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 debt¹ 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 ounces³ ("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.

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).

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.

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:

•      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.

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

Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2023