Chaarat Gold : FY 2019 Production, Operational & Financial Update

RNS Number : 4015D

Chaarat Gold Holdings Ltd

19 February 2020

19 February 2020

Chaarat Gold Holdings Limited

("Chaarat" or "the Company")

FY 2019 Production, Operational and Financial Update

Analyst conference call at 10:00am today

Chaarat (AIM:CGH), the AIM-quoted gold mining Company with an operating mine in Armenia, and assets at various stages of development in the Kyrgyz Republic , is pleased to announce its production, operational, and financial update for the Financial Year (the "year", "2019" or the "Period") ending 31 December 2019 - a year in which the company made significant strides in its strategy to become a leading emerging markets gold company.

Kapan Mine ("Kapan")

• Completed the acquisition of Kapan in January 2019;
• Lost time injury frequency rate ('LTIFR') of 0.39 (per one million hours worked). Since taking ownership in January 2019, there has been one Lost Time Injury ('LTI'), below industry averages;
  o This compares very favourably to the 4.16 five year average LTIFR of the 27 members of the International Council of Metals and Mining (ICMM);
• Continued improved recoveries, better plant utilisation and increased mining rates under Chaarat's ownership;
• Gold equivalent production up 7% to 60,252 gold equivalent ounces 1 ("oz") at an all-in sustaining cost ("AISC") of USD$ 1,040 / oz (2018: 56,424 oz at AISC of USD$ 1,183/oz);
  o Total tonnes mined of 678,382t at a feed grade of 3.23 g/t AuEq compared to 637,441t at a feed grade of 3.44g/t in 2018.

• • Recoveries improved to 81.4% in 2019 versus 77.8% in 2018 following improvements achieved in the grinding and flotation circuits.
  • Fleet availability improved as equipment issues seen at the beginning of the year were resolved by the end of Q3 2019 and improved further in Q4 2019 by 5%.
  • Underground development of 23,136 metres achieved in the year, compared to 19,868 metres in 2018. Increased meterage is improving flexibility and availability of faces underground, allowing for consistent delivery of ore to the plant.
  • Cost improvements were achieved due to retendering all services and goods, bringing outsourced contracts in-house and monitoring use of consumables.
• A positive 25% increased unaudited preliminary EBITDA of USD$ c.11.5 million from Kapan in 2019 (2018: USD$ 9.2 million);
• The unaudited preliminary EBITDA has improved from USD$ 3.7 million in H1 2019 to c. USD$ 7.7 million in H2 2019;
• Realised gold price for the year of USD$ 1,413 /oz (2018: USD$ 1,268/oz) which is USD$ 163 /oz higher than the 2019 internal budget price;

• Due to the higher gold price impact on gold equivalent ounces 2, production guidance has been revised to 55,000 oz of gold equivalent ounces per year for 2020; and,
• The 2020 - 2026 Life of Mine Plan has been implemented.

1AISC on an oz produced basis exclude smelter TC/RC charges, others which add c. USD$ 150/oz. Sustaining capex of c. USD$ 4 million included in the AISC.

2Gold equivalent ounces for 2019 are based on gold ratios of 81 for silver, 6,698 for copper and 16,075 for zinc. For the LOMP 2020 to 2026 these ratios are being amended to 83 for silver, 7,778 for copper and 20,968 for zinc due to adjusted price assumptions.

Tulkubash

Construction

Construction continues at Tulkubash and first gold production remains on track for late 2021. Chaarat is proceeding with detailed engineering and has finalised several project components. These include:

• Initial earthworks including equipment mobilization, further de-risking the project as it heads towards first production;
• Ore haul road and platforms construction, to allow for early stockpiling ahead of processing.
• Access road to site has been upgraded to ensure year-round access to project site;
• Advance construction camp was installed; 360-man camp was fabricated, and installation started with completion scheduled for Q3 2020, enabling sufficient accommodation capacity of various construction and mining teams from the

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start;

• Detailed design of HLF, Crushing Circuit and ADR is advancing; and,
• Tree Cutting permit for the whole site has been secured and work commenced to clear area ahead of mining.

Resource & Reserve Update

The Company has published a Resource & Reserve Update for the Tulkubash Project , for full details of the update, refer to the announcement released today, 19 February 2020.

Highlights:

• P&P Reserves increased from 22Mt to close to 25Mt with an increase in grade to 0.95 g/t compared to 0.92 g/t previously;
• Gold ounces in P&P Reserves have increased 14% to 749 koz compared to 658 koz in the published bankable feasibility study; and,
• The pit shell optimisation for the Reserve update was based on a USD$ 1,300/oz gold price.

Project Financing

The Company is further advancing its project financing efforts and is pleased to announce that discussions have moved to detailed due diligence with one project financing group who are familiar with the sector and region and could act as a sole lender. In addition, the Company is progressing discussions with other potential lenders and expects to announce the proposed lending syndicate in the coming months.

Chaarat is working with potential lenders to implement a debt facility that will fully fund construction and bring the asset into production. It is envisioned that the debt facility will have a term of 5 to 6 years, comprise standard project finance clauses regarding customary conditions precedent to closing, including the requirement for the Company to contribute an amount of equity to the project, which will be funded through a combination of resources provided through the Çiftay Joint Venture Agreement, together with other funding options the Company is exploring.

As announced in September 2019, the Company signed a Joint Venture Agreement with Çiftay, the Turkish mining and mine construction contractor. Under the agreement, Çiftay will progressively invest up to USD$ 31.5 million in cash for a corresponding 12.5% equity stake in Tulkubash and Kyzyltash projects.

The Tulkubash construction Capex of USD$ 110 million will be fully funded once the project finance is closed and based on discussions with potential lenders it is expected that the financing facilities will be concluded in Q2 2020.

Corporate Update

2019 was a transformational year for the Company, following the acquisition of the Kapan mine. Upon the acquisition, the Company saw potential to improve the performance of the asset through investment and optimisation initiatives across all operational metrics and was able to deliver on those.

In November 2019, the Company provided the latest update to the Kapan Reserve Estimate. The resource and reserve update showed that depletion continues to be replaced with new reserves through the Company's developed and successful exploration program. The work allowed Chaarat to extend its mine life. This ongoing replacement of resource through exploration continues to give the Company the confidence that this mine should have many years of ongoing operation well beyond the current LOMP. Chaarat continues to target the significant exploration potential in the broader area surrounding the Kapan mine, including the existing flank areas to the main workings and will provide updates to the market when appropriate.

Construction is ongoing and progressing well at Tulkubash with Chaarat running a fast tracked, detailed engineering study, continuing pre-construction works at site towards first gold production and in parallel continuing exploration for immediate construction readiness - first gold production remains on schedule for late 2021.

In December 2019, the Company announced the conclusion of a stabilisation agreement with the Government of the Kyrgyz Republic in respect of the Company's Tulkubash and Kyzyltash projects. The agreement showed strong support for Chaarat in country and is a strong endorsement for the Company going forward.

Funding Update

The Company is on track on its refinancing efforts for the USD$ 17 million debt maturing in Q1 2020 and possible options for increasing the quantum of debt secured against Kapan, made possible by the improved operating performance at the mine. The Company is in detailed due diligence stage with potential refinancers and will announce further information in the near future.

M&A Strategy

Chaarat is continuing its efforts to actively pursue a disciplined growth agenda through organic growth and selective M&A, with the Company currently in active dialogue on opportunities that if concluded would be beneficial to all stakeholders.

Progress on those potential opportunities will be announced as soon as a clear structure and path to closing is visible, although there can be no certainty that agreements will be reached.

Environmental, Social and Governance ("ESG")

Chaarat is committed to meeting the expectations of good international industry practice, including recommendations set out by the IFC Performance Standards on Environmental and Social Sustainability. A number of the ESG initatives were implemented by the Company during the course of 2019 including:

Kapan

• Initiated work to improve the stability of the local tailings facility and improve water recycling on site;
• Worked with local business to develop a water treatment facility to effectively remove dissolved metals in historical runoff from old soviet era mines in the area;
• Improved safety programs on site and integrated contractors in the company's safety management program;
• Organised basketball and football competitions between the department and the workshops to promote a healthy lifestyle and sports;
• Supported the renovation of the female health department at the Kapan Medical Centre clinic;
• Hosted a charity event bringing attention to helping children from socially vulnerable families and children with health issues during the Christmas period; and,

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• Capital construction of the kindergarten in Kapan for 100 kids started in 2019 and ongoing.

Kyrgyz Republic

• Co-sponsoredthe third Kyrgyz-British Investment Forum together with EBRD in London promoting the benefits of doing business in the Kyrgyz Republic . This forms part of the Company's ongoing work with EBRD and others to promote responsible foreign direct investment in the Kyrgyz Republic;
• Contributed over USD$ 210,000 to social causes to the Chatkal district;
• Organized the Chaarat Cup to support the sport activities in the region; and,
• Hosted Children Master Class painting events.

Chaarat 2020 ESG Plan

• Opening a music and art school in Kapan;
• Ongoing construction of new kindergarten in Kapan for 100 children;
• Ongoing renovation of polyclinic in Kapan;
• Fourth Kyrgyz-British Investment Forum; and,
• Chaatkal Cup.

Notice of audited Full Year Results

Any numbers mentioned in this press release are subject to yearend closing process and audit. The Company will be announcing its audited Full Year Results for the period ended 31 December 2019 in April 2020.

Artem Volynets, Chief Executive Officer, commented:

"I'm pleased to report that we continue to make impressive progress in all the assets across the company.

Our producing mine in Kapan is demonstrating solid operational improvements with an excellent safety record, being a top priority for the Company.

Since we acquired the project last year, we have improved recoveries, plant utilisation and increased mining rates. We have now implemented the updated life of mine plan that was announced last year and due to continuing higher gold prices the run-rate production guidance has been revised to 55,000 of gold equivalent oz.

Construction continues to progress well at Tulkubash with first gold production remaining on track for late 2021. With regards to project funding, we are delighted to confirm that discussions have now moved to due diligence and documentation with a leading sector project finance group in the region. This, alongside the already announced financing agreement in the form of the JV with Ciftay, positions us well to deliver our goal of first gold in late 2021.

Chaarat will continue putting a great importance to sustainable development and social investment programmes in the countries we operate. We truly believe, that respectful and open dialogue and partnership with local communities is essential for the long terms success of our operations."

Analyst conference call and presentation

Chaarat Gold will host an analyst conference call and presentation today, at 10:00am GMT. Participants can access the call by dialling one of the following numbers below approximately 10 minutes prior to the start of the call.

UK Toll-Free Number: 08003589473

UK Toll Number: +44 3333000804

PIN: 58876769#

The presentation will be available for download from the Company's website: https://www.chaarat.com/report_category/presentation/or by clicking on the link below:

https://www.anywhereconference.com?Conference=301310944&PIN=58876769&UserAudioMode=DATA

A recording of the conference call will subsequently be available on the Company's website.

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