REG - Chaarat Gold Hlgs Ld - Full year results for year ended 31 December 2022
15/06/2023 07:00
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RNS Number : 7675C Chaarat Gold Holdings Ltd 15 June 2023
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF
THE MARKET ABUSE REGULATION (EU) 596/2014 AS IT FORMS PART OF UK DOMESTIC LAW
BY VIRTUE OF THE EUROPEAN UNION (WITHDRAWAL) ACT 2018 ("MAR"), AND IS
DISCLOSED IN ACCORDANCE WITH THE COMPANY'S OBLIGATIONS UNDER ARTICLE 17 OF MAR
15 June 2023
Chaarat Gold Holdings Limited
("Chaarat" or the "Company")
ANNOUNCEMENT OF FULL YEAR RESULTS
FOR THE YEAR ENDED 31 DECEMBER 2022
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 2022 (the "Period" or "FY2022").
Highlights
Group Financials
• Revenue during 2022 amounted to US$92.3 million (2021: US$92.4
million), comprising US$76.6 million of own-ore revenue and US$15.7 million
third-party revenue (2021: US$72.8 million own ore and US$19.6 million
third-party revenue).
• The Group EBITDA³ was US$6.5 million, 52% lower compared to last
year (2021: US$13.5 million).
• The Group loss after tax was US$8.6 million, a decrease of $5.0
million compared to last year (2021: US$3.6 million).
• Cash and cash equivalents decreased from US$11.1 million in 2021
to US$0.6 million at the end of the Period.
• The Group's net debt⁴ increased from US$39.6 million to US$51.3
million due to the decrease of cash and cash equivalents during the year.
ESG
• Two fatal incidents occurred in 2022. The first incident involved
a contract employee, the second involved a Kapan employee.
• Buttressing work continued on the north wall of the Tailings
Storage Facility. This phase of the dam reinforcement should be complete
within the next 1-2 years.
• Initial stage assessment of climate change preparedness and carbon
reduction were conducted by KPMG and Wardell Armstrong respectively. These
will help inform the company development of strategies and policy related to
sustainability and climate change.
Kapan Operations
• Production of 62.8 thousand gold equivalent ounces ("AuEq koz")
versus its 2022 production guidance of 56-62 koz.
• Concentrate produced contained 50.0 koz from own ore and 12.8 koz
from third-party ore production versus 2022 guidance of 50-53 koz from own ore
and 6-9 koz from third-party ore, respectively.
• Mined tonnes was 649,311t compared to 600,246t in 2021 (+8%). Mine
head grades were lower at 3.1gpt AuEq compared to 3.3gpt in 2021 (-6%).
• Reserves increased by 25% as a result of the extensive drilling
campaign carried out during H2 2021 to end of Q3 2022.
• All-in-sustaining cash cost for own ore production ("AISC"(2))
of USD 1,376/oz was higher than the USD 1,205/oz for 2021 (+14%). This
increase is mainly due to the adverse impacts from the United States Dollar
and Armenian Dram foreign exchange rate ("USD/AMD FX rate"). Cost reduction
initiatives, implemented during 2022, decreased AISC in H2 2022 (USD 1,334/oz)
compared to H1 2022 (USD 1,420/oz, -6%).
Tulkubash Construction Project
• Development of the Tulkubash project is pending project financing
being finalised. Financing discussions continue with various financial and
strategic parties.
Kyzyltash Development Project
• Test work by SGS Lakefield on Kyzyltash core drilled during 2021
was completed. The results showed strong recoveries for all three of the
technologies tested. Pressure Oxidation ("POX") and Albion™ had comparable
results, with bio-oxidation ("BIOX") returning the best overall recoveries.
These test results will be used as part of an economic trade-off study to
determine the preferred processing option. This study will include an
assessment on flotation and full ore processing options before proceeding with
other workstreams required towards a feasibility level study.
Corporate Activities
• During 2022 Chaarat focused on carefully managing its liquidity
position and balance sheet.
• Chaarat successfully extended the maturity of its US$ 19.7
million plus accrued interest of US$ 9.0 million secured convertible
loan notes from 31 October 2022 to 31 July 2023 with strong noteholder
support.
• In 2022, Chaarat reduced the principal outstanding for the Kapan
acquisition loan by a further US$ 9.5 million to US$ 9.5 million principal
outstanding. Chaarat also drew down US$ 6.0 million from a new working
capital facility supplied by Ameriabank.
Post-year end
• Non-binding Letter of Intent and indicative term sheet signed on
the 17 May 2023 with Xiwang International Company Limited for a potential
equity investment of US$250 million. This was followed by a Preliminary
Investment Agreement signed on 31 May 2023.
• During 2023, working capital facility arrangements were put in
place with a short-term loan provider. As at 31 May 2023, US$2.0 million had
been drawn down on the facility with a further US$2.0 million available to the
Company from the working capital facility.
• Cash and cash equivalents as at 31 May 2023 of US$0.5 million.
Outlook 2023
• Kapan Production mine production guidance of 50-55(3) koz of
own-ore production and additional 5-10 koz of third-party ore production.
• Kapan East Flank resource definition drilling is continuing, and
results will be published during 2023 with updates on the East Flank
development.
• The Company is continuing to take steps to mitigate the adverse
foreign exchange rate impact on Kapan operations and is expecting a
stabilisation of costs in 2023.
• The convertible loan notes are due on 31 July 2023 and the Company
is evaluating its options.
• With regards to the Tulkubash & Kyzyltash projects, the
Company will continue to work on all financing options and will update the
market as and when appropriate.
• Chaarat will continue to review its existing balance sheet
structure with a view to further reducing its interest cost and improving the
structure of the balance sheet.
Going concern
In order to achieve the planned future capital developments of assets, to
sustain corporate activities and to repay the convertible loan notes due on 31
July 2023, 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$29.2 million (US$31.7 million at maturity) of convertible
loan notes prior to 31 July 2023 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. Accordingly, the
Directors have adopted the going concern basis of accounting in preparing the
consolidated financial statements. Further details of the Group's status as a
going concern and expected future financing plans are set out in Note 2 to the
financial statements.
(1 Gold equivalent ounces for 2021 recalculated on 2022 budget prices with Au
at USD1,775/oz and gold ratios of 75 for silver,6,9597 for copper and 20,381
for zinc. Includes third-party ore production.)
(2 AISC on a gold oz produced basis exclude smelter TC/RC charges, others
which add c. USD140/oz. Sustaining capex of c. USD6.5 million p.a. is
included in the AISC.)
(3 Gold equivalent ounces for 2023 guidance calculated on 2023 budget prices
with Au at USD1,850/oz and gold ratios of 84 for silver, 6,998 for copper and
19,826 for zinc. Includes third-party ore production.)
(4) (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, income tax charges and any
finance related transactions. The amount reported is unaudited and preliminary
in nature given it may be subject to adjustments in the audit process.)
(5) (In reporting financial information, the Group presents Net debt as an
alternative performance measure, "APM", which is not defined or specified
under the requirements of IFRS. The Group Net debt comprises convertible loan
notes, other loans, contract liabilities, lease liabilities and warrant
financial liabilities, net of cash and cash equivalents)(.)
Mike Fraser, Chief Executive Officer of Chaarat, commented:
"Our 2022 financial results reflect the challenging environment in Armenia,
with the 23% appreciation of the Armenian Dram rate resulting in a decrease in
Group EBITDA of 52% compared to 2021. This was on top of the higher energy
costs and inflationary pressures seen due to the war in Ukraine.
Nevertheless, Kapan exceeded our 2022 production guidance, and I would like to
congratulate the team on keeping the mine profitable in a challenging
environment. It was disappointing that we were not able to secure a funding
solution for our Tulkubash development project during the year. However, we
continue our efforts to do so and in particular looking towards alternative
project finance options."
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 Chaarat 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.
Annual General Meeting
The Annual General Meeting ("AGM") will be held on Thursday, 27 July 2023 at
11am at the offices of Link Group, 6(th) Floor, 65 Gresham Street, London EC2V
7NQ, United Kingdom.
Publication of Annual Report
The Company's 2022 Annual Report and Financial Statements and Notice of AGM
will be published on the Company's website at www.chaarat.com/investors
(http://www.chaarat.com/investors) before 30 June 2023. Hard copies of the
2022 Annual Report and Financial Statements and Notice of AGM will be posted
to those shareholders who have elected to receive hard copies by 4 July 2023.
Additional copies of the 2022 Annual Report and Financial Statements will be
available for inspection at the registered office of the Company from the
date of this notice until the conclusion of the AGM.
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
__________________________________________________________________________________
ENVIRONMENTAL, SOCIAL, AND GOVERNANCE
Safety and Health
2022 was a very poor year for Chaarat with two fatalities occurring at our
Kapan mine. The first incident occurred on 14 May 2022 when a contract
employee was struck on the leg by loose material while removing a drill rig
from a heading. The second fatal incident occurred on 3 September 2022, when a
Chaarat driller got his clothing caught in the rotating drill holder while he
was adding a drill rod. Both incidents highlighted failures to follow
procedure as well as other management system failings and deficiencies. A
further fatality to a contract driller in March 2023 has highlighted that the
risk management processes at Kapan need a thorough review to resolve the
systemic issues underlying these tragic events. External consultants will be
retained in 2023 to help the company with this process.
There were no injuries in Kyrgyzstan during the 2022 exploration season or
during the various activities at camp during the year.
Group wide hours for 2022 were approximately 2.45 million hours resulting in
an overall lost time injury frequency rate ("LTIFR") of 0.82 per million
hours. 2021 LTIFR was 0.61 due to a higher number of worked hours. LTIFR is
based on two fatal incidents in 2022, compared to one fatal incident and one
lost time incident in 2021.
Environment and Cultural Resource Protection
Work on the Tailings Storage Facility (TSF) buttressing continues. This work
is related to improving the strength of the original upstream construction dam
wall by applying additional reinforcement material in the same way as a
downstream constructed dam. The north face is reaching the final stages of
completion. Due to the construction of the dam, the road going across the old
dam face needed to be relocated. Upgrades to this road had been identified as
part of the Kapan social package in previous years but had been delayed due to
the buttressing works. During the year, the community road was able to be
constructed and commissioned. Once complete on the north buttress, work will
move to the smaller upstream south facing side of the dam.
All waste rock from the mine has gone into the construction of the north
buttress for the last four years, avoiding the need for new waste rock storage
dumps in the area and resultant disturbances to both the land and community.
This waste is clean of metallic sulphides (non-acid generating). It also
provides ideal compaction strength for the buttress wall. No external
materials have been needed for the buttress, significantly reducing the carbon
footprint of the buttress construction in the process.
Chaarat undertook a detailed internal assessment of its TSF operation against
the Global international Standard on Tailings Management ("GISTM") during
2022. The key areas for improvement in our efforts relate to third party
independent engineering reviews, risk assessments based on these reviews, and
third-party monitoring. Chaarat will continue to improve these areas over the
next few years with the goal of continuous, annual improvement against the
standard.
Chaarat has an extensive ground water monitoring programme with samples taken
around the mine site and from the three rivers close to Kapan to determine the
environmental impact of its operations. The three rivers are the Voghji,
Norashenik and Geghanush. The Voghji flows from west to east and passes to the
south of the site. The Norashenik flows north to south passing to the east of
the mine site. It also passes to the west of the large Artsvanik tailings dam
operated by Zangezur Copper (ZCMC). The Geghanusk river flows from south to
north and passes via a concrete tunnel under the Kapan Geghanusk tailings
facility.
The operation takes water from the Voghji river for two uses: drilling water
in the mine and make up water for the mill. After use, mine water is
discharged into a settling pond and then passes via passive contact water
treatment to the Norashenik river. Potable water for the operation is supplied
by the local municipality.
Water samples are collected from all three rivers both upstream and downstream
of the areas of operational impact and assayed to determine the scope of
impact on the receiving water bodies. Results show that impact is negligible
with the water quality downstream of the operation being consistently and
repeatably comparable to upstream results.
Water discharge from the water treatment plant is in compliance with the
permit with the exception of a few elements. However, several of the
exceedances are related to the incoming water quality. Armenian regulation is
not based on net impact as is the case in many countries, but rather solely on
the results of the final assay. Net impact is defined as an assessment based
on subtracting the incoming water quality assay from the outgoing assay to
only assess for operational impact. At Kapan, the incoming water quality is
already above the permit limit for many elements and the outgoing water is at
the same level. This means there is no net operational impact. Under the
permit though, the discharge is still above the permit limit, resulting in an
exceedance of the permit.
The upstream levels of water contaminants are due to the high levels of
naturally occurring mineralisation in the region. The Sunyik region is
naturally rich in mineralisation, with many mines having operated throughout
history in the region. Natural leaching of these elements from exposed surface
mineralisation results in higher levels of metals and other chemicals in
surface waters throughout the region.
The Armenian government introduced fees in 2021 for the storage of solid
waste. These fees cover the storage of tailings in the approved tailing
storage facility ("TSF"). 2021 fees were $15,546 (at 480 Dram FX) and $15,620
in 2022 at the same FX. Previously tailings stored in a company facility did
not incur a fee.
Climate Change
During 2022, Chaarat engaged with the European Bank for Regional Development
(EBRD) on green energy initiatives with the support of the Green Climate Fund
(GCF). KPMG was hired to conduct an audit of Chaarat's current status
regarding climate change strategy, risk management, governance, internal and
external reporting of key metrics, and public disclosure with a focus on
Kapan. Wardell Armstrong was also retained to conduct a resource efficiency
assessment of the Kapan mine. Wardell assessed the current level of emissions
from Kapan, the actions the Company have taken to date, and future plans to
reduce carbon equivalent emissions.
The work by KPMG confirmed the early-stage work undertaken by Chaarat to date.
The report also helped highlight areas for improvement for the Company and
helped define the initial stages of a climate change framework for Chaarat,
aligned with the Task Force on Climate-Related Financial Disclosures ("TCFD").
This work will form the foundation for developing improved performance,
reporting and disclosure as recommended by the TCFD.
The Wardell review highlighted the need for improved measurement systems to be
installed at Kapan with regards to electrical consumption at an individual
equipment level. Water is another area where changes are needed to improve
both monitoring and measurement - and to help design and drive reductions.
Wardell conducted an assessment on electrification of the current mining fleet
as part of their review. Moving to an electrified mining fleet would
significantly reduce direct, Scope 1 carbon emissions and also provide a safer
underground work environment with reduced risks from CO2 and particulates.
Although significant advances have been made in the mining industry regarding
electrification, it has tended to focus on larger vehicles to date.
Electrification has now reached the upper end size of equipment used at Kapan,
but not the smaller vehicles that Kapan requires (see operations section for
more details). The company is in regular contact with equipment manufacturers
globally regarding electrification of these smaller units and is looking
forward to being able to trial suitable units in the near future.
Wardell also looked at the opportunities for installing solar generation
capacity at the mine site. This included roof mounted units for water heating
and small-scale generation, as well as the installation of larger fields of
solar panels on suitable areas of the mine site. These projects will be
further reviewed by the company to better understand costs and benefits, and
then placed into the company's capital assessment pipeline for overall
consideration, review and action.
Community and Government Relations
The Company continues to have strong relations with government and communities
at both the regional and national levels. Chaarat's operation in Kapan is
located on the edge of the town with the majority of the workforce coming from
the local communities. Kapan is also one of the major employers in the area.
This creates a strong social bond between the company, employees, and local
communities which Chaarat takes very seriously.
Annually we engage with the regional governments as the elected
representatives of the communities to develop a community assistance
programme. This programme details both the projects to be worked on during the
year and the amounts to be allocated to the social plan budget. Whilst set
annually, these joint programmes allow for flexibility during the course of
the year should a significant event require reallocation of funds. The plans
are discussed publicly so that the affected communities know what projects
were selected and how they are progressing throughout the year. Consultation
sessions ensure alignment of the programmes with community priorities.
Due to the slowdown of activities in the Kyrgyz Republic, employment for the
local communities was reduced in 2022 from previous years. Engagement sessions
were held throughout the year to keep communities and the government informed
of Chaarat's plans and ongoing commitment to the project.
Chaarat has been an active participant during 2022 providing input into
various government committees and working groups related to mining and other
commerce issues. Input has been provided into exploration licensing, mineral
extraction laws and royalty frameworks in both countries.
OPERATIONS REVIEW
ARMENIA
KAPAN
Introduction
Kapan is an underground sulphide polymetallic mine. It consists of a series of
narrow steeply dipping polymetallic veins containing gold, copper, zinc, and
silver.
The Mill produces two flotation concentrates - one high in gold, copper, and
silver, the second a zinc concentrate containing payable gold and silver
credits.
The mine has a production capacity of approximately 600-700kt per annum
("pa"), depending on the mining method used. The milling and flotation
circuits have a current capacity of approximately 800kt pa.
Kapan Operational Comments:
· In 2023, Kapan produced 62.8 thousand gold equivalent ounces versus
its 2022 production guidance of 56-62 koz.
· Concentrate produced contained 50.0 koz from own ore and 12.8 koz
from third-party ore production versus 2022 guidance of 50-53 koz from own ore
and 6-9 koz from third-party ore, respectively.
· Tonnes mined in 2022 were 649,311t compared to 600,246t in 2021
(+8%). Mine head grades dropped to 3.1gpt AuEq from 3.3gpt in 2021 (-6%).
· The mine continues to develop improved mining methods to both reduce
dilution and reduce costs via less haulage. In 2022, the size of vein drives
was reduced (both height and width) and new blasting approaches were used
based on the dip angle of the vein to reduce blast dilution. After a period of
trialling, these changes have now become standard operating practice. The
company is also reducing the proportion of mechanised drilling and returning
to more manual drilling. This is a more appropriate method given the nature of
the Kapan veins at depth and further from the centre of the ore body. Further
improvements are possible, and future fleet replacement will focus on smaller
vehicles to allow further reductions in vein drive size.
· Mill throughput was 764,995t compared to 729,473t in 2021 (5%). Own
ore treated was 634,883t compared to 584,841t in 2021 (8.5%). Third-party ore
treated dropped to 130,111t from 144,632t in 2021 (-10%). This change is
related to timing of campaigns rather than any supply issues with third party
materials. Mill grade for Own ore was in line with mined ore, and third-party
grade was effectively unchanged from 2021.
· Recoveries from own ore remained constant at 79.1%.
· The most significant factor impacting Kapan in 2022 was the sudden
appreciation of the Armenian dram against the US dollar. The dram was one of
the best performing currencies in 2022 increasing 23% against the US dollar.
This rapid appreciation resulted in a rapid and significant cost increase on
a US dollar basis. The effect has reduced in some areas where imports are now
flowing through the supply chain at the new dram to USD levels, but local
supply remains approximately 20% above early 2022 levels. This has caused
Chaarat to revise is procurement strategy significantly and source on a more
global basis for the foreseeable future.
· The war in Ukraine is also continuing to impact Kapan. Many items -
such as explosives and hydraulic oils - have seen large price increases.
· Hostilities with Azerbaijan continue to cause some limited impact on
operations. These issues are mostly related to the loss of lower cost supply
chains from Turkey which in general remain closed following the 2020 war with
Azerbaijan.
· Another factor impacting costs has been various transport cost
increases and new road taxes introduced in both Armenia and Georgia. All of
Kapan's concentrates are shipped via road to the port of Poti in Georgia.
Vessel availability in the Black Sea remains an issue, and costs have
increased significantly. The result of these impacts is that sales costs have
risen close to $100/t during the course of the year.
· Despite these adverse headwinds, Kapan has had positive successes in
identifying new sources of supply and alternate supply chains. Costs on a dram
and US dollar basis are continuing to decline from the levels seen in Q3 and
Q4 2022, and more improvement is expected.
· Realised pricing was relatively unchanged during 2022, so it provided
no relief from the inflationary pressures of the global economy and the dram
appreciation.
2022 full-year production consisted of:
Kapan 2022 2021
Production (oz AuEq) 62,834 63,724
Own ore (oz AuEq) 50,023 49,224
Third-Party ore (oz AuEq) 12,811 14,500
All-in sustaining cost (USD/oz) 1,376 1,205
Sales (AuEq oz) 56,978 57,212
Gold production (oz) 35,999 35,405
Silver production (oz) 592,121 610,322
Copper production (t) 2,115 2,284
Zinc production (t) 5,454 5,836
Realised Prices
Gold (USD/oz) 1,794 1,784
Silver (USD/oz) 22 25
Copper (USD/t) 8,860 9,157
Zinc (USD/t) 3,169 3,001
Kapan - Exploration Potential
As well as the current Shahumyan deposit, there are several other mineralised
areas close by that have been identified by Soviet-era drilling and also more
recently confirmed by Dundee Precious Metals diamond drilling results from
2011. East Flank is one of these areas. It lies approximately 100 metres to
the east of the current Shahumyan ore body and has an anticipated strike
length of approximately 600 metres.
A review by Chaarat of the historical drilling results has outlined eight
mineralised zones which are the target of the current exploration campaign. An
initial four (4) drill chambers were completed in 2022 with additional
drilling planned for 2023-2024. Additional drill chambers will be completed on
an as needed basis. A total of 40 HQ (63.5mm diameter) drill holes, totalling
approximately 13,370 metres of core-oriented diamond drilling on 100 by 100
metres spaced centres, is planned. This drilling is designed to provide an
inferred level of certainty around this initial target area.
Work is also continuing to assess additional exploration and development
opportunities in the region.
Ore Resources and Reserves
57,217 metres of resource drilling were carried out in 2022. Combined with
69,000 metres in 2021, this work has helped to provide a more detailed
understanding of the mineralisation in close proximity to the current
underground working areas at Kapan.
Given the nature of the ore bodies at Kapan, exploration has to be carried out
from underground drill stations to provide JORC compliant levels of certainty.
This method of drilling limits the extent of the ore body that can be mapped
in advance of mining, effectively limiting the stated reserve, despite
extensive mineralisation still being present in the ore body.
UNAUDITED UPDATED MINERAL RESOURCE ESTIMATE AND ORE RESERVES STATEMENT
The following table summarises the 2022 Kapan MRE (effective 1 September
2022):
Classification Tonnes (Mt) AuEq (g/t) AuEq koz
Measured 0.3 12.1 132
Indicated 2.3 8.1 590
M&I 2.6 8.6 722
Inferred 1.9 6.5 389
Note 1:
· The effective date of the resource is 1st September 2022.
The Mineral Resources that are not Mineral Reserve do not demonstrate economic
viability. Numbers may not sum due to rounding.
· The gold equivalency (AuEq) formula is based on the
following metal prices: Au 1750 USD/oz; Ag 21.8 USD/oz; Cu 8300 USD/t; Zn 2950
USD/t
· The AuEq formula used is as follows: AuEq=
Au+Ag*21.8/1750+Cu*8300/1750*31.1035*100+Zn*2950/1750*31.1035*100
· Grade interpolation is done by Ordinary Kriging method.
· The applied MSO assumes a COG = 2.1g/t AuEq and minimum
mining widths of: 2.2m for the veins dipping < 70°; 1.8m for veins
dipping 70° - 80° and 1.2m for veins dipping 80°-90°
· Mineral Resources are with applied depletion and
inclusive of Ore Reserves.
· The resource estimate and classification are according
the JORC Code (2012) reporting code.
The following table summarises the recent Kapan ORE (effective 31 December
2022):
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 0.21 2.40 42.07 0.51 1.85 4.64 16.2 284.5 1.1 3.9 31.4
Probable 2.93 1.59 31.78 0.35 1.29 3.18 150.0 2,991.1 10.1 37.8 299.0
Total Proven and Probable 3.14 1.65 32.47 0.36 1.33 3.28 166.2 3,275.6 11.2 41.7 330.4
Notes:
· Ore Reserves are reported in accordance with the JORC
Code (2012).
· Ore Reserves based on August 2022 consensus prices for
LOM of USD1,750/oz Au, USD21.8/oz Ag, USD8,300/t Cu, and USD2,950 Zn.
· Ore Reserves are based on a gold equivalent cut-off of
2.3g/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 2.64 t/m(3) was used for
unmodelled diluting waste material.
· Tonnes reported are in situ, dry tonnes.
AMC Consultants (UK) Limited ("AMC") were engaged by Chaarat Kapan CJSC
("Chaarat") to undertake a review of the Kapan Mine ("Kapan") Ore Reserves and
to act as a competent person ("CP") as defined by the JORC (2012) reporting
code.
Proven & Probable Ore Reserves totalled 3.14 Mt with 330.4kAuEq oz
resulting in a 5-year mine life.
Reserves increased by 25% from the prior Ore Reserves Estimate ("ORE"),
replacing depletion and increasing the life of mine plan by two (2) years.
Resource definition drilling is an ongoing activity at Kapan to continue the
conversion of inferred and unclassified mineralisation to a JORC-compliant
level for resource and reserve estimation, allowing for further mine life
extension.
KYRGYZ REPUBLIC
TULKUBASH
Introduction
Tulkubash is the Company's oxide gold deposit in the Kygyz republic. The
project has a fully detailed bankable feasibility study and early-stage
development of the site is well advanced, including ore haul road, camp, and
initial preparations on the heap leach area.
During 2022, the Company published a revised Mineral Resource estimate, and an
updated Ore Reserves estimate that included the additional infill drilling on
the Tulkubash ore body. Additional exploration was also carried out on the
wider licence area as well as initial trenching and drilling on two (2)
satellite oxides areas just to the northeast of the current Tulkubash reserve.
As announced on 24 May 2022, the results of the Tulkubash exploration
programme resulted in contained gold ounces in the ore increasing by 13% to
647 thousand ounces compared to the 571 koz in the 2021 bankable feasibility
study. Proven & Probable Reserves increased from 20.9Mt to 23.1Mt (+11%)
with a slightly increased grade of 0.87 g/t compared to 0.85 g/t (+2%) in the
BFS.
The Tulkubash project remains ready for execution pending project financing
being finalised. Financing discussions continue with various financial and
strategic parties.
Exploration
The wide area exploration potential work was completed during the 2022 season.
The work consisted of aerial drone-based magnetic surveys of the entire
exploration licence area along approximately 8km of strike, as well as
potential porphyry/scarn systems further northeast. This work will help
determine future exploration programmes as well as provide details regarding
the exploration licence renewal during 2023.
A total of 7,419 linear metres of trenching was completed to test the areas to
the south-east of Karator and Ishakuldy. They were sampled and logged
lithologically and structurally. Additionally, more detailed structural
logging was done at the Karator and Ishakuldy 2021 trenches, aiming to advance
the 2021 exploration data in these areas and improve the Company's
understanding of the outlined gold mineralization. A total of 3296 samples
(including the QA/QC samples) were assayed.
The initial plan was for Unmanned Ariel Vehicle ("UAV") based magnetic and
gamma spectrometry survey over the full exploration licence area. Difficulties
with the terrain and high wind shear affected drone surveying work, and the
difficult access to the north-eastern part of the licence area limited the
scope of work slightly. Most of the prospective areas are covered by a
combination of ground magnetic survey, and UAV, including 982 linear
kilometres of UAV reconnaissance covering 44.4 sq.km of ground.
Resource and Reserve Update
Drilling during 2021 to upgrade Inferred and Unclassified Mineral Resources in
the mid zone and east area resulted in a 13% increase in contained gold ounces
in the Ore Reserves (647koz) compared to 571 koz in the 2021 bankable
feasibility study ("BFS").
Tonnage increased to 23.1Mt from 20.9Mt (+11%) with a slightly increased grade
of 0.87 g/t compared to 0.85 g/t (+2%) in the BFS.
The updated Tulkubash 2021 Year End Mineral Resource Estimate and 2022
updated Ore Reserve Estimate tables are shown below.
Table 1. 2021 Year End Mineral Resource Estimate ("EOY 2021")
Classification Tonnes (Mt) Au (g/t) Au (koz)
Measured - - -
Indicated 25.1 0.98 789
M&I 25.1 0.98 789
Inferred 11.2 0.62 222
TOTAL 36.3 0.87 1,011
Notes
· Figures are rounded in accordance with disclosure
guidelines.
· The Mineral Resource was estimated using 5 m x 5 m x
5 m (x, y, z) blocks, with minimum sub-block dimensions of 1 m x 1 m x
1 m (x, y, z).
· The estimate was constrained to the mineralised zone
using wireframe solid models.
· Grade estimates were based on 1.5 m composited assay
data.
· The interpolation of the metal grades was undertaken
using Ordinary Kriging.
· The Mineral Resource was bounded by a pit shell based on
a gold price of $1,800/oz Au.
· A cut-off grade of 0.21 g/t Au was applied to report
the Mineral Resources.
Table 2. 2022 Tulkubash Ore Reserve Estimate (May 18,2022)
Classification Ore (Mt) Au (g/t) Au (koz)
Proven -- -- --
Probable 23.1 0.87 647
Total 23.1 0.87 647
Notes:
· This statement of Ore Reserves has been prepared by
Mr. Peter C. Carter, an independent consulting mining engineer, based on a
review of work performed by Chaarat Gold and associated technical staff.
· Mr. Carter is a member of the Association of
Professional Engineers and Geoscientists of British Columbia and is qualified
as a Competent Person under the JORC Code, 2012.
· There are no Proven Reserves as drillhole density and
historical data quality do not support Measured Resources.
· Tonnages are in metric tonnes.
· Figures have been rounded to three significant figures.
· Ore Reserves are reported inclusive of mining dilution
(10%) and mining recovery (97.5%).
· A gold price of US$1,600/oz was used in the preparation
of the estimate.
· Ore Reserves are based on a marginal cut-off grade of
0.22 g/t Au.
· Estimated metallurgical recovery for the Ore Reserve is
74.0% based on a geo-metallurgical model.
· Reserve is contained in a minable pit design generated
from an optimised pit shell based on a gold price of $1,350/oz.
KYZYLTASH
The Kyzyltash deposit is a sulphide ore body that lies below and extends
beyond the Oxide Tulkubash ore zones. It has an Unconstrained Measured and
Indicated Resource of 4.6M ounces of gold.
During 2022, a detailed metallurgical review was carried out on representative
core drilled during the 2021 exploration season. Over 3,500 metres of large
diameter diamond drilling comprising 16 holes were sampled to make
representative composites of the Kyzyltash ore body.
These samples were sent to SGS Lakefield in Canada for a full suite of
metallurgical testing. SGS Lakefield is a highly respected international
laboratory with expertise in metallurgical testing. 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. These
three (3) technologies were selected to assess the most likely processing
routes for Kyzyltash's refractory ore.
The programme included testing milling indices, flotation, oxidation, and
leaching kinetics.
The results showed strong recoveries for all three of the technologies tested.
POX and Albion™ had comparable results, with BIOX returning the best overall
recoveries.
POX uses high-pressure and temperature conditions to oxidize refractory
sulphides prior to gold extraction. The Albion™ process employs ultra-fine
grinding followed by low pressure aeration with cyanide to extract gold.
Bio-oxidation uses specific bacteria in the oxidation process.
Highlights of the Metallurgical Testing Programme results included:
· flotation recoveries of 87-90% for gold with a 23-24% mass pull;
· leach recovery for both Albion and POX averaged 80-90% with similar
results between the two processes; and
· leach recovery for BIOX averaged 84-96% using flotation, BIOX and
carbon in leaching ("CIL").
These test results will be used as part of an economic trade-off study to
determine the preferred processing option. This study will include an
assessment on flotation and full ore processing options before proceeding with
other workstreams required towards a feasibility level study.
PRINCIPAL RISKS AND UNCERTAINTIES
Risk Existing mitigating actions
KGZ geohazards - Avalanches, rockfalls and mudslides could cause multiple Implementation of proper geohazard mitigation measures and maintenance of a
fatalities or serious injuries. They could severely damage buildings, roads, proper hazard management programme, including engineering hazard mitigation
plant, infrastructure and heap leach pad measures.
Liquidity - The Group requires significant additional financing in the future Maintain discussions with existing lenders and potential finance providers.
to develop projects and to meet ongoing financial needs. The Group's US$29.2
million (US$31.7 million at maturity) convertible loan notes fall due on 31 Address potential gating items to securing project finance.
July 2023. There can be no assurance that additional financing will be
available, or if available, that it will be on acceptable or favourable Looking for new funding options.
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. Further detail on this material uncertainty is set out in note
2.
Country Risk - The laws and regulations related to mineral exploration, Processes in place to monitor prospective legislative changes, and to engage
extraction and development are constantly being reviewed and adjusted by both with government via industry bodies and directly to ensure that the industry
the Armenian and Kyrgyz governments. and company perspectives on the requirements to develop a solid extractive
industry are shared.
Commodity price volatility - Adverse movements in precious metals prices could Hedging strategies are periodically considered.
materially impact the Group in various ways beyond a reduction in the
financial results of operations. These include the feasibility of projects Conservative long-term prices are used to evaluate projects.
and the economics of mineral resources.
AISC at Kapan remains below gold prices.
Health and Safety - Mining and minerals processing have inherent health and Identification of hazards and associated risks. Development of appropriate
safety risks associated with them that need to be effectively managed to risk mitigation measures including engineering controls, procedures and the
ensure the wellbeing of our employees and contractors. Failure to manage use of protective equipment.
these risks can result in occupational illness, injuries, and loss of life.
Planned preventative maintenance programmes for equipment including timely
replacement.
Targeted recruitment of specialists in the field of HSE and regular training
of employees and contractors.
Continuous monitoring of high-risk workplace activities.
Climate change - climate related uncertainty is increasing as experienced by Development of a Climate change policy.
changing weather patterns, increased unpredictability and increased frequency
of extreme weather events. The impact of greenhouse gases and human activity Data collection to determine highest areas of energy usage.
on the climate broadly accepted
Development of alternate practices and implementation of new technologies to
reduce dependence on carbon fuels and water within our businesses.
FINANCIAL REVIEW
Basis of Preparation including Going concern
As set out in Notes 2 and 3 to the financial statements, the consolidated
financial information has been prepared in accordance with United Kingdom
adopted international accounting standards and International Financial
Accounting Standards issued by the International accounting Standards Board
and on a going concern basis.
In order to achieve the planned future capital developments of assets, to
sustain corporate activities and to repay the convertible loan notes due on 31
July 2023, 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$29.2 million (US$31.7 million at maturity) of convertible
loan notes prior to 31 July 2023 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. Accordingly, the
Directors have adopted the going concern basis of accounting in preparing the
consolidated financial statements. Further details of the Group's status as a
going concern and expected future financing plans are set out in Note 2 to the
financial statements.
Income statement
Revenue during 2022 amounted to US$92.3 million (2021: US$92.4 million),
comprising US$76.6 million of own ore revenue and US$15.7 million third-party
revenue (2021: US$72.8 million own ore and US$19.6 million third-party
revenue). During the year, Kapan sold 56,978 ounces of AuEq (2021: 57,212
ounces), including third-party sales, with a realised gold price per ounce of
US$1,794 (2021: US$1,784), a realised silver price per ounce of US$21.7 (2021:
US$25.0), a realised copper price per tonne of US$8,860 (2021: US$9,157) and a
realised zinc price per tonne of US$3,169 (2021: US$3,001).
The Group operating loss for the year was US$0.5 million (2021: US$7.8 million
profit) and the Group EBITDA was US$6.5 million (2021: US$13.5 million). The
decrease in EBITDA was mainly due to inflationary pressures and the
strengthened AMD/USD FX rate effects on the cost base.
2022 Armenia 2022 2022 2021 2021 2021
Kyrgyz Republic & Corporate Total Armenia Kyrgyz Republic & Corporate Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
EBITDA 12,634 (6,164) 6,470 22,653 (9,167) 13,486
Depreciation and amortisation (11,161) (505) (11,666) (6,621) (494) (7,115)
Net finance costs (3,107) (3,578) (6,685) (3,026) (4,847) (7,873)
Unrealised foreign exchange gain/(loss) 3,247 - 3,247 2,090 - 2,090
Fair value gain on warrant - 367 367 - 434 434
Change in provisions 1,785 - 1,785 (673) - (673)
Share option expense - (373) (373) - - -
Profit/(loss) before tax 3,396 (10,252) (6,856) 14,423 (14,074) 349
Income tax charge (1,721) - (1,721) (3,937) - (3,937)
Profit/(loss) after tax 1,675 (10,252) (8,577) 10,486 (14,074) (3,588)
Finance costs in 2022 were US$6.7 million (of which US$5.3 million was
non-cash) compared to US$7.9 million in 2021 (of which US$5.6 million was
non-cash).
Income taxes in 2022 were US$1.7 million compared to US$3.9 million in 2021.
Consequently, the Group made a loss after tax of US$8.6 million compared to a
loss after tax of US$3.6 million in the 2021 financial year.
Balance sheet
The borrowings at the balance sheet date comprised US$29.2 million of
convertible loan notes due in July 2023 (2021: US$25.6 million), US$17.8
million of other loans (2021: US$21.3 million), US$3.7 million of contract
liabilities (2021: US$2.4 million), US$1.2 million of lease liabilities (2021:
US$1.0 million) and US$0.0 million of warrant financial liabilities (2021:
US$0.4 million).
The Group's net debt increased from US$39.6 million at 31 December 2021 to
US$51.3 million at 31 December 2022 (refer to Note 22 (a)).
Non-current assets increased from US$119.7 million at 31 December 2021 to
US$130.7 million at 31 December 2022. The increase was mainly due to the
purchase of property, plant, and equipment at Kapan. Additionally, exploration
and evaluation costs of US$2.9 million were capitalised relating to the asset
in the Kyrgyz Republic.
Current assets were US$27.5 million at 31 December 2022 compared to US$51.8
million at 31 December 2021. The decrease mainly related to trade receivables
from Kapan's customers due to the timing of sales close to year-end and lower
cash at year end. Current assets at 31 December 2022 included cash and cash
equivalents of US$0.6 million (2021: US$11.1 million).
Total liabilities at 31 December 2022 were US$85.6 million compared to US$94.7
million at 31 December 2021. This was mainly due to a decrease in Kapan's
trade payables.
Total equity was US$72.6 million at 31 December 2022 compared to US$76.9
million at 31 December 2021.
Cash flow
Cash and cash equivalents decreased from US$11.1 million at 1 January 2022 to
US$0.6 million at 31 December 2022. The movement comprised of:
• net operating cash flows of US$7.1 million (2021:
US$3.3 million), mainly due to positive EBITDA and working capital movements
at Kapan;
• net cash used in investing activities of US$10.1
million (2021: US$15.5 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; and
• cash outflows from financing activities of US$5.8
million (2021: cash used of US$16.7 million) mainly relating to external debt
repayments, including interest, of US$11.1 million offset by additional
funding obtained during the year.
Consolidated Income Statement
For the year ended 31 December 2022
2022 2021
Note US$'000 US$'000
Revenue 4 92,346 92,434
Cost of sales 5 (82,236) (69,258)
Gross profit 10,110 23,176
Selling expenses 7 (2,196) (2,444)
Administrative expenses 8 (8,452) (12,966)
Other income - 22
Operating (loss)/profit 6 (538) 7,788
Finance income 29 23
Finance costs 12 (6,714) (7,896)
Fair value gain on warrant 30 367 434
(Loss)/profit before tax for the year (6,856) 349
Income tax charge 13 (1,721) (3,937)
Loss for the year (8,577) (3,588)
Loss per share (basic and diluted) - US$ cents 14 (1.24) (0.53)
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2022
2022 2021
US$'000 US$'000
Loss for the year (8,577) (3,588)
Items which may subsequently be reclassified to the income statement
Exchange differences on translating foreign operations and investments 3,873 849
Other comprehensive income for the year, net of tax 3,873 849
Total comprehensive loss for the year (4,704) (2,739)
The accompanying notes are an essential part of these financial statements.
Consolidated Balance Sheet
As at 31 December 2022 2022 2021
Note US$'000 US$'000
Assets
Non-current assets
Exploration and evaluation costs 15 69,182 66,305
Other intangible assets 16 1,260 1,213
Property, plant and equipment 17 55,401 47,306
Prepayments for non-current assets 373 530
Deferred tax assets 18 4,489 4,381
Total non - current assets 130,705 119,735
Current assets
Inventories 19 16,208 18,442
Trade and other receivables 20 10,666 22,247
Cash and cash equivalents 21 616 11,134
Total current assets 27,490 51,823
Total assets 158,195 171,558
Equity and liabilities
Equity attributable to shareholders
Share capital 22(b) 6,897 6,894
Share premium 242,757 242,695
Own shares reserve 22(e) (104) (132)
Convertible loan note reserve 22(d) 1,420 1,420
Merger reserve 10,885 10,885
Share option reserve 22(c) 9,259 11,383
Translation reserve (10,560) (14,433)
Accumulated losses (187,944) (181,836)
Total equity 72,608 76,876
Liabilities
Non-current liabilities
Provision for environmental obligations 23 11,707 10,521
Lease liabilities 28 885 732
Other loans 29 - 9,688
Total non-current liabilities 12,592 20,941
Current liabilities
Trade and other payables 27 19,714 30,717
Contract liabilities 26 3,720 2,379
Lease liabilities 28 300 246
Other loans 29 17,806 11,640
Warrant financial liability 30 13 380
Convertible loan notes 25 29,203 25,625
Other provisions for liabilities and charges 31 2,239 2,754
Total current liabilities 72,995 73,741
Total liabilities 85,587 94,682
Total liabilities and equity 158,195 171,558
The financial statements were approved and authorised for issue by the Board
of Directors on 14 June 2023.
Mike Fraser
Martin Andersson
Chief Executive
Officer
Executive Chair
The accompanying notes are an essential part of these financial statements
Consolidated Statement of Changes in Equity
For the Year Ended 31 December 2022
Share Capital Share Premium Own Shares Convertible Loan Note Merger Reserve Share Option 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$'000
As at 1 January 2021 5,401 191,594 (216) 2,493 10,885 14,103 (15,282) (184,527) 24,451
Loss for the year - - - - - - - (3,588) (3,588)
Translation losses for the year - - - - - - 849 - 849
Total comprehensive loss for the year - - - - - - 849 (3,588) (2,739)
Share options lapsed - - - - - (715) - 715 -
Share-based payment charge - - - - - 1,251 - - 1,251
Issuance of shares for cash 841 28,711 - - - - - - 29,552
Issuance of shares for settlement of liabilities 652 22,390 - - - - - (101) 22,941
Transfer of treasury shares - - 84 - - (3,256) - 3,172 -
Modification of convertible loan notes - - - (1,073) - - - 2,493 1,420
As at 31 December 2021 6,894 242,695 (132) 1,420 10,885 11,383 (14,433) (181,836) 76,876
Loss for the year - - - - - - - (8,577) (8,577)
Translation gains for the year - - - - - - 3,873 - 3,873
Total comprehensive loss for the year - - - - - - 3,873 (8,577) (4,704)
Share options lapsed 22 (c) - - - - - (2,126) - 2,126 -
Share-based payment charge 6 - - - - - 373 - - 373
Issuance of shares for cash 22 (b) - - - - - - - - -
Issuance of shares for settlement of liabilities 22 (b) 3 62 - - - - - - 65
Transfer of treasury shares 22 (e) - - 28 - - (371) - 343 -
Modification of convertible loan notes 22 (d) - - - - - - - - -
As at 31 December 2022 6,897 242,757 (104) 1,420 10,885 9,259 (10,560) (187,944) 72,608
Consolidated Cash Flow Statement
For the Year Ended 31 December 2022 2022 2021
Note US$'000 US$'000
Cash flows from operating activities
Operating (loss)/profit (538) 7,788
Depreciation and amortisation 6 11,474 7,115
(Profit)/loss on disposal of property, plant and equipment 6 (12) 4
Non-cash expenses 20 66 87
Change in provisions (2,125) 75
Unrealised foreign exchange gains 6 (3,455) (1,475)
Share-based payments 6 373 1,251
Decrease/(increase) in inventories 5,838 (6,507)
Decrease/(increase) in trade and other receivables 17,969 (15,915)
(Decrease)/increase in trade and other payables (20,915) 15,920
Increase/(decrease) in contract liabilities 26 974 (3,250)
Cash generated in operations 9,649 5,093
Income taxes paid (2,505) (1,806)
Net cash generated in operations 7,144 3,287
Investing activities
Purchase of property, plant & equipment 17 (7,746) (9,117)
Purchase of intangible assets 16 (11) (152)
Exploration and evaluation costs 15 (2,385) (6,212)
Proceeds from sale of property, plant & equipment 19 1
Interest received 28 17
Net cash used in investing activities (10,095) (15,463)
Financing activities
Proceeds from issue of share capital 22 - 29,983
Share issue costs paid - (431)
Repayments of principal portion of lease liabilities 28 (709) (674)
Finance costs paid for modifications of other loans 24 - (104)
Repayments of principal amount of loan 29 (9,500) (9,800)
Payments of interest 29 (1,633) (2,295)
Proceeds from loans 29 6,000 -
Net cash (used in)/from financing activities (5,842) 16,679
Net change in cash and cash equivalents (8,793) 4,503
Cash and cash equivalents at beginning of the year 11,134 6,928
Effect of changes in foreign exchange rates (1,725) (297)
Cash and cash equivalents at end of the year 21 616 11,134
Notes to the Consolidated Financial Statements
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 2022 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 May 2023 the Group had approximately US$0.5 million of cash and cash
equivalents and US$47.5 million of debt (excluding lease liabilities, contract
liabilities and warrants) comprising the following:
· US$31.1 million (USD$31.7 million at maturity) convertible loan
notes including accrued interest to 31 May 2023 (Note 25)
· US$16.4 million other loans outstanding (Ameriabank US$13.2,
other borrowings US$1.2 million and corporate Working Capital Facility
US$2.0 million), including accrued interest to 31 May 2023 (Note 29)
Kyrgyz Republic and corporate activities
In order to achieve the planned (though as yet uncommitted) capital
developments of assets in the Kyrgyz Republic and to sustain future corporate
activities, future financing will need to be raised.
Kapan
The Board has based the cash flow forecasts for Kapan on the most recent
forecasts which show that Kapan is expected to generate sufficient revenue to
cover its operating costs and principal and interest payments.
Convertible Loan Notes
By 31 July 2023, 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$31.7 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 July 2023. To proceed with the development in Kyrgyz
Republic and to sustain corporate activities, further financing will also be
required. A number of workstreams including but not limited to the
non-binding letter of intent referred to in note 35 for the potential equity
investment of US$250 million are underway to secure financing for the Company
for these purposes. 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 or should other strategic options including potential
monetisation of the assets not prove to be viable, there may be a material
impairment of the US$82 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 (IFRS) as issued by the International Accounting
Standards Board (IASB) and on a historical cost basis with exception to fair
value gain on warrants that are carried at FVTPL.
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 2022, the changes being:
i. Amendments to IFRS 9 Financial Instruments, IFRS 1 First-time
Adoption of International Financial Reporting Standards and IFRS 16 Leases,
resulting from Annual Improvements to IFRS Standards 2018-2020, effective for
annual periods beginning on or after 1 January 2022.
ii. Amendments to IAS 37 Provisions, Contingent Liabilities and
Contingent Assets resulting the costs to include when assessing whether a
contract is onerous, effective for annual periods beginning on or after 1
January 2022.
iii. Reference to the Conceptual Framework (Amendments to IFRS 3
Business Combinations), effective for annual periods beginning on or after 1
January 2022. The amendments update an outdated reference to the Conceptual
Framework in IFRS 3 without significantly changing the requirements in the
standard.
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. Amendments to IAS 1 Presentation of Financial Statements
regarding the classification of liabilities as current and non-current,
effective for annual periods beginning on or after 1 January 2023;
ii. IFRS 17 Insurance Contracts, effective for annual period beginning
on or after 1 January 2023 with earlier application permitted;
iii. Amendments to IAS 1 and IFRS Practice Statement 2 requiring that an
entity discloses its material accounting policies, instead of its significant
accounting policies, effective for annual period beginning on or after 1
January 2023 with earlier application permitted;
iv. Amendments to IAS 8 replacing the definition of a change in
accounting estimates with a definition of accounting estimates, effective for
annual period beginning on or after 1 January 2023 with earlier application
permitted;
v. Amendments to IAS 12 clarifying that the initial recognition
exemption does not apply to transactions in which equal amounts of deductible
and taxable temporary differences arise on initial recognition, effective for
annual period beginning on or after 1 January 2023 with earlier application
permitted; and
vi. Amendments to IFRS 10 Consolidated Financial Statements and IAS 28
Investments in Associates and Joint Ventures regarding the sale or
contribution of assets between an investor and its associate or joint venture,
the effective date of the amendments has yet to be set. However, earlier
application of the amendments is permitted.
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 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.
Where the group does not purchase the third party ore for sale but provides a
processing service the processing fee is recognised as revenue over the
processing period.
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 or
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 calculated on an accruals basis at rates set by the government and included
in cost of sales.
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
gross 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 2022 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, 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 other comprehensive income or equity in
which case the related deferred tax is also recognised directly in other
comprehensive income or 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 of disposal 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 of
disposal calculation. Fair value is based on the applicable Discounted Cash
Flow ("DCF") method using post-tax cash flows and post -tax discount rate,
this is considered to give a materially similar result to a basis that uses
pre-tax cash flows and pre-tax discount rate. 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
and by reducing the carrying amount to reflect the lease payments made.
Interest is charged over the term of the lease at an even rate over the
carrying amount of the liability. 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. Where ownership of the underlying asset
transfers to the entity at the end of the lease depreciation is charged over
the 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 a revised discount rate. The
discount rate on commencement is only applied to changes in estimates of
payments. 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 foreign operations.
· ''Accumulated losses'' includes all current and prior period
results as disclosed in the income statement or other comprehensive 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.
The amounts reported are rounded to the nearest thousand, unless overwise
stated.
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 the disposal of a foreign operation (i.e. a disposal of the Group's entire
interest in a foreign operation, or a disposal involving loss of control over
a subsidiary that includes a foreign operation, a disposal involving loss of
joint control over a jointly controlled entity that includes a foreign
operation, or a disposal involving loss of significant influence over an
associate that includes a foreign operation), all of the exchange differences
accumulated in equity in respect of that operation attributable to the owners
of the Company are reclassified to profit or loss. In the case of a partial
disposal that does not result in the Group losing control over a subsidiary
that includes a foreign operation, the proportionate share of accumulated
exchange differences reattributed to non-controlling interests and are not
recognised in the consolidated income statement. For all other partial
disposals (i.e. reductions in the Group's ownership interest in associates or
jointly controlled entities that do not result in the Group losing significant
influence or joint control), the proportionate share of the accumulated
exchange differences is reclassified to the consolidated income statement.
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. 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 defined contribution 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.
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 added. 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 when appropriate.
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 2022, the capitalised costs of the exploration and evaluation
assets amounted to US$69.2 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 2022, 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 2022 was US$2.9
million (2021: US$5.7 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 2022 was US$12.3 million (2021:
US$7.9 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$4.5 million (2021: US$5.7 million) are
included in cost of sales as they are calculated on the basis of revenue
earned from the supply of concentrates. The royalty rate is calculated on
fixed rate plus a variable component based on measure of profitability. The
royalty rate is levied on revenue as a production based component. As the
royalty 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.
Accounting for the concentrate purchase agreement
The Group has a contractual arrangement under which third party ore is
received, processed, purchased and sold to the customer.
The Group is deemed principal as opposed to agent as the substance of this
arrangement is 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.
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.
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 2022 was US$9.9 million (2021: US$16.2
million) and the inventory write-down provision to net realisable value
amounted to US$1.9 million as at 31 December 2022 (2021: US$1.9 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 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 2022 is US$11.7 million (2021: US$10.5 million). A
25% increase or decrease in the potential cash flows would increase or
decrease the provision by US$2.9million. The basis of the provision recognised
is an assumed mine closure date of 2027 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$1.3
million.
Legal claim provisions
As disclosed in Note 31, legal claim provisions totalling US$2.2 million have
been recognised as the Group has a present obligation as a result of a past
event, it is probable that an outflow of resources will be required to settle
the disputes, a reliable estimate can be made of the amount of the obligation
however there is uncertainty around the timing of payments to be made.
4. Revenue
The revenue recognised from contracts with customers consisted of the
following:
2022 2021
US$'000 US$'000
Copper concentrate 72,725 77,134
Zinc concentrate 16,670 13,114
3(rd) party ore processing fees 1,468 -
Zinc concentrate freight 1,483 2,186
Total 92,346 92,434
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.
Copper concentrate sales are 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 2022, US$76.6 million relates to own concentrate sales
and US$15.7 million relates to third-party concentrate sales (2021: US$72.8
million and US$19.6 million).
In 2022, the Group has continued to recognise contract liabilities in relation
to its contracts with customers for prepayments received for the future
transfer of concentrates, as set out in Note 26.
5. Cost of sales
2022 2021
US$'000 US$'000
Depreciation and amortisation 10,816 5,941
Employee benefit expenses 11,504 8,817
Materials 18,130 12,973
Services 19,322 14,616
Royalties 4,543 5,665
Energy and fuel 6,710 4,103
Cost of purchased ore and concentrate* 9,911 16,143
Short-term lease charges 1,234 951
Other 66 49
Total 82,236 69,258
*In both 2021 and 2022, the Group processed third party ore into concentrate
for a fee. The Group purchases the processed concentrate and sells it to
customers, resulting in third-party revenue, which is recognised in addition
to own ore revenue, as disclosed in note 4. The amount expensed in cost of
sales is equal to the price paid to the third party, which is net of the
processing fee charged by the Group on the basis the substance of these
arrangements is that of an ore purchase agreement.
6. Operating profit
The operating profit is stated after charging/(crediting):
2022 2021
US$'000 US$'000
Depreciation of property, plant and equipment 11,415 6,841
Amortisation of intangible assets 252 274
Short-term/low value lease charges 1,395 1,083
Share based payment charges 373 1,251
Loss on the sale of fixed assets (12) 4
(Gain)/loss on foreign exchange (3,455) (1,475)
Fees payable to Group auditors for the audit of the Group financial 186 234
statements
Fees payable to associated firms of the auditor for the audit of subsidiaries 63 83
Change in legal provision 535 75
Selling expenses 2,196 2,444
7. Selling expenses
Selling expenses consisted of the following:
2022 2021
US$'000 US$'000
Transportation expenses 1,483 1,099
Sampling and inspection 132 125
Staff costs 208 246
Customs clearance 49 675
Utilities 36 30
Depreciation and amortisation 8 6
Material 263 77
Services 16 27
Other 1 159
Total 2,196 2,444
8. Administrative expenses
The administrative expenses consisted of the following:
2022 2021
US$'000 US$'000
Readmission and acquisition costs 81 242
Legal and compliance 71 422
Regulatory 280 359
Investor relations 241 363
Salaries 5,862 6,383
Corporate support 1,383 3,787
Travel and subsistence 161 159
Share-based payment charges 373 1,251
Total 8,452 12,966
9. Segmental analysis
Operating segments are identified based on internal reports about components
of the Group that are regularly reviewed by the Board, in order to allocate
resources to the segments and to assess their performance.
Based on the proportion of revenue and profit within the Group's operations
and on the differences in principal activities, the Board considers there to
be two operating segments:
· Exploration for mineral deposits in the Kyrgyz Republic with support
provided from the British Virgin Islands ('Kyrgyz Republic')
· Exploration and production of copper and zinc concentrates at Kapan
in Armenia ('Armenia')
Kyrgyz Republic Armenia Corporate Total
31 December 2022 US$'000 US$'000 US$'000 US$'000
Revenue
Sales to external customers - 92,436 - 92,346
Total segment revenue - 92,436 - 92,346
Operating profit/(loss) (2,033) 6,504 (5,008) (538)
Finance income - 28 - 28
Finance costs - (3,136) (3,578) (6,714)
Fair value gain on warrant - - 367 367
Profit/(loss) before income tax (2,033) 3,396 (8,219) (6,856)
Income tax charge - (1,721) - (1,721)
Profit/(loss) after income tax (2,033) 1,675 (8,219) (8,577)
Assets
Segment assets - non-current 82,399 48,306 - 130,705
Segment assets - current 154 26,791 484 27,430
Total assets 82,553 75,097 484 158,134
Liabilities
Segment liabilities 2,308 53,380 29,838 85,526
Total liabilities 2,308 53,380 29,838 85,526
Kyrgyz Republic Armenia Corporate Total
31 December 2021 US$'000 US$'000 US$'000 US$'000
Revenue
Sales to external customers - 92,434 - 92,434
Total segment revenue - 92,434 - 92,434
Operating profit/(loss) (2,299) 17,448 (7,361) 7,788
Finance income - 17 6 23
Finance costs - (3,043) (4,853) (7,896)
Fair value gain on warrant - - 434 434
Loss before income tax (2,299) 14,422 (11,774) 349
Income tax charge - (3,937) - (3,937)
Loss after income tax (2,299) 10,485 (11,774) (3,588)
Assets
Segment assets - non-current 78,562 41,173 - 119,735
Segment assets - current 277 43,797 7,749 51,823
Total assets 78,839 84,970 7,749 171,558
Liabilities
Segment liabilities 2,253 65,753 26,675 94,682
Total liabilities 2,253 65,753 26,675 94,682
10. Staff numbers and costs
2022 2021
Number Number
Management and administration 135 167
Exploration and evaluation 50 54
Production and service 947 948
Total 1,132 1,169
The aggregate payroll costs of these persons were as follows: US$'000 US$'000
Staff wages and salaries 19,310 17,725
Employee share-based payment charges - 966
Directors' remuneration as detailed in the Remuneration Report
Wages and salaries 1,202 880
Termination benefits - 575
Share-based payment charges 373 285
Total 20,886 20,431
The share-based payment charge in 2022 relates to the fair value charge
attributed to share options issued to the Chief Executive Officer which vested
immediately in January 2022.
The staff wages and salaries include amounts capitalised to exploration and
evaluation assets of US$2.9 million (2021: US$3.1 million).
11. Directors' remuneration
The costs of certain Directors' services were charged to the Company via
consultancy companies, as separately detailed below and in the related party
transactions Note 32, rather than directly as short-term employment costs.
These arrangements are in place purely for administrative convenience and are
not methods to mitigate, reduce or remove liabilities to taxation in the
respective Director's country of residence. Details of Directors' remuneration
are provided in the Remuneration Report.
Total remuneration 2022 2021
US$'000 US$'000
Salary and fees paid directly 1,152 830
Salary and fees paid via related party consultancy companies 50 50
Termination benefits - 575
Share-based payment charges 373 285
Total 1,575 1,740
The share-based payment charge in 2022 relates to the fair value charge
attributed to share options issued to the Chief Executive Office which vested
immediately in January 2022.
The share-based payment charge in 2021 relates to the fair value charge
attributed to tranche 3 RSUs which vested in April 2021.
12. Finance costs
2022 2021
US$'000 US$'000
Interest on convertible loan notes 25 3,899 3,793
Interest on other loans 29 1,605 2,184
Interest on lease liabilities 28 123 128
Interest on contract liabilities 26 117 204
Unwinding of discount - provision for environmental obligations 23 1,291 705
Financing costs 25 (321) 867
Other - 15
Total 6,714 7,896
The interest on other loans of US$1.6 million includes interest on borrowings
of US$1.3 million, interest on other borrowings of US$0.2 million and interest
on the working capital facility of US$0.1 million. No finance costs have
been capitalised.
The financing credit of US$0.3 million, a non-cash credit, relates to
non-substantial modification of the convertible loan notes as disclosed in
Note 25. In 2021, the financing costs of US$0.9 million related to the
amortisation of the Labro Facility commitment fee.
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 2022. 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
2022, the fixed royalty percentage remained at 8%, comprising a royalty of 5%
and a contribution to local infrastructure of 3% (2021: 8%, 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$2,501 per ounce is therefore 27%. However, as the Group's
assets in the Kyrgyz Republic are at an exploration stage, the Group has no
royalty payable in respect of these assets for the years ended 31 December
2022 or 31 December 2021.
Further, under the Article 301 of the Tax Code of the Kyrgyz Republic, an
entity is subject to a taxation in payment of the right to use subsoil,
including for the purpose of developing a mineral deposit. The tax base for
calculating this is the amount of geological reserves and forecast resources
taken into account by the State Balance of deposits of mineral resources of
the Kyrgyz Republic.
At the balance sheet date, the Group has received no tax claims and the
Directors believe that the Group is in compliance with the tax laws affecting
its operations and therefore there are no further uncertain tax positions
which require disclosure in accordance with IFRIC 23.
The Group has recognised deferred tax assets which relate to temporary
differences arising at the Kapan mine in Armenia, as detailed in Note 18.
Analysis of tax charge for the year
2022 2021
US$'000 US$'000
Armenian tax 947 2,269
Current tax 947 2,269
Origination and reversal of temporary differences 774 1,668
Deferred tax 18 774 1,668
Income tax expense 1,721 3,937
Reconciliation of tax charge for the year
2022 2021
US$'000 US$'000
Profit/(loss) before tax (6,856) 349
Tax calculated at applicable corporation tax rate:
Armenian corporation tax at 18% (2020:18%) 1,234 63
Tax effects of:
Items non-deductible/(non-taxable) for tax purposes (1,110) (439)
Different tax rates applied in overseas jurisdictions (1,539) (2,188)
Current tax losses not recognised (306) (345)
Write-down of previously recognised deferred tax assets - (1,028)
Income tax expense (1,721) (3,937)
Tax losses
2022 2021
US$'000 US$'000
Unused tax losses for which no deferred tax asset has been recognized
United Kingdom 201 278
Tax benefit at 25% 50 53
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$8.6
million (2021: loss of US$3.6 million) and the weighted average number of
ordinary shares in issue during the year of 689,655,467 (2021: 673,320,329).
At 31 December 2022, 8,920,341 (2021: 8,920,341) warrants, 44,170,931 (2021:
49,692,252) share options and convertible loan notes have been excluded from
the diluted weighted average number of ordinary shares calculation because
their effect would have been anti-dilutive.
15. Exploration and evaluation costs
Tulkubash Kyzyltash Total
US$'000 US$'000 US$'000
At 1 January 2021 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
Additions 2,592 285 2,877
Reclassification to property, plant & equipment - - -
At 31 December 2022 58,796 10,386 69,182
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 2022, management
does not consider there to be any impairment in respect of these assets.
In 2021, the Company entered into an 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 2021 1,451 281 1,732
Prior year reclassification from PPE 18 - 18
Additions 152 - 152
Reclass from PPE to IA 18 - 18
Effect of translation to presentation currency 120 26 146
At 31 December 2021 1,741 307 2,048
Additions 67 - 67
Effect of translation to presentation currency 348 66 414
At 31 December 2022 2,156 374 2,530
Accumulated amortisation
At 1 January 2021 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
Charge for the year 221 31 252
Effect of translation to presentation currency 169 14 183
At 31 December 2022 1,172 98 1,270
Net book value
At 31 December 2022 984 276 1,260
At 31 December 2021 959 254 1,213
At 1 January 2021 960 261 1,221
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 2021 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
Additions 122 8,354 - 200 2,960 674 12,310
Transfers - (84) - 107 (23) - -
Changes in estimates of provision for environmental obligations - (1,120) - - - - (1,120)
Disposals - (56) (34) (19) - (1,011) (1,120)
Effect of translation to presentation currency 911 9,758 282 62 573 391 11,977
At 31 December 2022 10,409 59,555 1,835 1,017 13,382 1,992 88,190
Accumulated depreciation
At 1 January 2021 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
Charge for the year 873 8,561 476 149 - 711 10,770
Disposals - (53) (30) (19) - (1,011) (1,113)
Effect of translation to presentation currency 370 3,423 229 46 - 227 4,295
At 31 December 2022 4,387 24,894 1,765 639 - 1,104 32,789
Net book value
At 31 December 2022 6,022 34,661 70 378 13,382 888 55,401
At 31 December 2021 6,232 29,740 497 204 9,872 761 47,306
At 1 January 2021 6,772 24,942 804 305 6,447 1,268 40,538
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 2022, 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 recognised as a result of temporary differences
where the directors believe it is probable that these assets will be
recovered. The Group's deferred tax asset relates to the Kapan mine in
Armenia. Recoverability of the recognised deferred tax asset is considered
more likely than not based upon expectations of future taxable income in
Armenia. The Group's estimate of future taxable income is based on established
proven and probable reserves which can be economically developed. 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$0.2 million (2021: US$0.3
million).
The movement in net deferred tax assets during the year is as follows:
2022 2021
US$'000 US$'000
At 1 January 4,381 5,631
Charged to the income statement (774) (1,668)
Effect of currency translation 882 418
At 31 December 4,489 4,381
Comprising:
Deferred tax assets 4,489 4,381
Deferred tax liabilities - -
Movements in temporary differences during the years ended 31 December are
presented as follows:
2022 At 1 January Charged to the income statement Effect of currency translation Total
US$'000 US$'000 US$'000 US$'000
Property, plant and equipment 4,175 (1,018) (145) 3,012
Trade and other receivables 177 (181) 20 16
Inventories (190) 281 864 955
Other provisions 54 56 18 128
Trade and other payables 54 113 24 191
Lease liabilities 111 (25) 101 187
Total 4,381 (774) 882 4,489
2021 At 1 January Charged to the income statement Effect of currency translation Total
US$'000 US$'000 US$'000 US$'000
Property, plant and equipment 4,516 (706) 365 4,175
Trade and other receivables 49 119 9 177
Inventories 684 (892) 18 (190)
Other provisions 48 2 4 54
Trade and other payables 108 (61) 7 54
Lease liabilities 226 (130) 15 111
Total 5,631 (1,668) 418 4,381
19. Inventories
Inventories represent goods held for sale in the ordinary course of business
(copper and zinc concentrate), ore being processed into a saleable condition
(ore stockpiles) and consumables and spares to be used in the production
process.
2022 2021
US$'000 US$'000
Consumables and spare parts 10,802 8,861
Copper and zinc concentrate in stock 683 5,984
Copper and zinc concentrate in transit 1,056 1,432
Ore stockpiles extracted 3,667 2,157
Other - 8
At 31 December 16,208 18,442
20. Trade and other receivables
2022 2021
US$'000 US$'000
Trade receivables 6,654 18,620
Other receivables 984 2,856
Unpaid shares issued - 6
Prepayments 3,118 766
Less: expected credit losses (90) (1)
At 31 December 10,666 22,247
The movement in the loss allowance for expected credit losses is detailed
below:
2022 2021
US$'000 US$'000
At 1 January 1 271
Movement during the year (242) (270)
Effect of currency translation 331 -
At 31 December 90 1
21. Cash and cash equivalents
2022 2021
US$'000 US$'000
Cash on hand 1 2
Current accounts in UK 378 7,646
Current accounts in the Kyrgyz Republic 138 264
Current accounts in Armenia 99 3,222
At 31 December 616 11,134
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$0.01 par value of a
single class. All shares have equal rights to receive dividends or capital
repayments and all shares represent one vote at meetings of shareholders of
the Company.
22(a) Capital management policies and procedures
The Group's objectives for the management of capital have not changed in the
year. The Directors seek to ensure that the Group will continue to operate as
a going concern in order to pursue the development of its mineral properties,
to sustain future development and growth as well as to maintain a flexible
capital structure which optimises the cost of capital at an acceptable risk.
The Company manages the capital structure and adjusts it in light of changes
in economic conditions and the risk characteristics of the underlying assets.
In order to maintain or adjust the capital structure, the Company may issue
shares, seek debt financing, or acquire or dispose of assets. The Company,
following approval from the Board of Directors, will make changes to its
capital structure as deemed appropriate under specific circumstances.
The Group considers equity to be all components included in shareholders'
funds and net debt to be short and long-term borrowings including convertible
loan notes less cash and cash equivalents. The Group's net debt to equity
ratio at 31 December was as follows:
2022 2021
US$'000 US$'000
Total Equity 72,608 76,876
Convertible loan notes 29,203 25,625
Other loans 17,806 21,328
Contract liabilities 3,720 2,379
Lease liabilities 1,186 978
Warrant financial liability 13 380
Less: cash and cash equivalents (616) (11,134)
Net debt 51,312 39,556
Net debt to equity ratio 71% 51%
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. Two covenants of
the loan were not satisfied during the year and have been considered as part
of the Group's going concern assessment in Note 2. Ameriabank waived the
non-compliance for not meeting the covenants and decided not to apply any
waiver fees.
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 2022.
22 (b) Share capital
2022 2021
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 689,411 6,894 540,061 5,401
Issued for cash 9 - 84,115 841
Issued to settle liabilities 247 3 65,235 652
Exercise of warrants - - - -
Exercise of share options - - - -
At 31 December 689,667 6,897 689,411 6,894
The share capital of the Company consists of ordinary shares of a single
class. All shares have equal rights to receive dividends or capital
repayments and all shares represent one vote at meetings of the Company.
The company issued 247,368 ordinary shares of US$0.01 each in the company to
Mike Fraser as a sign on bonus. 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 the CEO rather than 247,368. The CEO rectified this by
paying the Company a cash subscription price for the additional 8,567 shares
at the three-day average MMQ.
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$0.07 million were
incurred by the Trust (2021: US$0.05 million). At 31 December 2022, the Trust
held 1,070,194 shares (2021: 1,070,194 shares).
22 (c) Share options and share-based payments
Share options
The Group operates a share option plan under which directors, employees,
consultants, and advisers have been granted options to subscribe for ordinary
shares. All options are share settled. The number and weighted average
exercise price of share options are as follows:
2022 2021
Number of Options Weighted average exercise price (US$) Number of Options Weighted average exercise price (US$)
Outstanding at 1 January 49,692,252 0.567 55,027,006 0.523
Exercised during the year - - - -
Granted during the year 5,000,000 0.574 - -
Replaced during the year - - - -
Lapsed during the year (10,521,322) 0.519 (5,334,754) 0.578
Outstanding at 31 December 44,170,930 0.508 49,692,252 0.567
Exercisable at 31 December 44,170,930 0.508 49,692,252 0.567
The share options outstanding at 31 December 2022 had a weighted average
remaining contractual life of 1.6 years (2021: 2.7 years). Maximum term of the
options granted was 5 years from the grant date. The share options outstanding
at 31 December 2022 had an exercise price of £0.42 (2021: £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
2022 was as follows:
Exercise period Number Exercise price
18 September 2019 to 18 September 2024 28,056,857 £0.42
18 September 2019 to 4 February 2023* 8,150,320 £0.42
18 September 2019 to 3 April 2023* 2,963,753 £0.42
18 January 2022 to 18 January 2027 5,000,000 £0.42
Total 44,170,930 £0.42
*Options lapsed post year end.
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.
On 18 January 2022, a further 5,000,000 share options exercisable at £0.42
per share were granted to the Company's Chief Executive Office which vested
immediately on this date. As a result, a total share-based payment charge of
$0.4 million was recognised during 2022.
There was no exercise of share options during 2022, however 10,521,322 share
options lapsed due to employees leaving the Company during the year. A
further 11,114,073 share options lapsed between the year-end date and the date
of this report.
22 (d) Convertible loan note reserve
The convertible loan note reserve represents the equity component of
convertible loan notes issued by the Company. Refer to Note 25 for further
information.
2022 2021
US$'000 US$'000
At 1 January 1,420 2,493
Modification of convertible loan notes - (1,073)
At 31 December 1,420 1,420
22 (e) Own shares reserve
The own shares reserve represents the nominal value of equity shares that have
been repurchased by the company. The movement in the reserve is as follows:
2022 2021
US$'000 US$'000
At 1 January (132) (216)
Transfer of treasury shares 28 84
At 31 December (104) (132)
23. Provision for environmental obligations
The provision for environmental obligations relates to the Kapan mine in
Armenia. According to Armenian legislation and licence agreements, the Company
is committed to restoring working areas on the mine, including decommissioning
of plant and securing of the tailings dam. Movements in the provision are as
follows:
2022 2021
US$'000 US$'000
At 1 January 10,521 7,479
Change in provision (2,313) 1,566
Unwinding of discount 1,291 705
Reclassification to deferred expenses - -
Effect of currency translation 2,208 771
At 31 December 11,707 10,521
Further details relating to the calculation of the balance as at 31 December
2022 are as follows:
31/12/2022 31/12/2021
Discount rates 11.98% 9.91%
Provision settlement date 31/12/2028 31/12/2027
Estimated undiscounted cash flow required to settle the provision US$14.1 million US$14.1 million
24. Reconciliation of liabilities
Convertible loans Contract Lease liabilities Other loans Total
liabilities
Liabilities from financing activities US$'000 US$'000 US$'000 US$'000
US$'000
At 1 January 2021 23,252 5,328 1,425 53,347 83,352
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
Cash flows:
Cash proceeds - 3,000 - 6,000 9,000
Payment of interest - - - (1,633) (1,633)
Payment of principal amount - - - (9,500) (9,500)
Lease payments - - (709) - (709)
Net proceeds - 3,000 (709) (5,133) (2,842)
Non-cash items:
Additions - 578 - 578
Loan modification (321) - - - (321)
Lease modification - - 124 - 124
Interest accrued 3,899 117 123 1,605 5,744
Settlement of interest against receivables - (50) - - (50)
Reversal of lease payable - - (123) - (123)
Amounts recognised as revenue during the year - (2,026) - - (2,026)
Effect of currency translation 300 215 7 522
Total liabilities from financing activities at 31 December 2022 29,203 3,720 1,185 17,806 51,915
Non-current - - 885 - 885
Current 29,203 3,720 300 17,806 51,030
25. Convertible loan notes
During the year no new convertible loan notes were issued, however the
maturity date was extended by 9 months from 31 October 2022 to 31 July 2023.
The conversion price of the notes remained at £0.30 per share. The only other
transaction during the year was accrued interest of US$3.9 million (2021:
US$3.8 million).
2022 Notes US$'000
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
Cash proceeds -
Transaction costs -
Net proceeds -
Loan modification (321)
Accrued interest 3,899
At 31 December 2022 29,203
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.
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.
In October 2022, the maturity date of the conversion loan notes was extended
by a further 9 months from 31 October 2022 to 31 July 2023 and accrued
interest of US$9.2 million was capitalised as at 31 October 2022, which
increased the principal value of the notes to US$28.9 million. The extension
was treated as a non substantial modification for accounting purposes. The
coupon interest rate remains at 12% p.a. Further, a one off restructuring
fee equal to 1% of the original principal amount of the notes became payable
to the holders at this date.
As the notes fall due in July 2023, they have been classified as current
liabilities at 31 December 2022.
26. Contract liabilities
The movements in the Group's contract liabilities for the year are presented
below:
2022 2021
US$'000 US$'000
At 1 January 2,379 5,328
Cash received in advance of performance 3,000 -
Interest on contract liabilities 117 204
Settlement of interest against receivables (50) (120)
Amounts offset against revenue during the year (2,026) (3,250)
Effect of currency translation 300 217
At 31 December 3,720 2,379
Non-current - -
Current 3,720 2,379
The contract liabilities balance relates to prepayments received from one of
Chaarat Kapan's customers for the future sale of concentrates. The prepayments
accrue interest at a rate defined in the sales contract of 6-month SOFR plus
5% p.a. and are settled by way of deduction against future outstanding
invoices.
27. Trade and other payables
Trade and other payables at 31 December consisted of the following:
2022 2021
US$'000 US$'000
Trade payables 16,541 27,799
Social security and employee taxes 2,305 1,951
Accruals 868 967
As at 31 December 19,714 30,717
Trade and other payables are all unsecured.
28. Leases
The Group's leases are accounted for by recognising a right-of-use asset and a
lease liability except for leases of low value assets and leases with a
duration of 12 months or less.
The Group leases equipment and land in the jurisdictions from which it
operates, the most notable being the land that is leased in Armenia. Certain
items of property, plant and equipment are also leased in the Kyrgyz Republic
which contain variable payments over the lease terms, therefore these leases
do not fall within the scope of IFRS 16, and right-of-use assets and lease
liabilities are not recognised as a result.
The movements in the Group's right-of-use assets and lease liabilities for the
year are presented below:
Right-of-use assets
Land Property Equipment Total
US$'000 US$'000 US$'000 US$'000
At 1 January 2021 808 - 460 1,268
Depreciation charge (114) - (476) (590)
Effect of translation to presentation currency 66 19 85
At 31 December 2021 760 - 3 763
Land Property Equipment Total
US$'000 US$'000 US$'000 US$'000
At 1 January 2022 760 - 3 763
Additions - - 578 578
Lease modification 97 - - 97
Depreciation charge (132) - (579) (711)
Effect of translation to presentation currency 165 (2) 163
At 31 December 2022 890 - - 890
Lease liabilities
Land Property Equipment Total
US$'000 US$'000 US$'000 US$'000
At 1 January 2021 859 - 566 1,425
Interest expense 97 - 31 128
Lease payments (189) - (485) (674)
Effect of translation to presentation currency 72 - 27 99
At 31 December 2021 839 - 139 978
Land Property Equipment Total
US$'000 US$'000 US$'000 US$'000
At 1 January 2022 839 - 139 978
Additions - - 578 578
Interest expense 86 - 36 122
Lease payments (217) - (491) (708)
Reversal of lease payable - - (123) (123)
Lease modification 124 - - 124
Effect of translation to presentation currency 184 - 30 214
At 31 December 2022 1,016 - 169 1,185
The maturity of the gross contractual undiscounted cash flows due on the
Group's lease liabilities is set out below based on the period between 31
December and the contractual maturity date.
Within 6 months 6 months to 1 year 1 to 5 years Over 5 years Total at 31 December 2022
US$'000 US$'000 US$'000 US$'000 US$'000
Land leases 120 121 935 230 1,405
Equipment leases 169 - - - 169
Total 289 121 935 230 1,574
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
As at 31 December 2022, the gross contractual discounted cash flows due on the
Group's lease liabilities amounts to US$1.2 million (2021: US$1.0 million).
The discount rate used in calculating the lease liabilities is the rate
implicit in the lease, unless this cannot readily be determined, in which case
the Group's incremental rate of borrowing is used instead. In 2022, a discount
rate of 12% per annum has been used to calculate the Group's lease liabilities
for its land and equipment leases.
29. Other loans
Other loans at 31 December consisted of the following:
Borrowings WC Facility Other Borrowings Total
US$'000 US$'000 US$'000 US$'000
At 1 January 2022 19,286 - 2,042 21,328
Borrowing attracted in cash - 6,000 - 6,000
Interest accrued 1,281 149 175 1,605
Payment of interest in cash (1,429) (56) (148) (1,633)
Payment of principal amount in cash (9,500) - - (9,500)
Effect of currency translation 4 15 (13) 7
At 31 December 2022 9,642 6,108 2,056 17,806
Non-current - - - -
Current 9,642 6,108 2,056 17,806
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. Two covenants of the loan were not satisfied during the year.
Social spending should not exceed US$0.3 million per year with 2022 totalling
US$0.5 million. The minimum cash balance at year end should not be less than
US$1.0 million with cash on hand at year end totalling US$0.1 million.
Ameriabank waived the non-compliance for not meeting the covenants and decided
not to apply any waiver fees.
WC Facility
In 2022, the Company entered into two new agreements with Ameriabank CJSC
totalling US$6.0 million. This included a line of credit agreement with a
maximum limit of US$4.0 million on August 12, 2022. The loan incurs interest
at an annual floating interest rate of 11% and is repayable through quarterly
instalments starting from January 20, 2023. An additional loan agreement was
entered on November 11, 2022 for US$2.0 million. The loan interest rate is
12.5% per annum and the principal is repayable through two equal instalments
on July 17, 2023 and October 2, 2023.
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 2022, a fair value gain of US$0.4 million was recognised in profit or loss
due to a decline in the share price. The movement in the balance is set out
below:
2022 2021
US$'000 US$'000
At 1 January 380 814
Issue of warrants - -
Fair value gain (367) (434)
As at 31 December 13 380
The warrants to purchase ordinary shares remain outstanding at 31 December
2022 as follows:
2022 2021
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 2022, using an exchange rate of 1.21, were as
follows:
31 December 2022
Fair value US$0.001
Share price US$0.13
Weighted average exercise price US$0.31
Expected volatility 59.33%
Expected life 0.63 years
Expected dividend yield 0.00%
Risk-free interest rate 4.75%
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$0.7 million at 31
December 2022 (2021: US$1.2 million) and a legal claim of US$1.3 million at 31
December 2022 (2021: US$1.3 million) that was charged against Chaarat in the
Kyrgyz Republic whereby compensation for agricultural losses was demanded
("Land Provision"). US$0.8 million of the employment dispute provision was
covered by an indemnity included in the original Kapan acquisition agreement.
At 31 December 2021, the Directors considered recoverability virtually certain
and accordingly recognised a corresponding within other receivables, however
this has subsequently been written-off at 31 December 2022 as recoverability
is no longer virtually certain.
The provisions have been recognised as, based on the Group's legal views, it
is considered probable that an outflow of resources will be required to settle
the disputes, however there is uncertainty around the timing of payments to be
made. There are no expected reimbursements relating to these provisions.
The movement in provisions in 2022 is as follows:
Legal Claims Provision Land Provision Other Provision Total
US$'000 US$'000 US$'000 US$'000
At 1 January 2022 1,207 1,342 205 2,754
Change in provision 535 - - 535
Settlement of provision in cash (1,227) - - (1,227)
Foreign exchange on conversion 193 (15) (1) 177
At 31 December 2022 708 1,327 204 2,239
32. Related party transactions
Remuneration of key management personnel
Remuneration of key management personnel is as follows:
2022 2021
US$'000 US$'000
Short term employee benefits 1,758 1,618
Termination benefits - 575
Share-based payments charge 373 856
Total 2,131 3,049
Included in the above key management personnel are 8 directors and 2 key
managers (2021: 8 and 2)
The Company issued 247,368 ordinary shares of US$0.01 each in the company to
Mike Fraser as a sign on bonus. 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 the CEO rather than 247,368. The CEO rectified this by
paying the Company a cash subscription price for the additional 8,567 shares
at the three-day average MMQ.
Short-term employee benefits totalling US$312,500 have not yet been paid to Mr
Andersson ($US175,000) and Mr Fraser ($US137,500).
Entities with significant influence over the Group
At 31 December 2022, Labro Investments Limited, Chaarat's largest shareholder,
owned 44.77% (2021: 44.17%) of the ordinary US$0.01 shares in Chaarat
("Ordinary Shares") and US$1.47 million of 12% secured convertible loan notes
which, assuming full conversion of principal and interest to maturity on 31
July 2023, are convertible into 3,947,260 Ordinary Shares.
There were no share issues to Labro in 2022. In 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.
33. Commitments and contingencies
Capital expenditure commitments
The Company had a commitment of US$0.6 million at 31 December 2022 (2021:
US$4.9 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 2022
(2021: 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 2022 is US$0.10 million (2021: US$0.06
million).
34. Financial instruments and financial risk management
The Group is exposed to a variety of financial risks which result from its
operating activities. The Group's risk management is coordinated by the
executive Directors, in close co-operation with the Board of Directors, and
focuses on actively securing the Group's short to medium term cash flows by
minimising the exposure to financial markets. The Group does not actively
engage in the trading of financial assets for speculative purposes. The most
significant financial risks to which the Group is exposed are described below.
Categories of financial instruments
2022 2021
Financial assets measured at fair value US$'000 US$'000
Trade and other receivables 10,666 22,247
Total financial assets 10,666 22,247
Financial liabilities measured at amortised cost
Trade and other payables 17,408 28,766
Contract liabilities 3,720 2,379
Lease liabilities 1,185 978
Other loans 17,806 21,328
Convertible loan notes 29,203 25,625
Financial liabilities measured at fair value through profit or loss
Warrant financial liability 13 380
Total financial liabilities 69,337 79,456
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.
Trade accounts receivable at 31 December 2022 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 its investments in the
above financial instruments. Credit limits for the Group as a whole are not
set up. In line with 2021, COVID-19 did not significantly impact the credit
risk of the Group's customers in 2022 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 2022 of US$0.6 million (2021: US$11.1 million).
Market risk
Market risk arises from the Group's use of interest bearing, tradable and
foreign currency financial instruments. It is the risk that the fair value or
future cash flows of a financial instrument will fluctuate because of changes
in interest rates (interest rate risk) or foreign exchange rates (currency
risk). The Group's financial instruments affected by market risk include bank
deposits, trade and other receivables and trade payables.
The Group holds short term bank deposits on which short term fluctuations in
the interest rate receivable are to be expected but are not deemed to be
material.
Foreign currency risk
The Group carries out expenditure transactions substantially in US dollars
(USD), Armenian Dram (AMD), British Pounds (GBP) and Kyrgyz Som (KGS). Equity
fund-raising has taken place mainly in US dollars, with debt denominated in US
dollars as well. Any resulting gains or losses are recognised in the income
statement.
Foreign currency risk arises principally from the Group's holdings of cash in
GBP.
The Group's presentation and subsidiary's functional currency is the US
dollar, except for Chaarat Kapan, which has a functional currency of AMD.
To mitigate the Group's exposure to foreign currency risk, cash holdings are
maintained to closely represent the expected short-term profile of expenditure
by currency. Apart from these resultant offsets, no further hedging activity
is undertaken.
As at 31 December the Group's net exposure to foreign exchange risk was as
follows:
Net foreign currency financial assets/(liabilities)
2022 2021
US$'000 US$'000
GBP 279 5,866
AMD (8) (3)
KGS 219 268
Other (10) (7)
Total net exposure 480 6,124
The table below sets out the impact of changes in exchange rates on the
financial assets of the Group due to monetary assets denominated in GBP, AMD,
and KGS, with all other variables held constant:
US$ '000 2022 Move Income statement Profit/(loss) Equity 2021 Move Income statement Profit/(loss) Equity
(%) (%)
Fall in value of GBP vs US$ 5 15 15 5 309 309
Increase in value of GBP vs US$ 5 (13) (13) 5 (279) (279)
Fall in value of AMD vs US$ 5 - - 5 - -
Increase in value of AMD vs US$ 5 - - 5 - -
Fall in value of KGS vs US$ 10 24 24 10 30 30
Increase in value of KGS vs US$ 10 (20) (20) 10 (24) (24)
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 2022 and
2021 did not differ materially from their carrying values. In both 2022 and
2021 all financial instruments are valued under a Level 3 hierarchy.
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 2022 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$'000
Trade and other payables 19,714 - - - -
Contract liabilities - 3,720 - - -
Lease liabilities 231 180 240 693 230
Other loans 3,351 15,314 - - -
Convertible loan notes - 31,672 - - -
Total 23,296 50,887 240 693 230
At 31 December 2021 Up to 3 months Between 3 and 12 months Between 1 and 2 years Between 2 and 5 years Over 5 years
US$'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
As a result of the maturity date extension that took place in 2022, the
Group's convertible loan notes are repayable on 31 July 2023.
35. Post balance sheet events
Letter of Intent and Preliminary Investment Agreement
Non-binding Letter of Intent and indicative term sheet signed on the 17 May
2023 with Xiwang International Company Limited for a potential equity
investment of US$250 million. This was followed by a Preliminary Investment
Agreement signed on 31 May 2023.
Working Capital Facility
During 2023, working capital facility arrangements were put in place with a
short-term loan provider . As at 31 May 2023, US$2.0 million had been drawn
down on the facility with a further US$2.0 million available to the company on
the working capital facility. The working capital facility is incurring
interest at 12% per annum and is repayable by 31 September 2023, unless
otherwise agreed by both parties.
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