TIDMCGH
RNS Number : 6761F
Chaarat Gold Holdings Ltd
30 October 2018
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulations (EU) No. 596/2014 ("MAR").
Not for release, publication or distribution to United States
newswire services or for release, publication or dissemination in
the United States and does not constitute an offer of the
securities herein.
This press release does not constitute an offer to sell, or a
solicitation of an offer to buy, securities in the United States or
any other jurisdiction. Any securities described in this press
release have not been, and will not be, registered under the US
Securities Act of 1933, as amended, and may not be offered or sold
in the United States absent registration except in transactions
exempt from, or not subject to, registration under the US
Securities Act and applicable US state securities laws. There is no
public offering of the securities in the United States expected.
Any public offering of securities to be made in the United States
will be made by means of a prospectus that may be obtained from
Chaarat and that will contain detailed information about Chaarat
and management, as well as financial statements.
30 October 2018
Chaarat Gold Holdings Limited
("Chaarat" or the "Company")
AGREEMENT TO ACQUIRE KAPAN MINING AND PROCESSING COMPANY
CJSC
Chaarat (AIM: CGH), the AIM quoted exploration and development
company with assets in the Kyrgyz Republic, is pleased to announce
that it and one of its wholly-owned subsidiaries, Chaarat Gold
International Limited ("CGIL"), have entered into a binding
conditional sale and purchase agreement (the "SPA") with PMTL
Holding Ltd. ("Polymetal"), a subsidiary of Polymetal International
plc, to acquire Kapan Mining and Processing Company CJSC ("Kapan"),
which owns a medium-sized polymetallic mine (the "Mine") in the
Republic of Armenia (the "Acquisition").
The consideration of US$55 million, subject to net debt, working
capital and other adjustments, is payable in cash, save that US$5
million of the consideration may be satisfied by way of the issue
by the Company of convertible notes equal to an amount of
US$5million pursuant to the Company's 10% secured convertible loan
note instrument dated 11 September 2018 (the "Convertible Notes").
Chaarat expects to fund the cash portion of the consideration
through a new debt financing facility, its existing cash resources,
and the proceeds of the previously announced Convertible Notes
offering.
The Acquisition is an important step in achieving Chaarat's goal
of building a leading emerging markets gold company with an initial
focus on Central Asia and the FSU through organic growth and
selective M&A:
-- Accelerates Chaarat's transformation from a developer to a producer
-- The combination provides a catalyst for a potential re-rating
-- Strengthens the Company's portfolio of assets, with an
anticipated group production of approximately 65 Koz Au Eq in
2019*
-- Significantly improves the Company's financial strength for
the development of Tulkubash and Kyzyltash
-- Advances Chaarat's ability to implement future M&A
-- Transforms Chaarat into a cashflow generating company with a significant growth profile
-- The Directors believe the valuation is highly attractive;
anticipated to imply a P/ NPV 0.53x*.
*Based on Chaarat management's analysis
Artem Volynets, Chief Executive Officer of Chaarat, said: "This
acquisition is expected to be an excellent addition to Chaarat's
portfolio and accelerates our strategic aim of building a leading
emerging markets gold company. It turns the Company
cashflow-generative in a single step, and demonstrates Chaarat's
ability to execute deals quickly, diligently and on accretive
terms. M&A is a vital component of our growth strategy and we
are delighted to be in the process of securing this asset at what
management believe is a very attractive price for Chaarat and its
shareholders."
Chaarat is well placed to take advantage of the opportunities
presented by this cash-generative asset, which, following
significant investment in the asset over the last two years, is
estimated to grow production by approximately 30% per annum in 2019
versus 2017 (based on Chaarat management's analysis).
Mine overview
Production at the Mine commenced in 2003 and the current reserve
life extends to 2023; however, conversion of current inferred
resources to reserves and new exploration success is likely to
extend the mine life. Indeed, the Company's internal modelling
assumes production will continue until 2029. For the year ended
December 2017, the Mine produced c. 50,000 oz of gold equivalent,
generating an EBITDA of over US$20m, PBT of US$2m, and had gross
assets of US$96m (Seller's stand-alone IFRS accounts, unaudited).
Meanwhile, 2019 production guidance is currently 65 Koz of gold
equivalent.
The Chaarat management base case scenario yields more than $100m
in NPV. The NPV is based only on JORC-compliant reserves and mine
production through to 2023 with average annual production of c. 65
Koz of gold equivalent. This implies the acquisition of Kapan at
what the Chaarat Directors consider a highly attractive P/NAV of
0.53x. Chaarat management is confident in the potential of Kapan to
extend production beyond 2023.
The tables below provide further information on reserves and
resources, as well as indicative key project metrics.
Reserves and Resources as of 1 January 2018 (JORC Code 2012)
Grade Contained Metal
Tonnes Au (g/t) Grade Ag (g/t) Zn Au (Koz) Cu (Kt) Ag (Koz) Zn (Kt)
(Mt) Cu (%) (%)
------- --------- -------- --------- ----- --------- -------- --------- --------
Reserves
----- ------------------------------ --------
Proved 0.2 2.9 0.5 42 2.5 20 1 289 5
------- --------- -------- --------- ----- --------- -------- --------- --------
Probable 3.9 2.1 0.4 40 1.6 254 16 4,905 62
------- --------- -------- --------- ----- --------- -------- --------- --------
Total 4.1 2.1 0.4 40 1.7 274 17 5,194 68
------- --------- -------- --------- ----- --------- -------- --------- --------
Resources
----- ------------------------------ --------
Measured 0.0 5.2 1.0 74 4.1 3 0 38 1
------- --------- -------- --------- ----- --------- -------- --------- --------
Indicated 0.3 2.9 0.7 57 2.4 30 2 588 8
------- --------- -------- --------- ----- --------- -------- --------- --------
Inferred 8.0 2.9 0.7 62 2.3 739 53 16,012 183
------- --------- -------- --------- ----- --------- -------- --------- --------
Total 8.4 2.9 0.7 62 2.3 771 56 16,638 191
------- --------- -------- --------- ----- --------- -------- --------- --------
Mineral Resources and Mineral Reserves were estimated at 2.5 g/t
AuEq cut-off grade
Resources are shown inclusive of reserves
Discrepancies in the calculations are due to rounding
Source: Report on Mineral Resource and Ore Reserve Estimation at
the Shaumyan Gold-Polymetallic Deposit as of 01.01.2018, written by
JSC Polymetal Engineering
Indicative Key Project Metrics
Based on the Chaarat management base case scenario using
US$1,250/oz gold, US$15/oz silver, US$6,500/t copper and US$2,500/t
zinc prices, 10% discount rate and JORC reserve-only LOM through
2023
Metric Unit Amount
Average LOM Production - Gold
p.a. (Koz Au) 30
------------- -------
Average LOM Production - Copper
p.a. (kt Cu) 2.0
------------- -------
Average LOM Production - Silver
p.a. (Koz Ag) 600
------------- -------
Average LOM Production - Zinc
p.a. (kt Zn) 6.5
------------- -------
Average LOM Production - Gold
Eq p.a. (Koz Au Eq) 65
------------- -------
Projected Asset Life (years) 6
------------- -------
Average LOM Annual EBITDA (US$ mm) 25
------------- -------
Average LOM AISC (US$/oz) 950
------------- -------
NPV (at 10% for reserves only) (US$ mm) 103
------------- -------
Polymetal has made significant investment into the mine in
recent years (approximately US$35m), with throughput increased from
mechanised mine operations and increased mill capacity. The
increased throughput capacity provides operating cost efficiencies
and the historical high ratio of resource to reserve conversion is
expected to continue. Applying conservative resource to reserve
conversion ratios based on historical ratios achieved, the asset is
anticipated to deliver an additional 6 years of mine life from
current resources. Identified resources within the Mine footprint
are anticipated to be converted into reserves without extensive
underground development. In addition, there are multiple walk-up
targets and favourable structures / identified mineralization
within hundreds of metres of existing workings.
Reverse Takeover
The proposed Acquisition is categorised as a reverse takeover
under the AIM Rules and will be subject to approval of the
Company's shareholders at a General Meeting which will be called as
soon as practicable ("Shareholder Approval").
SPA
The Acquisition comprises the purchase of the entire issued
share capital of Kapan by CGIL from Polymetal. CGIL will also
acquire all debt owed by Kapan to members of the Polymetal group
under intra-group loan agreements. The Company is a guarantor of
all of CGIL's obligations under the SPA.
The consideration for the Acquisition will be US$55,000,000
(subject to net debt and working capital adjustments) payable in
cash with the option to pay US$5,000,000 thereof at completion by
the issue by the Company of Convertible Notes equal to that amount.
CGIL will pay a deposit of US$5,000,000 shortly after the execution
of the SPA (the "Deposit").
The SPA is conditional on (amongst other things): (i)
Shareholder Approval; (ii) approval by the State Commission for the
Protection of Economic Competition of the Republic of Armenia; and
(iii) the Company obtaining financing in relation to the
Acquisition (the "Financing"). These conditions are to be satisfied
as soon as reasonably practicable and in any case by 15 February
2019.
If the SPA is terminated (i) because CGIL fails to satisfy its
conditions (including Shareholder Approval and the Financing) or
fails to comply with its completion obligations, Polymetal will
retain the Deposit and CGIL must pay an additional US$5,000,000 (or
the Company issues Convertible Notes for that amount to Polymetal)
by way of additional termination fee, (ii) because Polymetal fails
to satisfy its conditions or completion obligations, Polymetal must
repay the Deposit and pay US$5,000,000 to CGIL by way of
termination fee, (iii) for any other reason, Polymetal must repay
the Deposit to CGIL and no further amounts are payable.
The SPA also provides for the optional transfer to CGIL of
Polymetal's obligations under a pre-existing royalty agreement in
relation to Kapan, as required by that agreement.
Polymetal has given certain warranties and other protections to
CGIL concerning, among other things, Kapan and its business and
operations, subject to certain limitations of liability.
If any Convertible Notes are issued as summarised above,
Polymetal may require CGIL to purchase those notes at par
(including accrued interest) no earlier than one year after issue
thereof or upon an earlier change of control of the Company.
Exclusivity and right of first refusal agreement for Poly
Armenia
On completion of the Acquisition, Polymetal and Polymetal
Netherlands B.V., the minority shareholder of Polymetal Armenia LLC
("Poly Armenia"), will also grant the Company: (a) exclusive rights
for a period of 6 months from completion of the Acquisition to
negotiate terms in relation to the acquisition of the entire issued
share capital of Polymetal Armenia, together with its two
subsidiaries, Lichkvaz CJSC ("Lichkvaz") and North Exploration
Company LLC (together, the "Poly Armenia Companies"); and (b) a
right of first refusal in respect of: (i) the Poly Armenia
Companies for a period of 12 months beginning on expiry of the
exclusivity period and (ii) ore concentrate produced by Lichkvaz
for a period of 18 months from completion of the Acquisition.
Enquiries
Chaarat Gold Holdings Limited
Martin Andersson (Chairman) +44 (0)20 7499 2612
Artem Volynets (CEO) info@chaarat.com
Numis Securities Limited
John Prior, Paul Gillam (NOMAD) +44 (0) 20 7260 1000
James Black (Corporate Broking)
Powerscourt
Conal Walsh +44 (0)20 7250 1446
Matthew Attwood chaarat@powerscourt-group.com
Isabelle Saber
About Chaarat Gold
Chaarat Gold is an exploration and development company operating
in the Kyrgyz Republic with a large, high grade resource - the
Chaarat Gold Project. The Company's key objective is to become a
low-cost gold producer generating significant production from the
development of the Chaarat Gold Project. Chaarat is engaged in an
active community engagement programme to optimise the value of the
Chaarat investment proposition.
Chaarat aims to create value for its shareholders, employees and
communities from its high-quality gold and mineral deposits in the
Kyrgyz Republic by building relationships based on trust and
operating to the best environmental, social and employment
standards.
Further information is available at www.chaarat.com
Qualified Person
The Qualified Person with overall responsibility for technical
disclosure in this press release for the Company, and who has
reviewed the information contained herein, is Dorian L. (Dusty)
Nicol (FAussIMM), the Company's Technical Director and Head of
Exploration. He is a geologist with more than 40 years of
experience in the resource industry who has sufficient experience
relevant to the style of mineralisation and type of deposit under
consideration and to the activity which he is undertaking to
qualify as a Competent Person as defined in the 2012 Edition of the
'Australasian Code for Reporting of Exploration Results, Mineral
Resources and Ore Reserves'. He has supervised the work which is
the subject of this release. Mr. Nicol consents to the inclusion in
the report of the matters based on this information in the form and
context in which it appears.
Glossary of Technical Terms
"Au" chemical symbol for gold
"Ag" chemical symbol for silver
"Cu" chemical symbol for copper
"cut off" the lowest grade value that is included in a
resource statement. It must comply with JORC
requirement 19: "reasonable prospects for eventual
economic extraction" the lowest grade, or quality,
of mineralised material that qualifies as economically
mineable and available in a given deposit. It
may be defined on the basis of economic evaluation,
or on physical or chemical attributes that define
an acceptable product specification
"g/t" grammes per tonne, equivalent to parts per million
"Inferred Resource" that part of a Mineral Resource for which tonnage,
grade and mineral content can be estimated with
a low level of confidence. It is inferred from
geological evidence and assumed but not verified
geological and/or grade continuity. It is based
on information gathered through appropriate techniques
from locations such as outcrops, trenches, pits,
workings and drill holes which may be limited
or of uncertain quality and reliability
"Indicated that part of a Mineral Resource for which tonnage,
Resource" densities, shape, physical characteristics, grade
and mineral content can be estimated with a reasonable
level of confidence. It is based on exploration,
sampling and testing information gathered through
appropriate techniques from locations such as
outcrops, trenches, pits, workings and drill
holes. The locations are too widely or inappropriately
spaced to confirm geological and/or grade continuity
but are spaced closely enough for continuity
to be assumed
"JORC" The Australasian Joint Ore Reserves Committee
Code for Reporting of Exploration Results, Mineral
Resources and Ore Reserves 2012 (the "JORC Code"
or "the Code"). The Code sets out minimum standards,
recommendations and guidelines for Public Reporting
in Australasia of Exploration Results, Mineral
Resources and Ore Reserves
"koz" thousand troy ounces of gold
"Measured Resource" that part of a Mineral Resource for which tonnage,
densities, shape, physical characteristics, grade
and mineral content can be estimated with a high
level of confidence. It is based on detailed
and reliable exploration, sampling and testing
information gathered through appropriate techniques
from locations such as outcrops, trenches, pits,
workings and drill holes. The locations are spaced
closely enough to confirm geological and grade
continuity
"Mineral Resource" a concentration or occurrence of material of
intrinsic economic interest in or on the Earth's
crust in such form, quality and quantity that
there are reasonable prospects for eventual economic
extraction. The location, quantity, grade, geological
characteristics and continuity of a Mineral Resource
are known, estimated or interpreted from specific
geological evidence and knowledge. Mineral Resources
are sub-divided, in order of increasing geological
confidence, into Inferred, Indicated and Measured
categories when reporting under JORC
"Mt" million tonnes
"oz" troy ounce (= 31.103477 grammes)
"Proven Reserve" A `Proven Reserve' is the economically mineable
part of a Measured Mineral Resource demonstrated
by at least a Preliminary Feasibility Study.
This study must include adequate information
on mining, processing, metallurgical, economic,
and other relevant factors that demonstrate,
at the time of reporting, that economic extraction
is justified.
"Probable Reserve" A `Probable Reserve' is the economically mineable
part of an Indicated and in some circumstances
a Measured Mineral Resource demonstrated by a
least a Preliminary Feasibility Study. This study
must include adequate information on mining,
processing, metallurgical, economic, and other
relevant factors that demonstrate, at the time
of reporting, that economic extraction can be
justified.
"Reserve" the economically mineable part of a Measured
and/or Indicated Mineral Resource
"t" tonne (= 1 million grammes)
"Zn" chemical symbol for zinc
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
AGRGLBDGCUXBGIG
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