TIDMCGH
RNS Number : 4262J
Chaarat Gold Holdings Ltd
16 August 2023
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES
OF ARTICLE 7 OF THE MARKET ABUSE REGULATION (EU) 596/2014 AS IT
FORMS PART OF UK DOMESTIC LAW BY VIRTUE OF THE EUROPEAN UNION
(WITHDRAWAL) ACT 2018 ("MAR"), AND IS DISCLOSED IN ACCORDANCE WITH
THE COMPANY'S OBLIGATIONS UNDER ARTICLE 17 OF MAR
16 August 2023
Chaarat Gold Holdings Limited
("Chaarat" or the "Company")
Conditional Agreement to Sell the Kapan Mine in Armenia
Chaarat Gold (AIM: CGH), the AIM-quoted gold mining company is
pleased to announce that it has entered into a binding conditional
sale and purchase agreement (the "SPA") with G old M ining C ompany
LLC ("the Buyer") ", to sell its 100% owned Armenian subsidiary,
Chaarat Kapan CJSC, which owns the Kapan mining operation (the
"Asset" or the " Kapan Mine") in Armenia (the "Proposed Sale").
The Asset
The Kapan Mine is located in the south of Armenia and has been
operating since the 1960s. It hosts a polymetallic ore body and
produces copper and zinc concentrates with gold and silver
by-products. Chaarat acquired the Kapan Mine in 2019 . During this
time, mine life has been extended, operational performance has been
improved, delivering on production guidance between 50-65koz AuEq
in each year under Chaarat's ownership. The asset has been the sole
operating asset of the Company, which generated an EBITDA of USD
22.7 million in 2021 and USD 12.6 million in 2022 and a profit
after tax of USD 10.5 million and USD 1.7 million in 2021 and 2022
respectively . As recently announced, the EBITDA for H1 2023 was
USD 2.3 million (comprising positive EBITDA in Q1 2023 of USD 3.2
million and negative EBITDA in Q2 2023 of USD 0.9 million) , which
was again impacted by the adverse USD/AMD FX rate exchange and
lower production. This persistently high AMD against the USD FX
rate impact began in Q2 2022 and has retained its strength relative
to the USD. As at 31 December 2022, the Kapan Mine had assets of
USD 75 .1 million and liabilities of USD 53.4 million.
The Buyer
The Buyer operates the Lichkvaz mine in Armenia which has
supplied third-party ore to the Kapan plant for processing for a
number of years . The Buyer's shareholder is also the managing
director and a co-owner of S&A Mining LLC which has been the
long-term mining contractor partner at the Kapan Mine.
The Consideration
The consideration for the Proposed Sale is USD 55. 4 million
(the "Consideration") which compris es USD 5 million payable in
cash and USD 50. 4 million being satisfied by way of the Buyer
taking an assignment of intra-group payables due to Chaarat Kapan
(1) . No adjustments are being made to the Consideration whether
for debt, working capital, or other obligations . The Proposed Sale
is conditional upon Chaarat shareholder approval, Ameriabank CJSC
agreeing to release its existing security and guarantees from
members of the Chaarat group of companies, approval of the Armenian
Competition Protection Commission, and Buyer shareholder
approval.
Rationale for the Proposed Sale
Chaarat acquired the Kapan M ine in 2019 and has added value to
the operation by extending mine life, improving ESG standards ,
improving operational performance and continuing to invest in the
community despite significant geo-political events impacting on the
operation including hostilities with a neighbouring country,
impacts of COVID-19, and the indirect effects of the ongoing
conflict in Ukraine.
After four years of meeting the production guidance, improving
the financial performance, and deleveraging the business, the
significant appreciation of the Armenian Dram has had a significant
impact on the financial performance which has led the Company to
review all strategic options to ensure the sustainability of Kapan
and to preserve the long-term value of Chaarat in pursuing growth
options through building Tulkubash, advancing Kyzyltash as well as
pursuing other external M&A opportunities .
Chaarat sees the Proposed Sale as a beneficial exit opportunity
at a time when the asset sees increasing all in sustaining cash
cost (" AISC "), potential losses and further funding requirements
following several years of profitable operation. Its cash flows
have assisted in funding corporate activities and deleveraging the
original acquisition loan.
The Company believes the potential for further adverse balance
sheet impacts would be limited via the Proposed Sale. The decrease
in EBITDA, mainly caused by the adverse USD/AMD FX rate, has had a
material impact on Kapan operations cash flow. A significant
investment would be required to implement efficiency improvements
into operations in the immediate future. These investments
potentially would also be required in the long term, given the
persistently adverse USD/AMD FX environment. The Proposed Sale
would further allow Chaarat to focus on developing its Kyrgyz
assets.
Chaarat is of the opinion that the Buyer , a reputable and
long-established mining operator in Armenia , can add further value
to the business and continue the positive momentum from the Chaarat
period of ownership.
The Proposed Sale is an important step in focusing Chaarat's
efforts towards building a leading emerging markets gold company
through the development of its Kyrgyz assets and selective
M&A.
Use of Proceeds
This transaction presents the opportunity to significantly
improve Chaarat`s balance sheet by reducing the short- and
long-term liabilities by USD 39 million (2) and receive a cash
injection to corporate of USD 5 million. These funds will be used
to provide working capital which will assist the Company to among
other items, continue working towards complet ing the potential
Xiwang investment which upon completion would assist in developing
the Tulkubash project .
Company Structure Post-Sale
The Proposed Sale would transform Chaarat from a producer to a
developer and would allow the Company to focus resources on its
larger and lower cost development assets and similar selective
M&A targets globally as well as securing funding for such
assets.
Upon completion of the Proposed Sale, Chaarat would remain the
owner of two gold development assets with a combined book value of
USD 82.5 million (3) (c.52% of the Company's assets as at 31
December 2022) which have the potential to, in aggregate, produce
over 350,000 ounces of gold per annum. It would be the Company's
strategy to continue to pursue the development of these assets
going forward, as well as potentially executing on inorganic growth
opportunities.
The Proposed Sale, if completed, would have a material impact on
Chaarat's balance sheet, in terms of both assets and liabilities.
As at 31 December 2022 (3) , the Kapan operation consisted of the
following from the Group; assets of USD 75.1 million (48% of
Chaarat's total assets of USD 158.1 million) and liabilities of USD
53.4 million (62% of Chaarat's total liabilities of USD 85.5
million). Further details of the balance sheet impact will be
provided as an indicative assessment in the 2023 half year
results.
General Meeting
As the Proposed Sale constitutes a fundamental change of
business for the purposes of AIM Rule 15, it is conditional upon,
among other things outlined above, the approval of the shareholders
of the Company at a general meeting. Notice of that general
meeting, which will contain further particulars of the Proposed
Sale, will be posted to shareholders shortly.
Mike Fraser, Chief Executive Officer of Chaarat, commented:
"The Proposed Sale allows Chaarat to focus on its growth
pipeline in the gold sector with the aim of developing lower cost
and higher value options within its portfolio. It accelerates our
strategic objective of developing the Tulkubash project and
evaluating opportunities for inorganic growth options."
(1) The intragroup payables due to Chaarat Kapan of USD 50. 4
million are eliminated on consolidation when preparing the Group's
accounts. When the Proposed Sale is accounted for, the Group
accounts will therefore show disposal proceeds of USD 5 million.
Further details will be provided in the Group's 2023 half-year
report and 2023 full-year results in due course.
(2) Per unaudited 30 June 2023 preliminary figures.
(3) Per audited 31 December 2022 results.
Enquiries
+44 (0)20 7499
Chaarat Gold Holdings Limited 2612
Mike Fraser (CEO) IR@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
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 through organic growth and
selective M&A.
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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