Q1 2021 Operational Update
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 quarter ended 31 March 2021 (the “Quarter”, “Q1” or the “Period”) for its Kapan Mine (“Kapan”), in Armenia and a general corporate update.
Q1 2021 Highlights
· Production of 16,174 gold equivalent ounces1 (“oz”) vs 13,353 oz in Q1 2020 (+21%)
· Third party ore treated was 34kt for Q1 2021 vs 0kt for Q1 2020
· All-in-sustaining cost (“AISC”2) of USD1,024 /oz vs USD1,074 /oz in Q1 2020 (-4.7%)
· Preliminary unaudited standalone EBITDA contribution of USD6.9 million vs USD2 million in Q1 2020 (+245%)
Tulkubash & Kyzyltash
· Strong support and appreciation for investment and community support received from new government and head of investment agency in Kyrgyz Republic
· Updated bankable feasibility study (“BFS”) expected to be released in May 2021
· Project financing on track for closing in H1 2021
· Tulkubash and Kyzyltash drilling programmes to commence in May 2021
· Funding package of USD52.2 million closed in February 2020 reducing the net debt position from USD64.5 million as at 31 December 2020 to USD12 million (-82%).
Kapan Polymetallic Mine – Q1 Highlights and Outlook
· As previously disclosed, one fatality occurred in early March. Initial investigations by Chaarat, the mining contractor and relevant authorities have concluded and identified that the drilling contractor’s employee walked over a blocked ore pass against basic general safety practices and behavioural safety principles. Actions are ongoing to continue to reinforce a mature safety culture that will prevent such incidents occurring in the future.
· Because of that incident, one lost time injury in Q1 and the recordable injury case rate (per one million hours worked) is 0.78 compared to 0.39 in Q1 2020 and 0.0 in Q4 2020.
· COVID 19 measures remain in place throughout the Company’s operations. Incident rates in country dropped during Q1 but are now starting to increase again. There has been no impact to our operations to date where strict adherence to COVID 19 protocols has continued.
· Production of 16,174 oz represents a 21% increase on Q1 2020 (13,353 oz) as a result of increased third-party ore treatment, and improved mine grade.
· Third party ore treated was 34kt for Q1 2021 vs 0kt for Q1 2020, approximately 10kt above the target for the Period.
· Q1 2021 production consisted of:
o 8,893 ounces of gold;
o 160,945 ounces of silver;
o 605 tonnes of copper; and
o 1,527 tonnes of zinc;
· All-in-sustaining cost (“AISC” 2) of USD1,024 /oz also improved compared to Q1 2020 (USD1,074 /oz, -4.7%) due to further efficiency gains realised in the milling circuit.
· Realised gold price for the quarter of USD1,762 /oz versus USD1,565 /oz in Q1 2020 (+12.6%) in line with the average gold price for Q1 2021. Continuing strong price environment, especially with realised copper prices of USD8,590/t vs USD5,283 in Q1 2020 (+63 % vs Q1 2020) above budgeted prices.
· Contained gold equivalent (“AuEq”) in own ore was 12,382 oz in Q1 2021 vs 13,353 in Q1 2020 (-7%). Tonnes were down year over year by 16.3%, but grade improved 13.6% due to mining changes to reduce dilution.
o Total tonnes mined of 149kt vs 178kt in Q1 2020 (-16.3%). Mining rates were lower due to reduced development activity in Q4 2020 as a result of the conflict between Armenia and Azerbaijan. This led to a follow-on impact of reduced mining tonnes in Q1 2021. However, early in the Quarter, development mining reverted to historical levels and therefore mining levels are expected to be in line with historical results from Q2 2021 onwards.
o Grade improved to 3.25g/t AuEq vs 2.94g/t AuEq in the same period last year (+10.5%). Changes were made to reduce dilution using the existing mining fleet, but new mining methods were also introduced to optimise mining of narrow high-grade areas which would be less valuable if mined using conventional mechanised methods.
o Mill throughout increased year over year by 3% primary due to increase in treatment of Third party-ore.
o AuEq recoveries were flat at 79.8% in Q1 2021 compared with Q1 2020 (79.6%).
· Underground development of 5,755 metres achieved in the quarter, compared to 5,623 metres in Q1 2020 (+2.3%). This was achieved through additional work by the drilling contractors who compensated for the mining staff temporarily involved in the previously mentioned conflict.
· CAPEX spent was USD1 million, 30% lower than expected given some delivery delays of spare parts and replacement equipment, mainly a surface loader.
· Unaudited Q1 2021 Kapan standalone EBITDA contribution of USD6.9 million vs USD2.0 million in Q1 2020 (+245%).
Outlook for Kapan
· COVID 19 vaccination programs are expected to commence in Q2 as COVAX supplied vaccines are delivered which will hopefully ease the increasing rates seen in the beginning of Q2.
· Chaarat remains on track to deliver on its AuEq 57koz guidance for the year, as previously set out in its FY 2020 Production, Operational and Financial Update on 21 January 2021.
· Third-party ore supply is expected to remain stable for the remainder of 2021.
· East Flank drilling campaign is planned to commence in May 2021 with an updated resource statement expected by end of year.
· An update to the current resource and reserve statement is underway with completion and release of the new Life of Mine targeted for Q4 2021.
· Financial performance in H1 2021 is expected to be improved vs H1 2020 as a result of higher-grade areas, constant third-party ore supply, further improved milling performance and increased commodity prices.
1 Gold equivalent ounces for 2020 recalculated on 2021 budget prices with Au at $1,700/oz and gold ratios of 68 for silver, 7,287 for copper and 21,862 for zinc. In last years’ Q1 2020 operations update, 2020 oz were based on gold ratios of 83 for silver, 7,778 for copper and 20,968 for zinc leading to a lower AuEq number reported in that previous year.
2 AISC on a gold oz produced basis exclude smelter TC/RC charges, others which add c. USD$ 133/oz. Sustaining capex of c. USD 8 million p.a. is included in the AISC, of which capex of USD1 million was spent in Q1 2021.
Tulkubash and Kyzyltash Project Update
Chaarat Executive Chairman, Martin Andersson, held meetings with the new government and investment agency of the Kyrgyz Republic in March 2021 receiving strong support and positive feedback for the development of Tulkubash and Kyzyltash and appreciation for the investments and community support to date.
Project preparation work for Tulkubash has progressed as expected, with mobilisation after the winter period planned for May. Full stage construction activities to commence once project financing is completed.
The 2021 exploration program is planned to commence soon. Resource drilling is planned for areas with potential close to the current planned pit areas and existing reserves. Further drilling is targeted for previously drilled areas with good results just to the north east of the current reserve to identify mine life extension opportunities. The plan consists of approximately 5,000m of drilling and a further 4,000m of trenching.
The updated BFS for the Tulkubash project is being peer reviewed and the Company expects it to be published in May 2021 along with a revised Mineral Resource estimate and Ore Reserve.
Additional drilling is also planned on the Kyzyltash deposit this season to collect core in preparation for the metallurgical test programme later this year. This core will be used to develop understanding of the metallurgical processing options for the deposit. The result of this program would be available early 2022.
Chaarat is on track to secure a debt facility that, together with an equity contribution from the Company, will fully fund the USD110 million required for the construction of Tulkubash and enable the asset to be brought into production during H1 2021. It is envisioned that the debt facility will comprise standard project finance conditions, including the requirement for the Company to contribute equity to the financing of the project. As previously announced, the Company will utilise a substantial portion of the funds raised in February 2021 to meet the equity contribution required for the project.
Corporate Finance Update
The Company received strong demand for a funding package in February 2021 for a total of USD52.2 million which included issuing USD30.0 million in equity to new institutional investors and family offices as well as existing shareholders and conversion of debt into equity of USD22.2 million.
The Financing led to a significant improvement in the Company’s debt position reducing it from USD70.5 million as at 31 December 2020 to USD46 million now, a reduction of 35%3. The net debt position is reduced from USD64.5 million as at 31 December 2020 to USD12 million, a reduction of 82%.
The funds received from the equity fundraise will predominantly be contributed to the remainder of the upfront equity portion required to fund the Tulkubash project in the Kyrgyz Republic and fulfils one of the key criteria in order to draw on any debt project finance facility that is arranged.
With the debt-to-equity conversion, the Labro Term Loan has been extinguished, saving the Company USD2.1 million a year in interest payments from 2021 to 2024.
The Kapan acquisition loan facility was reduced by another USD2 million to USD26 million at the end of Q1 2021 in accordance with the amortisation schedule.
Chaarat continues to evaluate capital opportunities to either refinance existing financing facilities and/or reduce its overall cost of capital. One of the key priorities for the next months is to evaluate options on the upcoming convertible bond in October 2021 that create most shareholder value which could include the conversion or refinancing of this bond.
3 Excluding lease liabilities, contract liabilities and accrued interest on the convertible loan note.
Artem Volynets, Chief Executive Officer, commented:
“I am pleased that we can report another strong quarter with further improvements to the mine. Especially the work on minimising dilution and increasing efficiencies supported by the continuing strong commodity price environment have resulted in strong first quarter performance. I am very happy with the performance of the Kapan team in delivering higher production this quarter by mining higher grade areas and treating more third-party ore, offsetting a temporary reduction in own tonnes mined.
At Tulkubash, the BFS update is almost ready for release along with a revised mineral resource estimate and ore reserve. The teams are ready to commence exploration works and construction works. Project financing discussions are on track for closing in H1 2021.”
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