REG - Chaarat Gold Hlgs Ld - Interim results for six months ended 30 June 2023
07/09/2023 07:00
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RNS Number : 6318L Chaarat Gold Holdings Ltd 07 September 2023
7 September 2023
Chaarat Gold Holdings Limited
("Chaarat" or "the Company")
Interim results for the six months ended 30 June 2023
Chaarat Gold Holdings Limited (AIM: CGH), the AIM-quoted gold mining company
with an operating mine in Armenia, and assets at various stages of development
in the Kyrgyz Republic, today publishes its unaudited results for the
six-month period ended 30 June 2023 ("H1 2023").
Highlights for interim period ended 30 June 2023
Group Financial Results
• Revenue reduction of 30% in H1 2023 (US$35.3 million) compared
to H1 2022 (US$50.4 million), reflecting lower volume of own-ore sales at
Kapan (18,937 ounces of gold equivalent ("AuEq") in H1 2023 vs 25,118 ounces
in H1 2022) and treatment of third-party ore for a processing fee during H1
2023 (US$2.2 million) rather than purchase of ore and onward sale to customers
as was the case in H1 2022 and generated US$9.0 million.
• Group adjusted EBITDA in H1 2023 of US$-0.2 million (H1 2022: US$4.9
million) reflecting lower adjusted EBITDA contribution from Kapan of US$2.3
million (H1 2022: US$8.1 million) and corporate and Kyrgyz Republic costs of
US$2.5 million (H1 2022: US$3.2 million).
• US$16.4 million non-cash impairment provision of Kapan asset, as to
align book value to fair value. The fair value is based on the consideration
for the recently announced conditional agreement to sell the Kapan mine.
• Cash and cash equivalents as at 30 June 2023 of US$0.8 million
(31 December 2022: US$0.6 million).
• Group net debt(1) increased from US$51.3 million at 31 December 2022
to US$51.6 million at 30 June 2023 mainly reflecting utilisation of cash
balances.
Corporate
• Conditional agreement to sell the Kapan mine
On 16 August 2023, the Company announced it had entered into a binding
conditional sale and purchase agreement with Gold Mining LLC to sell its 100%
owned Armenian subsidiary, Chaarat Kapan CJSC, which owns the Kapan mining
operation in Armenia. The consideration for the proposed sale is US$55.4
million which comprises US$5.0 million payable in cash and US$50.4m being
satisfied by way of the buyer taking an assignment of intra-group payables due
to Chaarat Kapan. It is anticipated that, subject to shareholder approval and
other conditions being met, the sale will complete by the end of September
2023.
• Xiwang International Company Limited ("Xiwang") Status
Discussions continue with Xiwang with regard to a potential investment. The
current proposal under discussion is for a first phase investment of $150
million into the Company's wholly-owned subsidiary, Chaarat Zaav CJSC, in the
form of a joint venture focused solely on the Tulkubash project (now excluding
Kyzyltash). The currently discussed structure envisages that approximately
US$35 million invested would be used to repay the convertible loan notes with
the remaining US$115 million to be used to develop Tulkubash. As part of the
potential investment, Chaarat and Xiwang have been working together to
identify contractors for Tulkubash. Quotes for Engineering Procurement
Construction ("EPC"), Mining, and Operations & Maintenance ("O&M")
have been received from a number of potential contractors and are in the final
stages of review by Chaarat and Xiwang. Proposals received indicate similar
pricing to the 2021 Bankable Feasibility Study update report. Further updates
will be provided as appropriate.
• Extension of Convertible Loan Notes
On 11 August 2023, the maturity date of the convertible loan notes was
extended by a further three months from 31 July 2023 to 31 October 2023 and
accrued interest and extension fees of US$2.8 million were capitalised as at
31 July 2023, which increased the principal value of the notes to US$31.7
million.
• Cash position
Cash and cash equivalents as at 30 June were US$0.8 million. Working capital
facility arrangements are in place with a short-term loan provider. As at 30
June 2023 US$3.0 million had been drawn under those arrangements with the
remaining US$1.0 million drawn down since H1 2023. As at 31 August 2023, the
Group's cash and cash equivalents were US$0.5 million. The working capital
facilities are due for repayment on 30 September 2023. The Company is
currently in discussions with the lender to repay, part repay or extend the
facilities.
Going concern
As explained in Note 2 to the financial statements, additional funding will be
required during Q4 2023 to achieve the planned future capital developments of
assets, to sustain corporate activities, to repay the corporate working
capital facilities, to refinance the convertible loan notes due on 31 October
2023 and, should the conditional agreement to sell Kapan not be completed, to
fund investment into the Kapan mine. The steps being taken by the Group to
address these requirements are set out in the Operational Review below and in
Note 2 to the financial statements below.
Kapan
• As previously disclosed, Kapan experienced a fatal workplace
injury in March 2023. A programme of work has been initiated to conduct a
full review of high risk and non-routine tasks and to review effectiveness of
the controls at site. Independent consultants have also been retained to help
advance the safety culture at Kapan to ensure the best safety conditions for
our and contractors' employees.
• Kapan production guidance remains at 50-55 koz of own-ore
production and additional 5-10 koz of third-party ore production though the
full year guidance will depend on whether the conditional agreement to sell
the Kapan mine is completed and the timing of such completion.
• All-in-sustaining cash cost for own-ore production ("AISC"(2))
of US$1,556/oz was higher than the US$1,420/oz for H1 2022 (+9.5%). This
increase is mainly due to the adverse impacts from the United States Dollar
and Armenian Dram foreign exchange rate ("USD/AMD FX rate") and an 8.7%
decrease in AuEq own-ore production compared to H1 2022.
• Standalone Kapan EBITDA contribution was US$2.3
million vs US$8.1 million in H1 2022 (-72%). This is mainly due a decrease
in volumes milled (own ore and third party) and the continued adverse impact
of USD/AMD FX rate.
• Production was 26,523 gold equivalent ounces(3) ("oz"), vs
30,022 oz in H1 2022 (-11.7%) consisting of 21,410 oz from own ore and 5,113
oz from third-party ore (vs 23,458 oz from own ore and 6,564 oz from
third-party ore in H1 2022). Lower gold production was mainly due to lower
stope availability in H1 2022.
• Exploration of the East Flank area adjacent to the existing
Kapan mine is progressing according to schedule.
Tulkubash, Kyzyltash and Kyrgyz Exploration
• 2023 Exploration commenced in May 2023 and is progressing as per
budget and schedule. The scope of this year's work is to determine the
exploration potential of the wider licence area to help identify potential
targets for the future.
Outlook for 2023
The Company is focused on the following for the balance of 2023:
• Completion of the sale of Kapan by the end of September 2023;
• Progressing the potential Xiwang investment;
• Reviewing strategic options for Kyzyltash and Tulkubash; and
• Ensuring the Company's working capital requirements are met, and
sufficient funding is secured during Q4.
( 1) In reporting financial information, the Group presents Net debt as an
alternative performance measure, "APM", which is not defined or specified
under the requirements of IFRS. The Group Net debt comprises convertible loan
notes, other loans, contract liabilities, lease liabilities and warrant
financial liabilities, net of cash and cash equivalents.
(2) AISC on a gold oz produced basis exclude smelter TC/RC charge and other
costs which add c. US$217/oz. Sustaining capex of c. US$3.65 million p.a. is
included in the AISC.
(3) Gold equivalent ounces for 2023 guidance calculated on 2023 budget prices
with Au at US$1,850/oz and gold ratios of 84 for silver, 6,998 for copper and
19,826 for zinc. Includes third-party ore production
Mike Fraser, Chief Executive Officer, commented:
"Tragically on 23 March a fatal accident occurred during mining activities at
Kapan. Remedial actions have focussed on the design of non-routine work and
associated control. The financial performance of Kapan continues to be
adversely impacted by the stronger Armenian Dram. The outlook for the second
half of the year is for an improvement in AuEq, on H1 due to forecast
improvement in plant capacity. Drilling at East Flank continues with initial
drill results expected in the 2023 MRE.
The previously announced proposed sale of Kapan is progressing well with
shareholder vote planned for 7 September 2023. Subject to completion of the
remaining conditions completion is expected by the end of September 2023.
Proceeds from the sale of Kapan will be used for general corporate purposes.
Discussions continue with Xiwang on a potential investment that will enable
the further development of Tulkubash as well as for external growth options.
We look forward to updating shareholders in due course.
In the meantime, efforts continue to improve the balance sheet, with the loan
from Ameriabank successfully refinanced with outstanding principal repayment
extended to 2025."
This announcement contains inside information for the purposes of Article 7 of
Regulation (EU) 596/2014 (which forms part of domestic UK law pursuant to the
European Union (Withdrawal) Act 2018).
Enquiries
Chaarat Gold Holdings Limited +44 (0)20 7499 2612
Mike Fraser (Chief Executive Officer) info@chaarat.com (mailto:info@chaarat.com)
Canaccord Genuity Limited (NOMAD and Joint Broker) +44 (0)20 7523 8000
Henry Fitzgerald-O'Connor
James Asensio
finnCap Limited (Joint Broker) +44 (0)20 7220 0500
Christopher Raggett
Panmure Gordon (UK) Limited (Joint Broker) +44 (0)20 7886 2500
John Prior
Hugh Rich
About Chaarat
Chaarat is a gold mining company which owns the Kapan operating mine in
Armenia as well as Tulkubash and Kyzyltash Gold Projects in the Kyrgyz
Republic. The Company has a clear strategy to build a leading emerging markets
gold company through organic growth and selective M&A.
Chaarat is engaged in active community engagement programmes to optimise the
value of the Chaarat investment proposition.
Chaarat aims to create value for its shareholders, employees and communities
from its high-quality gold and mineral deposits by building relationships
based on trust and operating to the best environmental, social and employment
standards. Further information is available at www.chaarat.com
(http://www.chaarat.com) .
Forward-looking statements
This announcement may include or incorporate by reference statements that may
constitute "forward-looking statements" in respect of Chaarat's operations,
performance, prospects, and/or financial condition. Forward-looking statements
are sometimes, but not always, identified by their use of a date in the future
or such words and words of similar meaning as "anticipates", "aims", "due",
"could", "may", "will", "should", "expects", "believes", "intends", "plans",
"potential", "targets", "goal" or "estimates". By their nature,
forward-looking statements involve a number of risks, uncertainties and
assumptions and actual results or events may differ materially from those
expressed or implied by those statements. Accordingly, no assurance can be
given that any particular expectation will be met, and reliance should not be
placed on any forward-looking statement. Additionally, forward-looking
statements regarding past trends or activities should not be taken as a
representation that such trends or activities will continue in the future. No
responsibility or obligation is accepted to update or revise any
forward-looking statement resulting from new information, future events or
otherwise. Nothing in this announcement should be construed as a profit
forecast. This announcement does not constitute or form part of any offer or
invitation to sell, or any solicitation of any offer to purchase any shares or
other securities in the Company, nor shall it or any part of it or the fact of
its distribution form the basis of, or be relied on in connection with, any
contract or commitment or investment decisions relating thereto, nor does it
constitute a recommendation regarding the shares or other securities of the
Company. Past performance cannot be relied upon as a guide to future
performance and persons needing advice should consult an independent financial
adviser. Statements in this announcement reflect the knowledge and information
available at the time of its preparation. Liability arising from anything in
this announcement shall be governed by English law. Nothing in this
announcement shall exclude any liability under applicable laws that cannot be
excluded in accordance with such laws.
OPERATIONAL REVIEW
Kapan
• As previously disclosed, Kapan experienced a fatal workplace
injury in March 2023. Recordable injury frequency review ("RIFR") (per one
million hours worked) in the period was 0.38 compared to 0.74 in H1 2022.
• The 2022 Kapan Ore Reserve Estimate was completed during H1
2023. The resource drilling programme replaced depletion and added an
additional 2 years of life to the previous Life of Mine. Full details are
available on the Chaarat website.
• A total of 26,523 gold equivalent ounces was produced in the
period, consisting of:
o 21,410 AuEq ounces produced from Kapan ore which represents an 8.7%
decrease on H1 2022 (23,458 oz).
o 5,113 AuEq ounces from third-party AuEq which represents a 22.1% decrease
from H1 2022 (6,564 oz).
• Own-ore production contained the following for H1 2023 and H1
2022:
H1 2023 H1 2022
Gold (oz) 11,155 12,815
Silver (oz) 222,463 226,129
Copper (tonnes) 765.9 741.5
Zinc (tonnes) 2,522 2,804
• Own-ore All-in-sustaining cost ("AISC") of US$1,556/oz has
increased year on year due to inflationary pressure and lower gold production
compared to US$1,420 /oz in H1 2022 (+9.5%).
• Third-party ore treated was 58.8kt for H1 2023 vs 63.5kt for H1
2022 (-7.4%).
• Realised gold price for H1 2023 was US$1,959 /oz versus US$1,858
/oz in H1 2022 (+5.4%).
• Tonnes mined was down period on period by 15.9%. Ore mined was
270.2 thousand tonnes ("kt") vs 321.1 kt in H1 2022. Mine grade was
unchanged at 2.9 g/t AuEq.
• Mill throughput was lower at 345.0 kt vs 373.4kt in H1 2022
(-7.6%).
• Mill AuEq recovery for own ore was 78.6% compared with 79.5% in
H1 2022.
• Since H1 2022, the Armenian dram has appreciated by almost 17%
(average rate to the US Dollar for the period was 389.71 in H1 2023,
appreciated from 467.78 in H1 2022). This created significant impact on the
business. The Company has pivoted to new suppliers to mitigate the impact of
the strong Armenian dram, however the adverse impact on costs remains.
• Resource drilling was 21,023m in H1 2023 vs 33,772m in H1 2022
(-37.8%). Development metres were 12,809m in 2023 vs 12,919m in H1 2022
(-0.9%).
• Following the completion of the first four drilling chambers,
exploration drilling has commenced as part of the East Flank exploration
programme. Seven NQ diameter drill holes were completed in H1 2022 totalling
1,764 metres. The complete programme consists of accessing 6 underground
drilling chambers and drilling 40 drill holes, totalling approximately 13,370
metres of core-oriented diamond drilling. Drilling is on 100 by 100 metres
spaced centres. The currently defined programme is expected to continue
until the end of 2024. The East Flank area lies approximately 100 metres to
the east of the current Shahumyan ore body and has an anticipated strike
length of approximately 600 metres.
• The East Flank exploration target is based on old historic
exploration data and Dundee Precious Metals diamond drilling results from
2011. The Chaarat review of the historic drilling has outlined 8 potentially
economically significant mineralized vein zones which are the target of this
exploration campaign. This drilling campaign is designed to provide an
inferred level of certainty.
Outlook
• Kapan Mine production guidance remains at 50-55 koz of own-ore
production and additional 5-10 koz of third-party ore production though the
full year guidance will depend on whether the conditional agreement to sell
the Kapan mine is completed and the timing of such completion as noted above.
A newly-installed crushing unit which increases capacity available by roughly
30% is expected to drive a stronger H2 2023. Third-party ore supply is
expected to remain in line with H1 2023 for the remainder of 2023.
• East Flank drilling campaign is ongoing as part of a 2-year
programme to develop an initial JORC resource and reserve statement. The drill
results will be included in the 2023 Kapan MRE update. Further infill drilling
will be carried out as appropriate in future years to convert this
mineralisation to measured and indicated.
Tulkubash, Kyzyltash and Kyrgyz Exploration Update
• The Tulkubash project remains ready for final investment
decision ("FID") once project financing is secured.
• In addition to progressing financing discussions, Chaarat is
reviewing all strategic options on its Kyrgyz assets. The current discussions
with Xiwang envisage a capital allocation for the Kyrgyz Assets to develop
Tulkubash through a joint venture with Chaarat. Other discussions are
advancing in parallel.
Corporate
• On 11 August 2023, the maturity date of the convertible loan
notes (the "Notes") was extended by a further three months from 31 July 2023
to 31 October 2023 and accrued interest and extension fees of US$2.8 million
were capitalised as at 31 July 2023, which increased the principal value of
the Notes to US$31.7 million. With effect from 1 August 2023 the interest
rate is 20% p.a. Further, a one-off extension fee of US$1.0 million (being 5%
of the original principal amount of the Notes) will be payable to noteholders
as remuneration for the extension.
• Chaarat reduced the principal outstanding on the Kapan
acquisition loan and Kapan working capital facility by US$2.5 million in H1
2023, reducing the balance to US$13.0 million outstanding. The loan from
Ameriabank, which now includes both the remaining portion of the acquisition
loan and the working capital facility, was successfully refinanced in August
2023. The US$13 million loan principal has had its repayment schedule extended
from H2 2023 to H2 2025 with terms remaining materially the same.
• As previously announced, working capital facility arrangements
are in place with a short-term loan provider. As at 30 June 2023 US$3.0
million had been drawn under those arrangements with the remaining US$1.0
million drawdown since the half year. The working capital facilities are due
for repayment on 30 September 2023. The Company is currently in discussions
with the lender to repay, part repay or extend these facilities. Cash and
cash equivalents as at 30 June 2023 were US$0.8 million.
• The unaudited Group Net Debt as of 30 June 2023 was US$51.6
million. Should the conditional agreement to sell the Kapan mine be completed,
group net debt would be reduced by the amount of the remaining Ameriabank
loan, lease liabilities and contract liabilities held within the Kapan entity
which is to be sold to the Buyer. Chaarat continues to evaluate further
balance sheet optimisation opportunities.
• David Mackenzie was appointed Chief Financial Officer of the
Company on 15 June 2023. David has been acting as the interim Chief
Financial Officer since 1 February 2022. Darin Cooper, Chief Operating
Officer, left the Company on 14 June 2023 to pursue other opportunities.
FINANCIAL REVIEW
Income statement
Revenue in the period amounted to US$35.3 million (H1 2022: US$50.4 million),
comprising US$33.1 million of own-ore revenue and US$2.2 million of
third-party revenue (H1 2022: US$41.4 million own ore and US$9.0 million
third-party revenue). Third-party revenue consisted of a processing fee for
treatment of third-party ore (US$2.2 million) rather than the purchase of ore
and onward sale to customers as was the case in H1 2022 (US$9.0 million)
The Group operating loss for the period was US$22.0 million (H1 2022: profit
of US$1.4 million) and the Group EBITDA was US$-0.2 million (H1 2022: US$4.9
million) reflecting lower adjusted EBITDA contribution from Kapan of US$2.3
million (H1 2022 US$8.1 million) and corporate and Kyrgyz Republic costs of
US$2.5 million (H1 2022 US$3.2 million).
The Group operating loss for the period included a US$16.4 million non-cash
impairment charge of the Kapan asset, as to align book value to the fair value
price. This fair value price is based on the consideration for the recently
announced conditional agreement to sell the Kapan mine.
Kyrgyz Republic Armenia Corporate Total
EBITDA to Profit before tax US$'000 US$'000 US$'000 US$'000
1H 2023
EBITDA (580) 2,339 (1,915) (-155)
Change in provisions - non cash - 298 - 298
Unrealised FX gain on borrowings - 115 - 115
Depreciation and amortisation (233) (5,629) - (5,862)
Impairment charges - (16,366) - (16,366)
Finance income - 1 - 1
Finance costs - (1,673) (2,173) (3,846)
Fair value gain on warrant - - 13 13
Loss before income tax expense (813) (20,915) (4,075) (25,802)
Finance costs in H1 2023 were US$3.8 million (of which US$2.9 million was
non-cash) compared to US$3.3 million (of which US$2.5 million was non-cash) in
the comparable period. Increase attributed to interest on extended
convertible loan notes, Ameriabank and corporate working capital facilities.
Balance sheet
The borrowings at the balance sheet date of US$52.3 million (31 December 2022:
US$51.9 million) comprised US$31.3 million of convertible loan notes due in
July 2023 (31 December 2022: US$29.2 million), US$16.9 million of other loans
(31 December 2022: US$17.8 million), US$3.1 million of contract liabilities
(31 December 2022: US$3.7 million) and US$1.0 million of lease liabilities (31
December 2022: US$1.2 million).
The Group's net debt increased from US$51.3 million at 31 December 2022 to
US$51.6 million at 30 June 2023, primarily as a result of the increased
convertible loan note balance at 30 June 2023.
Non-current assets decreased from US$130.7 million at 31 December 2022 to
US$119.5 million at 30 June 2023. The decrease was mainly due to an
impairment charge of US$9.5 million recognised against property, plant, and
equipment at Kapan and US$3.7M against deferred tax asset. Additionally,
exploration and evaluation costs of US$0.6 million were capitalised relating
to the asset in the Kyrgyz Republic.
Current assets were US$18.9 million at 30 June 2023 compared to US$27.5
million at 31 December 2022. The decrease was mainly due to an impairment
charge of US$3.1 million recognised against inventories at Kapan. Current
assets at 30 June 2023 included cash and cash equivalents of US$0.8 million
(31 December 2022: US$0.6 million).
Total liabilities at 30 June 2023 were US$91.1 million compared to US$85.6
million at 31 December 2022. This was mainly due to an increase in trade
payables at Kapan in the amount of US$3.5 million at 30 June 2023. The
movement in liabilities is set out in more detail in Note 9 to the interim
financial statements, including the split between long-term and short-term
components. In addition, liabilities at 30 June 2023 included a provision for
environmental obligations at Kapan of US$12.4 million (31 December 2022:
US$11.7 million).
Total equity was US$47.3 million at 30 June 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$0.8 million at 30 June 2023. The movement comprised of:
• net operating cash flows of US$7.5 million (H1 2022: US$7.7
million), reflecting the EBITDA contribution from Kapan offset by costs
incurred in the Kyrgyz Republic and at corporate level and adjusted by working
capital movements
• net cash used in investing activities of US$5.1 million (H1
2022: US$5.7 million) relating to the purchase of property, plant, and
equipment at Kapan and in the Kyrgyz Republic together with capitalised
exploration and development spend in the Kyrgyz Republic
• cash outflows from financing activities of US$2.2 million (H1
2022: outflows of US$6.1 million) relating to external debt repayments,
including interest, of US$5.2 million offset by US$3.0 million inflow from
draw down of corporate working capital facilities.
At 31 August 2023, the Group had approximately US$0.5 million of cash and cash
equivalents on hand.
Basis of Preparation including Going concern
As set out in Notes 2 and 3 to the financial statements, the consolidated
interim financial information has been prepared using policies based on
International Financial Reporting Standards (IFRS and IFRIC interpretations)
issued by the International Accounting Standards Board ("IASB") and on a going
concern basis. It does not include all disclosures that would otherwise be
required in a complete set of financial statements and should be read in
conjunction with the 2022 Annual Report.
As explained in Note 2, additional funding will be required during Q4 2023 to
achieve the planned future capital developments of assets, to sustain
corporate activities, to repay the corporate working capital facilities, to
refinance the convertible loan notes due on 31 October 2023 and should the
conditional agreement to sell Kapan not be completed to fund investment into
the Kapan mine. The steps being taken by the Group to address these
requirements are set out in the Operational Review above and in Note 2 to the
financial statements below.
There are currently no binding agreements in place in respect of any
additional funding and there is no guarantee that any course of funding will
proceed such that the funding requirements set out above represents a material
uncertainty. However, management is committed to raising additional funds and
has an established track record of successfully achieving this in the past as
demonstrated by the fundraising activities in 2020 and 2021. Accordingly, the
Directors have adopted the going concern basis of accounting in preparing the
interim financial statements. Further details of the Group's status as a going
concern and expected future financing plans are set out below in Note 2 to
these financial statements.
Mike
Fraser
David Mackenzie
Chief Executive Officer
Chief Financial Officer
6 September 2023
Consolidated Income Statement
For the six months ended 30 June 2023
6 months ended 6 months ended
30 June 2023 30 June 2022
(Unaudited) (Unaudited)
US$'000 US$'000
Revenue 35,250 50,391
Cost of Sales (35,321) (42,617)
Gross (loss)/profit (71) 7,774
Selling expenses (1,019) (1,149)
Administrative expenses (4,514) (5,212)
Impairment charges (16,366) -
Other income - -
Operating (loss)/profit (21,970) 1,413
Finance income 1 15
Finance costs (3,846) (3,266)
Fair value gain on warrant 13 319
Loss before tax for the period, attributable to equity shareholders of the (25,802) (1,519)
parent
Income tax credit/(charge) 148 (1,177)
Loss after tax for the period, attributable to equity shareholders of the (25,654) (2,696)
parent
Loss per share (basic and diluted) - US$ cents (3.72) (0.39)
Consolidated Statement of Comprehensive Income
For the six months ended 30 June 2023
6 months ended 6 months ended
30 June 2023 30 June 2022
(Unaudited) (Unaudited)
US$'000 US$'000
Loss for the period, attributable to equity shareholders of the parent (25,654) (2,696)
Items which may subsequently be reclassified to profit and loss
Exchange differences on translating foreign operations and investments 381 3,387
Other comprehensive income for the period, net of tax 381 3,387
Total comprehensive profit for the period attributable to equity shareholders (25,274) 691
of the parent
Consolidated Balance Sheet
As at 30 June 2023
As at As at
30 June 2023 (Unaudited) 31 December 2022 (Audited)
Note US$'000 US$'000
Assets
Non-current assets
Exploration and evaluation costs 9 69,801 69,182
Other Intangible assets 1,247 1,260
Property, plant and equipment 47,341 55,401
Prepayments for non-current assets 1 373
Deferred income tax assets 1,144 4,489
Total non - current assets 119,533 130,705
Current assets
Inventories 11,267 16,208
Trade and other receivables 6,833 10,666
Cash and cash equivalents 753 616
Total current assets 18,854 27,490
Total assets 138,387 158,195
Equity and liabilities
Equity attributable to shareholders
Share capital 6,897 6,897
Share premium 242,757 242,757
Own shares reserve (104) (104)
Convertible loan note reserve 1,420 1,420
Merger reserve 10,885 10,885
Share option reserve 7,769 9,259
Translation reserve (10,179) (10,560)
Accumulated losses (212,109) (187,944)
Total equity 47,334 72,608
Liabilities
Non-current liabilities
Provision for environmental obligations 12,392 11,707
Lease liabilities 10 831 885
Other loans 10 - -
Total non-current liabilities 13,223 12,592
Current liabilities
Trade and other payables 24,080 19,714
Contract liabilities 10 3,108 3,720
Lease liabilities 10 183 300
Other loans 10 16,908 17,806
Warrant financial liability - 13
Convertible loan notes 10 31,298 29,203
Other provisions for liabilities and charges 2,253 2,239
Total current liabilities 77,830 72,995
Total liabilities 91,052 85,587
Total liabilities and equity 138,387 158,195
Consolidated Statement of Changes in Equity
For the six months ended 30 June 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$'000
As at 31 December 2021 (Audited) 6,894 242,695 (132) 1,420 10,885 11,383 (14,433) (181,836) 76,876
Loss for the year - - - - - - - (8,577) (8,577)
Translation gains for the year - - - - - - 3,873 - 3,873
Total comprehensive loss for the year - - - - - - 3,873 (8,577) (4,704)
Share options lapsed - - - - - (2,126) - 2,126 -
Share-based payments charge - - - - - 373 - - 373
Issuance of shares for settlement of liabilities 3 62 - - - - - - 65
Transfer of treasury shares - - 28 - - (371) - 343 -
As at 31 December 2022 (Audited) 6,897 242,757 (104) 1,420 10,885 9,259 (10,560) (187,944) 72,608
Loss for the period - - - - - - - (25,654) (25,654)
Translation gains for the period - - - - - - 381 - 381
Total comprehensive loss for the period - - - - - - 381 (25,654) (25,274)
Share options lapsed - - - - - (1,490) - 1,490 -
Share-based payment charge - - - - - - - - -
Transfer of treasury shares - - - - - - - - -
As at 30 June 2023 (Unaudited) 6,897 242,757 (104) 1,420 10,885 7,769 (10,179) (212,109) 47,334
Consolidated Cash Flow Statement
For the six months ended 30 June 2023 6 months ended 30 June 2023 6 months ended 30 June 2022
(Unaudited) (Unaudited)
US$'000 US$'000
Cash flows from operating activities
Operating profit (21,970) 1,413
Depreciation and amortisation 4,933 5,645
Loss on disposal of property, plant, and equipment - (11)
Change in provisions (218) (618)
Impairment charges 16,366 -
Unrealised foreign exchange gains (301) (1,989)
Share-based payments - 373
Decrease in inventories 2,810 2,572
Decrease in trade and other receivables 4,173 12,863
Increase/(decrease) in trade and other payables 2,333 (12,321)
Increase in contract liabilities 610 2,167
Cash generated in operations 7,515 10,093
Income taxes paid - (2,372)
Net cash generated in operations 7,515 7,721
Investing activities
Purchase of property, plant & equipment (4,470) (4,177)
Exploration and evaluation costs (654) (1,524)
Purchase of intangible assets (6) (10)
Proceeds from sale of property, plant & equipment - 13
Interest received 1 15
Net cash used in investing activities (5,130) (5,683)
Financing activities
Repayments of principal portion of lease liabilities (248) (374)
Proceeds from loan 3,000 -
Repayments of principal amount of loan (4,045) (4,938)
Payments of interest (859) (790)
Net cash from financing activities (2,152) (6,102)
Net change in cash and cash equivalents 232 (4,063)
Cash and cash equivalents at beginning of the period 616 11,134
Effect of changes in foreign exchange rates (96) (869)
Cash and cash equivalents at end of the period 753 6,202
Notes to the Financial Statements
1. General information and group structure
Chaarat Gold Holdings Limited (the "Company") (registration number 1420336) is
incorporated in the British Virgin Islands (BVI) and is the ultimate holding
company for the companies set out below (the "Group"). The Company's shares
are admitted to trading on the Alternative Investment Market of the London
Stock Exchange (AIM:CGH). The registered address of the Company is: Palm Grove
House, PO Box 438, Road Town, Tortola, British Virgin Islands, VG1110.
As at 30 June 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 & Wales Services company
Chaarat Kapan CJSC* Armenia Production company
*Companies owned indirectly by the Company.
2. Going concern
As at 31 August 2023 the Group had approximately US$0.5 million of cash and
cash equivalents and US$49.9 million of debt (excluding lease liabilities and
contract liabilities and warrants) comprising the following:
US$33.2 million convertible loan notes, including accrued interest to 31
August 2023
US$16.7 million borrowings outstanding
Kyrgyz Republic
In order to achieve the planned (though as yet uncommitted) capital
developments of assets in the Kyrgyz Republic, future financing will need to
be secured. The Group's current discussions with Xiwang International
envisage a capital allocation for the Kyrgyz Assets to develop Tulkubash
through a joint venture with Chaarat. Other discussions are advancing in
parallel.
Corporate working capital facilities and corporate activities
The corporate working capital facilities including accrued interest amounted
to US$4.1 million at 31 August 2023 and are due for repayment on 30 September
2023. The Company is currently in discussions with the lender to repay, part
repay or extend the facilities. Funding will also be required during Q4 2023
to allow the Group to sustain corporate activities.
Kapan
As noted above, the Company has entered into a conditional to sell the Kapan
mine. The US$5.0 million cash component of the consideration would provide
funds which could assist towards repayment of the corporate working capital
facilities and also corporate activities, although as previously stated
further additional funding will be required.
Additionally, if the sale is completed, group net debt would be reduced by the
amount of the remaining Ameriabank loan, lease liabilities and contract
liabilities held within the Kapan entity which is being sold to the buyer.
If the sale is not completed, further investment would be required to
implement efficiency operations in Kapan in the immediate future and
potentially in the longer term given the persistently adverse USD/AMD foreign
exchange environment.
Convertible Loan Notes
By 31 October 2023, the convertible loan notes ("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$34.3 million (which includes accrued interest and fees). The Company is
assessing its options for securing the funding to repay the Notes, both
through the potential Xiwang transaction and through other routes.
(#) Note: The conversion price is, for each US$250,000 of Loan Notes, 611,290
Ordinary Shares (and pro rata for any amounts less than US$250,000). This
equated to £0.30 per share at the prevailing exchange rate of US$1.36 / £1
in October 2021 when an adjustment to the conversion price was agreed with
loan noteholders.
Conclusion
As noted above, further financing will be required to service the debt
obligations set out above as they fall due, achieve the planned capital
development of the assets in the Kyrgyz Republic and to sustain corporate
activities.
The directors consider there is a reasonable expectation that sufficient
funding will be raised and therefore have continued to adopt the going concern
basis. However, there are currently no binding agreements in place in respect
of any additional funding and there is no guarantee that any course of funding
will proceed. Therefore, this indicates the existence of a material
uncertainty which may cast significant doubt over the Group's ability to
continue as a going concern and, therefore, it may be unable to realise its
assets and discharge its liabilities in the normal course of business. Should
the project funding not be available for the Kyrgyz Republic development
projects or should other strategic options including potential monetisation of
the assets not prove to be viable, there may be a material impairment of the
US$82 million carrying value of the related assets. The financial statements
do not include the adjustments that would result if the Group were unable to
continue as a going concern.
3. Accounting policies
The significant accounting policies which have been consistently applied in
the preparation of these interim financial statements are summarised below:
Basis of preparation
The consolidated interim financial information has been prepared using
policies based on International Financial Reporting Standards (IFRS and IFRIC
interpretations) issued by the International Accounting Standards Board
("IASB"). It does not include all disclosures that would otherwise be required
in a complete set of financial statements and should be read in conjunction
with the 2022 Annual Report. The results for the period are derived from
continuing activities. The figures for the year ended 31 December 2022 have
been extracted from the statutory financial statements, prepared in accordance
with United Kingdom adopted international accounting standards and
International Financial Reporting Standards (IFRSs) as issued by the
International Accounting Standards Board (IASB) and on a historical cost
basis, which are available on the Group's website www.chaarat.com. The
auditor's report on those financial statements was unqualified and noted a
material uncertainty in respect of the Group's ability to continue as a going
concern.
The consolidated interim financial information for the six months ended 30
June 2023 and 30 June 2022 (unaudited) does not constitute statutory accounts
as defined in Section 435 of the Companies Act 2006.
New standards, interpretations and amendments adopted by the Group
The accounting policies adopted in the preparation of the consolidated interim
financial information are consistent with those adopted in the preparation of
the Group's annual consolidated financial statements for the year ended 31
December 2022. There were no new applicable standards that became effective on
1 January 2023 and the Group has not early adopted any amendment, standard or
interpretation that has been issued but is not yet effective. It is expected
that where applicable, these standards and amendments will be adopted on each
respective effective date.
Critical accounting judgements and key sources of estimation uncertainty
The preparation of interim financial information requires management to make
judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets and liabilities,
income, and expenses. Actual results may differ from these estimates.
In preparing the consolidated interim financial information, the significant
judgements made by management in applying the Group's accounting policies and
the key sources of estimation uncertainty were the same as those that applied
to the consolidated financial statements for the year ended 31 December 2022.
4. Revenue
The revenue recognised from contracts with customers for the 6 months ended 30
June 2023 and 30 June 2022 consisted of the following:
2023 2022
US$'000 US$'000
Copper concentrate 27,164 39,692
Zinc concentrate 5,191 9,897
3rd party ore processing 2,175 -
Zinc concentrate freight 720 802
Total 35,250 50,391
The Group's sales of copper and zinc concentrate are based on provisional
1-3-month commodity forward prices and as such, contain an embedded derivative
which is marked-to-market at each month end.
The Group's sales are to internationally well-established commodity traders
under standard offtake terms.
Copper concentrate sales are made on an Ex Works-basis meaning that control
passes to the buyer when the concentrate is loaded on the truck at the Kapan
mine. Zinc concentrate sales are made on a cost, insurance, and freight
("CIF") basis meaning that control passes to the buyer when the concentrate is
loaded on the vessel in the port of shipment (e.g., port of Poti, Georgia).
Of the US$35.3 million revenue generated H1 2023, US$33.1 million relates to
own concentrate sales and US$2.2 million relates to third-party ore
processing.
During H1 2023, the Group provided a processing service for third-party ore.
The processing fee amounted to US$2.2 million and is included as 3rd party ore
processing in the revenue split in the table above. During H1 2022, the Group
purchased third-party ore which it processed into concentrate and sold to its
customers as principal. The revenue amounted to US$9.0 million and is included
within copper concentrate and zinc concentrate in the table above, with the
cost of ore purchased and processing costs included in cost of sales.
In 2023, the Group has continued to recognise contract liabilities in relation
to its contracts with customers for prepayments received for the future
transfer of concentrates, as set out in Note 10.
5. Segmental analysis
Operating segments are identified based on internal reports about components
of the Group that are regularly reviewed by the Board, in order to allocate
resources to the segments and to assess their performance.
Based on the proportion of revenue and profit within the Group's operations
and on the differences in principal activities, the Board considers there to
be two operating segments:
Exploration for mineral deposits in the Kyrgyz Republic ("Kyrgyz
Republic")
Exploration and production of copper and zinc concentrates at Kapan
in Armenia ("Armenia")
Kyrgyz Republic Armenia Corporate Total
30 June 2023 US$'000 US$'000 US$'000 US$'000
Revenue
Sales to external customers - 35,250 - 35,250
Total segment revenue - 35,250 - 35,250
Operating loss before impairment charges (813) (2,877) (1,915) (5,604)
Impairment charges - (16,366) - (16,366)
Operating loss (813) (19,243) (1,915) (21,970)
Finance income - 1 - 1
Finance costs - (1,673) (2,173) (3,846)
Fair value gain on warrant - - 13 13
Loss before income tax (813) (20,915) (4,075) (25,802)
Income tax charge - 148 - 148
Loss after income tax (813) (20,767) (4,075) (25,654)
Assets
Segment assets - non-current 82,910 36,623 - 120,456
Segment assets - current 142 18,133 578 17,931
Total assets 83,053 54,756 578 138,387
Liabilities
Segment liabilities 2,423 53,229 35,401 91,052
Total liabilities 2,423 53,229 35,401 91,052
Kyrgyz Republic Armenia Corporate Total
30 June 2022 US$'000 US$'000 US$'000 US$'000
Revenue
Sales to external customers - 50,391 - 50,391
Total segment revenue - 50,391 - 50,391
Operating profit/(loss) (1,068) 5,232 (2,751) 1,413
Finance income - 15 - 15
Finance costs - (1,427) (1,839) (3,266)
Fair value gain on warrant - - 319 319
Profit/(loss) before income tax (1,068) 3,820 (4,271) (1,519)
Income tax charge - (1,177) - (1,177)
Profit/(loss) after income tax (1,068) 2,643 (4,271) (2,696)
Assets
Segment assets - non-current 81,419 49,702 - 131,121
Segment assets - current 551 34,340 4,221 39,112
Total assets 81,970 84,042 4,221 170,233
Liabilities
Segment liabilities 2,707 61,805 27,718 92,230
Total liabilities 2,707 61,805 27,718 92,230
6. Impairment provision
The Kapan mine is a separate cash generating unit for impairment review
purposes under IAS 36. Based on the recently announced conditional agreement
to sell the Kapan mine, the Company has recorded a US$16.4 million impairment
provision in order to align the book value of the Kapan asset to fair value.
The provision comprises an impairment of US$9.5 million against plant,
property and equipment, an impairment of US$3.7 million against deferred
income tax asset and an impairment of US$3.2 million against inventories.
The impairment assessment has been conducted internally using provisional
values at 30 June 2023, based on the consideration included with the
conditional agreement. The quantum of the impairment provision is contingent
on the sale going ahead and its timing and will be revised in H2 2023.
7. Finance costs
The finance costs for the 6 months ended 30 June consisted of the following:
2023 2022
US$'000 US$'000
Interest on convertible loan notes 2,096 1,839
Interest on other loans 1,023 724
Interest on lease liabilities 56 71
Interest on contract liabilities - 77
Unwinding of discount - provision for rehabilitation 671 554
Total 3,846 3,266
Interest on the convertible loan notes amounted to US$2.1 million in H1 2023.
The interest on other loans of US$1.0 million includes interest on the Kapan
acquisition loan of US$0.5 million, working capital facility loans of US$0.4
million and interest on other borrowings of US$0.1 million. The interest
charge in the current period is higher as it includes the Kapan working
capital facility that was drawn in the second half of the prior period in
addition to the corporate facility that was drawn in the current period.
8. Loss per share
Loss per share is calculated by reference to the loss for the 6 months ended
30 June 2023 of US$25.7 million (2022: loss of US$2.7 million) and the
weighted average number of ordinary shares in issue during the period of
689,668,088 (2022: 689,654,696).
At 30 June 2023, 8,920,341 (2022: 8,920,341) warrants, 33,056,858 (2022:
41,541,933) share options and convertible loan notes have been excluded from
the diluted weighted average number of ordinary shares calculation because
their effect would have been anti-dilutive.
9. Exploration and evaluation costs
Tulkubash Kyzyltash Total
US$'000 US$'000 US$'000
At 1 January 2023 58,796 10,386 69,182
Additions 613 5 619
At 30 June 2023 59,409 10,391 69,801
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 at 30 June 2023, management does not consider there to
be any indicators of impairment in respect of these assets.
10. Liabilities
Reconciliation of liabilities
Convertible loans Contract liabilities Lease liabilities Other loans Total
Liabilities from financing activities US$'000 US$'000 US$'000 US$'000 US$'000
At 1 January 2023 29,203 3,720 1,186 17,807 51,916
Cash flows:
Cash proceeds - - - 3,000 3,000
Payment of interest - - - (859) (859)
Payment of principal amount - - - (4,045) (4,045)
Lease payments - - (249) - (249)
Net proceeds - - (249) (1,904) (2,153)
Non-cash items:
Additions - - - - -
Interest accrued 2,096 - 56 1,005 3,157
Settlement of interest against receivables - (79) - - (79)
Reversal of lease liability - - - - -
Amounts recognised as revenue - (610) - - (610)
Effect of currency translation - 76 21 - 97
Total liabilities from financing activities at 30 June 2023 31,299 3,107 1,014 16,908 52,328
Non-current - - 831 - 831
Current 31,299 3,107 184 16,908 51,498
Convertible loan notes
During the period there were no new issues of convertible loan notes (the
"Notes"). The only movement in the period was accrued interest of US$2.1
million (2022: US$1.8 million).
2023 Notes US$'000
At 1 January 2023 29,203
Cash proceeds -
Transaction costs -
Net proceeds -
Amount classified as equity -
Accrued interest 2,096
At 30 June 2023 31,299
Non-current -
Current 31,299
The number of shares to be issued on conversion of the Notes is fixed. There
are no covenants attached to the Notes.
The Notes accrued interest at 10% p.a. until 30 April 2020 and then at a rate
of 12% p.a. until 31 October 2021. The Notes are secured on the shares of the
Company's wholly-owned direct subsidiary, Zaav Holdings Limited, which is the
immediate holding company of the Group's principal operating subsidiary,
Chaarat Zaav CJSC.
On 21 October 2021, the maturity date of the Notes was extended from 31
October 2021 to 31 October 2022 and the conversion price reduced from £0.37
to £0.30 per share(#), which was treated as a substantial modification for
accounting purposes. The coupon interest rate remained at 12% p.a.
The value of the liability and equity conversion component was reassessed at
the date of the modification. The fair value of the liability component was
calculated using a market interest rate of 15% for an equivalent instrument
without conversion option.
On 6 October 2022, the maturity date of the Notes was extended by a further 9
months from 31 October 2022 to 31 July 2023 and accrued interest of US$9.2
million was capitalised as at 31 October 2022, which increased the principal
value of the Notes to US$28.9 million. The extension was treated as a
non-substantial modification for accounting purposes. The coupon interest rate
remained at 12% p.a. Further, a one-off extension fee equal to 1% of the
original principal amount of the notes became payable to the holders at this
date.
On 11 August 2023, the maturity date of the convertible loan notes (the
"Notes") was extended by a further 3 months from 31 July 2023 to 31 October
2023 and accrued interest and extension fees of US$2.8 million were
capitalised as at 31 July 2023, which increased the principal value of the
Notes to US$31.7 million. With effect from 1 August 2023 the interest rate
is 20% p.a. Further, a one-off extension fee of US$1.0 million (being 5% of
the original principal amount of the Notes) will be payable to noteholders as
remuneration for the extension. As the Notes fell due on 31 July 2023, they
have been classified as current liabilities at 30 June 2023.
(#) Note: The original conversion price was, for each US$250,000 of Notes,
527,871 Ordinary Shares (and pro rata for any amounts less than US$250,000).
This equated to £0.37 per share at the then prevailing exchange rate of
US$1.28 / £1. The amended conversion price was, for each US$250,000 of
Notes, 611,290 Ordinary Shares (and pro rata for any amounts less than
US$250,000). This equated to £0.30 per share at the prevailing exchange
rate of US$1.36 / £1 in October 2021.
Contract liabilities
The movements in the Group's contract liabilities for the period are presented
below:
US$'000
At 1 January 2023 3,720
Cash received in advance of performance -
Interest on contract liabilities -
Settlement of interest against receivables (79)
Amounts offset against receipts from customers (610)
Effect of currency translation 76
At 30 June 2023 3,107
Non-current -
Current 3,107
The contract liabilities balance relates to prepayments received from one of
Chaarat Kapan's customers for the sale of concentrates. The prepayments accrue
interest at a rate defined in the sales contract of 6-month SOFR plus 5% p.a.
and are settled by way of deduction against future outstanding invoices.
Lease liabilities
The Group's leases are accounted for by recognising a right-of-use asset and a
lease liability except for leases of low value assets and leases with a
duration of 12 months or less.
The Group leases equipment and land in the jurisdictions from which it
operates, the most notable being the land that is leased in Armenia. Certain
items of property, plant and equipment are also leased in the Kyrgyz Republic
which contain variable payments over the lease terms, therefore these leases
do not fall within the scope of IFRS 16, and right-of-use assets and lease
liabilities are not recognised as a result.
The movements in the Group's right-of-use assets and lease liabilities for the
period are presented below:
Right-of-use assets
Land Equipment Total
US$'000 US$'000 US$'000
At 1 January 2023 889 - 889
Additions - - -
Depreciation charge (77) - (77)
Effect of currency translation 17 - 17
At 30 June 2023 829 - 829
Lease liabilities
Land Equipment Total
US$'000 US$'000 US$'000
At 1 January 2023 1,017 169 1,186
Additions - - -
Interest expense 56 - 56
Lease payments (79) (170) (249)
Reversal of lease liability - - -
Effect of currency translation 19 1 21
At 30 June 2023 1,014 - 1,014
Non-current 184 - 184
Current 831 - 831
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 30 June
2023 and the contractual maturity date:
Within 6 months 6 months to 1 year 1 to 5 years Over 5 years Total at 30 June 2023
US$'000 US$'000 US$'000 US$'000 US$'000
Land leases 166 121 947 118 1,351
Total 166 121 947 118 1,351
As at 30 June 2023, the contractual discounted cash flows due on the Group's
lease liabilities amounts to US$1.4 million (31 December 2022: US$1.6
million).
The discount rate used in calculating the lease liabilities is the rate
implicit in the lease, unless this cannot readily be determined, in which case
the Group's incremental rate of borrowing is used instead. In 2023, a discount
rate of 12% per annum has been used to calculate the Group's lease liabilities
for its land leases.
Other loans
The movements in the Group's other loans for the period are presented below:
Borrowings Kapan WC facility Corporate facility Other Borrowings Total
US$'000 US$'000 US$'000 US$'000
At 1 January 2023 9,643 6,108 - 2,056 17,807
Borrowing attracted in cash - - 3,000 - 3,000
Interest accrued 510 340 60 95 1,005
Payment of interest in cash (421) (379) - (60) (859)
Payment of principal in cash (1,500) (1,000) - (1,545) (4,045)
Effect of currency translation - - - 1 -
At 30 June 2023 8,232 5,069 3,060 547 16,908
Non-current - - - - -
Current 8,232 5,069 3,060 547 16,908
Borrowings
On 30 January 2019, the documentation was finalised for the Kapan Acquisition
Financing totalling US$40 million, which is syndicated with Ameriabank CJSC
(US$32 million), HSBC Bank Armenia CJSC (US$5 million) and Ararat Bank OJSC
(US$3 million). The loan incurs interest at LIBOR plus 8% and was originally
repayable through quarterly payments over a four-year period however in July
2021, the maturity date of the facility was extended from 31 January 2023 to 2
October 2023.
This bank financing has certain covenants attached to it that the Group needs
to adhere to. Two covenants of the loan were not met as at 30 June 2023. The
leverage ratio should not exceed 2.4:1 with the ratio being 3.30:1 at 30 June
2023. In addition to this, the minimum cash balance at 30 June 2023 should
not be less than US$1.0 million with cash on hand totalling US$0.1 million. As
explained below, the loan was successfully refinanced together with the
working capital facility in August 2023 with a new loan agreement, thereby
effectively extinguishing the non-compliance at 30 June 2023.
Ameriabank working capital facility
In 2022, the Company entered into two new agreements with Ameriabank CJSC
totalling US$6.0 million. This included a line of credit agreement with a
maximum limit of US$4.0 million on 12 August 2022. The loan incurs interest at
an annual floating interest rate of 11% and is repayable through quarterly
instalments starting from 20 January 2023. An additional loan agreement was
entered on 11 November 2022 for US$2.0 million. The loan interest rate is
12.5% per annum and the principal is repayable through two equal instalments
on 17 July 2023 and 2 October 2023.
The outstanding principal on the Ameriabank acquisition loan and working
capital facility was successfully refinanced in August 2023. The US$13.0
million principal has had its repayment schedule extended from H2 2023 to H1
2025 with terms remaining materially the same.
Corporate facilities
In 2023, corporate working capital facility arrangements were put in place
with a short-term loan provider. As at 30 June 2023, US$3.0 million had been
drawn down with the remaining US$1.0 million drawn down since the half year.
The working capital facility is incurring interest at 12% per annum and is
repayable by 30 September 2023, unless otherwise agreed by both parties.
Other Borrowings
Other borrowings include an amount owing to one of Chaarat Kapan's customers
in respect of prepayments for the future sale of concentrates. The prepayments
accrue interest at 1-month LIBOR plus 6% p.a. and are expected to be settled
in cash in accordance with a repayment schedule defined in the sales contract.
The prepayments can be requested upon notice and therefore are repayable on
demand.
11. Other provisions
Other provisions for liabilities and charges relate mainly to employment
disputes in Armenia ("Legal Claims Provision") of US$0.7 million at 30 June
2023 (31 December 2022: US$0.7 million) and a legal claim of US$1.3 million at
30 June 2023 (31 December 2022: US$1.3 million) that was charged against
Chaarat in the Kyrgyz Republic whereby compensation for agricultural losses
was demanded ("Land Provision").
The provisions have been recognised as, based on the Group's legal views, it
is considered probable that an outflow of resources will be required to settle
the disputes, however there is uncertainty around the timing of payments to be
made. There are no expected reimbursements relating to these provisions.
The movement in provisions in 2023 is as follows:
Legal Claims Provision Land Provision Other Provision Total
US$'000 US$'000 US$'000 US$'000
At 1 January 2023 708 1,327 204 2,239
Change in provision - - - -
Settlement of provision in cash - - - -
Foreign exchange on conversion 14 - - 14
At 30 June 2023 722 1,327 204 2,253
12. Related party transactions
Remuneration of key management personnel
Remuneration of key management personnel for the 6 months ended 30 June 2023
and 30 June 2022 is as follows:
2023 2022
US$'000 US$'000
Short-term employee benefits 926 907
Share-based payments charge - 373
Total 926 1,280
Included in the above key management personnel are 7 directors and 2 key
managers (2022: 8 and 2).
Short-term employee benefits totalling US$793,125 at 30 June 2023 have not yet
been paid to key management personnel. This consists of US$275,000 to Mr
Andersson, US$450,625 to Mr Fraser and $67,500 to non-executive directors.
No further share awards have been granted for 2023, however should any such
awards be made later this year, they will be accounted for in H2 2023.
Entities with significant influence over the Group
At 30 June 2023, Labro Investments Limited, Chaarat's largest shareholder,
owned 44.77% (31 December 2022: 44.77%) of the ordinary US$0.01 shares in
Chaarat ("Ordinary Shares") and US$1.47 million of 12% secured convertible
loan notes which, assuming full conversion of principal and interest to
maturity on 31 July 2023, are convertible into 3,947,260 Ordinary Shares.
Upon extension of the convertible loan notes to 31 October 2023, Labro
Investments Limited owned US$1.61 million of 20% secured convertible loan
notes which, assuming full conversion of principal and interest to maturity on
31 October 2023, are convertible into 4,271,267 Ordinary Shares.
13. Post balance sheet events
Convertible loan notes
On 11 August 2023, the maturity date of the convertible loan notes (the
"Notes") was extended by a further 3 months from 31 July 2023 to 31 October
2023 and accrued interest and restructuring fees of US$2.8 million were
capitalised as at 31 July 2023, which increased the principal value of the
Notes to US$31.7 million. With effect from 1 August 2023 the interest rate
is 20% p.a. Further, a one-off extension fee of US$1.0 million (being 5% of
the original principal amount of the Notes) will be payable to Noteholders as
remuneration for the extension.
Ameriabank financing
The outstanding principal on the Ameriabank acquisition loan and working
capital facility was successfully refinanced in August 2023. The US$13.0
million principal has had its repayment schedule extended from H2 2023 to H1
2025 with terms remaining materially the same.
Conditional agreement to sell the Kapan mine
On 15 August 2023 the Company's wholly-owned subsidiary, Chaarat Gold
International Limited ("CGI"), entered into a conditional sale and purchase
agreement with Gold Mining Company LLC ("GMC") to sell the entire issued share
capital of Chaarat Kapan CJSC ("CK") which owns the polymetallic Kapan mine in
the Republic of Armenia. The consideration is US$55.4 million, which
comprises US$5.0 million payable in cash and US$50.4 million being satisfied
by way of GMC taking an assignment of intra-group payables due from CGI to
CK(#). The Proposed Sale is conditional upon Chaarat shareholder approval,
Ameriabank CJSC agreeing to release its existing security and guarantees from
members of the Chaarat group of companies, approval of the Armenian
Competition Protection Commission and Buyer shareholder approval. A general
meeting of the Company is to convene at 4pm on Thursday, 7 September 2023.
( )
(#) Note: The intra-group payables due by CGI to CK of US$ 50.4 million are
eliminated on consolidation when preparing the accounts of Chaarat and its
subsidiaries (the "Group"). When the sale is accounted for, the Group
accounts will therefore show disposal proceeds of US$ 5 million. Further
details will be provided in the Group's 2023 full-year financial statements in
due course.
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