TIDMCGH
RNS Number : 7565U
Chaarat Gold Holdings Ltd
08 April 2021
8 April 2021
Chaarat Gold Holdings Limited
("Chaarat" or the "Company")
PRELIMINARY ANNOUNCEMENT OF AUDITED FINANCIAL STATEMENTS FOR THE
YEARED 31 DECEMBER 2020
Chaarat (AIM:CGH), the AIM-quoted gold mining company with
assets in the Kyrgyz Republic and Armenia, today publishes its
audited financial results for the year ended 31 December 2020.
Highlights for the year
2020 Group Financial Results
-- Revenue up 12.5% in 2020 to US$76.0 million (2019: US$68.1
million), reflecting increased production and the recovery
in commodity prices in the second half of the year.
-- Group EBITDA of US$9.3 million in 2020 (2019: loss of US$12.8
million), reflecting the significantly improved operating
performance at Kapan and lower overhead costs at both corporate
and Kyrgyz Republic level. The Group achieved an operating
profit of US$1.9 million (2019: loss of US$18.4 million).
-- Cash and cash equivalents at the end of 2020 were US$6.9
million (2019: US$3.6 million). At 1 March 2021, the Group
had cash and cash equivalents of approximately US$31.2
million, following the successful equity raise in February
2021 described below.
Kapan Producing Mine
-- 2020 production of 58.2koz(1) AuEq exceeding guidance by
6%, despite the ongoing COVID-19 situation and border hostilities
in H2 of 2020.
-- All-in-sustaining cost(2) ("AISC") of US$1,034/oz was in
line with US$1,040/oz for 2019.
-- A 126% increase in stand-alone EBITDA contribution of US$
19.4 million at Kapan level in 2020 (2019: US$8.6 million).
EBITDA contribution at Kapan in H2 2020 was US$15.3 million
compared with US$4.1 million in 2020 H1, reflecting continued
improvement in operations and the recovery in commodity
prices in the second half of the year.
-- Limited impact from the COVID-19 pandemic with effective
management protocols in place since February 2020.
Tulkubash Construction Project
-- Advanced the construction preparation work and detailed
engineering with close to US$10 million invested in 2020
despite the COVID-19 restrictions and political unrest
in Q4.
-- Successfully completed a 2,000-metre confirmatory drilling
programme which is currently being included in an updated
JORC-compliant resources and reserve statement.
-- First full winter of year-round construction activity completed
at site (2019-20), without incident.
-- Tulkubash project finance discussions further advanced
with several banks awaiting the Tulkubash Bankable Feasibility
Study ("BFS") and ESIA updates before proceeding to documentation
stage.
Kyzyltash Development Project
-- Comprehensive internal review completed, and external expert
opinions received in June 2020 for the next stages and
overall timeline to production, confirming the current
preliminary timeline to 2026.
-- Independent assessment on metallurgy completed to help
define the ideal processing route.
Corporate Activities
-- Strengthened balance sheet in 2020 through a US$13.8 million
equity capital raise during the first wave of the COVID-19
pandemic, extended liabilities, decreased interest cost
and reduced gross debt.
-- Continued strong support from major shareholder Labro Investments
Ltd. ("Labro") through participation in the equity raise
and the refinancing of the investor loan into a new US$22
million facility maturing on 31 December 2024.
Post-period highlights
-- In February 2021, the Group completed a financing package
of US$52.2 million, comprising cash of US$30.0 million
and a debt-to-equity conversion of the US$22.2 million
Labro loan mentioned above, significantly reducing gearing.
-- Key financing targets for 2021 will include securing debt
finance for the Tulkubash project and repaying or refinancing
the convertible loan notes to the extent these are not
converted. The Company anticipates publishing an updated
bank feasibility study for Tulkubash by May.
(1) AISC on an oz produced basis exclude smelter TC/RC charges,
others which add c. US$ 130/oz. Sustaining capex of c. US$ 6.9
million included in the AISC.
(2) Gold equivalent ounces for 2019 recalculated on 2020 budget
prices with Au at $1,500/oz and gold ratios of 83 for silver, 7,778
for copper and 20,968 for zinc. In last years' FY 2019 operations
update, 2019 oz were based on gold ratios of 81 for silver, 6,698
for copper and 16,075 for zinc leading to a higher AuEq number
reported in that previous year.
Martin Andersson, Executive Chairman of Chaarat, commented:
" Considering the adverse conditions we faced last year, the
strength of our people shone through and enabled a strong
performance at Kapan, and flexibility in dealing with the various
challenges we faced regarding our Tulkubash construction
project.
From an ESG perspective, Chaarat has certainly proven its strong
ties and commitment within its communities in 2020, not only
supporting where measures against the pandemic were required but
also ensuring that lives and business continue. The development in
accordance with the best international standards has been
documented in the Environmental and Social Impact Assessment update
for our Tulkubash project and we have continued to improve the
environmental footprint with several projects at our Kapan site.
The independent board and management team have proven efficient in
terms of setting a high governance standard.
Chaarat has seen strong shareholder support during the last two
equity capital raises which shows that we are taking the right
steps to lift Chaarat to the next level. I look forward to the next
year which should see Tulkubash fully funded, Kapan in steady state
production and Kyzyltash with a clear view on the optimal
processing route to create a new feasibility study to international
standards. We continue to build an industry-leading FSU focused
low-cost gold producer with a sound organic growth strategy
supported by value accretive M&A."
Enquiries
+44 (0)20 7499
Chaarat Gold Holdings Limited 2612
Artem Volynets (CEO) info@chaarat.com
Canaccord Genuity Limited (NOMAD and + 44 (0)20 7523
Joint Broker) 8000
Henry Fitzgerald-O'Connor
James Asensio
+44 (0)20 7220
finnCap Limited (Joint Broker) 0500
Christopher Raggett
Panmure Gordon (UK) Limited (Joint +44 (0)20 7886
Broker) 2500
John Prior
Hugh Rich
Executive Chairman ' s Statement
Overview
The past 12 months have been unlike any other period in the
Company's history as the COVID-19 pandemic has disrupted the world
and impeded the normal course of business activity.
This year we have demonstrated that we are a resilient business.
I am pleased to be able to announce that the team at our Kapan mine
exceeded our 55koz AuEq production guidance despite the dual impact
of the pandemic and the hostilities in the neighbouring
Nagorno-Karabakh region during the final quarter of the year.
The COVID-19 pandemic impacted the ability of potential funders
to conduct due diligence on our assets and it was unfortunate that
we had to postpone the date for first gold pour from Tulkubash due
to material and personnel movement restrictions. However, we have
made progress on the early construction, engineering and updates of
our studies I am hopeful that we will secure project finance during
the first half of 2021.
Our people
First and foremost, on behalf of the Board, I would like to
extend my sincere thanks to all our employees, but in particular
those at our Kapan mine. The team at Kapan met each new challenge
it faced with agility and dedication to ensure that the mine
remained operational. The hard work that they put in every day made
the difference. Our employees at Kapan continued to work throughout
the COVID-19 crisis, highlighting their commitment, dedication, and
loyalty. It was their outstanding resilience and hard work that
enabled us to exceed our production guidance.
2020 progress
Despite the disruption caused by the COVID-19 pandemic, we have
made progress during the year in relation to each of the pillars of
our strategy and details of that progress are included in our
annual report which will be published shortly.
Health and safety
The health and safety of our employees and host communities
remains one of our key values. Our lost time injury frequency rate
at Kapan for the year was 0.37 per one million hours worked (2019:
0.39). Over 850,000 hours at Tulkubash were worked in 2020 with no
lost time injuries.
Last month we reported the loss of life of an employee of our
mining contracting company on 4 March 2021. Learnings from this
tragic event will be used to further develop and improve the safety
culture and performance not only at Kapan but throughout all areas
of the Company.
During the year we implemented measures to minimise the risk of
our employees contracting COVID-19 as a result of their work
activities. Additionally, we supported hospitals and communities
local to our operations to help contain the virus and to assist
with medical treatment.
Sustainability
As a responsible business we are committed to treating people
well, managing environmental issues and working with integrity. In
keeping with our ESG guidance principles, our main areas of focus
in our host communities continue to be health, education, and
sustainable development opportunities.
Corporate governance
My Board colleagues and I are firmly of the view that strong and
functioning corporate governance and risk management are essential
to the success of the Company. Chaarat has adopted the Quoted
Companies Alliance Corporate Governance Code. The role of the Board
remains that of setting strategy, ensuring the right resources are
in place to deliver it, promoting long-term success, generating
value, and contributing to wider society.
Investors
In April 2020 we raised US$13.8 million via a share placement,
welcoming new individual and institutional investors to the
shareholder register. I was pleased to see that existing
shareholders, the Company's directors, and senior management
participated and showed strong belief in our story. I would like to
take this opportunity to thank our loyal shareholders for their
patience over the course of the year.
2021 and beyond
I was delighted with the response to our share subscription in
February 2021, which raised US$30.0 million of new cash and reduced
our indebtedness by US$22.2 million. Now that we have raised the
equity portion of the funds required for our Tulkubash project, we
will focus our efforts on raising the debt finance element of the
project. I would like to thank our existing and new investors for
their support in our recent fundraise.
Against the backdrop of a challenging and uncertain world, in
the coming year our priorities will be to secure project finance
for Tulkubash to take advantage of the full 2021 construction
season, to progress Kyzyltash by conducting metallurgical testing
to enable Chaarat to choose the appropriate technology for project
development.
__________________________________________________________________________________
Chief Executive Officer's Review
Overview
2020 was a challenging year in many respects. In addition to the
pandemic, we had to operate during an active military conflict in
one country and the political unrest in the other. However, we are
pleased to report that Chaarat emerged as a much stronger company,
outperforming on our operational and financial targets at Kapan in
Armenia and continuing development of our prospective cluster in
the Kyrgyz Republic. These achievements were made possible through
proactive engagement with our host communities in both countries,
strong Chaarat culture, lean set up and seamless integration
between the teams in various countries.
Our team
I would like to reiterate the comments made by our Chairman in
relation to our outstanding employees, whose hard work, dedication,
and mutual support have contributed to our performance during the
year by exceeding our production guidance of 55koz by 6%. I am
proud of how our team has responded to the extreme circumstances of
the past year.
Our impact
Health and safety - The health and safety of our employees and
communities has been our main priority during the COVID-19 pandemic
and we continue to monitor the situation daily in all our countries
of operation. We have restricted travel by our employees, and
limited visitors to our facilities. Our employees continue to work
from home where possible and additional measures to protect our
employees are in place for those still working at our operating
sites. The team's proactive precautionary measures reduced the
impact of COVID-19 to the minimum possible and continue during the
current second wave of the pandemic. In the wake of the tragic
fatal incident at our Kapan mine last month, we have been focused
on reinforcing Chaarat's standards regarding attitudes and
behaviours across the entire workforce, including employees of our
contractors.
Environment - During the year COVID-19 did not get in the way of
us continuing proactively to manage and improve environmental
aspects at our operations
Community - We have strengthened community relations in our two
countries of operation with our continued support during the
COVID-19 pandemic and, in the final quarter of the year, with
support in Kapan during the hostilities in the neighbouring
Nagorno-Karabakh region, and in the Kyrgyz Republic during the
political unrest.
Our strategy
In our strategic report, an extract from which is copied below,
I outline the progress we have made during the year towards
achieving our vision of building a leading emerging markets gold
company with a focus on the former Soviet Union and which delivers
value to all our stakeholders by adhering to the highest ESG
standards. Whilst the COVID-19 pandemic has meant that we have not
made as much progress as we would have liked, I am confident that,
once that is behind us, we will be able to make significantly more
progress.
Our performance
Kapan - We ended the year achieving production of 58.2koz AuEq,
exceeding our production guidance by 6% and with revenues of
US$76.0 million (2019: US$68.1 million) due to operational
improvements, supported by strong commodity prices. Accordingly,
EBITDA contribution from Kapan increased significantly to US$19.4
million in 2020 compared with US$8.6 million in 2019.
Tulkubash - Good progress has been made on the permitting and
design/engineering fronts and the project is fully permitted now to
produce. We are in the process of undertaking a full update of the
2019 bankable feasibility study ("BFS"). Pending the results of the
updated BFS and completion of the debt financing, we continue to
target the start of production in Q4 2022.
Kyzyltash - We completed a preliminary metallurgical assessment
in April, and we have defined a metallurgical test programme for
2021 to identify the optimal processing method.
Funding and liquidity
In April, during the first wave of the COVID-19 pandemic, we
raised US$13.8 million via an equity placement, US$6.3 million of
which was used to reduce borrowings and interest accrued under our
working capital facility to zero. We also extended the maturity of
US$22.0 million of the Group's indebtedness; this was subsequently
converted into equity in early 2021. We also repaid a further
US$8.0 million of our Kapan loan in accordance with its planned
repayment schedule. Additionally, during the year, we undertook an
efficiency review and were successful in reducing our
overheads.
Commodity prices
Given the polymetallic nature of our Kapan mining operation we
are affected not only by gold prices but also by movements in
copper, zinc, and silver. Copper and Zinc prices were strong in H2
2020 and have remained so into 2021. While the COVID-19 pandemic
caused a significantly lower than expected base and precious metals
environment in the first half of 2020, the recovery seen in the
second half of 2020 has been stronger than expected resulting in a
marginally better price environment for our Kapan operation
compared to our forecast.
Since year end
In February of 2021 we were delighted with the results of our
US$52.2 million financing, comprising an equity raise and loan
conversion which has further strengthened our institutional, high
net worth, and retail investor base and significantly reduced our
gearing.
Our focus for 2021
Our key areas of focus for 2021 include the raising of project
finance for Tulkubash and refinancing of the convertible loan
notes. Chaarat has good quality assets with a highly skilled
workforce. I have every confidence in the actions that we are
taking to progress our strategy to realise our full potential in
the current gold price environment.
__________________________________________________________________________________
Our Strategy
-- ESG We will work responsibly to:
* provide a safe work environment built on the highest
standards of safety management
* operate to the highest standards of environmental
stewardship
* enhance the infrastructure, education, and healthcare
in our host communities and to improve the living
standards and opportunities for those communities
-- Organic growth We will maximise our production via:
* operational improvements, mine life extension, and
brownfield development at our Kapan mine in Armenia
* staged development of the assets at our Kyrgyz
Republic operations (Tulkubash and Kyzyltash)
--------------- ----------------------------------------------------------------
-- Non-organic We will selectively identify value-accretive
growth opportunities in our target region which will
deliver value to shareholders in both the
short term and through longer-term exploration
and development potential
--------------- ----------------------------------------------------------------
-- People We will attract, retain, and develop a skilled
and diverse workforce across all levels of
our organisation with a focus on developing
local talent in our host communities and creating
an environment in which those employees can
thrive and learn
--------------- ----------------------------------------------------------------
-- Finance We will identify opportunities to secure funding
and reduce the cost of capital with the main
objective of maximising value for shareholders
with appropriate consideration to levels of
shareholder dilution
--------------- ----------------------------------------------------------------
Our ESG Strategy
ESG 2020 progress 2021 priorities
------------------------------------
Safety Implementation of a revised A review by the Board's HSEC
comprehensive health Committee of the HSEC plans
and safety policy, a and procedures for Kapan
vehicle safety policy,
unified health and safety
protocols, and integrated
reporting
Development and implementation Improved reporting to include
of COVID-19 emergency leading as well as lagging
response plan indicators
------------------------------------
Environmental Buttressing of the tailings Development and implementation
storage facility (TSF) of a groupwide environmental
and raise of the north policy
wall of the TSF completed
Review of avalanche controls Tailings management improvement
measures with a view to demonstrating
a pathway to compliance with
new global industry standard
on tailings management
Acid rock drainage (ARD) Review of how to incorporate
- acid-base accounting solar power at Tulkubash,
(ABA) testing carried and consideration of green
out to assist in the water purification technology
development of mitigation
measures
Installation of low energy
lightbulbs throughout
Kapan
Near completion of the
environmental and social
impact assessment (ESIA)
for Tulkubash
------------------------------------
Community New kindergarten at Kapan
COVID-19 community support
initiatives
------------------------------------
Organic 2020 progress 2021 priorities
growth
------------------------------------
Kapan Identified potential Continued actions to improve
solutions to grade issues grade and reduce dilution
Optimise capacity at the mill
Concluded contracts for Treat more third-party ore
treatment of third-party
ore
Work started on further Commence East Flank development
developing the exploration
of the area adjacent
to the existing mine
(East Flank)
------------------------------------
Tulkubash Advancement of construction,
permitting, and design Finalisation of engineering
and completed detailed work
pre-construction engineering Continued advancement of construction:
commencement of construction
of major structures and purchase
of long lead line items
Completion of DFS level study
of the project
Update Mineral Resource and
Ore Reserves estimates
------------------------------------
Progress in updating Further drilling programme
the 2019 bankable feasibility to extend mine life
study to confirm the Finalise joint venture arrangements
existing resource and with Ç iftay, our construction
exploration potential, partner in the Kyrgyz Republic
cost estimates, and sound
economics of the project
Completed a 2,000-metre
confirmatory drilling
programme and identified
continuation of the mineralisation
outside the pit boundaries
and at depth
------------------------------------
Kyzyltash Completion of metallurgical Drill a representative sample
assessment and test for optimal processing
route
Metallurgical drilling campaign
Assessment of optimal processing
route
------------------------------------
Non-organic 2020 progress 2021 priorities
growth
------------------------------------
M&A Identified, evaluated, Continue to identify and evaluate
and progressed various value enhancing acquisition
opportunities opportunities and, if appropriate,
execute one or more
------------------------------------
People Safe and attractive work Continued focus on cultural
environment for all employees change including empowerment
of employees to take decisions
locally where appropriate
Continued efforts to secure
best in class people, deliver
excellent training programmes,
and act proactively in relation
to changing environment
------------------------------------
Finance Raised US$13.8 million Secure project finance for
via an equity placement Tulkubash
Raise equity - US$30m of new
cash was raised in February
2021 and US$22.2m of debt
was converted into equity
------------------------------------
Continued to reduce Kapan Repay or refinance 2021 convertible
loan with a further US$8.0m loan notes
repaid in accordance
with planned schedule
Extended the maturity
of US$22.0 million of
the Group's indebtedness
to 31 December 2024
Strengthened institutional,
high net worth and retail
investor base
------------------------------------
__________________________________________________________________________________
Chief Operating Officer's Review
Kapan
2020 Kapan highlights
-- Lost time injury frequency rate ('LTIFR') of 0.37 (per
one million hours worked) versus 0.39 in 2019 (-5.1%).
Lost Time Injuries ('LTI') remain too high and further
improvement of the safety performance at Kapan remains
a continuous focus for the organisation.
-- An improved standalone EBITDA contribution of US$19.4 million
for Kapan (2019: US$8.6 million, 11-month period).
-- 2020 production of 58.2koz AuEq exceeding guidance by 6%,
despite the ongoing COVID-19 situation and border hostilities
in H2 of 2020.
-- Exceeded target of processing 50 thousand tonnes ("kt")
of third-party ore by 17.8 kt (+36%) in 2020 .
-- All-in-sustaining cost ("AISC") of US$ 1,034/oz in line
with 2019 of US$ 1,040/oz.
-- Limited impact from the COVID-19 pandemic and regional
conflict.
2020 full-year production consists of:
Kapan 2020 2019 % Change
Production (oz AuEq) 58,178 56,513 +3
-------- -------- ---------
All-in sustaining
cost (USD/oz) (1) 1,034 1,040 -0.6%
-------- -------- ---------
Sales (AuEq oz) 48,387 55,255 -12%
-------- -------- ---------
Gold production (oz) 30,837 32,791 -6
-------- -------- ---------
Silver production
(oz) 587,718 557,001 +6
-------- -------- ---------
Copper production
(t) 2,154 1,719 +25
-------- -------- ---------
Zinc production (t) 7,625 6,476 +18%
-------- -------- ---------
Realised gold price
(USD/oz) 1,773 1,413 25%
-------- -------- ---------
Realised silver price
(USD/oz) 20.4 16.4 24%
-------- -------- ---------
Realised copper price
(USD/t) 6,117 6,008 +2%
-------- -------- ---------
Realised zinc price
(USD/t) 2,222 2,444 -9%
-------- -------- ---------
(1) Full-year production costs given for comparative purposes.
The Group consolidated results for 2019 include 11 months of Kapan
operations.
Production comments
-- Total tonnes mined were 684,156 in line with 2019 (678,382t
(+0.8%)). This is despite operational restrictions experienced
during Q4 as a result of the imposition of martial law
in the country and a significant number of employees called
up for military duty.
-- Mine head grade was up 3% to 3.03g/t oz versus 2.93/t oz
(+3%) in 2019. Significant work was carried out during
the year to reduce mine dilution. This included a return
to hand-held drilling in some areas not suitable for mechanised
mining due to the narrowness of the veins.
-- Mill throughput was consistent at 744,705t compared to
742,402t (+0.3%) in 2019. Throughput included 67,838t of
third-party ore vs 8,543t (+794%) in 2019. Third-party
ore replaced stockpiled ore which was available for treatment
and helped mill throughput exceed mine production in 2019.
-- Chaarat signed two new contracts with third-party ore producers
in Q2 2020 and received continuous feed from June 2020.
Supply is expected to remain strong for 2021.
-- Mill feed grade for Kapan ore was 3.03g/t vs 2.92g/t (+
3.8%) in 2019. All ore mined was treated in 2020 providing
a consistent mill and head grade.
-- Kapan metallurgical recoveries dropped in 2020 to 79.9%
compared with 81.4% in 2019 (-1.8%). The areas mined in
2020 had higher proportions of oxidation and pyrite which
adversely impact recoveries. Mineralogical work is being
conducted to identify opportunities to improve recoveries
when treating these ore types. The recovery drop was mitigated
by the improvements to grind size control due to the start-up
of two new cyclone clusters which were installed in early
Q2.
-- Underground development was 21,985 metres, slightly lower
than the 23,136 metres in 2019 (-5%). The lower development
is a direct impact of the reduced workforce during the
conflict. This will result in slightly lower production
levels in Q1 2021 while additional work is carried out
to catch up on access development.
2019 Ore Resources and Reserves
The last full review of resource and reserve was carried out in
late 2019. There was no update performed in 2020 and the next full
update will be conducted during 2021. Exploration drilling
continued during 2020 at the same pace as previous years.
Historically conversion of inferred to measured and indicated, and
resource to reserve has been in line with depletion. The same is
anticipated to have been the case in 2020.
Depletion since the last Reserve update is 114.5koz AuEq based
on the same metal prices used for the Resource estimate. As
depletion is calculated August 2019 to February 2021 inclusive
using the Resource model, the depletion number will differ from
stated production figures due to differences in actual areas mined
versus the model.
The following table summarises the 2019 Ore Reserves:
Grade Metal
Classification Tonnes Au Ag Cu Zn AuEq Au Ag Cu Zn AuEq
(Mt) (g/t) (g/t) (%) (%) (g/t) (Koz) (Koz) (Kt) (Kt) (Koz)
------- ------- ------- ----- ----- ------- ------- ------- ------ ------ -------
Proven 0.17 2.65 40.39 0.42 2.06 4.8 14 220 0.71 3.49 26
------- ------- ------- ----- ----- ------- ------- ------- ------ ------ -------
Probable 4.34 1.65 31.38 0.34 1.31 3.19 230 4,373 14.86 56.88 445
------- ------- ------- ----- ----- ------- ------- ------- ------ ------ -------
Total Proven
and Probable 4.5 1.69 31.72 0.35 1.34 3.25 245 4,594 15.57 60.38 471
------- ------- ------- ----- ----- ------- ------- ------- ------ ------ -------
Notes:
-- The Ore Reserves have been compiled and reported fulfilling
the requirement of the JORC Code (2012) reporting code.
-- Ore Reserves are based on long-term metal prices of
US$1,400/oz Au, US$17/oz Ag, US$6,000/t Cu, and US$2,400 Zn.
-- Ore Reserves are based on a gold equivalent cut-off of 2.5g/t Au.
-- Mineral Resources which are not Ore Reserves do not have demonstrated economic viability.
-- Table subject to rounding errors.
-- The average density of Measured and Indicated Resources is
3.02 t/m3. A density of 2.64 t/m3 was used for diluting waste
material.
-- Tones reported are in situ, dry tonnes.
Exploration and potential at Kapan
Within the existing exploration licence (covering 90.7km(2) )
there are several mineralised exploration target areas that are in
close proximity to the mine. One of these targets is known as East
Flank. A full review of the historic drilling database of 62 drill
holes comprising 22 km of drilling was carried out during 2020 and
an exploration programme has been developed for implementation in
2021. Initial assessment of the East Flank Exploration Target*
shows a potential of 5-6 million tonnes with Au grades of 2.2 - 2.6
g/t. Should the drill results be positive, access development would
commence in 2022 via a decline from surface as well as from
existing underground workings. Initial timeline to implementation
is approximately two years subject to funding and capex
requirements.
* An Exploration Target is a statement or estimate of the
exploration potential of a mineral deposit in a defined geological
setting where the statement or estimate, quoted as a range of
tonnes and a range of grade (or quality), relates to mineralisation
for which there has been insufficient exploration to estimate a
mineral Resource. The potential quantity and grade are conceptual
in nature, there has been insufficient exploration to estimate a
mineral Resource and it is uncertain if further exploration will
result in the estimation of a mineral Resource.
Tulkubash
2020 Tulkubash highlights
-- No lost time injuries since start of construction
-- First full winter of year-round construction activity completed
at site (2019-20), without incident
-- Full revision of Mineral Resource estimate and Ore Reserves
being finalized to support latest update to the Bank Feasibility
Study
-- ESIA updated to reflect developments in project engineering
and permitting
-- Completion of additional 80-bed temporary construction
camp facility
-- Continuation of ore haul road and platforms construction
including bridge (from concrete culverts) over Kumbeltash
stream
-- Finalisation of Issued for Construction (IFC) Detailed
Design Drawings for heap leach facility ("HLF") and completion
of tree cutting to start construction of HLF
-- Partial delivery of Phase 1 shift camp modules
-- Delivery and storage of waste-water treatment plant ("WWTP")
Construction
Construction work during 2020 was significantly impacted by
COVID-19 and the control measures implemented by the Kyrgyz
national and regional governments. Travel restrictions for the
first half of the year prevented mobilization of additional
equipment and personnel from our construction partner Çiftay.
Matters were further compounded later in the year when political
instability led to unrest throughout the country and negativity
towards international mining companies in particular. Most mining
activity was shut down for a period of time following attacks on
mine equipment and personnel. Chaarat was not targeted but we took
the decision to remove our personnel from site until the situation
in country improved. Pending completion of the project financing,
work is expected to resume in H1 2021.
Çiftay progressed with planned work streams to the extent
possible during the year. They remained on site during the initial
in-country COVID restrictions.
Further work was carried out on haul road construction,
preparatory earth moving for the heap leach facility ("HLF") and
foundation pad construction for the permanent camp and crushing
circuit buildings. Preparatory work also started by clearing the
area of vegetation and trees for the HLF. The permanent camp for
employees was ordered and fabricated in Turkey. Modular
construction units were partially delivered to site and erected.
The waste-water treatment plant was delivered and stored for future
installation.
Camp construction was put on hold over the winter period this
year. A small crew remains in place over winter to maintain
essential services which will support a quick resumption of
construction activity in 2021.
Resource and Reserves
Due to COVID travel restrictions and political unrest, the 2020
drilling programme was significantly shorter than previous years.
2,000 meters of infill drilling were carried out during Q3 to
provide better confidence related to mineralised zones as well as
better delineation of the Main Pit boundaries.
No exploration of new areas was carried out in 2020 due to the
limited field season available. However, additional visual studies
and mapping of target mineralisation was carried out to develop the
scope of the 2021 exploration programme.
A new Mineral Resource Estimate ("MRE") and Ore Reserves ("OR")
are being developed incorporating the 2020 exploration results. For
the new MRE, the resource model has also been revised to
incorporate the recommendations of the current geology team as well
as recommendations from independent reviews of the model by SLR
Consulting Ltd. and Wardell Armstrong International Ltd. These
reports will be issued in Q2 2021, along with the revised project
DFS.
Exploration potential
To date drilling has only been carried out on a small part of
the exploration license area. Only 5.5kms of the 24km length have
been extensively explored despite the fact that the Tulkubash
mineralisation remains open along strike to the North East. The
2021 exploration programme will focus on two main areas:
-- Further definition drilling of the current resource to
convert additional inferred and unclassified mineralisation
to measured and Indicated
-- Further improving the Company's understanding of the extent
of mineralisation across the whole licence area. This work
will include geotechnical exploration in addition to drilling
of any defined target areas.
Tulkubash Reserves as at 1 April 2019
Classification Tonnes (Mt) Au(g/t) Metal (koz)
Proven 6.8 0.95 206
------------ -------- ------------
Probable 15.4 0.91 451
------------ -------- ------------
Total 22.2 0.92 658
------------ -------- ------------
-- Ore Reserves are reported with appropriate modifying factors
of dilution and recovery. The Reserve is higher tonnage than the
Resource due to dilution,
-- Numbers are rounded in accordance with disclosure guidelines and may not sum accurately.
-- Ore reserves based on a gold price of US$1,300 per ounce.
Study updates
The results of the new mineral resource estimate ("MRE") and ore
reserves ("OR") are the basis for the revision to the 2019 BFS.
This is being updated by Logiproc of South Africa to reflect the
latest stage of detailed engineering, design construction, and the
comprehensive environmental and social studies that have been
carried out since the last reports were finalised (2017 and 2019
respectively). The Environmental and Social Impact Assessment
("ESIA") for the project has also been revised to reflect all of
the positive developments made in the last few years. The last ESIA
was conducted in 2017 by WAI and they have carried out the revision
as well.
These updates will provide a comprehensive update for the
project finance lender due diligence process. Based on the
information available to date, the conclusions of the updated BFS
are expected to be similar to the 2019 bankable feasibility
study.
Kyzyltash
Our initial plan for 2020 was to carry out a targeted drilling
campaign designed to extract representative material for extensive
metallurgical testing to define the optimum processing route for
this type of refractory ore. The global pandemic resulted in us
scaling back activities significantly until 2021.
We completed a comprehensive review, including external expert
opinions on further test requirements. We also reviewed the
engineering and project management routes that we would utilize to
drive this large and transformational project to a successful
completion. The strategy is to bring both Tulkubash and Kyzyltash
into production by 2026, with a potential of producing up to
400,000 ounces of gold per annum together from then onwards.
Kyzyltash resources as at 19 October 2014
Resource statement Tonnes (mt) Au (g/t) Metal (Moz)
JORC 2014
(cut-off grade 2g/t)
Measured 6.72 3.26 0.7
------------- ---------- -------------
Indicated 32.79 3.79 3.9
------------- ---------- -------------
Measured and Indicated 39.52 3.70 4.6
------------- ---------- -------------
Inferred 6.61 4.05 0.8
------------- ---------- -------------
Total 46.12 3.75 5.4
------------- ---------- -------------
__________________________________________________________________________________
Environmental, social, and governance
Introduction
Environmental, social, and governance (ESG) lie at the heart of
everything that we do at Chaarat. All meetings start with
discussions on ESG issues to emphasise it as a core foundation of
the business. We have also started publishing a monthly ESG
newsletter so that all our employees have improved access to see
the various ESG initiatives currently underway and to encourage
further improvement.
Our communities
The pandemic made us really think about how best to ensure the
welfare of our employees and our communities. We are proud of how
our teams have worked during a very challenging year.
We worked with local health care professionals and community
groups to target COVID-19 support to the most needed areas.
In the Kyrgyz Republic travel restrictions were imposed early
on. In preparation for the difficulties the lockdown might create,
we provided flour and sanitising products to the villages in the
Chatkal region and to the local hospital in preparation for border
closures and travel restrictions within the country. Early on, the
country suffered an acute shortage of testing capacity, so we
worked with the health authorities to purchase a PCR unit and test
kits to help increase government testing capacity. As knowledge
about treatment of the disease grew, we purchased oxygen
concentrators to ensure appropriate health support in both Bishkek
and Chatkal.
In Armenia we helped the local hospital by renovating an unused
wing at the hospital and prepared it for use as a COVID ward. We
provided beds and renovations to equip a rest facility for
personnel in high-risk occupations, such as the police, so that
they had a place to stay rather than risk taking COVID back to
their families every day. We also helped children in the community
by providing computer equipment to enable better access to distance
learning.
During the conflict, Kapan's social aid programme was adjusted
to provide support to various charities carrying out humanitarian
work, such as providing food and shelter to people displaced by the
conflict.
Thankfully there were positive events throughout the year also.
Kapan is glad to say that work was completed on the new music and
arts school and the facility opened for the benefit of children
from Kapan and the neighbouring communities. Three new rubbish
collection trucks were also delivered to the Kapan Municipality as
part of the social assistance package agreed with local
communities. Work was also completed on the Shmavon Movsisyan
History Museum which is dedicated to showing the history of mining
in the Kapan region over the ages.
For 2021, we plan to adjust the initial financial assistance
programme to focus more on the legacy issues of 2020, including
ongoing support for families displaced by the war, and on helping
the region recover from the longer-term effects of COVID-19.
Sadly, the pandemic did impact several of our ongoing
initiatives in the Kyrgyz Republic. The annual "Chaarat Cup" to
support the growth of sporting activities in the region was
cancelled due to restrictions on social gatherings. Hopefully, some
form of this well-liked event can resume again in 2021.
During 2020 we completed an update of the Environmental and
Social Impact Assessment ("ESIA"). We modified the normal
engagement practices typical of the ESIA process to take account of
COVID restrictions. Social gathering events were exchanged for
video conferences, use of social media and other messaging, voice
and video services. We also utilised the ESIA update to review and
assess the effectiveness of our internal processes, procedures, and
documents. As a result, we identified improvements we could make to
aspects such as employee welfare, employment rights, equality, and
prevention of harassment in the workplace. This review involves
board-level oversight to ensure fit with our stated goals and
requirements. The finalised ESIA will be ready for publication in
Q2 2021.
Our people
The impacts of COVID-19, the political issues in the Kyrgyz
Republic, and conflict in Armenia affected the ability to secure
full project funding and ramp up operations as planned. The funding
impact required Chaarat to take steps to optimise its costs. The
Company carried out a comprehensive cost reduction exercise in Q2
2020, reviewing all aspects of the business. We took the decision
to maintain full employment at our impacted operations despite
extended periods when access to site in the Kyrgyz Republic was
closed. We were able to keep affected personnel of Chaarat and our
main contractor employed on reduced pay in line with country
legislation during these periods. To ensure continued employment of
all personnel we focused on equity of pay issues. Management agreed
to a temporary reduction of salary for the duration to ensure that
those most at risk from the economic impact of COVID were not
affected.
The events of last year required us to refocus on the key
priorities so as not to distract the efforts of our people. They
also required us to rethink how we conduct training and engagement
activities. Face-to-face meetings, training, and group sessions
were adversely impacted in 2020, and our management systems are
heavily based on these forms of interaction. During 2021 we will
need to review and assess what changes we make going forward to be
less dependent on such methods.
The ongoing cultural change at Kapan focused on replacing a
traditional central office culture with one that focuses more on
local ownership, entrepreneurship, and decision making was impacted
by the two key events affecting Kapan last year. Less time had to
be dedicated to this initiative to focus on the more immediate
issues affecting the Company. This multi-year programme to provide
improved skills, competencies, and ways of thinking about decision
making will be a focus again in 2021.
Health and safety
The health and safety of our employees, contractors, and
visitors has always been fundamental for Chaarat since starting
work on the Kyzyltash and Tulkubash projects in the Kyrgyz
Republic. That same commitment was at the forefront of our
activities at Kapan since acquiring the mine in early 2019. We have
made good progress over the last two years. Sadly, that progress
was not sufficient as evidenced by a fatal incident on 4 March
2021. This event is a sad reminder that work on creating and
maintaining a world class safety system never ends. Hazards and
risks can always be present and appropriate controls and behaviours
are always needed to prevent such tragic events from occurring
again. This event will refocus and strengthen our efforts across
the Company going forward.
For 2020 there was one lost time injury in Kapan (April 2020). A
miner was struck by a piece of loose rock while carrying out
scaling activities at the start of the shift. Fortunately, the
injuries were not critical, and he was able to return to full
duties shortly after the incident. The annual Lost Time Injury
Frequency Rate ("LTIFR") for 2020 was 0.37 per one million hours
worked (2019: 0.39).
Due to the unusual circumstances of 2020, Chaarat's health and
safety ("H&S") focus for 2020 centred on three main areas:
-- Maintaining the positive improvements built into our operations during 2019,
-- Managing the health risks to our people, contractors, and
visitors to our site from COVID-19.
-- Ensuring that despite the significant distraction of COVID-19
our collective focus remained on working safely at all times.
We implemented policies and procedures at our workplaces at the
start of the crisis to help reduce the risk of infection to our
employees and their families. We implemented remote working in all
our jurisdictions and took actions to implement increased
protections in those areas where remote working was not an option.
We introduced social distancing, carried out health screening,
regular disinfection and mandatory face mask wearing in all
workplaces. Face-to-face meetings were minimised or moved to
outdoor environments to optimise ventilation. Canteen practices
were changed to provide packed meals or staggered servings to
minimize social contact. Our Kyrgyz operation supplemented the
controls by requiring PCR screening tests prior to anyone entering
the camp. These efforts were successful in keeping COVID from our
workplaces for the first wave from March to July.
As global infections increased, our efforts were not able to
prevent exposures, especially those from outside of the workplace.
Infection rates increased in both our operations. When that
occurred, we communicated to our employees to self-isolate rather
than coming to work and further exposing their colleagues.
Thankfully, all our employees have made a full recovery. Sadly,
several of our team suffered the loss of loved ones from this
terrible disease. We offer our heartfelt condolences to our team
and all those around the world who have suffered such loss during
this pandemic.
Chaarat Zaav continued its excellent safety performance record
with no lost time injuries in 2020. Since the start of the project,
Chaarat Zaav has gone 850,000 hours with no lost time injuries. The
task for 2021 will be to further refine our safety managements
systems as construction activities ramp up and new risks need to be
managed.
Environment
Our key focus for 2020 was to carry out work to reduce the risk
to our communities and the environment related to the Tailings
Storage Facility ("TSF") at Kapan. The Kapan TSF is what is called
an upstream tailings dam. This was the most common dam type built
at the time of its construction. Although fully compliant with
design standards at the time of construction, it is now recognised
that there are inherent weaknesses with the upstream design. One
method of improving the safety factors of this type of dam is to
buttress the outside face of the dam. Buttressing work on the north
wall of the TSF commenced in 2020. This work is part of a
multi-year project to reinforce the dam stability and other safety
factors to a higher level. Further work is planned for the next two
to three years to finalise the north wall and then start on the
south side of the dam.
In addition to the buttressing work, the team has made several
other improvements to the dam structure during 2020. New raises to
the dam walls have been installed with finger drains to increase
water drainage from the tails closest to the wall. Old lifts have
been retrofitted with horizontal drains as well to control the
moisture seepage of existing dam structure.
In August 2020, new Global Industry Standards on Tailings
Management were published. Chaarat has undertaken a high-level
internal gap analysis to identify areas that need to be addressed
to meet the standards. In 2021, a third-party assessment will be
carried out to develop a detailed work plan on the additional steps
needed to comply fully with the new standards and the time frame to
achieve compliance.
As part of our actions related to climate change, Kapan
continues to roll out its energy saving programme across the
Company. The focus in 2020 was to replace the old energy-intensive
lights in use almost exclusively both underground and at the
processing plant with modern low-intensity bulbs and fixtures.
The mine has also undertaken a campaign to seal off old headings
with simple block walls. This has the double benefit of improving
air quality in working areas, and reduce the amount of air needed
to be blown underground. This is one of the major electrical uses
for the mine.
During 2021 we will be working on our reporting standards
related to ESG metrics to better demonstrate the improvements being
made across our operations.
Government relations
For the first time in four years Chaarat, the Government of the
Kyrgyz Republic and the European Bank for Reconstruction and
Development was unable to hold the Kyrgyz-British Investment Forum.
This annual event has historically been held in London. The Forum
was initially delayed due to COVID-19 and was then put on hold due
to the political events in country in the latter part of the year.
Chaarat looks forward to working with the new President and
Government to resume the Forum once more in 2021.
The investment agreement between Chaarat Zaav and the Government
that was expected to be signed early in 2020 was delayed as the
Government focused heavily on COVID-19 management. Ongoing
government support and commitment for the project was restated in
March of this year during meetings held between Charaat's Chairman
and member of the new government including the President, Prime
Minister, and head of the country's Investment Agency.
In Armenia, relations with the government at both the local,
regional, and national level remain positive. The Company's
assistance during the COVID crisis was recognised at the highest
levels. The social aid programme, developed jointly with the
municipality, continues to be an excellent example of partnership.
In addition to healthcare and education, the programme will likely
include funding next year to support related to COVID-19 and help
with humanitarian support for those displaced by the hostilities in
Nagorno-Karabakh.
__________________________________________________________________________________
Company's principal risks and uncertainties
Risk Existing mitigating actions
Environmental Implementation of proper
Chaarat may suffer from reputational geohazard mitigation measures
risk and may be liable for losses and maintenance of a proper
arising from environmental hazards hazard management programme,
associated with its activities and including engineering hazard
may be subject to fines and/or penalties. mitigation measures.
Monitoring of tailings storage
facility (TSF), pipelines,
emergency pools, and treatment
facilities, and analysis
of monitoring data.
Annual identification of
environmental hazards and
planned internal reviews
of hazard management.
Employee training on environmental
issues,
in particular on waste control
methods.
-------------------------------------
Community relations Chaarat is committed to work
Communities living in the areas to best international social
surrounding the Group's operations practices as per the Equator
may oppose the Group's activities. Principles, EBRD, and IFC
Actions by those communities may guidelines. In particular,
result in loss of production, increased our mitigation strategy includes:
costs and decreased revenues, longer Operation of social orientation
lead times, additional exploration assistance programmes to
costs and may have an adverse impact the communities in which
on the Group's ability to obtain we operate and ensure labour
permits. force involvement from affected
communities. Conduct public
hearings on social assistance
packages.
Timely communication of relevant
issues to avoid speculation
and rumour. Ensure that decisions
are clearly explained.
-------------------------------------
Health and safety ("H&S") Embedding of policies, standards,
Chaarat's operations present inherent and procedures in place across
H&S risks to our employees and contractors. Chaarat for systematic control
Failure to manage these risks may of significant H&S risks.
result in occupational illness, Purchase of high quality
accidents, a work slowdown, or stoppage personal protective equipment
and/or may damage the reputation (PPE).
of the Group and hence its ability Conduct of planned preventative
to operate. maintenance of equipment
and upgrade equipment in
a timely manner.
Targeted recruitment of experienced
specialists and regular training
of employees and contractors
Continuous monitoring of
highest risk workplace areas.
Employee training.
-------------------------------------
Pandemics and national and/or regional Implementation of extensive
epidemics mitigation measures during
Chaarat's business is exposed to the 2020 COVID-19 pandemic
such risks which can impact its to ensure that our operations
organic and non-organic growth strategy. could continue whilst at
the same time ensuring the
safety of our employees and
contractors, further details
of which can be found in
our ESG report on page 25.
In 2021, Chaarat will focus
on continuing to monitor
World Health Organisation
and local government advice
regarding precautionary measures
and ensure that we implement
all measures necessary to
ensure the safety of our
people.
-------------------------------------
Government policy and legal and Process in place to monitor
regulatory compliance prospective legislative changes,
There remains potential for social, discuss them with competent
political, economic, legal, and state bodies and make suggestions.
fiscal instability. The laws and
regulations in our areas of operation Participation in working
are still developing in some areas groups with other mining
and some provide regulators and companies.
officials with substantial discretion
in their application, interpretation, Stabilisation agreement in
and enforcement. place In the Kyrgyz Republic.
A government decree in 2011 was
passed revising the boundaries of Regular dialogue with ministerial
the UNESCO world heritage site. departments.
Due to an administrative error these
changes were not properly communicated
to UNESCO and some areas of "highly
protected territory" were not properly
transferred to "industrial territory".
The government has recognised this
error, and all formal works in country
have been completed to finalise
the amendment. A prime ministerial
decree addressing this issue is
being prepared for public consultation
and then formal signature in H1
2021 to correct this matter. Some
areas of Chaarat's exploration licence
and the area for heap leach operation
are shown as being in these UNESCO
and highly protected areas as a
result of this 2011 error. However,
Chaarat's mining licence agreement
is compliant with Kyrgyz law and
the Company has all permits and
licences necessary for the construction
and operation of the Tulkubash project
within its entire licensed area,
including the land that is in the
process of being correctly reclassified.
-------------------------------------
Exploration Development and implementation
Exploration and development are of a robust exploration plan.
time and capital-intensive activities Review of exploration plan
and may involve high degrees of by the Board's technical
risk. Chaarat's long-term future committee.
operating margins and profitability Identify attractive prospective
depend upon its ability to find areas to apply for or acquire.
mineral resources through exploration
or acquisition and to replenish
reserves.
-------------------------------------
Construction and development Operation of a proper contractor,
Depending on the timing of completion supplier, expert and other
of project financing, there is a adviser selection and management
possibility of delays to the start process to ensure that they
of production and cost overruns are reliable and meet required
relating to Chaarat's development performance standards.
of its Tulkubash project.
-------------------------------------
Non-organic growth - mergers and Clear delegated authority
acquisitions ("M&A") strategy and for the review and approval
delivery of all transactions by the
Chaarat faces risks arising from Board.
its non-organic growth strategy Subject matter experts as
such as lack of suitable targets. senior stakeholders in acquisition
Acquisition integration risks and process in place.
issues could arise impacting the Regular board reviews and
delivery of expected benefits, either updates of pipeline of identified
within expected time frames or to potential targets.
the extent anticipated. If anticipated Due diligence undertaken
benefits are not realised or if for all M&A transactions,
performance of an acquired asset with involvement of the Board's
falls below expectations, it may technical and HSEC committees,
be necessary to impair the carrying and use of external advisers
value of those assets. where required.
Acquisitions priced and structured
so as to minimise impairment
risk.
We will continue our efforts
to identify suitable M&A
opportunities and adopt the
existing safeguards relative
to our non-organic growth
risks.
-------------------------------------
People - attraction, succession, Integration of skilful personnel
retention to train and develop new
The loss of the services of key and less experienced employees.
employees or if Chaarat encountered Succession planning for specific
labour shortages or was unable to positions.
attract people for core business Monitoring of working conditions
roles, could have an adverse effect to ensure that any issues
on the Company's operations, financial are identified, and solutions
condition, and prospects. provided promptly.
Fair and attractive remuneration
policy.
Provision of career development
opportunities. Partnership
with colleges and training
centres. Internship, on-the-job
training, and mentoring.
Employer brand development
so that Chaarat becomes a
local employer of choice.
In 2021 the Board will undertake
a review of corporate culture.
The Board's remuneration
committee will also undertake
a review of the reward framework
to ensure that it is competitively
aligned to the market.
-------------------------------------
Future financing Maintenance of discussions
The Group requires significant additional with existing lenders and
financing in the future to develop potential finance providers.
projects and to meet ongoing financial Address potential gating
needs. There can be no assurance items to securing project
that additional financing will be finance.
available, or if available, that Looking for new funding options.
it will be on acceptable or favourable
terms. The failure to obtain additional
financing as needed on reasonable
terms, or at all, may require the
Group to reduce the scope of its
operations or anticipated expansion,
dispose of or forfeit its interest
in some or all of its properties
and licences, incur financial penalties
or reduce or terminate its operations.
-------------------------------------
Commodity price volatility Hedging strategies are periodically
Adverse movements in precious metals considered.
prices could materially impact the Conservative long-term prices
Group in various ways beyond a reduction are used to evaluate projects.
in the financial results of operations. AISC at Kapan remains below
These include the feasibility of gold prices.
projects and the economics of mineral
resources.
-------------------------------------
__________________________________________________________________________________
Financial Review
Income statement
Revenue during 2020 amounted to US$76.0 million (2019: US$68.1
million). This represented sales of concentrate at Chaarat Kapan
for 12 months in 2020 compared to 11 months in 2019 following
acquisition by the Group on 30 January 2019. During this period,
Kapan sold 58,178 ounces of Au Eq (2019: 55,255 ounces) with a
realised gold price per ounce of US$1,773 (2019: US$1,413).
The operating profit for the Group for the year ended 31
December 2020 was US$1.9 million (2019: loss of US$18.4 million)
and the Group EBITDA was US$9.3 million (2019: negative US$12.8
million). The adjusted Group EBITDA, excluding non-cash items as
detailed below, was US$13.6 million (2019: negative US$2.4
million).
2020 2020 2020 2019 2019 2019
Armenia Kyrgyz Republic & Total Armenia Kyrgyz Republic & Total
Corporate Corporate
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Earnings before
interest, tax,
depreciation and
amortisation 19,429 (10,126) 9,303 8,624 (21,404) (12,780))
Change in provisions
- non-cash 545 - 545 (563) - (563)
Unrealised foreign
exchange loss (2,649) - (2,649) - - -
Depreciation and
amortisation (5,232) (727) (5,959) (4,490) (589) (5,079)
Finance income 19 - 19 9 - 9
Finance costs (3,149) (17,628) (20,777) (4,287) (5,160) (9,447
Fair value gain on
warrant - 595 595 - - -
--------- -------------------- --------- --------- --------------------- ----------
Loss before income
tax expense 8,963 (27,886) (18,923) (707) (27,153) (27,860)
--------- -------------------- --------- --------- --------------------- ----------
Income tax charge (3,520) - (3,520) (1,540) (5) (1,545)
--------- -------------------- --------- --------- --------------------- ----------
Loss after income tax
expense 5,443 (27,886) (22,443) (2,247) (27,158) (29,405)
--------- -------------------- --------- --------- --------------------- ----------
The adjusted Group EBITDA, excluding non-cash items, was as
follows:
2020 2019
US$'000 US$'000
----------------------------------------------------- -------- --------
Kapan EBITDA 19,429 8,624
Corporate/Kyrgyz Republic EBITDA (10,126) (21,404)
Group EBITDA 9,303 (12,780)
Corporate share-based payment expense 3,612 9,780
Unwinding of discount - provision for rehabilitation 655 621
Adjusted Group EBITDA 13,570 (2,379)
----------------------------------------------------- -------- --------
Finance costs in 2020 were US$21.4 million compared to US$9.4
million in 2019, due to refinancing activities that took place in
relation to the Group's other loans. This was a combination of cash
and non-cash transactions, including an amount of US$8.5 million
settled through the issuance of 27.5 million shares to Labro, a
US$1.1 million modification loss and US$1.4 million for the issue
of warrants.
Income taxes were US$3.5 million compared with US$1.5 million in
the comparable year, reflecting the improved profit achieved at
Kapan. Consequently, the Group made a loss for the year after tax
of US$22.4 million compared with US$29.4 million in the 2019
financial year.
Balance sheet
Non-current assets increased from US$103.1 million at 31
December 2019 to US$109.3 million at 31 December 2020. The increase
was mainly due to capitalised exploration and evaluation costs of
US$6.3 million relating to the asset in the Kyrgyz Republic.
Current assets were US$25.8 million at 31 December 2020 compared
with US$23.9 million at 31 December 2019. The increase mainly
related to inventories offset by a decrease in trade and other
receivables. Current assets at 31 December 2020 included cash and
cash equivalents of US$6.9 million.
Total liabilities at 31 December 2020 were US$110.7 million
compared with US$106.8 million at 31 December 2019. This was mainly
due to accrued interest on other loans, advances from Kapan's
customers of US$5.3 million, offset by bank debt repayments of
US$11.2 million. In addition, liabilities at 31 December 2020
included a rehabilitation provision of US$7.5 million (2019: US$8.6
million) relating to Kapan.
Total equity was US$24.4 million at 31 December 2020 compared
with US$20.2 million at 31 December 2019. This mainly reflects the
increase in share premium of $23.0 million and increase in the
share option reserve of $3.6 million as a result of the "MIP" that
was implemented in 2019 offset by the loss for the year of US$22.4
million (2019:US$29.4 million).
Cash flow
During 2020, the Group generated operating cash flows of US$15.9
million, compared with operating cash flows of US$2.6 million in
2019. The positive cash generation mainly represented the improved
positive EBITDA contribution from Kapan and favourable working
capital movements, partly offset by expenditure on corporate
overheads and development costs.
Net cash used in investing activities in the 2020 financial year
was US$11.9 million, compared with US$54.3 million in the
corresponding 2019 financial year. This mainly reflected the
purchase of property, plant and equipment at Kapan together with
capitalised exploration and development spend in the Kyrgyz
Republic. Investing activities in 2019 were significantly higher as
they included US$38 million relating to the acquisition of
Kapan.
Net cash used in financing activities amounted to US$0.9
million, compared with US$54.1 million generated in 2019. This
mainly related to the funds received from the equity raise in the
year of US$6.3 million and proceeds from other loans of US$5.3
million offset by bank repayments of US $11.2 million. Cash flow
from financing activities in 2019 included the bank loan for the
Kapan acquisition and amounts drawn on the working capital
facility.
Cash and cash equivalents at 31 December 2020 were US$6.9
million compared with US$3.6 million at the start of the year.
Since year end
In February 2021, the Group completed an equity raise of US$52.2
million, comprising cash of US$30.0 million and loan conversion of
US$22.2 million.
Consequently, at 1 March 2021, the Group had approximately
US$31.2 million of cash and US$50.1 million of debt (excluding
lease liabilities and contract liabilities).
Key targets for 2021 will include securing project or other
finance for the Tulkubash project and repaying or refinancing the
convertible loan notes to the extent these are not converted.
Financing
In order to achieve the planned future capital developments of
assets and to refinance the convertible loan notes, management will
need to raise future financing. There are currently no binding
agreements in place in respect of any additional funding and there
is no guarantee that any course of funding will proceed. However,
management is committed to raising additional funds and has an
established track record of successfully achieving this in the past
as demonstrated by the fundraising activities in early 2021.
Going concern
The Directors have concluded that it is appropriate to prepare
the financial statements on a going concern basis. There are
currently no binding agreements in place in respect of any
additional funding and there is no guarantee that any course of
funding will proceed. This indicates the existence of a material
uncertainty which may cast significant doubt over the Group's
ability to continue as a going concern and, therefore, it may be
unable to realise its assets and discharge its liabilities in the
normal course of business. Further details of the Group's status as
a going concern and expected future financing plans are set out
below in Note 4.
Consolidated Income Statement
For the year ended 31 December 2020
2020 2019
US$'000 US$'000
Revenue 75,994 68,088
Cost of Sales (55,286) (55,652)
Gross Profit 20,708 12,436
Selling expenses (1,864) (3,024)
Administrative expenses (16,970) (27,834)
Other income 21 -
-
Operating profit/(loss) 1,895 (18,422)
Finance income 19 9
Finance costs (21,432) (9,447)
Fair value gain on warrant 595 -
--------------------------------------------- ---------- ---------------
Loss before tax for the year, attributable
to equity shareholders of the parent (18,923) (27,860)
Income tax charge (3,520) (1,545)
---------------------------------------------- ---------- ---------------
Loss after tax for the year, attributable
to equity shareholders of the parent (22,443) (29,405)
---------------------------------------------- ---------- ---------------
Loss per share (basic and diluted) - US$
cents (4.40) (7.06)
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2020
2020 2019
US$'000 US$'000
Loss for the year, attributable to equity
shareholders of the parent (22,443) (29,405)
Items which have been reclassified to profit
and loss
Exchange differences on translating foreign 73 -
operations disposed of during the year
Items which may subsequently be reclassified
to profit and loss
Exchange differences on translating foreign
operations and investments (480) 523
Other comprehensive income for the year,
net of tax (407) 523
Total comprehensive loss for the year attributable
to equity shareholders of the parent (22,850) (28,882)
----------------------------------------------------- ---------- ----------
Consolidated Balance Sheet
As at 31 December 2020 2020 2019
US$'000 US$'000
---------------------------------------------------- ---------- ----------
Assets
Non-current assets
Exploration and evaluation costs 61,359 55,070
Other intangible assets 1,221 1,609
Property, plant and equipment 40,538 38,269
Prepayments for non-current assets 563 501
Deferred income tax assets 5,631 7,652
Total non - current assets 109,312 103,101
----------------------------------------------------- ---------- ----------
Current assets
Inventories 12,251 9,676
Trade and other receivables 6,646 9,782
Deferred VAT receivable - 837
Cash and cash equivalents 6,928 3,585
Total current assets 25,825 23,880
Total assets 135,137 126,981
----------------------------------------------------- ---------- ----------
Equity and liabilities
Equity attributable to shareholders
Share capital 5,401 4,688
Share premium 191,594 168,616
Own shares reserve (216) (216)
Convertible loan note reserve 2,493 2,493
Merger reserve 10,885 10,885
Share option reserve 14,103 10,624
Shares to be issued - 217
Translation reserve (15,282) (14,875)
Accumulated losses (184,527) (162,253)
----------------------------------------------------- ---------- ----------
Total equity 24,451 20,179
----------------------------------------------------- ---------- ----------
Liabilities
Non-current liabilities
Provision for rehabilitation 7,479 8,638
Convertible loan notes - 19,994
Lease liabilities 771 302
Other loans 21,947 -
Total non-current liabilities 30,197 28,934
----------------------------------------------------- ---------- ----------
Current liabilities
Trade and other payables 17,400 16,759
Contract liabilities 5,328 -
Deferred VAT payable - 837
Lease liabilities 654 276
Other loans 31,400 59,258
Warrant financial liability 814 -
Convertible loan notes 23,252 -
Other provisions for liabilities and
charges 1,641 738
Total current liabilities 80,489 77,868
----------------------------------------------------- ---------- ----------
Total liabilities 110,686 106,802
----------------------------------------------------- ---------- ----------
Total liabilities and equity 135,137 126,981
----------------------------------------------------- ---------- ----------
Consolidated Statement of Changes in Equity
For the Year
Ended 31 Own Share Convertible Share Shares
December 2020 Share Share Shares Warrant Loan Note Merger Option To Be Translation Accumulated
Capital Premium Reserve Reserve Reserve Reserve Reserve Issued Reserve Losses Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
--------------- ------- ------- -------- ------- ----------- ------- ------- ------- ----------- ----------- --------
As at 1 January
2019 3,951 152,063 - 1,352 2,360 10,885 1,414 - (15,398) (132,984) 23,643
---------------- ------- ------- -------- ------- ----------- ------- ------- ------- ----------- ----------- --------
Loss for the
year - - - - - - - - - (29,405) (29,405)
Translation
gains for the
year - - - - - - - - 523 - 523
---------------- ------- ------- -------- ------- ----------- ------- ------- ------- ----------- ----------- --------
Total
comprehensive
loss for the
year - - - - - - - - 523 (29,405) (28,882)
---------------- ------- ------- -------- ------- ----------- ------- ------- ------- ----------- ----------- --------
Share options
lapsed - - - - - - (204) - - 136 (68)
Share options
expense - - - - - - 9,847 - - - 9,847
Share options
exercised 3 95 - - - - (20) - - - 78
Share scheme
modification - - - - - - (413) - - - (413)
Issuance of
shares for
cash 157 6,387 - - - - - - - - 6,544
Issuance of
shares for
settlement of
liabilities 69 3,041 - - - - - - - - 3,110
Issuance of
treasury
shares 216 - (216) - - - - - - - -
Issuance of
shares for
acquisition of
Kapan 146 5,109 - - - - - - - - 5,255
Equity element
of convertible
loan note - - - - 133 - - - - - 133
Warrants
exercised 146 1,921 - (1,352) - - - 217 - - 932
---------------- ------- ------- -------- ------- ----------- ------- ------- ------- ----------- ----------- --------
As at 31
December 2019 4,688 168,616 (216) - 2,493 10,885 10,624 217 (14,875) (162,253) 20,179
---------------- ------- ------- -------- ------- ----------- ------- ------- ------- ----------- ----------- --------
Loss for the
year - - - - - - - - - (22,443) (22,443)
Translation
losses for the
year - - - - - - - - ( 407 ) - (407)
---------------- ------- ------- -------- ------- ----------- ------- ------- ------- ----------- ----------- --------
Total
comprehensive
loss for the
year - - - - - - - - ( 407 ) (22,443) (22,850)
---------------- ------- ------- -------- ------- ----------- ------- ------- ------- ----------- ----------- --------
Share options
lapsed - - - - - - (159) - - 159 -
Share options
expense - - - - - - 3,612 - - - 3,612
Share options
exercised 1 21 - - - - (10) - - 10 22
Share scheme
modification - - - - - - 36 - - - 36
Issuance of
shares for
cash 191 6,041 - - - - - - - - 6,232
Issuance of
shares for
settlement of
liabilities 513 16,707 - - - - - - - - 17,220
Issuance of
shares for
exercised
warrants 8 209 - - - - - (217) - - -
As at 31
December 2020 5,401 191,594 (216) - 2,493 10,885 14,103 - (1 5,282 ) (184,527) 24,451
---------------- ------- ------- -------- ------- ----------- ------- ------- ------- ----------- ----------- --------
Consolidated Cash Flow Statement
For the Year Ended 31 December 2020 2020 2019
US$'000 US$'000
--------------------------------------------------- -------- --------
Cash flows from operating activities
Operating profit/(loss) 1,895 (18,422)
Depreciation and amortisation 5,959 5,079
Loss on disposal of property, plant and
equipment 66 185
Non-cash expenses 335 496
Gain on disposal of subsidiary (7) -
Change in provisions (897) 297
Foreign exchange losses/(gains) 2,456 (45)
Share based payments 3,612 9,780
(Increase)/decrease in inventories (3,263) 7,828
Decrease/(increase) in trade and other receivables 2,330 (5,218)
(Decrease)/increase in trade and other payables (1,682) 4,036
Increase in contract liabilities 5,334 -
---------------------------------------------------- -------- --------
Cash generated in operations 16,138 4,016
Income taxes paid (205) (1,034)
Cash payments for RSUs replaced - (413)
Net cash generated in operations 15,933 2,569
---------------------------------------------------- -------- --------
Investing activities
Acquisition of subsidiary, net of cash acquired - (38,479)
Purchase of property, plant & equipment (7,417) (3,970)
Purchase of intangible assets (155) (1,385)
Exploration and evaluation costs (4,389) (10,482)
Proceeds from sale of property, plant &
equipment 51 31
Disposal of subsidiary (5) -
Interest received 19 -
---------------------------------------------------- -------- --------
Net cash used in investing activities (11,896) (54,285)
---------------------------------------------------- -------- --------
Financing activities
Proceeds from issue of share capital 6,255 6,622
Receipt of funds for shares to be issued - 161
Receipt of funds for warrants exercised - 49
Repayments of principal portion of lease
liabilities (573) (120)
Proceeds from convertible loan notes issued,
net of costs - 1,072
Finance costs paid for modifications of
other loans (686) -
Repayments of principal amount of loan (8,000) (4,000)
Repayments of interest (3,185) (2,727)
Proceeds from loans 5,300 53,000
Net cash (used in)/from financing activities (889) 54,057
---------------------------------------------------- -------- --------
Net change in cash and cash equivalents 3,148 2,341
Cash and cash equivalents at beginning of
the year 3,585 1,168
Effect of changes in foreign exchange rates 195 76
---------------------------------------------------- -------- --------
Cash and cash equivalents at end of the
year 6,928 3,585
---------------------------------------------------- -------- --------
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 2020 and 31 December 2019.
The consolidated balance sheet at 31 December 2020, the
consolidated income statement, consolidated statement of
comprehensive income, 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 2020 annual
financial statements upon which the auditors' opinion is
unqualified and includes a material uncertainty statement relating
to going concern.
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 2019.
3. Loss per share
Loss per share is calculated by reference to the loss for the
year of US$22.4 million (2019: loss of US$29.4 million) and the
weighted average number of ordinary shares in issue during the year
of 510,466,838 (2019: 416,466,724).
At 31 December 2020, 8,920,341 (2019: nil) warrants, 55,027,006
(2019: 56,805,258 ) share options and convertible loan notes have
been excluded from the diluted weighted average number of ordinary
shares calculation because their effect would have been
anti-dilutive.
4. Going concern
As at 1 March 2021 the Group had approximately US$31.2 million
of cash and cash equivalents and US$50.1 million of debt (excluding
lease liabilities and contract liabilities):
- US$23.8 million convertible loan notes including accrued interest to 1 March 2021
- US$26.3 million borrowings outstanding, including US$0.3
million accrued interest to 1 March 2021
Kyrgyz Republic
In order to achieve the planned (though as yet uncommitted)
capital developments of assets in the Kyrgyz Republic, future
financing will need to be raised.
Kapan
The Board has based the cash flow forecasts for Kapan on the
most recent budgets. Chaarat Kapan has experienced minimal
disruptions to supply chains and shipment as a result of COVID-19
and the hostilities in the neighbouring Naborno-Karabakh region
during the final quarter of the year. Based on the 2021 budget for
Kapan, Kapan is expected to generate sufficient revenue to cover
its operating costs and principal and interest payments. Based on
current forecasts covenants will be met, however, performance of
Kapan is sensitive to commodity prices and production. If these
were to decrease, there is a risk that covenants will be
breached.
Convertible Loan Notes
In October 2021 the convertible loan notes are due to be
redeemed by conversion into equity at approximately GBP0.36 per
ordinary share, at the holder's option, or will be repaid in cash
for a total of US$26.4 million (which includes accrued interest and
equity portion).
Labro Term Loan
In February 2021 Labro converted all of the outstanding US$22
million term loan due, as well as the US$0.2 million of accrued
interest for US$22.2 million in equity. Labro subscribed for
62,380,154 ordinary shares of US$0.01 each in the Company at the
Issue Price of 26 pence per share (non-cash). The loan therefore
has been extinguished, avoiding any related financing required in
future periods.
Labro Facility Loan
In February 2021 the company repaid the outstanding US$0.8
million owing under the Labro Facility Loan and does not expect to
draw down anything in the future.
Conclusion
The forecasts show that the convertible loan notes will need to
be refinanced with cash or alternative funding, to the extent that
loan note holders do not choose to convert to equity, prior to 31
October 2021. To proceed with the development in Kyrgyz Republic
further financing will also be required.
The Board has a reasonable expectation that the Group will be
able to raise additional funds as demonstrated by the Group's
established track record in historical fund raisings, most recently
in the equity raise of February 2021 which raised US$30.0 million
in cash.
Subject to the above, the Directors have concluded that it is
appropriate to prepare the financial statements on a going concern
basis. However, there are currently no binding agreements in place
in respect of any additional funding and there is no guarantee that
any course of funding will proceed. Therefore, as set out above,
this indicates the existence of a material uncertainty which may
cast significant doubt over the Group's ability to continue as a
going concern and, therefore, 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.
5. Post balance sheet events
Completion of US$52.2 million Financing Package Equity Raise and
Debt Conversion
The Company announced on 5 February 2021 that it had completed a
US$52.2 million financing package through an equity fundraise of
US$30.0 million and a debt to equity conversion of the Term Loan
with Labro Investments Ltd of US$22.2 million. A total of
62,380,154 new ordinary shares of US$0.01 each were issued at the
Issue Price of 26p. The Company completed an equity raise of
US$30.0 million from new and existing investors through the issue
of 84,114,549 ordinary shares of US$0.01 each.
Labro Facility Loan
In February 2021 the company repaid the outstanding US$0.8
million owing under the Labro Facility Loan and does not expect to
draw down anything in the future.
6. Timetable and distribution of accounts
The Annual General Meeting ("AGM") will be held on Tuesday, 18
May 2021 at 11am at the offices of Baker & McKenzie LLP, 100
New Bridge Street, London EC4V 6JA. The Board has noted the
guidance issued by the UK Government regarding indoor gatherings
due to the ongoing Covid-19 pandemic. Given the current guidance
and the general uncertainty as to what additional and/or
alternative measures may be put in place, whilst it is the
Company's intention to proceed with holding an AGM, the Board
requests that shareholders do not attend the AGM but instead
appoint a proxy and provide voting instructions in advance of the
AGM. Given the current UK Government restrictions, the Board will
put in place a dial-in facility for shareholders to listen to the
AGM proceedings details of which will be provided in due course.
The Board will keep these AGM arrangements under review and will
update shareholders via a RNS.
Copies of the Annual Report and Notice of the Annual General
Meeting will be sent to shareholders by 22 April 2021.
Additional copies of the Annual Report and Accounts will be
available for inspection at the registered office of the Company
from the date of this notice until the conclusion of the Annual
General Meeting and will be posted on the Company's website -
www.chaarat.com
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/ .
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END
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