Preliminary Results

RNS Number : 8289P

Chaarat Gold Holdings Ltd

11 June 2015

 

Chaarat Gold Holdings Limited

("Chaarat" or "the Company")

PRELIMINARY ANNOUNCEMENT OF AUDITED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2014

Road Town, Tortola, British Virgin Islands (11 June 2015)

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 2014.

Highlights for the year

·    Definitive Feasibility Study (DFS) nearing completion on schedule

·    Upfront capital cost of Project reduced by removal of requirement for a tunnel

·    Resource base confirmed at 6.1 million ounces of gold (JORC compliant)

·    Public hearings proceeding smoothly

Dekel Golan, CEO of Chaarat, commented:

"The Annual Report is our opportunity to consolidate into a single document the progress made in 2014. We identified China as the primary source forboth machinery and finance and therefore we agreed it would be logical to use a Chinese company to prepare the feasibility study for the Chaarat Project. NERIN is nearing the completion of the feasibility study which will assist in underpinning the value of the deposit.  Working together we have removed the need to construct a tunnel at an early stage of the project which will contribute significantly to NPV as well as reducing the upfront capital cost and project risk.

Additional drilling has allowed us to increase the resource to 6.1 Million ounces (JORC Compliant) and maintained the status of  Chaarat amongst the world's largest and highest gradeundeveloped deposits.

We continue to work with the local communities, contributing to their development and the maintenance of local infrastructure.

2015 will be a milestone year for Chaarat."

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, Paul Gillam (NOMAD) James Black (Broker)

Chairman's statement

Dear shareholder

Last year was not an easy year for our sector. The gold price plunged during 2013 from above USD1700 per ounce to USD1200 and during 2014 it seems to have been accepted that USD1200-USD1250 per ounce is the new "long term gold price". That realisation, to the great dismay of investors, meant that a large number of projects which were marginally profitable, or not profitable at all, had to be written down. The sector as a whole became less interesting to shareholders and as a result share prices dropped to multi-year lows. Your company share price was not an exception.

The Board had therefore to consider the best way to tackle the new reality and make sure the value hidden in the Chaarat deposit is optimally unlocked and more importantly not diminished.

It became clear to us that whilst the mining sector has become unattractive to many western investors that is not the case in other regions of the world. We have seen a keen interest from many regions in Asia be it China, Japan, Korea and the Arab Gulf.  Such interest is shown both by the private sector as well as state owned enterprises and sovereign wealth funds.

That situation forced us to consider carefully consider our options and make sure that whatever effort we are making will be effective and productive.

The decision of the Board was to "look East". We had to recognize that the investment environment both of our sector, the mining industry,as well as the infrastructure development in general,has changed and is dominated more and more by Asian companies. This dominationexists in the provision of finance, construction and operational services such as contract mining.

It became apparent that in order to finance a project from China one has to have a Chinese compliant Bankable Feasibility Study. To ensure the interface between feasibility study towards basic engineering, detailed engineering and construction is seamless and effective it seemed best to work with Chinese engineering, so a decision presented itself: let us finish the relevant preparatory chapters by the current advisors and seek to consolidate this by a first class Chinese engineering company.

This was not an easy decision: we were aware of the cultural differences and in some cases different technical approaches. It was clearly going to be a challenge and indeed it has been. Having said that, we believe that we are marching towards the completion ofa robust and bankable study;which will both demonstrate the value of the Chaarat deposit as well as allow us to finance the construction of the first stage. I would like to extend my thanks to the patient investors who have been supporting us and assure you all we are doing our best to cross these turbulent times safely.

Christopher Palmer-Tomkinson

Chairman

Chief Executive Officer's Report

Dear shareholder

2014 was dedicated to consolidating the knowledge and data collected over the years in order to produce a "Definitive Feasibility Study" (DFS), identifying gaps in the information and filling them. This is the final stage before securing finance and starting the detailed engineering and construction of the Project.

We had started work on the DFS with a team of consultants, but at a certain point, it became clear that there have been fundamental changes in the mining sector and strategically we had to consider where we could most successfully obtain finance and engineering.  After much deliberation we decided to entrust the completion of the DFS to a Chinese engineering company, China Nerin Engineering Co,. Ltd. (NERIN). One should never underestimate the challenge of bridging cultural differences. However we are convinced that our efforts to overcome the challenges of the early stage of the process will be rewarded as we move to the more advanced stages of engineering, finance and construction. 

Infrastructure

Our previous team of DFS advisers recommended that, due to the location of the deposit in a narrow valley, the production facility should be located in an adjacent valley.  This would necessitate the construction of a tunnel to connect the plant to the mine site.  NERIN, together with local Kyrgyz companies, studied the alternatives and identified a layout which will eliminate the need to construct a tunnel for at least the first ten years of operation. The elimination of the immediate requirement for a tunnel will reduce the upfront cost of the project considerably, as well as reducing the uncertainty involved in developing a tunnel and the lead time to production. This is a major breakthrough in minimizing risks and adding value to the Chaarat Project.

On the electric supply front we have secured an extension to the power supply quota. Most of the power in the Kyrgyz Republic is generated from hydroelectric power stations which makes the cost of power amongst the cheapest on earth at less than USD0.03/kWh. More capacity is being added now and the country is effectively a net power exporter. This is a significant positive for a large future power consumer such as the Chaarat Project.

Access by road to site has improved after our work to widen the state road to the south of Chaarat's site in order to enable the transport of larger cargoes. The state road from Bishkek and Osh to Chatkal is now open throughout the year. The access road from the main road to Chaarat needs improvement.  The design of the required upgrade has been completed and it is awaiting approval now by the relevant authorities.  

Geology

Initially we focussed on a lengthy and meticulous process of verification and due diligence to ensure that the geological database (which includes millions of items of data) is as error free as possible. Once that was completed a new Resource Estimation was calculated.  6,000 metres of additional drilling and some trenching were undertaken in 2014 to provide missing data. The additional results were incorporated into the resource calculation by a team experienced with Asian deposits.

We were very pleased to report that the resource base of Chaarat now comprises 6.1 million ounces of gold. The resource is composed of two different types of ore, free milling and refractory, so an average grade for the whole deposit is not very informative.  The full analysis can be seen in the resource table. The refractory section should also be divided into the open pittable section and the underground section as a different cut-off grade will be applied.

This work confirms Chaarat as one of the world's largest gold finds of the 21^st century and as one of the largest high grade undeveloped gold deposits in the world.

Mining

TetraTech, from our previous team of advisers, had already completed extensive work on the rock mechanics and hydrology profile of the areas where the open pit is to be situated. This has enabled our mine designersfrom NERIN to complete the preliminary pit design and determine the "potential mill feed" (the quantity and grade of ore available for delivery to the mill). This is not yet a determination of reserves but is an approximation which is optimized from the detailed pit design.

Metallurgy

We were encouraged by metallurgical reports from a leading metallurgical institute in China (IMME) that their proprietary version of the bioxidation process was found to be suitable for processing the Chaarat ore. Bioxidation produces marginally better gold recovery results than the previously recommended Pressure Oxidation process (POX) and underpins a lower capital requirement for Chaarat and certainly a much lower technological challenge.  Bioxidationis used in many operating mines in Central and Northern Asia such as Olimpiada (Russia - Polyus Gold), Jinfeng (China- Eldorado Gold) andKokpatas (Uzbekistan - Navoi Mining and Metallurgical Combinat (NMMC), the largest in the world).

Chaarat will not begin processing refractory ore before its third year of operation so there is still plenty of time to optimize the technology to ensure maximum recovery at the lowest operating costs.   NERIN (the engineering company working on our DFS)were joint designers of the Jinfeng BIOX plant which achieves recoveries of about 85% of gold, according to information provided by El Dorado Gold.

Operations

We have decided that as a junior company it is best to employ an experienced mining contractor to take full responsibility for the mining. This approach will reduce upfront capital expenditure and more importantly reduce the operational challenge. Requests for proposals have been sent to a number of contractors with suitable experience in the region.

Your management team has continuedto pursue completion of a DFS which will both underpin financing of the first stage of the Project and determine a valuation benchmark for the Company. The DFS remains on track for delivery imminently. 

Funding and financial accounting

The price of Chaarat shares has continued to disappoint us all but we were very encouraged by the support of our shareholders who enabled us to complete a fundraising of USD5.1 million at the end of 2014.  This will finance us into 2016.  We have continued to dispose of assets and equipment which are not immediately required to progress the project.  By the end of 2014 we had raised USD1.64 million and further sales are ongoing. 

As well as generating income from sales we have cut costs.  The main burden has fallen on our staff in Bishkek and we have had to part company with many loyal employees and friends. I wish to thank them for all their efforts and those of our remaining employees.

As we near completion of the DFS for our flagship Chaarat project we have to recognise that we do not currently have the funds to progress our other three projects namely Chontash, Mironovskoye and Kyzil Ompul. We have therefore, with regret, made the decision to make a full impairment against these assets, in compliance with international accounting standards, and released the related deferred tax provision. Your Board is convinced that these assets have an underlying value and we remain hopeful that we will be able to find buyers who recognise this inherent value. 

The Kyrgyz Republic

I would like to set the development of the Chaarat Project in the context of the mining sector in the Kyrgyz Republic whichis undergoing significant change and development. Until very recently the country hosted only a single large operating mine and a few large exploration projects. Gold equivalent production is likely to triple in the next fiveyearswith the development of a number of new mines.

Two new mines are now close to production: Taldybulak (owned and operated by Zijin Gold) and Bozymchak (owned and operated by Kaz Minerals). The sentiment in the industry and the approach of the government is changing. The political saga of Centerra is drawing to a close with the ultimate reassurance for investors that the promise of the government not to nationalise the Kumtor has been maintained.

Two new entities entered the Kyrgyz mining scenein 2014, a Russian company bought the Jerooy project for over USD100 million in cash and an Indonesian conglomerate purchased Goldfield's Kyrgyz asset and combined it with some other assets to establish Tengri Resources.

Highland Gold has reported the delineation of a large (3.7 million ounces JORC compliant) resource, second only to Chaarat's 6.1million ounces JORC compliant resource.

The Kyrgyz Republicis gradually learning to balance the expectations of the different stakeholders in the mining industry. Balancing the needs of state, communities,environment and investors is a delicate ongoing undertakingthat is also in the interest of all those stakeholders. There are promising signs that the Kyrgyz Republicis moving in the right direction. We, the management of Chaarat,hope that with the change of sentiment in-country,investor sentiment will also change and will be reflected in the share price of all Central Asian mining companies which are currently tradingat a significant discount.

Dekel Golan

Chief Executive Officer

Consolidated income statement
For the years ended 31 December
		2014	2013
		USD	USD
Exploration expenses		(4,251,623)	(4,780,317)
Impairment of assets		(6,023,622)	(4,061,949)
Administrative expenses		(3,868,516)	(4,962,471)
Administrative expenses- Share options expense		(256,613)	(756,356)
Administrative expenses- Foreign exchange gain		(45,242)	8,309
Total administrative expenses		(4,170,371)	(5,710,518)
Other operating expense		(81,257)	(43,027)
Operating loss		(14,039,998)	(14,595,811)
Finance income		476,536	219,601
Taxation		486,875	-
Loss for the year, attributable to equity shareholders of the parent		(13,563,462)	(14,376,210)
Loss per share (basic and diluted) - USD cents		(4.97)	(5.74)

Consolidated statement of comprehensive income
For the years ended 31 December
		2014	2013
		USD	USD
Loss for the year, attributable to equity shareholders of the parent		(13,563,462)	(14,376,210)
Other comprehensive income: Items which may subsequently be reclassified to profit and loss
Exchange differences on translating foreign operations		(8,302,919)	(528,755)
Other comprehensive income for the year, net of tax		(8,302,919)	(528,755)
Total comprehensive income for the year attributable to equity shareholders of the parent		(21,866,381)	(14,904,965)

Consolidated Balance Sheet
At 31 December
		2014 USD	2013 USD
Assets
Non-current assets
Intangible assets		50,197	103,718
Mining exploration assets		-	7,192,913
Mine properties		22,653,950	21,657,042
Property, plant and equipment		3,622,423	7,691,266
Assets in construction		12,339,224	14,477,613
Other receivables		-	-
		38,665,794	51,122,552
Current assets
Inventories		847,818	1,753,802
Trade and other receivables		726,386	857,903
Cash and cash equivalents		7,608,865	11,163,079
		9,183,069	13,774,784
Total assets		47,848,863	64,897,336
Equity and liabilities
Equity attributable to shareholders
Share capital		2,729,353	2,504,778
Share premium		132,108,746	128,551,662
Share warrant reserve		1,358,351	-
Other reserves		15,205,510	15,013,806
Translation reserve		(10,820,727)	(2,517,808)
Accumulated  losses		(94,144,808)	(80,646,255)
Total equity		46,436,425	62,906,183
Non-current liabilities
Deferred tax		-	475,772
		-	475,772
Current liabilities
Trade and other payables		561,916	617,181
Accrued liabilities		850,522	898,200
		1,412,438	1,515,381
Total liabilities		1,412,438	1,991,153
Total liabilities and equity		47,848,863	64,897,336

	Consolidated Statement of Changes in Equity
	For the Years Ended 31 December
			Share Capital USD	Share Premium USD	Share warrant reserve USD	Accumulated Losses USD	Other Reserves USD	Translation Reserve USD	Total USD
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
Currency translation			-	-	-	-	-	(8,302,919)		(8,302,919)
Other comprehensive income			-	-	-	-	-	(8,302,919)		(8,302,919)
Loss for the year ended 31 December 2014			-	-	-	(13,563,462)	-	-		(13,563,462)
Total comprehensive income for the year			-	-	-	(13,563,462)	-	(8,302,919)		(21,866,381)
Share options lapsed			-	-	-	64,909	(64,909)	-
Share options expense			-	-	-	-	256,613			256,613
Warrant expense			-	-	1,358,351	-	-	-		1,358,351
Issuance of shares for cash			224,575	3,672,495	-	-	-	-		3,897,070
Share issue costs			-	(115,411)	-	-	-	-		(115,411)
Balance at 31 December 2014			2,729,353	132,108,746	1,358,351	(94,144,808)	15,205,510	(10,820,727)		46,436,425

Consolidated Cash Flow Statement
For the Years Ended 31 December
		2014 USD	2013 USD
Operating activities
Loss for the year		(13,563,462)	(14,376,210)
Adjustments:
Amortisation expense - intangible assets		45,230	50,914
Depreciation expense - property, plant and equipment		1,622,409	1,076,025
Loss on disposal of property, plant and equipment		500,319	9,349
Impairment of assets		6,023,622	4,416,403
Finance income		(476,536)	(219,601)
Share based payments		256,613	756,356
Loss/(gain) on foreign exchange		45,242	(8,309)
Decrease in inventories		905,984	1,029,521
Decrease in accounts receivable		131,517	2,285,494
(Decrease) in accounts payable		(578,714)	(988,359)
Net cash flow used in operations		(5,087,776)	(5,968,327)
Investing activities
Purchase of computer software		(6,777)	(24,892)
Purchase of tangible assets		(4,898,050)	(19,486,920)
Proceeds from sale of equipment		1,029,472	-
Interest received		476,536	219,601
Net cash used in investing activities		(3,398,819)	(19,292,211)
Financing activities
Proceeds from issue of share capital		5,255,420	-
Issue costs		(115,411)	-
Net cash from financing activities		5,140,009
Net change in cash and cash equivalents		(3,346,586)	(25,260,538)
Cash and cash equivalents at beginning of the year		11,163,079	36,944,060
Effect of changes in foreign exchange rates		(207,628)	(520,443)
Cash and cash equivalents at end of the year		7,608,865	11,163,079

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 2014 or 2013.

The consolidated balance sheet at 31 December 2014, 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 2014 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 2014. 

Going concern and project funding requirements
Following a placing which raised USD 5.1 million, the Group had cash and cash equivalents of USD 7.6 million and no borrowings at 31 December 2014.  The fundsare expected to finance the Company into the first quarter of 2016.

The Board has reviewed the Group's cash flow forecast for the period to 30 June 2016, and 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, subject to the successful realisation of its reasonable expectation that additional funds will be made available by selling certain equipment and other assets of the Group, cutting discretionary expenditure, reducing headcount where this does not compromise safety at site or impede the progress of the DFS, reviewing the timing of other expenditure and pursuing other fund raising options.  As at 31 December 2014 USD 1.64 million hadbeen realised from the disposal of equipment and other assets.

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 further funding will be required to bring the Chaarat Project into production.  The timeframe and costs of engaging a contractor for mining and construction, as well as securing finance for the Project, are difficult to estimate. The Company has a reasonable expectation that existing funds, as well as the funds to be raised from selling equipment, should be sufficient to complete the above process.

 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 2014 amounted to approximately USD 39 million, may become impaired.               

3. Loss per share

Loss per share is calculated by reference to the loss for the year of USD 13,563,462 (2013: USD 14,367,210) and the weighted number of shares in issue during the year of 272,935,389 (2013: 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 9 am on 22 July 2015 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 by 18 June 2015.

Additional copies of the Annual Report and Accounts will be available, free of charge, from Central Asia Services Limited, 12 West Links, Tollgate, Chandler's 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 low cost gold producer generating significant production from the development of the Chaarat Gold Project. Chaarat is preparing a Definitive Feasibility Study and continuing its 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.

Further information is available at www.chaarat.com 

 

END

 

 

FR EAKKEFFNSEFF