REG - Chaarat Gold Hlgs Ld - Full year results for year ended 31 December 2023
09/04/2024 07:00
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RNS Number : 7604J Chaarat Gold Holdings Ltd 09 April 2024
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
9 April 2024
Chaarat Gold Holdings Limited
("Chaarat" or the "Company")
Full Year Results
for the Year Ended 31 December 2023
Chaarat (AIM:CGH), a mining explorer and developer with projects in the Kyrgyz
Republic, is pleased to announce its audited full-year results for the 12
months ended 31 December 2023 (the "Period" or "FY2023").
Financial Summary
• The Group loss after tax was US$25.3 million (2022: US$8.6 million
loss).
• Loss of US$13.1 million from continuing operations (2022: US$10.3
million loss) was driven by US$4.3 million increase in finance costs but
offset by a US$1.8 million decrease in administration costs due to corporate
management restructure.
• Loss of US$12.3 million from discontinued operations (2022: US$1.7
million profit). This includes a US$4.8 million loss on disposal of Kapan.
• Cash and cash equivalents increased from US$0.6 million at the end
of 2022 to US$1.7 million at the end of reporting period. As at 31 March 2024
the Company has a cash and cash equivalent balance of US$0.8 million, plus
access to a further US$3 million in working capital funding.
• The Group's net debt(1) decreased from US$51.3 million to US$35.9
million due to the disposal of Kapan (and associated liabilities) during the
year.
Operational Update
Kyrgyz Republic
• Conditional EPC, mining, operations and maintenance contracts
signed with Power China.
• Maiden mineral resource estimate ("MRE") announced at the Karator
prospect adding a further 207Koz in JORC compliant Indicated and Inferred
oxide gold resource.
• Memorandum of Understanding ("MOU") signed with the government of
Kyrgyz Republic outlines the framework for collaboration going forward and
reinforces the Stabilization Agreement signed in 2019 between Chaarat and
Kyrgyz Republic.
• Development of the Tulkubash project is pending project financing
being finalised. Financing discussions continue with various financial and
strategic parties.
Corporate Activities
• Sale of Kapan completed on 30 September 2023; Chaarat re-focused
on the Kyrgyz Republic.
• During 2023 the Company focused on carefully managing its
liquidity position and balance sheet.
• Successfully extended the maturity of the secured convertible loan
notes from 31 October 2023 to 31 July 2024 with strong noteholder
support. The convertible loan notes comprised of US$36.4 million, including
accrued interest, at year end.
Outlook 2024
• The convertible loan notes are due on 31 July 2024 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.
Martin Andersson, Executive Chairman of Chaarat, commented:
"2023 has been a pivotal year for Chaarat, marked by significant progress and
strategic focus. With the sale of Kapan, we have realigned our efforts to
concentrate on our key pre-production gold assets in the Kyrgyz Republic-the
Tulkubash and Kyzyltash Projects.
"We were delighted to have signed the EPC contract with Power China. This was
completed on a fixed lump sum basis, ensuring that we have clarity on costs
and allowing us to turn our attention to expanding the mine life of Tulkubash
beyond six years by evaluating other mining areas.
"Chaarat is now at a crucial stage of its development as we look to unlock the
significant value of Tulkubash, and, in the longer-term, Kyzyltash. We are a
mining company with a global resource inventory of 6.4Moz of gold however with
a market capitalisation that, in the Board's view, does not yet reflect this
and which serves to highlight the significant upside potential for investors
once we secure funding to enable us to eventually move into our first phase of
production at Tulkubash."
For more information contact:
Chaarat Gold Holdings Limited +44 (0)20 7499 2612
David Mackenzie (CFO) IR@chaarat.com (mailto:IR@chaarat.com)
Strand Hanson Limited (NOMAD) +44 (0)20 7409 3494
Ritchie Balmer
James Spinney
Robert Collins
Panmure Gordon (UK) Limited (Joint Broker) +44 (0)20 7886 2500
Hugh Rich
Axis Capital Markets Limited (Joint Broker) +44 (0)20 3026 0449
Ben Tadd
Lewis Jones
St Brides Partners Limited (Financial Public Relations) +44 (0)20 7236 1177
Susie Geliher
Isabelle Morris
Annual General Meeting
The Annual General Meeting ("AGM") will be held on Wednesday, 5 June 2024 at
11am at the offices of Shakespeare Martineau LLP, 6(th) Floor, 60 Gracechurch
Street, London EC3R OHR, United Kingdom.
Publication of Annual Report
The Company's 2023 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) shortly. Hard copies of the 2023 Annual
Report and Financial Statements and Notice of AGM will be posted to those
shareholders who have elected to receive hard copies by 19 April 2024.
Additional copies of the 2023 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.
CHAIR'S LETTER
Dear shareholder,
I am pleased to introduce the annual report of Chaarat Gold Holdings Limited
for the financial year ended 31 December 2023.
2023 progress
2023 has been a year of significant progress for Chaarat marked by the
rationalisation of our portfolio with the sale of Kapan and recentring of our
activities on our key pre-production gold assets in Kyrgyz Republic; the
1.01Moz Tulkubash Project, and the adjacent 5.4Moz Kyzyltash Project.
The work undertaken during 2023 has ensured that we are now construction ready
at Tulkubash, with the EPC, mining and operations and maintenance contracts
signed with Power China. Importantly, the EPC contract has been agreed on a
fixed price lump sum turnkey basis, removing much of the development cost risk
for Chaarat.
Tulkubash has a current mine life of six years, producing approximately 95,000
ounces per annum, however the team is focussed on expanding this to over 10
years. To achieve this ambition, the Chaarat team has evaluated additional
potential mining areas to act as satellite pits to feed the main processing
plant at Tulkubash. First amongst these satellite pits would be Karator,
where a Maiden MRE was declared in Q1 2024 following a drilling campaign in
2023.
Our focus remains firmly on securing the requisite financing for our first
phase of mining, centred on Tulkubash. As production ramps up at Tulkubash,
we would then turn our attention to Kyzyltash, which we see as a truly
transformational asset for Chaarat, capable of propelling us into mid-tier
status with targeted production of 300,000 ounces per annum.
Alongside our production plans at Tulkubash and Kyzyltash, we remain open to
additional interesting M&A opportunities in the Central Asian region.
Our rationale remains that Chaarat could act as an ideal consolidator in the
junior gold market, delivering new value accretive opportunities to the group
and building a significant resource inventory to support multiple mining
enterprises across Central Asia.
Board & Management Changes
Alongside the rationalisation of the Company's portfolio during the period,
certain management changes were also agreed including the departure of Mike
Fraser as Chief Executive Officer in October 2023 and Darin Cooper as Chief
Operating Officer in June 2023. Until the appointment of a successor to
Mike, the Executive Chair, Martin Andersson, and the Chief Financial Officer,
David Mackenzie, will continue to lead the business.
Safety and health
The safety and health of our employees, contractors, and host communities is
our key tenet, and we are working hard to ensure the highest standards are
maintained at our Kyrgyz operations. Our experiences at the now relinquished
Kapan Mine, which suffered an unacceptably poor safety record in the most
recent past, will serve to inform our decisions for Tulkubash and Kyzyltash
which we believe will become a new benchmark for operational standards in the
region. Further details can be found in our ESG report on pages 8 and 9.
Sustainability
The Company continues to evaluate an appropriate climate corporate governance
structure with a refocused effort on the planned construction of Tulkubash.
Further details can be found in our ESG report on pages 8 and 9.
Corporate governance
As Chair, I am responsible for the running of the Board and for the Group's
overall corporate governance. The Board and its committees play a key role
in our governance framework by providing external and independent support.
Further information can be found in the corporate governance statement on
pages 26 to 37.
Investors
In October 2023 we extended the maturity of our convertible loan notes to 31
July 2024, and I am very grateful to our noteholders for their continued
patience and understanding.
2024 and beyond
Chaarat is now at a pivotal time as we look to unlock the significant value of
Tulkubash, and, in the longer-term, Kyzyltash. We are a mining company with
a global resource inventory of 6.4Moz of gold however our market
capitalisation doesn't reflect this which serves to highlight the significant
upside potential for investors when we secure funding to enable us to
eventually move into our first phase of production at Tulkubash.
Our team is committed to securing the funding required to enable Tulkubash to
move into construction.
I would like to thank my fellow board members, our project team in Kyrgyz
Republic and our shareholders for their continued support during the year.
Martin Andersson
Chair
8 April 2024
OUR STRATEGY
• ESG We will work responsibly to:
· provide a safe work environment built on the highest standards of
safety management
· operate to the highest standards of environmental stewardship
including taking into account the impact of climate change
· enhance the infrastructure, education, and healthcare in our host
communities and to improve the living standards and opportunities for those
communities
• Organic growth We will maximise our production via:
· staged development of the assets at our Kyrgyz Republic operations
(Tulkubash and Kyzyltash)
• Inorganic growth We will selectively identify value-accretive opportunities in our target
regions if we see the potential for those to deliver value to shareholders by
utilising Chaarat's experience and skillsets in both the short term and
through longer-term exploration and development potential
• People We will attract, retain, and develop a skilled and diverse workforce across
all levels of our organisation with a focus on developing local talent in our
host communities and creating an environment in which those employees can
thrive and learn
• Finance We will identify opportunities to secure funding and reduce the cost of
capital with the main objective of maximising value for shareholders with
appropriate consideration to levels of shareholder dilution
STRATEGY PRIORITIES FOR 2024
· ESG
o Continue the Company's journey in maturing climate change impact
assessments, developing potential mitigation strategies, and reporting
o Ensure reviews are undertaken at project development sites to ensure
standards continue to be achieved
·
· Strategic review of assets
o Review strategic options to unlock the value of the Kyrgyz Republic assets
o Pursue jurisdiction diversification via M&A activity in Central Asia
· Financial balance sheet restructuring
o Refinance convertible bonds via a sustainable long term solution and
secure necessary funding to bring Tulkubash into construction
· Corporate structure
o Ensure the Company has the appropriate internal capability to support
growth and ensure the corporate structure is efficient and attractive for
investment
ENVIRONMENTAL, SOCIAL, AND GOVERNANCE
Safety and Health
2023 was disappointing from a safety perspective for Chaarat with a fatality
occurring at our recently disposed Kapan mine in March 2023. A fall of ground
incident occurred in the mine that resulted in fatal injuries to a driller who
was carrying out ground support activities. The root cause of the fatality
related to the use of the jack leg drill inside the man basket. The drill was
confined in the basket, and this resulted in an uncontrolled energy event when
the loose rock broke free while the drill rod was still inside the loose.
The authorities concluded their investigation shortly thereafter, and their
assessment was that the fatal injury was caused by delamination of the rock
due to external impact. With the lessons learnt, Chaarat immediately began to
address the potential inadequacies in current risk assessments, procedures and
training on site, and a task force was put in place to review and modify all
activities to meet the revised expectations. This was done with a particular
focus on mining activities underground.
There were no injuries in Kyrgyz Republic during the 2023 exploration season
or during the various activities at camp during the year.
Community and Government Relations
Chaarat continued to support local community development via its long-standing
social package assistance plan in the Kyrgyz Republic. The social package
provides approximately US$170,000 per annum for local community support. In
2023, the fund provided assistance for: study expenses for medical students
and other students enrolled in mining and agricultural occupations,
construction costs of playgrounds for local communities, support for local
orphanages, payments for initiatives to support those in need of social
support, and further development of local agricultural infrastructure.
Chaarat continues to commit to the long-standing programme at a similar level
in 2024.
Engagement sessions were held throughout the year to keep communities and the
government informed of Chaarat's plans and ongoing commitment to the projects.
Chaarat was an active participant on various government committees and working
groups during 2023 related to mining and other commerce issues, providing
input on a variety of issues. Input has been provided into exploration
licensing, mineral extraction laws, and royalty frameworks in both countries.
Environment and Cultural Resource Protection
Work on the Kapan Tailings Storage Facility (TSF) buttressing continued during
2023. This work was related to improving the strength of the original
upstream constructed dam wall by applying additional reinforcement material to
improve the overall stability and safety of the dam.
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 particular
focus on Kapan. This work was designed as a precursor to a Task Force on
Climate Change and Financial Disclosure (TCFD) exercise for the Company, with
a particular emphasis on the Kapan asset.
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. During 2023 and until Kapan was sold,
Chaarat reviewed the proposals and modelled potential changes to
infrastructure and mobile fleet per the recommendations.
Chaarat continues to work on its corporate approach to climate change. The
ESG Committee of the Board provides overall governance and oversight. The
Committee is chaired by Sandra Stash, Independent Non-Executive Director.
David Mackenzie, CFO, holds executive accountability for the risks and
opportunities of the climate agenda.
Climate is incorporated into the Chaarat Risk Register, which is overseen by
the Audit Committee.
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 the first nine months of 2023, Kapan produced 29.7 koz gold
equivalent ounces from its own ore, versus the comparable nine-month period in
2022 production guidance of 37.9 koz (17% decrease).
· Tonnes mined for the first nine months of the year prior to disposal
in 2023 were 396,086t compared to 481,216t for the same period in 2022 (18%
decrease).
· Mill throughput for the first nine months of the year prior to
disposal in 2023 was 516,049t compared to 571,036t for the same period in 2022
(10% decrease). Own ore treated for the first nine months of the year prior to
disposal in 2023 was 414,102t compared to 477,578t for the same period in 2022
(13% decrease). Third-party ore treated for the first nine months of the year
prior to disposal increased to 101,947t from 93,458t in 2022 (9% increase).
· Recoveries from own ore dropped from 79.1% to 76.5% (3% decrease).
Kapan was sold during 2023 as the Group focused its efforts on the assets in
the Kyrgyz Republic, with the sale reaching completion on 30 September 2023.
KYRGYZ REPUBLIC
TULKUBASH
Introduction
Tulkubash is the Company's oxide gold deposit in the Kyrgyz 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. Tulkubash has a JORC compliant
ore reserve of 647Koz gold and inclusive mineral resource of 1,011Koz gold.
During 2023, additional exploration was carried out on the wider licence area,
just to the northeast of the current Tulkubash mineral resource at the Karator
prospect. As announced on 18 January 2024, a maiden MRE at the Karator
prospect confirmed 207Koz in JORC compliant Indicated and Inferred oxide gold
resource. Significant upside potential of non JORC compliant mineralisation of
5 to 10Mt at 0.8-0.9g/t gold is subject to further exploration.
The Tulkubash project remains ready for execution pending project financing
being finalised. Financing discussions continue with various financial and
strategic parties.
Exploration
Exploration License 3319 was successfully extended until 7 September 2026 over
a reduced area of 27.4 sq km hosting prospective ground to the northeast of
Tulkubash and including the Karator resource and Ishakuldy gold prospect.
The completed Karator 2023 drilling programme consists of nine drill holes,
totalling 1,603 metres as an initial phase of a planned multistage resource
definition drilling programme consisting of systematic drilling on 40 by 40
metre centres over more than 1 km Karator strike length. All nine completed
drill holes intersected oxide gold mineralization, including 3.38 g/t gold
over 21.5 metres in DH23K625 and 1.43 g/t gold over 95 metres in DH23K628,
confirming Karator's potential to add a high quality additional Tulkubash type
gold resource.
Karator key drilling intercepts.
DHID From (m) To (m) Interval (m) Au (g/t) True width (m)
DH23K621 9.0 52.5 43.5 0.85 NA
67.5 90.0 22.5 0.81 NA
DH23K622 17.5 87.5 70.0 0.65 35.1
DH23K625 84.0 105.5 21.5 3.38 10.3
138.5 184.0 25.5 0.98 12.2
DH23627 3.0 10.5 7.5 1.27 6.5
24.0 43.5 19.5 0.86 16.8
51.0 78.0 27.0 1.48 23.3
DH23K628 6.0 46.5 40.5 1.42 22.9
73.5 90.0 16.5 2.10 9.4
105.0 200.0 95.0 1.43 54.2
DH23K620bis 33.0 57.0 24.0 1.41 NA
A full disclosure of the drill results can be found the Company's website.
Half HQ (occasionally quarter PQ) core was sampled on average intervals of 1.5
metres considering all clear geological breaks. Fire assays (FA) and/or
Inductively Coupled Plasma Spectroscopy (ICP 35) analysis were conducted on
the samples by Stewart Assay and Environmental Laboratories in Kara Balta,
Kyrgyz Republic. In any 20 regular samples, 1 duplicate, 1 standard (reference
material) and 1 blank sample were introduced. All QA/QC results were prepared
in accordance with JORC code guidelines and meet international industry
standards.
Further systematic step out and infill drilling totalling approximately 10 km
is planned in two phases of drilling on 40 by 40 metre centres over the more
than 1 km strike of Karator. Our target is to delineate 300 to 500Koz gold
in JORC compliant Indicated resources.
Resource and Reserve Update
Following the 2023 exploration drilling programme, a maiden mineral resource
estimate was completed on Karator increasing the gold resource to the
Tulkubash project by 20%.
Tonnage increased to 43.0Mt from 36.3Mt (+19%) with a slightly increased grade
of 0.88 g/t compared to 0.87 g/t (+1%).
The 2022 Tulkubash Mineral Resource Estimate and the 2024 Karator Mineral
Resource Estimate are shown below.
Table 1. 2022 Tulkubash Mineral Resource Estimate
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. 2024 Karator Mineral Resource Estimate
Classification Tonnes (Mt) Au (g/t) Au (koz)
Measured - - -
Indicated 2.5 0.96 77
M&I 2.5 0.96 77
Inferred 4.2 0.97 130
TOTAL 6.7 0.96 207
Notes:
· This statement of Mineral Resource has been prepared by
Mr. Dimitar Dimitrov, P. Geo, AIG member and a Competent Person under the JORC
Code, 2012..
· Mr Dimitrov was former senior VP Exploration of Chaarat,
but now operates in an independent consultancy capacity.
· The effective date of the reported Resource is 15th
January 2024.
· The resource estimate is according the JORC Code (2012)
· Applied cutoff grade: 0.21 ppm Au.
· The Mineral Resources that are not Mineral Reserve do not
demonstrate economic viability.
· Numbers may not sum due to rounding.
· Grade estimation completed via Ordinary Kriging, within
block model with a parent block size of 5 m x 5 m x 5 m.
· Mineral Resources are constrained by manually designed
Resource shell, within the area with denser drilling grid, in terms to apply
Reasonable Prospects for Eventual Economic Extraction
The Tulkubash Ore Reserve remained unchanged during 2023.
Table 3. 2022 Tulkubash Ore Reserve Estimate
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.
The final SGS-Lakefield (SGS) metallurgical report of the 2022 detailed
metallurgical study was completed 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.
SGS tested pressure oxidation (POX), biological oxidation (BIOX) and Albion
oxidation of refractory sulphide gold ore. These three technologies were
selected to assess the most likely processing routes for Kyzyltash's
refractory ore based on previous test work and analysis.
POX uses high-pressure and temperature conditions to oxidize refractory
sulphides prior to gold extraction. The Albion™ process employs low pressure
aeration with cyanide to extract gold. Bio-oxidation uses specific bacteria in
the oxidation process.
The results showed good recoveries for all three of the technologies tested.
POX and Albion™ had comparable results, with BIOX returning the best overall
recoveries.
Highlights of the Metallurgical Testing Programme results included:
· Flotation recoveries of 87-90% for gold with a 23-24% mass pull.
· Flotation + POX + CIL and Flotation + Albion + CIL flowsheets gave
similar results of 80% gold recovery for the Contact Zone and 69% gold
recovery for the Main Zone.
· The Flotation + BIOX + CIL flowsheet gave the highest gold recoveries
of 88.2% for the Contact Zone and 82.2% for the Main Zone. The reagent
consumption is high; 1.6 - 2.0kg NaCN/t ore and 6.8 - 9.5kg Lime/t ore.
These test results will be used for an economic trade-off study to determine
the preferred processing option. This study will include an assessment on
flotation and full ore processing options as part of a feasibility 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$36.4
million (US$39.5 million at maturity) convertible loan notes fall due on 31 Address potential gating items to securing project finance.
July 2024. 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 to the financial statements.
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 the with government via industry bodies and directly to ensure that the industry
Kyrgyz government. 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. These include the feasibility
of projects and the economics of mineral resources as well as the Conservative long-term prices are used to evaluate projects.
profitability of future operations.
Health and Safety - Mining and mineral project development and processing have Identification of hazards and associated risks. Development of appropriate
inherent health and safety risks associated with them that need to be risk mitigation measures including engineering controls, procedures and the
effectively managed to ensure the wellbeing of our employees and use of protective equipment.
contractors. Failure to manage 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 Development of alternate practices and implementation of new technologies to
on the climate broadly accepted. 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.
As explained in Note 4 to the financial statements, the Group completed the
sale of its 100% owned Armenian subsidiary, Chaarat Kapan, on 30 September
2023. Chaarat Kapan has been treated as a discontinued operation in
accordance with IFRS 5 "Non-current Assets Held for Sale and Discontinued
Operations" and prior year comparatives have been restated as applicable.
Income statement
The Group loss for the year was US$25.3 million (2022: US$8.6 million). The
main driver was the loss for the year from discontinued operations totalling
US$12.3 million (2022: profit of US$1.7 million). Included in this was a
US$4.8 million loss recognised on the sale of Kapan that was completed in
September 2023. The loss for the year from continuing operations was US$13.1
million (2022: US$10.3 million).
Administration expenses from continuing operations decreased from US$7.0
million in 2022 to US$5.2 million in 2023 mainly driven by US$1.1 million
reduction in corporate salaries.
Finance costs from continuing operations in 2023 were US$7.9 million (of which
US$7.5 million was non-cash) compared to US$3.6 million in 2022 (of which
US$3.6 million was non-cash).
Balance sheet
As discussed above, the sale of Kapan was completed in September 2023. This
transaction had a material impact on the Company's balance sheet as noted
below. The borrowings at the balance sheet date amounted to US$37.6 million
(2022: US$51.9 million). These comprised US$36.4 million of convertible loan
notes (including accrued interest to the year-end) due in July 2024 (2022:
US$29.2 million), US$1.2 million of other loans (2022: US$17.8 million),
US$nil of contract liabilities (2022: US$3.7 million) and US$nil of lease
liabilities (2022: US$1.2 million).
The Group's net debt decreased from US$51.3 million at 31 December 2022 to
US$35.9 million at 31 December 2023 (refer to Note 19 (a)).
Non-current assets decreased from US$130.7 million at 31 December 2022 to
US$83.6 million at 31 December 2023. During the period, exploration and
evaluation costs of US$1.6 million were capitalised relating to the asset in
the Kyrgyz Republic.
Current assets were US$1.9 million at 31 December 2023 compared to US$27.5
million at 31 December 2022. Current assets at 31 December 2023 included cash
and cash equivalents of US$1.7 million (2022: US$0.6 million).
Total liabilities at 31 December 2023 were US$40.6 million compared to US$85.6
million at 31 December 2022.
Total equity was US$44.9 million at 31 December 2023 compared to US$72.6
million at 31 December 2022.
Cash flow
Cash and cash equivalents increased from US$0.6 million at 1 January 2023 to
US$1.7 million at 31 December 2023. The movement comprised of:
• net operating cash flows of US$8.7 million (2022:
US$7.1 million), mainly due to working capital movements at Kapan prior to its
disposal;
• net cash used in investing activities of US$2.7
million (2022: US$10.1 million) relating to the purchase of property, plant,
and equipment at Kapan (prior to disposal) and in the Kyrgyz Republic together
with capitalised exploration and development spend in the Kyrgyz Republic
partly offset by disposal proceeds from the sale of Kapan; and
• cash outflows from financing activities of US$4.0
million (2022: cash outflow of US$5.8 million) mainly relating to external
debt repayments, including interest, of US$6.9 million offset by additional
funding obtained during the year.
Consolidated Income Statement
For the year ended 31 December 2023
2023 RESTATED
2022
Note US$'000 US$'000
Administrative expenses 5 (5,202) (7,042)
Operating loss from continuing operations (5,202) (7,042)
Finance costs 9 (7,876) (3,578)
Fair value gain on warrant 27 13 367
Loss before tax for the year (13,065) (10,252)
Income tax charge 10 - -
Loss for the year from continuing operations (13,065) (10,252)
(Loss)/profit for the year from discontinued operations 4 (12,282) 1,675
Loss for the year (25,347) (8,577)
Loss per share (basic and diluted) from continuing and discontinued operations 11 (3.67) (1.24)
- US$ cents
Loss per share (basic and diluted) from continuing operations - US$ cents 11 (1.89) (1.49)
(Loss)/profit per share (basic and diluted) from discontinued operations - US$ 11 (1.78) 0.25
cents
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2023
2023 2022
US$'000 US$'000
Loss for the year (25,347) (8,577)
Items which may subsequently be reclassified to the income statement
Reclassification of foreign currency on disposal of subsidiary (4,928) -
Exchange differences on translating foreign operations and investments 91 3,873
Other comprehensive income for the year, net of tax (4,837) 3,873
Total comprehensive loss for the year (30,184) (4,704)
Total comprehensive loss for the year from continuing operations (13,065) (10,252)
Total comprehensive loss for the year from discontinued operations (17,119) 5,548
Total comprehensive loss for the year (30,184) (4,704)
The accompanying notes are an essential part of these financial statements.
Consolidated Balance Sheet
As at 31 December 2023 2023 2022
Note US$'000 US$'000
Assets
Non-current assets
Exploration and evaluation costs 12 70,733 69,182
Other intangible assets 13 54 1,260
Property, plant and equipment 14 12,832 55,401
Prepayments for non-current assets - 373
Deferred tax assets 15 - 4,489
Total non - current assets 83,619 130,705
Current assets
Inventories 16 - 16,208
Trade and other receivables 17 191 10,666
Cash and cash equivalents 18 1,685 616
Total current assets 1,876 27,490
Total assets 85,495 158,195
Equity and liabilities
· Equity attributable to shareholders
Share capital 19(b) 7,281 6,897
Share premium 244,827 242,757
Own shares reserve 19(e) (98) (104)
Convertible loan note reserve 19(d) 1,420 1,420
Merger reserve 10,885 10,885
Share option reserve 19(c) 7,030 9,259
Translation reserve (15,398) (10,560)
Accumulated losses (211,040) (187,944)
Total equity 44,907 72,608
Liabilities
Non-current liabilities
Provision for environmental obligations 20 - 11,707
Lease liabilities 25 - 885
Other loans 26 - -
Total non-current liabilities - 12,592
Current liabilities
Trade and other payables 24 1,550 19,714
Contract liabilities 23 - 3,720
Lease liabilities 25 - 300
Other loans 26 1,162 17,806
Warrant financial liability 27 - 13
Convertible loan notes 22 36,399 29,203
Other provisions for liabilities and charges 28 1,476 2,239
Total current liabilities 40,588 72,995
Total liabilities 40,588 85,587
Total liabilities and equity 85,495 158,195
The financial statements were approved and authorised for issue by the Board
of Directors on 8 April 2024.
Martin Andersson
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 2023
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$'000
As at 1 January 2022 6,894 242,695 (132) 1,420 10,885 11,383 (14,433) (181,836) 76,876
Loss for the year - - - - - - - (8,577) (8,577)
Translation gains for the year - - - - - - 3,873 - 3,873
Total comprehensive loss for the year - - - - - - 3,873 (8,577) (4,704)
Share options lapsed 19(c) - - - - - (2,126) - 2,126 -
Share-based payment charge 5 - - - - - 373 - - 373
Issuance of shares for settlement of liabilities 19(b) 3 62 - - - - - - 65
Transfer of treasury shares 19(e) - - 28 - - (371) - 343 -
As at 31 December 2022 6,897 242,757 (104) 1,420 10,885 9,259 (10,560) (187,944) 72,608
Loss for the year - - - - - - - (25,347) (25,347)
Translation gains for the year - - - - - - 91 - 91
Release of FCTR to profit and loss - - - - - - (4,928) - (4,928)
Total comprehensive loss for the year - - - - - - (4,837) (25,347) (30,184)
Share options lapsed 19(c) - - - - - (1,993) - 1,993 -
Share-based payment charge 5 - - - - - 29 - - 29
Issuance of shares for cash 19(b) 211 1,112 - - - - - - 1,323
Issuance of shares for settlement of liabilities 19(b) 173 958 - - - - - - 1,131
Transfer of treasury shares 19(e) - - 6 - - (265) - 259 -
As at 31 December 2023 7,281 244,827 (98) 1,420 10,885 7,030 (15,398) (211,040) 44,907
Consolidated Cash Flow Statement
For the Year Ended 31 December 2023 RESTATED
2023 2022
Note US$'000 US$'000
Cash flows from operating activities
Operating loss (5,202) (7,042)
Depreciation and amortisation 448 495
Profit on disposal of property, plant and equipment - (12)
Non-cash expenses 9 250 65
Share-based payments 5 29 373
Decrease in trade and other receivables (9) (73)
Increase in trade and other payables 285 -
Operating cash flows from continuing activities (4,199) (6,194)
Operating cash flows from discontinued activities 12,870 13,338
Net cash generated in operations 8,671 7,144
Investing activities
Purchase of property, plant & equipment 14 (11) (2,817)
Exploration and evaluation costs 12 (1,951) (2,385)
Proceeds from sale of property, plant & equipment - 19
Proceeds from sale of subsidiary, net of cash disposed 4 4,913 -
Interest received - 28
Investing cash flows from continuing activities 2,951 (5,155)
Investing cash flows from discontinued activities (5,679) (4,940)
Net cash used in investing activities (2,728) (10,095)
Financing activities
Proceeds from issue of share capital 19 1,322 -
Repayments of principal amount of loan 26 (3,982) -
Payments of interest 26 (386) -
Proceeds from loans 26 5,982 -
Financing cash flows from continuing activities 2,936 -
Financing cash flows from discontinued activities (6,914) (5,842)
Net cash used in financing activities (3,978) (5,842)
Net change in cash and cash equivalents 1,965 (8,793)
Cash and cash equivalents at beginning of the year 616 11,134
Effect of changes in foreign exchange rates (896) (1,725)
Cash and cash equivalents at end of the year 18 1,685 616
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 AIM (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 2023 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
*Companies owned indirectly by the Company.
2. Going concern
As at 31 March 2024 the Group had approximately US$0.8 million of cash and
cash equivalents and US$38.4 million of debt comprising the following:
· US$37.2 million (USUS$39.5 million at maturity) convertible loan
notes including accrued interest to 31 March 2024 (Note 22)
· US$1.2 million other loans outstanding, including accrued
interest to 31 March 2024 (Note 26)
The Group also has US$3 million available for drawdown under its working
capital facility with Labro until 31 July 2024.
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.
Convertible Loan Notes
By 31 July 2024, 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$39.5 million
(which includes accrued interest).
Conclusion (including material uncertainty)
The working capital facility provided by Labro is subject to the discretionary
approval of credible repayment plans by the lender. The directors consider
there to be credible repayment plans in place and these will be approved by
the lender.
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 2024. To proceed with the development in Kyrgyz
Republic and to sustain corporate activities, further financing will also be
required. A number of workstreams 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. Based on their
assessment of both the working capital facility and the refinancing of
convertible loan notes, the directors have continued to adopt the going
concern basis.
However, for both the working capital facility with Labro or any additional
funding there are currently no binding agreements in place and there is no
guarantee that access to further working capital or 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$83.6 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. Material accounting policies
The Group adopted Disclosure of Accounting Policies (Amendments to IAS 1 and
IFRS Practice Statement 2) from 1 January 2023. Although the amendments did
not result in any changes to the accounting policies themselves, they impacted
the accounting policy information disclosed in the financial statements.
The amendments require the disclosure of 'material', rather than
'significant', accounting policies. The amendments also provide guidance on
the application of materiality to disclosure of accounting policies, assisting
entities to provide useful, entity-specific accounting policy information that
users need to understand other information in the financial statements.
Management reviewed the accounting policies and made updates to the
information disclosed in Note 3 Accounting polices in certain instances in
line with the amendments.
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.
As explained in Note 4 to the Financial Statements, the Group completed the
sale of its 100% owned Armenian subsidiary, Chaarat Kapan, on 30 September
2023. Chaarat Kapan has been treated as a discontinued operation in
accordance with IFRS 5 "Non-current Assets Held for Sale and Discontinued
Operations" and prior year comparatives have been restated as applicable.
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 2023, the changes being:
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 1 January 2023;
ii. IFRS 17 Insurance Contracts, effective for annual period beginning
on 1 January 2023;
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 1 January 2023;
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 1 January 2023;
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 1 January 2023.
These amendments did not have a material impact on the Company.
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 IFRS 16 change the basis of calculation of a gain
or loss arising on a sale and leaseback transaction to better reflect in terms
of economic substance, the lessee's retained ownership interest. The amendment
is effective for financial years beginning on or after 1 January 2024 and is
endorsed by the UK Endorsement Board (UKEB).
ii. Amendments to IAS 1, as issued in 2020, aim to clarify the
requirements on determining whether a liability is current or non-current, and
apply for annual reporting periods beginning on or after 1 January 2023. The
IASB has subsequently proposed further amendments to IAS 1 and the deferral of
the effective date of the 2020 amendments to no earlier than 1 January 2024.
The amendment is endorsed by the UK Endorsement Board (UKEB).
iii. Amendments to IAS 1 specify that covenants to be complied with
after the reporting date do not affect the classification of debt as current
or non-current at the reporting date. The amendments require a company to
disclose more information regarding loan covenants in the notes to the
financial statements and requires identification of which loans are affected
by covenants. The amendment is effective for financial years beginning on or
after 1 January 2024 and is endorsed by the UK Endorsement Board (UKEB).
iv. 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.
v. Amendments to IAS 7 and IFRS 7. In May 2023, the IASB issued
Supplier Finance Arrangements to require an entity to provide additional
disclosures about its supplier finance arrangements. The IASB developed the
new requirements to provide users of financial statements with information to
enable them:
· to assess how supplier finance arrangements affect an entity's
liabilities and cash flows; and
· to understand the effect of supplier finance arrangements on an
entity's exposure to liquidity risk and how the entity might be affected if
the arrangements were no longer available to it.
The amendment is effective for financial years beginning on or after 1 January
2024 and is not yet endorsed by the UK Endorsement Board (UKEB).
vi. Amendments to IAS 21. In August 2023, the IASB issued amendments
to IAS 21 to help entities: assess exchangeability between two currencies; and
determine the spot exchange rate, when exchangeability is lacking. The new
requirements will be effective for annual reporting periods beginning on or
after 1 January 2025, with earlier application permitted and has not yet been
endorsed by the UK Endorsement Board (UKEB).
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.
Discontinued operations
A discontinued operation is a component of the Group's business, the
operations and cash flows of which can be clearly distinguished from the rest
of the Group and which:
• Represents a separate major line of business or geographic area of
operations;
• Is part of a single coordinated plan to dispose of a separate major line
of business or geographic area of operations; or
• Is a subsidiary acquired exclusively with a view to re-sale.
Classification as a discontinued operation occurs at the earlier of disposal
or when the operation meets the criteria to be classified as held-for-sale.
When an operation is classified as a discontinued operation, the comparative
statement of profit or loss and OCI is re-presented as if the operation had
been discontinued from the start of the comparative year.
Revenue recognition
Revenue during 2023 relates wholly to Chaarat Kapan whose sale by the Group
was completed on 30 September 2023 and which has accordingly been treated as a
discontinued operation as explained in Note 4.
Revenue has been 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 has arisen 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 passed to the customers and the revenue has been recognized either
on a Cost, Insurance and Freight "CIF" basis meaning that control passed 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
passed to the buyer at the point the concentrate was loaded on the truck at
the Kapan mine. In respect of freight revenues, these have been recognised
over time.
Determining the transaction price
Consideration has been 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 was loaded on the truck at the Kapan mine or the
vessels at the specified port the provisional invoice was issued based on the
estimates of the amount of consideration.
Sales have been based on provisional 1-3 month commodity forward prices on the
London Metal Exchange (LME) and as such, contain an embedded derivative which
is marked-to-market at each month end using the forward price for the month of
price finalisation. The estimated transaction price has been updated for the
quotational period (usually one or three months) and any changes in the
estimates of the metal content. The change has been recognised as an increase
in revenue, or as a reduction of revenue, in the period in which the estimated
transaction price has been finalised.
Final prices of copper and zinc concentrates have been 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 has also processed third party ore
into concentrate and has sold it to customers. The revenue from these sales
has been recognised in accordance with the revenue recognition principles
above.
Where the group has not purchased the third party ore for sale but has
provided a processing service the processing fee is recognised as revenue over
the processing period.
Advance payments from customers
The Group has received advance payments from its customers which represented
prepayments for the future transfer of concentrate. These have been 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 were settled. If settled in cash, they have been
classified as financial liabilities and if offset against final invoices, they
are classified as contract liabilities. The contract liabilities have been
unwound, and revenue has been recognised when shipments have taken place and
control has passed to the customers. The advance payments have accrued
interest which is separately recognised from revenue in the Consolidated
Income Statement.
Royalties
Under Armenian law a royalty has been payable to the state, the base of which
is driven by the revenue earned from the supply of concentrates. Royalty
expense has been 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 2023 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 19% in the
United Kingdom and 12.5% in Cyprus and have been subject to income tax at a
rate of 18% in Armenia, (Note 10). Non-profit based taxes have been included
within administrative expenses and Kapan's royalty taxes have been 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 neither 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 have been stated at
the lower of production cost or net realisable value.
Cost of finished goods and work in progress have been determined on the
first-in-first-out (FIFO) method. The cost has comprised 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 have been 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 have been recognised as cost of
sales when the related sale of concentrate takes place. This has included the
cost of purchased ore and consumables and spare parts.
Cost of purchased ore
The Group has purchased ore from third parties which has been 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 has processed third party ore into concentrate and then has
purchased 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 until its disposal by the Group
has been 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 27.
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 2023, the capitalised costs of the exploration and evaluation
assets amounted to US$70.7 million, details of which are set out in Note 12.
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 2023, 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 2023 was US$1.6
million (2022: US$2.9 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 2023 was US$7.9 million (2022:
US$12.3 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
until its disposal by the Group was the Armenian Dram (AMD), as this has been
the currency of the primary economic environment in which it operated.
Treatment of royalty expense
Royalties paid in Armenia of US$2.2 million (2022: US$4.5 million) have been
included in cost of sales as they have been calculated on the basis of revenue
earned from the supply of concentrates. The royalty rate has been calculated
on fixed rate plus a variable component based on measure of profitability. The
royalty rate has been 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 had a contractual arrangement under which third party ore was
received, processed, purchased and sold to the customer.
The Group was 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.
Legal claim provisions
As disclosed in Note 28, legal claim provisions totalling US$1.5 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. Disposal of Kapan
On the 15(th) August 2023 the Company entered into a binding conditional sale
and purchase agreement with Gold Mining Company LLC to sell its 100% owned
Armenian subsidiary, Chaarat Kapan, which owns the Kapan mining operation in
Armenia.
The consideration for the sale was US$55.4 million which comprised US$5.0
million payable in cash and US$50.4 million being satisfied by the way of the
Buyer taking an assignment of intra-group payables due to Chaarat Kapan. No
adjustments were to be made to the consideration whether for debt, working
capital or other obligations. The sale was conditional upon Chaarat
shareholder approval, Ameriabank CJSC agreeing to release its existing
security and guarantees from members of the Chaarat group of companies,
approval of the Armenian Competition Protection Commission and Buyer
shareholder approval.
The sale was completed on 30 September 2023 with the offset agreement signed
whereby the consideration of US50.4 million was offset against the intra-group
debt. At 30 September 2023, Kapan had net assets totaling US$65.1 million
(including the US$50.4 million intercompany receivable).
The Group recognised a loss on disposal of US$4.8 million, calculated as
follows:
2023
US$'000
Cash consideration 5,000
Intra-group debt (assignment) 50,377
Total proceeds 55,377
Other intangible assets 1,126
Property, plant & equipment 43,115
Prepayments for non-current assets 1
Deferred tax asset 5,159
Inventories 13,966
Intra-group debt 50,377
Trade and other receivables 9,129
Cash and cash equivalents 87
Total assets 122,960
Provision for environmental obligations (12,980)
Lease liabilities (937)
Trade and other payables (28,332)
Contract liabilities (2,371)
Other loans (12,567)
Other provisions for liabilities and charges (708)
Total liabilities (57,895)
Net Assets 65,065
Release of foreign currency translation reserve to profit and loss 4,928
Loss on Disposal (4,760)
The loss for the disposal group were as follows:
2023 2022
US$'000 US$'000
Revenue 49,433 92,346
Cost of sales (50,543) (82,236)
Selling expenses (1,452) (2,196)
Administrative expenses (3,077) (1,411)
Finance income 1 28
Finance costs (2,416) (3,136)
Loss on disposal (4,760) -
Loss before tax for the period (12,813) 3,396
Income tax credit/(charge) 531 (1,721)
(Loss)/profit for the period from discontinued operations (12,282) 1,675
The cash flows from the disposal group were as follows:
2023 2022
US$'000 US$'000
Operating cash flows 12,870 13,338
Investing cash flows (5,679) (4,940)
Financing cash flows (6,914) (5,842)
Net change in cash and cash equivalents 277 2,556
5. Administrative expenses
The administrative expenses relating to continuing operations consisted of the
following:
RESTATED
2023 2022
US$'000 US$'000
Readmission and acquisition costs 4 81
Legal and compliance 27 71
Regulatory 257 280
Investor relations 257 241
Salaries 3,166 4,250
Corporate support 1,421 1,640
Travel and subsistence 41 106
Share-based payment charges 29 373
Total 5,202 7,042
The administrative costs relating to discontinued operations amounted to
US$3.1 million (2022: US$1.4 million) as set out in Note 4.
6. Segmental analysis
Operating segments are identified based on internal reports about components
of the Group that are regularly reviewed by the Board, in order to allocate
resources to the segments and to assess their performance.
Based on the proportion of revenue and profit within the Group's operations
and on the differences in principal activities, the Board considers there to
be two operating segments:
· Exploration for mineral deposits in the Kyrgyz Republic with
support provided from the British Virgin Islands ('Kyrgyz Republic')
· Exploration and production of copper and zinc concentrates at
Kapan in Armenia ('Armenia') which have been treated as discontinued
activities as explained in Note 4.
Kyrgyz Republic Corporate Continuing Operations Discontinued Operations Total
31 December 2023 US$'000 US$'000 US$'000 US$'000 US$'000
Revenue
Sales to external customers - - - 49,433 49,433
Total segment revenue - - - 49,433 49,433
Operating (loss)/profit from continuing operations (1,687) (3,515) (5,202) - (5,202)
Operating (loss)/profit from discontinued operations - - - (5,637) (5,637)
Profit/(loss) on disposal of subsidiary - - - (4,760) (4,760)
Finance income - - - 1 1
Finance costs - (7,876) (7,876) (2,416) (10,292)
Fair value gain on warrant - 13 13 - 13
Loss before income tax (1,687) (11,378) (13,065) (12,813) (25,877)
Income tax charge - - - 531 531
Loss after income tax (1,687) (11,378) (13,065) (12,282) (25,347)
Assets
Segment assets - non-current 83,619 - 83,619 - 83,619
Segment assets - current 251 1,625 1,876 - 1,876
Total assets 83,869 1,625 85,495 - 85,495
Liabilities
Segment liabilities 2,045 38,543 40,588 - 40,588
Total liabilities 2,045 38,543 40,588 - 40,588
Kyrgyz Republic Corporate Continuing Operations Discontinued Operations Total
31 December 2022 US$'000 US$'000 US$'000 US$'000 US$'000
Revenue
Sales to external customers - - - 92,346 92,346
Total segment revenue - - - 92,346 92,346
Operating loss from continuing operations (2,034) (5,008) (7,042) - (7,042)
Operating profit from discontinued operations - - - 6,504 6,504
Finance income - - - 28 28
Finance costs - (3,578) (3,578) (3,136) (6,714)
Fair value gain on warrant - 367 367 - 367
(Loss)/profit before income tax (2,034) (8,219) (10,252) 3,396 (6,856)
Income tax charge - - - (1,721) (1,721)
(Loss)/profit after income tax (2,034) (8,219) (10,252) 1,675 (8,577)
Assets
Segment assets - non-current 82,399 - 82,399 48,306 130,705
Segment assets - current 215 484 699 26,791 27,490
Total assets 82,614 484 83,098 75,097 158,195
Liabilities
Segment liabilities 2,369 29,838 32,207 53,380 85,587
Total liabilities 2,369 29,838 32,207 53,380 85,587
Restated
2023 2022
US$'000 US$'000
Revenues
Total revenue for reportable segments 49,433 92,346
Elimination of discontinued operations (49,433) (92,346)
Consolidated revenue - -
Total profit/(loss) before tax for reportable segments (25,877) (6,856)
Elimination of discontinued operations 12,813 (3,396)
Consolidated loss before tax from continuing operations (13,065) (10,252)
7. Staff numbers and costs
2023 2022
Number Number
Management and administration 123 135
Exploration and evaluation 11 50
Production and service 944 947
Total 1,078 1,132
The aggregate payroll costs of these persons were as follows: US$'000 US$'000
Staff wages and salaries 13,587 19,310
Employee share-based payment charges 18 -
Directors' remuneration as detailed in the Remuneration Report
Wages and salaries 846 1,202
Termination benefits - -
Share-based payment charges 12 373
Total 14,463 20,886
The staff numbers and staff wages and salaries above include 930 (2022: 933)
and $US10.4 million (2022: US$14.6 million) respectively relating to Chaarat
Kapan which has been treated as discontinued activities.
8. Directors' remuneration
The costs of certain Directors' services were charged to the Company via
consultancy companies, as separately detailed below and in the related party
transactions Note 29, rather than directly as short-term employment costs.
These arrangements are in place purely for administrative convenience and are
not methods to mitigate, reduce or remove liabilities to taxation in the
respective Director's country of residence. Details of Directors' remuneration
are provided in the Remuneration Report.
Total remuneration 2023 2022
US$'000 US$'000
Salary and fees paid directly 796 1,152
Salary and fees paid via related party consultancy companies 50 50
Termination benefits - -
Share-based payment charges 12 373
Total 858 1,575
The share-based payment charge in 2023 relates to the fair value charge
attributed to share options issued to the Board on 20 December 2023 which vest
in two equal tranches on the first and second anniversaries of the grant date.
The share-based payment charge in 2022 relates to the fair value charge
attributed to share options issued to the Chief Executive Officer which vested
immediately in January 2022.
9. Finance costs
Finance costs relating to continuing operations were as follows:
Restated
2023 2022
US$'000 US$'000
Interest on convertible loan notes 22 4,496 3,899
Interest on other loans 26 430 -
Financing costs - Labro working capital facility 250 -
Financing costs 22 2,700 (321)
Total 7,876 3,578
The finance costs relating to discontinued operations amounted to US$2.4
million (2022: US$3.1 million) as set out in Note 4.
The interest on other loans of US$0.4 million includes interest on corporate
working capital facility of US$0.4 million.
Financing costs of US$0.3 million relate to a 5% commitment fee for the Labro
working capital facility satisfied by the issue of 4,000,000 new ordinary
shares of US$0.01 each in the Company. The shares were issued at £0.05 per
share at USD/GBP 1.25
The financing costs of US$2.7 million, non-cash, relates to non-substantial
modification of the convertible loan notes as disclosed in Note 22 (2022:
US$0.3 million non cash credit).
10. 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 2023. 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
2023, the fixed royalty percentage remained at 8%, comprising a royalty of 5%
and a contribution to local infrastructure of 3% (2022: 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$2,501 per ounce is therefore 27%. However, as the Group's
assets in the Kyrgyz Republic are at an exploration stage, the Group has no
royalty payable in respect of these assets for the years ended 31 December
2023 or 31 December 2022.
Further, under the Article 301 of the Tax Code of the Kyrgyz Republic, an
entity is subject to a taxation in payment of the right to use subsoil,
including for the purpose of developing a mineral deposit. The tax base for
calculating this is the amount of geological reserves and forecast resources
taken into account by the State Balance of deposits of mineral resources of
the Kyrgyz Republic.
At the balance sheet date, the Group has received no tax claims and the
Directors believe that the Group is in compliance with the tax laws affecting
its operations and therefore there are no further uncertain tax positions
which require disclosure in accordance with IFRIC 23.
Analysis of tax charge for the year
2023 2022
US$'000 US$'000
Armenian tax (500) 947
Current tax (500) 947
Origination and reversal of temporary differences (31) 774
Deferred tax 15 (31) 774
Income tax (credit)/expense (531) 1,721
The income tax credit relating to discontinued operations amounted to US$0.5
million (2022: US$1.7 million expense) as set out in Note 4.
Reconciliation of tax charge for the year
2023 2022
US$'000 US$'000
Profit/(loss) before tax (25,878) (6,856)
Tax calculated at applicable corporation tax rate:
Armenian corporation tax at 18% (2022:18%) 4,658 1,234
Tax effects of:
Items non-deductible/(non-taxable) for tax purposes (919) (1,110)
Different tax rates applied in overseas jurisdictions (6,172) (1,539)
Current tax losses not recognised 2,964 (306)
Income tax credit/(expense) 531 (1,721)
Tax losses
2023 2022
US$'000 US$'000
Unused tax losses for which no deferred tax asset has been recognized
United Kingdom 198 201
Tax benefit at 25% 49 50
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.
11. Loss per share
Loss per share is calculated by reference to the loss for the year of US$25.3
million (2022: loss of US$8.6 million) and the weighted average number of
ordinary shares in issue during the year of 691,497,899 (2022: 689,655,467).
Loss per share from continuing operations is calculated by reference to the
loss for the year from continuing operations of US$13.1 million (2022: loss of
US$10.3 million) and the weighted average number of ordinary shares in issue
during the year of 691,497,899 (2022: 689,655,467).
(Loss)/profit per share from discontinued operations is calculated by
reference to the loss for the year from discontinued operations of US$12.2
million (2022: profit of US$1.7 million) and the weighted average number of
ordinary shares in issue during the year of 691,497,899 (2022: 689,655,467).
At 31 December 2023, nil (2022: 8,920,341) warrants, 37,852,880 (2022:
44,170,931) share options and convertible loan notes have been excluded from
the diluted weighted average number of ordinary shares calculation because
their effect would have been anti-dilutive.
12. Exploration and evaluation costs
Tulkubash Kyzyltash Total
US$'000 US$'000 US$'000
At 1 January 2022 56,204 10,101 66,305
Additions 2,592 285 2,877
At 31 December 2022 58,796 10,386 69,182
Additions 1,539 12 1,551
At 31 December 2023 60,335 10,398 70,733
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 2023, management
does not consider there to be any impairment in respect of these assets.
13. Intangible assets
Computer Software Other intangible assets Total
US$'000 US$'000 US$'000
Cost
At 1 January 2022 1,741 307 2,048
Additions 67 - 67
Effect of translation to presentation currency 348 66 414
At 31 December 2022 2,156 374 2,530
Additions 72 - 72
Disposal of subsidiary (2,061) (379) (2,440)
Effect of translation to presentation currency 25 5 30
At 31 December 2023 192 - 192
Accumulated amortisation
At 1 January 2022 782 53 835
Charge for the year 221 31 252
Effect of translation to presentation currency 169 14 183
At 31 December 2022 1,172 98 1,270
Charge for the year 143 24 167
Disposal of subsidiary (1,175) (138) (1,314)
Effect of translation to presentation currency (2) 16 14
At 31 December 2023 138 - 138
Net book value
At 31 December 2023 54 - 54
At 31 December 2022 984 276 1,260
At 1 January 2022 959 254 1,213
14. Property, plant and equipment
Land and buildings Mining properties Fixtures and fittings Motor vehicles Assets under construction Right-of-use Assets Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Cost
At 1 January 2022 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)
Reclassification from inventories - - - - - - -
Reclassification from exploration and evaluation asset - - - - - - -
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
Additions - 5,963 26 - 1,859 - 7,848
Transfers (137) 4 137 - (4) - -
Changes in estimates of provision for environmental obligations - 509 - - - - 509
Disposals - (92) (7) - - - (98)
Effect of translation to presentation currency 4 (52) (1) - (19) 2 (68)
Disposal of subsidiary (4,983) (64,190) (1,715) (403) (5,697) (1,994) (78,980)
At 31 December 2023 5,294 1,699 274 615 9,522 - 17,402
Accumulated depreciation
At 1 January 2022 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
Charge for the year 522 6,732 307 130 - 116 7,808
Disposals - (81) (6) - - - (87)
Effect of translation to presentation currency (1) 20 (93) (1) - (2) (76)
Disposal of subsidiary (2,506) (30,067) (1,715) (359) - (1,218) (35,865)
At 31 December 2023 2,402 1,500 258 408 - - 4,568
Net book value
At 31 December 2023 2,892 199 16 206 9,522 - 12,832
At 31 December 2022 6,022 34,661 70 378 13,382 888 55,401
At 1 January 2022 6,232 29,740 497 204 9,872 761 47,306
As at 31 December 2023, management does not consider there to be any
indicators of impairment in respect of the Group's property, plant and
equipment.
15. 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 related to the Kapan mine in
Armenia. Recoverability of the recognised deferred tax asset were considered
more likely than not based upon expectations of future taxable income in
Armenia until its disposal by the Group. 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 10, unused
tax losses for which no deferred tax asset has been recognised amounts to
US$0.2 million (2022: US$0.2 million).
The movement in net deferred tax assets during the year is as follows:
2023 2022
US$'000 US$'000
At 1 January 4,489 4,381
Charged to the income statement 31 (774)
Effect of currency translation 639 882
Disposal of subsidiary (5,159) -
At 31 December - 4,489
Comprising:
Deferred tax assets - 4,489
Deferred tax liabilities - -
Movements in temporary differences during the years ended 31 December are
presented as follows:
2023 At 1 January Charged to the income statement Disposal of Subsidiary Effect of currency translation Total
US$'000 US$'000 US$'000 US$'000 US$'000
Property, plant and equipment 3,012 (171) (3,243) 402 -
Trade and other receivables 16 119 (155) 20 -
Inventories 955 (17) (1,070) 132 -
Other provisions 128 - (145) 17 -
Trade and other payables 191 119 (354) 44 -
Lease liabilities 187 (19) (192) 24 -
Total 4,489 31 (5,159) 639 -
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
16. 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.
2023 2022
US$'000 US$'000
Consumables and spare parts - 10,802
Copper and zinc concentrate in stock - 683
Copper and zinc concentrate in transit - 1,056
Ore stockpiles extracted - 3,667
At 31 December - 16,208
17. Trade and other receivables
2023 2022
US$'000 US$'000
Trade receivables 1 6,654
Other receivables 15 984
Prepayments 175 3,118
Less: expected credit losses - (90)
At 31 December 191 10,666
The movement in the loss allowance for expected credit losses is detailed
below:
2023 2022
US$'000 US$'000
At 1 January 90 1
Movement during the year (92) (242)
Effect of currency translation 2 331
At 31 December - 90
18. Cash and cash equivalents
2023 2022
US$'000 US$'000
Cash on hand 3 1
Current accounts in UK 1,539 378
Current accounts in the Kyrgyz Republic 143 138
Current accounts in Armenia - 99
At 31 December 1,685 616
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.
19. Capital and reserves
The share capital of the Company consists of shares of US$0.01 par value of a
single class. All shares have equal rights to receive dividends or capital
repayments and all shares represent one vote at meetings of shareholders of
the Company.
19(a) Capital management policies and procedures
The Group's objectives for the management of capital have not changed in the
year. The Directors seek to ensure that the Group will continue to operate as
a going concern in order to pursue the development of its mineral properties,
to sustain future development and growth as well as to maintain a flexible
capital structure which optimises the cost of capital at an acceptable risk.
The Company manages the capital structure and adjusts it in light of changes
in economic conditions and the risk characteristics of the underlying assets.
In order to maintain or adjust the capital structure, the Company may issue
shares, seek debt financing, or acquire or dispose of assets. The Company,
following approval from the Board of Directors, will make changes to its
capital structure as deemed appropriate under specific circumstances.
The Group considers equity to be all components included in shareholders'
funds and net debt to be short and long-term borrowings including convertible
loan notes less cash and cash equivalents. The Group's net debt to equity
ratio at 31 December was as follows:
2023 2022
US$'000 US$'000
Total Equity 44,907 72,608
Convertible loan notes 36,399 29,203
Other loans 1,162 17,806
Contract liabilities - 3,720
Lease liabilities - 1,186
Warrant financial liability - 13
Less: cash and cash equivalents (1,685) (616)
Net debt 35,876 51,312
Net debt to equity ratio 80% 71%
The convertible loan notes, as disclosed in Note 22, 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 2023.
19(b) Share capital
2023 2022
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 689,667 6,897 689,411 6,894
Issued for cash 21,055 211 9 -
Issued to settle liabilities 17,333 173 247 3
At 31 December 728,056 7,281 689,667 6,897
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.
Issue of shares in the year
On 11 October 2023, the Company entered into a new US$5 million secured
working capital facility arrangement with Labro Investments Limited. The
facility incurs interest at 12% per annum and must be repaid no later than 31
July 2024. A 5% commitment fee was satisfied by the issued of 4,000,000
ordinary shares of US$0.01 of the Company to Labro. These shares were issued
at £0.0505 per share.
On 21 December 2023, the Company issued 21,054,761 Ordinary shares at £0.0525
per share for gross proceeds of £1.1 million. In addition to this,
13,333,333 Ordinary shares at £0.0525 per share were issued to Labro
Investments Limited. Labro's obligation to deliver cash in respect of these
shares was offset against the Company's indebtedness under the Labro working
capital facility with the consequence that the Company's obligations under the
Labro working capital facility decreased by US$0.9 million to US$1.1 million,
as disclosed in Note 26. The placing was undertaken to fund the necessary
costs required to be incurred as to complete the financing of the Tulkubash
Gold Project and provide general working capital.
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$0.04 million were
incurred by the Trust (2022: US$0.07 million). At 31 December 2023, the Trust
held 1,070,295 shares (2022: 1,070,295 shares).
19(c) Share options and share-based payments
Share options
The Group operates a share option plan under which directors, employees,
consultants, and advisers have been granted options to subscribe for ordinary
shares. All options are share settled. The number and weighted average
exercise price of share options are as follows:
2023 2022
Number of Options Weighted average exercise price (US$) Number of Options Weighted average exercise price (US$)
Outstanding at 1 January 44,170,930 0.508 49,692,252 0.567
Exercised during the year - - - -
Granted during the year 29,000,000 0.220 5,000,000 0.574
Cancelled during the year (20,449,894) 0.390 - -
Lapsed during the year (14,868,156) 0.390 (10,521,322) 0.519
Outstanding at 31 December 37,852,880 0.278 44,170,930 0.508
Exercisable at 31 December 8,852,880 0.465 44,170,930 0.508
The share options outstanding at 31 December 2023 had a weighted average
remaining contractual life of 3.8 years (2022: 1.6 years). Maximum term of the
options granted was 5 years from the grant date. The share options outstanding
at 31 December 2023 had an exercise price of £0.23 (2022: £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
2023 was as follows:
Exercise period Number Exercise price
18 September 2019 to 12 February 2024* 592,751 £0.42
18 September 2019 to 19 February 2024* 1,778,252 £0.42
18 September 2019 to 28 February 2024* 592,751 £0.42
18 September 2019 to 28 March 2024* 5,000,000 £0.42
18 September 2019 to 5 April 2024* 889,126 £0.42
12 October 2024 to 12 October 2028 2,500,000 £0.05
20 December 2024 to 20 December 2028 11,250,000 £0.20
12 October 2025 to 12 October 2028 2,500,000 £0.05
12 October 2025 to 12 October 2028 1,500,000 £0.20
20 December 2025 to 20 December 2028 11,250,000 £0.20
Total 37,852,880 £0.23
*Options lapsed post year end.
Management Incentive Plan
All options granted under the Management Incentive Plan prior to 1 January
2023 have either lapsed prior to 31 December 2023 or between this year-end
date and the date of this report, or were cancelled during 2023.
On 12 October 2023, 6,500,000 share options were granted to the Company's
Chief Financial Officer. The share options were granted in three tranches.
Tranche 1 included 2,500,000 share options exercisable at £0.05 per share
which vest one year after the grant date. Tranche 2 included 2,500,000 share
options exercisable at £0.05 per share which vest two years after the grant
date. Tranche 3 included 1,500,000 share options exercisable at £0.20 per
share which vest two years after the grant date.
On 20 December 2023, the Company cancelled, with mutual agreement and
immediate effect, 20,449,894 options over Ordinary Shares (the "Historic
Options") which had previously been issued to the Executive Chairman and to
Non-Executive Directors. On the same date, the Company granted a total of
22,500,000 options over Ordinary Shares, a portion of which are to replace the
Historic Options alongside the grant of options to a new holder. The share
options are exercisable at £0.20 per share and vest in two equal tranches on
the first and second anniversaries of the grant date.
During the year 14,868,157 share options lapsed due to employees leaving the
Company during the year.
A further 8,852,880 share options lapsed between the year-end date and the
date of this report.
19(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 22 for further
information.
2023 2022
US$'000 US$'000
At 1 January 1,420 1,420
Modification of convertible loan notes - -
At 31 December 1,420 1,420
19(e) Own shares reserve
The own shares reserve represents the nominal value of equity shares that have
been repurchased by the Company. The movement in the reserve is as follows:
2023 2022
US$'000 US$'000
At 1 January (104) (132)
Transfer of treasury shares 6 28
At 31 December (98) (104)
20. Provision for environmental obligations
The provision for environmental obligations related to the Kapan mine in
Armenia which as explained in Note 4 was disposed of by the Group on 30
September 2023. According to Armenian legislation and licence agreements, the
Group was committed to restoring working areas on the mine, including
decommissioning of plant and securing of the tailings dam. Movements in the
provision are as follows:
2023 2022
US$'000 US$'000
At 1 January 11,707 10,521
Change in provision 291 (2,313)
Unwinding of discount 992 1,291
Effect of currency translation (10) 2,208
Disposal of subsidiary (12,980) -
At 31 December - 11,707
Further details relating to the calculation of the balance as at 31 December
2022 are as follows:
31/12/2022
Discount rates 11.98%
Provision settlement date 31/12/2028
Estimated undiscounted cash flow required to settle the provision US$14.1 million
21. Reconciliation of liabilities
Convertible loans Lease liabilities Other loans Total
Liabilities from financing activities US$'000 US$'000 US$'000 US$'000
At 1 January 2022 25,625 978 21,328 47,931
Cash flows:
Cash proceeds - - - -
Payment of interest - - - -
Payment of principal amount - - - -
Lease payments - - - -
Financing cash flows from continuing operations - - - -
Financing cash flows from discontinued operations - (709) (5,133) (5,842)
Net proceeds - (709) (5,133) (5,842)
Non-cash items:
Additions - 578 - 578
Loan modification (321) - - (321)
Lease modification - 124 - 124
Interest accrued 3,899 123 1,605 5,627
Reversal of lease payable - (123) - (123)
Effect of currency translation 215 7 222
Total liabilities from financing activities at 31 December 2022 29,203 1,185 17,806 48,195
Non-current - 885 - 885
Current 29,203 300 17,806 47,309
Cash flows:
Cash proceeds - - 5,982 5,982
Payment of interest - - (386) (386)
Payment of principal amount - - (3,982) (3,982)
Financing cash flows from continuing operations - - 1,614 1,614
Financing cash flows from discontinued operations - (336) (6,578) (6,914)
Net proceeds - (336) (4,963) (5,299)
Non-cash items:
Loan modification 2,700 - - 2,700
Interest accrued 4,496 84 1,769 6,349
Converted to equity - - (882) (882)
Effect of currency translation - 4 - 4
Disposal of subsidiary - (937) (12,567) (13,504)
Total liabilities from financing activities at 31 December 2023 36,399 - 1,162 37,561
Non-current - - - -
Current 36,399 - 1,162 37,561
22. Convertible loan notes
During 2023 no new convertible loan notes were issued, however the maturity
date was extended on two occasions. The convertible loan notes were firstly
extended by 3 months from 31 July 2023 to 31 October 2023. The convertible
loan notes were then extended by 9 months from 31 October 2023 to 31 July
2024. The conversion price of the notes remained at £0.30 per share. The
only other transaction during the year was accrued interest of US$4.5 million
(2022: US$3.9 million).
Notes US$'000
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
Cash proceeds -
Transaction costs -
Net proceeds -
Loan modification 2,700
Accrued interest 4,496
At 31 December 2023 36,399
The number of shares to be issued on conversion is fixed. There are no
covenants attached to the convertible loan notes. 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.
At 1 January 2022, the convertible loan notes accrued interest at 12% p.a. and
had a conversion price of £0.30 per share, with a maturity date of 31 October
2022. In October 2022, the maturity date of the conversion loan notes was
extended by a further 9 months 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.
In August 2023, the maturity date of the conversion loan notes was extended by
3 months from 31 July 2023 to 31 October 2023. Accrued interest and the
restructuring fee was capitalised as at 31 July 2023, which increased the
principal value of the notes to US$31.7 million. The extension was treated
as a non substantial modification for accounting purposes. The coupon
interest rate increased from 12% p.a to 20% p.a. Further, a one off
restructuring fee equal to 5% of the original principal amount of the notes
became payable to the holders at this date.
In October 2023, the maturity date of the conversion loan notes was extended
by a further 9 months from 31 October 2023 to 31 July 2024. Accrued interest
and the restructuring fee was capitalised as at 31 October 2023, which
increased the principal value of the notes to US$34.3 million. The extension
was treated as a non substantial modification for accounting purposes. There
were no additional restructuring fees and the coupon interest rate remains at
20% p.a.
As the notes fall due in July 2024, they have been classified as current
liabilities at 31 December 2023.
23. Contract liabilities
The movements in the Group's contract liabilities for the year are presented
below:
2023 2022
US$'000 US$'000
At 1 January 3,720 2,379
Cash received in advance of performance - 3,000
Interest on contract liabilities - 117
Settlement of interest against receivables (171) (50)
Amounts offset against revenue during the year (1,000) (2,026)
Effect of currency translation (178) 300
Disposal of subsidiary (2,371) -
At 31 December - 3,720
Non-current - -
Current - 3,720
The contract liabilities balance related to prepayments received from one of
Chaarat Kapan's customers for the future sale of concentrates. The prepayments
accrued interest at a rate defined in the sales contract of 6-month SOFR plus
5% p.a. and were subject to settlement by way of deduction against future
outstanding invoices. The contract liabilities were transferred out of the
Group as part of the disposal of Chaarat Kapan which was completed on 30
September 2023.
24. Trade and other payables
Trade and other payables at 31 December consisted of the following:
2023 2022
US$'000 US$'000
Trade payables 95 16,541
Social security and employee taxes 701 2,305
Accruals 754 868
As at 31 December 1,550 19,714
Trade and other payables are all unsecured.
Accruals include an amount of US$200,000 relating to a provision for potential
employee costs in respect of former Chaarat Kapan management in connection
with the disposal of that subsidiary which are expected to be met by the Group
in 2024.
25. Leases
The Group's leases are accounted for by recognising a right-of-use asset and a
lease liability except for leases of low value assets and leases with a
duration of 12 months or less.
The Group leases equipment and land in the jurisdictions from which it
operates, the most notable being the land that was leased in Armenia by
Chaarat Kapan whose sale was completed on 30 September 2023. Certain items of
property, plant and equipment are also leased in the Kyrgyz Republic which
contain variable payments over the lease terms, therefore these leases do not
fall within the scope of IFRS 16, and right-of-use assets and lease
liabilities are not recognised as a result.
The movements in the Group's right-of-use assets and lease liabilities for the
year are presented below:
Right-of-use assets
Land Equipment Total
US$'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
Land Equipment Total
US$'000 US$'000 US$'000
At 1 January 2023 890 - 890
Depreciation charge (116) - (116)
Effect of translation to presentation currency 1 - 1
Disposal of subsidiary (775) - (775)
At 31 December 2023 - - -
Lease liabilities
Land Equipment Total
US$'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
Land Equipment Total
US$'000 US$'000 US$'000
At 1 January 2023 1,016 169 1,185
Additions - - -
Interest expense 84 - 84
Lease payments (165) (171) (336)
Reversal of lease payable - - -
Lease modification - - -
Effect of translation to presentation currency 2 2 4
Disposal of subsidiary (937) - (937)
At 31 December 2023 - - -
The maturity of the gross contractual undiscounted cash flows due on the
Group's lease liabilities is set out below based on the period between 31
December and the contractual maturity date.
Within 6 months 6 months to 1 year 1 to 5 years Over 5 years Total at 31 December 2023
US$'000 US$'000 US$'000 US$'000 US$'000
Land leases - - - - -
Equipment leases - - - - -
Total - - - - -
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$'000
Land leases 120 121 935 230 1,405
Equipment leases 169 - - - 169
Total 289 121 935 230 1,574
As at 31 December 2023, the gross contractual discounted cash flows due on the
Group's lease liabilities amounts to US$nil million (2022: US$1.2 million).
The discount rate used in calculating the lease liabilities is the rate
implicit in the lease, unless this cannot readily be determined, in which case
the Group's incremental rate of borrowing is used instead. In 2022, a discount
rate of 12% per annum has been used to calculate the Group's lease liabilities
for its land and equipment leases.
26. Other loans
Other loans at 31 December 2023 consisted of the following:
Kapan Kapan Acquisition Financing Kapan WC Corporate Labro Other Borrowings Total
Refinanced Facility WC Facility WC Facility
Borrowings
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
At 1 January 2023 - 9,642 6,108 - - 2,056 17,806
Borrowing attracted in cash - - - 3,982 2,000 - 5,982
Interest accrued 240 599 396 386 44 104 1,769
Payment of interest in cash (174) (744) (504) (386) - (111) (1,918)
Payment of principal amount in cash (501) (2,500) - (3,982) - (2,045) (9,028)
Refinancing of Kapan facilities 13,000 (7,000) (6,000) - - - - -
Payment of principal amount in shares - - - - - (882) - (882)
Effect of currency translation 2 3 - - (4) 1
Disposal of subsidiary (12,567) - - - - - - ( (12,567)
At 31 December 2023 - - - - 1,162 - 1,162
Non-current - - - - - - -
Current - - - - 1,162 - 1,162
Kapan Borrowings
At 1 January 2023, Chaarat Kapan had the following facilities:
· An acquisition loan with Ameriabank CJSC originally entered into
in 2019 of which US$9.6 million was outstanding at the beginning of the
year. This loan incurred interest at LIBOR plus 8% with a final maturity
date of 2 October 2023.
· Two working capital facilities with Ameriabank CJSC entered into
during 2022 totalling US$6.0 million plus accrued interest at the start of
2023 of US$0.1 million. This included a line of credit agreement with a
maximum limit of US$4.0 million on August 12, 2022. The loan incurred
interest at an annual floating interest rate of 11% and was 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 was 12.5% per annum and the principal was repayable through two
equal instalments on July 17, 2023 and October 2, 2023.
During H1 2023, the Group reduced the principal outstanding on the Kapan
acquisition loan and the Kapan working capital facilities by US$2.5 million,
reducing the balance to US$13.0 million outstanding. The loans from
Ameriabank, which included both the remaining portion of the acquisition loan
and the working capital facilities, were successfully refinanced in August
2023. The US$13.0 million loan principal had its repayment schedule extended
from H2 2023 to H2 2025 with terms remaining materially the same.
As a result of the disposal of Chaarat Kapan on 30 September 2023, the loans
were transferred out of the Group with all guarantees and security released by
Ameriabank.
Corporate WC Facility
The Company entered into four loan agreements with a short-term loan provider
in 2023 for a working capital facility totalling $US4.0 million in
principal. The loans incurred interest at rates of 10-12%. Total
principal, interest and fees were repaid in October 2023 totalling US$4.4
million.
Labro WC Facility
On 11 October 2023, the Company entered into a new US$5.0 million secured
working capital facility arrangement with Labro Investments Limited. The
facility incurs interest at 12% per annum and must be repaid no later than 31
July 2024. A 5% commitment fee was satisfied by the issued of 4,000,000
ordinary shares of US$0.01 of the Company to Labro. These shares were issued
at £0.05 per share. The Company drew down US$2.0 million of the facility in
the year. Labro agreed to convert US$0.9 million of the working capital
facility to equity in the Company's raise in December 2023 against the
Company's indebtedness under the Labro working capital facility with the
consequence that the Company's obligations under the Labro working capital
facility decreased by US$0.9 million to US$1.1 million, as disclosed in Note
26.
Other borrowings
Other borrowings included an amount owing to one of Chaarat Kapan's customers
in respect of prepayments for the future sale of concentrates. The prepayments
accrued 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 could be requested upon notice and therefore were repayable on
demand. These borrowings were transferred out of the Group as a result of
the disposal of Chaarat Kapan on 30 September 2023.
27. 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 were revalued at each reporting date.
In 2023, a fair value gain of US$0.01 million was recognised in profit or loss
due to a decline to the expiration of the warrants. The movement in the
balance is set out below:
2023 2022
US$'000 US$'000
At 1 January 13 380
Issue of warrants - -
Fair value gain (13) (367)
As at 31 December - 13
The warrants to purchase ordinary shares remain outstanding at 31 December
2023 as follows:
2023 2022
Expiry date Number of Warrants Exercise price (£) Number of Warrants Exercise price (£)
5 October 2023 - - 8,920,342 0.26
Total - - 8,920,342 0.26
28. Other provisions for liabilities and charges
Other provisions for liabilities and charges relate mainly to a legal claim of
US$1.3 million at 31 December 2023 (2022: US$1.3 million) that was charged
against Chaarat in the Kyrgyz Republic whereby compensation for agricultural
losses was demanded ("Land Provision"). In 1Q 2024, the prosecutor's claim was
denied and the appeal by Chaarat was fully satisfied. Management considers
it appropriate to continue recognising the provision as it is expected the
case will be appealed.
The provisions have been recognised as, based on the Group's legal views, it
is considered probable that an outflow of resources will be required to settle
the disputes, however there is uncertainty around the timing of payments to be
made. There are no expected reimbursements relating to these provisions.
The movement in provisions in 2023 is as follows:
Legal Claims Provision Land Provision Other Provision Total
US$'000 US$'000 US$'000 US$'000
At 1 January 2023 708 1,327 204 2,239
Change in provision - - - -
Settlement of provision in cash - - - -
Foreign exchange on conversion - (51) (4) (55)
Disposal of subsidiary (708) - (708)
At 31 December 2023 - 1,276 200 1,476
29. Related party transactions
Remuneration of key management personnel
Remuneration of key management personnel is as follows:
2023 2022
US$'000 US$'000
Short term employee benefits 1,410 1,758
Termination benefits - -
Share-based payments charge 29 373
Total 1,439 2,131
Included in the above key management personnel are 7 directors and 2 key
managers (2022: 8 and 2)
As explained in Note 19(c), on 12 October 2023, 6,500,000 share options were
granted to the Company's Chief Financial Officer. The share options were
granted in three tranches. Tranche 1 included 2,500,000 share options
exercisable at £0.05 per share which vest one year after the grant date.
Tranche 2 included 2,500,000 share options exercisable at £0.05 per share
which vest two years after the grant date. Tranche 3 included 1,500,000
share options exercisable at £0.20 per share which vest two years after the
grant date.
As also explained in Note 19(c), on 20 December 2023, the Company granted a
total of 22,500,000 options over Ordinary Shares to the Non-Executive Chairman
and to the Non-Executive Directors, a portion of which are to replace the
Historic Options alongside the grant of options to a new holder. The share
options are exercisable at £0.20 per share and vest in two equal tranches on
the first and second anniversaries of the grant date.
At 31 December 2023, short-term employee benefits totalling US$562,500
remained due to Mr Andersson (US$412,500) and Mr Fraser (US$150,000).
Entities with significant influence over the Group
At 31 December 2023, Labro Investments Limited, Chaarat's largest shareholder,
owned 44.79% (2022: 44.77%) of the ordinary US$0.01 shares in Chaarat
("Ordinary Shares") and US$1.75 million of 20% secured convertible loan notes
which, assuming full conversion of principal and interest to maturity on 31
July 2024, are convertible into 4,921,448 Ordinary Shares.
On 11 October 2023, the Company entered into a new US$5.0 million secured
working capital facility arrangement with Labro Investments Limited. The
facility incurs interest at 12% per annum and must be repaid no later than 31
July 2024. A 5% commitment fee was satisfied by the issued of 4,000,000
ordinary shares of US$0.01 of the Company to Labro. These shares were issued
at £0.05p per share. The Company drew down US$2.0 million of the facility
in the year.
On 21 December 2023, the Company issued 13,333,333 Ordinary shares at £0.0525
per share to Labro. Labro's obligation to deliver cash in respect of these
shares was offset against the Company's indebtedness under the Labro working
capital facility with the consequence that the Company's obligations under the
Labro working capital facility decreased by US$0.9 million to US$1.1 million,
as disclosed in Note 26.
For all share issues to Labro and the working capital facility with 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.
There were no share issues to Labro in 2022.
30. Commitments and contingencies
Capital expenditure commitments
The Company had a commitment of US$0.1 million at 31 December 2023 (2022:
US$0.6 million) in respect of capital expenditure contracted for but not
provided for in these financial statements.
Licence retention fee commitments
The Company has calculated a commitment of US$0.1 million at 31 December 2023
(2022: 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 2023 is US$0.1 million (2022: US$0.10
million).
31. Financial instruments and financial risk management
The Group is exposed to a variety of financial risks which result from its
operating activities. The Group's risk management is coordinated by the
executive Directors, in close co-operation with the Board of Directors, and
focuses on actively securing the Group's short to medium term cash flows by
minimising the exposure to financial markets. The Group does not actively
engage in the trading of financial assets for speculative purposes. The most
significant financial risks to which the Group is exposed are described below.
Categories of financial instruments
2023 2022
Financial assets measured at fair value US$'000 US$'000
Trade and other receivables 191 10,666
Total financial assets 191 10,666
Financial liabilities measured at amortised cost
Trade and other payables 850 17,408
Contract liabilities - 3,720
Lease liabilities - 1,185
Other loans 1,162 17,806
Convertible loan notes 36,399 29,203
Financial liabilities measured at fair value through profit or loss
Warrant financial liability - 13
Total financial liabilities 38,410 69,337
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.
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.
The credit risk on liquid funds is limited because the counterparties are
banks with high credit-ratings assigned by international credit rating
agencies.
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.
Interest rate risk is not considered to be material.
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 (until its disposal by the Group) for Chaarat Kapan, which had
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)
2023 2022
US$'000 US$'000
GBP 1,209 279
AMD - (8)
KGS 267 219
Other (2) (10)
Total net exposure 1,474 480
The table below sets out the impact of changes in exchange rates on the
financial assets of the Group due to monetary assets denominated in GBP, AMD,
and KGS, with all other variables held constant:
US$ '000 2023 Move Income statement Profit/(loss) Equity 2022 Move Income statement Profit/(loss) Equity
(%) (%)
Fall in value of GBP vs US$ 5 64 64 5 15 15
Increase in value of GBP vs US$ 5 (58) (58) 5 (13) (13)
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 30 30 10 24 24
Increase in value of KGS vs US$ 10 (24) (24) 10 (20) (20)
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 2023 and
2022 did not differ materially from their carrying values. In both 2023 and
2022 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 2023 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$'000
Trade and other payables 1,550 - - - -
Other loans - 1,162 - - -
Convertible loan notes - 39,492 - - -
Total 1,550 40,654 - - -
At 31 December 2022 Up to 3 months Between 3 and 12 months Between 1 and 2 years Between 2 and 5 years Over 5 years
US$'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
As a result of the maturity date extension that took place in 2023, the
Group's convertible loan notes are repayable on 31 July 2024.
Shareholder Information
Chaarat Gold Holdings Limited (AIM:CGH)
Registered number
1420336
Registered office Broker
Palm Grove House Axis Capital Markets Limited
PO Box 438, Road Town St Clements House
TORTOLA VG1110 27 Clements Lane
British Virgin Islands London EC4N 7AE
E. info@chaarat.com (mailto:info@chaarat.com) United Kingdom
W. www.chaarat.com
Broker
Kyrgyz Republic office Panmure Gordon (UK) Limited
Chaarat Zaav CJSC New Change
10th Floor, Victory Business Centre London EC4M 9AF
Ibraimov str. 103 United Kingdom
BISHKEK 720011
Kyrgyz Republic Registrars
T: +996 312 97 61 00 Link Market Services (Guernsey) Limited
E: info@chaarat.kg (mailto:info@chaarat.kg) Mont Crevelt House
Bulwer Avenue
NOMAD St. Sampson
Strand Hanson Limited GUERNESEY GY2 4LH
26 Mount Row Channel Islands
LONDON W1K 3SQ
United Kingdom Depositary
Link Market Services Trustees Limited
10(th) Floor, Central Square
29 Wellington Street
LEEDS LS1 4DL
United Kingdom
Auditors
MHA
2 London Wall Place
LONDON EC2Y 5AU
United Kingdom
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