Chaarat Gold – Down but downright cheap

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I tipped AIM listed gold mine developer Chaarat Gold (LSE:CGH) at 45p in May 2010. Standing at 24.375p after the publication today on half calendar year results I do not look too clever. Yet. But I had a long chat with the company today, notably with its Finance director Linda Naylor and these shares are very cheap indeed.  Quite seriously they could well be worth £1 a share or more. And this is why.

The numbers for the first half were pretty irrelevant. The loss came in at $4.8 million and at the period end Chaarat had $52.6 million of cash. There was a bit of a hiatus in the development of its Tulkubash project in April as there was a change of Government in the Kyrgyz Republic where it operates but that seems to have been dealt with. The country has now established a Royalty based system of taxation and has a firm mining code. Clearly it remains the sort of place you’d send the mother-in-law on holiday to but there are worse places to operate in.

The deposit Chaarat is tackling is potentially vast. So far less than 15% of the vein has been drilled but by the end of 2011 the company has already established a resource of 5.59 million ounces. CEO Dekel Golan noted in today’s release:

In terms of size, colloquially, the deposit is clearly an elephant and whilst I am not sure if we hold its tail or an ear we are far from having exposed its belly.”

Golan is a bit of a character and I give him a prize of 10 Albanian Lekke for the most amusingly phrased RNS of the day. But his point is valid. Already we know that Chaarat has a highly commercial prospect but its true scale is yet to be fathomed out. Initially the gold will be exploited via open pits but in due course the company will move underground.

Naylor confirms that construction work is still on track and the first gold will be poured in late 2013. Production should be 30,000 oz  at a cash cost of, say, $700 oz in 2014, 70,000 oz at a similar cash cost in 2015 but by 2017 output will be at 180,000-200,000 oz with a cash cost of c$500 oz.

Does Chaarat have enough to fund its development? Almost. It has already stated that it will need to find $20 million for working capital. But it says that it will not issue shares at less than 50p and that it will seek non-dilutive funding (forward gold sales, perhaps). Advisers tell me that there are “a number of irons in the fire” and that we should have news soon. Going forward I would expect a larger capital raise in a few years time once Chaarat has 18 months or more of output under its belt to accelerate work on the ramp up in production ( although this could, if the patience was there) be funded from cashflows.

What are the risks? Well I suppose there has to be some political risk.  Geologically and financially this seems very simple indeed. As to the maths?

Well it depends on the gold price. What free cashflows could Chaarat throw off? I offer you a matrix based on output levels and various gold prices. The numbers are in dollars

Year & Output $1200 Gold $1500 Gold $1750 Gold $2000 Gold $2500 Gold
2014 – 30,000 oz $15m $24m $31.5m $39m $54m
2015 – 70,000 oz $35m $56m $73.5m $91m $124m
2017 onwards 200,000 oz $140m $200m $250m $300m $400m


Today Chaarat is capitalised, at £61 million ($97.6 million). I would not regard using a $1500 gold price as at all reckless. My view is explicitly that gold will head to well over $2000 oz but I humour those who doubt this and so use the lower price. On that basis the company will still be chucking off $56 million within three years and $200 million within five years. Valuing the company on a multiple of just three and discounting back with a 5% discount rate gives me a one year target valuation of $488 million which is around 120p per share.

Gold stocks have had an awful 18 months and the spring political issues in the Kyrgyz Republic have not helped sentiment towards this stock but the valuation is now simply absurd. As the company moves ever closer to production I would expect the re-rating to be dramatic indeed.


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  1. laviniamalabe says:

    Tom , any chance you could explain how you get a one year target valuation of $488m , its very early in the day and i can’t get the numbers to work . TIA

  2. C H Ingoldby says:

    I got burnt with Oxus Gold in Uzbekistan which makes me wary of the political risk in Central Asia but this does seem worth closer inspection.

  3. Pankaj Bansal says:

    What kind of SP are we having these day at AIM, it trades @22p valuing company @£55.11 Million, company says it has cash of $52.6m (£32.4m) in cash at 30 June, the Company has delineated a JORC compliant mineral resource of 4.406Moz at a grade of 4.20g/t gold across two projects.

    What is 4.406Moz gold valued at ? around £6oz

  4. Love Freyre says:

    Love this post. I think the hard thing about saving is that it’s not very exciting. There really isn’t an instant gratification like there is with spending.

  5. Monica Gonzales says:

    The Quotations are on point because it gives the best meaning to each one.We need more of it

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