Chaarat (AIM:CGH), the AIM-quoted gold mining Company with an operating mine in Armenia and assets at various stages of development in the Kyrgyz Republic, announces its production and operational results for the half year ended 30 June 2022 (“H1” or the “Period”) for its Kapan Mine (“Kapan”) in Armenia and a general corporate update.
• As previously disclosed, Kapan experienced a fatal workplace injury on May 14th. This was the first recordable injury in over 14 months. Recordable injury frequency review (“RIFR”) (per one million hours worked) is now 0.74 compared to 1.4 in H1 2021.
• Ore mined of 321.1 thousand tonnes (“kt”) vs 303.7 kt in H1 2021 represents a year-on-year increase of 6.5%. Mine grade was 12.2% lower at 2.94 g/t AuEq in H1 2022 compared to 3.35 g/t AuEq in H1 2021. Focus for H2 2022 remains on reducing dilution and developing areas of the mine with wider veins.
• Mill throughput was stable at 373.3 kt year on year (-0.5%, H1 2021 374.8 kt), and mill AuEq recovery for own ore was also stable at 79.5% in H1 2022 compared with 79.4% in H1 2021.
• Kapan production of 30,562 gold equivalent ounces1 (“oz”) vs 33,248 oz in H1 2021 (-8.1%) consisting of 22,877 oz from own ore and 6,685 oz from third-party ore. Full-year guidance of 56-62koz of total own-ore and third-party ore production remains unchanged for 2022.
• There were 62.7 thousand tonnes (“kt”) of ore on stockpile at the end of the period.
• All-in-sustaining cost (“AISC”2) of USD1,420 /oz vs USD1,063 /oz in H1 2021 (+33.6%). The increase is due to the strengthening of the Armenian Dram in Q2 2022 (AMD/USD + 10.3% vs H1 2021 average), increases in energy prices and cost of other raw materials in line with inflation seen across the mining sector globally.
• Preliminary unaudited standalone EBITDA3 contribution of USD8.1 million vs USD13.5 million in H1 2021 (-40%). While EBITDA in Q1 was higher than in the same period last year, the decrease in EBITDA for H1 2022 was mainly driven by provisional pricing adjustments due to lower commodity prices and the adverse AMD/USD exchange rate in Q2 2022 increasing costs. If commodity prices remain soft, the Company expects an offsetting positive impact on the costs in H2 2022.
• Third-party ore treatment of 63.5kt for H1 2022 vs 70kt for H1 2021 (-9.3%) was in line with budget and contributed USD1.7 million to the above-mentioned EBITDA for H1 2022. This compares with a contribution of USD1.8 million for H1 2021 (-6%).
• The exploration work on the East flank is ongoing. First assay results of this multi-year project are expected by Q4 2022.
Outlook for Kapan
• Chaarat remains on track to deliver on its 50-53koz own ore and 6-9koz third-party ore guidance for the year.
• Third-party ore supply is expected to remain in line with H1 for the remainder of 2022.
• East Flank drilling campaign is ongoing as part of a 2-year programme to develop an initial JORC resource and reserve statement which is currently expected by the end of 2023.
• The Company is continuing to take steps to mitigate the adverse exchange rate impact and increases in energy prices and cost of other raw materials.
Tulkubash & Kyzyltash
• Chaarat performed a Tulkubash Reserve and Resource update including a 13% increase from 571koz to 647koz in Ore Reserves through a tonnage and grade increase based on the 2021 drilling programme results and a $1,600/oz pit shell optimisation.
• Discussions with potential debt providers are ongoing. The Company expects these to be assisted by the recent resolution of the dispute between the Kyrgyz Government and Centerra Gold. Centerra Gold announced the closing of the agreement with the Kyrgyz government on 29 July 2022.
• As previously indicated, construction activity will resume once financing has been secured.
• Metallurgical test work on the Kyzyltash core drilled in 2021 continues as planned. Full results are expected in Q3 2022. To date the results, support the findings of the previous Kyzyltash studies.
• The Company continues discussions with various parties, including existing bondholders, regarding proposals in relation to the convertible bond due at the end of October 2022 and will provide an update on the status of these discussions in due course.
• Chaarat reduced the principal outstanding for the Kapan acquisition loan by a further USD2.2 million to USD14.3 million outstanding resulting in unaudited Net Debt at group level of USD44.4 million4. A further USD2.3 million has been paid in July 2022, further reducing the Net Debt to USD42.1 million.
1 Gold equivalent ounces for 2021 recalculated on 2022 budget prices with Au at $1,775/oz and gold ratios of 75 for silver, 6,597 for copper and 20,381 for zinc. In last years’ Q1 2021 operations update, 2021 oz were based on gold ratios of 68 for silver, 7,287 for copper and 21,862 for zinc leading to a lower AuEq number reported in that previous year.
2 AISC on a gold oz produced basis exclude smelter TC/RC charges, which in H1 2022 add c. USD 160/oz of cost. The H1 2022 AISC includes sustaining capex of c. USD3.1 million incurred during the period (which excludes non-sustaining capex i.e., development capex).
³ In reporting financial information, the Group presents EBITDA as an alternative performance measure, “APM”, which is not defined or specified under the requirements of IFRS. The Group believes that this measure provides stakeholders with additional useful information on the performance of the business and, within that, Kapan. EBITDA is calculated by adjusting profit/(loss) for depreciation and amortisation, net finance costs, unrealised foreign exchange gain/(loss), fair value gain on warrant and change in provisions.
4 In reporting financial information, the Group presents Net debt as an alternative performance measure, “APM”, which is not defined or specified under the requirements of IFRS. The Group Net debt comprises convertible loan notes, other loans, contract liabilities, lease liabilities and warrant financial liabilities, net of cash and cash equivalents.
Mike Fraser, Chief Executive Officer, commented:
“The tragic fatal event at Kapan on the 14th May was felt deeply across the Company. A detailed internal and external investigation was conducted, and remedial actions are underway.
Kapan made good progress operationally in the quarter despite mining in narrower vein areas which had an impact on grade. Financial performance was impacted by lower commodity prices and a higher Armenian Dram compared to the US Dollar.
We are pleased to note in the final resolution of the dispute between Centerra and the Kyrgyz government. This was a material condition to progressing funding of our Tulkubash project in the second half of 2022.
Chaarat continues to evaluate opportunities for inorganic growth in line with our growth agenda. Gold equities have been impacted by reduced liquidity in the sector, but this in turn provides a unique opportunity to grow the value of the Company.”
Chaarat Gold Holdings Limited
+44 (0)20 7499 2612
Mike Fraser, Chief Executive Officer
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