Chaarat Gold says production on track at Kapan

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What Chaarat Gold Holdings does:

Chaarat Gold Holdings Ltd (LON:CGH) is rapidly emerging as a key mid-tier player in Central Asia’s gold space.

The company is actively seeking to consolidate the disparate Central Asian gold market through judicious acquisitions of projects.

What Chaarat Gold Holdings owns:

Chaarat Gold was built around the Tulkubash project in Kyrgyzstan. The company is currently drilling Tulkubash with a view to pushing the resource up towards the two million ounce mark.

A recent feasibility study envisioned mining an average of 94,000 ounces per year at Tulkubash, at all-in sustain costs of US$819 per ounce.

The project is estimated to require US$110mln to get it up and running and has an internal rate of return of 20%. Total undiscounted cash flow is likely to be US$114mln.

First gold production is on track for late 2021.

The company also owns significant exploration acreage around Tulkubash and recent drilling has demonstrated the likelihood of adding to the resource soon.

It also acquired the Kapan mine in Armenia. This mine boasts a measured and indicated resource of 1.6mln gold equivalent ounces, with a mine life of seven years, with gold equivalent production averaging 60,000 per year.

How it’s doing

In September, Chaarat said it is “on track” to deliver its full-year production guidance for Kapan, noting that the run of mine grades at the project have improved over the last two months.

In a post-period statement accompanying its results for the six months ended June 30, 2020, the company said Kapan is still expected to deliver 55,000 gold equivalent ounces in the year, while grades at the mine improved in July and August and are now expected to be above levels seen in the first half for the rest of the year.

Chaarat said these improved grades were the result of targeted development work carried out in the year to date, which focused on “identifying higher grade ore blocks that require minimal development”.

The firm noted that higher commodity prices, postponed shipments of June 2020 concentrates and improving operational factors led to a US$4.2mln underlying earnings (EBITDA) contribution from Kapan in July, more than doubling EBITDA from the mine in the year to date.

Looking to the figures for the first half, Chaarat reported gold equivalent production across the group for the period of 26,960 ounces, 9% lower year-on-year, as grades were impacted by mining in lower grade areas.

Revenue in the first half was US$29.9mln compared to US$31mln in 2019, although its operating loss narrowed to US$5.1mln from US$7.5mln.

What the boss says: chief executive Artem Volynets

“We continue to make progress towards achieving our goal of becoming a leading emerging markets gold company with a focus on Central Asia and the Former Soviet Union.

“Kapan had a better first half compared to last year, despite June shipment delays, as a result of the optimisation initiatives we have implemented since we acquired this operation”,

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Broker view – SP Angel

“Tulkubash funding is expected to be finalised later this year with the $110m project capex to be covered by the $31.5m Ciftay project equity earn-in and debt while strong gold prices enhance project economics and increase its potential debt capacity. The project is guided to come online in Q4/22 adding 110kozpa in gold production to the Group.

“The broker has a target price of 57p (from 58p) highlighting Chaarat’s upside potential driven by a diversified portfolio of assets with ~9moz AuEq in resources (>85% contained gold), a strong growth profile and a supportive shareholder base.”

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