Q3 2021 Operational Update

RNS Number : 6344Q

Chaarat Gold Holdings Ltd

29 October 2021

 

29 October 2021

Chaarat Gold Holdings Limited

("Chaarat" or "the Company")

Q3 2021 Operational Update

Chaarat (AIM:CGH), the AIM-quoted gold mining Company with an operating mine in Armenia and assets at various stages of development in the Kyrgyz Republic, announces its production and operational results for the quarter ended 30 September 2021 (the "Quarter", "Q3" or the "Period") for its Kapan Mine ("Kapan") in Armenia and a general corporate update.

Q3 2021 Summary

Kapan

· Following the strong H1 2021 results, July 2021 was impacted by lower grades and fleet availability. Performance improved in August and returned to run-rate performance in September.

· Chaarat is on track to meet the production guidance of 57koz¹ for 2021, which will rely on a steady source of third-party ore supply for the remainder of 2021.

· Production of 13,224 gold equivalent ounces² ("oz") vs 15,547 oz in Q3 2020 (-14.9%) as a result of lower mine rates in the mine plan and lower than expected grades.  9,935 oz of own ore vs 12,652 oz in Q3 2020 (-21.5%) and 3,289 oz of third-party ore vs 2,895 oz in Q3 2020 (+13.6%).

· Third-party ore treated of 27.9kt vs 21.3kt in Q3 2020 (+31.2%). The increase is due to Q3 2020 being the first quarter under the current long-term supply contract.

· All-in-sustaining cost ("AISC"³) of USD1,366 /oz vs USD1,192 /oz in Q3 2020 (+14.6%) mainly driven by the lower produced ounces in July and August.

· Preliminary unaudited standalone EBITDA contribution of USD2.6 million vs USD6.4 million

in Q3 2020 (-60%) with the reduction due to management's decision to delay sales pending discussions with the Government of Armenia on their new metals export regulation and application to specific concentrate sales as well as the above-mentioned factors around the mine performance.

· Year to date preliminary unaudited standalone EBITDA stands at USD 16.4m which includes the impact of delayed sales and operational factors in Q3 as explained above vs. USD 10.5m in the same period in 2020 (+56%).

Tulkubash & Kyzyltash

· 2021 drilling programmes completed with Kyzyltash results published and Tulkubash results expected in November 2021.

· Kyzyltash core sample selection is underway in preparation for shipment to SGS Canada Inc for metallurgical testwork to commence later this quarter.

Corporate Finance

· Successful extension of the convertible loan notes by one year to 31^st October 2022.

· Tulkubash debt financing delayed to 2022 due to ongoing market cautiousness pending a resolution of the Kumtor mine issue.

Kapan Polymetallic Mine - Q3 Highlights

· Safety and Environmental performance for the quarter was positive, with no serious injuries or incidents. LTIFR year to date is 0.91 compared to 0.46 for 2020. There have been no further safety incidents since March of this year.

· COVID 19 measures remain in place throughout the Kapan operation.

· Total tonnes mined of 143.3kt vs 171.1kt in Q3 2020 (-16.3%) with the reduction being in accordance with the mine plan (representing 75% of decrease) but also due to the impact of global supply chain disruptions on operations (representing 25% of the decrease).

· Grade of 2.95g/t AuEq vs 2.89g/t AuEq in Q3 2020 (+2%) higher year over year but below budget due to the complex geology of the mined areas in Q3 2021. Grades in July though were below expectations and significantly impacted Q3 performance.

· Underground development on track with 6,011 metres achieved in the quarter, compared to 5,857 metres in Q3 2020 (+2.6%).

· Mill throughput decreased year over year by 14% due to the mining performance mentioned above.

· Third-party ore treated was 27.9kt vs 21.3kt in Q3 2020 (+31.2%) in line with previous quarters. Q3 2020 was the first quarter of steady supply under the current long-term supply contract.

· The geological variability in the ore experienced in the quarter also impacted recoveries. Q3 2021 was lower at 77.2% vs 79.6% in Q3 2020. As with grades, recoveries had improved to normal levels in September.

· Production of 13,224 oz vs 15,547 oz in Q3 2020 (-14.9%) as scheduled in the 2021 mine plan but also impacted by lower-than-expected grades especially in the month of July. Grades improved in August and September back to expected levels. Contained metal in concentrate from own ore was 9,935 oz vs 12,652 oz in Q3 2020 (-21.5%).

· 28,856t of own ore was on stock at the end of the quarter. This ore was stockpiled during an extended run on third-party ore during September. This ore will be treated in Q4 in addition to ore mined.

· Realised gold price for the quarter of USD1,788 /oz versus USD1,937 /oz in Q3 2020 (-8%). Continuing strong price environment on the base metals, especially with realised copper prices of USD9,477/t vs USD6,560 in Q3 2020 (+44 %).

· Sales of copper/gold concentrate were put on hold by the company during Q3 pending discussions related to changes to the export regulations for industry typical copper concentrates. The Company is in discussions to clarify whether the regulations apply to Kapan's polymetallic concentrates. While discussions have been ongoing, copper/gold concentrate has been stockpiled on site ready for sale pending resolution of the discussions.

· AISC of USD1,366 /oz vs USD1,192 /oz in Q3 2020 (+14.6%). Most of the increase in AISC is due to the lower ounces produced but also due to global commodity price increases which impacted the mining cost and spare parts.

· Preliminary unaudited standalone EBITDA contribution of USD2.4 million vs USD6.4 million in Q3 2020 (-63%). EBITDA was impacted significantly by the management's decision to delay sales into Q4 pending discussions with the government on their new metals export regulation and the above-mentioned factors around the mine performance in the quarter. Year to date preliminary unaudited standalone EBITDA stands at USD 16.4m which includes the impact of delayed sales and operational factors in Q3 as explained above vs. USD 10.5m in the same period in 2020 (+56%).

· CAPEX spent was USD1.7 million, 28% lower than expected due to delays on equipment and materials deliveries.

Outlook for Kapan

· COVID 19 levels have increased across Armenia over the last two month and are still increasing. This could potentially have an impact on operational performance in Q4 2021.

· The pandemic related impact on global market supply is a further concern area. Supply of spare parts to maintain the mobile fleet has become increasingly challenging, with timelines increasing for all components. Steps have been taken to increase spare parts inventory levels which are slowly increasing and easing the situation.

· The continuous strong commodity price environment is expected to support revenues and benefit the financial performance but is also having a knock-on impact on the Company's cost base. Costs for reagents, tires, oils and fuel have all increased and are expected to remain at elevated levels in Q4.

· Chaarat is still on track to meet the production guidance of 57koz³ for 2021, through own production and the steady outlook of third-party ore supply for the remainder of 2021.

· An update to the current resource and reserve statement is progressing with completion targeted before year end.

· East Flank exploration campaign is ongoing as planned.

· Sales of concentrates are expected to return to normal levels for the remainder of Q4 and in addition the Company expects to sell the delayed Q3 2021 concentrates in Q4 2021. The impact of the new metals export regulation remains to be seen.

¹ 57koz AuEq guidance includes third-party ore production based on the assumption that purchased ore was sold by Kapan, whereas in 2021 third-party ore is treated on a tolling basis. 57koz AuEq total consists of 48koz AuEq produced from own ore and 9koz AuEq from third-party ore.

²   Gold equivalent ounces for 2020 recalculated on 2021 budget prices with Au at US$1,700/oz and gold ratios of 68 for silver, 7,287 for copper and 21,862 for zinc. In last year's Q3 2020 operations update, 2020 oz were based on gold ratios of 83 for silver, 7,778 for copper and 20,968 for zinc leading to a lower AuEq number reported in that previous year.

³ AISC on a gold oz produced basis exclude smelter TC/RC charges, others which add c. USD$ 180/oz. Sustaining capex of c. USD 4.4 million p.a. is included in the AISC, of which capex of USD1.7 million was spent in Q3 2021.

Tulkubash and Kyzyltash Project Update

On Tulkubash, camp and infrastructure construction activities are ongoing. Full stage construction activities will commence once financing is completed.

The completed 2021 Tulkubash drill programme is targeting upgrading some of the inferred and unclassified resources into higher categories to increase the reserves and mine life of Tulkubash. Additional trenching and drilling were completed in the Karator and Ishakuldy exploration areas to the north-east within the license area to further confirm additional oxide ore mineralisation for the long-term extension of the Tulkubash deposit. Initial drill results are expected to be released in the middle of November, with work to update the resource expected early next year.

The Kyzyltash drilling programme was also completed in September 2021 and announced on 12^th October 2021. Samples are being selected and will be sent to SGS Canada Inc. for metallurgical testwork starting in November 2021.

Corporate Finance

Chaarat has successfully extended the maturity of its US$ 19.68 million plus accrued interest of US$ 6.68 million secured convertible loan notes 2021 from 31 October 2021 to 31 October 2022. The Loan Notes had a conversion price of approximately £0.37⁴ per share and a 10% interest rate per annum which increased to 12% per annum effective 30 April 2020.  The Extension has been approved on the same terms as those currently applicable to the Loan Notes but with an adjusted conversion price of £0.30⁵ per share.  A single interest payment will be due on the extended final repayment date of 31 October 2022 provided that no conversion or early repayment has occurred.

The Company continues to progress with potential funding solutions for the development of the Tulkubash project. Chaarat is exploring options for a standalone financing or a comprehensive refinancing of its current debt outstanding and financing of the Tulkubash project.  Such debt financing efforts have been impacted by external factors that are likely to delay the debt financing to 2022. Despite having no direct impact on the Company's operations, the situation around the Kumtor mine is likely to impact the financing timeline until the situation is resolved or has progressed towards a path to resolution. Based on this ongoing dispute between Kyrgyzstan and Centerra, the Company is now expecting first gold production from its Tulkubash asset to be delayed to 2024.

⁴  The original conversion price was, for each US$250,000 of Loan Notes, 527,871 Ordinary Shares (and pro rata for any amounts less than US$250,000).  This equated to £0.37 per share at the then prevailing exchange rate of US$1.28 / £1.

⁵  The amended conversion price agreed for the purposes of the Extension is, for each US$250,000 of Loan Notes, 611,290 Ordinary Shares (and pro rata for any amounts less than US$250,000).  This equates to £0.30 per share at an exchange rate of US$1.36 / £1.

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) 596/2014.

Martin Andersson, Chairman and Interim Chief Executive Officer, commented:

"We are grateful for the continuing support of our note holders and the beneficial solution found for all parties.Operationally, this quarter has been a challenging one for the Company with external factors impacting our progress. The situation around Kumtor has delayed our funding plans in the Kyrgyz Republic and a new export regulation in Armenia required our full attention. The export regulation change is expected to be clarified shortly and product shipments are due to start beginning of November, with current concentrate inventory likely to be sold in Q4."

Enquiries
Chaarat Gold Holdings Limited	[phone]
Patrick Henze (VP Corporate Development & IR)	[e-mail]
Canaccord Genuity Limited (NOMAD and Joint Broker)	+ 44 (0)20 7523 8000
Henry Fitzgerald-O'Connor
James Asensio
finnCap Limited (Joint Broker)	[phone]
Christopher Raggett
Panmure Gordon (UK) Limited (Joint Broker)	[phone]
John Prior Hugh Rich

About Chaarat

Chaarat is a gold mining company which owns the Kapan operating mine in Armenia as well as Tulkubash and Kyzyltash Gold Projects in the Kyrgyz Republic. The Company has a clear strategy to build a leading emerging markets gold company with an initial focus on the FSU through organic growth and selective M&A.

Chaarat is engaged in active community engagement programmes 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/ .

Q3 2021 OPERATIONAL SUMMARY

	Q3 2021	Q3 2020
Ore mined (t)	143,258	171,107
AuEq Grade (g/t)	2.95	2.89
Total milled (t)	167,088	193,487
Own Ore milled (t)	139,188	169,142
Third-Party Ore milled (t)	27,900	21,271
AuEq Recovery Kapan (%)	77.2	79.6
Gold equivalent production (oz)	13,224	15,547
Incl. from Third-Party Ore	3,289	2,895
Gold production (oz)	7,322	8,177
Silver production (oz)	125,787	150,767
Copper production (t)	509	578
Zinc production (t)	1,230	1,843
AuEq Sales	8,534	13,227
Realised gold price (USD/oz)	1,788	1,937

ENDS

 

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