will be subject to three-stage crushing to produce a 12.5 millimetres ("mm") product which will be stacked at a rate of 13,500 tonnes per day on a conventional valley fill heap leach pad with an initial capacity of 16 million tonnes.  All personnel will be housed in an on-site camp.  Diesel-generated power totalling 4MW will serve process and support facilities.  Roads and infrastructure have been designed and sited to respect regulatory requirements, minimise risk, and promote efficient operation.

Production is planned to start in the second quarter of 2020 and continues for 3.75 years to the end of 2023.  Operations will process 4.93 million tonnes of ore annually once ramp-up is complete in 2020.  Silver totalling 360,000 ounces will also be produced over the life of the project.

The capital cost for the plant and infrastructure is estimated at US$100.0 million with an additional US$19.7 million for pre-production stripping.  Contingency for the project is US$12.3 million giving a total estimated initial capital cost of US$132.0 million.  All figures include VAT and import duties where applicable.

The life of mine average mining cost for the project is US$1.88 per tonne mined.  This cost covers both ore and waste as well as ex-pit haulage of five kilometres from the mine to the run-of-mine pad.  Life of mine process costs are US$4.75 per tonne processed.  General and administrative costs total US$1.55 per tonne processed over the life of mine including the owner's cost for mining management, technical support, and grade control.  All costs are inclusive of 12 per cent VAT where appropriate.  This leads to a life of mine average operating cash cost of US$726 per ounce.

Reserves as at 1^st April 2018

Tulkubash open pit heap leach COG 0.37-0.40 g/t Au	Tonnes (kt)	Au grade (g/t)	Content (koz)
Proven	12,503	0.95	382
Probable	3,490	0.79	88
Proven & probable	15,993	0.91	470

1.      Ore reserves are reported with appropriate modifying factors of dilution and recovery

2.      Quantities may not add or multiply due to rounding

3.     Ore reserves based on a gold price of US$1,250 per ounce

Permitting

In September 2017 full local permitting was achieved for construction of the project, clearing a major milestone in the path to production.  This included government approval of the local environmental impact assessment.  With the support of the local communities, the majority of the land required to develop the Tulkubash heap leach has also been leased by Chaarat, ensuring that construction activities can commence in 2018 subject to local confirmation of the detailed design parameters.

Infrastructure development

Construction work at Tulkubash commenced in 2017, with infrastructure upgrades for the main site access road, the bridge across the Sandalash river and the communications infrastructure.  Previously capitalised costs for infrastructure that no longer form part of the development plans have been written off in the year.

Subject to financing, full construction of Tulkubash is expected to commence in 2018.

Operational review - Kyzyltash

The Kyzyltash ore body represents most of the currently defined mineralisation at the Chaarat project and provides Chaarat with a clear path to organic growth.  Due to the more complex, refractory nature of the mineralisation, Kyzyltash will be developed once the Tulkubash project is in production.  Based on the work performed by NERIN, Kyzyltash has the potential to produce 200,000-300,000 ounces of gold per annum at low operating cash costs.

Resources as at 31 January 2018

Following the update to the 2016 resource for Tulkubash, the Kyzyltash resources have also been restated at a cut-off grade of 2.0 g/t.  This is based on a block model which had been prepared on a basis suitable for selective mining in an underground environment.

Underground COG 2.0 g/t Au	Tonnes (kt)	Au grade (g/t)	Content (koz)
Measured	6,722	3.26	681
Indicated	32,794	3.79	3,864
Measured & Indicated	39,516	3.70	4,545
Inferred	6,611	4.05	832
Total	46,127	3.75	5,377

1.      The Kyzyltash resource is based on the block model originally developed for the November 2014 resource update

2.      Resources have been stated on the basis of underground mining as this reflects the selectivity of mining consistent with the estimation parameters

3.      The potentially open pitable resources at Kyzyltash, previously announced in 2016, have not been re-estimated to understand the impact of dilution - all resources have been included within the underground mineable resource table

4.      A new block model would be required prior to reporting resources at Kyzyltash suitable for open pit mining

5.     The underground resources at Kyzyltash have been reported at a cut-off grade of 2.0g/t.  The previously reported underground mineable resources in 2016 were reported at a cut-off grade of 1.8g/t.

Whilst the Kyzyltash resource constitutes a large ore body capable of generating a robust mine life for initial development, the mineralisation remains open both along strike and at depth.  Further exploration has the potential to vastly increase the size of the deposit.

Development options

Building on the foundation of the NERIN feasibility study, Chaarat will continue advancing technical studies on the Kyzyltash Project.  Ongoing work will include further metallurgical testing, a review of the most appropriate mining method, and a review of the optimal processing plant layout given the infrastructure in place for the Tulkubash heap leach processing facility.  This will develop an optimised and updated feasibility study.  A desktop review of the development opportunities is expected to be completed in 2018.

Kyzyltash will produce gold through a refractory processing plant recovering gold via pre-oxidation followed by direct cyanidation.  Ore will be sourced from high grade underground stopes accessible via simple adit development into the hillside, which could be augmented by ore accessible via open pit mining.  The currently defined resource of 5.4 million ounces of gold is potentially capable of supporting at least a seven to eight year mine life at a production rate of 200,000-300,000 ounces of gold per year.

On completion of an updated feasibility study for Kyzyltash, the decision to commence construction will be dependent on the Group's cash flow and development plans, as the Company's balance sheet continues to be strengthened by Tulkubash production and the results of merger and acquisition activity.

Operational review - Regional exploration

Located in the prolific Tien Shan gold belt, the Chaarat Project has the potential to become the next multi-million ounce producer alongside other large mines in the area.  The Tien Shan belt hosts the Muruntau mine at the west end and the Kumtor mine in the east with several large deposits in between.  Chaarat already has six million ounces of gold resources and a large, underexplored area that has the potential to add significantly more.

The Chaarat mining and exploration licences are best viewed as comprising an emerging gold district, not simply two deposits.  The Company believes that it has only just begun to develop the potential of this emerging district.  The Company's land position comprises a surface area approximately 40-50 per cent the size of the Carlin trend in Nevada, which started with one mine in the 1960's and has now produced over 50 million ounces of gold.  Chaarat will be in a position to use its internally generated free cash flow to explore and define the long-term potential of the Chaarat District.

In 2018, initial exploration work will be undertaken in the large exploration licence north-east of the six kilometre Chaarat mining licence. 

·      Initial scout drilling will be undertaken on a large soil anomaly at Ishakuldy, approximately 10 kilometres along strike from the proposed Tulkubash open pit.

·      Detailed mapping, trenching and surface sampling to develop long term drill targets will be carried out in the unexplored area between the mining licence boundary and the Ishakuldy soil anomaly.

·      Beyond the Ishakuldy soil anomaly, district scale exploration of the trend will be undertaken.  This will include a stream sediment and panned concentrate sampling programme supported by a remote camp.

Financial review

At the beginning of 2017 a total of US$15.0 million was raised by way of convertible debt to support the Group's activities.  At the year-end an ongoing fundraising exercise was in process with commitments received totalling a further US$15 million, including US$5.0 million of further convertible loan notes.  At 31 December 2017 Chaarat had US$7.5 million of cash and cash equivalents, which included US$4.5 million of receipts from the ongoing fundraising effort.

Total cash expenditure in 2017 totalled US$15.5 million comprising: US$1.8 million of exploration expenses recognised directly in the income statement; US$7.9 million of exploration and evaluation costs capitalised during the year; US$2.8 million of capitalised expenditure on assets under construction; and US$3.0 million of administrative expenses.

During 2017 work on the Tulkubash feasibility study, which was published on 30 April 2018, confirmed that previously capitalised assets under construction were no longer intended to be utilised as part of the development of the Chaarat Project.  An impairment of US$10.0 million was recognised during the year in respect of these costs.

During 2018 Chaarat intends to invest significant further sums in the Tulkubash project and will need to repay or re-finance US$15.0 million of convertible debt plus US$2.1 million of associated interest on 30 September 2018.  The Directors are encouraged by the relationships and ongoing quality dialogues with both local and global institutions, and are confident that sufficient funds can be raised to ensure that Chaarat remains a going concern, is able to develop the Tulkubash project and fulfil the planned merger and acquisition activities.  Further details of the Group's status as a going concern is set out in the Director's Report.

Consolidated Income Statement

For the year ended 31 December 2017

	2017	2016
	US$'000	US$'000
Exploration expenses	(1,850)	(1,060)
Impairment of Assets under Construction	(10,008)	-
Administrative expenses	(4,746)	(3,634)
Total administrative expenses	(16,604)	(3,634)
Other operating income	8	220
Operating loss	(16,596)	(4,474)
Interest receivable	69	19
Interest payable	(1,565)	-
Loss before and after tax for the year, attributable to equity shareholders of the parent	(18,092)	(4,455)
Loss per share (basic and diluted) - US$ cents	(5.14)	(1.52)

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2017

	2017	2016
	US$'000	US$'000
Loss for the year, attributable to equity shareholders of the parent	(18,092)	(4,455)
Other comprehensive income: Items which may subsequently be reclassified to profit and loss
Exchange differences on translating foreign operations and investments	455	2,602
Other comprehensive income for the year, net of tax	455	2,602
Total comprehensive loss for the year attributable to equity shareholders of the parent	(17,637)	(1,853)

Consolidated Balance Sheet

As at 31 December 2017

	2017	2016
	US$'000	US$'000
Assets
Non-current assets
Exploration and evaluation costs	31,385	23,425
Other Intangible assets	9	26
Property, plant and equipment	3,252	10,849
Total non - current assets	34,646	34,300
Current assets
Inventories	-	209
Trade and other receivables	194	366
Cash and cash equivalents	7,461	3,285
Total current assets	7,655	3,860
Total assets	42,301	38,160
Equity and liabilities
§    Equity attributable to shareholders
Share capital	3,569	3,518
Share premium	138,184	136,554
Share warrant reserve	1,352	1,358
Convertible loan note reserve	867	-
Merger reserves	10,885	10,885
Share option reserve	2,912	3,964
Shares to be issued	1,926	-
Translation reserve	(15,472)	(15,927)
Accumulated losses	(118,952)	(102,755)
Total equity	25,271	37,597
Current liabilities
Trade and other payables	600	563
Other liabilities	1,000	-
Convertible loan note	15,430	-
Total liabilities	17,030	563
Total liabilities and equity	42,301	38,160

Consolidated Statement of Changes in Equity

For the year ended 31 December 2017

	Share capital	Share premium	Share warrant reserve	Convertible loan note reserve	Merger reserve	Share option reserve	Shares to be issued	Translation reserve	Accumulated losses	Total
	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
As at 1 January 2016	2,730	132,109	1,358	-	10,885	4,067	-	(18,529)	(98,405)	34,215
Loss for the year	-	-	-	-	-	-	-	-	(4,455)	(4,455)
Currency translation	-	-	-	-	-	-	-	2,602	-	2,602
Total comprehensive income for the year	-	-	-	-	-	-	-	2,602	(4,455)	(1,853)
Share options lapsed	-	-	-	-	-	(105)	-	-	105	-
Share options expense	-	-	-	-	-	2	-	-	-	2
Issuance of shares for cash	788	4,588	-	-	-	-	-	-	-	5,376
Share issue cost	-	(143)	-	-	-	-	-	-	-	(143)
As at 31 December 2016	3,518	136,554	1,358	-	10,885	3,964	-	(15,927)	(102,755)	37,597
Loss for the year	-	-	-	-	-	-	-	-	(18,092)	(18,092)
Currency translation	-	-	-	-	-	-	-	455	-	455
Total comprehensive income for the year	-	-	-	-	-	-	-	455	(18,092)	(17,637)
Share options lapsed	-	-	-	-	-	(1,895)	-	-	1,895	-
Share options expense	-	-	-	-	-	875	-	-	-	875
Share options exercised	4	109	-	-	-	(32)	-	-	-	81
Issuance of shares for cash	46	1,498	-	-	-	-	-	-	-	1,544
Shares to be issued	-	-	-	-	-	-	1,926	-	-	1,926
Exercise of warrants	1	23	(6)	-	-	-	-	-	-	18
Equity element of convertible loan note	-	-	-	867	-	-	-	-	-	867
As at 31 December 2017	3,569	138,184	1,352	867	10,885	2,912	1,926	(15,472)	(118,952)	25,271

Consolidated Cash Flow Statement

For the year ended 31 December 2017

	2017	2016
	US$'000	US$'000
Cash flows used in operating activities
Operating loss	(16,596)	(4,474)
Depreciation and amortisation	333	340
(Gain)/loss on disposal of property, plant and equipment	(8)	40
Provision/(release of provision) for inventories	267	(22)
Impairment of assets under construction	10,008	-
Other operating income	-	(220)
Share based payments	875	2
(Increase)/decrease in inventories	(58)	147
Decrease/(increase) in accounts receivable	172	(1)
Increase/(decrease) in accounts payable	37	(58)
Net cash flow used in operations	(4,970)	(4,246)
Investing activities
Purchase of tangible fixed assets	(2,754)	(69)
Exploration and development costs	(7,879)	(2,053)
Sale of subsidiary	-	200
Proceeds from sale of property, plant & equipment	27	1,106
Interest received	69	19
Net cash used in investing activities	(10,537)	(797)
Financing activities
Proceeds from issue of share capital, net of costs	1,643	5,233
Receipt of funds for shares to be issued	1,926	-
Proceeds from convertible loan notes issued, net of costs	14,732	-
Receipt of funds for convertible loans to be issued	1,000	-
Net cash from financing activities	19,301	5,233
Net change in cash and cash equivalents	3,794	190
Cash and cash equivalents at beginning of the year	3,285	2,839
Effect of changes in foreign exchange rates	382	256
Cash and cash equivalents at end of the year	7,461	3,285

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 2017 and 31 December 2016.

The consolidated balance sheet at 31 December 2017, the consolidated income statement, consolidated statement of comprehensive income, 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 2017 annual financial statements upon which the auditors' opinion is unqualified and includes a material uncertainty statement relating to going concern.

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 2016. 

3. Loss per share

Loss per share is calculated by reference to the loss for the year of US$18,092,000 (2016: US$4,455,000) and the weighted average number of ordinary shares in issue during the year of 351,912,981 (2016: 293,310,960).

At 31 December 2017 22,367,521 (2016: 22,457,521) warrants and 28,676,088 (2016: 14,213,622) share options have been excluded from the diluted weighted average number of ordinary shares calculation because their effect would have been anti-dilutive.  Subsequent to the year-end the Company has issued additional equity which would have affected the number of ordinary shares in issue.

4. Going concern

At 31 December 2017 the Group was involved in a fundraising exercise through a mixture of equity and convertible loan notes.  At 31 December 2017 a total of US$1.6 million had been received representing an initial tranche of 4,611,940 shares which were issued during the year.  A further US$1.9 million had been received in respect of equity and US$1.0 million had been received in respect of loan notes which were issued in 2018.  These are included as shares to be issued and other liabilities respectively in the consolidated balance sheet at 31 December 2017.

As at 31 December 2017 the Group had US$7.5 million of cash and cash equivalents and US$15.4 million of debt in the form of a convertible loan note, repayable in September 2018, including accrued interest to date.

A further US$6.9 million was received during the first quarter of 2018, bringing the total funds received to US$11.4 million, with expressions of interest received from the directors and management of the Company totalling US$3.6 million to bring the total to US$15.0 million.

At 30 April 2018 the Group had approximately US$10.0 million of cash and cash equivalents.  The first tranche of the Group's convertible loan is due for repayment in September 2018, which will total US$17.1 million at the redemption date.  In the absence of conversion of this facility to equity, or a deferral of the repayment date, additional funds will need to be raised to repay this amount.

The Board has reviewed the Group's cash flow forecast for the period to 31 December 2019.  Plans to develop the Tulkubash heap leach facility, commencing in 2018, remain subject to the Group raising sufficient funds.  The Group plans an ambitious 30,000 metre exploration programme in 2018 to extend the Tulkubash heap leachable resources, completion of which is also subject to additional fund raising expected to be completed before the end of the third quarter of 2018.  Additional funds may also be required to complete the preparatory detailed engineering and infrastructure upgrades envisaged for the Tulkubash project prior to the commencement of construction, and for any work towards an updated feasibility study for the Kyzyltash deposit.

Subject to the above, which the Board is confident can be achieved, the Board is satisfied that the Group has sufficient funds to maintain the Group as a going concern for a period of at least twelve months from the date of signing the annual report and accounts.

However, there are currently no binding agreements in place and therefore, as set out above, this indicates the existence of a material uncertainty which may cast doubt over the Group's ability to continue as a going concern and, therefore, 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.

5. Timetable and distribution of accounts

The Annual General Meeting will be held at 10 am on 12 July 2018 at the offices of Watson Farley & Williams, 15 Appold Street, London, EC2A 2HB.

Copies of the Annual Report and Notice of the Annual General Meeting will be sent to shareholders by 20 June 2018.

Additional copies of the Annual Report and Accounts will be available, free of charge, from Ledger Accounting Services, 12 West Links, Tollgate, Chandlers Ford, SO53 3TG, 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 long term, low-cost gold producer focused in Central Asia and the former Soviet Union.

Chaarat aims to create value for its shareholders, employees and communities in the Kyrgyz Republic by building relationships based on trust and operating to the best environmental, social and employment standards.

Further information is available at www.chaarat.com

 

END

 

 

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