TIDMCGH
RNS Number : 1976M
Chaarat Gold Holdings Ltd
13 September 2019
Chaarat Gold Holdings Limited
("Chaarat" or "the Company")
Interim Statement For The Six Months Ended 30 June 2019
Chaarat Gold Holdings Ltd (AIM: CGH), the AIM-quoted gold mining
company with assets in the Central Asia and the Former Soviet Union
("FSU"), today publishes its unaudited results for the six-month
period ended 30 June 2019.
Corporate and development highlights
-- Completion of the acquisition of Kapan Mining and Processing
Company CJSC ("Kapan") from PMTL Holding Ltd ("PMTL"), a subsidiary
of Polymetal International Plc, on 30 January, adding a producing
gold mine to the Company's portfolio;
-- Re-admission to trading on the AIM market of London Stock
Exchange plc of the Company's entire issued share capital, on 4
February, following completion of the Kapan acquisition;
-- Signed a binding term sheet and agreement post period end -
entering into a Joint Venture with Çiftay İnsaat Tahhüt ve Ticaret
A.S. ("Çiftay"), the Turkish mining and mine construction
contractor, to collaborate on the Tulkubash and Kyzyltash projects
in the Kyrgyz Republic. Çiftay will progressively invest up to
USD31.5 million for a 12.5% equity stake in Chaarat's existing
mining projects in the Kyrgyz Republic;
-- Total new funds raised of approximately USD2.86 million,
USD2.3 million from the issue of 6,927,563 new ordinary shares via
a private placement and USD0.6 million from the issue of
convertible bonds;
-- Appointment of Warren Gilman to the Board as an Independent
Non-Executive Director, effective 21 March 2019; and
-- Appointment of Darin Cooper, with more than 30 years'
experience in the metals and mining industry, as Chief Operating
Officer, effective 1 June 2019.
Operating and project highlights
-- Update of the JORC compliant bankable feasibility study for
Tulkubash Oxide Gold Project ("Tulkubash") in the Kyrgyz Republic,
released:
-- Initial reserve base of 22.2Mt ore grading 0.92g/t Au,
containing 658koz ounces of gold, an increase of 39%;
-- Average gold production of 94,000 ounces per annum over an
initial mine life of 5.3 years;
-- All-in sustaining cost (AISC) of USD819 per ounce, including
all taxes;
-- Significant capital expenditure optimisation, which has
resulted in an overall reduction from USD132 million to USD110
million; and
-- Improved post tax NPV of USD70 million (at 5% discount rate)
and IRR of 20%, using a USD 1,300/oz gold price.
-- New Mineral Resource for Kapan of 1.775Moz AuEq (Measured
& Indicated based on the results of 69,000 meters of drilling
completed in 2018; and
-- One lost time injury ("LTI") involving a contractor was reported at Kapan;
Financial highlights
-- Revenues in the period amounted to USD31.0 million which is
wholly attributable to the five months ownership of Kapan;
-- A positive EBITDA contribution from Kapan of USD3.2 million
for the five-month period, already an improvement on the USD1.6
million achieved in the previous five months under the former
owners;
-- Improvements across all operational metrics at Kapan already
evident, hindered by legacy issues that have been identified since
acquisition, and solutions implemented;
-- On track to reach our targeted run rate of 65 Koz of gold
equivalent ounces per year, before the end of 2019 at Kapan, as
improvements continue on all workstreams, including:
o Fleet availability;
o Grades;
o Recoveries;
o Costs; and
o Alternative ore sourcing.
-- During the first six months of 2019, the Group generated
operating cash flows of USD2.8 million, the positive cash
generation mainly represented positive EBITDA contribution from
Kapan and favourable working capital movements, partly offset by
expenditure on corporate overheads and development costs;
-- The Group raised USD46.4 million during the period which
comprises bank funding to acquire Kapan and other borrowings to
fund the Group's activities, together with the equity raise in the
period.
-- Cash and cash equivalents at 30 June 2019 were USD4.9 million;
Post Period Highlights
-- Polymetal agreed to exchange its USD10 million of Convertible
Notes received as part of original consideration, and a working
capital settlement under the SPA for 14,638,020 newly issued
ordinary shares representing approximately 3.5% of the enlarged
fully diluted share capital of Chaarat post allotment. The New
Shares are subject to a twelve month lock-up arrangement and
Polymetal has granted a right of first refusal effective from the
end of the lock-up arrangement for six months in the event of the
sale of those New Shares to Chaarat;
-- Reported results of 77 drill holes completed at Tulkubash
totalling 12,078 metres of the 2019 planned 20,000 metre drill
programme. Drilling to date has been focused on adding Measured and
Indicated Resources, with potential for conversion into reserves as
part of a year-end Resource and Reserve Update;
-- Secured USD7 million of additional working capital funds via
a USD7 million upsizing of the existing USD10 million loan and
extension of maturity date to March 2020;
-- Closed the previously announced 2021 Convertible Bond raise
to new subscriptions. Following the most recent subscription of
USD0.5 million in July 2019, and the agreement with Polymetal to
exchange USD10 million of notes for equity, the total value of the
2021 notes in issue is USD19.7 million;
-- A further USD2.5 million was drawn from the existing Labro
Investments Ltd ("Labro") facility which brings the total amount
drawn down to USD6 million, with USD5.5 million to be repaid.
Martin Andersson, Executive Chairman of Chaarat, commented: "We
continue to make rapid progress towards achieving our goal to
become a leading gold producer. This strategy is now broader, as we
look to grow our production organically, but also through a
disciplined M&A strategy in a region with significant
potential. Creating shareholder value remains at the core of this
strategy.
"We look forward to the second half of the financial year, in
which we expect to have bedded down our newly acquired Armenian
gold mine, while further advancing our next producing asset,
Tulkubash."
Enquiries
Chaarat Gold Holdings Limited
Artem Volynets (CEO) +44 (0)20 7499 2612
info@chaarat.com
Numis Securities Limited
John Prior, Paul Gillam (NOMAD) +44 (0) 20 7260 1000
James Black (Corporate Broking)
SP Angel
Ewan Leggat (Joint Broker)
Tavistock Communications +44 (0) 20 3470 0470
Charles Vivian +44 7977297903
Gareth Tredway +44 7785974264
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
Central Asia and 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.
CHIEF EXECUTIVE OFFICER'S REPORT
Dear Shareholder
I am pleased to report on the six-month period in which we
became a producer, following the acquisition of the Kapan Gold Mine
in Armenia in February.
Not only did the transaction allow us to achieve the status of
operator, but perhaps more importantly, it allowed us to begin to
execute our transformational strategy for Chaarat, namely: to
create a leading emerging markets gold producer focused on the FSU
region.
We are targeting organic growth towards an approximate 500,000oz
Au per annum production rate as we bring Tulkubash online and
develop Kyzyltash further. Additionally, selective and disciplined
mergers and acquisitions using management's broad experience and
network will enable the consolidation of a highly fragmented gold
mining region with significant potential.
Of course, with any acquisition there are legacy issues that can
only be identified and dealt with once the asset is within one's
control. These types of issues were identified at Kapan and
remedial work began immediately with encouraging results. More
specifically, management is streamlining both mine planning and
maintenance programmes, as well as improving the metallurgical
performance of the mill. To redress a temporary shortfall in ore
mined due to legacy haul truck constraints, the Company has taken
immediate action to obtain the required engine replacements on an
expedited basis. During the interim period Chaarat's mining
contractor has assisted by increasing its fleet size resulting in
increased trucking rates.
Additional efforts are also in place to achieve targeted grades,
reduce costs, and increase margins, including: A cost reduction
program reviewing all major expenditures, identification of
additional sources of feed to fill the mill, a review of the Mining
Methods and Mine Planning, as well as mill improvements. Based on
the current work programme, the Company believes the mine will
reach its operational targets by the end of the current quarter to
end-September, as well as reach our targeted run rate of 65 Koz of
gold equivalent ounces per year before the end of 2019.
We have also reported a new measured and indicated mineral
resource for Kapan of 1.775Moz AuEq, giving us the confidence,
based on historical resource to reserve conversion rates at Kapan,
that the mine will continue to replace mined reserves and should
continue to extend mine-life for several years beyond the current
life of the mine.
This work programme has the added value of improving the
Company's understanding of the ore body and will help to optimize
short, medium and long-term operational planning and execution.
At Tulkubash in the Kyrgyz Republic, we updated the JORC
compliant bankable feasibility study for the oxide gold project
during the period. Importantly it included a significant reduction
in capital expenditure from USD132 million to USD110 million, while
increasing gold reserves by almost 40% year-on-year, an impressive
achievement by the project team.
In March, we signed a binding term sheet to enter into a Joint
Venture with Çiftay, the Turkish mining and mine construction
contractor, to collaborate on the Tulkubash and Kyzyltash projects
in the Kyrgyz Republic.
This partnership has since been secured with a Joint Venture
Agreement announced post period end which details the same terms as
the initial binding term sheet signed in March, namely the
progressive investment of up to USD31.5 million for a 12.5% equity
stake in our existing mining projects in the Kyrgyz Republic.
As mentioned in the announcement confirming the agreement,
Çiftay's investment provides a significant amount of the remaining
equity requirement for the Tulkubash project, with the remaining
funds expected from senior project debt, with a process launched in
June. Discussions with potentially interested funders are
progressing as expected with the Company receiving preliminary term
sheets. Financial close is targeted for the end of this year or
early next year.
Post period end we were able to report some promising new drill
results from Tulkubash, having completed 12,078 metres of the 2019
planned 20,000 metre drill programme, with a focus on adding
Measured and Indicated Resources, with potential for conversion
into reserves as part of a year-end Resource and Reserve Update.
Additionally, the Company has begun drilling on an approximately
3,000 metre programme in the Karator and Ishakuldy areas
respectively 1.5 kilometres and 5 kilometres northeast of the
current resource limits. This programme is designed to test drill
targets identified along strike and to validate the district-scale
potential of Tulkubash, another key part of our strategy.
At board level, we welcomed Warren Gilman as an independent
non-executive director, in March. Warren brings decades of
experience and success in the mining sector. At the same time,
Martin Wiwen-Nilsson decided to step down from his role as
Non-Executive Director of the Company and instead take on a role as
Senior Advisor of Chaarat.
From a human capital perspective, we continue to strengthen
management where required and in June we were pleased to welcome
Darin Cooper, with more than 30 years' experience in the metals and
mining industry, as Chief Operating Officer. Darin has a proven
track record of increasing performance across a range of mining
operations and his expertise will be immensely valuable. Robert
Benbow, previous Chief Operating Officer of Chaarat, will continue
to serve on the Board of the Company as an Non-Executive Director
and will remain the Chair of the Technical Committee.
From a financing perspective we recently announced the injection
of USD9.5 million of additional working capital funds. The Company
has agreed a new maturity date for the US10 million loan agreement
(the "Loan"), announced on 15 November 2018, to 31 March 2020. The
loan was also increased by USD7 million to a total size of USD17
million. In addition, Chaarat has drawn a further USD2.5 million
from Labro Investments for additional working capital. I am
confident in the Group's ability to raise additional funds as
demonstrated by the Group's established track record in historical
fund raisings and refinancing events.
Considering this positive loan fundraising, we decided to close
the previously announced 2021 Convertible Bond raise to new
subscriptions. Following the most recent subscription of USD0.5
million in July 2019, and the agreement with Polymetal to exchange
USD10 million of notes for equity, the total value of the 2021
notes in issue is USD19.7 million.
It would be remiss of me not to make mention of the strong gold
price that currently prevails in world markets. While it is of
course beneficial to our operations, we remain focused on efficient
cost control and disciplined M&A, to ensure that we are
sustainable through the cycle.
With highest regards,
Artem Volynets
Financial review
Income statement
Revenues in the period amounted to USD31.0 million, compared
with nil in the corresponding period in 2018. This represented
sales of concentrate at Kapan for the five-month period following
acquisition by the Group from 31 January to 30 June. During this
period, Kapan sold 4,025dmt of copper concentrate and 5,283dmt of
zinc concentrate, containing a combined 23,327 ounces Au Eq.
The operating loss for the Group during the period was USD7.5
million. This included a positive EBITDA contribution from Kapan of
USD3.2 million, offset by depreciation and amortisation as well as
corporate and overhead costs of USD6.5 million at head office and
in the Kyrgyz Republic to fund the ongoing development of the
Group. The increased operating loss of USD7.5 million compared with
USD3.7 million in the first half of 2018 resulted mainly from the
higher level of corporate and development activity in the
Group.
Finance costs were USD4.9 million compared with USD1.4 million
in the first half of 2018. This resulted from additional funding
taken out both in the second half of 2018 and the first half of
2019 to finance the Group's activities, including the bank loans
for the acquisition of Kapan.
Consequently, the Group made a loss in the period of USD12.3
million compared with USD5.1 million in the first half of 2018.
Balance sheet
The Group's balance sheet at 30 June 2019 includes the
consolidation of Kapan following its acquisition on 30 January
2019. Kapan's assets and liabilities have been consolidated under
the acquisition accounting method using provisional fair values at
31 January 2019.
Non-current assets increased from USD48.7 million at 31 December
2018 to USD94.5 million at 30 June 2019. The increase was mainly
due to inclusion of property, plant and equipment at Kapan and a
deferred tax asset on acquisition fair value adjustments which will
be amortised over the life of the Kapan operation. Additionally,
exploration and evaluation costs of USD3.0 million were capitalised
in the period relating to the asset in the Kyrgyz Republic.
Current assets of USD34.1 million at 30 June 2019 compared with
USD6.4 million at 31 December 2018. The increase mainly related to
the inclusion of inventories (both spare parts and concentrate
stocks) and receivables at Kapan. Current assets at 30 June 2019
included cash and cash equivalents of USD4.9 million.
Total liabilities at 30 June 2019 were USD112.1 million compared
with USD31.4 million at 31 December 2019. This was mainly due to an
increase in borrowings of USD57.1 million, mainly due to the
third-party bank funding and convertible loan notes issued directly
to the seller (since converted into equity) totalling USD50.0
million to fund the acquisition of Kapan, as well as additional
borrowings to fund the Group's corporate and development
activities. The movement in borrowings is set out in more detail in
Note 2. In addition, there is a rehabilitation provision of USD13.1
million relating to Kapan following its acquisition and
consolidation.
Total equity was USD16.5 million at 30 June 2019 compared with
USD23.6 million at 31 December 2018, mainly reflecting the loss for
the period. On 1 May 2019, the group closed a placing having raised
gross proceeds of approximately USD2.71 million from the issue of
6,927,563 ordinary shares of USD0.01 each.
Cash flow
During the first six months of 2019, the Group generated
operating cash flows of USD2.8 million, compared with operating
cash flow consumed of USD3.2 million in the first six months of
2018. The positive cash generation mainly represented 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 period was USD40.4
million, compared with USD5.2 million in the corresponding period
for 2018. This mainly reflected the payment for the acquisition of
Kapan together with capitalised exploration and development spend
in the Kyrgyz Republic.
Cash flow from financing activities in the period amounted to
USD45.2 million, compared with USD7.0 million in the first half of
2018. This mainly related to the bank funding to acquire Kapan and
other borrowings to fund the Group's activities as explained in the
balance sheet section above, together with the equity raise in the
period.
Cash and cash equivalents at 30 June 2019 were USD4.9 million
compared with USD3.7 million at the start of the year.
Further details of the Group's status as a going concern and
expected future financing plans are set out below in note 1 to the
interim financial statements.
Unaudited Consolidated Income Statement
For the six months ended 30 June 2019
6 months
6 months ended ended
30 June 2019 30 June 2018
US$'000 US$'000
Revenue 30,956 -
Cost of Sales (27,968) -
----------------------------------------------- ------------------- -------------
Gross profit 2,988 -
General, administrative and selling expenses (10,495) (3,702)
Other operating income - 5
Operating loss (7,507) (3,697)
Finance costs (4,921) (1,407)
Loss before tax for the year, attributable
to equity shareholders of the parent (12,428) (5,104)
Income tax credit 81 -
Loss after tax for the year, attributable
to equity shareholders of the parent (12,347) (5,104)
Loss per share (basic and diluted) -
US$ cents (3.06) (1.38)
Unaudited Consolidated Statement of Comprehensive Income
For the six months ended 30 June 2019
6 months 6 months
ended ended
30 June 30 June
2019 2018
US$'000 US$'000
Loss for the year, attributable to equity
shareholders of the parent (12,347) (5,104)
Other comprehensive income:
Items which have been reclassified to profit
and loss
Exchange differences on translating foreign
operations liquidated during the year
Items which may subsequently be reclassified
to profit and loss - (74)
Exchange differences on translating foreign 1,108 -
operations and investments
Other comprehensive income for the year,
net of tax 1,108 (74)
Total comprehensive loss for the year attributable
to equity shareholders of the parent (11,239) (5,178)
----------------------------------------------------- ---------- ---------
Unaudited Consolidated Balance Sheet
As at 30 June 2019
As at
As at 31 December
30 June 2019 2018
(Unaudited) (Audited)
Note US$'000 US$'000
------------------------------------------- ----- ---------- ------------
Assets
Non-current assets
Exploration and evaluation costs 46,571 43,527
Other Intangible assets 1,226 54
Property, plant and equipment 36,361 5,094
Prepayments 213 -
Other receivables 590 -
Deferred tax asset 9,541 -
Total non - current assets 94,502 48,675
------------------------------------------- ----- ---------- ------------
Current assets
Cash and cash equivalents 4,905 1,168
Inventories 13,721 -
Trade and other receivables 15,308 190
Prepayments 209 5,000
Total current assets 34,143 6,358
Total assets 128,645 55,033
------------------------------------------- ----- ---------- ------------
Equity and liabilities
* Equity attributable to shareholders
Share capital 4,020 3,951
Share premium 154,780 152,063
Share warrant reserve 1,352 1,352
Convertible loan note reserve 3,542 2,360
Merger reserves 10,885 10,885
Share option reserve 1,567 1,414
Translation reserve (14,290) (15,398)
Accumulated losses (145,331) (132,984)
------------------------------------------- ----- ---------- ------------
Total equity 16,525 23,643
------------------------------------------- ----- ---------- ------------
Liabilities
Non-current liabilities
Non-current borrowings 2 4,629 -
Provision for rehabilitation 13,059 -
Trade and other payables 590 -
Convertible loan note 2 27,492 16,303
------------------------------------------- ----- ---------- ------------
Total non-current liabilities 45,770 16,303
------------------------------------------- ----- ---------- ------------
Current liabilities
Trade and other payables 14,879 4,924
Other provisions 124 -
Current borrowings 2 51,347 10,163
Total current liabilities 66,350 15,087
------------------------------------------- ----- ---------- ------------
Total liabilities 112,120 31,390
------------------------------------------- ----- ---------- ------------
Total liabilities and equity 128,645 55,033
------------------------------------------- ----- ---------- ------------
Unaudited Consolidated Statement of Changes in Equity
For the six Share Convertible Share Shares
months ended Share Share warrant loan note Merger option to be Translation Accumulated
30 June 2019 Capital Premium 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
As at 31
December 2018
(Audited) 3,951 152,063 1,352 2,360 10,885 1,414 - (15,398) (132,984) 23,643
Loss for the
six months
ended 30 June
2019 - - - - - - - - (12,347) (12,347)
Currency
translation - - - - - - - 1,108 - 1,108
---------------- ------- ------- ------- ----------- ------- ------- ------- ----------- ----------- --------
Total
comprehensive
income
for the year - - - - - - - 1,108 (12,347) (11,239)
---------------- ------- ------- ------- ----------- ------- ------- ------- ----------- ----------- --------
Share options
expense - - - - - 153 - - - 153
Issuance of
shares for
cash 69 2,717 - - - - - - - 2,786
Equity element
of convertible
loan note - - - 1,182 - - - - - 1,182
---------------- ------- ------- ------- ----------- ------- ------- ------- ----------- ----------- --------
As at 30 June
2019 4,020 154,780 1,352 3,542 10,885 1,567 - (14,290) (145,331) 16,525
Share Convertible Share Shares
Share Share warrant loan note Merger option to be Translation Accumulated
Capital Premium 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
As at 31
December 2017
(Audited) 3,569 138,184 1,352 867 10,885 2,912 1,926 (15,472) (118,952) 25,271
---------------- ------- ------- ------- ----------- ------- ------- ------- ----------- ----------- --------
Loss for the
year - - - - - - - - (17,042) (17,042)
Previously
recognised
translation
losses for
liquidated
subsidiary - - - - - - - 74 - 74
---------------- ------- ------- ------- ----------- ------- ------- ------- ----------- ----------- --------
Total
comprehensive
income
for the year - - - - - - - 74 (17,042) (16,968)
---------------- ------- ------- ------- ----------- ------- ------- ------- ----------- ----------- --------
Share options
lapsed - - - - - (1,857) - - 1,857 -
Share options
expense - - - - - 377 - - - 377
Share options
exercised 2 63 - - - (18) - - - 47
Issuance of
shares 145 4,738 - - - - (1,926) - - 2,957
Conversion of
loan notes 230 8,858 - (1,153) - - - - 1,153 9,088
Equity element
of convertible
loan note - - - 2,646 - - - - - 2,646
Issuance of
shares for
a fee 5 220 - - - - - - - 225
As at 31
December 2018 3,951 152,063 1,352 2,360 10,885 1,414 - (15,398) (132,984) 23,643
---------------- ------- ------- ------- ----------- ------- ------- ------- ----------- ----------- --------
Unaudited Consolidated Cash Flow Statement
For the six months 30 June 2019 6 months 6 months
ended 30 ended 30
June 2019 June 2018
US$'000 US$'000
---------------------------------------------------- ---------- ----------
Cash flows generated by/(used in) operating
activities
Operating loss (7,507) (3,697)
Depreciation and amortisation 4,213 146
(Gain) on disposal of property, plant and equipment 156 (5)
(Profit)/Loss on sale of inventories 145 -
Provision for inventories (101) -
Share based payments 153 275
Provision for rehabilitation 1,264 -
Decrease in inventories 4,627 -
(Increase) in accounts receivable (5,387) (126)
Decrease in prepayments 341 -
Increase in accounts payable 4,892 180
Net cash flow generated by/(used in) operations 2,796 (3,227)
----------------------------------------------------- ---------- ----------
Investing activities
Purchase of tangible fixed assets (299) (966)
Investment in subsidiary (40,000) -
Exploration and evaluation costs (3,044) (4,283)
Purchase of other intangible fixed assets (887) -
Proceeds from sale of property, plant & equipment 5 7
Interest received 8 6
----------------------------------------------------- ---------- ----------
Net cash used in investing activities (44,217) (5,236)
----------------------------------------------------- ---------- ----------
Financing activities
Proceeds from issue of share capital, net of
costs 2,286 3,004
Proceeds from convertible loan notes issued,
net of costs 572 3,950
Proceeds from loans 43,500 -
Principal loan repaid (500) -
Interest paid (694) -
----------------------------------------------------- ---------- ----------
Net cash from financing activities 45,164 6,954
----------------------------------------------------- ---------- ----------
Net change in cash and cash equivalents 3,743 (1,509)
Cash and cash equivalents at beginning of the
year 1,168 7,461
Effect of changes in foreign exchange rates (6) -
----------------------------------------------------- ---------- ----------
Cash and cash equivalents at end of the year 4,905 5,952
----------------------------------------------------- ---------- ----------
Notes to the Financial Statements
1 Basis of preparation of interim financial statements
The financial information set out in this interim statement does
not constitute statutory accounts.
The unaudited results for the period ended 30 June 2019 have
been prepared on the basis of the accounting policies adopted in
the audited accounts for the year ended 31 December 2018 and in
addition, as disclosed below in relation to Revenue Recognition and
Provision for Rehabilitation which, subsequent to the acquisition
of Kapan Mining and Processing Company CJSC, have now been adopted.
These are expected to be consistent with the financial statements
of the Group as at 31 December 2019 that will be prepared in
accordance with IFRS and their interpretations issued by the
International Accounting Standards Board as adopted by the European
Union. The results for the period are derived from continuing
activities. The figures for the period ended 31 December 2018 have
been extracted from the statutory financial statements, prepared
under IFRS as adopted by the European Union, which are available on
the Group's website www.chaarat.com. The auditor's report on those
financial statements was unqualified and noted a material
uncertainty in respect of the Group's ability to continue as a
going concern.
During the period a new Standard became effective. IFRS 16 -
Leases took effect on 1 January 2019. The Group has identified its
lease arrangements as at 30 June 2019 and the impact of this new
Standard did have a material effect on the Group's consolidated
financial statements for the six months ended 30 June 2019 which is
as a result of the acquisition of Kapan.
Revenue recognition
The Group has one stream of revenue being the sale of copper and
zinc concentrate. Revenue is measured at the fair value of
consideration to which an entity expects to be entitled in a
contract with a customer in exchange for transferring promised
goods, excluding amounts collected on behalf of third parties, such
as value added tax (VAT). The Group recognises revenue when it
transfers control of a product or service to a customer.
Sales of copper and zinc concentrate
The Group sells copper and zinc concentrate under pricing
arrangements where final prices are determined by quoted market
prices in a period subsequent to the date of sale. Concentrate
sales are initially recorded based on spot prices. Revenue is
recorded at the time of shipment, when control passes to the buyer.
Provisional revenue is calculated based on the copper and zinc
content in the concentrate and using the spot London Bullion Market
Association (LBMA) or London Metal Exchange (LME) price, adjusted
for the specific terms of the relevant agreement. Revenue is
presented net of refining and treatment charges which are
subtracted in calculating the amount to be invoiced. Until end of
the quotation period revenue is adjusted monthly based on the
forward prices. After quotation period end final revenue is
calculated based on the spot prices in accordance with the relevant
agreements.
Provision for rehabilitation
An obligation to incur environmental restoration, rehabilitation
and decommissioning costs arises when disturbance is caused by the
development or ongoing production of mining assets. Such costs
arising from the decommissioning of plant and other site
preparation work, discounted to their net present value using a
risk-free rate applicable to the future cash flows, are provided
for and capitalised at the start of each project, as soon as the
obligation to incur such costs arises. These costs are recognised
in the consolidated income statement over the life of the
operation, through the depreciation of the asset in the cost of
sales line and the unwinding of the discount on the provision in
the finance costs line.
Changes in the measurement of a liability relating to the
decommissioning of plant or other site preparation work (that
result from changes in the estimated timing or amount of the cash
flow or a change in the discount rate), are added to or deducted
from the cost of the related asset in the current period. If a
decrease in the liability exceeds the carrying amount of the asset,
the excess is recognised immediately as a reduction in the
underlying asset.
Going Concern
As at 12 September 2019 the Group had USD7.1 million of cash and
cash equivalents, USD9 million in available undrawn facilities and
USD82.0 million of debt, excluding working capital, comprising
mainly of the following:
-- USD27.5million convertible loan note, repayable on 31 October
2021, including interest to 30 June 2019. On 30 July 2019 USD10
million of the total Convertible loans outstanding, which was
issued in connection with the acquisition of Kapan was exchanged by
Polymetal for 14,638,020 newly issued ordinary shares of USD0.01
each. Following the most recent subscription of USD0.5 million in
July 2019, and the agreement with Polymetal, the total principal
value of the 2021 notes in issue is USD19.7 million.
-- USD10.8 million loan, repayable in August 2019, including
interest to 30 June 2019. This loan has been increased from USD10
million to USD17 million on 11 September 2019, with a revised
repayment date of 31 March 2020.
-- Remaining term loan for USD38 million entered into in
connection with the acquisition of Kapan after the year end. The
loan is repayable through quarterly instalments over a period of
four years, the final payment being January 2023. The Company did
not meet one of its covenants at 30 June 2019 and as such the full
bank debt has been disclosed as a current liability. However a
waiver was received in September 2019, with regards to the relevant
covenant not being met on June 30, 2019 and therefore the Company
remains in full compliance with the loan. Further details are given
in Note 2 under "Kapan Bank Debt".
-- On 12 December 2018, the Group entered into a committed
revolving term loan facility agreement with Labro Investments
Limited ("Labro") for a total amount of USD15 million (the "Labro
Loan Agreement"). The facility is for the general corporate
purposes of the Group and can be drawn down at the full discretion
of the Group at any time before its maturity. As at 30 June 2019,
USD3.5 million has been drawn down, USD0.5 million has subsequently
been repaid, USD3.0 million is still outstanding and a further
USD11.5 million remains available to the Group. On August 8, 2019 a
further USD2.5million has been drawn down and a further USD9.0
million remains available to the Group as at the date of this
review statement.
The Board has reviewed the Group's cash flow forecast for the
period to 31 December 2020. As explained further below, the Board
expects that additional funding will be received. However, for the
purpose of making an assessment of going concern, the cash flow
forecasts reviewed by the Board exclude additional funding which is
not contractually committed.
Plans to develop the Tulkubash project remain subject to the
Group raising sufficient funds. The Group is in the process of
completing a 20,000-metre exploration programme in 2019 to increase
the Tulkubash heap leachable resources, and this also remains
subject to the Group raising sufficient funds.
The Board have based the cash flow forecasts for Kapan on the
most recent forecasts, taking into account actual performance to
date. Whilst Kapan is forecasted to generate a minimal amount of
free cash flow to fund the Group's other projects, additional fund
raising is intended to be completed before the end of the fourth
quarter of 2019 in order to maintain the growth projects across the
group and repay the Group's USD17 million loan obligations which
fall in Q1 2020. Additional funds would be required to repay the
outstanding Labro Loan which is due on 14 July 2020.
There are currently minimal commitments in respect of Tulkubash
and the Group has the discretion and ability to reduce cash
expenditures across the group in order to conserve cash.
The Board has confidence in the Group's ability to raise
additional funds as demonstrated by the Group's established track
record in historical fund raisings and refinancing events.
Furthermore, as a result of the updated Feasibility Study for
Tulkubash, management has launched a Project Finance process which
is expected to provide funding for the construction of
Tulkubash.
Subject to the above, which the Board is confident can be
achieved, 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 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.
2 Liabilities
Convertible loan notes US$'000
--------------------------------------------- --------
At 1 January 2019 16,303
Cash proceeds 600
Consideration for acquisition of subsidiary 10,000
Transaction costs (28)
Amount classified as equity (1,182)
Accrued interest 1,799
--------------------------------------------- --------
At 30 June 2019 27,492
--------------------------------------------- --------
Convertible loan notes
In January 2019, Chaarat received USD0.6 million from two new
investors for the subscription and issue of secured convertible
notes for USD350,000 and USD250,000.
On 30 January 2019, Chaarat completed the acquisition of Kapan
Mining and Processing Company CJSC from PMTL Holding Ltd, a
subsidiary of Polymetal International Plc for a total consideration
of USD55 million (subject to net debt and working capital
adjustments). This included USD10 million settled on completion in
convertible loan notes; USD5 million paid as a deposit in November
2018; and as explained below USD40 million of third-party bank
funding.
Principally as a result of the above, the liability in respect
of convertible loan notes increased during the period from USD16.3
million to USD27.5 million.
As explained in Note 4, on 30 July 2019 an agreement was reached
whereby Polymetal has agreed to exchange its USD10 million
convertible note for 14,638,020 newly issued ordinary shares of
USD0.01 each.
Non-current Borrowings US$'000
------------------------ --------
At 1 January 2019 -
Lease liability 1,500
Labro Facility 3,129
At 30 June 2019 4,629
------------------------ --------
Labro facility
At 12 December 2018 the Company's Chairman, Martin Andersson,
via Labro Investments Limited ("Labro"), had entered into an
agreement with Chaarat Gold Holdings Limited whereby Labro agreed
to provide committed funding facility to the Company in the amount
of USD15 million.
The Company drew down the amount of USD0.5 million on 1 April
2019. The Company offset the amount owed against Labro's obligation
to pay for 1,276,666 shares on 5 April 2019. The shares issued
formed part of the 1,914,999 shares issued to Labro as part of the
capital raising of 1 May 2019, the balance of which were settled by
Labro in cash. On 23 May 2019, the Company drew a further USD2
million and on 22 June 2019 a further USD1 million was drawn
down.
Current Borrowings US$'000
------------------------------------- --------
At 1 January 2019 10,163
Kapan bank debt, including interest 40,534
Interest on other loan 650
At 30 June 2019 51,347
------------------------------------- --------
Kapan bank debt
On 30 January 2019, the documentation was finalised for the
Kapan Acquisition Financing totalling USD40 million, which is
syndicated with Ameriabank CJSC (USD32 million), HSBC Bank Armenia
CJSC (USD5 million) and Ararat Bank OJSC (USD3 million). The loan
is repayable through quarterly payments over a four-year period and
incurs interest at Libor plus 8%.
This bank financing has certain covenants attached to it that
the Company needs to adhere to, one of which is the Net debt to
last twelve months ('LTM') EBITDA of 2.5x as at 30 June 2019. The
Company did not meet this covenant as at 30 June 2019 and as such
the full bank debt has been disclosed as a current liability. The
LTM EBITDA calculation is based on EBITDA from July 1, 2018 to June
30, 2019. Chaarat ownership of Kapan commenced on January 31, 2019
and as such seven-months of the LTM calculation, is based on Kapan
whilst being operated by Polymetal International Plc.
A waiver was received in September 2019, with regards to the
relevant covenant not being met on June 30, 2019 and therefore the
Company remains in full compliance with the loan.
Other short-term loan
The loan was initially repayable after nine months in August
2019, post period end it has been extended by 7 months to March
2020 and increased by USD7 million to USD17 million. The annualised
interest on the loan is 13%. The loan contains various
representations, undertakings and events of default which are
common for a loan of this nature.
3 Loss per share
Loss per share is calculated by reference to the loss for the 6
months ended 30 June 2019 of USD12.3 million (2018: USD5.1 million)
and the weighted average number of ordinary shares in issue of
402,094,578 (2018: 369,001,753) during the period. There is no
dilutive effect of share options.
4 Kapan Acquisition
The Kapan acquisition has been accounted for in line with the
accounting policy as set out in the 31 December 2018 annual report.
As at the date of this interim report, the fair value exercise is
in progress and as such the values are still considered provisional
with specific reference to the rehabilitation provision and
inventory (spare parts) amount as these will both require an expert
valuation.
5 Post Balance Sheet Events
Incentive scheme
The Directors intend to implement an incentive scheme to reward
Directors and certain employees in 2019. Its proposed terms were
disclosed in the Company's admission document published on 14
December 2018. The incentive scheme now provides for two main
elements: conversion of existing option plans into a new uniform
scheme and a one-off grant of equity equal to 5 percent of the
outstanding share capital at the date of Re-Admission and options
equal to 3 times of equity granted under the scheme at a strike
price of 42p per Ordinary Share to the Board and top 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 lock-up till the end
of 2020 (shares to be issued to replace unvested options will also
have a one-year vesting period and if an employee leaves during
this period the unvested shares will lapse). This first element
requires consent from the existing option holders and, if all
holders consent, would result in approximately 3,000,000 new
Ordinary Shares.
The second element of the scheme has a three-year vesting
period, one-third of the award vests annually starting from 2019.
Delivery of vested Ordinary Shares will be made in the end of each
year. All vested Ordinary Shares are subject to a lock-up until the
end of 2020.
The Board has full discretion to amend the incentive scheme or
adjust unvested Ordinary Shares and options.
Issuance of new shares
On 23 July 2019, the group announced that it had issued
1,496,556 ordinary shares of USD0.01 each ("New Ordinary Shares").
These comprise:
-- 250,000 New Ordinary Shares issued to Labro Investments
Limited ("Labro") pursuant to a guarantee fee agreement announced
by the Company on 31 January 2019 (RNS number 7446O);
-- 34,435 New Ordinary Shares issued to Labro pursuant to a
drawdown made by the Company on 29 March 2019 on a committed
revolving term loan facility with Labro announced by the Company on
14 December 2018 (RNS number 5046K); and
-- 1,212,121 New Ordinary Shares issued to remunerate a former
board member for services provided to the Company.
Agreement with Polymetal
On 30 July 2019, the Group announced that Polymetal had agreed
to exchange its USD10 million of Convertible Notes received as part
of original consideration, and a working capital settlement under
the SPA for 14,638,020 newly issued ordinary shares of USD 0.01
each ("New Shares"). This shall represent 3.5% of the enlarged
fully diluted share capital of Chaarat post allotment. The New
Shares shall be subject to a twelve-month lock-up arrangement and
Polymetal shall grant a right of first refusal effective from the
end of the lock-up arrangement for six months in the event of the
sale of those New Shares to Chaarat. The shares were subsequently
issued on 16 August 2019.
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
IR GGUQWBUPBGMP
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