TIDMCGH
RNS Number : 5046K
Chaarat Gold Holdings Ltd
14 December 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.
14 December 2018
Chaarat Gold Holdings Limited
("Chaarat" or the "Company")
Publication of Admission Document, Restoration of Trading on
AIM, Notice of General Meeting, Update on Agreement to acquire
Kapan, Board Changes and Executive Appointment, Revolving Loan
Facility and Change to Concert Party
Chaarat (AIM: CGH), the AIM-quoted exploration and development
company with assets in the Kyrgyz Republic, is pleased to announce
the publication of its admission document (the "Admission
Document") relating to the proposed acquisition of Kapan Mining and
Processing Company CJSC ("Kapan") (the "Kapan Acquisition") and to
the Re-Admission of the Company's ordinary shares ("Ordinary
Shares") to trading on the AIM market operated by the London Stock
Exchange plc ("Readmission"). The Admission Document can be viewed
at www.chaarat.com and selected sections are set out in the
appendix of this announcement.
Defined terms used in this announcement have the meanings
ascribed in the Admission Document.
At 12.00pm on 14 December 2018 Chaarat's management will host a
webcast to update investors on the Company's strategy.
Webcast details
Dial in: UK - 020 3059 5868 / All other locations - +44 20 3059
5868
PIN: Chaarat Gold
https://secure.emincote.com/event/default1.php?eventid=1647&media=flash
Restoration of Trading on AIM
Following publication of the Admission Document, the temporary
suspension of trading in the Company's Ordinary Shares is expected
to be lifted today.
Notice of General Meeting
The Company gives notice that a General Meeting of shareholders
will be held to consider, and if thought fit, approve the Kapan
Acquisition. This will take place at 11:00am on 31 December 2018 at
the offices of Watson Farley & Williams LLP, 15 Appold Street,
London, EC2A 2HB.
Kapan Acquisition update
The Company announces that it has secured further improved terms
on the agreed acquisition of Kapan by the Company's subsidiary
Chaarat Gold International Limited ("CGIL"). Kapan's vendor, PTML
Holding Ltd ("Polymetal"), a subsidiary of Polymetal International
Plc, has agreed to accept $10 million of the $55 million total
consideration for Kapan in convertible notes of the Company, rather
than $5 million as previously announced. This change strengthens
Chaarat's financial position. It also demonstrates the ability of
the Company to reach favourable terms in transactions, as well as
the attractiveness of its investment proposition. This change is
conditional on closing the Kapan Acquisition not later than 15
January 2019, otherwise the terms of the Kapan Acquisition will
revert to those set out on 30 October 2018. Polymetal has also
agreed that its right to require CGIL to purchase such loan notes
will apply only after 19 months from the date of completion of the
Kapan Acquisition. In addition, certain changes have been made to
the working capital adjustments.
If the Kapan Acquisition is approved by shareholders,
Re-Admission will follow a significant period of transformation for
the Company, as it pursues its vision of becoming the leading
emerging markets gold company, focused initially on Central Asia
and the former Soviet Union.
The Kapan Acquisition was announced after trading in the
Ordinary Shares was suspended in April 2018. Subject to shareholder
approval, the Kapan Acquisition is expected to be a key milestone
in the Company's development, turning Chaarat from developer to
producer in a single step. It has been achieved under the
stewardship of a new CEO and senior management team, supported by
an augmented Board. Additionally, the Company continues to develop
(subject to funding) two standalone projects (Tulkubash and
Kyzyltash) with significant growth potential. This period of change
has involved significant and global investor marketing and
engagement, which the Board believes sets Chaarat up well for
future capital market activities. Chaarat is pleased that the
capital market activities thus far have resulted in minimal
dilution to shareholders, a key strategic objective for the
Company.
Chaarat will continue to pursue its strategy of organic growth
from its existing exploration programme, and transformative M&A
and add-on acquisitions.
Board Changes and Executive Appointment
The Company announces the following changes to its board of
directors ("Board") as it passes new milestones in its
development:
(i) Hussein Barma has joined the Board as an independent
non-executive director with effect from today's date;
Further details of Hussein's experience are set out below and in
the Admission Document. He has significant FTSE senior executive
experience, having spent 16 years at Antofagasta plc between 1998
and 2014 where he held the position of Chief Financial Officer
(UK). Hussein brings deep knowledge and experience of the global
mining industry and governance, regulations, strategy, finance,
audit, accounting and investor relations.
(ii) Gordon Wylie, already a board member, has been appointed as
deputy Chairman and senior independent director of the Company;
Gordon has worked for more than four decades in the global
mining industry, for explorers and producers, and was formerly a
senior executive at AngloGold Ashanti.
(iii) Dorian (Dusty) Nicol currently Technical Director and Head
of Exploration at Chaarat, is stepping down from the Board with
effect from 12 December 2018.
Dusty will join the executive team as Senior Vice President,
Exploration with immediate effect. Dusty has more than 40 years'
experience in the mining sector and has been instrumental in
supporting the exploration and construction of the Tulkubash
Project and subsequent development of the Chaarat deposit. His
switch to a full-time executive team member reflects the demands
for his expertise across Chaarat's growing portfolio of assets and
prospects.
(iv) Richard Rae, current Senior Independent Non-Executive
Director and the Company's longest-serving Board member, has
resigned as a non-executive director of the Company with effect
from yesterday.
(v) Sergei Zhukov will also join the Company as Head of Legal
and Company Secretary. Sergei was previously responsible for legal
and compliance matters at the Moscow subsidiary of Credit Suisse
covering operations in Russia, Ukraine and Kazakhstan. He later
advised on numerous project finance transactions at Gazprombank and
at New Development Bank in Shanghai.
Martin Andersson, Executive Chairman of Chaarat, said: "I am
pleased to welcome Hussein to the Chaarat Board. As I have stated
in the past, a key priority at this important time for the Company
has been to add independent non-executive directors with
significant mining experience and track-record. Hussein's
appointment strengthens Chaarat's expertise in compliance, audit
and governance, which are essential for our long-term plans to
create value for current and future investors. Our intention is to
appoint another independent non-executive director in due
course.
"I would like to thank Richard for his contribution to the
Chaarat Board over the past five years. He has served Chaarat with
integrity and great skill in its ongoing journey from a
single-asset, founder-led business to the company we aim to become,
namely an institutionally-backed, multi-asset mining group. We wish
him all the best in his future endeavours. I am very pleased that
Gordon is adding to his valuable work for Chaarat and taking the
Senior Independent Director and Deputy Chair roles.
"I'd also like to thank Dusty for his time on the Board and look
forward to seeing him continue his excellent work in the Kyrgyz
Republic and elsewhere."
Artem Volynets, CEO of Chaarat, added: "We are very pleased to
be issuing an admission document in respect of the Kapan
acquisition, and look forward to bringing a new Chaarat back to the
AIM market. Since the suspension of the shares in April, the
Company has been transformed with a new Board and Management, and
is successfully executing on its new strategy. We expect to close
on our first major M&A deal and become a producer very soon.
Chaarat is fully funded on a steady-state basis, including the
acquisition of Kapan, as we pursue our ambitious plans in our
target regions."
Labro Loan Agreement and Related Matters
The Company announces that it has entered into a committed
revolving term loan facility agreement with Labro Investments
Limited ("Labro") for a total amount of US$15,000,000 (or such
other aggregate amount as may be agreed between the parties from
time to time) (the "Labro Loan Agreement"). The facility is for the
general corporate purposes of the Group.
A summary of the terms of the Labro Loan Agreement is set out in
the Admission Document and in the Appendix of this announcement,
however it is noted that pursuant to the terms of the Labro Loan
Agreement the Company will issue 543,888 Ordinary Shares to Labro,
and further Ordinary Shares will be issued to Labro from time to
time thereunder.
Waiver of obligation to make a mandatory offer
It is also noted that the Labro Loan Agreement requires the
Board to exercise its discretion under Article 19 of the Company's
Articles of Association ("Articles") so as not to require a
mandatory offer to be made in connection with the issue to any
member of the Concert Party of any Ordinary Shares pursuant to the
Labro Loan Agreement or as a result of any redemption or purchase
by the Company of its own voting shares at any time in the future,
but not in respect of any other purchase of Ordinary Shares or any
interest therein by any member of the Concert Party or any other
person acting in concert with them (the "Waiver"). The Board has
resolved to grant the Waiver.
Related Party Transaction Opinion
It is noted that the Executive Chairman, Martin Andersson, has
an interest in Labro, and that he and Martin Wiwen-Nilsson (a
non-executive director of the Company) are members of the Concert
Party (as defined below).
The Labro Loan Agreement constitutes a related party transaction
under Rule 13 of the AIM Rules for Companies (the "AIM Rules")
because of the quantum of the loan and that Labro is a "substantial
shareholder" for the purposes of the AIM Rules.
A summary of the terms of the Labro Loan Agreement is set out in
the Admission Document and in the Appendix of this
announcement.
The Directors (other than Martin Andersson and Martin
Wiwen-Nilsson) consider, having consulted with the Company's
nominated adviser, that the terms of the transaction are fair and
reasonable insofar as its shareholders are concerned.
Issue of Equity
As previously announced, on 27 April 2018, the Company issued
225,000 Ordinary Shares pursuant to an exercise of Options at a
price of 15 pence per share. On 11 September 2018 the Company
converted US$8,150,000 of Previous Notes and US$939,369.86 of
interest into 22,991,251 Ordinary Shares (after rounding and after
cancellation of 1,076,555 Ordinary Shares issued in error).
On 14 December 2018, the Company issued 543,888 Ordinary Shares
pursuant to the Labro Loan Agreement.
Application will shortly be made to the London Stock Exchange
for the Shares to be admitted to trading on AIM, and it is expected
that admission will become effective and trading will commence at
8.00am on 20 December 2018.
Following admission of these 23,760,139 Ordinary Shares the
Company's enlarged issued share capital will comprise 395,167,015
Ordinary Shares. The Company does not hold any Ordinary Shares in
treasury. Therefore the total number of Ordinary Shares in the
Company will be 395,167,105. This figure may be used by
shareholders in the Company as the denominator for the calculations
by which they will determine if they are required to notify their
interest in, or a change in their interest in, the share capital of
the Company under the FCA's Disclosure Guidance and Transparency
Rules.
Change to Concert Party
The Board has determined that Sarastro Group Limited is no
longer a member of the Concert Party last referred to on 16 October
2018. As a result, the Concert party now consists of Labro, Martin
Wiwen-Nilsson (who is also a Director of Chaarat) and Willem De
Geer who owns some of his Ordinary Shares directly and some through
his investment vehicle, Deer Invest AB. The Concert Party
collectively hold, as at the date of this announcement, 149,773,966
Ordinary Shares representing approximately 37.9 per cent. of
Chaarat's issued share capital.
As noted above, there is a provision in the Articles (Article
19) which states that the Board has the right to require any holder
of more than 20% of the Ordinary Shares to make a mandatory offer
to all the Company's shareholders to acquire their Ordinary Shares
if they acquire an additional interest in any Ordinary Shares. The
Board has previously exercised its discretion to waive the
requirement for a mandatory offer when the Concert Party acquired
Ordinary Shares in excess of a 20% holding.
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
Powerscourt
Conal Walsh +44 (0)20 7250 1446
Sam Austrums 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.
On 30 October 2018, Chaarat announced that it had entered into a
binding sale and purchase agreement to acquire the Kapan mine in
Armenia from Polymetal, for a consideration of US$55 million,
subject to adjustments.
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
Appendix I
Further information relating to the Director appointment
Mr Hussein Barma (aged 53) has confirmed that other than the
information disclosed below there are no matters to be disclosed
under Rule 17 and paragraph (g) of Schedule 2 of the AIM Rules.
Mr Barma worked at Antofagasta plc between 1998 and 2014,
including as Chief Financial Officer (UK). Previously an auditor at
Price Waterhouse (now PwC). Until May 2018, he was a steering group
member of the UK Financial Reporting Council's Financial Reporting
Lab.
He is currently an independent Non-Executive Director of Atalaya
Mining plc, where he is the chair of the audit committee and a
member of the corporate governance, nomination and compensation
committee. Hussein also has his own advisory practice, Barma
Advisory, where he has worked with clients across a range of
sectors. He is a chartered accountant (ICAEW) and a barrister
(Middle Temple), as well as having a doctorate in corporate law
from the University of Oxford.
Current directorships:
Atalaya Mining Plc
Museum of Modern Art Limited
Oxford Islamic Finance Limited
Carlton Hill Management (No.70) Company Limited
Previous directorships held in the last 5 years:
Antofagasta Services Limited
Antofagasta (Chili) and Bolivia Railway Company Limited
Antofagasta Copper Limited
Antofagasta Gold Limited
Antofagasta Holdings Limited
Antofagasta Metals Limited
Antofagasta Minerals Limited
Antofagasta Mining Limited
Antofagasta Nickel Limited
Shareholding in the Company:
None
Appendix II
Excerpts from the Admission Document to be published today.
1. INTRODUCTION
The Company announced on 30 October 2018 that it and one of its
wholly-owned subsidiaries, CGIL, had entered into a binding
conditional sale and purchase agreement (being the Kapan
Acquisition Agreement) with PMTL, a subsidiary of Polymetal
International plc, to acquire Kapan, which owns the medium-sized
polymetallic Kapan Mine in the Republic of Armenia.
As the Acquisition constitutes a "reverse takeover" under the
AIM Rules, it is conditional upon, among other things, the approval
of Shareholders at a general meeting. A reverse takeover also
involves the cancellation of existing ordinary shares from trading
on AIM and a new application for the enlarged share capital to be
admitted to trading on AIM. Under the terms of the Kapan
Acquisition Agreement, the Company has agreed to acquire the entire
issued share capital of Kapan for a total consideration of US$55
million (subject to net debt, working capital and other
adjustments). The consideration for the Kapan Acquisition is
payable in cash, save that US$10 million (or, if completion is
after 15 January 2019, US$5 million) of the consideration may be
satisfied by way of the issue by the Company of such amount of
Convertible Loan Notes. As required by the AIM Rules, the Company
is publishing an Admission Document, which describes the Kapan
Acquisition and contains notice of the General Meeting to approve
the Resolution which is required to enable the Company to complete
the Kapan Acquisition.
2. HISTORY OF THE GROUP AND BACKGROUND TO THE KAPAN
ACQUISITION
History of the Group
Chaarat Gold Holdings Limited is an AIM-quoted company that was
founded for the purpose of exploring and developing the Chaarat
Gold Project in the Tien Shan Gold Belt, in the North West of the
Kyrgyz Republic.
Chaarat currently has a Mining Licence to develop the Tulkubash
oxide zone and an Exploration Licence in respect of the parallel
Kyzyltash refractory sulphide mineralisation zone.
The entire issued and to be issued ordinary share capital of the
Company was admitted to trading on AIM on 8 November 2007.
The Kapan Acquisition represents an important milestone for
Chaarat in executing on its consolidation strategy for the regional
gold sector. Chaarat continues to pursue other selected M&A
targets and the Directors believe the Company is well positioned to
be a driver of consolidation in Central Asia and the former Soviet
Union.
The Group's principal assets will, following completion of the
Kapan Acquisition, comprise the Chaarat Gold Project and the Kapan
Mine.
Chaarat Gold Project
The Group currently has two projects in the Kyrgyz Republic,
details of which are as follows:
Asset Holder Interest Status Licence Licence
(%) Expiry Date Area (Km2)
Mining Licence Development
no. 3117AE of subsurface
in the Kyrgyz mineral 25 June
Republic CZ 100 resources 2032 7.0003
Exploration
Licence no. Subsoil
3319AP in use and
the Kyrgyz geological 7 October
Republic CZ 100 exploration 2023 67.7600
The Mining Licence was granted by the SCIESM to CZ on 22 January
2014 and is valid until 25 June 2032. The Mining Licence covers the
development of subsurface gold resources in the Chaarat Deposit
Area.
The Exploration Licence was granted by the SCIESM to CZ on 7
October 2013 and is valid until 7 October 2023. The Exploration
Licence covers subsoil use and geological exploration for gold,
molybdenum, copper and tungsten in the Exploration License
Area.
The Chaarat Deposit Area has two ore bodies parallel to each
other: the Tulkubash oxide zone and the Kyzyltash refractory
sulphide mineralisation zone.
Further details regarding the Chaarat Gold Project and the
Kyrgyz Republic mining regime are set out in the Admission
Document.
Kapan Mine
The Company has agreed to purchase Kapan pursuant to the Kapan
Acquisition Agreement. Kapan is the owner of the Kapan Mine (also
known as Shahumyan). Details of the Kapan Licence are set out
below:
Asset Permit Holder Interest Status Licence Licence
(%) Expiry Date Area, (km2)
Mining Permit
- 29/183,
Subsoil
Use Contract Mining right
N 183, Land on extraction
Mass Allotment of
Act N natural
-183 and resources
relevant in Shahumyan
mining underground 01 April
project Kapan 100 mine 2050 3.786
The Kapan Licence was granted to Kapan on 27 November 2012 and
is valid until 1 April 2050. The Kapan Licence covers the
extraction of gold, copper, silver and zinc in the Kapan Licence
Area.
Further details regarding the Kapan Mine and the Armenian mining
regime are set out in the Admission Document.
Rationale for the Kapan Acquisition
The consideration for the Kapan Acquisition is US$55 million,
subject to net debt, working capital and other adjustments, and is
payable in cash, save that US$10 million (or, if completion is
after 15 January 2019, US$5 million) of the consideration may be
satisfied by way of the issue by the Company of such amount of
Convertible Loan Notes. Chaarat expects to fund the cash portion of
the consideration through the Kapan Acquisition Financing, its
existing cash resources, and the proceeds of the previous issues of
Convertible Loan Notes. Further details of the principal terms of
the Kapan Acquisition are set out in the Admission Document.
The Kapan 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. In particular, the Kapan
Acquisition:
-- accelerates Chaarat's transformation from a developer to a producer
-- 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
(based on Chaarat management's analysis)
-- significantly improves the Company's financial strength for
the development of Tulkubash and Kyzyltash at the Chaarat Gold
Project
-- advances Chaarat's ability to implement future mergers and acquisitions
-- transforms Chaarat into a cashflow generating company with a significant growth profile
-- has a valuation which the Directors believe is attractive;
anticipated to imply a P/ NPV 10 of 0.37x (based on Polymetal's
analysis) and 0.78x (based on Chaarat management's analysis).
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 cent. per
annum in 2019 versus 2017 (based on Chaarat management's
analysis).
Production at the Kapan Mine commenced in 2003 and the current
reserve life extends to 2023; however, the Company believes that
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 Kapan Mine produced
around 50 Koz of gold equivalent, generating a PBT of US$2.155
million, and had gross assets of US$95.445 million (based on the
reporting accountant's audited historical financial information
report). Meanwhile, 2019 production guidance is currently 65 Koz of
gold equivalent (based on Chaarat management's analysis).
During the due diligence process, Chaarat Management reviewed
the mine plan and economic analysis for the Kapan Mine prepared by
Polymetal, and with assistance from CSA, have developed a more
conservative model which, amongst other things, results in an NPV
of US$70.2 million. The NPV is based only on JORC-compliant
reserves and mine production through to 2023 with average annual
production of around 65 Koz of gold equivalent. This implies the
acquisition of Kapan at what the Chaarat Directors consider an
attractive P/NAV of 0.78x. Chaarat management is confident in the
potential of Kapan to extend production beyond 2023.
PMTL has made significant investment into the mine in recent
years (approximately US$35 million), 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 by Chaarat management to deliver an additional 6 years
of mine life from current resources (although there is no assurance
that this will be the case). Identified resources within the Kapan
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.
As noted in the Admission Document, Chaarat management's view
differs in certain respects from the various views expressed in the
Kapan CPR in relation to project financial results and the proposed
mining plan. The Kapan CPR identifies project financial results
that are higher than Chaarat management's and Chaarat management
additionally believes that the PMTL mining plan detailed in the
Kapan CPR is overly optimistic.
3. STRATEGY AND EXPLORATION PLANS
Group Strategy
The Company's strategic objective is to become a leading
mid-tier low cost gold producer focused in Central Asia and the FSU
through a mixture of organic growth and selective acquisitions.
Due to perceived risk, most of the assets in the Commonwealth of
Independent States region trade at a significant discount compared
to equivalent assets in other emerging market locations. This
delivers the opportunity for industry consolidation, which the
Company intends to lead. Ultimately, the Company believes that a
diversified portfolio of producing and developing mines will
generate the cash flow to fund ongoing organic growth and deliver a
strong equity return to investors. By maintaining a focus on active
engagement with host communities, the Company believes that the
benefits of this strategy will flow to all stakeholders, helping to
manage ongoing risks.
The Company's criteria for merger and acquisition candidates
are:
-- Gold production or near-term gold production at a competitive cash cost;
-- Geographic/operational synergies;
-- Exploration upside;
-- Potential for extended mine life; and
-- Value accretive to shareholders.
The Tien Shan Gold Belt hosts numerous world class ore bodies,
however, the Central Asia and FSU gold industry is highly
fragmented. The Company intends to lead the consolidation of the
industry focusing on projects within the relevant geographical
clusters. The Kapan Acquisition is an important milestone for
Chaarat in executing on its consolidation strategy for the regional
gold sector.
Tulkubash Exploration and Development
The Company's strategy in the Kyrgyz Republic is focussed on the
development of the Tulkubash heap leach project, with an initial
reserve comprising 16 million tonnes of ore with an average gold
grade of 0.91 grams per tonne for 470,000 ounces of contained gold.
A feasibility study was completed in April 2018 which sets out a
blueprint for the development of the Chaarat Gold Project (the
"Feasibility Study"). The design is based on processing 13,500
tonnes of ore per day to produce over 100,000 ounces of gold per
annum during steady state operations with an average post tax free
annual cash flow of US$58.6 million for an initial four year mine
life. The Company is currently completing an approximately 20,500
metre drilling programme at Tulkubash. The results of this drilling
are expected to be incorporated into an updated year-end resource
update to be completed in the first quarter of 2019. This resource
update is intended to be the basis for an updated reserve estimate
and financial model also to be completed in the first quarter of
2019.
In September 2018, the Company released results of an interim
resource for Tulkubash, based on the first 10,500 metres of the
year's drilling. This resource update demonstrated an increase in
contained in Measured and Indicated Resource of 46 per cent.
(relative to the prior resource estimate on which the feasibility
study was based) to over 1.4 million ounces of gold. The resource
grade also increased by 57 per cent. to 1.35 g/t Au. Drilling since
then has continued to add new mineralisation, which is expected to
be included in the year-end resource and reserve updates. Dependent
upon raising sufficient additional funds, significant ongoing
exploration is planned for 2019 (25,000 to 30,000 metres of
drilling) and thereafter (15,000 to 20,000 metres per year). This
is expected to focus initially on defining the extent of
mineralisation within the six-kilometre long mining license and
later on extending mineralisation along strike into the adjoining
exploration license. To date, only about 3.5 kilometres of the
prospective 24-kilometre strike length of favourable geology within
the Company's licenses have been drilled. Substantial gold-in-soil
geochemical anomalies, at or above the reserve grade, have already
been defined in this area. The Company is confident it can add
significantly to the Tulkubash reserve base and hence mine life
ahead of first gold production which is anticipated in 2020
(following completion of the financing required to develop the
mine).
Organic growth should follow from the neighbouring Kyzyltash
deposit. The Kyzyltash project has a large, higher grade defined
resource comprising 46.1 million tonnes of ore at a gold grade of
3.75 grammes per tonne for 5.4 million ounces of contained gold.
Whilst this is a substantial ore body, it remains open both along
strike and down-dip. Based on the work performed by China Nerin
Engineering Co. Ltd., Kyzyltash has the potential to produce
200,000-300,000 ounces of gold per annum at low operating cash
costs. The Company plans to develop the Kyzyltash project once the
Tulkubash project is in operation, but plans to have both projects
in production in parallel in the medium term, producing up to
400,000 ounces of gold per annum from the Chaarat Gold Project.
Kapan Mine Near Term Actions
In respect of the Kapan Mine, the Company is currently planning
several near term actions.
In relation to environment and health and safety, the Company
intends to replace the existing safety system based on rules and
punishment and to establish a behaviour-based safety culture that
emphasises personal responsibility and accountability. The Company
additionally aims to ensure that environmental management is
independent of production.
In relation to the mine, the Company aims to get exploratory
development out ahead of production mining and to improve the short
and medium term accuracy of the reserve model, with mine bottom up
planning being positioned to reduce dilution. The Company intends
to increase the mining fleet availability, reduce waiting time for
parts and to complete activities in-house as far as possible at a
lower cost.
The Company additionally intends to improve the mill, with
planned upgrades to enhance throughput, improve crushing efficiency
and reduce primary grinding feed size. The Company aims to
stabilise flotation and process recovery and is considering
dewatering options to stabilise the dam while sourcing material for
buttress.
As regards management, the Company aims to reduce reliance on
corporate decision making, promoting teamwork and interdepartmental
efficiency. The Company plans to educate the workforce in cost and
budget management and to introduce effective reporting and variance
analysis.
In respect of capital management, the Company intends to ensure
timely payment for finished goods and to monetise obsolete
inventory. The Company also plans to rationalise buying to ensure
inventory does not exceed operational requirements and to contract
out mine development to reduce capital equipment replacement.
4. PRINCIPAL TERMS OF THE KAPAN ACQUISITION AND KAPAN
ACQUISITION FINANCING
Kapan Acquisition
The Kapan Acquisition Agreement comprises the purchase of the
entire issued share capital of Kapan by CGIL from PMTL. CGIL will
also acquire all debt owed by Kapan to members of the PMTL group
under intra-group loan agreements. The Company is a guarantor of
all of CGIL's obligations under the Kapan Acquisition
Agreement.
The consideration for the Kapan Acquisition will be
US$55,000,000 (subject to net debt and working capital adjustments)
payable in cash with the option to pay US$10,000,000 (or, if
completion is after 15 January 2019, US$5,000,000) thereof at
completion by the issue by the Company of Convertible Notes equal
to that amount.
The Kapan Acquisition Agreement is conditional on (amongst other
things): (i) Shareholder approval of the Resolution; (ii) approval
by the SCPEC; and (iii) the Company obtaining the Kapan Acquisition
Financing. These conditions are to be satisfied as soon as
reasonably practicable and in any case by 15 February 2019.
CGIL paid a deposit of US$5,000,000 on or around 12 November
2018 (the "Deposit") to PMTL. If the Kapan Acquisition Agreement is
terminated: (i) because CGIL fails to satisfy its conditions
(including Shareholder approval of the Resolution and obtaining the
Kapan Acquisition Financing) or fails to comply with its material
completion obligations, PMTL will retain the Deposit and CGIL must
pay an additional US$5,000,000 (or the Company may issue
Convertible Notes for that amount to PMTL) by way of a total
termination fee of US$10,000,000 or (ii) because PMTL fails to
satisfy its conditions or material completion obligations, PMTL
must repay the Deposit and pay US$5,000,000 to CGIL by way of
termination fee; or (iii) for any other reason, PMTL must repay the
Deposit to CGIL and no further amounts are payable.
The Kapan Acquisition Agreement also provides for certain
arrangements regarding the transfer of the royalty agreement
between PMTL, Polymetal and Dundee Precious Metals Inc in relation
to Kapan.
PMTL 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, PMTL
may require CGIL to purchase those notes at par (including accrued
interest) no earlier than 19 months after issue thereof or upon an
earlier change of control of the Company.
On completion of the Kapan Acquisition, and pursuant to the ROFR
Agreement, PMTL and Polymetal Netherlands B.V., the minority
shareholder of Poly Armenia, will also grant the Company: (a)
exclusive rights for a period of 6 months from completion of the
Kapan Acquisition to negotiate terms in relation to the acquisition
of the entire issued share capital of Poly Armenia, together with
its two subsidiaries, Lichkvaz and NEC (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 Kapan
Acquisition. The Poly Armenia Companies comprise Polymetal's other
mining interests in Armenia. Polymetal Armenia is the holding
company for Lichkvaz, which is the owner of the Lichkvaz deposit, a
gold deposit located approximately 70 km from the town of Kapan.
NEC is an exploration company which currently is a dormant company
with no material assets.
Further details of the Kapan Acquisition Agreement and ROFR
Agreement are set out in the Admission Document.
Kapan Acquisition Financing
As at the date of this announcement, in order to fund the Kapan
Acquisition, the Company has signed a definitive term sheet with
Ameriabank CJSC for a US$20 million acquisition financing facility,
supported by a letter confirming that the bank will seek to raise a
further US$20 million of financing through syndication with other
banks in Armenia (together comprising the Kapan Acquisition
Financing). Legally binding documents for the Kapan Acquisition
Financing remain to be prepared, negotiated and executed and any
and all conditions precedent to drawdown of the financing
thereunder will also need to be satisfied. These facilities are
required in order to enable the Group to proceed to completion of
the Kapan Acquisition and it is therefore anticipated that these
facilities will be in place and drawn down by the time of
Re-Admission.
Further details of the Kapan Acquisition Financing are set out
in the Admission Document.
The Company has also entered into a US$15 million revolving
credit facility with Labro in order to provide further working
capital for the Company if and when needed for a period of up to 19
months from Re-Admission. Further details of the Labro Loan
Agreement are set out in the Admission Document and the appendix to
this announcement.
5. RE-ADMISSION TO AIM
On Re-Admission, the Company will have 395,167,015 Ordinary
Shares in issue.
The Company will also have US$18,580,000 Convertible Loan Notes
in issue (principal value). In addition, the Company has:
(a) received a short term loan of US$10 million;
(b) agreed to issue US$10 million (or, if completion is after 15
January 2019, US$5 million) of Convertible Loan Notes to PMTL;
(c) entered into a term sheet and related letter for the Kapan
Acquisition Financing; and
(d) entered into the Labro Loan Agreement
as further described in the Admission Document.
6. CURRENT TRADING AND PROSPECTS
The companies that will comprise the Group following
Re-Admission, assuming that the Kapan Acquisition is completed,
generated combined revenues of US$29.7 million during the six
months ended 30 June 2018, and a combined loss before tax of US$4.3
million.
The Directors believe that the Group, following completion of
the Kapan Acquisition, will have a portfolio of assets that will be
immediately cash-generative. The Directors will be focusing the
majority of their efforts in integrating the Kapan Mine, raising
additional funding to continue developing the Chaarat Gold Project
and identifying further acquisitions in line with the Company's
growth strategy.
Further information on current trading and prospects at the
Chaarat Gold Project and the Kapan Mine are set out below.
The Chaarat Group
Currently, the Chaarat Group's main priority is continued
exploration drilling at Tulkubash. Drilling in the second half of
this year has focused on developing resources in Segment I and
Segment IV that could have the potential to add reserves to the
project. Drilling in Segment I is targeting oxide mineralization on
the footwall and hanging wall of the main pit that has the
potential to expand the pit design. At the end of the season, two
drill rigs were in operation on site and the programme has been
completed with approximately 20,500 metres drilled. The drilling
was impacted by adverse weather and logistical issues (drill water
shortages). The drill water shortages were caused by an abnormally
dry spring and summer during the year. Steps are being taken to
engineer a water delivery system to preclude reoccurrence of this
during future drill campaigns. This year's exploration in Segment V
has confirmed that the Tulkubash oxide mineralization continues to
the northeast and represents an attractive target for follow-up
drilling in the 2019 season. In addition, construction of site
infrastructure and detailed engineering are underway in order to
accelerate fast track development with the mobilization of the
mining/earthworks contractor at the site. Subject to funding, the
Company expects full-scale construction of the Tulkubash heap leach
project to begin in the second quarter of 2019 and sees the
potential to increase the existing Tulkubash resources and reserves
prior to the planned first gold pour in 2020.
The Kapan Mine
During the 6 months to 30 June 2018, the Kapan Mine generated
revenue of approximately US$29.7 million, an operating profit of
approximately US$1.5m and total comprehensive income of US$811,000.
During that period, the Kapan Mine experienced two production
interruptions; the first related to the mine ventilation failure in
March which sadly resulted in a fatality, and the second a strike
by employees which was precipitated by a nation-wide protest for
higher wages. The area of the mine where the fatality occurred
remains closed at this time and Kapan agreed a pay rise of 10 per
cent. in order to end the strike.
During the year, several improvements and expansions have been
completed at the mine, including an increase of ventilation
capacity from 380 cubic meters per second to 450 cubic meters per
second, achieved by the installation of new vent fans at Adits 6
and 12. The mill has been improved and benefits are expected to be
seen from early 2019.
Despite the temporary closures of the mine, tonnes mined and
milled during the year to date are slightly ahead of the
budget.
7. SHARE OPTIONS
As at the date of this announcement, there are in issue
23,704,609 Options. Details of such Options are included in the
Admission Document.
The Directors intend to implement an incentive scheme to reward
Directors and certain employees. It is intended that the proposed
incentive scheme if approved will provide for three main
elements:
(i) conversion of existing Option plans into a new uniform
scheme; (ii) a one-off grant of equity equal to around 5 per cent.
of the outstanding share capital at the date of Re-Admission; and
(iii) Options equal to around 3 times of equity granted under the
scheme at a strike price of 42p per Ordinary Share to the Board and
senior managers which will be subject to a vesting schedule.
The first element of the scheme will require conversion of
vested and unvested Options into Ordinary Shares based on a price
of 33p per Ordinary Share; these will have a three year vesting
period and if an employee leaves during this period the unvested
Options will lapse. This first element will also require consent
from the existing Option holders to join the new incentive plan
and, if all holders consent, would result in around 6,471,873 new
Ordinary Shares.
The second element of the scheme is expected to comprise a
one-off grant of 19,731,156 new Ordinary Shares forming part of
future remuneration packages.
The third element of the Scheme is expected to comprise
59,193,469 Options which will have a similar three year vesting
period with the same consequences if an employee leaves. Delivery
of vested Ordinary Shares will be made on the basis of 50 per cent.
of the entitlement at the date of vesting with the remaining part
of the entitlement to be delivered at the end of year three,
whether or not in employment at such time.
Conversion of the existing Options into Ordinary Shares and full
grant of new Options and new equity is expected to represent
approximately 14 per cent. of the Company's fully diluted share
capital as at Re-Admission, assuming implementation of the new
incentive scheme described in the Admission Document and full
exercise or conversion of all Options, Warrants and Convertible
Loan Notes.
The board will have full discretion to amend the incentive
scheme or adjust unvested Ordinary Shares and options. The senior
managers of the Company that will participate in the new incentive
scheme will not be entitled to cash bonuses during the three year
vesting period. The scheme will make provision for future
employees.
The Company intends to propose a special resolution in the near
future to increase or remove its current authorised share capital
limit of 600,000,000 Ordinary Shares in order to enable it, among
other things, to implement this incentive scheme in full.
Please also refer to the Admission Document regarding potential
issues of Ordinary Shares to Artem Volynets and Dmitry Yudin.
8. LABRO LOAN AGREEMENT
On 14 December 2018, the Company entered into a committed
revolving term loan facility agreement with Labro for a total
amount of US$15,000,000 (or such other aggregate amount as may be
agreed between the parties from time to time). The facility is for
the general corporate purposes of the Group.
The term of the facility is from the date of the loan agreement
until the date that is 19 months after Re-Admission (the
"Term").
The facility bears interest at a rate of 10% per annum.
In respect of each loan borrowed pursuant to the facility under
the loan agreement, all accrued and outstanding interest, together
with the aggregate outstanding principal amount, is payable on the
earlier of:
(i) the last business day of the Term;
(ii) the date on which the aggregate outstanding amount of the
corresponding loan is fully prepaid or repaid in accordance with
the terms of the loan agreement; or
(iii) the termination date, being the earlier of: (A) the
business day on or immediately prior to the Term of the facility;
and (B) where it has become unlawful in any applicable jurisdiction
for Labro to perform its obligations as lender, and where such
illegality cannot be remedied, the date falling 10 business days
after the date on which Labro notifies the Company of such
illegality event (the "Termination Date").
The Company shall repay to Labro in full the aggregate
outstanding principal amount of all loans borrowed under the
facility, together with all accrued and outstanding interest and
all other amounts due, on the Termination Date.
The aggregate outstanding principal amount of all loans borrowed
under the facility shall be:
(i) immediately prepaid in whole by the Company to Labro upon
the occurance of an event of default or an illegality event as
summarised above (save, in the case of an illegality event, where
Labro determines that such event does not require the prepayment of
the entire facility and all loans provided thereunder, in which
case only a relevant proportion shall be prepaid and cancelled);
and (ii) immediately prepaid (either in whole or in part, as the
case may be) by the Company to Labro in an amount equal to the
aggregate principal amount of all loan facilities, debt
instruments, credit agreements, notes or similar instruments or any
other financial accommodation made available to the Company after
the date of the loan agreement from any person other than the
Labro.
The Available Facility shall be automatically and permanently
reduced to zero on the Termination Date.
The Company has agreed to pay to Labro a commitment fee, which
shall be settled through the issue of Ordinary Shares (the
"Commitment Fee"). The Commitment Fee shall be due and payable in
advance on each of the following dates (each such date being a
"Commitment Fee Payment Date"), provided that the final Commitment
Fee Payment Date shall occur on the Termination Date, and
shall:
(i) be equal to 1.5% of the facility made available under the
loan agreement and be payable on the date thereof (resulting in
543,888 Ordinary Shares); and
(ii) be equal to 1.5% of the facility made available under the
loan agreement and be payable on the first drawdown date, or such
other percentage of the facility made available under the loan
agreement as may be agreed in writing between the Company and Labro
from time to time. The Commitment Fee set out in (i) above is
payable on the date of the loan agreement irrespective of whether
any amount is drawn down. The Commitment Fee set out in (ii) above
is payable on the first drawdown date irrespective of the amount of
the loan borrowed on such date.
The Ordinary Shares to be issued to Labro in respect of the
Commitment Fee on the Commitment Fee Payment Date shall be
calculated (unless otherwise agreed in writing between the Company
and Labro from time to time) by converting the facility made
available under the loan agreement into pounds sterling at the
exchange rate published by the Financial Times on the date falling
no earlier than three business days prior to the immediately
upcoming Commitment Fee Payment Date, and dividing that number by a
price of 33 pence per Ordinary Share.
The Company also agrees to pay a drawdown fee to Labro on each
drawdown date, in an amount equal to 3% of the amount of each loan
borrowed under the facility, and the Company may elect to pay the
same in cash or settle such amount through the issue of Ordinary
Shares (in which case, the number of Ordinary Shares to be issued
shall be calculated in the same way used to calculate the number of
Ordinary Shares issued to settle any Commitment Fee.
The loan agreement contains customary undertakings and events of
default for a loan of this nature.
The agreement is governed by English law and any disputes are
subject to the exclusive jurisdiction of the English courts.
9. ACTION TO BE TAKEN
Shareholders will not receive a Form of Proxy or Form of
Direction for the General Meeting in the post. Instead,
Shareholders will receive instructions to enable you to vote
electronically and how to register to do so, and Depositary
Interest Holders will be able to vote in Crest. Shareholders will
still be able to vote in person at the General Meeting, and may
request a hard copy Proxy Form directly from the Registrars, Link
Asset Services, 34 Beckenham Road, Beckenham, Kent, BR3 4TU
(telephone number: UK - 0871 664 0300 or from overseas +44 (0)371
664 0300). Calls outside the United Kingdom will be charged at the
applicable international rate. The Registrars are open between
09:00 - 17:30, Monday to Friday excluding public holidays in
England and Wales.
10. RECOMMENDATION AND VOTING INTENTIONS
The Directors consider that the terms of the Kapan Acquisition
are in the best interests of the Shareholders and the Company as a
whole.
Accordingly, the Directors unanimously recommend that you vote
in favour of the Resolution necessary to approve and implement the
Kapan Acquisition.
In addition, Labro, Martin Wiwen-Nilsson and Richard Rae have
irrevocably undertaken to vote in favour of the Resolution in
respect of the Ordinary Shares respectively held by them, totalling
142,820,162 Ordinary Shares (representing 36.14 per cent. of the
Ordinary Shares).
11. EXPECTED TIMETABLE OF PRINCIPAL EVENTS
Publication of the Admission 14 December 2018
Document
General Meeting 31 December 2018
Completion of the Kapan Acquisition on or before 15 January 2019
Re-Admission effective and dealings on or before 15 January 2019
in the Ordinary Shares to commence
on AIM
All times are London times. If any of the above times or dates
should change, the revised times and/or dates will be notified by
an announcement on a Regulatory Information Service.
NOTICE
This announcement includes statements that are, or may be deemed
to be, "forward-looking statements". These forward-looking
statements can be identified by the use of forward-looking
terminology, including the terms "believes", "envisages",
"estimates", "anticipates", "projects", "expects", "intends",
"may", "will", "could", "seeks" or "should" or, in each case, their
negative or other variations or comparable terminology, or by
discussions of strategy plans, objectives, goals, future events or
intentions. These forward-looking statements include statements
regarding the Company's and the Directors' current intentions,
beliefs or expectations concerning, amongst other things,
investment strategy, financing strategy, performance, results of
operations, financial condition, liquidity, prospects, growth,
strategies and the industry in which the Enlarged Group will
operate.
By their nature, forward-looking statements involve risks
(including unknown risks) and uncertainties because they relate to
events and depend on circumstances that may or may not occur in the
future. Forward-looking statements are not an assurance of future
performance. The Company's actual performance, results of
operations, financial condition, liquidity and dividend policy and
the development of the business sector in which the Enlarged Group
will operate, may differ materially from those suggested by the
forward-looking statements contained in this announcement. In
addition, even if the Company's performance, results of operations,
financial condition, liquidity and dividend policy and the
development of the industry in which the Enlarged Group will
operate, are consistent with the forward-looking statements
contained in this document, those results or developments may not
be indicative of results or developments in subsequent periods.
Any forward-looking statements in this announcement reflect the
Company's and the Directors' current view with respect to future
events and are subject to risks relating to future events and other
risks, uncertainties and assumptions relating to the matters
referred to above. Other than in accordance with the Company's
obligations under the AIM Rules for Companies, the Company does not
undertake to update or revise publicly any forward-looking
statements, whether as a result of new information, future events
or otherwise.
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
MSCEAXALFDXPFEF
(END) Dow Jones Newswires
December 14, 2018 02:42 ET (07:42 GMT)
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