Final draft results of Feasibility Study

RNS Number : 8656N

Chaarat Gold Holdings Ltd

03 February 2016

 

Chaarat Gold Holdings Limited

("Chaarat" or "the Company")

Chaarat Gold Project economics confirmed by final draft results of Feasibility Study

Road Town, Tortola, British Virgin Islands (3 February 2016)

Chaarat (AIM - CGH), the AIM quoted exploration and development company with assets in the Kyrgyz Republic, is pleased to announce the results of the Feasibility Study (FS) on its 100% owned Chaarat Gold Project (the Project) which have been extracted from the final draft of the FS.

·    Very low cost of production - average all-in sustaining cost (AISC) of $635.2/oz

·    Post-tax NPV of US$351 million at a discount rate of 8% and a gold price of US$ 1,250/oz

·    Initial capital investment required of $684 million to bring the mine into full production immediately, with potential to considerably reduce this amount

·    Reserve base estimated at 53 Mt at an average grade of  2.79 g/t containing 4.7 million ounces  of gold

·    Average gold production of 211k ounces per annum when plant operating at full capacity based on current reserve base and 18 year mine life

·    Significant potential for improved economic returns from optimisation

The Executive Summary has been prepared based on the final draft of the FS submitted to Chaarat by NERIN.  The timing for the approval of the FS by the Chinese regulatory authorities cannot be confirmed.  However, Chaarat now considers that further delay in publication of the results of the FS is not justified as the results are sufficiently certain.

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

Dekel Golan CEO commented: "We are pleased to present the results of the final draft of the feasibility study for the Chaarat Project. NERIN (who prepared the FS on behalf of NFC) are still awaiting the final Chinese regulatory approvals. We consider that the outcome of the study is sufficiently certain that there is no merit in further delaying the announcement of the final draft results. We are very appreciative of the unstinting patience shown by our shareholders.

The preparation of a feasibility study by a Chinese engineering company is very different from a similar process in the West. In the planned economy of the Chinese mining sector the client is not the company but the state, hence studies tend to be overly conservative. Overall we were impressed with the technical quality of NERIN's work. The Board considers that the value of the Chaarat Project has been reduced by certain economic assumptions which were based on "indices" rather than actual quotes. There is therefore significant scope for optimisation and improvement of this work.

Even as presented here, the FS demonstrates that Chaarat is indeed a first class property. Despite the conservative approach of the NERIN engineers, the all- in sustaining cost of producing an ounce of gold in Chaarat, after paying all royalty and taxes, is less than $650. At current gold prices this should leave a significant margin for the repayment of debt and the payment of dividends.

The return on investment shown in the study is on the low side by industry standards. The reason for this is the large upfront investment which delivers a highly capital intensive and mechanised mining process. In our view this assumed capital cost can be considerably reduced based on actual quotes we have already obtained. Chaarat and its advisers are now working on optimising this study in order to maintain the same low operating cost structure but to reduce, considerably, the upfront capital cost.

Our shareholders will be aware of the challenges presently facing the mining industry. It is evident though that there is still an appetite for good projects in the gold sector. We see strong interest in gold from investors in China and other countries who view assets such as Chaarat as a good way to preserve and store money. 

Your management is reviewing a number of options towards creating value generation whilst minimising dilution for our shareholders. We hope to deliver news on the results in the coming months."

Key findings of the FS

·    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 8,000 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 total capital expenditure over the Project life has been estimated at USD 776 million. The initial capital costs are summarised in the table below:

Description	Investment (USD million)	% of total investment
Open pit area	64	9
Underground mining area	97	14
Oxide processing plant	43	6
Sulfide processing plant	115	17
Tailings management facility	60	9
Auxiliary production facilities	8	1
Water supply and drainage	8	1
Power supply and distribution	58	8
Roads and other infrastructure	52	8
Engineering, management design and commissioning	73	11
Contingency - 15%	87	13
Working capital	19	3
Initial capital investment	684	100

Gold price sensitivity analysis

Gold price per ounce	$1,100	$1,250	$1,400
NPV @ 5%	$322M	$629M	$874M
NPV @ 8%	$116M	$351M	$539M
NPV @ 10%	$20M	$220M	$379M
IRR	10.5%	15.3%	18.9%

As well as investigating the recommendations generated by the FS for optimisation, the results of the FS can be improved in the following areas:

1.   Reduced capital expenditure - we are in the process of securing quotes from suppliers for key items. A combination of favourable exchange rates and fall in demand for equipment due to the depressed mining industry has led to a reduction in prices compared to those used by NERIN.

2.   Improved metallurgical recoveries - initial results from further metallurgical work show that there is good potential to improve recovery which is a critical element in generating high returns. If these results are corroborated the financial returns from the Project will improve. 

3.   A significant amount of inferred resource has not been taken into account in the mine design. Confirmation of this resource as suitable for mining will further improve the financial performance of the Project.  

Future strategic decisions

The Chaarat Project now has a value supported by the FS. This value is reduced by the conservative assumptions required by Chinese standards and part of the optimisation work will involve the adoption of a more commercial basis. As previously reported it is not viable to try and finance the development of the whole Project, so we continue to explore production and sale strategies. The following development options have so far been identified and are being evaluated:

1.   Sale of the asset - a mining group has already conducted thorough due diligence. We understand that the group is now in the process of raising funds.

2.   Toll production - a Chinese company is building a processing plant close to the Chaarat deposit which will have significant unused capacity and is capable of processing the refractory ore at Chaarat. The possibility of being able to start production without having to build a plant, power line and tailings dam is an interesting option which may offer significant upside.

3.   Production from the Tulkubash Project - as previously reported, it is possible to commence production at Chaarat, at a significantly lower capital cost, by constructing the open pit heap leachable Tulkubash project. We are finalising an internal feasibility study, using input from the FS, as well as current quotes and detailed designs.  We will then examine our financing options if we decide the economics of this strategy are justified. 

We will open the Chaarat site for the 2016 season to enable investors and other interested parties to visit. Further updates on progress will be provided in due course.

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)

Competent Person

The Competent Person, who has reviewed the resource and reserve information contained herein, is Sunit Patel, M.Sc. (Geology), FGS, GSSA. Sunit is an exploration geologist with more than 27 years of experience in the resource industry who has sufficient experience relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2004 Edition of the 'Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves'. Mr Patel consents to the inclusion in the report of the matters based on this information in the form and context in which it appears.

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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