Chaarat Gold Holdings (CGH), an AIM-listed listed gold mining company with an operating mine in Armenia and assets at various stages of development in Kyrgyzstan, reported revenues of US$92.4m for FY22, largely unchanged from last year.
Of that, US$76.6m was own-ore revenue (FY21: US$72.8) and US$15.7m third-party revenue (FY21: US$19.6m). Group EBITDA was 52% lower year-on-year at US$6.5m and group loss after tax widened to US$8.6m from US$3.6m. Cash eq dropped to US$0.6m at the end of the period and net debt increased from US$39.6m to US$51.3m to compensate for the decrease in cash.
The company's flagship Kapan mine in Armenia produced 62,800 gold equivalent ounces (AuEq koz) compared to its FY22 production guidance of 56-62 koz. Mined tonnes increased by 8% from last year to 649,311 and reserves increased by 25% as a result of the extensive drilling campaign carried out in H2 2021 to end of Q3 2022.
In Kyrgyzstan, development of the Tulkubash project awaited financing pending discussions, and at Kyzyltash test work by SGS Lakefield showed strong recoveries for all 3 methods employed, to be used in an economic trade-off study to determine the best processing option.
Post-period, Chaarat signed a non-binding letter of intent in May 2023 with Xiwang International for a potential equity investment of US$250m. Also in 2023, working capital facility arrangements were put in place with a short-term loan provider - US$2.0m has already been drawn down with a further US$2.0m available.
Looking ahead, Chaarat expects 50-55 koz of own production plus 5-10 koz of 3rd party production at Kapan in FY23. Resource definition drilling is continuing at Kapan East Flank with results expected later this year. The company is also taking steps to mitigate the adverse foreign exchange rate impact on Kapan operations, and expects a stabilisation of costs in 2023. Financing options are being considered for the Kyrgyz projects.
Overall, Chaarat's lacklustre performance in FY22 was largely due to an unfavourable economic environment in Armenia, with a 23% appreciation of the Armenian Dram resulting in an EBITDA decrease of 52% compared to FY21. Furthermore, higher energy costs and inflationary pressures due to the war in Ukraine resulted in substantially higher costs.
Still, Chaarat exceeded its FY22 production guidance and revenues remained stable. Should the company manage to stay funded in the medium-term, we expect long-term profitability based on Kapan's economics and further exploration potential, and promising results from Kyrgyzstan.
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 should recession fears materialise, 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.