REG - Chaarat Gold Hlgs Ld - Full year results for year ended 31 December 2021
07/04/2022 07:00
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RNS Number : 5538H Chaarat Gold Holdings Ltd 07 April 2022
7 April 2022
Chaarat Gold Holdings Limited
("Chaarat" or the "Company")
ANNOUNCEMENT OF FULL YEAR RESULTS
FOR THE YEAR ENDED 31 DECEMBER 2021
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, is pleased to announce its audited full-year results for the 12
months ended 31 December 2021.
The Company will provide a live presentation relating to 2021 Annual
Results via the Investor Meet Company platform today at 10:00am BST. If you
wish to listen to the presentation, please register via
https://www.investormeetcompany.com/chaarat-gold-holdings-ltd/register-investor
(https://www.investormeetcompany.com/chaarat-gold-holdings-ltd/register-investor)
Highlights
Group Financial Highlights
• US$92.4 million generated revenues from concentrate sales in 2021,
US$72.8 million relates to own ore revenue (+4%) and US$19.6 million relates
to third-party ore revenue (+221%) (2020: US$69.9 million and US$6.1 million)
with increases driven by more favourable commodity prices and higher
third-party ore throughput.
• The Group EBITDA³ was US$13.5 million, 45% higher compared to
last year (2020: US$9.3 million).
• The Group loss after tax was US$3.6 million, an improvement of 84%
from a loss after tax of US$22.4 million in 2020.
• Cash and cash equivalents increased from US$6.9 million to US$11.1
million year over year (+61%).
• The Group's net debt⁴ decreased from US$77.2 million to US$39.6
million (-49%) due to a debt-to-equity conversion and equity raise in February
2021 as well as the ongoing repayment of the Kapan acquisition loan.
ESG Highlights
• Further development of a fully integrated health and safety system
inclusive of all contractors
• Improved hazard identification, risk assessment and procedural
controls across the operation
• Completed sections of buttressing of the tailings storage facility
("TSF") as part of a multiyear improvement programme to improve seismic
stability
• Updated the environmental and social impact assessment ("ESIA")
for the Tulkubash project
• Ongoing reviews assessing best available technologies for the project
regarding environment control and energy savings
• Strengthened community relations in both countries further through
personal and financial support in various activities and for various
stakeholders.
Kapan Operating Highlights
• Finished the year with production of 63 thousand gold equivalent
ounces ("koz"(1)) including 14 koz from third party ore production vs 2021
guidance of 57 koz (+10.5%).
• Exceeded processing target of 50 thousand tonnes ("kt") for
third-party ore by 95 kt (+189%) in 2021, contributing to exceeding the
production guidance of 57 koz.
• Kapan sold 57,212 ounces of AuEq (2020: 48,387 ounces), including
third-party sales, with a realised gold price per ounce of US$1,784 (2020:
US$1,773).
• All-in-sustaining cost ("AISC"(2)) of USD 1,205/oz was higher than
the USD 1,034/oz for 2020 (+16.5%) due to higher mining costs related to more
selective mining, increases to energy costs and costs associated to
processing a higher portion of third-party ore feed.
• A 17% increase in standalone EBITDA(3) contribution to
approximately US$22.7 million at Kapan level in 2021 (2020: US$19.4 million).
Tulkubash Construction Project
• Updated bankable feasibility study ("BFS") released in May 2021
confirming robust project economics.
• Successfully completed a 4,835-metre drilling programme including
infill drilling and initial exploration drilling on new target areas.
JORC-compliant resource and reserve estimates are being updated to reflect the
infill drill results.
• Advanced camp construction, main construction preparation work and the
exploration programme with approximately US$8.5 million invested in 2021
despite the Kumtor events and the ongoing COVID-19 impact.
Kyzyltash Development Project
• Successfully completed a 3,508-metre drilling programme to obtain
representative core of the Kyzyltash deposit ready for metallurgical testing.
The core has been sent to SGS Lakefield in Canada for a full suite of
metallurgical test work as part of assessing the preferred processing route
for the project.
Corporate Activities
• Funding package of US$52.2 million closed in February 2021.
• Extension of the convertible loan notes by one year to 31st
October 2022.
• Tulkubash debt financing delayed to 2022 due to ongoing market
cautiousness related to the resolution of the Kumtor mine situation.
• Reduced Group net debt⁴ from US$77.2 million as at 31st December
2020 to US$39.6 million as at 31st December 2021 (-49%), primarily as a result
of converting the Labro Term Loan into equity in February 2021 and reducing
the Kapan acquisition loan from Kapan cash flows.
Post-year end
• Mike Fraser started as new Chief Executive Officer and member of
the Board on 17(th) January and since then completed a comprehensive strategic
and operational review. Key elements of the strategy will be implemented
within 2022.
• The Kapan Mineral Resource Estimate ("MRE") and Ore Reserves
("OR") were updated in 2021 and signed off in April 2022. The 2022 MRE was
developed on a constrained basis. The application of the constraining factors
and a 2.0 g/t cut-off grade limits any direct comparison to the previously
reported unconstrained resource in 2019.
o The overall contained koz in the Measured and Indicated Resource
("M&I") is 579koz at 9.03 g/t AuEq applying a 2.0 g/t cut-off grade.
o Updated Ore Reserves comprise of 2.55 Mt of Proven and Probable ore at
grades of 1.66g/t Au, 33.17g/t Ag, 0.34% Cu and 1.25% Zn with contained metal
of 264koz at a cut-off of 2.0g/t AuEq.
• A resolution of the Kumtor mine situation was announced on the
4(th) of April 2022 and Chaarat is re-entering financing discussions on the
Tulkubash project as planned.
Outlook for 2022
· Macro - The conflict in Ukraine and associated sanctions against
Russia have the potential to impact the supply chain, costs, and commodity
prices in our region and we are monitoring the developments closely. So far,
the conflict has had no direct impact on our operations, and we do not expect
a material impact in 2022.
· Kapan - Confirmed mine production guidance of 50-53 koz(5) of own-ore
production and additional 6-9 koz(5) of third-party ore production based on
100 kt milled during the year.
· East Flank - Resource definition drilling ongoing as part of
preparing an initial mineral resource estimate expected in 2023.
· Tulkubash - Updated mineral resource and reserve statements are
expected to be released in H1 2022. Given the resolution of Centerra's Kumtor
situation, debt financing is expected to close in H2 2022. Ongoing project
work will focus on engineering completion and appropriate construction
activities to optimise full activities once debt financing is secured.
· Kyzyltash - Metallurgical test results expected from SGS Lakefield in
Q3 2022 to enable the Company to perform an economic assessment on the best
processing route in 2023.
· Corporate - Chaarat will continue to review its existing balance
sheet structure with a view to further reducing its interest cost and
improving the balance sheet structure.
(1 Gold equivalent ounces for 2020 recalculated on 2021 budget prices with Au
at USD1,700/oz and gold ratios of 68 for silver, 7,287 for copper and 21,862
for zinc. In last year's FY 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. Includes third party ore
production.)
(2 AISC on a gold oz produced basis exclude smelter TC/RC charges, others
which add c. USD 148/oz. Sustaining capex of c. USD6 million p.a. is included
in the AISC.)
(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. A reconciliation is provid)(ed in the Financial Review section
below.)
(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. Further detail is
provided in the Financial Review section below.)
(5 Gold equivalent ounces for 2022 calculated based on Au at USD1,775/oz and
gold ratios of 75 for silver, 6,597 for copper and 20,381 for zinc.)
Martin Andersson, Executive Chairman of Chaarat, commented:
"I am pleased to report that we exceeded our 2021 production guidance at Kapan
as well as achieved another set of strong financial results for the Company.
The difficulties of the COVID pandemic and global supply chain issues created
an ongoing set of challenges for the Company, but the continued strong
macro-economic environment and an excellent job by our team helped manage
these conditions.
The year 2022 started with a good steady operational performance but we are
seeing more and more inflationary pressure flowing through due to the strong
price environment. As has been the case since taking over Kapan, the team will
continue to look for improvements and new methods of operating to minimise
these impacts on the business.
On 4(th) April 2022, Centerra and the Kyrgyz Government announced an agreement
on the Kumtor mine had been reached. We were pleased to see this situation
being resolved and are re-engaging with potential lenders on our Tulkubash
financing efforts. We will update the market as soon as further progress has
been made."
Forward-looking Statements
This announcement contains certain forward-looking statements that are subject
to the usual risk factors and uncertainties associated with the Company's
business. Whilst the Company believes the expectations reflected herein to be
reasonable considering the information available to them at this time, the
actual outcome may be materially different owing to factors beyond the
Company's control or within the Company's control where, for example, the
Company decides on a change of plan or strategy. Accordingly, no reliance may
be placed on the figures contained in such forward-looking statements. The
forward-looking statements contained in this document speak only as of the
date of this announcement, and Biffa does not undertake to update any
forward-looking statement to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
Publication of Annual Report
The Company will publish its Annual Report and Financial Statements 2021 on 22
April 2022. This document will be available to view on the Company's website
at www.chaarat.com/investors (http://www.chaarat.com/investors) and will be
posted to shareholders who have elected to receive hard copies on 22 April
2022.
Annual General Meeting
The Annual General Meeting ("AGM") will be held on Tuesday, 17 May 2022 at
10am at the offices of Watson Farley & Williams LLP, 15 Appold Street,
London EC2A 2HB, United Kingdom.
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 the FSU through organic growth and
selective M&A.
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/
(http://www.chaarat.com/) .
Enquiries
Chaarat Gold Holdings Limited +44 (0)20 7499 2612
Michael Fraser (CEO) info@chaarat.com (mailto:info@chaarat.com)
Canaccord Genuity Limited (NOMAD and Joint Broker) +44 (0)20 7523 8000
Henry Fitzgerald-O'Connor
James Asensio
finnCap Limited (Joint Broker) +44 (0)20 7220 0500
Christopher Raggett
Panmure Gordon (UK) Limited (Joint Broker) +44 (0)20 7886 2500
John Prior
Hugh Rich
Executive Chairman's Statement
Two years have now passed since the beginning of the pandemic. Like the rest
of the world, Chaarat has had to adapt to doing business differently. This
year we have continued to demonstrate that we are a resilient business that
can withstand external factors as we continue on our path towards becoming a
mid-tier producer.
Safety and health
The safety and health of our employees and host communities remains one of our
key values. Learnings from the tragic loss of life of an employee of our
mining contracting company in March 2021 that we reported last year have been
used to further develop and improve the already high standards we have and
further emphasise the safety culture and performance throughout Chaarat.
Our lost time injury frequency rate at Kapan for the year was 0.74 per one
million hours worked (2020: 0.37). 392,000 hours were worked at Tulkubash in
2021 with no lost time injuries.
Sustainability
We place significant importance on sustainable development and social
investment programmes in the countries in which we operate. We genuinely
believe that respectful and open dialogue and partnership with local
stakeholders is essential for the long-term success of our operations. In
keeping with our ESG guidance principles, our main areas of focus in our host
communities continue to be health, education, and sustainable development
opportunities.
2021 progress
I am pleased to be able to announce that the team at our Kapan mine has again
exceeded production guidance, this year by 11 %, achieving 63koz AuEq
production guidance (including 14koz from third-party ore).
During the year we continued our efforts to progress a potential funding
solution for our Tulkubash development project. Despite having no direct
impact on our own operations, ongoing market cautiousness pending a resolution
of the ongoing issues at the Kumtor gold mine in Kyrgyz Republic have led to a
further delay in securing the project funding required and a consequential
delay to the date for first gold pour. Given the recent resolution of the
Kumtor issues, I am hopeful that we will secure project finance during 2022.
Nevertheless, we have made progress with camp construction, main construction
preparation, and exploration.
We have also progressed our Kyzyltash development project with completion of a
drilling programme to obtain representative core of the deposit ready for
metallurgical testing. This testing will provide us with the information
necessary to progress to the stage of determining the optimum processing route
during 2023.
2021 results
Our 2021 Financial Results reflect the increase in commodity prices, with an
increase in Group EBITDA of 45% compared to 2020. EBITDA in the last months of
2021 were impacted by increasing inflationary pressure as a result of the
strong commodity price environment. The team is renewing its efforts with
regards to finding mitigations to these new cost pressures.
While the majority of equity raised was utilised for ongoing exploration and
construction preparation for our Tulkubash project, the metallurgical drill
programme on our Kyzyltash project and overhead expenses, the year-end cash
balance increased from US$6.9 million in 2020 to US$11.1 million in 2021.
Together with our existing shareholder and debtholder base and a number of new
investors to Chaarat, we managed to significantly improve our balance sheet in
2021. Our net debt decreased by almost 50% from US$77.2 million to US$39.6
million as a result of continued debt repayments, debt conversion and equity
commitments.
Board and senior management changes
I would like to welcome Mike Fraser who joined our Board as Chief Executive
Officer in January 2022. Mike brings over 20 years of extensive experience
in the global mining and metals industry and I am delighted that he has joined
Chaarat. His impressive track record for driving operational performance and
culture will mean that he is well-equipped to drive our performance going
forward.
It is also my pleasure to welcome Sandy Stash, who joined the Board in May
2021 as an independent non-executive director. Sandy brings decades of
experience in the energy and hard rock mining industries, particularly in ESG
matters.
Our former Chief Executive Officer, Artem Volynets, resigned from that role
and as a member of the Board in August 2021. Chris Eger also resigned as
Chief Financial Officer in November 2021. I would like to thank them both
for their service throughout their respective three-year tenures. I am
grateful to our Group Financial Controller, David Mackenzie, for agreeing to
act as Interim Chief Financial Officer.
Our people
On behalf of the Board, I would like to extend my sincere thanks to all our
employees for their commitment, dedication, and loyalty. I would especially
like to thank our senior management team for their unfaltering support and
flexibility during the period whilst I served as interim Chief Executive
Officer. I would also like to extend a special thanks to all employees at
our Kapan mine who, despite the operational challenges posed by the ongoing
pandemic, enabled us again to exceed our production guidance.
Corporate governance
As Chair, I am responsible for leading and ensuring an effective Board. The
role of the Board remains that of setting strategy, ensuring the right
resources are in place to deliver it, promoting long-term success, generating
value, and contributing to wider society. I believe that the Board has the
right balance of skills and expertise to continue to support and challenge
management as Chaarat enters a new chapter of its history under Mike Fraser's
leadership.
Investors
I was delighted that, in February 2021, we were able to raise US$30.0 million
of new cash for our Tulkubash project and reduce our indebtedness by US$22.2
million.
In October 2021 we extended the maturity of our convertible loan notes by one
year to 31 October 2022 and I am very grateful to our noteholders for their
patience and understanding.
2022 and beyond
In the coming year, our development priorities will be to secure project
finance for Tulkubash, to progress Kyzyltash by determining the optimal
processing route, and preparing an initial mineral resource estimate for the
East Flank of our Kapan mine. Our financing priority is to address the
upcoming convertible bond, due in October 2022, in a timely manner.
On 4(th) April, Centerra and the Kyrgyz Government announced an agreement on
the Kumtor mine had been reached. We were pleased to see this situation being
resolved and are re-engaging with potential lenders on our Tulkubash
financing efforts. We will update the market as soon as further progress has
been made.
The conflict in Ukraine and the associated sanctions against Russia have not
impacted our operations, and given our focus on local sourcing, any impact
would be minimal. We are continuously monitoring the situation and will take
the necessary steps to ensure any impact on our operations is minimised.
Finally, I would like to take this opportunity again to thank our loyal
investors for their patience and steadfast and continuing support.
Chief Executive Officer's Review
I was drawn to Chaarat by the potential of where it could go in the future.
Whilst there are a number of challenges to be faced there are also significant
opportunities, and a very capable Board and management team well placed to
embrace these opportunities. Many assets in the gold sector are mispriced
and we believe that the sector is overdue for further consolidation.
I have been with Chaarat almost three months now and I am impressed by the
dedication and commitment of its employees. As with any company, Chaarat
needs to embrace change and evolve. What has been encouraging so far is that
there is a real appetite for reflection on how we do things and organise
ourselves. A willingness and desire to reflect on areas for improvement is a
great base from which to start.
Setting the right strategic focus for the Group is paramount. I am keen to
ensure that everyone in the business knows where we are heading, what is
important to us, and what we are trying to achieve. During the coming year,
the immediate priorities will be to continue to drive reliable and safe
operating performance at Kapan, secure project financing for Chaarat's
Tulkubash development project, and progress the studies of our Kyzyltash
project. We will be uncompromising on safety, and this will be a key area of
focus for me, particularly following the tragic fatal incident last year to
which Martin refers to in his letter.
Chaarat's vision is to build a leading emerging markets gold company which
delivers value to all our stakeholders by adhering to the highest
environmental, social, and governance standards. Creating a shared purpose
and unifying around aligned objectives, values and behaviours will be vital to
the successful delivery of that vision. To this end I will also be focusing
on our organisational capabilities and priorities to ensure strategic
alignment.
Finally, I would like to thank Chaarat's employees for their support to me in
my early months with the Company.
Our Strategy
• ESG We will work responsibly to:
· provide a safe work environment built on the highest standards of
safety management
· operate to the highest standards of environmental stewardship
· enhance the infrastructure, education, and healthcare in our host
communities and to improve the living standards and opportunities for those
communities
• Organic growth We will maximise our production via:
· operational improvements, mine life extension, and brownfield
development at our Kapan mine in Armenia
· staged development of the assets at our Kyrgyz Republic operations
(Tulkubash and Kyzyltash)
• Inorganic growth We will selectively identify value-accretive opportunities in our target
regions if we see the potential for those to deliver value to shareholders by
utilising Chaarat's experience and skillsets in both the short term and
through longer-term exploration and development potential
• People We will attract, retain, and develop a skilled and diverse workforce across
all levels of our organisation with a focus on developing local talent in our
host communities and creating an environment in which those employees can
thrive and learn
• Finance We will identify opportunities to secure funding and reduce the cost of
capital with the main objective of maximising value for shareholders with
appropriate consideration to levels of shareholder dilution
Strategy Progress and Priorities for 2022
ESG 2021 progress 2022 priorities
Safety Further development of a fully integrated health and safety system inclusive Increased focus on the management of health-related risks such as hearing loss
of all contract companies and particulate exposure through the use of baseline assessments, personal
monitoring, and area surveys
Improved hazard identification, risk assessment and procedural controls across
the operation
Environmental Ongoing Buttressing of the tailings storage facility (TSF) as part of a
multiyear improvement programme
Completion of internal assessment of performance against global industry
standard on tailings management
Completion of revised Environmental & Social Impact Assessment (ESIA) for
the Tulkubash project
Ongoing dialogue with the regulatory bodies regarding approvals of new proven
technologies
Ongoing energy reduction upgrades via switch gear renewal and Installation of
low energy lightbulbs throughout Kapan
Ongoing reviews assessing best available technologies for the project
regarding environment control and energy savings
Community Strengthened community relations in the countries and regions we operate in The 2022 activities will be in line with 2021 and targeted towards the
further through personal and financial support in various activities and for community needs. The strong relations with our communities allow an open and
various stakeholders. Initiatives are coordinated and approved with the honest dialogue on required initiatives.
stakeholders in the beginning of the year and then acted upon to create
alignment and commitment.
Key activities can be reviewed on https://www.chaarat.com/esg-sustainability/
(https://www.chaarat.com/esg-sustainability/)
There was no opposition to our operations in 2021.
Organic growth 2021 progress 2022 priorities
Kapan Increased treatment of third-party ore Optimise mill throughput via increasing own production and sourcing additional
third-party ore supply
East Flank infill drilling commenced Start of multiyear drill programme to develop a JORC compliant resource,
reserve, and mine plan for East Flank (subject to funding)
Tulkubash Advancement of construction equipment selection and design engineering Maximise execution preparedness ready for funding availability and updating
capital estimates
Completion of 2021 exploration programme targeting those areas referred to as
mid and East zones to convert additional tonnage to M&I
Initial exploration of Karator and Ishakuldy areas to confirm their
attractiveness for further exploration
Completion of BFS update incorporating the 2020 drilling results, revising
cost estimates, and demonstrating the sound economics of the project
Completion of contract discussions with Çiftay
Kyzyltash Completion of metallurgical drill program Metallurgical test work programme to be carried out to assess performance of
flotation and various oxidation processes on representative samples of
Kyzyltash ore. Key step in optimizing project economics
Inorganic growth 2021 progress 2022 priorities
M&A Identified, evaluated, and progressed various opportunities through due Continue to identify and evaluate value enhancing acquisition opportunities
diligence via a systematic staged gate approach. Some opportunity reviews and and, if appropriate, execute one or more
the underlying assessment and engagement processes are ongoing.
People On a group level restructured the executive team to account for the required Continued focus on local empowerment of employees to take decisions where
skillset for the next stages of the company with strong construction and appropriate
operational skills being required during the construction of Tulkubash and
development of Kyzyltash as well as the potential integration of M&A
targets.
Continued efforts to secure the required skillsets, deliver top training
programmes, and act proactively in relation to improving the work environment
Enhanced measures to ensure a safe and attractive work environment for all
employees, with additional measures performed at Kapan level after the
fatality accident.
Ongoing COVID precaution measures throughout the year.
Finance 2021 progress Page 2022 priorities
Funding package of US$52.2 million closed in February 2021 which included Secure project finance for Tulkubash
issuing US$30.0 million in equity to new investors and conversion of debt into
equity of US$22.2 million
Repay or refinance convertible loan notes due on 31 October 2022
Extended the maturity of the convertible loan notes by one year to 31 October
2022
Reduced principal interest-bearing debt from US$70.5 million as at 31 December Ensure existing debt financing is efficiently structured
2020 to US$38.7 million at 31 December 2021, primarily as a result of
converting the Labro Term Loan into equity in February 2021 and reducing the
Kapan acquisition loan by US$9.0 million from Kapan cash flows
Environmental, Social, and Governance ("ESG")
Safety and Health
On 4 March 2021, a tragic fatal incident occurred at Chaarat's Kapan
operation. The event occurred during activities to clear a blocked ore pass.
A management review of the incident identified that despite recognizing the
hazards of the activity and effectively communicating the required control
measures, the supervisor overseeing the work took actions that sadly led to
the loss of his life. Independent investigations by the Armenian labour
authority and police came to the same conclusion.
Despite ongoing activities to improve risk identification and risk management
on site, this event highlighted that there were still elements of the safety
culture that had an inappropriate level of risk tolerance. Companywide safety
meetings were held with all employees and contractors immediately after the
incident to discuss the issue of unacceptable risk tolerance and the need for
improvement in the business. The incident has acted as a catalyst for change
within the company and has enabled us to make good progress on improving the
underlying safety culture at Kapan.
There was one lost time injury in March at Kapan related to an employee who
suffered a medical condition while accessing a work platform. The employee
suffered serious injuries when he fell and landed in an awkward position.
Since March, the safety record at Kapan has been good with no serious
incidents occurring for the last 11 months. Lost time Injury Frequency for
2021 was 0.70 compared to 0.37 for 2020 due to two incidents in 2021 compared
to one in 2020.
As a result of the fatality, our ongoing cultural change at Kapan refocused
slightly to build on responsibility for each other, as well as focusing on a
sense of local ownership, entrepreneurship, and decentralized assessment and
decision making. Since our acquisition of the mine, we have been working to
create a unified approach to health and safety where no difference exists
regarding values, standards, and practices whether direct or contract
employee. The tragic incident refocused everyone on this essential
transformation. It allowed us to challenge the cultural barriers that existed
in Kapan and to rethink how everyone that goes to work at our sites has the
same rights regarding being able to go to home to their families safe and
healthy at the end of their workday.
Safety at our Kyrgyz operations remains strong with no lost time injuries or
high potential incidents for the year.
As a group, we worked approximately 3.25M hours in 2021 with an overall lost
time injury frequency rate of 0.61 per million hours. Lessons learnt from the
Kapan fatality were shared with in our Kyrgyz operations to ensure the key
lessons could be proactively incorporated.
Environment and Cultural Resource Protection
Work on the Tailings Storage Facility (TSF) buttressing has been ongoing
throughout 2021. The known areas of highest risk have been reinforced and the
work of adding compacted fill to the slope of the north dam wall has
progressed well. The risk of any failure of the TSF due to seismic activity
has been reduced as a result of these actions.
Our focus has been on using appropriate fill from our mining operations rather
than mining new material from somewhere else in Armenia. Suitable waste
material is hauled direct from the mine to the TSF. In this way we avoid the
need to quarry new materials, minimize transportation distances, reduce fuel
consumption and greenhouse gas emissions. Onsite waste dumps of appropriate
material have been emptied and the rock moved to the TSF as well. Our approach
requires longer to complete, but is significantly more environmentally
responsible, while at the same time managing the risks associated with the
historical legacy issues of the TSF. Approximately 366 thousand tonnes of rock
have been piled and compacted to design specifications as part of the buttress
construction to date.
The third-party assessment against the Global Industry Standards on Tailings
Management was not completed in 2021 as travel restrictions related to
COVID-19 made such work difficult. As a first step, Chaarat will undertake a
more detailed internal assessment in 2022 and determine what additional
activities need to be undertaken on a priority basis.
In Kapan we continue to operate our annual reforestation program in
conjunction with the local community. Each year staff and volunteers from the
community spend time planting seedling in suitable areas and to address past
environmental damage from a long history of mining in the area. To date,
approximately 1,300 trees have been planted as part of this initiative.
In the Kyrgyz Republic we work with the regional and national government to
offset the impact of our project development. A licence needs to be obtained
and a fee paid based on the type and age of the trees and bushes that need to
be removed during the development of the mine and processing areas. This fee
is then used by the Government for reforestation projects across the country
on a prioritized basis.
During the original Environmental and Social Impact Assessment ("ESIA")
process it was determined that there was one species of plant that needed to
be relocated due to our activities. Government representatives visited the
site and in conjunction with our environmental team relocated the Kaufman's
tulip bulbs identified to suitable locations outside of the area affected by
our activities.
Work was also undertaken to stabilize and protect an area of archaeological
interest that was close to our proposed heap leach area. Members of the
archaeological team from the government came to site to supervise
stabilization and fencing works. This work is not only intended to protect the
area from our operations but also visitors to the area during the year.
Herders move through the valley to suitable vegetation in other areas, and
many people from the local community come at various times of the year to pick
herbs and medicinal roots and leaves. The work carried out helps protect the
area from inadvertent contact or disturbance of any kind.
Climate change
Work has been ongoing throughout the year to replace the old energy-intensive
lights in use both underground and in the processing plant with modern
low-intensity lights. We have also been replacing some of the old switchgear
and wiring on site with new equipment. This new equipment includes the latest
technology regarding energy saving technologies. They also offer improved
safety for our electrical teams regarding arc flash risk.
As part of every capital project, we assess what improvements are possible
with regard to the reduction in energy use and of GHG emissions.
Further work will be undertaken in 2022 to better understand and define the
physical and transition risks to the company from climate change.
Community Relations
Operations throughout 2021 continued to be impacted by the various waves of
COVID-19 infection travelling around the globe.
The various control and mitigation measures we implemented at the start of the
pandemic remained in place throughout the year. In general, our controls
proved to be effective, especially when supported by general societal controls
such as mask wearing and social distances. As societal controls reduced, the
challenges faced by the operations became more challenging. At our Tulkubash
site, pre travel testing continued to prove effective, but for our town and
city-based activities they proved less so. With almost no controls in place
outside of the workplace, employee infection rates increased significantly.
Infection rates peaked in the Kyrgyz republic in the summer and in Armenia in
late 2021. Vaccination levels amongst our staff are significantly above the
national averages for both countries. We encouraged vaccination through
educational programs and worked with the local health authority in Kapan to
provide access to vaccinations via the onsite health clinic. Thankfully,
severity levels were low in workforce and in our local communities.
Throughout the year we maintained our social programs in conjunction with the
local authorities and community groups.
As a border town, Kapan's focus was assisting local Armenian families affected
by the war in 2020. We have provided funds that have been used to purchase
family dwellings and livestock for displaced families. Our focus on education
continued with support provided to various school and educational groups in
the greater Kapan area.
Normal face to face activities resumed in late Q3 in Chatkal when Chaarat was
able to resume their sponsorship of the Chaarat Cup games. After last year's
absence the regional communities were very happy to resume the event.
The revised ESIA for the Tulkubash project was published in May 2021 and is
available on our website.
Government Relations
For the second year in a row, Chaarat, the Government of the Kyrgyz Republic
and the European Bank for Reconstruction and Development were unable to hold
the Kyrgyz British Investment Forum. COVID travel restrictions prevented
travel and in person events in London.
Relations with the governments in both countries remains positive. The
government of the Kyrgyz Republic continues to support the development of the
Tulkubash project, and our Chairman has had several constructive in-country
discussions at Ministerial and Presidential level during the year.
In Armenia, relations with the government at the local, regional, and national
level continue to be strong. Our support of the local community, assistance in
encouraging COVID vaccination in the region and other ongoing activities were
recognized and rewarded at the highest levels. Our Country Director received
several commendations and rewards from both the regional and national
governments.
Chief Operating Officer's Review
Kapan
2021 is the third year of operation for Chaarat of the Kapan mine.
The Kapan ore body is made up of a network of narrow variable steeply dipping
polymetallic veins. The ore body is currently worked using a combination of
mechanized and handheld mining techniques to optimize the geology of the mine.
The Mill produces 2 flotation concentrates. One high in gold, copper, and
silver, the second is a zinc concentrate with some contained gold and silver.
The mine has a capacity of approximately 600-700kt pa depending on mining
method used. The milling and flotation circuits have a capacity of
approximately 800kt pa expandable to 1Mt per year with minor capital
investment.
Kapan Operational Highlights
· Tonnes mined for 2021 were 600,246t compared to 684,156t in 2020. The
12% reduction in tonnage was the result of a change in mining method. Many
areas of the mine currently being worked do not lend themselves to fully
mechanized mining methods due to the size and nature of the veins. Trial work
on different methods including shrinkage method, started at the end of 2020
and is now in use in many parts of the mine.
· Mine head grade increased to 3.3 g/t as a result of the changes, from
3.0 g/t in 2019 and 2020. Mill grade for own ore was in line with mine
production.
· Mill throughput was relatively constant at 729,473t compared to
744,705t in 2020. Own ore treated was lower due to the reduction in mine
output, but third-party ore increased. 144,632t of third-party ore were
treated in the year compared to only 67,838t in 2020.
· Supply of third-party ore is expected to remain at the current levels
in 2022. The mill still has additional capacity, and this can be filled by
additional third-party ore while internal growth projects work on ways to fill
the mill with higher value own ores.
· Recoveries from own ore declined slightly in 2021 to 79.1% compared
to 79.9% in 2020. The reduction was due to a combination of higher oxidation
and finer grain size in some of the areas mined during the year. As Kapan is
a polymetallic mine, increased oxidation of the sphalerite and chalcopyrite
alter the potential of the minerals to float in the mill circuit. In some
areas of the mine, the grain size of the minerals has reduced from the
historical norm. Despite the mill circuits improvements made in 2020, it was
not possible to achieve the grind size necessary to fully liberate sphalerite
from the chalcopyrite and zinc levels in the gold/copper concentrate
increased.
· In Q3 the government of Armenia introduced a new sales tax on copper
concentrates to allow the country to benefit from the highest prices seen
since 2011. Due to the nature of the polymetallic mineralogy at the Kapan
mine, the concentrate produced is not a classic copper or gold concentrate but
a mixed gold/copper concentrate. After lengthy discussions with the
government, they issued an exemption to Kapan and one other mine related to
the new tax. Sales of gold/copper concentrate were put on hold by the company
during Q3 pending final resolution of the tax issue. All concentrates
accumulated during the period were shipped before year end, but the delay did
impact cash flow to the business during that period. Kapan management did an
excellent job of working with its suppliers and lenders to minimize impacts
across the supply chain.
· Kapan experienced issues during the year related to logistics and
supply chain challenges that affected global trade. Delivery costs for
incoming goods increased as did the costs of shipping our concentrated.
Although commodity price increases helped revenue, they did adversely affect
operating costs. The costs of consumables and reagents based on steel, copper,
and zinc all increased. This had a negative effect of all in sustaining costs.
Initiatives are ongoing to minimise the impact of these inflationary pressures
on the business.
2021 full-year production consists of:
Kapan 2021 2020
Production (oz AuEq) 63,039 58,661(1)
Own ore (oz AuEq) 48,601 54,215
Third-Party ore (oz AuEq) 14,438 4,446
All-in sustaining cost (USD/oz) 1,205 1,034
Sales (AuEq oz) 57,212 48,387
Gold production (oz) 35,405 30,837
Silver production (oz) 610,322 587,718
Copper production (t) 2,284 2,154
Zinc production (t) 5,836 7,641
Realised gold price (USD/oz) 1,784 1,773
Realised silver price (USD/oz) 25 20.4
Realised copper price (USD/t) 9,157 6,117
Realised zinc price (USD/t) 3,001 2,222
¹Not adjusted for changes in price desk, as per reported in 2020.
Kapan - Exploration Potential
Work is continuing on the East Flank target area adjacent to the current Kapan
mine. An underground development drive has been mined to provide access to the
East Flank from the current mine workings. Diamond drilling will start in 2022
from several drilling chambers installed off the development drive. A total of
13,400m metres of drilling are planned over the next 2 years with almost
15,000 core and channel samples to be tested. The East Flank area is currently
developed to a P2 resource level, and the new drill program is designed to
bring the most prospective area of the East Flank to an inferred level of
certainty under JORC classifications.
Work is also ongoing to assess additional exploration and development
opportunities in the region around the Kapan mine. Our first priority is to
look if additional tonnage suitable for treatment in the Kapan mine can be
identified and developed. Second priority is to identify new growth
opportunities in Armenia suitable for future development.
Ore Resources and Reserves
Resource drilling increased significantly in 2021 to help improve resource
modelling. Drilling increased from 37,400 metres in 2020 to 69,300 metres in
2021.
The work has improved the accuracy of the resource model, and mine
reconciliation is now much closer to mill production. This helps improve
accuracy of budgeting and forecasting of grade and tonnes compared to the old
model, which is always a challenging activity in a narrow vein, variable
underground mine.
The mineralised areas at Kapan are well understood from many years of
drilling. Exploration drilling has defined extensive mineralisation, but in
certain areas this cannot be converted into a resource estimate at this time
as drill hole density is not sufficient to classify mineralisation as
inferred. To be effective, all resource drilling needs to be carried out
underground preferentially perpendicular to the vein orientation.
Resource development drives and drilling occurs in advance of mining to ensure
sufficient areas are converted to Measured and Indicated and sufficient new
inferred tonnage is added for future infill drilling. This is the case with
all such narrow vein mining operations. This type of resource development
effectively limits the size of the reserve that can be sensibly developed to a
much shorter horizon than is the case with large more homogeneous ore bodies,
either open pit or underground.
The Company updated its Mineral Resources and Ore Reserves in June 2021 which
was signed off by independent consultant AMC and the Chaarat board in March
2022. The Mineral Resources and Ore Reserves, detailed in this press release,
have been reported following the guidelines and requirements of the
Australasian Code for Reporting of Exploration Results, Mineral Resources and
Ore Reserves ('the JORC Code'), 2012 (JORC 2012).
The following table summarises the updated 2021 Mineral Resource Estimate:
Grade Metal
Classification Tonnes (Mt) Density Au (g/t) Ag (g/t) Cu (%) Zn (%) AuEq (g/t) Au (Koz) Ag (Koz) Cu (Kt) Zn (Kt) AuEq (Koz)
Measured 0.24 2.72 6.55 107.9 1.24 5.10 12.17 50 826 2.95 12.1 93
Indicated 1.76 2.76 4.43 88.31 0.92 3.51 8.60 250 4,989 16.2 61.6 486
M & I 2.00 2.76 4.69 90.65 0.96 3.70 9.03 301 5,815 19.2 73.7 579
Inferred 3.50 2.80 3.37 76.46 0.79 2.71 6.89 379 8,596 27.6 94.8 775
· The effective date of the resource is 1st June, 2021. The Mineral
Resources that are not Mineral reserve do not demonstrate economic
viability. Numbers may not sum due to rounding.
· The gold equivalency formula is: Au Eq = Au + (Ag g/t * ($25 /
$1,700) + (Cu % * ($8,000 * 31.1035 / $1,700) / 100) + (Zn % * ($2,500 *
31.1035 / $1,700) / 100
· Wireframes defined by a mineralized cut-off with a parent block
size of 4 m x 4 m x 4 m, Grades interpolation is by Ordinary Kriging method.
· MSO applied assuming: minimum width 2.2m; COG 2.0g/t Au Eq
· Mineral Resources are with applied depletion and inclusive of Ore
Reserves.
· The resource estimate and classification is according the JORC
Code (2012) reporting code.
This update of the Mineral Resource estimate from 2019 is reflecting the
mining depletion and mine development and grade control drilling conducted in
the subsequent 2020-2021 period.
It is the CP's opinion that the Measured and Indicated Mineral resource herein
is a reliable basis for the Ore Reserve Estimate update.
The following table summarises the 2021 Ore Reserves:
Grade Metal
Classification Tonnes (Mt) Au (g/t) Ag (g/t) Cu (%) Zn (%) AuEq (g/t) Au (Koz) Ag (Koz) Cu (Kt) Zn (Kt) AuEq (Koz)
Proven 0.15 2.21 37.55 0.45 1.60 4.07 10.4 184.1 0.7 2.4 19.9
Probable 2.39 1.63 32.90 0.33 1.23 3.17 125.6 2,531.7 8.0 29.5 243.8
Total Proven and Probable 2.55 1.66 33.17 0.34 1.25 3.22 136.0 2,715.9 8.7 31.9 263.7
· Ore Reserves, fulfilling the requirement of the JORC Code (2012),
are contingent on completion of a formal Mineral Resource report and
application of reasonable prospects for eventual economic extraction to
Mineral Resource statement.
· Ore Reserves are based on long-term metal prices of USD1,700/oz
Au, USD25/oz Ag, USD8,000/t Cu, and USD2,500 Zn.
· Ore Reserves are based on a gold equivalent cut-off of 2.0g/t Au.
· Mineral Resources which are not Ore Reserves do not have
demonstrated economic viability.
· Table is subject to rounding errors.
· The average density of Measured and Indicated Resources is 2.67
t/m3. A density of 2.64 t/m3 was used for unmodelled diluting waste material.
· Tones reported are in situ, dry tonnes.
The historical upgrade of Inferred Resource to M&I Resource that can be
converted to reserves suggests that the life of mine can be further extended
from the anticipated upgrading of a portion of the current Inferred
Resource. Ongoing exploration is expected to continue adding to this
inventory.
Outlook for 2022
Kapan Mine production guidance for 2022 is 50-53 koz of own-ore production
with an additional 6-9 koz of third-party ore production. This is based on
100,000t of third-party ore treated during 2022.
East Flank resource definition drilling is planned, as part of preparing an
initial mineral resource estimate and results are expected in 2023.
Tulkubash
Introduction
Tulkubash is an oxide gold deposit suitable for open pit mining, and
extraction using standard heap leach gold extraction technology. It has a well
drilled JORC compliant proven and probable reserve which has been reviewed by
external parties as part of the funding initiatives carried out to date. The
2021 reserve showed an estimated life of mine of five years. Additional
drilling in 2021 was carried out to add additional ounces to this reserve.
Further potential exists to the northeast along strike. Initial exploration
was carried out in 2021 to start defining the potential of these extension
areas.
2021 Tulkubash Project Highlights
There were no lost time injuries or major safety incidents during the year.
The project has worked 1.38M hours since 2018 without a lost time injury.
Logiproc, an engineering consultancy from South Africa, completed the revision
of the project bankable feasibility study ("BFS") in May. An update of the
Environmental and Social Impact Assessment (ESIA) was completed in June. Both
reports are available on the Chaarat website.
Construction activities in 2021 were slowed due to the delay in project
funding. Activities focused on furthering detailed engineering of the process
plant (Absorption / Desorption / Recovery plant, Reagent Storages, Crushing
and Conveying Circuit) and infrastructure including in-country legalization of
detailed design documentation. Construction focused on the installation of
camp modules, haul road and process platforms construction. The full project
team remains in place ready for a quick ramp up of activities once project
financing is secured.
Studies were carried this year on the geotechnical and hydrogeological
elements of the proposed pits. The reports are being finalized but results
were as anticipated from prior assessment of the area.
Resource and Reserves
The Tulkubash Mineral Resource Estimate (MRE) and Ore Reserves Estimate (ORE)
were updated as part of the BFS update. As the project remains in the
construction phase, these estimates accurately reflect the current estimates
for the Tulkubash project.
Tulkubash Mineral Resource Statement (Effective 7 November 2020)
Classification Quantity (kt) Grade Au (g/t) Contained metal
Au (koz)
Measured - 0 -
Indicated 28,505 0.86 789
Inferred 21,412 0.56 388
Tulkubash Ore Reserves (at Year end 2020)
Category Quantity (Mt) Grade (g/t) Metal Au (kg) Metal Au (koz)
Proven - - - -
Probable 20.9 0.85 17,760 571
Total P&P 20.9 0.85 17,760 571
A revised MRE and ORE including the results of the 2021 programme is being
developed and will be released in Q2 2022.
Exploration Highlights
The 2021 exploration programme was completed on schedule. 4,835 metres of
infill drilling was carried out in the Mid and East areas aimed at
reclassifying Inferred and unclassified areas to Indicated. The drill holes
intersected consistent oxide gold intercepts as expected.
Additional drilling and trenching were carried out in areas to the northeast
of the current reserve in the Karator and Ishakuldy areas. The work is
early-stage exploration to assess the potential of the continuation of the
Tulkubash mineralization on strike. The early work returned some positive
intercepts and encouraging results. Further exploration will be carried out in
these areas in the future. The full 2021 exploration results are available on
the Chaarat web page.
The wide area potential work planned for 2021 could not be completed as
planned. This work is now being arranged for the 2022 season. The work will
consist of an aerial drone based magnetic survey of the entire exploration
licence area. The survey will target delineation of prospective anomalies
related to Tulkubash and Kyzyltash style mineralisation along approximately
8km of strike, as well as potential porphyry/scarn systems further northeast.
Further reconnaissance trenching and scout drill testing of structurally most
prospective Kyzyltash style targets are also planned.
Kyzyltash
The Kyzyltash sulphide ore body has an unconstrained Measured and Indicated
resource of 4.6M ounces of gold. As the next step in progressing towards the
development of this high potential project, over 3,500 metres of large
diameter diamond drilling comprising 16 holes was carried out to obtain core
from across the deposit. This core will be used to develop representative
composite samples on which to undertake suitable metallurgical testing to
develop a detailed process understanding of how best to treat and recover the
gold contained in the Kyzyltash deposit.
The core has been sent to SGS Lakefield in Canada for a full suite of
metallurgical tests. SGS Lakefield was selected due to their expertise in
metallurgical testing and the fact they were able to undertake testing on
pressure oxidation (POX), biological oxidation (BIOX) and Albion oxidation of
refractory sulphide gold ores in the same facility. Results from this
comprehensive test programme are expected around mid 2022. The results will
enable assessment of which technologies are suitable to take to the next stage
of project assessment for an initial determination of operating and capital
costs.
Kyzyltash Mineral Resource Estimate
The Kyzyltash Unconstrained Resource was prepared in accordance with JORC
standard as of 19 October 2014
Resource statement JORC 2014
(cut-off grade 2g/t) Tonnes (mt) Au (g/t) Metal (koz)
Measured 6.72 3.26 700
Indicated 32.79 3.79 3,900
Measured and Indicated 39.52 3.70 4,600
Inferred 6.61 4.05 800
Principal Risks and Uncertainties
Risk Existing mitigating actions
Liquidity Maintain discussions with existing lenders and potential finance providers.
The Group requires significant additional financing in the future to develop Address potential gating items to securing project finance.
projects and to meet ongoing financial needs. The Group's £25.6m convertible
loan notes fall due on 31 October 2022. There can be no assurance that Looking for new funding options.
additional financing will be available, or if available, that it will be on
acceptable or favourable terms. The failure to obtain additional financing
as needed on reasonable terms, or at all, may require the Group to reduce the
scope of its operations or anticipated expansion, dispose of or forfeit its
interest in some or all of its properties and licences, incur financial
penalties or reduce or terminate its operations.
Jurisdiction Process in place to monitor prospective legislative changes, discuss them with
competent state bodies and make suggestions.
The existence of Armenia and the Kyrgyz Republic as independent states
resulted from the break-up of the FSU. As such, they have relatively short Participation in working groups with other mining companies.
histories as independent nations and there remains potential for social,
political, economic, legal, and fiscal instability. The laws and regulations Stabilisation agreement in place in respect of the Kyrgyz Republic.
in Chaarat's areas of operation are still developing in some areas and some
provide regulators and officials with substantial discretion in their Regular dialogue with ministerial departments.
application, interpretation, and enforcement.
Operation of an ethics and compliance programme with annual refresher
In 2011, a Kyrgyz Government decree transformed land categorised as 'highly training.
protected territory' into 'industrial territory' but mistakenly omitted a
small part of Chaarat's licence area from the transformed 'industrial Ensuring that all permits and licences necessary for the construction and
territory'. operation of the Tulkubash project are complied with.
The Kyrgyz Government continues to progress activities to rectify this Ensuring that all laws an regulations of the Kyrgyz Republic are complied
administrative error. The final decree is with Government Ministers for with.
approval and UNESCO is aware of the that the decree is reaching the final
stages of approval. Chaarat's mining licence agreement remains compliant
with Kyrgyz law and Chaarat has all permits and licences necessary for the
construction and operation of the Tulkubash project within its entire licensed
area, including the land that is in the process of being correctly
reclassified.
Environmental Implementation of proper geohazard mitigation measures and maintenance of a
proper hazard management programme, including engineering hazard mitigation
Effective environmental management is critical to maintain regulatory measures.
approvals and social license to operate. Key risk area at Kapan is related to
the historical upstream construction tailings storage facility. Active Monitoring of tailings storage facility (TSF), pipelines, emergency pools, and
mitigation measures are in place. Risks for Tulkubash currently relate to treatment facilities, and analysis of monitoring data.
construction activities. Management plans are developed related to operations
as per project ESIA. Annual identification of environmental hazards and planned internal reviews of
hazard management.
Kapan is ISO 14000 certified with successful recertification carried out in
2021
Employee training on environmental issues, in particular on waste control
methods.
Safety and health ("S&H") Embedding of policies, standards, and procedures in place across Chaarat for
systematic control of significant S&H risks.
Chaarat's operations have inherent S&H risks to our employees and
contractors. Failure to manage these risks may result in occupational Purchase of high quality personal protective equipment (PPE).
illness, injuries, and loss of life. Management systems
Conduct of planned preventative maintenance of equipment and upgrade equipment
Chaarat's business is exposed to pandemics and national and/or regional in a timely manner.
epidemics which can impact its organic and inorganic growth strategy.
Targeted recruitment of experienced specialists and regular training of
employees and contractors
Continuous monitoring of highest risk workplace areas.
Employee training.
Implementation of extensive mitigation measures during the ongoing COVID-19
pandemic to ensure that our operations could continue whilst at the same time
ensuring the safety of our employees and contractors.
In 2022, Chaarat will continue to monitor World Health Organisation and local
government advice regarding precautionary measures and ensure that we
implement all measures necessary to ensure the safety of our people.
Construction and development Operation of a proper contractor, supplier, expert and other adviser selection
and management process to ensure that they are reliable and meet required
Depending on the timing of completion of project financing, there is a performance standards.
possibility of delays to the start of production and cost overruns relating to
Chaarat's development of its Tulkubash project.
Commodity price volatility Hedging strategies are periodically considered.
Adverse movements in precious metals prices could materially impact the Group Conservative long-term prices are used to evaluate projects.
in various ways beyond a reduction in the financial results of operations.
These include the feasibility of projects and the economics of mineral AISC at Kapan remains below gold prices.
resources.
Financial Review
Income statement
Revenue during 2021 amounted to US$92.4 million (2020: US$76.0 million),
comprising US$72.8 million of own ore revenue and US$19.6 million third-party
revenue (2020: US$69.9 million own ore and US$6.1 million third-party
revenue). During the year, Kapan sold 57,212 ounces of AuEq (2020: 48,387
ounces), including third-party sales, with a realised gold price per ounce of
US$1,784 (2020: US$1,773), a realised silver price per ounce of US$25 (2020:
US$20), a realised copper price per tonne of US$9,157 (2020: US$6,117) and a
realised zinc price per tonne of US$3,001 (2020: US$2,222).
The Group operating profit for the year was US$7.8 million (2020: US$1.9
million) and the Group EBITDA¹ was US$13.5 million (2020: US$9.3 million).
The increase in EBITDA was mainly due to a more favourable commodity price
environment.
2021 Armenia 2021 2021 2020 2020 2020
Kyrgyz Republic & Corporate Total Armenia Kyrgyz Republic & Corporate Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
EBITDA¹ 22,653 (9,167) 13,486 19,429 (10,126) 9,303
Depreciation and amortisation (6,621) (494) (7,115) (5,232) (727) (5,959)
Net finance costs (3,026) (4,847) (7,873) (3,130) (17,628) (20,758)
Unrealised foreign exchange gain/(loss) 2,090 - 2,090 (2,649) - (2,649)
Fair value gain on warrant - 434 434 - 595 595
Change in provisions (673) - (673) 545 - 545
Profit/(loss) before tax 14,423 (14,074) 349 8,963 (27,886) (18,923)
Income tax charge (3,937) - (3,937) (3,520) - (3,520)
Profit/(loss) after tax 10,486 (14,074) (3,588) 5,443 (27,886) (22,443)
The adjusted Group EBITDA, excluding the share-based payment expense, which is
a non-cash item, was as follows:
2021 2020
US$'000 US$'000
Kapan EBITDA 22,653 19,429
Kyrgyz Republic & Corporate EBITDA (9,167) (10,126)
Group EBITDA¹ 13,486 9,303
Corporate share-based payment expense 1,251 3,612
Unwinding of discount - provision for environmental obligations - 655
Adjusted Group EBITDA¹ 14,737 13,570
( )
Finance costs in 2021 were US$7.9 million (of which US$5.6 million was
non-cash) compared to US$21.4 million in 2020 (of which US$18.7 million was
non-cash). The decrease in costs was mainly due to the refinancing of the
Investor Loan at the end of 2020, which resulted in increased financing costs
that year, and settlement of the Labro working capital facility and Labro Term
Loan in early 2021 resulting in less accrued interest in 2021.
Income taxes in 2021 were US$3.9 million compared to US$3.5 million in 2020.
Consequently, the Group made a loss after tax of US$3.6 million compared to a
loss after tax of US$22.4 million in the 2020 financial year.
Balance sheet
The borrowings at the balance sheet date comprised US$25.6 million of
convertible loan notes due in October 2022 (2020: US$23.3 million), US$21.3
million of other loans (US$53.3 million), US$2.4 million of contract
liabilities (2020: US$5.3 million), US$1.0 million of lease liabilities (2020:
US$1.4 million) and US$0.4 million of warrant financial liabilities (2020:
US$0.8 million).
The Group's net debt² decreased from US$77.2 million at 31 December 2020 to
US$39.6 million at 31 December 2021, primarily as a result of converting the
Labro Term Loan into equity in February 2021 and reducing the Kapan
acquisition loan from Kapan cash flows. The Kapan acquisition loan has certain
covenants attached to it. All covenants were met as at 31 December 2021 and as
such the Group remains in full compliance.
Non-current assets increased from US$109.3 million at 31 December 2020 to
US$119.7 million at 31 December 2021. The increase was mainly due to the
purchase of property, plant, and equipment at Kapan. Additionally, exploration
and evaluation costs of US$5.7 million were capitalised relating to the asset
in the Kyrgyz Republic.
Current assets were US$51.8 million at 31 December 2021 compared to US$25.8
million at 31 December 2020. The increase mainly related to trade receivables
from Kapan's customers due to the timing of sales close to year-end. Current
assets at 31 December 2021 included cash and cash equivalents of US$11.1
million (2020: US$6.9 million).
Total liabilities at 31 December 2021 were US$94.7 million compared to
US$110.7 million at 31 December 2020. This reduction was mainly due to
repayments of bank debt and the Labro Facility in the amount of US$12.1
million (including interest) and settlement of the Labro Term Loan in the
amount of US$22.1 million through shares issued, offset by accrued interest on
loans during the year. Further, on 21 October 2021, the maturity date of the
convertible loan notes was extended from 31 October 2021 to 31 October 2022
and the conversion price reduced from £0.37 to £0.30 per share. In addition,
liabilities at 31 December 2021 included a provision for environmental
obligations at Kapan of US$10.5 million (2020: US$7.5 million). This increase
was as a result of a reassessment of the Company's obligations under
international legislation requirements that took place in 2021 by an
independent third party.
Total equity was US$76.9 million at 31 December 2021 compared to US$24.5
million at 31 December 2020. This mainly reflects the increase in share
capital and premium of US$52.6 million as a result of the equity raise in
February 2021 and other share issues.
Cash flow
Cash and cash equivalents increased from US$6.9 million at 1 January 2021 to
US$11.1 million at 31 December 2021. The movement comprised of:
· net operating cash flows of US$3.3 million (2020: US$15.9 million),
mainly due to improved operating performance offset by working capital
movements at Kapan (e.g. increase in trade receivables due to the timing of
sales close to year-end) and expenditure on corporate overheads
· net cash used in investing activities of US$15.5 million (2020:
US$11.9 million) relating to the purchase of property, plant, and equipment at
Kapan and in the Kyrgyz Republic together with capitalised exploration and
development spend in the Kyrgyz Republic
· cash inflows from financing activities of US$16.7 million (2020: cash
used of US$0.9 million) mainly relating to the funds received from the equity
raise of US$29.6 million offset by external debt repayments, including
interest, of US$12.1 million
Going concern
In order to achieve the planned future capital developments of the assets and
to repay the convertible loan notes due on 31 October 2022, management will
need to raise future financing. There are currently no binding agreements in
place in respect of any additional funding and there is no guarantee that any
course of funding will proceed such that the ability to refinance the US$25.6
million of convertible loan notes prior to 31 October 2022 represents a
material uncertainty. However, management is committed to raising additional
funds and has an established track record of successfully achieving this in
the past as demonstrated by the fundraising activities in early 2021.
Accordingly, the Directors have adopted the going concern basis of accounting
in preparing the consolidated financial statements.
(1)( In reporting financial information, the Group presents EBITDA and
adjusted EBITDA as alternative performance measures, "APMs", which are not
defined or specified under the requirements of IFRS. The Group believes that
these measures provide stakeholders with additional useful information on the
performance of the business. )
(2 In reporting financial information, the Group presents Net debt as an
alternative performance measure, "APM", which is not defined or specified
under the requirements of IFRS. The Group Net debt comprises convertible loan
notes, other loans, contract liabilities, lease liabilities and warrant
financial liabilities, net of cash and cash equivalents.)
Financial Statements
Consolidated Income Statement
For the year ended 31 December 2021
2021 2020
US$'000 US$'000
Revenue 92,434 75,994
Cost of sales (69,258) (55,286)
Gross profit 23,176 20,708
Selling expenses (2,444) (1,864)
Administrative expenses (12,966) (16,970)
Other income 22 21
Operating profit 7,788 1,895
Finance income 23 19
Finance costs (7,896) (21,432)
Fair value gain on warrant 434 595
Profit/(loss) before tax for the year 349 (18,923)
Income tax charge (3,937) (3,520)
Loss for the year (3,588) (22,443)
Loss per share (basic and diluted) - US$ cents (0.53) (4.40)
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2021
2021 2020
US$'000 US$'000
Loss for the year (3,588) (22,443)
Items which have been reclassified to the income statement
Exchange differences on translating foreign operations disposed of during the - 73
year
Items which may subsequently be reclassified to the income statement
Exchange differences on translating foreign operations and investments 849 (480)
Other comprehensive income/(loss) for the year, net of tax 849 (407)
Total comprehensive loss for the year (2,739) (28,850)
Consolidated Balance Sheet
As at 31 December 2021 2021 2020
US$'000 US$'000
Assets
Non-current assets
Exploration and evaluation costs 66,305 61,359
Other intangible assets 1,213 1,221
Property, plant and equipment 47,306 40,538
Prepayments for non-current assets 530 563
Deferred tax assets 4,381 5,631
Total non - current assets 119,735 109,312
Current assets
Inventories 18,442 12,251
Trade and other receivables 22,247 6,646
Cash and cash equivalents 11,134 6,928
Total current assets 51,823 25,825
Total assets 171,558 135,137
Equity and liabilities
· Equity attributable to shareholders
Share capital 6,894 5,401
Share premium 242,695 191,594
Own shares reserve (132) (216)
Convertible loan note reserve 1,420 2,493
Merger reserve 10,885 10,885
Share option reserve 11,383 14,103
Translation reserve (14,433) (15,282)
Accumulated losses (181,836) (184,527)
Total equity 76,876 24,451
Liabilities
Non-current liabilities
Provision for environmental obligations 10,521 7,479
Lease liabilities 732 771
Other loans 9,688 21,947
Total non-current liabilities 20,941 30,197
Current liabilities
Trade and other payables 30,717 17,400
Contract liabilities 2,379 5,328
Lease liabilities 246 654
Other loans 11,640 31,400
Warrant financial liability 380 814
Convertible loan notes 25,625 23,252
Other provisions for liabilities and charges 2,754 1,641
Total current liabilities 73,741 80,489
Total liabilities 94,682 110,686
Total liabilities and equity 171,558 135,137
Consolidated Statement of Changes in Equity
For the Year Ended 31 December 2021
Share Capital Share Premium Own Shares Convertible Loan Note Merger Reserve Share Option Shares To Be Issued Translation Reserve Accumulated Losses Total
Reserve Reserve Reserve
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
As at 1 January 2020 4,688 168,616 (216) 2,493 10,885 10,624 217 (14,875) (162,253) 20,179
Loss for the year - - - - - - - - (22,443) (22,443)
Translation losses for the year - - - - - - - (407) - (407)
Total comprehensive loss for the year - - - - - - - (407) (22,443) (22,850)
Share options lapsed - - - - - (159) - - 159 -
Share options expense - - - - - 3,612 - - - 3,612
Share options exercised 1 21 - - - (10) - - 10 22
Share scheme modification - - - - - 36 - - - 36
Issuance of shares for cash 191 6,041 - - - - - - - 6,232
Issuance of shares for settlement of liabilities 513 16,707 - - - - - - - 17,220
Issuance of shares for exercised warrants 8 209 - - - - (217) - - -
As at 31 December 2020 5,401 191,594 (216) 2,493 10,885 14,103 - (15,282) (184,527) 24,451
Loss for the year - - - - - - - - (3,588) (3,588)
Translation gains for the year - - - - - - - 849 - 849
Total comprehensive loss for the year - - - - - - - 849 (3,588) (2,739)
Share options lapsed - - - - - (715) - - 715 -
Share-based payment charge - - - - - 1,251 - - - 1,251
Issuance of shares for cash 841 28,711 - - - - - - - 29,552
Issuance of shares for settlement of liabilities 652 22,390 - - - - - - (101) 22,941
Transfer of treasury shares - - 84 - - (3,256) - - 3,172 -
Modification of convertible loan notes - - - (1,073) - - - - 2,493 1,420
As at 31 December 2021 6,894 242,695 (132) 1,420 10,885 11,383 - (14,433) (181,836) 76,876
Consolidated Cash Flow Statement
For the Year Ended 31 December 2021 2021 2020
US$'000 US$'000
Cash flows from operating activities
Operating profit 7,788 1,895
Depreciation and amortisation 7,115 5,959
Loss on disposal of property, plant and equipment 4 66
Non-cash expenses 87 335
Gain on disposal of subsidiary - (7)
Change in provisions 75 (897)
Unrealised foreign exchange (gains)/losses (1,475) 2,456
Share-based payments 1,251 3,612
Increase in inventories (6,507) (3,263)
(Increase)/decrease in trade and other receivables (15,915) 2,330
Increase/(decrease) in trade and other payables 15,920 (1,682)
(Decrease)/Increase in contract liabilities (3,250) 5,334
Cash generated in operations 5,093 16,138
Income taxes paid (1,806) (205)
Net cash generated in operations 3,287 15,933
Investing activities
Purchase of property, plant & equipment (9,117) (7,417)
Purchase of intangible assets (152) (155)
Exploration and evaluation costs (6,212) (4,389)
Proceeds from sale of property, plant & equipment 1 51
Disposal of subsidiary - (5)
Interest received 17 19
Net cash used in investing activities (15,463) (11,896)
Financing activities
Proceeds from issue of share capital 29,983 6,255
Share issue costs paid (431) -
Repayments of principal portion of lease liabilities (674) (573)
Finance costs paid for modifications of other loans (104) (686)
Repayments of principal amount of loan (9,800) (8,000)
Payments of interest (2,295) (3,185)
Proceeds from loans - 5,300
Net cash from/(used in) financing activities 16,679 (889)
Net change in cash and cash equivalents 4,503 3,148
Cash and cash equivalents at beginning of the year 6,928 3,585
Effect of changes in foreign exchange rates (297) 195
Cash and cash equivalents at end of the year 11,134 6,928
Notes:
1. General information and group structure
Chaarat Gold Holdings Limited (the "Company") (registration number 1420336)
was incorporated in the British Virgin Islands (BVI) and is the ultimate
holding company for the companies set out below (the "Group"). The Company's
shares are admitted to trading on the Alternative Investment Market of the
London Stock Exchange (AIM:CGH).
The registered address of the Company is: Palm Grove House, PO Box 438, Road
Town, Tortola, British Virgin Islands, VG1110.
As at 31 December 2021 the Group consisted of the following companies all of
which are wholly owned:
Group company Country of incorporation Principal activity
Chaarat Gold Holdings Limited BVI Ultimate holding company
Zaav Holdings Limited BVI Holding company
Chon-tash Holdings Limited BVI Holding company
At-Bashi Holdings Limited BVI Holding company
Akshirak Holdings Limited BVI Holding company
Goldex Asia Holdings Limited BVI Holding company
Chon-tash Mining LLC* Kyrgyz Republic Exploration
At-Bashi Mining LLC* Kyrgyz Republic Exploration
Akshirak Mining LLC* Kyrgyz Republic Exploration
Goldex Asia LLC* Kyrgyz Republic Exploration
Chaarat Zaav CJSC* Kyrgyz Republic Exploration
Chaarat Gold International Limited Cyprus Holding company
Chaarat Gold Services Limited England and Wales Services company
Chaarat Kapan CJSC* Armenia Production company
*Companies owned indirectly by the Company.
2. Going concern
As at 31 March 2022 the Group had approximately US$6.6 million of cash and
cash equivalents and US$45.1 million of debt (excluding lease liabilities,
contract liabilities and warrants) comprising the following:
· US$26.5 million convertible loan notes including accrued interest to
31 March 2022
· US$18.6 million other loans outstanding, including accrued interest
to 31 March 2022
Kyrgyz Republic
In order to achieve the planned (though as yet uncommitted) capital
developments of assets in the Kyrgyz Republic, future financing will need to
be raised.
Kapan
The Board has based the cash flow forecasts for Kapan on the most recent
budgets which show that Kapan is expected to generate sufficient revenue to
cover its operating costs and principal and interest payments and meet its
covenants. Based on current forecasts, covenants will be met, however,
performance of Kapan is sensitive to commodity prices and production.
Convertible Loan Notes
By 31 October 2022, the convertible loan notes are due to be redeemed by
conversion into equity at approximately £0.30 per ordinary share, at the
holder's option, or will be repaid in cash for a total of US$28.8 million
(which includes accrued interest).
Conclusion (including material uncertainty)
The convertible loan notes will need to be refinanced with cash or alternative
funding, to the extent that loan note holders do not choose to convert to
equity, prior to 31 October 2022. To proceed with the development in Kyrgyz
Republic further financing will also be required.
Notwithstanding the above, the directors consider there is a reasonable
expectation that sufficient funding will be raised and therefore have
continued to adopt the going concern basis.
However, there are currently no binding agreements in place in respect of any
additional funding and there is no guarantee that any course of funding will
proceed. Therefore, 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. Should the project
funding not be available for the Kyrgyz Republic development projects there
may be a material impairment of the US$78 million carrying value of the
related assets. The financial statements do not include the adjustments that
would result if the Group were unable to continue as a going concern.
3. Accounting policies
The significant accounting policies which have been consistently applied in
the preparation of these consolidated financial statements are summarised
below:
Basis of preparation
The consolidated financial information has been prepared in accordance with
United Kingdom adopted international accounting standards and International
Financial Reporting Standards (IFRSs) as issued by the International
Accounting Standards Board (IASB) and on a historical cost basis.
New standards, interpretations and amendments adopted by the Group
Adoption of new and revised Standards
In the current year, the Company has adopted all new and revised IFRS
standards that became effective as of 1 January 2021, the changes being:
(i) Interest Rate Benchmark Reform - Phase 2 (Amendments to
IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) The amendments introduce a
practical expedient for modifications required by the reform, provide an
exception that hedge accounting is not discontinued solely because of the IBOR
reform, and introduces disclosures that allow users to understand the nature
and extent of risks arising from the IBOR reform to which the entity is
exposed to and how the entity manages those risks as well as the entity's
progress in transitioning from IBOR's to alternative benchmark rates, and how
the entity is managing this transition;
(ii) Amendments to IFRS 4 Insurance Contracts - Extension of the
Temporary Exemption from Applying IFRS 9; and
(iii) Amendments to IFRS 16 Leases - Covid-19-Related Rent
Concessions beyond 30 June 2021.
These amendments did not have a material impact on the Company. It is expected
that where applicable, these standards and amendments will be adopted on each
respective effective date.
Revised standards not yet effective
At the date of the authorisation of these consolidated financial statements,
the following revised IFRS standards, which are applicable to the Company,
were issued but not yet effective:
(i) Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37) -
effective for year ends beginning on or after 1 January 2022
The amendments specify that the 'cost of fulfilling' a contract comprises the
'costs that relate directly to the contract'. Costs that relate directly to a
contract can either be incremental costs of fulfilling that contract or an
allocation of other costs that relate directly to fulfilling contracts. The
Company will apply the amendments to contracts for which the Company has not
yet fulfilled all its obligations at the beginning of the annual reporting
period in which the entity first applies the amendments. Comparatives will not
be restated.
(ii) Deferred Tax related to Assets and Liabilities arising from a Single
Transaction (Amendments to IAS 12) - effective for year ends beginning on or
after 1 January 2023
The amendments specify how companies should account for deferred tax on
transactions such as leases and decommissioning obligations, and clarify that
the initial recognition exception does not apply to transactions where both an
asset and a liability are recognised in a single transaction. Accordingly,
deferred tax is required to be recognised on such transactions.
(iii) Definition of Accounting Estimates (Amendments to IAS 8) - effective for
year ends beginning on or after 1 January 2023
The amendments introduce the definition of accounting estimates and include
other amendments to IAS 8 to help entities distinguish changes in accounting
estimates from changes in accounting policies.
(iv) Materiality of Accounting Policy Disclosure (Amendments to IAS 1) -
effective for year ends beginning on or after 1 January 2023
The amendments require companies to disclose their material accounting policy
information rather than their significant accounting policies.
No significant changes to presentation or disclosures within these financial
statements are expected following the adoption of these amendments.
Basis of consolidation
The consolidated financial statements of the Group include the financial
statements of the Company and its subsidiaries, from the date that control
effectively commenced until the date that control effectively ceased. Control
is achieved where the Company is exposed, or has rights, to variable returns
from its involvement with the investee and has the ability to affect those
returns through its power over the investee.
Income and expenses of subsidiaries acquired or disposed of during the period
are included in the consolidated income statement from the effective date of
acquisition and up to the effective date of disposal, as appropriate.
When the Group loses control of a subsidiary, the gain or loss on disposal
recognised in the income statement is calculated as the difference between (i)
the aggregate of the fair value of the consideration received and the fair
value of any retained interest and (ii) the previous carrying amount of the
assets (including goodwill), less liabilities of the subsidiary and any
non-controlling interests.
When necessary, adjustments are made to the financial statements of
subsidiaries to bring their accounting policies into line with those used by
the Group.
All intra-group balances, transactions and any unrealised profits or losses
arising from intra-group transactions are eliminated on consolidation.
Business Combinations
IFRS 3 Business Combinations applies to a transaction or other event that
meets the definition of a business combination. When acquiring new entities or
assets, the Group applies judgement to assess whether the assets acquired and
liabilities assumed constitute an integrated set of activities, whether the
integrated set is capable of being conducted and managed as a business by a
market participant, and thus whether the transaction constitutes a business
combination, using the guidance provided in the standard. Acquisitions of
businesses are accounted for using the acquisition method. The consideration
for each acquisition is measured at the aggregate of the fair values (at the
date of exchange) of assets given, liabilities incurred or assumed, and equity
instruments issued by the Group in exchange for control of the acquiree.
Acquisition-related costs are recognised in the consolidated income statement
as incurred. Transaction costs incurred in connection with the business
combination are expensed. Provisional fair values are finalised within 12
months of the acquisition date.
Where applicable, the consideration for the acquisition may include an asset
or liability resulting from a contingent consideration arrangement. Contingent
consideration is measured at its acquisition date fair value and included as
part of the consideration transferred in a business combination. Subsequent
changes in such fair values are adjusted against the cost of acquisition
retrospectively with the corresponding adjustment against the fair value of
the assets and liabilities acquired. Measurement period adjustments are
adjustments that arise from additional information obtained during the
measurement period about facts and circumstances that existed at the
acquisition date. The measurement period may not exceed one year from the
effective date of the acquisition. The subsequent accounting for contingent
consideration that does not qualify for as a measurement period adjustment is
based on how the contingent consideration is classified. Contingent
consideration that is classified as equity is not subsequently remeasured.
Contingent consideration that is classified as an asset or liability is
remeasured at subsequent reporting dates in accordance with IAS 37 Provisions,
Contingent Liabilities and Contingent Assets or IFRS 9 Financial Instruments
with the corresponding amount being recognised in profit or loss.
The identifiable assets acquired, and the liabilities assumed are recognised
at their fair value at the acquisition date, except that:
• Deferred tax assets or liabilities and liabilities or assets related to
employee benefit arrangements are recognised and measured in accordance with
IAS 12 Income Taxes and IAS 19 Employee Benefits, respectively;
• Liabilities or equity instruments related to share-based payment
arrangements of the acquiree or share-based payment arrangements of the Group
entered into to replace share-based payment arrangements of the acquiree are
measured in accordance with IFRS 2 Share-based Payment at the acquisition
date; and
• Assets (or disposal groups) that are classified as held for sale in
accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued
Operations are measured in accordance with that Standard.
Revenue recognition
Revenue is recognised in a manner that depicts the pattern of the transfer of
goods and services to customers. The amount recognised reflects the amount to
which the Group expects to be entitled in exchange for those goods and
services. Sales contracts are evaluated to determine the performance
obligations, the transaction price and the point at which there is transfer of
control. The transactional price is the amount of consideration due in
exchange for transferring the promised goods or services to the customer and
is allocated against the performance obligations and recognised in accordance
with whether control is recognised over a defined period or a specific point
in time.
Performance obligation and timing of revenue recognition
The revenue arises from extraction of complex ore as well as ore purchased
from third parties and production of copper and zinc concentrates to wholesale
customers. Though in all contracts the total transaction value mainly depends
on the market prices of the metals based on the preliminarily estimated
contents in the concentrates, those separate materials are not distinct but
represent a bundle of materials. As there are no other significant promises,
each contract contains one performance obligation to which the total
transaction value is allocated.
The control passes to the customers and the revenue is recognized either on a
Cost, Insurance and Freight "CIF" basis meaning that control passes to the
buyer when the concentrate is loaded on the vessel in the port of shipment
(e.g., port of Poti, Georgia) or on the Ex Works basis meaning that control
passes to the buyer at the point the concentrate is loaded on the truck at the
Kapan mine. In respect of freight revenues, these are recognised over time.
Determining the transaction price
Consideration is variable and depends on the fluctuations of metal prices for
the quotation period (usually one or three months) and the changes in
estimated metal contents and price deductions.
At the date the concentrate is loaded on the truck at the Kapan mine or the
vessels at the specified port the provisional invoice is issued based on the
estimates of the amount of consideration.
Sales are based on provisional 1-3 month commodity forward prices on the
London Metal Exchange (LME) and as such, contain an embedded derivative which
is marked-to-market at each month end using the forward price for the month of
price finalisation. The estimated transaction price is updated for the
quotational period (usually one or three months) and any changes in the
estimates of the metal content. The change is recognised as an increase in
revenue, or as a reduction of revenue, in the period in which the estimated
transaction price is finalised.
Final prices of copper and zinc concentrates are determined at the contract
settlement date based on the LME commodity market prices at that date and
final adjustments for weighting, sampling, or moisture determination changes.
Third-party revenue
In addition to own concentrates, the Group also processes third party ore into
concentrate and sells it to customers. The revenue from these sales is
recognised in accordance with the revenue recognition principles above.
Advance payments from customers
The Group receives advance payments from its customers which represent
prepayments for the future transfer of concentrate. These are either
classified as contract liabilities or financial liabilities under IFRS 15 and
IFRS 9, respectively, depending on the terms of the customer agreements and
how the prepayments are settled. If settled in cash, they are classified as
financial liabilities and if offset against final invoices, they are
classified as contract liabilities. The contract liabilities are unwound, and
revenue is recognised when shipments take place and control passes to the
customers. The advance payments accrue interest which is separately recognised
from revenue in the Consolidated Income Statement.
Royalties
Under Armenian law a royalty is payable to the state, the base of which is
driven by the revenue earned from the supply of concentrates. Royalty expense
is included in cost of sales.
Government grants
Government grants are not recognised until there is reasonable assurance that
the Group will comply with the conditions attaching to them and that the
grants will be received. Government grants are recognised in profit or loss on
a systematic basis over the periods in which the Group recognizes as expenses
the related costs for which the grants are intended to compensate. Government
grants are presented as "other income" in the Statement of Comprehensive
Income and cash inflows from operating activities in the Statement of Cash
Flows.
Interest
Interest is recognised using the effective interest method which calculates
the amortised cost of a financial asset or liability and allocates the
interest income or payments over the relevant period. The effective interest
rate is the rate that exactly discounts estimated future cash receipts or
payments through the expected life of the financial asset or liability to the
net carrying amount of the financial asset or liability.
Taxation
The income tax expense includes the current tax and deferred tax charge
recognised in the income statement.
The current tax charge is calculated on the basis of the tax laws enacted or
substantively enacted at the balance sheet date in the countries where the
Company and its subsidiaries operate. The Group is not subject to corporate
tax in the British Virgin Islands, therefore as at 31 December 2021 the
Group's operations in this region have an effective tax rate of 0%. Companies
engaged in the production and sale of gold in the Kyrgyz Republic pay a
revenue-based tax on the sales of gold rather than tax on profit. The
remaining Group's operations are subject to income tax at a rate of 18% in
Armenia, 19% in the United Kingdom and 12.5% in Cyprus (Note 13). Non-profit
based taxes are included within administrative expenses and Kapan's royalty
taxes are included within cost of sales.
Deferred tax is recognised in respect of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for taxation purposes. Deferred tax liabilities are
generally recognised for all taxable temporary differences and deferred tax
assets are recognised to the extent that it is probable that taxable profits
will be available against which deductible temporary differences can be
utilised. Probable taxable profits are based on evidence of historical
profitability and taxable profit forecasts limited by reference to the
criteria set out in IAS 12 Income Taxes. Such assets and liabilities are not
recognised if the temporary differences arise from the initial recognition of
goodwill or of an asset or liability in a transaction (other than a business
combination) that affects neither taxable profit nor accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences
arising on investments in subsidiaries, joint arrangements, and associates
except where the Group is able to control the reversal of the temporary
difference and it is probable that the temporary difference will not reverse
in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each reporting date
and is adjusted to the extent that it is no longer probable that sufficient
taxable profit will be available to allow all or part of the asset to be
recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset is realised, based on the
laws that have been enacted or substantively enacted by the reporting date.
Deferred tax is charged or credited to the income statement, except when
it relates to items charged or credited directly to equity, in which case the
deferred tax is also taken directly to equity.
Deferred tax assets and liabilities are offset when they relate to income
taxes levied by the same taxation authority and the Group intends to settle
its current tax assets and liabilities on a net basis with that taxation
authority.
Non-current Assets
Intangible Assets
Exploration and evaluation costs
During the initial stage of a project, exploration costs are expensed in the
income statement as incurred.
Exploration expenditure incurred in relation to those projects where such
expenditure is considered likely to be recoverable through future extraction
activity or sale or where the exploration activities have not reached a stage
that permits a reasonable assessment of the existence of reserves, are
capitalised and recorded on the balance sheet within exploration and
evaluation assets for mining projects at the exploration stage. Capitalised
evaluation and exploration costs are classified as intangible assets.
Exploration and evaluation expenditure comprise costs directly attributable
to:
· Researching and analysing existing exploration data;
· Conducting geological studies, exploratory drilling, and sampling;
· Examining and testing extraction and treatment methods;
· Compiling pre-feasibility and feasibility studies; and
· Costs incurred in acquiring mineral rights, the entry premiums paid
to gain access to areas of interest and amounts payable to third parties to
acquire interests in existing projects.
Exploration and evaluation assets are subsequently valued at cost less
impairment. In circumstances where a project is abandoned, the cumulative
capitalised costs related to the project are written off in the period when
such decision is made.
Exploration and evaluation assets are not depreciated. These assets are
transferred to mine development costs within property, plant and equipment
when a decision is taken to proceed with the development of the project which
is when a bankable feasibility study is obtained, and project finance is in
place.
Other intangible assets (excluding goodwill)
Intangible assets acquired by the Group are measured on initial recognition at
cost or at fair value when acquired as part of a business combination.
Following initial recognition, intangible assets are carried at cost less
accumulated amortisation and accumulated impairment losses. Intangible assets
are amortised over the estimated useful lives using the straight-line-basis
and assessed for impairment whenever there is an indication that the
intangible asset may be impaired. The estimated useful life and amortisation
method are reviewed at the end of each annual reporting period, with the
effect of any changes in estimate being accounted for on a prospective basis.
Other intangible assets comprise computer software and other intangible
assets, which are initially capitalised at cost. Amortisation is provided on a
straight-line basis over a period of 1 to 10 years.
Property, plant and equipment
Property, plant and equipment is stated at cost, excluding the costs of
day-to-day servicing, less any subsequent accumulated depreciation and
impairment losses. The historical cost of property, plant and equipment
comprises its purchase price, including import duties and non-refundable
purchase taxes and any directly attributable costs of bringing the assets to
their working condition and location for their intended use. Depreciation of
these assets commences when the assets are ready for their intended use.
Depreciation is charged on each part of an item of property, plant and
equipment so as to write off the cost or valuation of assets over their
estimated useful lives, using the straight-line method. Depreciation is
charged to the income statement, unless it is considered to relate to the
construction of another asset, in which case it is capitalised as part of the
cost of that asset. Land and assets in the course of construction are not
depreciated. The estimated useful lives are as follows:
· Land and buildings 5 to 20 years
· Mining Properties Mining properties that are used in
production are depreciated under the unit of
production basis, and other
physical assets depreciated over their useful lives which
are 5 to 20 years
· Fixtures and fittings 2 to 20 years
· Motor vehicles 2 to 7 years
· Right-of-use assets 5 to 20 years
Residual values, remaining useful lives and depreciation methods are reviewed
annually and adjusted if appropriate.
Expenses incurred in respect of the maintenance and repair of property, plant
and equipment are charged against income when incurred. Refurbishments and
improvements expenditure, where the benefit enhances the capabilities or
extends the useful life of an asset, is capitalised as part of the appropriate
asset.
An item of property, plant and equipment is derecognised upon disposal or when
no future economic benefits are expected from its use. Any gain or loss
arising on derecognition of the asset (calculated as the difference between
the net disposal proceeds and the carrying amount of the asset) is included in
the income statement in the year the asset is derecognised.
Mining properties
Mining properties include the cost of acquiring and developing mining assets
and mineral rights. Mining properties, which include development structures,
are depreciated to their residual values using the unit-of-production method
based on proven and probable ore reserves according to the JORC Code, which is
the basis on which the Group's mine plans are prepared. Changes in proven and
probable reserves are dealt with prospectively. Depreciation is charged on new
mining ventures from the date that the mining asset is capable of commercial
production.
Mineral rights for the assets not ready for production are included within
Exploration and evaluation costs. When a production phase is started, mineral
rights are transferred into Mining assets and are depreciated as described
above.
Assets under construction
Assets under construction are measured at cost less any recognised impairment.
Depreciation commences when the assets are ready for their intended use.
Assets under construction include costs incurred for the development of
tangible assets that will form part of a category of property, plant and
equipment which is not yet complete. Once the project ready for use
capitalisation will cease (other than for large development programmes), the
asset will be reclassified to the respective property, plant and equipment
category it relates to from assets under construction, and depreciation will
commence.
Estimated ore reserves
Estimated proven and probable ore reserves reflect the economically
recoverable quantities which can be legally recovered in the future from known
mineral deposits. The Group's reserves are estimated in accordance with JORC
Code.
Impairment of exploration and evaluation assets
All capitalised exploration and evaluation assets and other intangible assets
are monitored for indications of impairment. Where a potential impairment is
indicated, assessment is made for the group of assets representing a cash
generating unit ("CGU"). Indicators of impairment include:
· the period for which the entity has the right to explore in the
specific area has expired during the period or will expire in the near future,
and is not expected to be renewed;
· substantive expenditure on further exploration of mineral resources
in the specific area is nether budgeted nor planned;
· exploration for and evaluation of mineral resources in the specific
area have not led to the discovery of commercially viable quantities of
mineral resources and the entity has decided to discontinue such activities in
the specific area; and
· sufficient data exist to indicate that, although a development in the
specific area is likely to proceed, the carrying amount of the exploration and
evaluation asset is unlikely to be recovered in full from successful
development or by sale.
If any indication of impairment exists, the recoverable amount of the asset is
estimated, being the higher of fair value less costs to sell and value in use.
If the recoverable amount of an asset (or CGU) is estimated to be less than
its carrying amount, the carrying amount of the asset (or CGU) is reduced to
its recoverable amount. Such impairment losses are recognised in profit or
loss for the year.
Impairment of property, plant and equipment
An impairment review of property, plant and equipment is carried out when
there is an indication that those assets have suffered an impairment loss or
there are impairment reversal indicators. If any such indication exists, the
carrying amount of the asset is compared to the estimate recoverable amount of
the asset in order to determine the extent of the impairment loss or reversal
(if any). Where it is not possible to estimate the recoverable amount of an
individual asset, the Group estimates the recoverable amount of the
cash-generating unit ("CGU") to which the asset belongs.
Recoverable amount is the higher of fair value less costs to sell and value in
use. The carrying amounts of all cash-generating units are assessed against
their recoverable amounts determined on a fair value less costs to sell
calculation. Fair value is based on the applicable Discounted Cash Flow
("DCF") method using post-tax cash flows. The DCF method is attributable to
the development of proved and probable reserves.
If the recoverable amount of an asset (or CGU) is estimated to be less than
its carrying amount, the carrying amount of the asset (or CGU) is reduced to
its recoverable amount. An impairment loss is recognised as an expense
immediately in the consolidated income statement.
Where an impairment loss subsequently reverses, the carrying amount of the
asset (or CGU) is increased to the revised estimate of its recoverable amount,
but only to the extent that the increased carrying amount does not exceed the
original carrying amount that would have been determined had no impairment
loss been recognised in prior periods. Impairment loss may be subsequently
reversed if there has been significant change in estimates used to determine
the asset's recoverable amount since the last impairment loss was recognised.
A reversal of impairment loss is recognised in the consolidated income
statement immediately.
Leases
The Group assesses whether a contract is or contains a lease, at inception of
the contract. The Group recognised a right-of-use asset and a corresponding
lease liability with respect to all lease arrangements in which it is the
lessee, except for short-term leases (defined as leases with a lease term of
12 months or less), leases of low value assets and leases for the purposes of
mining and exploration activities, which qualify for an exemption under IFRS
16 which the Group has applied. For these leases, the Group recognises the
lease payments as operating expenses on a straight-line basis over the term of
the lease.
The lease liability is initially measured at the present value of the lease
payments that are not paid at the commencement date, discounted by using the
rate implicit in the lease. If this rate cannot be readily determined, the
Group uses its incremental borrowing rate.
The lease liability is presented as a separate line in the consolidated
statement of financial position. The lease liability is subsequently measured
by increasing the carrying amount to reflect interest on the lease liability
based on the effective interest method and by reducing the carrying amount to
reflect the lease payments made. The right-of-use assets comprise the initial
measurement of the corresponding lease liability, lease payments made at or
before the commencement day and any initial direct costs. They are
subsequently measured at cost less accumulated depreciation and impairment
losses and are presented as a separate line in the consolidated financial
statements.
Right-of-use assets are depreciated over shorter period lease term and useful
life of the underlying asset. The Group applies IAS 36 to determine whether
the right-of use asset is impaired and accounts for any identifiable
impairment loss as described above.
When the Group revises its estimate of the term of any lease, it adjusts the
carrying amount of the lease liability to reflect the payments to make over
the revised term, which are discounted at the same discount rate that applied
on lease commencement. An equivalent adjustment is made to the carrying value
of the right-of-use asset, with the revised carrying amount being amortised
over the remaining (revised) lease term. Any gain or loss relating to the
partial or full termination of any lease is recognised in profit or loss.
Inventories
Copper and zinc concentrates
Inventories including metals in concentrate and in process are stated at the
lower of production cost or net realisable value.
Cost of finished goods and work in progress are determined on the
first-in-first-out (FIFO) method. The cost comprises raw material, direct
labour, other direct costs, and related production overheads (based on normal
operating capacity), excluding borrowing costs.
Consumables and spare parts
Consumables and spare parts are stated at the lower of cost or net realisable
value. Costs are determined on the first-in-first-out (FIFO) method.
The Company's policy is to write-down to nil the items that have not been
utilised for more than two years. This is done on a quarterly basis.
Inventory items used in the production process are recognised as cost of sales
when the related sale of concentrate takes place. This includes the cost of
purchased ore and consumables and spare parts.
Cost of purchased ore
The Group purchases ore from third parties which is processed and sold to
Kapan's customers. The amount expensed in cost of sales is equal to the price
paid to third parties in line with the purchase agreements.
Cost of purchased concentrate
The Group processes third party ore into concentrate and then purchases the
concentrate to sell to Kapan's customers. The substance and accounting for
these transactions is that of an ore purchase agreement with the amount
expensed in cost of sales equal to the price paid to third parties in line
with the purchase agreements, which is net of a processing fee charged by
Kapan.
Cash and cash equivalents
Cash includes petty cash and cash held in current bank accounts. Cash
equivalents include short-term investments that are readily convertible to
known amounts of cash and which are subject to insignificant risk of changes
in value.
Equity
Equity comprises the following:
· ''Share capital'' represents the nominal value of equity shares.
· ''Share premium'' represents the excess over nominal value of the
fair value of consideration received for equity shares, net of transactions
costs directly related to the share issue.
· "Own shares reserve" represents the nominal value of equity shares
that have been repurchased by the company.
· "Convertible loan note reserve" represents the equity component of
convertible loan notes issued by the Company.
· "Merger reserve'' represents the difference between the issued share
capital and share premium of the Company and its former subsidiary Chaarat
Gold Limited arising as a result of the reverse acquisition.
· "Share option reserve" represents the equity component of share
options issued.
· ''Translation reserve'' represents the differences arising from
translation of investments in overseas subsidiaries.
· ''Accumulated losses'' includes all current and prior period results
as disclosed in the income statement.
Functional and presentational currency
The functional currency for each entity in the Group is determined as the
currency of the primary economic environment in which it operates. The
functional currency of the Group's entities located in the Kyrgyz Republic,
Cyprus and BVI is US Dollars (US$) as the current exploration and evaluation
expenditure is currently primarily in USD. The functional currency of the
subsidiary located and operating in Armenia is the Armenian Dram (AMD). The
functional currency of the parent company Chaarat Gold Holdings Limited is the
US Dollar.
The Group has chosen to present its consolidated financial statements in US
Dollars (US$), as management believe it is a more comparable presentation
currency for international users of consolidated financial statements of the
Group as it is a common presentation currency in the mining industry. The
translation of the financial statements of the Group entities from their
functional currencies to the presentation currency is performed as follows:
• All assets and liabilities are translated at closing exchange rates at
each reporting period end date;
• All income and expenses are translated at the average exchange rates for
the periods presented, except for significant transactions that are translated
at rates on the date of such transactions;
• Resulting exchange differences are recognised in other comprehensive
income and presented as movements relating to the effect of translation to the
Group's presentation currency within the Translation reserve in equity; and
• In the consolidated statement of cash flows, cash balances at the
beginning and end of each reporting period presented are translated using
exchange rates prevalent at those respective dates. All cash flows in the
period are translated at the average exchange rates for the period presented,
except for significant transactions that are translated at rates on the date
of the transaction.
Foreign currency transactions
Transactions entered into by Group entities in a currency other than the
currency of the primary economic environment in which they operate (the
''functional currency'') are recorded at the rates ruling when the
transactions occur. Foreign currency monetary assets and liabilities are
translated at the rates ruling at the balance sheet date. Exchange differences
arising on the retranslation of unsettled monetary assets and liabilities are
similarly recognised immediately in the income statement.
Non-monetary assets and liabilities that are measured in terms of historical
cost in a foreign currency are translated using the exchange rate at the date
of the transaction.
On consolidation, the assets and liabilities of the Group's foreign operations
are translated into the presentation currency of the Group at exchange rates
prevailing on the reporting date. Income and expense items are translated at
the average exchange rates for the period where these approximate the rates at
the dates of the transactions. Any exchange differences arising are classified
within the statement of comprehensive income and transferred to the Group's
cumulative translation adjustment reserve. Cumulative translation differences
are recycled from equity and recognised as income or expense on disposal of
the operation to which they relate.
Share-based payments
The Company operates equity-settled share-based remuneration plans for
directors and some employees. The Company awards share options to certain
Company directors and employees to acquire shares of the Company.
All goods and services received in exchange for the grant of any share-based
payment are measured at their fair values. Where employees are rewarded using
share-based payments, the fair values of employees' services are determined
indirectly by reference to the fair value of the instrument granted to the
employee.
The fair value is appraised at the grant date and excludes the impact of
non-market vesting conditions. Fair value of restricted stock units is
measured by reference to the share price at the date of grant. Fair value of
options is measured by use of the Black Scholes model. The expected life used
in the model has been adjusted, based on management's best estimate, for the
effects of non-transferability, exercise restrictions, and behavioural
considerations.
All equity-settled share-based payments are ultimately recognised as an
expense in the income statement with a corresponding credit to ''other
reserves''.
If vesting periods or other non-market vesting conditions apply, the expense
is allocated over the vesting period, based on the best available estimate of
the number of share options expected to vest. Estimates are subsequently
revised if there is any indication that the number of share options expected
to vest differs from previous estimates. Any cumulative adjustment prior to
vesting is recognised in the current period. No adjustment is made to any
expense recognised in prior periods if the number of share options ultimately
exercised are different to that estimated on vesting.
Upon exercise of share options and through settlement of the issue of new
shares, the proceeds received net of attributable transaction costs are
credited to share capital and, where appropriate, share premium.
After the vesting date, no subsequent adjustments are made to total equity. In
the year when the share options lapse the total accumulated charge to the
share-based payment reserve is transferred to retained earnings.
When the terms and conditions of equity-settled share-based payments at the
time they were granted are subsequently modified, the fair value of the
share-based payment under the original terms and conditions (the "original
fair value") and under the modified terms and conditions (the "modified fair
value") are both determined at the date of the modification. Any excess of the
modified fair value over the original fair value is recognised over the
remaining vesting period in addition to the grant date fair value of the
original share-based payment. The share-based payment expense is not adjusted
if the modified fair value is less than the original fair value.
In certain instances, the Company issues shares to satisfy outstanding
financial liabilities. The measurement of these equity-settled share-based
payment transactions is outlined below. Shares are also issued to satisfy
obligations under warrant agreements whereby the estimated fair value of the
warrants issued is measured by use of the Black Scholes model as detailed in
Note 30.
The Company operates an Employee Benefit Trust ("the Trust") and has de facto
control of the shares held by the Trust and bears their benefits and risks.
The Trust is consolidated into the group accounts with a debit to equity for
the cost of shares acquired. Finance costs and administrative expenses are
charged as they accrue.
Exchange of financial liabilities for equity
When equity instruments are issued to extinguish all or part of a financial
liability, the Group measures them at the fair value of the equity instruments
issued, unless that fair value cannot be reliably measured. The difference
between the carrying amount of the financial liability (or part of a financial
liability) extinguished, and the consideration paid, is recognised in profit
or loss. The equity instruments are recognised initially and measured at the
date the financial liability (or part of that liability) is extinguished. This
does not include transactions with a creditor who is also a direct or indirect
shareholder and is acting in its capacity as a direct or indirect shareholder,
in accordance with IFRIC 19.
Retirement and Other Benefit Obligations
The Group offers pension arrangements in the United Kingdom as well as under
the State pension system of the Kyrgyz Republic, which requires current
contributions by the employer, calculated as a percentage of current gross
salary payments. Such expense is charged in the period the related salaries
are earned. The Group does not have any obligations in respect of
post-retirement or other significant compensation benefits.
Financial Instruments
Financial assets and financial liabilities are recognised when a Group entity
becomes a party to the contractual provisions of the instrument.
Financial assets and financial liabilities are initially measured at fair
value. Transaction costs that are directly attributable to the acquisition or
issue of financial assets and financial liabilities (other than financial
assets and financial liabilities at fair value through profit or loss) are
added to or deducted from the fair value of the financial assets or financial
liabilities, as appropriate, on initial recognition.
Financial assets
All recognised financial assets are measured subsequently in their entirety at
either amortised cost or fair value, depending on the classification of the
financial assets. Financial assets are classified as either financial assets
at amortised cost, at fair value through other comprehensive income (FVTOCI)
or at fair value through profit or loss (FVTPL) depending upon the business
model for managing the financial assets and the nature of the contractual cash
flow characteristics of the financial asset.
Trade receivables without provisional pricing that do not contain provisional
price features, loans and other receivables are held to collect the
contractual cash flows and therefore are carried at amortised cost adjusted
for any loss allowance. The loss allowance is calculated in accordance with
the impairment of financial assets policy described below.
Trade receivables arising from sales of copper and zinc concentrates with
provisional pricing features are exposed to future movements in market prices
and have contractual cash flow characteristics that are not solely payments of
principal and interest and are therefore measured at fair value through profit
or loss and do not fall under the expected credit losses model (ECL) described
below.
Effective interest rate method
The effective interest rate method is a method of calculating the amortised
cost of a financial instrument and of allocating interest income or expense
over the relevant period. The effective interest rate is the rate that
discounts estimated future cash receipts or payments (including all
commitment, drawdown and other fees and points paid or received that form an
integral part of the effective interest rate, transaction costs and other
premiums or discounts) through the expected life of the financial instrument,
or, where appropriate, a shorter period, to the net carrying amount on initial
recognition.
Impairment of financial assets
The Group recognises a loss allowance for expected credit losses on
investments in debt instruments that are measured at amortised cost, trade and
other receivables and contract assets, except for trade accounts receivable
with provisional pricing. The amount of expected credit losses is updated at
each reporting date to reflect changes in credit risk since initial
recognition of the respective financial instrument.
The Group always recognises lifetime ECL for trade receivables and other
receivables. The expected credit losses on these financial assets are
estimated using a provision matrix based on the Group's historical credit loss
experience, adjusted for factors that are specific to the debtors, general
economic conditions, and assessment of both the current as well as the
forecast direction of conditions at the reporting date, including time value
of money where appropriate.
For all other financial instruments, the Group recognises lifetime ECL when
there has been a significant increase in credit risk since initial
recognition. However, if the credit risk on the financial instrument has not
increased significantly since initial recognition, the Group measures the loss
allowance for that financial instrument at an amount equal to 12-month ECL.
Lifetime ECL represents the expected credit losses that will result from all
possible default events over the expected life of a financial instrument. In
contrast, 12-month ECL represents the portion of lifetime ECL that is expected
to result from default events on a financial instrument that are possible
within 12 months after the reporting date.
The Group writes off a financial asset when there is information indicating
that the debtor is in severe financial difficulty and there is no realistic
prospect of recovery, e.g., when the debtor has been placed under liquidation
or has entered into bankruptcy proceedings, or in the case of trade
receivables, when the amounts are over two years past due, whichever occurs
sooner. Financial assets written off may still be subject to enforcement
activities under the Group's recovery procedures, taking into account legal
advice where appropriate. Any recoveries made are recognised in profit or
loss.
Derivative financial instruments
Derivatives embedded in the Group's sale contracts are accounted for at fair
value with gains or losses reported in the statement of comprehensive income.
These embedded derivatives are not separated from the sale contracts and
therefore any gains or losses are included in the lines of sale of
concentrates in the year.
Derecognition of financial assets
The Group derecognises a financial asset only when the contractual rights to
the cash flows from the asset expire, or when it transfers the financial asset
and substantially all the risks and rewards of ownership of the asset to
another entity. If the Group neither transfers nor retains substantially all
the risks and rewards of ownership and continues to control the transferred
asset, the Group recognises its retained interest in the asset and an
associated liability for amounts it may have to pay. If the Group retains
substantially all the risks and rewards of ownership of a transferred
financial asset, the Group continues to recognise the financial asset and also
recognises a collateralised borrowing for the proceeds received.
Financial liabilities
The Group's financial liabilities consist of financial liabilities measured
subsequently at amortised cost using the effective interest rate method
(including trade payables, other loans, and borrowings) and financial
liabilities at fair value through profit or loss.
Warrant financial liability
The Group's warrant financial liability relates to warrants to purchase
ordinary shares. The warrants are recognised initially at their fair value
using the Black-Scholes model and subsequently remeasured at each reporting
date with the corresponding fair value gains or losses recognised through
profit or loss.
Convertible loan notes
The convertible loan notes are compound financial instruments that can be
converted to ordinary shares at the option of the holder.
The liability component of convertible loan notes is initially recognised at
the fair value of a similar liability that does not have an equity conversion
option. The equity component is initially recognised at the difference between
the fair value of the convertible loan note as a whole and the fair value of
the liability component. Any directly attributable transaction costs are
allocated to the liability and equity components in proportion to their
initial carrying amounts.
The modification of a standard loan is considered substantial where a
conversion option is included. Upon modification, the original liability is
extinguished, new liability and equity components are recognised at the fair
values with a difference attributed to profit or loss.
Subsequent to initial recognition, the liability component of a compound
financial instrument is measured at amortised cost using the effective
interest method. The equity component of a convertible loan note is not
remeasured.
Interest related to the financial liability is recognised in profit and loss.
On conversion at maturity, the financial liability is reclassified to equity
and no gain or loss is recognised. When conversion option is not exercised,
the equity element is transferred to accumulated losses.
Derecognition of financial liabilities
A financial liability is removed from the balance sheet when it is
extinguished, being when the obligation is discharged, cancelled, or
expired. On extinguishment of a financial liability, any difference between
the carrying amount of the liability and the consideration paid, including any
non-cash assets transferred or liabilities assumed, is recognised in profit or
loss.
A modification or exchange of a financial liability is either accounted for as
an extinguishment of the original financial liability or a renegotiation of
the original financial liability. An extinguishment or substantial
modification of a financial liability results in de-recognition of the
original financial liability and any unamortised transaction costs associated
with the original financial liability are immediately expensed to the profit
and loss account. Where the change in the terms of the modified financial
liability is not substantial, it is accounted for as a modification of the
original liability, with the modified financial liability measured at
amortised cost using the original effective interest rate. Part of the
assessment includes consideration whether the discounted present value of the
cash flows under the new terms, including any fees paid net of any fees
received and discounted using the original effective interest rate, is at
least 10% different from the discounted present value of the remaining cash
flows of the original financial liability.
If an exchange of debt instruments or modification of terms is accounted for
as an extinguishment, any costs or fees incurred are recognised as part of the
gain or loss on the extinguishment. If the exchange or modification is not
accounted for as an extinguishment, any costs or fees incurred adjust the
carrying amount of the liability and are amortised over the remaining term of
the modified liability.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction, or
production of qualifying assets, which are assets that necessarily take a
substantial period of time to get ready for their intended use or sale, are
added to the cost of those assets, until such time as the assets are
substantially ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings
pending their expenditure on qualifying assets is deducted from the borrowing
costs eligible for capitalisation.
All other borrowing costs are recognised in the consolidated income statement
in the period in which they are incurred.
Provisions
Provisions are recognised when the Group has a present obligation (legal or
constructive) as a result of a past event, it is probable that the Group will
be required to settle the obligation, and a reliable estimate can be made of
the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration
required to settle the present obligation at the reporting date, taking into
account the risks and uncertainties surrounding the obligation. Where a
provision is measured using the cash flows estimated to settle the present
obligation, its carrying amount is the present value of those cash flows.
Contingent liability
Contingent liabilities are recognised when the Group has a probable obligation
that may arise from an event that has not yet occurred. A contingent liability
which is not probable is not recognised in the Group's financial statements
however disclosure within the notes to the financial statements will be
included unless the possibility of payment is remote.
Provision for environmental obligations
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 decommissioning 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 costs for restoration of subsequent site damage which is
created on an ongoing basis during production are provided for at their net
present values and recognised in the consolidated income statement as
extraction progresses . If a decrease in the liability exceeds the carrying
amount of the asset, the excess is recognised immediately as a reduction in
the consolidated income statement.
The provision for closure cost obligations is remeasured at the end of each
reporting period for changes in estimates and circumstances. Changes in
estimates and circumstances include changes in legal or regulatory
requirements, increased obligations arising from additional mining and
exploration activities, changes to cost estimates and changes in risk free
interest rate.
Value Added Tax
Output value added tax (VAT) related to sales generated in Armenia is payable
to tax authorities on the delivery of goods and services to customers. The
standard rate of VAT on domestic sales of goods and services and the
importation of goods is 20%. Input VAT is recoverable against output VAT upon
receipt of the VAT invoice. VAT related to sales and purchases is recognised
in the statement of financial position on a gross basis and disclosed
separately as an asset and liability. The VAT assets and liabilities are short
term and will be settled within 12 months and are therefore not discounted.
Under the Kyrgyz Republic Tax Code, the supply and export of metal-containing
ores, concentrates, alloys, and refined metals are considered to be a VAT
exempt supply and therefore all VAT is expensed as incurred.
Critical accounting judgements and key sources of estimation uncertainty
In the course of preparing the financial statements, management necessarily
makes judgements and estimates that can have significant impact on those
financial statements. The determination of estimates requires judgements which
are based on historical experience, current and expected economic conditions,
and all other available information.
Estimated and underlying assumptions are reviewed on an ongoing basis, with
revisions recognised in the period in which the estimates are revised and in
the future periods affected. The judgements involving a higher degree of
estimation or complexity are set out below.
Critical accounting judgements
The following are the critical accounting judgements (apart from judgements
involving estimation which are dealt with separately below), made in the
process of applying the Group's accounting policies during the year that have
the most significant effect on the amounts recognized in the financial
statements.
Recoverability of exploration and evaluation assets
Exploration and evaluation assets include mineral rights and exploration
costs, including geophysical, topographical, geological, and similar types of
costs. Exploration and evaluation costs are capitalised if management
concludes that future economic benefits are likely to be realised and
determines that economically viable extraction operation can be established as
a result of exploration activities and internal assessment of mineral
resources.
According to IFRS 6 Exploration for and evaluation of mineral resources, the
potential indicators of impairment include: management's plans to discontinue
the exploration activities, lack of further substantial exploration
expenditure planned, expiry of exploration licences in the period or in the
nearest future, or existence of other data indicating the expenditure
capitalised is not recoverable. At the end of each reporting period,
management assesses whether such indicators exist for the exploration and
evaluation assets capitalised, which requires significant judgement.
At 31 December 2021, the capitalised costs of the exploration and evaluation
assets amounted to US$66.3 million, details of which are set out in Note 15.
The assets relate to the Chaarat Gold Project in the Kyrgyz Republic, which
comprises two distinct mineralised zones: Tulkubash and Kyzyltash, which will
be developed separately. Both zones are located on a single mining licence and
are therefore not capable of being independently sold.
At 31 December 2021, management does not consider there to be any indications
of impairment in respect of the assets included in the Chaarat Gold Project
CGU. Management has budgeted the costs for further development of these assets
however their recoverability is dependent on future funding.
As set out in the Going concern conclusion per Note 2, a material uncertainty
exists in relation to the Group's ability to obtain the additional funding
needed to develop the Kyrgyz Republic development projects as there are
currently no binding agreements in place in respect of any additional funding
and there is no guarantee that any course of funding will proceed. Should that
funding not be available there would be an indication of impairment which
could result in a material provision against the carrying value of the related
exploration and evaluation assets and assets under construction.
Costs capitalised to exploration and evaluation assets
The costs capitalised to exploration and evaluation assets in 2021 was US$5.7
million (2020: US$6.3 million). Judgement is applied in the determination of
the type of costs that are capitalised to exploration and evaluation assets as
described in the accounting policy note above. Payroll costs that are directly
attributable to exploration and evaluation related activities are capitalised.
Costs capitalised to property, plant and equipment (mining properties)
The costs capitalised to mining properties in 2021 was US$7.9 million (2020:
US$5.9 million). Judgement is applied in the determination of the type of
costs that are capitalised to mining properties as described in the accounting
policy note above.
Functional currency of Kapan
The functional currency of the subsidiary located and operating in Armenia is
the Armenian Dram (AMD), as this is the currency of the primary economic
environment in which it operates.
Treatment of royalty expense
Royalties paid in Armenia of US$5.7 million (2020: US$6.5 million) are
included in cost of sales as they are calculated on the basis of revenue
earned from the supply of concentrates. As the royalties expense is not a
charge on profit or loss before tax, management does not consider it to be an
income tax expense within the scope of IAS 12 Income Taxes. Whilst the royalty
rate is applied to revenue, the formula to determine this rate can be split
into two components, a base amount applied to revenue, and a further amount
based on the level of profit in the period. In these circumstances, an
accounting policy choice is required to determine whether the entire amount
will be classified as a royalty expense, or a component separately recognised
as an income tax expense within the scope of IAS 12. If the Group had elected
to recognise a component of this royalty within the scope of IAS 12, the
royalty expense would have been reduced and EBITDA for the year would have
been increased by US$2.5 million (2020: US$3.1 million) with a corresponding
increase in the income tax charge, and the deferred tax asset recognized at 31
December 2021 would have increased by US$1.3 million (2020: US$1.5 million).
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources of estimation
uncertainty at the reporting period that may have a significant risk of
causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year, are discussed below.
Accounting for the concentrate purchase agreement
In 2021 the Group entered into a new contractual arrangement under which third
party ore has been received, processed, purchased and sold to the customer.
The substance of this arrangement was considered to be an ore purchase
agreement such that inventory recognition occurs from that point and the
processing fee recoverable is deducted from the cost of the material
purchased.
Ore reserves
An ore reserve estimate is an estimate of the amount of product that can be
economically and legally extracted from the Group's properties. Ore reserve
estimates are used by the Group in the calculation of depreciation of mining
assets using the units-of-production method; impairment charges and in
forecasting the timing of the payment of decommissioning and land restoration
costs. Also, for the purpose of impairment review and the assessment of the
timing of the payment of decommissioning and land restoration costs,
management may take into account mineral resources in addition to ore reserves
where there is a high degree of confidence that such resources will be
extracted.
In order to calculate ore reserves, estimates and assumptions are required
about geological, technical, and economic factors, including quantities,
grades, production techniques, recovery rates, production costs, transport
costs, commodity demand, commodity prices, discount rates and exchange rates.
Estimating the quantity and/or grade of ore reserves requires the size, shape,
and depth of ore bodies to be determined by analysing geological data such as
the logging and assaying of drill samples. This process may require complex
and difficult geological judgements and calculations to interpret the data.
Ore reserve estimates may change from period to period as additional
geological data becomes available during the course of operations or if there
are changes in any of the aforementioned assumptions. Such changes in
estimated reserves may affect the Group's financial results and financial
position in a number of ways, including the following:
• Assets' carrying values due to changes in estimated future cash flows;
• Depreciation charged in the consolidated income statement where such
charges are determined by using the units-of-production method;
• Provisions for decommissioning and land restoration costs where changes in
estimated reserves affect expectations about the timing of the payment of such
costs; and
• Carrying value of deferred tax assets and liabilities where changes in
estimated reserves affect the carrying value of the relevant assets and
liabilities.
Inventory impairment policy and estimate
For concentrate and ore stockpiles the net realisable value represents the
estimated selling price for that product based on forward metal prices
according to the applicable contract terms, less the estimated costs to
complete production and selling costs, including royalty. Production cost is
determined as the sum of the applicable expenditures incurred directly or
indirectly in bringing inventories to their existing condition and location.
The estimated costs to complete and selling costs are obtained from the
current production budgets, approved for the reporting year. The carrying
value of inventory at 31 December 2021 was US$16.2 million (2020: US$12.3
million) and the inventory write-down provision to net realisable value
amounted to US$1.9 million as at 31 December 2021 (2020: US$0.8 million),
relating mainly to consumables and spare parts.
Provision for environmental obligations
A provision for the costs to restore working areas on the Kapan mine,
including decommissioning of plant and securing of the tailings dam, requires
estimates and assumptions to be made. These include estimates and assumptions
around the relevant environmental and regulatory requirements, inflation, the
magnitude of the possible disturbance and the timing, extent, and costs of the
required decommissioning activities.
In calculating the provision, cost estimates of the future potential cash
outflows based on current assessments of the expected decommissioning
activities and timing thereof, are prepared. These forecasts are then
discounted to their present value using a discount rate of 9.91% as disclosed
in Note 23. The works and technical studies are continuing and as the actual
future costs can differ from the estimates due to changes in regulations,
technology, costs and timing, the provision including the estimates and
assumptions contained therein are regularly reviewed by management. The
current estimate reviewed by management is based on a new estimate completed
in 2021. The provision at 31 December 2021 is US$10.5 million (2020: US$7.5
million). A 25% increase or decrease in the potential cash flows would
increase or decrease the provision by US$2.6 million. The basis of the
provision recognised is an assumed mine closure date of 2026 with
rehabilitation being primarily completed in the subsequent year. An
acceleration or deferral of this expenditure by one year would
increase/decrease the provision by US$1 million.
Legal claim provisions
As disclosed in Note 31, legal claim provisions totalling US$2.8 million have
been recognised as the Group has a present obligation as a result of a past
event, it is probable that an outflow of resources will be required to settle
the disputes, a reliable estimate can be made of the amount of the obligation
however there is uncertainty around the timing of payments to be made. US$0.8
million of the employment dispute provision is covered by an indemnity
included in the original Kapan acquisition agreement. The directors consider
recoverability virtually certain and accordingly have recognised a
corresponding contingent asset within other receivables as shown within note
20.
4. Revenue
The revenue recognised from contracts with customers consisted of the
following:
2021 2020
US$'000 US$'000
Copper concentrate 77,134 61,827
Zinc concentrate 13,114 14,167
Zinc concentrate freight 2,186 -
Total 92,434 75,994
The Group's sales of copper and zinc concentrate are based on provisional 1-3
month commodity forward prices and as such, contain an embedded derivative
which is marked-to-market at each month end.
The Group's sales are to internationally well-established commodity traders
under standard offtake terms.
In 2021, Copper concentrate sales were made on an Ex Works basis meaning that
control passes to the buyer when the concentrate is loaded on the truck at the
Kapan mine. Zinc concentrate sales were made on a cost, insurance, and freight
("CIF") basis meaning that control passes to the buyer when the concentrate is
loaded on the vessel in the port of shipment (e.g., port of Poti, Georgia).
In addition to the Group's own concentrates, it processes third party ore into
concentrate and sells it to customers. Of the US$92.4 million generated from
concentrate sales in 2021, US$72.8 million relates to own concentrate sales
and US$19.6 million relates to third-party concentrate sales (2020: US$69.9
million and US$6.1 million).
In 2021, the Group has continued to recognise contract liabilities in relation
to its contracts with customers for prepayments received for the future
transfer of concentrates, as set out in Note 26.
5. Cost of sales
2021 2020
US$'000 US$'000
Depreciation and amortisation 5,941 4,851
Employee benefit expenses 8,817 9,467
Materials 12,973 10,183
Services 14,616 13,566
Royalties 5,665 6,473
Energy and fuel 4,103 4,169
Cost of purchased ore and concentrate* 16,143 5,451
Short-term lease charges 951 1,075
Other 49 51
Total 69,258 55,286
*In 2021, the Group started processing third party ore into concentrate for a
fee. The Group purchases the processed concentrate and sells it to customers,
resulting in third-party revenue, which is recognised in addition to own ore
revenue, as disclosed in note 4. The amount expensed in cost of sales is equal
to the price paid to the third party, which is net of the processing fee
charged by the Group on the basis the substance of these arrangements is that
of an ore purchase agreement. on the basis that the substance of these
arrangements is that of an ore purchase agreement.
6. Operating profit
The operating profit is stated after charging/(crediting):
2021 2020
US$'000 US$'000
Depreciation of property, plant and equipment 6,841 5,693
Amortisation of intangible assets 274 266
Short-term/low value lease charges 1,083 1,219
Share based payment charges 1,251 3,612
Loss on the sale of fixed assets 4 66
(Gain)/loss on foreign exchange (1,475) 2,456
Fees payable to Group auditors for the audit of the Group financial 234 162
statements
Fees payable to associated firms of the auditor for the audit of subsidiaries 83 48
Change in legal provision 75 (29)
Change in provision for environmental obligations (income) - Note 23 - (1,088)
Selling expenses 2,444 1,864
Loss on termination of lease - 22
7. Selling expenses
Selling expenses consisted of the following:
2021 2020
US$'000 US$'000
Transportation expenses 1,099 1,214
Sampling and inspection 125 125
Staff costs 246 233
Customs clearance 675 36
Utilities 30 28
Depreciation and amortisation 6 13
Material 77 180
Services 27 -
Other 159 35
Total 2,444 1,864
8. Administrative expenses
The administrative expenses consisted of the following:
2021 2020
US$'000 US$'000
Readmission and acquisition costs 242 65
Legal and compliance 422 128
Regulatory 359 263
Investor relations 363 382
Salaries 6,383 6,274
Change in provision for environmental obligations (income) - Note 23 - (1,088)
Corporate support 3,787 7,171
Travel and subsistence 159 163
Share-based payment charges 1,251 3,612
Total 12,966 16,970
9. Segmental analysis
Operating segments are identified based on internal reports about components
of the Group that are regularly reviewed by the Board, in order to allocate
resources to the segments and to assess their performance.
Based on the proportion of revenue and profit within the Group's operations
and on the differences in principal activities, the Board considers there to
be two operating segments:
· Exploration for mineral deposits in the Kyrgyz Republic with support
provided from the British Virgin Islands ('Kyrgyz Republic')
· Exploration and production of copper and zinc concentrates at Kapan
in Armenia ('Armenia')
Kyrgyz Republic Armenia Corporate Total
31 December 2021 US$'000 US$'000 US$'000 US$'000
Revenue
Sales to external customers - 92,434 - 92,434
Total segment revenue - 92,434 - 92,434
Operating profit/(loss) (2,299) 17,448 (7,361) 7,788
Finance income - 17 6 23
Finance costs - (3,043) (4,853) (7,896)
Fair value gain on warrant - - 434 434
Profit/(loss) before income tax (2,299) 14,422 (11,774) 349
Income tax charge - (3,937) - (3,937)
Profit/(loss) after income tax (2,299) 10,485 (11,774) (3,588)
Assets
Segment assets - non-current 78,562 41,173 - 119,735
Segment assets - current 277 43,797 7,749 51,823
Total assets 78,839 84,970 7,749 171,558
Liabilities
Segment liabilities 2,253 65,753 26,675 94,682
Total liabilities 2,253 65,753 26,675 94,682
Kyrgyz Republic Armenia Corporate Total
31 December 2020 US$'000 US$'000 US$'000 US$'000
Revenue
Sales to external customers - 75,994 - 75,994
Total segment revenue - 75,994 - 75,994
Operating profit/(loss) (2,277) 12,747 (8,575) 1,895
Finance income - 19 - 19
Finance costs - (3,804) (17,628) (21,432)
Fair value gain on warrant - - 595 595
Loss before income tax (2,277) 8,962 (25,608) (18,923)
Income tax charge - (3,520) - (3,520)
Loss after income tax (2,277) 5,442 (25,608) (22,443)
Assets
Segment assets - non-current 71,604 37,708 - 109,312
Segment assets - current 135 24,544 1,146 25,825
Total assets 71,739 62,252 1,146 135,137
Liabilities
Segment liabilities 5,571 56,860 48,255 110,686
Total liabilities 5,571 56,860 48,255 110,686
10. Staff numbers and costs
2021 2020
Number Number
Management and administration 167 169
Exploration and evaluation 54 45
Production and service 948 980
Total 1,169 1,194
The aggregate payroll costs of these persons were as follows: US$'000 US$'000
Staff wages and salaries 17,725 17,032
Employee share-based payment charges 966 1,354
Directors' remuneration as detailed in the Remuneration Report
Wages and salaries 880 1,097
Termination benefits 575 -
Share-based payment charges 285 2,258
Total 20,431 21,741
The share-based payment charges relate to the remaining fair value attributed
to restricted stock units ("RSUs") granted under the Management Incentive Plan
("MIP") in 2019. The vesting of the tranche 3 RSUs took place in April 2021
following final determination by the remuneration committee of the extent to
which performance criteria had been achieved, in the case of awards subject to
performance conditions. Tranche 3 RSUs not subject to performance conditions
vested at the same time.
The staff wages and salaries include amounts capitalised to exploration and
evaluation assets of US$3.1 million (2020: US$2.2 million).
11. Directors' remuneration
The costs of certain Directors' services were charged to the Company via
consultancy companies, as separately detailed below and in the related party
transactions Note 32, rather than directly as short-term employment costs.
These arrangements are in place purely for administrative convenience and are
not methods to mitigate, reduce or remove liabilities to taxation in the
respective Director's country of residence. Details of Directors' remuneration
are provided in the Remuneration Report.
Total remuneration 2021 2020
US$'000 US$'000
Salary and fees paid directly 830 1,041
Salary and fees paid via related party consultancy companies 50 56
Termination benefits 575 -
Share-based payment charges 285 2,258
Total 1,740 3,355
The share-based payment charge in 2021 relates to the fair value charge
attributed to tranche 3 RSUs which vested in April 2021.
12. Finance costs
2021 2020
US$'000 US$'000
Interest on convertible loan notes 25 3,793 3,258
Interest on other loans 29 2,184 5,763
Interest on lease liabilities 28 128 169
Interest on contract liabilities 26 204 102
Unwinding of discount - provision for environmental obligations 23 705 655
Financing costs 29 867 11,485
Other 15 -
Total 7,896 21,432
The interest on other loans of US$2.2 million includes interest on borrowings
of US$1.9 million, interest on other borrowings of US$0.1 million and interest
on the Labro Term Loan of US$0.2 million. The interest charge in the
comparative year was higher as it included interest on the Investor Loan and
the Labro Facility of US$2.6 million. Both of these loans were extinguished in
2021.
The financing costs of US$0.9 million, a non-cash cost, relates to the
amortisation of the Labro Facility commitment fee as disclosed in Note 29. In
2020, the financing costs of US$11.5 million related to the refinance of the
Investor Loan and the Labro Term Loan, which were expensed as part of the
substantial modification of these loans.
13. Taxation
The Group is not subject to corporate tax in the British Virgin Islands.
Companies engaged in the production and sale of gold in the Kyrgyz Republic
pay a revenue-based tax on the sales of gold rather than tax on profit.
Accordingly, the Group has an effective rate of tax on profit of 0% in these
jurisdictions. In the remaining jurisdictions in which the Group operates,
being Armenia, Cyprus and the United Kingdom, profits are subject to corporate
income tax at a rate of 18%, 12.5% and 19%, respectively.
Within Armenia, the rate of corporate income tax is 18% for resident companies
(with a worldwide tax base) for 2021. The tax period of corporate income tax
is one calendar year (1 January - 31 December). Advance payments of corporate
income tax are required to be made quarterly by the 20(th) day of the third
month of each quarter. The advance payment is equal to 20% of the corporate
income tax reported in the previous tax year. The balance of tax due must be
paid by 20 April of the year following the reporting year. Corporate income
tax is determined based on rules and principles of accounting defined by the
law or other legal acts.
Within the Kyrgyz Republic, a fixed royalty is payable on the sale of gold. In
2021, the fixed royalty percentage remained at 8%, comprising a royalty of 5%
and a contribution to local infrastructure of 3% (2020: 5% and 3%). However,
due to the Stabilisation Agreement that was signed in 2019 which entitled the
Company's local subsidiary, Chaarat Zaav, to benefit from any future changes
in direct taxes during the 10 years from the date of the agreement, the fixed
royalty percentage is capped at 7%. A further percentage rate of tax is based
on the average monthly international gold price, being 1% if the gold price is
below US$1,300 per ounce and up to 20% when the gold price exceeds US$2,501
per ounce. The maximum royalty payable when the gold price is above US$2,501
per ounce is therefore 27%. However, as the Group's assets in the Kyrgyz
Republic are at an exploration stage, the Group has no royalty payable in
respect of these assets for the years ended 31 December 2021 or 31 December
2020.
Further, under the Article 301 of the Tax Code of the Kyrgyz Republic, an
entity is subject to a taxation in payment of the right to use subsoil,
including for the purpose of developing a mineral deposit. The tax base for
calculating this is the amount of geological reserves and forecast resources
taken into account by the State Balance of deposits of mineral resources of
the Kyrgyz Republic.
At the balance sheet date, the Group has received no tax claims and the
Directors believe that the Group is in compliance with the tax laws affecting
its operations.
The Group has recognised deferred tax assets which relate to temporary
differences arising at the Kapan mine in Armenia, as detailed in Note 18.
Analysis of tax charge for the year
2021 2020
US$'000 US$'000
Armenian tax 2,269 1,979
Current tax 2,269 1,979
Origination and reversal of temporary differences 1,668 1,541
Deferred tax 18 1,668 1,541
Income tax expense 3,937 3,520
Reconciliation of tax charge for the year
2021 2020
US$'000 US$'000
Profit/(loss) before tax 349 (18,923)
Tax calculated at applicable corporation tax rate:
Armenian corporation tax at 18% (2020:18%) 63 3,406
Tax effects of:
Items non-deductible/(non-taxable) for tax purposes 127 (696)
Income eliminated on consolidation (566) (614)
Different tax rates applied in overseas jurisdictions (2,188) (4,468)
Current tax losses not recognised (345) (551)
Write-down of previously recognised deferred tax assets (1,028) (597)
Income tax expense (3,937) (3,520)
Tax losses
2021 2020
US$'000 US$'000
Unused tax losses for which no deferred tax asset has been recognized
United Kingdom 278 313
Tax benefit at 19% 53 59
Deferred tax assets are only recognised to the extent that it is probable that
taxable profits will be available against which unused tax losses and unused
tax credits can be utilised.
14. Loss per share
Loss per share is calculated by reference to the loss for the year of US$3.6
million (2020: loss of US$22.4 million) and the weighted average number of
ordinary shares in issue during the year of 673,320,329 (2020: 510,466,838).
At 31 December 2021, 8,920,341 (2020: 8,920,341) warrants, 49,692,252 (2020:
55,027,006) share options and convertible loan notes have been excluded from
the diluted weighted average number of ordinary shares calculation because
their effect would have been anti-dilutive.
15. Exploration and evaluation costs
Tulkubash Kyzyltash Total
US$'000 US$'000 US$'000
At 1 January 2020 45,868 9,202 55,070
Additions 6,289 - 6,289
At 31 December 2020 52,157 9,202 61,359
Additions 4,775 899 5,674
Reclassification to property, plant & equipment (728) - (728)
At 31 December 2021 56,204 10,101 66,305
Exploration and evaluation assets comprise costs associated with exploration
for, and evaluation of, mineral resources together with costs to maintain
mining and exploration licences for mining properties that are considered by
the Directors to meet the requirements for capitalisation under the Group's
accounting policies as disclosed in Note 3. As at 31 December 2021, management
does not consider there to be any indicators of impairment in respect of these
assets.
In 2021, the Company entered into a new investment agreement ("The Investment
Agreement") with Çiftay which supersedes the previous agreement that was
signed in September 2019. Çiftay and the Company decided to replace the
previous agreement with the Investment Agreement, in order to simplify the
structure of the partnership and further align the interests of both parties.
Under the Investment Agreement, Chaarat retains 100% ownership of the
Tulkubash and Kyzyltash projects with Çiftay becoming a strategic investor at
the Company level, through the issuance of new ordinary shares. In July 2021,
the Company issued 2.8 million new ordinary shares to Çiftay with a fair
value of US$0.8 million in settlement of accrued expenses relating to
Tulkubash construction activities. Further shares issues will only take place
once certain terms of the agreement are triggered by securing project finance.
16. Intangible assets
Computer Software Other intangible assets Total
US$'000 US$'000 US$'000
Cost
At 1 January 2020 1,405 480 1,885
Additions 155 44 199
Disposals - (214) (214)
Effect of translation to presentation currency (109) (29) (138)
At 31 December 2020 1,451 281 1,732
Prior year reclassification from PPE 18 - 18
Additions 152 - 152
Effect of translation to presentation currency 120 26 146
At 31 December 2021 1,741 307 2,048
Accumulated amortisation
At 1 January 2020 276 - 276
Charge for the year 245 21 266
Effect of translation to presentation currency (30) (1) (31)
At 31 December 2020 491 20 511
Charge for the year 246 28 274
Effect of translation to presentation currency 45 5 50
At 31 December 2021 782 53 835
Net book value
At 31 December 2021 959 254 1,213
At 31 December 2020 960 261 1,221
At 1 January 2020 1,129 480 1,609
17. Property, plant and equipment
Land and buildings Mining properties Fixtures and fittings Motor vehicles Assets under construction Right-of-use Assets Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Cost
At 1 January 2020 9,144 29,931 1,597 663 2,755 616 44,706
Additions 6 4,789 10 39 4,570 1,565 10,979
Transfers 203 666 - - (869) - -
Changes in estimates of provision for environmental obligations - (29) - - - - (29)
Disposals - (916) (34) (35) - (272) (1,257)
Reclassification from inventories - 418 - - 57 - 475
Effect of translation to presentation currency (339) (2,636) (106) (19) (66) (128) (3,294)
At 31 December 2020 9,014 32,223 1,467 648 6,447 1,781 51,580
Additions - 4,358 16 - 2,955 - 7,329
Transfers 32 510 1 - (543) - -
Changes in estimates of provision for environmental obligations - 1,566 - - - - 1,566
Disposals - (508) (2) - - - (510)
Reclassification from inventories - 1,499 - - 165 - 1,664
Reclassification from exploration and evaluation asset - - - - 728 - 728
Effect of translation to presentation currency 330 3,055 105 19 120 157 3,786
At 31 December 2021 9,376 42,703 1,587 667 9,872 1,938 66,143
Accumulated depreciation
At 1 January 2020 1,231 4,428 403 271 - 104 6,437
Charge for the year 1,078 4,229 319 116 - 608 6,350
Disposals - (915) (27) (35) - (164) (1,141)
Effect of translation to presentation currency (67) (461) (32) (9) - (35) (604)
At 31 December 2020 2,242 7,281 663 343 - 513 11,042
Charge for the year 802 5,431 375 109 - 590 7,307
Disposals - (503) (2) - - - (505)
Effect of translation to presentation currency 100 754 54 11 - 74 993
At 31 December 2021 3,144 12,963 1,090 463 - 1,177 18,837
Net book value
At 31 December 2021 6,232 29,740 497 204 9,872 761 47,306
At 31 December 2020 6,772 24,942 804 305 6,447 1,268 40,538
At 1 January 2020 7,913 25,503 1,194 392 2,755 512 38,269
The Group's property, plant and equipment relating to the operations in
Armenia, Kapan, are pledged as security to the respective banks that have
supplied bank debt to the Group.
As at 31 December 2021, management does not consider there to be any
indicators of impairment in respect of the Group's property, plant and
equipment.
18. Deferred Tax
Deferred tax assets have been recognized as a result of temporary differences
where the directors believe it is probable that these assets will be
recovered. The Group's deferred tax balance relates to the Kapan mine in
Armenia. No deferred tax has been recognized in respect of the Group's
operations in the Kyrgyz Republic. As disclosed in Note 13, unused tax losses
for which no deferred tax asset has been recognised amounts to US$0.3 million
(2020: US$0.3 million).
The movement in net deferred tax assets during the year is as follows:
2021 2020
US$'000 US$'000
At 1 January 5,631 7,652
Charged to the income statement (1,668) (1,541)
Effect of currency translation 418 (480)
At 31 December 4,381 5,631
Comprising:
Deferred tax assets 4,381 5,631
Deferred tax liabilities - -
Movements in temporary differences during the years ended 31 December are
presented as follows:
2021 At 1 January Charged to the income statement Effect of currency translation Total
US$'000 US$'000 US$'000 US$'000
Property, plant and equipment 4,516 (706) 365 4,175
Trade and other receivables 49 119 9 177
Inventories 684 (892) 18 (190)
Other provisions 48 2 4 54
Trade and other payables 108 (61) 7 54
Lease liabilities 226 (130) 15 111
Total 5,631 (1,668) 418 4,381
2020 At 1 January Charged to the income statement Effect of currency translation Total
US$'000 US$'000 US$'000 US$'000
Property, plant and equipment 5,760 (885) (359) 4,516
Trade and other receivables 35 18 (4) 49
Inventories 1,402 (637) (81) 684
Other provisions 57 (5) (4) 48
Trade and other payables 101 17 (10) 108
Lease liabilities 297 (49) (22) 226
Total 7,652 (1,541) (480) 5,631
19. Inventories
Inventories represent goods held for sale in the ordinary course of business
(copper and zinc concentrate), ore being processed into a saleable condition
(ore stockpiles) and consumables and spares to be used in the production
process.
2021 2020
US$'000 US$'000
Consumables and spare parts 8,861 7,211
Copper and zinc concentrate in stock 5,984 3,844
Copper and zinc concentrate in transit 1,432 -
Ore stockpiles extracted 2,157 749
Other 8 447
At 31 December 18,442 12,251
The cost of inventories recognised as an expense and included in cost of sales
amounted to US$13.2 million (2020: US$10.2 million) for raw materials and
consumables and spare parts and US$16.1 million (2020: US$5.5 million) for
purchased ore and concentrate. The inventory write-down provision to net
realisable value amounted to US$1.9 million as at 31 December 2021 (2020:
US$0.8 million), relating mainly to consumables and spare parts.
20. Trade and other receivables
2021 2020
US$'000 US$'000
Trade receivables 18,620 3,447
Other receivables 2,856 1,055
Unpaid shares issued* 6 122
Prepayments 766 2,293
Less: expected credit losses (1) (271)
At 31 December 22,247 6,646
*Shares were issued to key management personnel ("KMPs") and other employees
in April 2020 upon terms that the subscription price would be satisfied by way
of set-off against a proportion of fees and salaries due and to become due
until such time as the subscription price was fully paid. The total amount
set-off against fees and salaries during the year was US$0.1 million (2020:
US$0.5 million). Amounts relating to KMPs are disclosed in Note 32.
The movement in the loss allowance for expected credit losses is detailed
below:
2021 2020
US$'000 US$'000
At 1 January 271 101
Movement during the year (270) 191
Effect of currency translation - (21)
At 31 December 1 271
21. Cash and cash equivalents
2021 2020
US$'000 US$'000
Cash on hand 2 5
Current accounts in UK 7,646 132
Current accounts in the Kyrgyz Republic 264 118
Current accounts in Armenia 3,222 6,673
At 31 December 11,134 6,928
There are no amounts of cash and cash equivalents which are not available for
use by the Group. All amounts held in current accounts can be drawn on demand
if required.
22. Capital and reserves
The share capital of the Company consists of shares of US$0.01 par value of a
single class. All shares have equal rights to receive dividends or capital
repayments and all shares represent one vote at meetings of shareholders of
the Company.
22(a) Capital management policies and procedures
The Group's objectives for the management of capital have not changed in the
year. The Directors seek to ensure that the Group will continue to operate as
a going concern in order to pursue the development of its mineral properties,
to sustain future development and growth as well as to maintain a flexible
capital structure which optimises the cost of capital at an acceptable risk.
The Company manages the capital structure and adjusts it in light of changes
in economic conditions and the risk characteristics of the underlying assets.
In order to maintain or adjust the capital structure, the Company may issue
shares, seek debt financing, or acquire or dispose of assets. The Company,
following approval from the Board of Directors, will make changes to its
capital structure as deemed appropriate under specific circumstances.
The Group considers equity to be all components included in shareholders'
funds and net debt to be short and long-term borrowings including convertible
loan notes less cash and cash equivalents. The Group's net debt to equity
ratio at 31 December was as follows:
2021 2020
US$'000 US$'000
Total Equity 76,876 24,449
Convertible loan notes 25,625 23,252
Other loans 21,328 53,347
Contract liabilities 2,379 5,328
Lease liabilities 978 1,425
Warrant financial liability 380 814
Less: cash and cash equivalents (11,134) (6,928)
Net debt 39,556 77,238
Net debt to equity ratio 51% 316%
Other loans include borrowings which relate to external bank financing
obtained for the acquisition of Kapan. This bank financing has certain
covenants attached to it that the Group needs to adhere to, all of which were
met as at 31 December 2021.
The convertible loan notes, as disclosed in Note 25, respectively, do not have
covenants attached to them. As the convertible loan notes are repayable within
the next 12 months, they have been disclosed as a current liability as at 31
December 2021.
22 (b) Share capital
2021 2020
Ordinary shares of US$0.01 each Number of Shares ('000) Nominal Value US$'000 Number of Shares ('000) Nominal Value US$'000
Authorised 1,395,167 13,952 1,395,167 13,952
Issued and fully paid
At 1 January 540,061 5,401 468,811 4,688
Issued for cash 84,115 841 19,046 191
Issued to settle liabilities 65,235 652 51,259 513
Exercise of warrants - - 825 8
Exercise of share options - - 120 1
At 31 December 689,411 6,894 540,061 5,401
On 5 February 2021, the Company issued 55,240 ordinary shares to Labro to
satisfy outstanding drawdown fees under the Labro Facility agreement. On the
same day, a further 62,380,154 ordinary shares were issued to Labro to set off
the outstanding amount owed by the Company on the Labro Term Loan.
Later in February 2021, as part of an equity fundraise the Company issued a
further 84,114,549 ordinary shares of US$0.01 each to new and existing
investors for cash (US$30.0 million).
On 30 July 2021, the Company issued 2.8 million new ordinary shares of US$0.01
each in the Company to Çiftay under the new investment agreement entered into
on 21 June 2021 (see note 15).
22 (c) Share options and share-based payments
Share options
The Group operates a share option plan under which directors, employees,
consultants, and advisers have been granted options to subscribe for ordinary
shares. All options are share settled. The number and weighted average
exercise price of share options are as follows:
2021 2020
Number of Options Weighted average exercise price (US$) Number of Options Weighted average exercise price (US$)
Outstanding at 1 January 55,027,006 0.523 56,925,258 0.522
Exercised during the year - - (120,000) 0.187
Granted during the year - - - -
Replaced during the year - - - -
Lapsed during the year (5,334,754) 0.578 (1,778,252) 0.523
Outstanding at 31 December 49,692,252 0.567 55,027,006 0.523
Exercisable at 31 December 49,692,252 0.567 55,027,006 0.523
The share options outstanding at 31 December 2021 had a weighted average
remaining contractual life of 2.7 years (2020: 3.7 years). Maximum term of the
options granted was 5 years from the grant date. The share options outstanding
at 31 December 2021 had an exercise price of £0.42 (2020: £0.42).
All goods and services received in exchange for the grant of any share-based
payment are measured at their fair values. Where employees are rewarded using
share-based payments, the fair values of employees' services are determined
indirectly by reference to the fair value of the instrument granted to the
employee. This estimate is based on a Black-Scholes model which is
considered most appropriate considering the effects of the vesting conditions
and expected exercise period.
The total number of options over ordinary shares outstanding at 31 December
2021 was as follows:
Exercise period Number Exercise price
18 September 2019 to 18 September 2024 49,692,252 £0.42
Total 49,692,252 £0.42
Management Incentive Plan
On 18 September 2019, the Group adopted a new Management Incentive Plan
("MIP") whereby 56,805,258 share options exercisable at £0.42 per share and
21,494,198 restricted stock units ("RSUs") were granted to key management
personnel ("KMPs") and other employees (subject to performance conditions for
executives in the case of the RSUs). 33% of the share options and RSUs vested
on 15 October 2019 (Tranche 1), 33% on 31 December 2019 and (in the case of
RSUs subject to performance conditions) on 21 February 2020 (Tranche 2), and
the remaining 33% of share options vested on 31 December 2020 subject to a
vesting condition of continued employment by the Group. On 15 April 2021,
5,308,640 RSUs (Tranche 3) vested following final determination by the
remuneration committee of the extent to which performance criteria had been
achieved, in the case of awards subject to performance conditions. RSUs not
subject to performance conditions in Tranche 3 vested at the same time.
On 22 April 2021, a further 2,122,466 RSUs were granted to KMPs and other
employees which vested immediately on this date. As a result, a total
share-based payment charge of US$1.3 million was recognised during 2021,
US$0.5 million of which related to the remaining Tranche 3 RSUs and US$0.8
million to the additional RSUs granted on 22 April 2021.
There was no exercise of share options during 2021, however 5,334,754 share
options lapsed due to two employees leaving the Company during the year.
No further share awards were granted in 2021, however as disclosed in Note 35,
a further 5 million share options were granted under the MIP to the Company's
new Chief Executive Officer on joining in January 2022.
Trust
On 7 October 2019, the Group established the Chaarat Gold Holdings Limited
Employee Benefit Trust in order to acquire and hold sufficient shares to
satisfy the awards under the new Plan. The Company has control over the Trust
and therefore the results of the Trust were consolidated within these
financial statements. During the year, expenses of US$0.05 million were
incurred by the Trust (2020: US$0.1 million). At 31 December 2021, the Trust
held 1,070,194 shares (2020: 8,504,596 shares).
22 (d) Convertible loan note reserve
The convertible loan note reserve represents the equity component of
convertible loan notes issued by the Company. Refer to Note 25 for further
information.
2021 2020
US$'000 US$'000
At 1 January 2,493 2,493
Modification of convertible loan notes (1,073) -
At 31 December 1,420 2,493
22 (e) Own shares reserve
The own shares reserve represents the nominal value of equity shares that have
been repurchased by the company. The movement in the reserve is as follows:
2021 2020
US$'000 US$'000
At 1 January (216) (216)
Transfer of treasury shares 84 -
At 31 December (132) (216)
23. Provision for environmental obligations
The provision for environmental obligations relates to the Kapan mine in
Armenia. According to Armenian legislation and licence agreements, the Company
is committed to restoring working areas on the mine, including decommissioning
of plant and securing of the tailings dam. Movements in the provision are as
follows:
2021 2020
US$'000 US$'000
At 1 January 7,479 8,638
Change in provision 1,566 (1,088)
Unwinding of discount 705 655
Reclassification to deferred expenses - (44)
Effect of currency translation 771 (682)
At 31 December 10,521 7,479
The change in provision of US$1.6 million in 2021 was as a result of a
reassessment of the Company's obligations under international good practice
requirements that took place in 2021 by an independent third party.
Further details relating to the calculation of the balance as at 31 December
2021 are as follows:
31/12/2021 31/12/2020
Discount rates 9.91% 8.63%
Provision settlement date 31/12/2027 31/12/2027
Estimated undiscounted cash flow required to settle the provision US$14.1 million US$9.6 million
24. Reconciliation of liabilities
Convertible loans Contract Lease liabilities Other loans Total
liabilities
Liabilities from financing activities US$'000 US$'000 US$'000 US$'000
US$'000
At 1 January 2020 19,994 - 578 59,258 79,830
Cash flows:
Cash proceeds - 7,000 - 5,300 12,300
Transaction costs paid - - - (209) (209)
Payment of interest - - - (3,185) (3,185)
Payment of principal amount - - - (8,000) (8,000)
Lease payments - - (573) - (573)
Net proceeds - 7,000 (573) (6,094) 333
Non-cash items:
Loan modification - - - (20,665) (20,665)
Interest capitalised - - - 587 587
Interest accrued 3,258 102 169 5,176 8,705
Additions - - 1,565 21,788 23,353
Reclassification - - (126) - (126)
Lease termination - - (80) - (80)
Converted to equity - - - (6,338) (6,338)
Settlement of interest against receivables - (71) - - (71)
Transaction costs - (361) (361)
Amounts recognised as revenue during the year - (1,667) - - (1,667)
Effect of currency translation - (36) (108) (4) (148)
Total liabilities from financing activities at 31 December 2020 23,252 5,328 1,425 53,347 83,352
Non-current - - 771 21,947 22,718
Current 23,252 5,328 654 31,400 60,634
Cash flows:
Cash proceeds - - - - -
Payment of interest - - - (2,295) (2,295)
Payment of principal amount - - - (9,800) (9,800)
Lease payments - - (674) - (674)
Net proceeds - - (674) (12,095) (12,769)
Non-cash items:
Loan modification (1,420) - - 8 (1,412)
Converted to equity - - - (22,117) (22,117)
Interest accrued 3,793 204 128 2,184 6,309
Settlement of interest against receivables - (120) - - (120)
Amounts recognised as revenue during the year - (3,250) - - (3,250)
Effect of currency translation 217 99 1 317
Total liabilities from financing activities at 31 December 2021 25,625 2,379 978 21,328 50,310
Non-current - - 732 9,688 10,420
Current 25,625 2,379 246 11,640 39,890
25. Convertible loan notes
During the year no new convertible loan notes were issued, however the
maturity date was extended by one year from 31 October 2021 to 31 October 2022
and the conversion price of the notes was decreased from £0.37 per share to
£0.30 per share. The only other transaction during the year was accrued
interest of US$3.8 million (2020: US$3.3 million).
2021 Notes US$'000
At 31 December 2019 19,994
Cash proceeds -
Transaction costs -
Net proceeds -
Amount classified as equity -
Accrued interest 3,258
At 31 December 2020 23,252
Cash proceeds -
Transaction costs -
Net proceeds -
Loan modification (1,420)
Accrued interest 3,793
At 31 December 2021 25,625
The number of shares to be issued on conversion is fixed. There are no
covenants attached to the convertible loan notes.
The 2021 notes accrued interest at 10% p.a. until 30 April 2020 and then at a
rate of 12% p.a. until 31 October 2021. The notes are secured on the shares of
the Group's principal operating subsidiary, Chaarat Zaav CJSC via the
intermediate holding company Zaav Holdings Limited. The notes are repayable on
31 October 2022 and can be redeemed by the Company at any time subject to
paying a minimum of 5% interest. The notes, including accrued interest, can be
converted at any time at the holder's option at a price of £0.30 per ordinary
share. If not converted, the notes will be repaid in cash for a total of
US$28.8 million in October 2022, as disclosed in Note 2.
On 21 October 2021, the maturity date of the convertible loan notes was
extended from 31 October 2021 to 31 October 2022 and the conversion price
reduced from £0.37 to £0.30 per share, which was treated as a substantial
modification for accounting purposes. The coupon interest rate remains at 12%
p.a.
The value of the liability and equity conversion component was reassessed at
the date of the modification. The fair value of the liability component was
calculated using a market interest rate of 15% for an equivalent instrument
without conversion option.
As the notes fall due in October 2022, they have been classified as current
liabilities at 31 December 2021.
26. Contract liabilities
The movements in the Group's contract liabilities for the year are presented
below:
2021
US$'000
At 1 January 2021 5,328
Interest on contract liabilities 204
Settlement of interest against receivables (120)
Amounts recognised as revenue during the year (3,250)
Effect of currency translation 217
At 31 December 2021 2,379
Non-current -
Current 2,379
The contract liabilities balance relates to prepayments received from one of
Chaarat Kapan's customers for the future sale of concentrates. The prepayments
accrue interest at a rate defined in the sales contract of 6-month LIBOR plus
5% p.a. and are settled by way of deduction against future outstanding
invoices.
7. Trade and other payables
Trade and other payables at 31 December consisted of the following:
2021 2020
US$'000 US$'000
Trade payables 27,799 11,414
Social security and employee taxes 1,951 1,698
Accruals 967 4,288
As at 31 December 30,717 17,400
Trade and other payables are all unsecured.
28. Leases
The Group's leases are accounted for by recognising a right-of-use asset and a
lease liability except for leases of low value assets and leases with a
duration of 12 months or less.
The Group leases equipment and land in the jurisdictions from which it
operates, the most notable being the land that is leased in Armenia. Certain
items of property, plant and equipment are also leased in the Kyrgyz Republic
which contain variable payments over the lease terms, therefore these leases
do not fall within the scope of IFRS 16, and right-of-use assets and lease
liabilities are not recognised as a result.
The movements in the Group's right-of-use assets and lease liabilities for the
year are presented below:
Right-of-use assets
Land Property Equipment Total
US$'000 US$'000 US$'000 US$'000
At 1 January 2020 315 197 - 512
Additions 666 - 899 1,565
Depreciation charge (111) (89) (408) (608)
Lease termination - (102) - (102)
Effect of translation to presentation currency (62) (6) (31) (99)
At 31 December 2020 808 - 460 1,268
Land Property Equipment Total
US$'000 US$'000 US$'000 US$'000
At 1 January 2021 808 - 460 1,268
Depreciation charge (114) - (476) (590)
Effect of translation to presentation currency 66 19 85
At 31 December 2021 760 - 3 763
Lease liabilities
Land Property Equipment Total
US$'000 US$'000 US$'000 US$'000
At 1 January 2020 302 276 - 578
Additions 666 - 899 1,565
Reclassification 29 (155) - (126)
Interest expense 98 2 69 169
Lease payments (171) (38) (364) (573)
Lease termination - (80) - (80)
Effect of translation to presentation currency (65) (5) (38) (108)
At 31 December 2020 859 - 566 1,425
Land Property Equipment Total
US$'000 US$'000 US$'000 US$'000
At 1 January 2021 859 - 566 1,425
Interest expense 97 - 31 128
Lease payments (189) - (485) (674)
Effect of translation to presentation currency 72 - 27 99
At 31 December 2021 839 - 139 978
The maturity of the gross contractual undiscounted cash flows due on the
Group's lease liabilities is set out below based on the period between 31
December and the contractual maturity date.
Within 6 months 6 months to 1 year 1 to 5 years Over 5 years Total at 31 December 2021
US$'000 US$'000 US$'000 US$'000 US$'000
Land leases 98 99 774 189 1,160
Equipment leases 139 - - - 139
Total 237 99 774 189 1,299
Within 6 months 6 months to 1 year 1 to 5 years Over 5 years Total at 31 December 2020
US$'000 US$'000 US$'000 US$'000 US$'000
Property leases 90 91 719 347 1,247
Land leases 341 255 - - 596
Total 431 346 719 347 1,843
As at 31 December 2021, the gross contractual discounted cash flows due on the
Group's lease liabilities amounts to US$1.0 million (2020: US$1.4 million).
The discount rate used in calculating the lease liabilities is the rate
implicit in the lease, unless this cannot readily be determined, in which case
the Group's incremental rate of borrowing is used instead. In 2021, a discount
rate of 12% per annum has been used to calculate the Group's lease liabilities
for its land and equipment leases.
29. Other loans
Other loans at 31 December consisted of the following:
Labro Facility Labro Term Loan Borrowings Other Borrowings Total
US$'000 US$'000 US$'000 US$'000 US$'000
At 1 January 2021 791 21,947 28,583 2,026 53,347
Interest accrued 17 177 1,857 133 2,184
Loan modification 14 (6) - - 8
Converted to equity - (22,117) - - (22,117)
Payment of interest in cash (22) - (2,154) (119) (2,295)
Payment of principal amount in cash (800) - (9,000) - (9,800)
Effect of currency translation - - - 2 2
At 31 December 2021 - - 19,286 2,042 21,328
Non-current - - 9,688 - 9,688
Current - - 9,598 2,042 11,640
Labro Facility
In February 2021, the Company repaid the outstanding US$0.8 million on the
Labro Facility. The consideration paid exceeded the carrying amount
extinguished and therefore a loss of US$13,900 was recognised in profit or
loss as a financing cost under IFRS 9. No further drawdowns took place from
this point until the maturity date of the facility on 30 June 2021. The
remaining commitment fee of US$0.9 million was amortised and recognised as a
financing cost in profit or loss on this date.
Labro Term Loan
In February 2021, the outstanding US$22 million on the Labro Term Loan as well
as the US$0.2 million of accrued interest was converted into equity. Labro
subscribed for 62,380,154 ordinary shares of US$0.01 each in the Company at
the issue price of £0.26 per share.
Borrowings
On 30 January 2019, the documentation was finalised for the Kapan Acquisition
Financing totalling US$40 million, which is syndicated with Ameriabank CJSC
(US$32 million), HSBC Bank Armenia CJSC (US$5 million) and Ararat Bank OJSC
(US$3 million). The loan incurs interest at LIBOR plus 8% and was originally
repayable through quarterly payments over a four-year period however in July
2021, the maturity date of the facility was extended from 31 January 2023 to 2
October 2023.
This bank financing has certain covenants attached to it that the Group needs
to adhere to. All covenants were met as at 31 December 2021 and as such the
Group remains in full compliance with the loan.
Other borrowings
Other borrowings include an amount owing to one of Chaarat Kapan's customers
in respect of prepayments for the future sale of concentrates. The prepayments
accrue interest at 1-month LIBOR plus 6% p.a. and are expected to be settled
in cash in accordance with a repayment schedule defined in the sales contract.
The prepayments can be requested upon notice and therefore are repayable on
demand.
The contractual maturities of other loans (representing undiscounted
cash-flows) are disclosed in Note 34.
30. Warrant financial liability
In October 2020, as compensation for the extension option of the Investor
Loan, 8,920,341 warrants were issued with an exercise price of £0.26,
expiring on 5 October 2023. The warrants are revalued at each reporting date.
In 2021, a fair value gain of US$0.4 million was recognised in profit or loss
due to a decline in the share price. The movement in the balance is set out
below:
2021 2020
US$'000 US$'000
At 1 January 814 -
Issue of warrants - 1,409
Fair value gain (434) (595)
As at 31 December 380 814
The warrants to purchase ordinary shares remain outstanding at 31 December
2021 as follows:
2021 2020
Expiry date Number of Warrants Exercise price (£) Number of Warrants Exercise price (£)
5 October 2023 8,920,342 0.26 8,920,342 0.26
Total 8,920,342 0.26 8,920,342 0.26
The estimated fair value of the warrants was measured based on the
Black-Scholes model. The inputs used in the calculation of the fair value of
the warrants at 31 December 2021, using an exchange rate of 1.35, were as
follows:
31 December 2021
Fair value US$0.04
Share price US$0.26
Weighted average exercise price US$0.35
Expected volatility 57.20%
Expected life 1.38 years
Expected dividend yield 0.00%
Risk-free interest rate 0.52%
The expected volatility is based on the historical share price of the Company.
31. Other provisions for liabilities and charges
Other provisions for liabilities and charges relate mainly to employment
disputes in Armenia ("Legal Claims Provision") of US$1.2 million at 31
December 2021 (2020: US$0.3 million) and a legal claim of US$1.3 million at 31
December 2021 (2020: US$1.4 million) that was charged against Chaarat in the
Kyrgyz Republic whereby compensation for agricultural losses was demanded
("Land Provision"). US$0.8 million of the employment dispute provision is
covered by an indemnity included in the original Kapan acquisition agreement.
The Directors consider recoverability virtually certain and accordingly have
recognised a corresponding within other receivables as shown within Note 20.
The provisions have been recognised as, based on the Group's legal views, it
is considered probable that an outflow of resources will be required to settle
the disputes, however there is uncertainty around the timing of payments to be
made. There are no expected reimbursements relating to these provisions.
The movement in provisions in 2021 is as follows:
Legal Claims Provision Land Provision Other Provision Total
US$'000 US$'000 US$'000 US$'000
At 1 January 2021 266 1,375 - 1,641
Change in provision 875 - 205 1,080
Foreign exchange on conversion 66 (33) - 33
At 31 December 2021 1,207 1,342 205 2,754
32. Related party transactions
Remuneration of key management personnel
Remuneration of key management personnel is as follows:
2021 2020
US$'000 US$'000
Short term employee benefits 1,618 1,684
Termination benefits 575 -
Share-based payments charge 856 2,970
Total 3,049 4,654
Included in the above key management personnel are 8 directors and 2 key
managers (2020: 7 and 2).
Entities with significant influence over the Group
At 31 December 2021, Labro Investments Limited, Chaarat's largest shareholder,
owned 44.17% (2020: 40.57%) of the ordinary US$0.01 shares in Chaarat
("Ordinary Shares") and US$1.0 million of 10% secured convertible loan notes
2021 which, assuming full conversion of principal and interest to maturity on
31 October 2022, are convertible into 3,579,088 Ordinary Shares. If converted,
Labro's ownership would increase to 44.46% of the ordinary shares in Chaarat
at 31 December 2021.
For all share issues to Labro, the independent directors of the Company
considered, having consulted with the Company's nominated adviser at the time
of the transactions, that the terms were fair and reasonable insofar as the
Company's shareholders are concerned.
Labro Facility Agreement
The Company has issued the following Ordinary Shares in the Company to Labro,
payment for which was offset against commitment and drawdown fees incurred
under the Labro Facility and reduction of indebtedness under the Labro Term
Loan:
Date payment due Amount to be paid under Labro Loan Agreement Type of payment under Labro Loan Agreement № of shares issued to Labro in satisfaction Date shares issued to Labro
30 June 2021 US$ 24,000 Drawdown fee 55,240 5 February 2021
n/a US$ 22,123,195 Indebtedness reduction 62,380,154 5 February 2021
Refer to Note 29 above for a reconciliation of the Labro Facility during the
year, showing a nil balance as at 31 December 2021.
On 5 February 2021, the Company issued 55,240 Ordinary Shares at £0.33 per
share to Labro to settle the drawdown fees that were incurred on the US$0.8
million drawdown that took place in November 2020.
On the same date, the Company issued 62,380,154 Ordinary shares at £0.26 per
share to Labro. Labro's obligation to deliver cash in respect of these shares
was offset against the Company's indebtedness under the Labro Term Loan with
the consequence that the Company's obligations under the Labro Term Loan
decreased by US$22.1 million to nil, as disclosed in Note 29.
Shares issued to Key Management Personnel
In April 2020, 1,286,839 Ordinary Shares were subscribed for by, and issued
to, key management personnel ("KMPs") at a price of £0.26 per Ordinary Share
upon terms that the subscription price would be satisfied by way of set-off
against a proportion of fees and salaries due and to become due until such
time as the subscription price was fully paid. As at 31 December 2021, the
subscription price of these shares was fully repaid as outlined below:
Category Total No. of Placing Shares issued Total amount Total repayments Outstanding balance at 31 December 2021
Directors (including the Executive Chair) 1,073,635 US$ 352,500 US$ 352,500 US$ nil
Other KMPs 213,204 US$ 70,000 US$ 70,000 US$ nil
Total 1,286,839 US$ 422,500 US$ 422,500 US$ nil
33. Commitments and contingencies
Capital expenditure commitments
The Company had a commitment of US$4.9 million at 31 December 2021 (2020:
US$6.3 million) in respect of capital expenditure contracted for but not
provided for in these financial statements.
Lease liability commitments
Details of lease liability commitments are set out in Note 28.
Licence retention fee commitments
The Company has calculated a commitment of US$0.10 million at 31 December 2021
(2020: US$0.10 million) in respect of licence retention fees not provided in
these financial statements. The amount to be paid will be determined by the
Kyrgyz authorities and is not payable until a demand for payment is received
by the Company. No demand in respect of extant licences had been received at
the date of these financial statements.
Licence agreements
There are minimum expenditure commitments under the exploration and mining
licence agreements. These minimum levels of investment have always been
achieved. The commitment recognised in 2021 is US$0.06 million (2020: US$0.02
million).
34. Financial instruments and financial risk management
The Group is exposed to a variety of financial risks which result from its
operating activities. The Group's risk management is coordinated by the
executive Directors, in close co-operation with the Board of Directors, and
focuses on actively securing the Group's short to medium term cash flows by
minimising the exposure to financial markets. The Group does not actively
engage in the trading of financial assets for speculative purposes. The most
significant financial risks to which the Group is exposed are described below.
Categories of financial instruments
2021 2020
Financial assets measured at fair value US$'000 US$'000
Trade and other receivables 22,247 6,646
Cash and cash equivalents 11,134 6,928
Total financial assets 33,381 13,574
Financial liabilities measured at amortised cost
Trade and other payables 28,766 15,703
Contract liabilities 2,379 5,328
Lease liabilities 978 1,425
Other loans 21,328 53,347
Convertible loan notes 25,625 23,252
Financial liabilities measured at fair value through profit or loss
Warrant financial liability 380 814
Total financial liabilities 79,456 99,869
Credit risk
Credit risk is the risk that a customer may default or not meet its
obligations to the Group on a timely basis, leading to financial losses to the
Group. The Group's financial instruments that are potentially exposed to
concentration of credit risk consist primarily of cash and cash equivalents
and loans and receivables.
Trade accounts receivable at 31 December 2021 are represented by provisional
copper and zinc concentrate sales transactions. A significant portion of the
Group's trade accounts receivable is due from reputable export trading
companies. With regard to other loans and receivables the procedures of
accepting a new customer include checks by a security department and
responsible on-site management for business reputation, licences and
certification, creditworthiness, and liquidity. Generally, the Group does not
require any collateral to be pledged in connection with itg cs investments in
the above financial instruments. Credit limits for the Group as a whole are
not set up. In line with 2020, COVID-19 did not significantly impact the
credit risk of the Group's customers in 2021 and therefore no changes were
required to the Group's credit risk management in response to the pandemic.
The credit risk on liquid funds is limited because the counterparties are
banks with high credit-ratings assigned by international credit rating
agencies. The major financial assets at the balance sheet date other than
trade accounts receivable presented in Note 21 are cash and cash equivalents
at 31 December 2021 of US$11.1 million (2020: US$6.9 million).
Market risk
Market risk arises from the Group's use of interest bearing, tradable and
foreign currency financial instruments. It is the risk that the fair value or
future cash flows of a financial instrument will fluctuate because of changes
in interest rates (interest rate risk) or foreign exchange rates (currency
risk). The Group's financial instruments affected by market risk include bank
deposits, trade and other receivables and trade payables.
The Group holds short term bank deposits on which short term fluctuations in
the interest rate receivable are to be expected but are not deemed to be
material.
Foreign currency risk
The Group carries out expenditure transactions substantially in US dollars
(USD), Armenian Dram (AMD), British Pounds (GBP) and Kyrgyz Som (KGS). Equity
fund-raising has taken place mainly in US dollars, with debt denominated in US
dollars as well. Any resulting gains or losses are recognised in the income
statement.
Foreign currency risk arises principally from the Group's holdings of cash in
GBP.
The Group's presentation and subsidiary's functional currency is the US
dollar, except for Chaarat Kapan, which has a functional currency of AMD.
To mitigate the Group's exposure to foreign currency risk, cash holdings are
maintained to closely represent the expected short-term profile of expenditure
by currency. Apart from these resultant offsets, no further hedging activity
is undertaken.
As at 31 December the Group's net exposure to foreign exchange risk was as
follows:
Net foreign currency financial assets/(liabilities)
2021 2020
US$'000 US$'000
GBP 5,866 (151)
AMD (3) (883)
KGS 268 (58)
Other (7) (1)
Total net exposure 6,124 (1,093)
The table below sets out the impact of changes in exchange rates on the
financial assets of the Group due to monetary assets denominated in GBP, AMD,
and KGS, with all other variables held constant:
US$ '000 2021 Move Income statement Profit/(loss) Equity 2020 Move Income statement Profit/(loss) Equity
(%) (%)
Fall in value of GBP vs US$ 5 309 309 5 8 8
Increase in value of GBP vs US$ 5 (279) (279) 5 (7) (7)
Fall in value of AMD vs US$ 5 - - 5 (42) (42)
Increase in value of AMD vs US$ 5 - - 5 46 46
Fall in value of KGS vs US$ 10 30 30 10 5 5
Increase in value of KGS vs US$ 10 (24) (24) 10 (6) (6)
The percentage change for each currency represents management's assessment of
the reasonable possible exposure given the current level of exchange rates and
the volatility observed both on a historical basis and market expectations for
the future.
Fair value of financial instruments
The fair value of the Group's financial instruments at 31 December 2021 and
2020 did not differ materially from their carrying values.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to settle its
liabilities as they fall due.
The Group's liquidity position is carefully monitored and managed. The Group
manages liquidity risk by maintaining detailed budgeting, cash forecasting
processes and matching the maturity profiles of financial assets and
liabilities to help ensure that it has adequate cash available to meet its
payment obligations.
The Group, at its present stage, generates sales revenue from the mining
operations in Armenia. The Company still relies on financing its operations
through the issue of equity share capital and debt in order to ensure
sufficient cash resources are maintained to meet short-term liabilities. The
Group aims to mitigate liquidity risk by monitoring availability of funds in
relation to forecast expenditures in order to ensure timely fundraising. Funds
are raised in discrete tranches to finance activities for limited periods.
Funds surplus to immediate requirements are placed in liquid, low risk
investments. The Group has prepared financial forecasts for the foreseeable
future, and these indicate that the Group should be able to operate and
continue to grow within the level of its current working capital availability.
The Group's ability to raise finance is partially subject to the price of
gold, from which sales revenues are derived. There can be no certainty as to
the future gold price.
The following table details the Group's remaining contractual maturity for its
financial liabilities with agreed repayment periods. The table has been drawn
up based on the undiscounted cash flows of financial liabilities based on the
earliest date on which the Group can be required to pay. The table includes
both interest and principal cash flows. To the extent that interest flows are
floating rate, the undiscounted amount is derived from interest rate curves at
the end of the reporting period. The contractual maturity is based on the
earliest date on which the Group may be required to pay.
At 31 December 2021 Up to 3 months Between 3 and 12 months Between 1 and 2 years Between 2 and 5 years Over 5 years
US$'000 US$'000 US$'000 US$'000 US$'000
Trade and other payables 30,717 - - - -
Contract liabilities - 2,379 - - -
Lease liabilities 175 162 196 577 189
Other loans 3,072 9,425 10,223 - -
Convertible loan notes - 28,777 - - -
Total 33,964 40,743 10,419 577 189
At 31 December 2020 Up to 3 months Between 3 and 12 months Between 1 and 2 years Between 2 and 5 years Over 5 years
US$'000 US$'000 US$'000 US$'000 US$'000
Trade and other payables 17,400 - - - -
Contract liabilities - 5,328 - - -
Lease liabilities 259 519 208 509 347
Other loans 2,684 11,025 14,000 34,127 -
Convertible loan notes - 26,357 - - -
Total 20,343 43,229 14,208 34,636 347
As a result of the maturity date extension that took place in 2021, the
Group's convertible loan notes are repayable on 31 October 2022.
35. Post balance sheet events
Share options and shares issued to the Company's Chief Executive Officer, Mr.
Michael Fraser
In January 2022, the Company granted options over five million ordinary shares
of US$0.01 each in the Company to the newly appointed Chief Executive Officer,
Mr. Michael Fraser, under the Chaarat Gold Holdings Limited Management
Incentive Plan 2019 (the "MIP"). The options are exercisable at a price of
£0.42 per share between 18 January 2022 and 18 January 2027 subject to the
rules of the MIP.
The Company also agreed to pay Mr Fraser a sign-on bonus of US$62,500. It was
agreed that this would be satisfied by the issue of ordinary shares of US$0.01
each in the capital of the Company at £0.185 per share, being the average
middle market quotation (MMQ) over the three dealing days immediately prior to
the issue of the shares. Due to human error, one of the MMQs used to calculate
the three-day average MMQ was incorrect which resulted in 255,935 shares being
issued to Mr Fraser rather than 247,368 shares. Mr Fraser rectified this by
paying the Company a cash subscription price for the additional 8,567 shares
at the three-day average MMQ.
Ukraine conflict and Russian sanctions
The conflict in Ukraine and the associated sanctions against Russia have had
no material impact on our operations so far, and therefore no impact on these
financial statements.
36. Timetable and distribution of accounts
The Annual General Meeting ("AGM") will be held on Tuesday, 17 May 2022 at
10am at the offices of Watson Farley & Williams LLP, 15 Appold Street,
London EC2A 2HB, United Kingdom.
Copies of the Annual Report and Notice of the Annual General Meeting will be
sent to shareholders by 22 April 2022.
Additional copies of the Annual Report and Accounts will be available for
inspection at the registered office of the Company from the date of this
notice until the conclusion of the Annual General Meeting and will be posted
on the Company's website - www.chaarat.com (http://www.chaarat.com/)
Kapan Resources and Reserves Update
The Company updated its Mineral Resources and Ore Reserves in June 2021 which
was signed off by independent consultant AMC and the Chaarat board in March
2022. The Mineral Resources and Ore Reserves, detailed in this press release,
have been reported following the guidelines and requirements of the
Australasian Code for Reporting of Exploration Results, Mineral Resources and
Ore Reserves ('the JORC Code'), 2012 (JORC 2012).
The following table summarises the 2021 Constrained Mineral Resource Estimate:
Grade Metal
Classification Tonnes (Mt) Density Au (g/t) Ag (g/t) Cu (%) Zn (%) AuEq (g/t) Au (Koz) Ag (Koz) Cu (Kt) Zn (Kt) AuEq (Koz)
Measured 0.24 2.72 6.55 107.9 1.24 5.10 12.17 50 826 2.95 12.1 93
Indicated 1.76 2.76 4.43 88.31 0.92 3.51 8.60 250 4,989 16.2 61.6 486
M & I 2.00 2.76 4.69 90.65 0.96 3.70 9.03 301 5,815 19.2 73.7 579
Inferred 3.50 2.80 3.37 76.46 0.79 2.71 6.89 379 8,596 27.6 94.8 775
· The effective date of the resource is 1st June, 2021. The Mineral
Resources that are not Mineral reserve do not demonstrate economic
viability. Numbers may not sum due to rounding.
· The gold equivalency formula is: Au Eq = Au + (Ag g/t * ($25 /
$1,700) + (Cu % * ($8,000 * 31.1035 / $1,700) / 100) + (Zn % * ($2,500 *
31.1035 / $1,700) / 100
· Wireframes defined by a mineralized cut-off with a parent block
size of 4 m x 4 m x 4 m, Grades interpolation is by Ordinary Kriging method.
· MSO applied assuming: minimum width 2.2m; COG 2.0g/t Au Eq
· Mineral Resources are with applied depletion and inclusive of Ore
Reserves.
· The resource estimate and classification is according the JORC
Code (2012) reporting code.
This update of the Mineral Resource estimate from 2019 is reflecting the
mining depletion and mine development and grade control drilling conducted in
the subsequent 2020-2021 period.
It is the CP's opinion that the Measured and Indicated Mineral resource herein
is a reliable basis for the Ore Reserve Estimate update.
The following table summarises the 2021 Ore Reserves:
Grade Metal
Classification Tonnes (Mt) Au (g/t) Ag (g/t) Cu (%) Zn (%) AuEq (g/t) Au (Koz) Ag (Koz) Cu (Kt) Zn (Kt) AuEq (Koz)
Proven 0.15 2.21 37.55 0.45 1.60 4.07 10.4 184.1 0.7 2.4 19.9
Probable 2.39 1.63 32.90 0.33 1.23 3.17 125.6 2,531.7 8.0 29.5 243.8
Total Proven and Probable 2.55 1.66 33.17 0.34 1.25 3.22 136.0 2,715.9 8.7 31.9 263.7
· Ore Reserves, fulfilling the requirement of the JORC Code (2012),
are contingent on completion of a formal Mineral Resource report and
application of reasonable prospects for eventual economic extraction to
Mineral Resource statement.
· Ore Reserves are based on long-term metal prices of USD1,700/oz
Au, USD25/oz Ag, USD8,000/t Cu, and USD2,500 Zn.
· Ore Reserves are based on a gold equivalent cut-off of 2.0g/t Au.
· Mineral Resources which are not Ore Reserves do not have
demonstrated economic viability.
· Table is subject to rounding errors.
· The average density of Measured and Indicated Resources is 2.67
t/m3. A density of 2.64 t/m3 was used for unmodelled diluting waste material.
· Tones reported are in situ, dry tonnes.
Historical upgrade of Inferred Resource to M&I Resource that can be
converted to reserves suggests that the life of mine can be further extended
from the anticipated upgrading of a portion of the current Inferred
Resource. Ongoing exploration is expected to continue adding to this
inventory.
Quality Assurance/Quality Control Procedures: Sampling Methodology and Quality
Control
The CP, Dimitar Dimitrov, has visited Kapan operation and Kapan technical
services team in the period of September 26 to October 1, 2021 and confirms
the approaches used for data collection, resource modeling and mineral
resource estimation at Kapan meet the international standards, and are
considered appropriate for Mineral Resource Estimation.
Geological Modelling Procedures
The Mineral Resource update is based on technical data, exploration and
technical reports, maps and sections, and are source block model provided by
the Kapan technical department. Mr. Khoren Harutunyan and Nikolay Dimitrov
from Chaarat are the lead technical geological experts involved in the
resource block model, geostatistical analysis, and verification procedures.
Glossary of Technical Terms
"Central Pit" Tulkubash deposit area as defined in the bankable feasibility study 2021
"FA / ICP 35" Fire Assay gold assay method / Inductively Coupled Plasma is a multi-element
analytical method for determination of the element content in materials, used
to assay silver, base metals etc.
"g/t" grammes per tonne, equivalent to parts per million
"Inferred Resource" that part of a Mineral Resource for which tonnage, grade and mineral content
can be estimated with a low level of confidence. It is inferred from
geological evidence and assumed but not verified geological and/or grade
continuity. It is based on information gathered through appropriate techniques
from locations such as outcrops, trenches, pits, workings and drill holes
which may be limited or of uncertain quality and reliability
"Indicated Resource" that part of a Mineral Resource for which tonnage, densities, shape, physical
characteristics, grade and mineral content can be estimated with a reasonable
level of confidence. It is based on exploration, sampling and testing
information gathered through appropriate techniques from locations such as
outcrops, trenches, pits, workings and drill holes. The locations are too
widely or inappropriately spaced to confirm geological and/or grade continuity
but are spaced closely enough for continuity to be assumed
"JORC" The Australasian Joint Ore Reserves Committee Code for Reporting of
Exploration Results, Mineral Resources and Ore Reserves 2012 (the "JORC Code"
or "the Code"). The Code sets out minimum standards, recommendations and
guidelines for Public Reporting in Australasia of Exploration Results, Mineral
Resources and Ore Reserves
"koz" thousand troy ounces of gold
"Measured Resource" that part of a Mineral Resource for which tonnage, densities, shape, physical
characteristics, grade and mineral content can be estimated with a high level
of confidence. It is based on detailed and reliable exploration, sampling and
testing information gathered through appropriate techniques from locations
such as outcrops, trenches, pits, workings and drill holes. The locations are
spaced closely enough to confirm geological and grade continuity
a concentration or occurrence of material of intrinsic economic interest in or
on the Earth's crust in such form, quality and quantity that there are
"Mineral Resource" reasonable prospects for eventual economic extraction. The location, quantity,
grade, geological characteristics and continuity of a Mineral Resource are
known, estimated or interpreted from specific geological evidence and
knowledge. Mineral Resources are sub-divided, in order of increasing
geological confidence, into Inferred, Indicated and Measured categories when
reporting under JORC
"MRE" Mineral Resource Estimate
"Mt" million tonnes
"oz" troy ounce (= 31.103477 grammes)
"PQ Core" Diamond drill core with 122.6mm hole diameter
"Ore Reserves" the part of a Measured and/or Indicated Mineral Resource that can be mined at
a profit. Reserves are subdivided in order of increasing confidence into
Probable and Proven categories when reporting under JORC.
"Probable Reserve" the part of Indicated and in some cases Measured Resource that can be mined at
a profit. It includes diluting materials and allowances for losses that may
occur during mining.
"Proven Reserve" the part of Indicated and Measured Resource that can be mined at a profit.
It includes diluting materials and allowances for losses that may occur during
mining.
"t" tonne (= 1 million grammes)
"QA/QC" Quality assurance and quality control (QA/QC) procedures during exploration
ensures the trustworthiness of the data produced.
Quality assurance (QA) and quality control (QC) are procedures used in the
laboratory to ensure that all analytical measurements made are accurate.
Appendix 1 - JORC Code, 2012 Edition - Table 1 report
Section 1 Sampling Techniques and Data
Criteria JORC Code explanation Commentary
Sampling techniques Nature and quality of sampling (e.g., cut channels, random chips, or specific Sampling comprises of historical surface drilling, historical and current
specialized industry standard measurement tools appropriate to the minerals underground drilling and channel sampling
under investigation, such as down hole gamma sondes, or handheld XRF
instruments, etc.). These examples should not be taken as limiting the broad Predominantly diamond drilling, and channel cut from the face, with a chisel
meaning of sampling. saw, according to a marked channel boundary
Include reference to measures taken to ensure sample representivity and the Core was drilled along the full mineralization intersection, as normal to the
appropriate calibration of any measurement tools or systems used. mineralization strike as possible
Aspects of the determination of mineralization that are Material to the Public Channel rock chips are providing representative data collection of the sampled
Report. face.
In cases where 'industry standard' work has been done this would be relatively All sampling practices are meeting the industry standards
simple (e.g. 'reverse circulation drilling was used to obtain 1 m samples from
which 3 kg was pulverized to produce a 30 g charge for fire assay'). In other
cases, more explanation may be required, such as where there is coarse gold
that has inherent sampling problems. Unusual commodities or mineralization
types (eg submarine nodules) may warrant disclosure of detailed information.
Drilling techniques Drill type (eg core, reverse circulation, open-hole hammer, rotary air blast, Historical RC sampling comprises: 13105.samples (14.3 km)
auger, Bangka, sonic, etc.) and details (e.g. core diameter, triple or
standard tube, depth of diamond tails, face-sampling bit or other type, Channel sampling comprises: 116965 samples (112.1 km)
whether core is oriented and if so, by what method, etc.)
Diamond drill hole sampling comprises:614819 samples (900.6km)
Total sampling: 744889.samples (approx. 1027km)
Core is predominantly HQ and NQ diameter, singe barrel drilled.
Channel samples are chipped along the marked face with a pneumatic hammer and
collected by the sampler in one-meter intervals. All channel samples are taken
from south to north, in a horizontal fashion, rather than perpendicular to the
mineralized dip angle. The results from the channel sampling are used for
grade control, modelling, mine design, resource estimation, and for mine
reconciliation data.
The samples are contoured along all major lithological breaks.
Drill sample recovery Method of recording and assessing core and chip sample recoveries and results The core recovery is assessed by regular measurements of each drill run and
assessed. generally excess 95 %. Core recovery is based on recovered core length vs
drill run length, and RC is based on recovered weights
Measures taken to maximize sample recovery and ensure representative nature of
the samples. There doesn't appear to be a relationship bias between grade and length, or
sample weight or recovery.
Whether a relationship exists between sample recovery and grade and whether
sample bias may have occurred due to preferential loss/gain of fine/coarse The average grade of the channel samples is higher compared to the drilling.
material. This is primarily attributed to the frequency of channel samples in high grade
open areas of the mine, compared to drilling
Logging Whether core and chip samples have been geologically and geotechnically logged Once the hole is finished, the core is transported to the core storage area
to a level of detail to support appropriate Mineral Resource estimation, for logging. The core trays are plastic, and are covered with a plastic cover
mining studies and metallurgical studies. as well, to prevent core losses or extra moving.
Whether logging is qualitative or quantitative in nature. Core (or costean, Core recovery measuring; Sample interval marking; Geological and Geotechnical
channel, etc) photography. logging; Photo documentation; Sampling and later destruction of
non-mineralized part
The total length and percentage of the relevant intersections logged.
Core logging is including lithology, alteration, mineralization, and
structures, geotechnical features for assess RMR and Q-index.
Sampling is primarily based on the visible mineralization, and minimum 2
meters are taken from either side of the sampled interval.
The maximum sampling interval is 1 meter, the minimum is 0.2m
Once the sampling intervals are outlined, currently a full core diameter is
used for assaying. Areas of non-visible mineralization, outside of the
expected mineralization zone are not sampled.
In absence of visible mineralization, but in areas where mineralization
interception is expected the material is sampled depending of the field
geologist's decision, taking into account all the available information.
The collection of geological data is meeting the industrial standards.
The core logging keeps a high standard, and the involved geologists have
sufficient knowledge for Shahumyan mineralization system.
Sub-sampling techniques and sample preparation If core, whether cut or sawn and whether quarter, half or all core taken. Prior to July 2017 core was halved with a diamond saw and half was sent for
analysis and the other half was retained. Since then, the whole core is
If non-core, whether riffled, tube sampled, rotary split, etc and whether processed and only the pulps are retained for future analysis.
sampled wet or dry.
The laboratory prepares samples according to industry standard of drying
For all sample types, the nature, quality and appropriateness of the sample crushing, pulverizing, splitting and analysis.
preparation technique.
All samples are analysed in the local Kapan's mine laboratory
Quality control procedures adopted for all sub-sampling stages to maximise
representivity of samples. The laboratory is providing Fire Assay with AAS for gold (0.2 g/t-1000g/t),
and AAS for Ag (0.2 g/t -20000g/t), Cu (0.005%-9.9%), Pb (0.005%-19.9%) and Zn
Measures taken to ensure that the sampling is representative of the in situ (0.005%-29.9%).
material collected, including for instance results for field
duplicate/second-half sampling. Duplicates are run as part of QA / QC protocol
Whether sample sizes are appropriate to the grain size of the material being
sampled.
Quality of assay data and laboratory tests The nature, quality and appropriateness of the assaying and laboratory The assaying is meeting the industry standards and it is suitable to support
procedures used and whether the technique is considered partial or total. Mineral Resource estimate.
For geophysical tools, spectrometers, handheld XRF instruments, etc, the The current QA/QC scheme is including blank sample at the beginning of each
parameters used in determining the analysis including instrument make and new drill hole and reference material (standard) at each 20-th sample. As core
model, reading times, calibrations factors applied and their derivation, etc. is no longer halved, no field duplicate are assessed, and historically these
results were no good due to highly variable nature of mineralization.
Nature of quality control procedures adopted (eg standards, blanks,
duplicates, external laboratory checks) and whether acceptable levels of QA/QC achieves acceptable levels of accuracy and precision.
accuracy (ie lack of bias) and precision have been established.
Verification of sampling and assaying The verification of significant intersections by either independent or Yearly, in each quarter, between 3 and 5 percent of the pulps are sent to
alternative company personnel. Yerevan state laboratory for reference the results.
The use of twinned holes. A twin analysis has been conducted during 2017-2018 by local geology team for
channel and diamond drilling (DD) holes and shows potential bias that could be
Documentation of primary data, data entry procedures, data verification, data attributed to highly variable nature of mineralization
storage (physical and electronic) protocols.
Discuss any adjustment to assay data.
Location of data points Accuracy and quality of surveys used to locate drill holes (collar and Grid system is ARM_WGS-84
down-hole surveys), trenches, mine workings and other locations used in
Mineral Resource estimation. Survey is completed underground, with high precision tools which meets the
industrial standards: Leica TS16 (3'' accuracy), Ranger Explorer II R2231,
Specification of the grid system used. IMMN_32A.
Quality and adequacy of topographic control. The available digital elevation model of the area topography is used in the
Mineral Resource estimation process (surveyed via GPS by expatriate and local
surveyors in 2013)
Data spacing and distribution Data spacing for reporting of Exploration Results. Along the drive advancing, a channel sampling is taken every blast.
Whether the data spacing and distribution is sufficient to establish the Typically, the space between two blasts is 4 -6m
degree of geological and grade continuity appropriate for the Mineral Resource
and Ore Reserve estimation procedure(s) and classifications applied. The grade control drilling net is 20 X 20 m, adjusted to denser grid, where
required
Whether sample compositing has been applied.
The geostatistical analysis and trial blast unit drilling data have shown that
thicker data spacing, and distribution don't add any sufficient value in
accuracy of geological and grade continuity.
As majority of samples have 1m in length, the 1m composite is being applied.
Orientation of data in relation to geological structure Whether the orientation of sampling achieves unbiased sampling of possible Geometry is derived and interpreted from underground mapping and sampling.
structures and the extent to which this is known, considering the deposit True thickness is calculated from apparent thickness, during the
type. interpretation.
If the relationship between the drilling orientation and the orientation of No bias has been introduced through the geometry of the sampling and
key mineralised structures is considered to have introduced a sampling bias, subsequent geological interpretation
this should be assessed and reported if material.
Sample security The measures taken to ensure sample security. The mine process plant and laboratory are sufficiently secured, with security
guards and entry, requiring personal ID cards
Audits or reviews The results of any audits or reviews of sampling techniques and data. Independent reviews have considered the sampling process to meet industry best
practices: NI 43-101 Technical Report in 2014 (Galen White - QP, Julian
Bennett- QP, Simon Meik - QP) and Global Report (Galen White - QP) in 2018 by
CSA, report by AMC (Alan Turner, Bryan Pullman) in 2019
Section 3 Estimation and Reporting of Mineral Resources
(Criteria listed in section 1, and where relevant in section 2, also apply to
this section.)
Criteria JORC Code explanation Commentary
Database integrity Measures taken to ensure that data has not been corrupted by, for example, Data is logged and digitized by trained geologists
transcription or keying errors, between its initial collection and its use for
Mineral Resource estimation purposes. The used software is providing several stages of cross validation, initial
through the logging process, second when the logging data is imported to main
Data validation procedures used. database platform (acQuire) and one more time prior the Mineral Resource
estimation
Site visits Comment on any site visits undertaken by the Competent Person and the outcome The last site visit of competent person (Dimitar Dimitrov) for the Mineral
of those visits. Resource was from 25.09.2021 to 01.10.2021
If no site visits have been undertaken indicate why this is the case. Mr.Dimitar Dimitrov P. Geo, AIG member and a Competent Person as defined in
the 2012 edition of the JORC Code 'Australasian Code for Reporting of
Exploration Results, Mineral Resources and Ore Reserves', is a full-time
employee of the company.
Geological interpretation Confidence in (or conversely, the uncertainty of) the geological Based on lithological evidence (drill core logging and underground mapping
interpretation of the mineral deposit. data) the veins and veinlets are being interpreted.
Nature of the data used and of any assumptions made. The Mineral Resource is controlled by hard boundaries of the interpreted
geological structures, including faults and post mineralization barren dykes.
The effect, if any, of alternative interpretations on Mineral Resource
estimation. The geological continuity is reasonable, but grade variability is high, often
within the mineralized structure
The use of geology in guiding and controlling Mineral Resource estimation.
The factors affecting continuity both of grade and geology.
Dimensions The extent and variability of the Mineral Resource expressed as length (along The Resource includes a series of E_W striking orebodies (246 veins). Vein
strike or otherwise), plan width, and depth below surface to the upper and strike lengths reach 0.5km, down dip extents from 45(o) to 90(o) (mainly south
lower limits of the Mineral Resource. direction) and true thickness ranges from several cm to 2m.
The Resources goes near the surface (~950masl) to average of 500 - 600 m asl
deep.
Further mineralization potential exists below 600msal, and to the flanks of
current Resource, explored historically
Estimation and modelling techniques The nature and appropriateness of the estimation technique(s) applied and key The Mineral Resource estimation was completed in Datamine Studio by Kapan's
assumptions, including treatment of extreme grade values, domaining, geological department
interpolation parameters and maximum distance of extrapolation from data
points. If a computer assisted estimation method was chosen include a The wireframes were prepared in Leapfrog Geo
description of computer software and parameters used.
The grades were interpolated by Ordinary Kriging
The availability of check estimates, previous estimates and/or mine production
records and whether the Mineral Resource estimate takes appropriate account of Top-cuts were applied for each vein (based on statistical analysis).
such data.
The search radii were defined by variogram modelling of veins
The assumptions made regarding recovery of by-products.
The estimate was constrained into the hard boundary of the mineralization
Estimation of deleterious elements or other non-grade variables of economic interpretation
significance (eg sulphur for acid mine drainage characterisation).
Parent cell dimensions are 4*4*4 (as the smallest blast unit is 2*2m and
In the case of block model interpolation, the block size in relation to the channel sample distance is 4-6m)
average sample spacing and the search employed.
As minimum sub-celling dimensions 0.25*0.1*0.25 are used
Any assumptions behind modelling of selective mining units.
The composite length is 1m
Any assumptions about correlation between variables.
The validation methods currently show high level of correspondence between
Description of how the geological interpretation was used to control the forecasted and actual data:
resource estimates.
Visual inspection in section and plan comparing the block model grade
Discussion of basis for using or not using grade cutting or capping. distribution to the original drillhole and other sample grades.
The process of validation, the checking process used, the comparison of model Creation of swath plots.
data to drill hole data, and use of reconciliation data if available.
Global summary statistics comparing the composite grades to the block grades.
Comparison with previous Mineral Resource estimates
Reconciliation that includes comparing forecasted data and measurements in
different phases of mining process
Mineral Inventory, depleted up to 06-2021, COG 1.5g/t AuEq:
Classification Tonnes (mt) AuEq (g/t)
Measured 0.574 8.88
Indicated 5.712 5.04
M& I 6.287 5.39
Inferred 7.696 4.69
AuEq = Au(grade) + Ag(grade) x Ag(price)/Au(price) + Cu(grade) xCu(price)x
31.1035/(Au(price) x 100) + Zn(grade) x Zn(price) x 31.1035/(Au(price) x
100)
Moisture Whether the tonnages are estimated on a dry basis or with natural moisture, Tonnage is reported on dry basis
and the method of determination of the moisture content.
Cut-off parameters The basis of the adopted cut-off grade(s) or quality parameters applied.
1.5g/t Aueq cut off grade was used in the process of wireframing and Mineral
Inventory estimate. Cut off grade of 2g/tAueq is applied MSO Mineral Resource
estimate
Parameter Units Ore Reserves Assumptions
Metal Prices
Gold price USD/oz Au 1700.00
Silver price USD/oz Ag 25.00
Copper price USD/t Cu 8000.00
Zinc price USD/t Zn 2500.00
Gold Recoveries and Refining Costs
Gold recovery % 71.88
Gold offsite charges USD/g Au 15.22
Gold royalties % of NSR 6.0
Operating costs
Mine USD/t ore 51.9
Mill USD/t ore 12.9
G&A USD/t ore 5.4
Total Cost USD/t ore 70.1
Mining factors or assumptions Assumptions made regarding possible mining methods, minimum mining dimensions The Resource model is based on geology
and internal (or, if applicable, external) mining dilution. It is always
necessary as part of the process of determining reasonable prospects for The reasonable prospects for eventual economic extraction were achieved by
eventual economic extraction to consider potential mining methods, but the running Mineable Stope Optimization (MSO) and report the Resource incorporated
assumptions made regarding mining methods and parameters when estimating in it
Mineral Resources may not always be rigorous. Where this is the case, this
should be reported with an explanation of the basis of the mining assumptions The assumed minimum mining width is 2.2m (accounted in MSO run) for sublevel
made. mechanized mining method, and cut off grade 2.0 g/t
AuEq.
Mineral Resource
Classification Tonnes (mt) AuEq (g/t)
Measured 0.238 12.17
Indicated 1.757 8.60
M& I 1.995 9.03
Inferred 3.497 6.89
Metallurgical factors or assumptions The basis for assumptions or predictions regarding metallurgical amenability. The reported Resource estimates assumes 72% gold recovery to determined
It is always necessary as part of the process of determining reasonable reasonable prospects.
prospects for eventual economic extraction to consider potential metallurgical
methods, but the assumptions regarding metallurgical treatment processes and
parameters made when reporting Mineral Resources may not always be rigorous.
Where this is the case, this should be reported with an explanation of the
basis of the metallurgical assumptions made.
Environmental factors or assumptions Assumptions made regarding possible waste and process residue disposal There no known factors which may inhibit the extraction of the Resource
options. It is always necessary as part of the process of determining
reasonable prospects for eventual economic extraction to consider the
potential environmental impacts of the mining and processing operation. While
at this stage the determination of potential environmental impacts,
particularly for a greenfields project, may not always be well advanced, the
status of early consideration of these potential environmental impacts should
be reported. Where these aspects have not been considered this should be
reported with an explanation of the environmental assumptions made.
Bulk density Whether assumed or determined. If assumed, the basis for the assumptions. If Currently the density estimation is using polynomial regression model based on
determined, the method used, whether wet or dry, the frequency of the modelled sulphur grade:
measurements, the nature, size and representativeness of the samples.
If S >= 19.8 %, Density == exp [0.2587x + 0.4835], for x = ln (S grades)
The bulk density for bulk material must have been measured by methods that
adequately account for void spaces (vugs, porosity, etc), moisture and If S > 1 and S <19.8%, Density == exp [0.0114169x6 - 0.0891652x5 +
differences between rock and alteration zones within the deposit. 0.26951043x4 + 0.38060004x3 + 0.23832052x2 + 0.0052027x + 0.9070334], for x =
ln (S grades)
Discuss assumptions for bulk density estimates used in the evaluation process
of the different materials. If S<1, Density = 2.65 g/cm3
In dykes Density = 2.65 g/cm3
Classification The basis for the classification of the Mineral Resources into varying The model is classified according to the quantity and quality of the data.
confidence categories.
The Measured Mineral Resource category was assigned to portions of the ore
Whether appropriate account has been taken of all relevant factors (ie bodies in the following cases:
relative confidence in tonnage/grade estimations, reliability of input data,
confidence in continuity of geology and metal values, quality, quantity and In the areas of current mine development workings, informed by both channel
distribution of the data). sampling data and drilling data and where the data spacing is less than 20x20
m.
Whether the result appropriately reflects the Competent Person's view of the
deposit.
The Indicated category was assigned to the portions of the ore bodies in the
following cases:
-In the areas with the exploration grid spacing up to 20×20 m, provided there
was enough confidence in the continuity of the ore body mineralization between
the drill holes.
-In the areas of extrapolation to up to 30 m distance from the last sublevel
drift in down-dip/up-dip direction of the ore body, provided there was enough
confidence in the continuity of its mineralization. The intersections of
extrapolation areas by exploration drill holes are not required in this case.
-In the areas of extrapolation to up to 30 m distance from the last sublevel
drift in the downdip /up-dip direction of the ore body. In case of any doubts
in continuity of this ore body mineralization, the exploration grid spacing of
not more than 20-30 m is required to classify the mineralization as an
Indicated Mineral Resource.
The Inferred category was assigned to the portions of the ore bodies if they
could not be classified as an Indicated Mineral Resource.
Audits or reviews The results of any audits or reviews of Mineral Resource estimates. A high-level review of the Mineral Resource block model and supporting data
was carried out by AMC at November 2021. AMC concluded that block model is
providing sufficient representatives, but makes certain recommendation,
described below, which were used by Kapan's team to improve the Resource
Estimation.
4. To improve the Sulphur and density estimates, via
additional Sulphur sampling
5. Inclusion of field and coarse duplicates as part of the
QA/QC procedures
Discussion of relative accuracy/ confidence Where appropriate a statement of the relative accuracy and confidence level in The effective date of the Resource is 01.06.2021
the Mineral Resource estimate using an approach or procedure deemed
appropriate by the Competent Person. For example, the application of Model estimates were checked by QQ plots, swath plots, and by comparing the
statistical or geostatistical procedures to quantify the relative accuracy of volumes of the wireframes and the block model, statistically and visually.
the resource within stated confidence limits, or, if such an approach is not
deemed appropriate, a qualitative discussion of the factors that could affect
the relative accuracy and confidence of the estimate.
The statement should specify whether it relates to global or local estimates,
and, if local, state the relevant tonnages, which should be relevant to
technical and economic evaluation. Documentation should include assumptions
made and the procedures used.
These statements of relative accuracy and confidence of the estimate should be
compared with production data, where available.
AuEq = Au(grade) + Ag(grade) x Ag(price)/Au(price) + Cu(grade) xCu(price)x
31.1035/(Au(price) x 100) + Zn(grade) x Zn(price) x 31.1035/(Au(price) x
100)
Moisture
Whether the tonnages are estimated on a dry basis or with natural moisture,
and the method of determination of the moisture content.
Tonnage is reported on dry basis
Cut-off parameters
The basis of the adopted cut-off grade(s) or quality parameters applied.
1.5g/t Aueq cut off grade was used in the process of wireframing and Mineral
Inventory estimate. Cut off grade of 2g/tAueq is applied MSO Mineral Resource
estimate
Parameter Units Ore Reserves Assumptions
Metal Prices
Gold price USD/oz Au 1700.00
Silver price USD/oz Ag 25.00
Copper price USD/t Cu 8000.00
Zinc price USD/t Zn 2500.00
Gold Recoveries and Refining Costs
Gold recovery % 71.88
Gold offsite charges USD/g Au 15.22
Gold royalties % of NSR 6.0
Operating costs
Mine USD/t ore 51.9
Mill USD/t ore 12.9
G&A USD/t ore 5.4
Total Cost USD/t ore 70.1
Mining factors or assumptions
Assumptions made regarding possible mining methods, minimum mining dimensions
and internal (or, if applicable, external) mining dilution. It is always
necessary as part of the process of determining reasonable prospects for
eventual economic extraction to consider potential mining methods, but the
assumptions made regarding mining methods and parameters when estimating
Mineral Resources may not always be rigorous. Where this is the case, this
should be reported with an explanation of the basis of the mining assumptions
made.
The Resource model is based on geology
The reasonable prospects for eventual economic extraction were achieved by
running Mineable Stope Optimization (MSO) and report the Resource incorporated
in it
The assumed minimum mining width is 2.2m (accounted in MSO run) for sublevel
mechanized mining method, and cut off grade 2.0 g/t
AuEq.
Mineral Resource
Classification Tonnes (mt) AuEq (g/t)
Measured 0.238 12.17
Indicated 1.757 8.60
M & I 1.995 9.03
Inferred 3.497 6.89
Metallurgical factors or assumptions
The basis for assumptions or predictions regarding metallurgical amenability.
It is always necessary as part of the process of determining reasonable
prospects for eventual economic extraction to consider potential metallurgical
methods, but the assumptions regarding metallurgical treatment processes and
parameters made when reporting Mineral Resources may not always be rigorous.
Where this is the case, this should be reported with an explanation of the
basis of the metallurgical assumptions made.
The reported Resource estimates assumes 72% gold recovery to determined
reasonable prospects.
Environmental factors or assumptions
Assumptions made regarding possible waste and process residue disposal
options. It is always necessary as part of the process of determining
reasonable prospects for eventual economic extraction to consider the
potential environmental impacts of the mining and processing operation. While
at this stage the determination of potential environmental impacts,
particularly for a greenfields project, may not always be well advanced, the
status of early consideration of these potential environmental impacts should
be reported. Where these aspects have not been considered this should be
reported with an explanation of the environmental assumptions made.
There no known factors which may inhibit the extraction of the Resource
Bulk density
Whether assumed or determined. If assumed, the basis for the assumptions. If
determined, the method used, whether wet or dry, the frequency of the
measurements, the nature, size and representativeness of the samples.
The bulk density for bulk material must have been measured by methods that
adequately account for void spaces (vugs, porosity, etc), moisture and
differences between rock and alteration zones within the deposit.
Discuss assumptions for bulk density estimates used in the evaluation process
of the different materials.
Currently the density estimation is using polynomial regression model based on
modelled sulphur grade:
If S >= 19.8 %, Density == exp [0.2587x + 0.4835], for x = ln (S grades)
If S > 1 and S <19.8%, Density == exp [0.0114169x6 - 0.0891652x5 +
0.26951043x4 + 0.38060004x3 + 0.23832052x2 + 0.0052027x + 0.9070334], for x =
ln (S grades)
If S<1, Density = 2.65 g/cm3
In dykes Density = 2.65 g/cm3
Classification
The basis for the classification of the Mineral Resources into varying
confidence categories.
Whether appropriate account has been taken of all relevant factors (ie
relative confidence in tonnage/grade estimations, reliability of input data,
confidence in continuity of geology and metal values, quality, quantity and
distribution of the data).
Whether the result appropriately reflects the Competent Person's view of the
deposit.
The model is classified according to the quantity and quality of the data.
The Measured Mineral Resource category was assigned to portions of the ore
bodies in the following cases:
In the areas of current mine development workings, informed by both channel
sampling data and drilling data and where the data spacing is less than 20x20
m.
The Indicated category was assigned to the portions of the ore bodies in the
following cases:
-In the areas with the exploration grid spacing up to 20×20 m, provided there
was enough confidence in the continuity of the ore body mineralization between
the drill holes.
-In the areas of extrapolation to up to 30 m distance from the last sublevel
drift in down-dip/up-dip direction of the ore body, provided there was enough
confidence in the continuity of its mineralization. The intersections of
extrapolation areas by exploration drill holes are not required in this case.
-In the areas of extrapolation to up to 30 m distance from the last sublevel
drift in the downdip /up-dip direction of the ore body. In case of any doubts
in continuity of this ore body mineralization, the exploration grid spacing of
not more than 20-30 m is required to classify the mineralization as an
Indicated Mineral Resource.
The Inferred category was assigned to the portions of the ore bodies if they
could not be classified as an Indicated Mineral Resource.
Audits or reviews
The results of any audits or reviews of Mineral Resource estimates.
A high-level review of the Mineral Resource block model and supporting data
was carried out by AMC at November 2021. AMC concluded that block model is
providing sufficient representatives, but makes certain recommendation,
described below, which were used by Kapan's team to improve the Resource
Estimation.
4. To improve the Sulphur and density estimates, via
additional Sulphur sampling
5. Inclusion of field and coarse duplicates as part of the
QA/QC procedures
Discussion of relative accuracy/ confidence
Where appropriate a statement of the relative accuracy and confidence level in
the Mineral Resource estimate using an approach or procedure deemed
appropriate by the Competent Person. For example, the application of
statistical or geostatistical procedures to quantify the relative accuracy of
the resource within stated confidence limits, or, if such an approach is not
deemed appropriate, a qualitative discussion of the factors that could affect
the relative accuracy and confidence of the estimate.
The statement should specify whether it relates to global or local estimates,
and, if local, state the relevant tonnages, which should be relevant to
technical and economic evaluation. Documentation should include assumptions
made and the procedures used.
These statements of relative accuracy and confidence of the estimate should be
compared with production data, where available.
The effective date of the Resource is 01.06.2021
Model estimates were checked by QQ plots, swath plots, and by comparing the
volumes of the wireframes and the block model, statistically and visually.
Section 4 Estimation and Reporting of Ore Reserves
Criteria JORC Code explanation Commentary
Mineral Resource estimate for conversion to Ore Reserves Description of the Mineral Resource estimate used as a basis for the The Mineral Resource Estimate was produced by Mr Dimitar Dimitrov, Senior VP
conversion to an Ore Reserve. Exploration of Chaarat, with an effective date of 1 June 2021 as described in
Section 3.
Clear statement as to whether the Mineral Resources are reported additional
to, or inclusive of, the Ore Reserves. The Mineral Resources are reported inclusive of the Ore Reserves.
Site visits Comment on any site visits undertaken by the Competent Person and the outcome A site visit, of four days, was undertaken by the Ore Reserves Competent
of those visits. Person (CP), Mr James Town of AMC Consultants (UK) Limited, in July 2019.
If no site visits have been undertaken indicate why this is the case. No recent site visits have been undertaken due to COVID travel restrictions.
Study status The type and level of study undertaken to enable Mineral Resources to be Shahumyan mine has been operating since 1994 and at full production for more
converted to Ore Reserves. than 15 years. Information gathered during the production period has been used
to update and inform the current Ore Reserve. Production, sales, and other
The Code requires that a study to at least Pre-Feasibility Study level has data from the previous five years were used as a basis for assessing the ore
been undertaken to convert Mineral Resources to Ore Reserves. Such studies reserve calculation.
will have been carried out and will have determined a mine plan that is
technically achievable and economically viable, and that material Modifying The Ore Reserve is based on the life-of-mine design, schedule, and cost model
Factors have been considered. generated by the Mine Technical Services Department (effective date of 31
December 2021), which has been reviewed by AMC.
Cut-off parameters The basis of the cut-off grade(s) or quality parameters applied. Cut-off grades are calculated using a gold equivalent (AuEq) calculation using
the revenue contributions of the four payable metals Au, Ag, Cu, and Zn.
The AuEq calculation includes all site operating costs associated with the
mine, process plant, and G&A along with royalties, transport and
concentrate treatment, and refining charges and penalties.
Mining areas are considered for inclusion in the Ore Reserve if the diluted
AuEq is greater than, or equal to, 2.0 g/t AuEq.
Mining factors or assumptions The method and assumptions used as reported in the Pre-Feasibility or Ore Reserves are based on an operating mine design generated by the on-site
Feasibility Study to convert the Mineral Resource to an Ore Reserve (i.e. technical staff, which has been reviewed by AMC.
either by application of appropriate factors by optimisation or by preliminary
or detailed design). The mining method used is longhole open-stoping, which is an appropriate
method for the narrow-vein deposit. The mining method has been refined with
operational experience.
Grade control consists of pre-development diamond drilling at approximately 20
m spacing followed by mapping and face channel sampling at approximately 4 m
spacing during vein drive development. All samples are processed at the
on-site laboratory with 5% control samples sent to external international
The choice, nature and appropriateness of the selected mining method(s) and laboratories.
other mining parameters including associated design issues such as pre-strip,
access, etc. SRK completed a geotechnical study in 2013, from which site geotechnical
personnel have developed procedures with operational experience. All
development headings and stopes are assessed before and during development by
the Geotechnical Engineer and have geotechnical specifications detailing
support requirements.
Individual stopes have a maximum length of 80 m and maximum height of 18 m,
with a maximum of three stopes forming a panel between a crown pillar, with
surface and sill pillars between levels.
The assumptions made regarding geotechnical parameters (eg pit slopes, stope A minimum mining width of 2.2 m has been applied to the Ore Reserve using
sizes, etc), grade control and pre-production drilling. Mineable Shape Optimizer™ (MSO).
The major assumptions made and Mineral Resource model used for pit and stope Current mining areas are accessed via portals located at the south of the
optimisation (if appropriate). deposit and multiple declines located across the deposit.
Dilution is accounted for in the Ore Reserve on a vein-by-vein basis, based on
geometry and historic production statistics. The average dilution factors in
the Ore Reserve are:
The mining dilution factors used. Internal geological dilution in Resource model: 1%
The mining recovery factors used. Primary mining dilution (minimum mining width): 47%
Any minimum mining widths used. Secondary mining dilution (unplanned in stope): 15%
The manner in which Inferred Mineral Resources are utilised in mining studies Additional dilution of 10% has been included in the Ore Reserve for vein drive
and the sensitivity of the outcome to their inclusion. development headings to account for overbreak in development and waste derived
from development off vein during block definition.
The infrastructure requirements of the selected mining methods.
Mining losses are estimated to be 1% of the Ore Reserve.
Inferred Mineral Resources were treated as waste and are not included in the
Ore Reserves.
Metallurgical factors or assumptions The metallurgical process proposed and the appropriateness of that process to Gold and zinc concentrates are produced through conventional crushing,
the style of mineralisation. grinding, flotation, thickening, and filtration.
Whether the metallurgical process is well-tested technology or novel in The process is well-tested and has been in operation at Kapan for more than 15
nature. years.
The nature, amount and representativeness of metallurgical test work The process plant has two primary jaw crushers capable of crushing 2 Mtpa. The
undertaken, the nature of the metallurgical domaining applied and the grinding and flotation circuits have a maximum capacity of approximately 900
corresponding metallurgical recovery factors applied. ktpa.
Any assumptions or allowances made for deleterious elements. Metallurgical recoveries are based on historical plant performance data.
The existence of any bulk sample or pilot scale test work and the degree to The Ore Reserve is based on the Mineral Resource Estimate which includes
which such samples are considered representative of the orebody as a whole. individual estimation parameters for the payable metals Au, Ag, Cu, and Zn;
and as such, is appropriate to the mineralogy being processed.
For minerals that are defined by a specification, has the ore reserve
estimation been based on the appropriate mineralogy to meet the Operational metallurgical testwork is carried out daily at the plant
specifications? metallurgical test laboratory.
Deleterious elements Pb and S are also modelled in the Mineral resource model;
however, with the current mining locations and for the remainder of the mine
plan, the grades are not high enough to warrant corrective measures in the
process plant.
Environmen-tal The status of studies of potential environmental impacts of the mining and Chaarat possesses the required permits and planning permissions to effectively
processing operation. Details of waste rock characterisation and the operate the Shahoumyan mine, in accordance with Armenian environmental
consideration of potential sites, status of design options considered and, regulations.
where applicable, the status of approvals for process residue storage and
waste dumps should be reported. To the best of the CP's knowledge, all sites for waste rock and process
tailings and their design and construction have complied with all
environmental regulations, permits, and recommendations.
Infrastructure The existence of appropriate infrastructure: availability of land for plant All infrastructure required for the processing and mining of ore is in place
development, power, water, transportation (particularly for bulk commodities), and has been in place since exploration of the deposit in Soviet times
labour, accommodation; or the ease with which the infrastructure can be (1980s). The mine is located adjacent to the town of Kapan on the main
provided, or accessed. trunk-road connecting southern Armenia to the capital city, Yerevan.
Costs The derivation of, or assumptions made, regarding projected capital costs in Operating costs are based on site operating costs. AMC has reviewed historical
the study. cost reports including copies of major contractor invoices.
The methodology used to estimate operating costs. Treatment and refining costs are based on current concentrate sales terms. AMC
has reviewed historical gold and zinc concentrate sales invoices to confirm
Allowances made for the content of deleterious elements. the inputs used in the calculations.
The source of exchange rates used in the study. Penalty elements are accounted for in the concentrate treatment charges.
Derivation of transportation charges. Government royalties are included at 6% of NSR.
The basis for forecasting or source of treatment and refining charges,
penalties for failure to meet specification, etc.
The allowances made for royalties payable, both Government and private.
Revenue factors The derivation of, or assumptions made regarding revenue factors including Head grades are based on the block model generated by Chaarat in June 2021.
head grade, metal or commodity price(s) exchange rates, transportation and
treatment charges, penalties, net smelter returns, etc. Revenue has been based on metal prices of USD1,700/oz Au, USD25.00/oz Ag,
USD8,000/t Cu and USD2,500/t Zn applied to the concentrate sales terms. These
The derivation of assumptions made of metal or commodity price(s), for the figures are representative of economic forecasts for the period.
principal metals, minerals and co-products.
Transportation, treatment charges and penalties for both gold and zinc
concentrates are accounted for in the AuEq cut-off grade calculation.
Market assessment The demand, supply and stock situation for the particular commodity, Chaarat has agreements with long-term established customers for concentrate
consumption trends and factors likely to affect supply and demand into the sales.
future.
Gold concentrate is sold to Industrial Minerals in Montreal, Canada. Gold
A customer and competitor analysis along with the identification of likely concentrate is bagged on-site, loaded into containers and transported by road
market windows for the product. to Poti, Georgia. From Poti, the containers are sea-freighted to Montreal,
Canada.
Price and volume forecasts and the basis for these forecasts.
Zinc concentrate is sold to Trafigura in Antwerp, Belgium. Zinc concentrate is
For industrial minerals the customer specification, testing and acceptance bagged on-site, loaded into containers and transported by road to Poti,
requirements prior to a supply contract. Georgia. From Poti, the containers are sea-freighted to Antwerp.
Economic The inputs to the economic analysis to produce the net present value (NPV) in No separate NPVs have been generated as part of the Ore Reserves
the study, the source and confidence of these economic inputs including determination; however, all material contained within the reserve is deemed to
estimated inflation, discount rate, etc. generate positive cashflow based on the economic input parameters.
NPV ranges and sensitivity to variations in the significant assumptions and A life of mine plan (LOMP) has been generated from the December 2021 mine
inputs. design. Analysis of the LOMP physicals within the current Chaarat financial
model has been shown to yield a net positive cashflow and NPV.
Social The status of agreements with key stakeholders and matters leading to social To the best of the CP's knowledge, all agreements with the local authorities
licence to operate. are in place and are current with all key stakeholders.
Other To the extent relevant, the impact of the following on the project and/or on To the best of the CP's knowledge, Chaarat is currently compliant with all
the estimation and classification of the Ore Reserves: legal and regulatory requirements and there is no reason to assume any further
government or local council permits, licences, or statutory approvals will not
Any identified material naturally occurring risks. be granted, if required.
The status of material legal agreements and marketing arrangements.
The status of governmental agreements and approvals critical to the viability
of the project, such as mineral tenement status, and government and statutory
approvals. There must be reasonable grounds to expect that all necessary
Government approvals will be received within the timeframes anticipated in the
Pre-Feasibility or Feasibility study. Highlight and discuss the materiality of
any unresolved matter that is dependent on a third party on which extraction
of the reserve is contingent.
Classification The basis for the classification of the Ore Reserves into varying confidence The Ore Reserves have been broken down into Proved and Probable categories as
categories. per JORC Code (2012) guidelines.
Whether the result appropriately reflects the Competent Person's view of the It is the CP's opinion that the Ore Reserves reflect the deposit accurately
deposit. given the current level of geological and geotechnical knowledge.
The proportion of Probable Ore Reserves that have been derived from Measured No Probable Ore Reserves have been derived from Measured Mineral Resources.
Mineral Resources (if any).
Inferred resources have not been included in the Ore Reserve.
Audits or reviews The results of any audits or reviews of Ore Reserve estimates. The Competent Person completed a "best practices" review of the mine planning
as part of the Ore Reserves.
The Ore Reserve has been peer-reviewed internally and is in line with current
industry standards.
Discussion of relative accuracy/ confidence Where appropriate a statement of the relative accuracy and confidence level in Shahumyan mine is in production and has more than fifteen years of historic
the Ore Reserve estimate using an approach or procedure deemed appropriate by process production data and costs.
the Competent Person. For example, the application of statistical or
geostatistical procedures to quantify the relative accuracy of the reserve The deposit is well-understood by the on-site technical team which consists of
within stated confidence limits, or, if such an approach is not deemed locals with long-term experience of the deposit.
appropriate, a qualitative discussion of the factors which could affect the
relative accuracy and confidence of the estimate. Owner and contractor costs are based on current actual costs.
The statement should specify whether it relates to global or local estimates, All modifying factors have been applied to the Ore Reserves with updated
and, if local, state the relevant tonnages, which should be relevant to dilution parameters for each individual vein based on widths and geotechnical
technical and economic evaluation. Documentation should include assumptions assessments.
made and the procedures used.
Work is ongoing on-site to reconcile and better-account for unplanned mining
Accuracy and confidence discussions should extend to specific discussions of dilution.
any applied Modifying Factors that may have a material impact on Ore Reserve
viability, or for which there are remaining areas of uncertainty at the Geological mapping and survey of vein drives is supporting the validity of the
current study stage. resource model to a level of confidence consistent with Ore Reserve reporting.
It is recognised that this may not be possible or appropriate in all Historical mine-to-mill reconciliation on an annual and quarterly basis
circumstances. These statements of relative accuracy and confidence of the supports the validity of the resource model to a level of confidence
estimate should be compared with production data, where available. consistent with Ore Reserve reporting.
Reconciliation exercises, including batch processing of individual mining
blocks, are currently ongoing in an effort to further refine Resource and
Reserve estimation parameters.
Reconciliation has shown some discrepancies in Cu grade which has been
accounted for by call factors in the past. Ongoing reconciliation exercises
are being planned to increase accuracy.
Current AuEq cut-off grade practice at the mine might have an impact on mining
areas where grade variations in different metals are encountered. AMC
recommends development of a net smelter return (NSR) based valuation and
cut-off grade calculation for use in future Ore Reserves.
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