Results of optimised Feasibility Study

RNS Number : 8504V

Chaarat Gold Holdings Ltd

21 April 2016

 

Chaarat Gold Holdings Limited

("Chaarat" or "the Company")

Results of the Chaarat Gold Project optimised Feasibility Study

Road Town, Tortola, British Virgin Islands (21 April 2016)

Chaarat (AIM - CGH), the AIM quoted exploration and development company with assets in the Kyrgyz Republic, is pleased to present the results of the review of certain key areas of the Feasibility Study (FS) by the Chaarat team and its advisers, on its 100% owned Chaarat Gold Project (the Project) prepared by NERIN Engineering and NFC.

·    Post-tax NPV of $615m increased from  US$351m  (using a discount rate of 8% and a gold price of US$ 1,250/oz)

·    IRR increased to 25% (at a gold price of $1250/oz)

·    Initial capital investment to reach production reduced 31% from $684 million to $470 million with scope for further reduction

·    Average all-in sustaining cost (AISC) reduced 5% to $605/oz

·    No change in reserve base of 4.7 million ounces at  2.79 g/t and average annual production of 211 thousand ounces

·    Stage two of the optimisation to focus on improved metallurgical recoveries  

Following the announcement of the FS on 3 February 2016, the Chaarat team and its advisers have completed their first stage review of the FS prepared by NERIN and NFC in order to identify areas where the Study can be optimised.

Dekel Golan CEO commented: "We are very pleased to present the results of the optimised feasibility study to our shareholders and stakeholders. As we highlighted when announcing the FS, the work of NERIN and NFC, we were impressed with the technical quality of the work but the cost calculations, especially relating to the quantity and costs of civil works during construction left considerable scope for optimisation. Our optimisation therefore concentrated principally on adapting designs to local conditions and seeking quotes from Kyrgyz companies.

We continue to work on the optimisation of the FS and further metallurgical testing is now underway to try and improve recoveries from the Chaarat ores and hence the bottom line of the Project.

Although our industry faces challenges which are not lessened by the financial situation in China, the regional engine, an appetite for good projects in the gold sector is still evident. The interest in Chaarat, a world class, high grade, low cost of production asset has not disappeared. 

Your management is reviewing a number of options targeting value generation whilst minimising dilution for our shareholders. We hope to deliver news on our progress in the coming months. We commend the patience of our shareholders who will appreciate that it is important to take our time to maximise the value of the Chaarat Project for their benefit."

Methodology of the optimisation

The optimisation work focussed on key areas where major savings had already been identified from the original FS. The estimated capital expenditure now required for the Project is comparable to the capital costs estimated by SNC-Lavalin in the Pre-feasibility Study prepared in 2011.

1.   Reduction in volume of earthworks

The extremely large quantity of earthworks included in the FS indicated that NERIN envisaged a single basic flat terrace layout for the Project which ignored the natural valley site terrain of the Chaarat deposit. A more suitable terraced layout would take advantage of gravity and reduce the volume of earthworks by up to 50%. 

In addition NERIN based their calculations on "indices" rather than actual volumes. A local company recalculated the necessary earthworks for the tailings facility, heap leach pad and other production facilities and reduced the volume of work by 50%.  In addition local prices (with the addition of a 15% contingency) were used to achieve further savings.

2.   Efficient layout of site

The layout of the structures adopted by NERIN, principally comprising the processing plant, was suitable for locations with mild climatic conditions.  Given the harsh winters at site, in order to provide an acceptable operational environment for personnel, most of the processing plant units should be enclosed in a building. This reduces the footprint of the whole site and the building volume which will also have operational efficiencies in the reduction of heating costs.  Conversely NERIN planned structures to be built around power substations and transformers which are not necessary.  Unnecessary structures such as a fine crushed ore bin have been removed. 

The envisaged road layout was over complicated and could be improved with more coherent planning. All these efficiencies reduced the area required for the Project by 40%.

3.   Updated quotes

The technical parameters used by NERIN for major items of plant and equipment were not changed but revised quotes were obtained for the crusher, heap leach, power line, explosive magazine, road, camp and tailings dam. The new quotes contributed approximately 20% to the capital cost reduction.  The cost of transporting equipment included in the FS was reduced from 24% of the cost to a more realistic, but still conservative, 15%.

More accurate costs, provided by a local consultant and a Western company, were also applied to the underground excavation costs, leaving the geometry and volume of works of the NERIN mine design unchanged. 

4.   Updated operating costs

Material (input) prices were updated to actual local prices with the addition of a 15% contingency. The global price of fuel has reduced considerably in 2016, and even more so in the Eurasian area.  Since the preparation of the FS, VAT on fuel products has been reduced in the Kyrgyz Republic from 12% to 5%. The mining cost in the optimised study has been updated conservatively at current price plus 15%.

The original and optimised initial capital costs for the project are summarised below:

Description	Original estimated investment	Optimised  estimate	Difference	% of savings
	(USD million)	(USD million)	(USD million)
Open pit area	64	52	12	7.50%
Underground mining area	97	66	31	19.38%
Oxide processing plant	43	20	23	14.38%
Sulfide processing plant	115	103	12	7.50%
Tailings management facility	60	17	43	26.88%
Auxiliary production facilities	8	7	1	0.63%
Water supply and drainage	8	7	1	0.63%
Power supply and distribution	58	51	7	4.38%
Roads and other infrastructure	52	22	30	18.75%
Total Capex	505	345	160	100.00%
Engineering, project management, management design and commissioning (15% of total capex)	73	53	20
Contingency - 15%	87	53	34
Working capital	19	19	0
Total initial Capex	684	470	214

The total capital expenditure over the Project life has been estimated at USD 524 million (previously USD 776m).

Main cost and operating parameters of the project after optimisation

	Original	Optimised
Total production over planned life of mine	3.65m oz	3.65m oz
Annual average production years 5-16	211k oz	211k oz
Operating cost per ounce of gold produced	USD 536.9/oz	USD 506.7/oz
AISC per ounce of gold produced	USD 635.2/oz	USD 605.0/oz
All in cost	USD 823.1/oz	USD 734.3/oz
Initial capital	USD 684m	USD 470m
NPV (@8%) (Gold price - USD 1,250/oz)	USD 351m	USD 615m
IRR	15.3%	24.82%

Gold price sensitivity analysis

Gold price per ounce	USD 1,100	USD 1,250	USD 1,400
NPV @ 5%	USD 621m	USD 927m	USD 1.172m
NPV @ 8%	USD 380m	USD 615m	USD 803m
NPV @ 10%	USD 266m	USD 465m	USD 625m
IRR	18.8%	24.8%	29.4%

A number of other factors have not been taken into consideration at this stage of the optimisation. The most significant is the impact of the devaluation by almost 50% of the major currencies of the Eurasian economies (such as Russia, Kazakhstan and Kyrgyzstan) causing the same reduction in salaries paid in US dollars. The exclusion of this upside from the optimisation should not be overlooked and can be compared to the recent upturn in the fortunes of Australian mining companies.

The effect of converting inferred resource into mineable reserves for inclusion in the mine plan, although promising, cannot be estimated and the necessary drilling is too costly for Chaarat to undertake this season.

Future strategic decisions

The Chaarat Project now has a value supported by the optimised FS. The optimised study is not "signed off" by NERIN and NFC, however, the Board is confident that it reflects the underlying reality of the Project, and that this will be well understood by potential acquirers. As a consequence we are not seeking to receive formal "sign off" by NERIN and NFC on the FS. 

Even at this reduced initial capital requirement, it is not viable to try to finance the development of the whole Project alone, so we continue to explore production and sale strategies. A financial advisor will be appointed in due course to support the Company's ongoing conversations with interested parties.  One mining group has already conducted thorough due diligence. The Company is making preparations  for the 2016 season. We will continue to develop the Chaarat Gold Project in the most sensible responsible manner to serve the best interests of all stakeholders.

Key findings of the FS as presented on 3 February 2016

·    NFC was contracted to provide a Feasibility Study for the Chaarat Project in compliance with Chinese bankable feasibility study requirements.  The FS is not JORC compliant but has been based in part on studies from other consultants which are JORC compliant.

·    The Chaarat deposit is a JORC compliant resource of 6.1 million ounces of gold at a grade of 3.20g/t.  12% of the resource is free milling ore located in the Tulkubash zone.  The Contact and Main zones contain refractory ore

·    The mining method has been determined by dividing the Chaarat deposit into four sections.  The Tulkubash free milling section will be mined by open pit only.  Two sections of the refractory sulphide ore will be mined first by open pit and then underground.  The remaining section will be mined from underground only.

·    The FS assumes production at 8,000 tpd from the open pit sections until this ore has been exhausted and 4,000 tpd from the underground only section.  Underground production will increase to 8,000 tpd once underground mining has commenced in the former open pit sections. 

·    The peak capacity of the mine based on current reserves is therefore 12,000 tpd or 4 million tonnes per year between years 4 -11.  Average production of gold in these years will be 211k ounces per annum 

·    In year 2-3 and 12-18 the plant will operate at approximately 8000 tpd.

·    The free milling ore will be processed by heap leaching.  The refractory ore will be milled, concentrated and oxidised by bacterial oxidation (BIOX) to extract the gold.

·    The executive summary of the FS can be found at www.chaarat.com.

Enquiries:  

Chaarat Gold Holdings Limited	+ 44 20 7499 2612
c/o Central Asia Services Limited	[e-mail]
Dekel Golan   CEO
Linda Naylor  FD
Numis Securities Limited	[phone]
John Prior, Paul Gillam (NOMAD) James Black (Broker)

NOTES 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 engaged in an active community engagement programme 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 in the Kyrgyz Republic by building relationships based on trust and operating to the best environmental, social and employment standards.

 

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