Chaarat Gold Holdings (CGH) , an AIM-listed listed gold producer with assets in Armenia in Kyrgyzstan, released an H1 2023 operational update for its Kapan mine in Armenia.
Kapan reported production of 26,523 gold eq oz, down 11.7% from 30,022 oz in H1 2022, consisting of 21,410 oz from own ore and 5,113 oz from third-party ore. The lower production was mainly due to lower stope availability in H1.
Chaarat also completed the Ore Reserve Estimate for Kapan in H1 and a resource drilling programme that replaced depletion and added 2 additional years to the previous Life of Mine. Kapan's EBITDA contribution decreased to US$2.1m from US$8.1m last year, mainly due to a decrease in volumes milled.
All-in-sustaining cash cost (AISC) for ore production at Kapan was US$1,556/oz in H1 2023, 9.5% higher compared to last year. The increase is mainly attributed to the adverse effects of the USD/Armenian Dram exchange rate in H1, and an 8.7% decrease in gold equivalent own-ore production year-on-year.
Chaarat also reported on its East Flank exploration programme at Kapan. Seven holes were drilled in H1 2022, with the complete planned programme consisting of 40 holes totalling 13,370 meters of core-oriented diamond drilling to access 6 underground chambers. The currently defined programme is expected to continue until end of 2024. It is part of a 2-year effort to develop an initial JORC resource and reserve statement for Kapan. Initial results will be included in a 2023 Kapan MRE update.
The East Flank area lies approximately 100m to the east of the current Shahumyan ore body and has an anticipated strike length of approximately 600m. The East Flank target is based on historic exploration data and Dundee Precious Metals diamond drilling results from 2011. Chaarat's review of historic drilling has outlined 8 potentially economically viable mineralised vein zones.
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Overall, this is an expected update from Chaarat. Kapan production and EBITDA decreased in H1 2023 as a result of lower stope availability and increased costs driven by the Armenian dram's appreciation. On the bright side, the company added 2 years to Kapan's Mine of Life, and is expecting a 30% production increase in the second half on the back of improvements in plant capacity. Drilling at East Flank is also progressing well with initial drill results expected in the 2023 MRE.
On the financial front, the company successfully refinanced its loan from Ameriabank. The US$13m remaining principal had its repayment schedule extended to 1H 2025, with an extension to the convertible loan notes' maturity date also agreed.
Markets welcomed the mixed-to-positive update, driving CGH shares 4.5% higher in early trade on Friday.
The Armenian dram has appreciated by 17% since H1 2022, significantly affecting Kapan's costs. The company has pivoted to new suppliers to mitigate the impact of the stronger dram, however additional measures will be needed by end of Q3 2023. Chaarat is currently weighing a number of financing options, which include a potential sale of Kapan. Discussions are also ongoing with Xiwang International on a potential US$250m investment following a non-binding letter of intent in May 2023.
Further financing will also be required by Q3 2023 to continue development of Chaarat's assets in Kyrgyzstan. The promising Tulkubash project remains ready for a final investment decision, and is provisioned for capital allocation in the ongoing discussions with Xiwang International.
Should financing come, the outlook for Kapan and the Kyrgyz assets is positive. Chaarat kept full-year production guidance at Kapan unchanged at 50-55 koz of own-ore production and 10 koz of third-party production. Third-party ore supply is expected to remain in line with H1 2023 for the remainder of 2023. Meanwhile, the East Flank drilling campaign is moving toward establishing an initial JORC resource and reserve statement.
Amidst global recession fears and geopolitical uncertainty, the price of gold is set to retest its all-time high of US$2,075/oz reached in April. This is despite rising interest rates making bonds more attractive. Gold remains a preferred safe haven for private investors and governments alike with speculation widespread that Russia and China are stockpiling the precious metal. As central banks pause interest rate hikes or even begin easing , demand for gold may increase further. Conversely, should inflation persist, gold will continue to offer an attractive hedge.
In this environment, investors interested in the mining sector should consider small and medium cap gold miners that are poised to benefit from soaring gold prices. Aside from Chaarat, we recommend investors look at Alba Mineral Resources, Hummingbird Resources, Cadence Minerals, and Rockfire Resources. Miners that have lithium or other critical metal assets in addition to gold may be even more attractive as demand for renewables and EVs continues to rise.