TIDMCGH
RNS Number : 7675C
Chaarat Gold Holdings Ltd
15 June 2023
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES
OF ARTICLE 7 OF THE MARKET ABUSE REGULATION (EU) 596/2014 AS IT
FORMS PART OF UK DOMESTIC LAW BY VIRTUE OF THE EUROPEAN UNION
(WITHDRAWAL) ACT 2018 ("MAR"), AND IS DISCLOSED IN ACCORDANCE WITH
THE COMPANY'S OBLIGATIONS UNDER ARTICLE 17 OF MAR
15 June 2023
Chaarat Gold Holdings Limited
("Chaarat" or the "Company")
ANNOUNCEMENT OF FULL YEAR RESULTS
FOR THE YEARED 31 DECEMBER 2022
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
audited full-year results for the 12 months ended 31 December 2022
(the "Period" or "FY2022").
Highlights
Group Financials
-- Revenue during 2022 amounted to US$92.3 million (2021:
US$92.4 million), comprising US$76.6 million of own-ore revenue and
US$15.7 million third-party revenue (2021: US$72.8 million own ore
and US$19.6 million third-party revenue).
-- The Group EBITDA (3) was US$6.5 million, 52% lower compared
to last year (2021: US$13.5 million).
-- The Group loss after tax was US$8.6 million, a decrease of
$5.0 million compared to last year (2021: US$3.6 million).
-- Cash and cash equivalents decreased from US$11.1 million in
2021 to US$0.6 million at the end of the Period.
-- The Group's net debt increased from US$39.6 million to
US$51.3 million due to the decrease of cash and cash equivalents
during the year.
ESG
-- Two fatal incidents occurred in 2022. The first incident
involved a contract employee, the second involved a Kapan
employee.
-- Buttressing work continued on the north wall of the Tailings
Storage Facility. This phase of the dam reinforcement should be
complete within the next 1-2 years.
-- Initial stage assessment of climate change preparedness and
carbon reduction were conducted by KPMG and Wardell Armstrong
respectively. These will help inform the company development of
strategies and policy related to sustainability and climate
change.
Kapan Operations
-- Production of 62.8 thousand gold equivalent ounces ("AuEq
koz") versus its 2022 production guidance of 56-62 koz.
-- Concentrate produced contained 50.0 koz from own ore and 12.8
koz from third-party ore production versus 2022 guidance of 50-53
koz from own ore and 6-9 koz from third-party ore,
respectively.
-- Mined tonnes was 649,311t compared to 600,246t in 2021 (+8%).
Mine head grades were lower at 3.1gpt AuEq compared to 3.3gpt in
2021 (-6%).
-- Reserves increased by 25% as a result of the extensive
drilling campaign carried out during H2 2021 to end of Q3 2022.
-- All-in-sustaining cash cost for own ore production ("AISC"
(2) ) of USD 1,376/oz was higher than the USD 1,205/oz for 2021
(+14%). This increase is mainly due to the adverse impacts from the
United States Dollar and Armenian Dram foreign exchange rate
("USD/AMD FX rate"). Cost reduction initiatives, implemented during
2022, decreased AISC in H2 2022 (USD 1,334/oz) compared to H1 2022
(USD 1,420/oz, -6%).
Tulkubash Construction Project
-- Development of the Tulkubash project is pending project
financing being finalised. Financing discussions continue with
various financial and strategic parties.
Kyzyltash Development Project
-- Test work by SGS Lakefield on Kyzyltash core drilled during
2021 was completed. The results showed strong recoveries for all
three of the technologies tested. Pressure Oxidation ("POX") and
Albion(TM) had comparable results, with bio-oxidation ("BIOX")
returning the best overall recoveries. These test results will be
used as part of an economic trade-off study to determine the
preferred processing option. This study will include an assessment
on flotation and full ore processing options before proceeding with
other workstreams required towards a feasibility level study.
Corporate Activities
-- During 2022 Chaarat focused on carefully managing its liquidity position and balance sheet.
-- Chaarat successfully extended the maturity of its US$ 19.7
million plus accrued interest of US$ 9.0 million secured
convertible loan notes from 31 October 2022 to 31 July 2023 with
strong noteholder support.
-- In 2022, Chaarat reduced the principal outstanding for the
Kapan acquisition loan by a further US$ 9.5 million to US$ 9.5
million principal outstanding. Chaarat also drew down US$ 6.0
million from a new working capital facility supplied by
Ameriabank.
Post-year end
-- Non-binding Letter of Intent and indicative term sheet signed on the 17 May 2023 with Xiwang International Company Limited for a potential equity investment of US$250 million. This was followed by a Preliminary Investment Agreement signed on 31 May 2023.
-- During 2023, working capital facility arrangements were put
in place with a short-term loan provider. As at 31 May 2023, US$2.0
million had been drawn down on the facility with a further US$2.0
million available to the Company from the working capital
facility.
-- Cash and cash equivalents as at 31 May 2023 of US$0.5 million.
Outlook 2023
-- Kapan Production mine production guidance of 50-55(3) koz of
own-ore production and additional 5-10 koz of third-party ore
production.
-- Kapan East Flank resource definition drilling is continuing,
and results will be published during 2023 with updates on the East
Flank development.
-- The Company is continuing to take steps to mitigate the
adverse foreign exchange rate impact on Kapan operations and is
expecting a stabilisation of costs in 2023.
-- The convertible loan notes are due on 31 July 2023 and the
Company is evaluating its options.
-- With regards to the Tulkubash & Kyzyltash projects, the
Company will continue to work on all financing options and will
update the market as and when appropriate.
-- Chaarat will continue to review its existing balance sheet
structure with a view to further reducing its interest cost and
improving the structure of the balance sheet.
Going concern
In order to achieve the planned future capital developments of
assets, to sustain corporate activities and to repay the
convertible loan notes due on 31 July 2023, management will need to
raise future financing. 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
ability to refinance the US$29.2 million (US$31.7 million at
maturity) of convertible loan notes prior to 31 July 2023
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. Accordingly, the Directors
have adopted the going concern basis of accounting in preparing the
consolidated financial statements. Further details of the Group's
status as a going concern and expected future financing plans are
set out in Note 2 to the financial statements.
(1 Gold equivalent ounces for 2021 recalculated on 2022 budget
prices with Au at USD1,775/oz and gold ratios of 75 for
silver,6,9597 for copper and 20,381 for zinc. Includes third-party
ore production.)
(2 AISC on a gold oz produced basis exclude smelter TC/RC
charges, others which add c. USD140/oz. Sustaining capex of c.
USD6.5 million p.a. is included in the AISC.)
(3 Gold equivalent ounces for 2023 guidance calculated on 2023
budget prices with Au at USD1,850/oz and gold ratios of 84 for
silver, 6,998 for copper and 19,826 for zinc. Includes third-party
ore production.)
(4) In reporting financial information, the Group presents
EBITDA as an alternative performance measure, "APM", which is not
defined or specified under the requirements of IFRS. The Group
believes that this measure provides stakeholders with additional
useful information on the performance of the business and, within
that, Kapan. EBITDA is calculated by adjusting profit/(loss) for
depreciation and amortisation, income tax charges and any finance
related transactions. The amount reported is unaudited and
preliminary in nature given it may be subject to adjustments in the
audit process.
(5) (In reporting financial information, the Group presents Net
debt as an alternative performance measure, "APM", which is not
defined or specified under the requirements of IFRS. The Group Net
debt comprises convertible loan notes, other loans, contract
liabilities, lease liabilities and warrant financial liabilities,
net of cash and cash equivalents) (.)
Mike Fraser, Chief Executive Officer of Chaarat, commented:
" Our 2022 financial results reflect the challenging environment
in Armenia, with the 23% appreciation of the Armenian Dram rate
resulting in a decrease in Group EBITDA of 52% compared to 2021.
This was on top of the higher energy costs and inflationary
pressures seen due to the war in Ukraine. Nevertheless, Kapan
exceeded our 2022 production guidance, and I would like to
congratulate the team on keeping the mine profitable in a
challenging environment. It was disappointing that we were not able
to secure a funding solution for our Tulkubash development project
during the year. However, we continue our efforts to do so and in
particular looking towards alternative project finance options.
"
Forward-looking Statements
This announcement contains certain forward-looking statements
that are subject to the usual risk factors and uncertainties
associated with the Company's business. Whilst the Company believes
the expectations reflected herein to be reasonable considering the
information available to them at this time, the actual outcome may
be materially different owing to factors beyond the Company's
control or within the Company's control where, for example, the
Company decides on a change of plan or strategy. Accordingly, no
reliance may be placed on the figures contained in such
forward-looking statements. The forward-looking statements
contained in this document speak only as of the date of this
announcement, and Chaarat does not undertake to update any
forward-looking statement to reflect events or circumstances after
the date hereof or to reflect the occurrence of unanticipated
events.
Annual General Meeting
The Annual General Meeting ("AGM") will be held on Thursday, 27
July 2023 at 11am at the offices of Link Group, 6(th) Floor, 65
Gresham Street, London EC2V 7NQ , United Kingdom .
Publication of Annual Report
The Company's 2022 Annual Report and Financial Statements and
Notice of AGM will be published on the Company's website at
www.chaarat.com/investors before 30 June 2023. Hard copies of the
2022 Annual Report and Financial Statements and Notice of AGM will
be posted to those shareholders who have elected to receive hard
copies by 4 July 2023.
Additional copies of the 2022 Annual Report and Financial
Statements will be available for inspection at the registered
office of the Company from the date of this notice until the
conclusion of the AGM.
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 with an initial focus on the
FSU through organic growth and selective M&A.
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/ .
Enquiries
+44 (0)20 7499
Chaarat Gold Holdings Limited 2612
Michael Fraser (CEO) info@chaarat.com
Canaccord Genuity Limited (NOMAD and + 44 (0)20 7523
Joint Broker) 8000
Henry Fitzgerald-O'Connor
James Asensio
+44 (0)20 7220
finnCap Limited (Joint Broker) 0500
Christopher Raggett
Panmure Gordon (UK) Limited (Joint +44 (0)20 7886
Broker) 2500
John Prior
Hugh Rich
__________________________________________________________________________________
ENVIRONMENTAL, SOCIAL, AND GOVERNANCE
Safety and Health
2022 was a very poor year for Chaarat with two fatalities
occurring at our Kapan mine. The first incident occurred on 14 May
2022 when a contract employee was struck on the leg by loose
material while removing a drill rig from a heading. The second
fatal incident occurred on 3 September 2022, when a Chaarat driller
got his clothing caught in the rotating drill holder while he was
adding a drill rod. Both incidents highlighted failures to follow
procedure as well as other management system failings and
deficiencies. A further fatality to a contract driller in March
2023 has highlighted that the risk management processes at Kapan
need a thorough review to resolve the systemic issues underlying
these tragic events. External consultants will be retained in 2023
to help the company with this process.
There were no injuries in Kyrgyzstan during the 2022 exploration
season or during the various activities at camp during the
year.
Group wide hours for 2022 were approximately 2.45 million hours
resulting in an overall lost time injury frequency rate ("LTIFR")
of 0.82 per million hours. 2021 LTIFR was 0.61 due to a higher
number of worked hours. LTIFR is based on two fatal incidents in
2022, compared to one fatal incident and one lost time incident in
2021.
Environment and Cultural Resource Protection
Work on the Tailings Storage Facility (TSF) buttressing
continues. This work is related to improving the strength of the
original upstream construction dam wall by applying additional
reinforcement material in the same way as a downstream constructed
dam. The north face is reaching the final stages of completion. Due
to the construction of the dam, the road going across the old dam
face needed to be relocated. Upgrades to this road had been
identified as part of the Kapan social package in previous years
but had been delayed due to the buttressing works. During the year,
the community road was able to be constructed and commissioned.
Once complete on the north buttress, work will move to the smaller
upstream south facing side of the dam.
All waste rock from the mine has gone into the construction of
the north buttress for the last four years, avoiding the need for
new waste rock storage dumps in the area and resultant disturbances
to both the land and community. This waste is clean of metallic
sulphides (non-acid generating). It also provides ideal compaction
strength for the buttress wall. No external materials have been
needed for the buttress, significantly reducing the carbon
footprint of the buttress construction in the process.
Chaarat undertook a detailed internal assessment of its TSF
operation against the Global international Standard on Tailings
Management ("GISTM") during 2022. The key areas for improvement in
our efforts relate to third party independent engineering reviews,
risk assessments based on these reviews, and third-party
monitoring. Chaarat will continue to improve these areas over the
next few years with the goal of continuous, annual improvement
against the standard.
Chaarat has an extensive ground water monitoring programme with
samples taken around the mine site and from the three rivers close
to Kapan to determine the environmental impact of its operations.
The three rivers are the Voghji, Norashenik and Geghanush. The
Voghji flows from west to east and passes to the south of the site.
The Norashenik flows north to south passing to the east of the mine
site. It also passes to the west of the large Artsvanik tailings
dam operated by Zangezur Copper (ZCMC). The Geghanusk river flows
from south to north and passes via a concrete tunnel under the
Kapan Geghanusk tailings facility.
The operation takes water from the Voghji river for two uses:
drilling water in the mine and make up water for the mill. After
use, mine water is discharged into a settling pond and then passes
via passive contact water treatment to the Norashenik river.
Potable water for the operation is supplied by the local
municipality.
Water samples are collected from all three rivers both upstream
and downstream of the areas of operational impact and assayed to
determine the scope of impact on the receiving water bodies.
Results show that impact is negligible with the water quality
downstream of the operation being consistently and repeatably
comparable to upstream results.
Water discharge from the water treatment plant is in compliance
with the permit with the exception of a few elements. However,
several of the exceedances are related to the incoming water
quality. Armenian regulation is not based on net impact as is the
case in many countries, but rather solely on the results of the
final assay. Net impact is defined as an assessment based on
subtracting the incoming water quality assay from the outgoing
assay to only assess for operational impact. At Kapan, the incoming
water quality is already above the permit limit for many elements
and the outgoing water is at the same level. This means there is no
net operational impact. Under the permit though, the discharge is
still above the permit limit, resulting in an exceedance of the
permit.
The upstream levels of water contaminants are due to the high
levels of naturally occurring mineralisation in the region. The
Sunyik region is naturally rich in mineralisation, with many mines
having operated throughout history in the region. Natural leaching
of these elements from exposed surface mineralisation results in
higher levels of metals and other chemicals in surface waters
throughout the region.
The Armenian government introduced fees in 2021 for the storage
of solid waste. These fees cover the storage of tailings in the
approved tailing storage facility ("TSF"). 2021 fees were $15,546
(at 480 Dram FX) and $15,620 in 2022 at the same FX. Previously
tailings stored in a company facility did not incur a fee.
Climate Change
During 2022, Chaarat engaged with the European Bank for Regional
Development (EBRD) on green energy initiatives with the support of
the Green Climate Fund (GCF). KPMG was hired to conduct an audit of
Chaarat's current status regarding climate change strategy, risk
management, governance, internal and external reporting of key
metrics, and public disclosure with a focus on Kapan. Wardell
Armstrong was also retained to conduct a resource efficiency
assessment of the Kapan mine. Wardell assessed the current level of
emissions from Kapan, the actions the Company have taken to date,
and future plans to reduce carbon equivalent emissions.
The work by KPMG confirmed the early-stage work undertaken by
Chaarat to date. The report also helped highlight areas for
improvement for the Company and helped define the initial stages of
a climate change framework for Chaarat, aligned with the Task Force
on Climate-Related Financial Disclosures ("TCFD"). This work will
form the foundation for developing improved performance, reporting
and disclosure as recommended by the TCFD.
The Wardell review highlighted the need for improved measurement
systems to be installed at Kapan with regards to electrical
consumption at an individual equipment level. Water is another area
where changes are needed to improve both monitoring and measurement
- and to help design and drive reductions.
Wardell conducted an assessment on electrification of the
current mining fleet as part of their review. Moving to an
electrified mining fleet would significantly reduce direct, Scope 1
carbon emissions and also provide a safer underground work
environment with reduced risks from CO2 and particulates. Although
significant advances have been made in the mining industry
regarding electrification, it has tended to focus on larger
vehicles to date. Electrification has now reached the upper end
size of equipment used at Kapan, but not the smaller vehicles that
Kapan requires (see operations section for more details). The
company is in regular contact with equipment manufacturers globally
regarding electrification of these smaller units and is looking
forward to being able to trial suitable units in the near
future.
Wardell also looked at the opportunities for installing solar
generation capacity at the mine site. This included roof mounted
units for water heating and small-scale generation, as well as the
installation of larger fields of solar panels on suitable areas of
the mine site. These projects will be further reviewed by the
company to better understand costs and benefits, and then placed
into the company's capital assessment pipeline for overall
consideration, review and action.
Community and Government Relations
The Company continues to have strong relations with government
and communities at both the regional and national levels. Chaarat's
operation in Kapan is located on the edge of the town with the
majority of the workforce coming from the local communities. Kapan
is also one of the major employers in the area. This creates a
strong social bond between the company, employees, and local
communities which Chaarat takes very seriously.
Annually we engage with the regional governments as the elected
representatives of the communities to develop a community
assistance programme. This programme details both the projects to
be worked on during the year and the amounts to be allocated to the
social plan budget. Whilst set annually, these joint programmes
allow for flexibility during the course of the year should a
significant event require reallocation of funds. The plans are
discussed publicly so that the affected communities know what
projects were selected and how they are progressing throughout the
year. Consultation sessions ensure alignment of the programmes with
community priorities.
Due to the slowdown of activities in the Kyrgyz Republic,
employment for the local communities was reduced in 2022 from
previous years. Engagement sessions were held throughout the year
to keep communities and the government informed of Chaarat's plans
and ongoing commitment to the project.
Chaarat has been an active participant during 2022 providing
input into various government committees and working groups related
to mining and other commerce issues. Input has been provided into
exploration licensing, mineral extraction laws and royalty
frameworks in both countries.
OPERATIONS REVIEW
ARMENIA
KAPAN
Introduction
Kapan is an underground sulphide polymetallic mine. It consists
of a series of narrow steeply dipping polymetallic veins containing
gold, copper, zinc, and silver.
The Mill produces two flotation concentrates - one high in gold,
copper, and silver, the second a zinc concentrate containing
payable gold and silver credits.
The mine has a production capacity of approximately 600-700kt
per annum ("pa"), depending on the mining method used. The milling
and flotation circuits have a current capacity of approximately
800kt pa.
Kapan Operational Comments:
-- In 2023, Kapan produced 62.8 thousand gold equivalent ounces
versus its 2022 production guidance of 56-62 koz.
-- Concentrate produced contained 50.0 koz from own ore and 12.8
koz from third-party ore production versus 2022 guidance of 50-53
koz from own ore and 6-9 koz from third-party ore,
respectively.
-- Tonnes mined in 2022 were 649,311t compared to 600,246t in
2021 (+8%). Mine head grades dropped to 3.1gpt AuEq from 3.3gpt in
2021 (-6%).
-- The mine continues to develop improved mining methods to both
reduce dilution and reduce costs via less haulage. In 2022, the
size of vein drives was reduced (both height and width) and new
blasting approaches were used based on the dip angle of the vein to
reduce blast dilution. After a period of trialling, these changes
have now become standard operating practice. The company is also
reducing the proportion of mechanised drilling and returning to
more manual drilling. This is a more appropriate method given the
nature of the Kapan veins at depth and further from the centre of
the ore body. Further improvements are possible, and future fleet
replacement will focus on smaller vehicles to allow further
reductions in vein drive size.
-- Mill throughput was 764,995t compared to 729,473t in 2021
(5%). Own ore treated was 634,883t compared to 584,841t in 2021
(8.5%). Third-party ore treated dropped to 130,111t from 144,632t
in 2021 (-10%). This change is related to timing of campaigns
rather than any supply issues with third party materials. Mill
grade for Own ore was in line with mined ore, and third-party grade
was effectively unchanged from 2021.
-- Recoveries from own ore remained constant at 79.1%.
-- The most significant factor impacting Kapan in 2022 was the
sudden appreciation of the Armenian dram against the US dollar. The
dram was one of the best performing currencies in 2022 increasing
23% against the US dollar. This rapid appreciation resulted in a
rapid and significant cost increase on a US dollar basis. The
effect has reduced in some areas where imports are now flowing
through the supply chain at the new dram to USD levels, but local
supply remains approximately 20% above early 2022 levels. This has
caused Chaarat to revise is procurement strategy significantly and
source on a more global basis for the foreseeable future.
-- The war in Ukraine is also continuing to impact Kapan. Many
items - such as explosives and hydraulic oils - have seen large
price increases.
-- Hostilities with Azerbaijan continue to cause some limited
impact on operations. These issues are mostly related to the loss
of lower cost supply chains from Turkey which in general remain
closed following the 2020 war with Azerbaijan.
-- Another factor impacting costs has been various transport
cost increases and new road taxes introduced in both Armenia and
Georgia. All of Kapan's concentrates are shipped via road to the
port of Poti in Georgia. Vessel availability in the Black Sea
remains an issue, and costs have increased significantly. The
result of these impacts is that sales costs have risen close to
$100/t during the course of the year.
-- Despite these adverse headwinds, Kapan has had positive
successes in identifying new sources of supply and alternate supply
chains. Costs on a dram and US dollar basis are continuing to
decline from the levels seen in Q3 and Q4 2022, and more
improvement is expected.
-- Realised pricing was relatively unchanged during 2022, so it
provided no relief from the inflationary pressures of the global
economy and the dram appreciation.
2022 full-year production consisted of:
Kapan 2022 2021
Production (oz
AuEq) 62,834 63,724
------- --------
Own ore (oz AuEq) 50,023 49,224
------- --------
Third-Party ore
(oz AuEq) 12,811 14,500
------- --------
All-in sustaining
cost (USD/oz) 1,376 1,205
------- --------
Sales (AuEq oz) 56,978 57,212
------- --------
Gold production
(oz) 35,999 35,405
------- --------
Silver production
(oz) 592,121 610,322
------- --------
Copper production
(t) 2,115 2,284
------- --------
Zinc production
(t) 5,454 5,836
------- --------
Realised Prices
------- --------
Gold (USD/oz) 1,794 1,784
------- --------
Silver (USD/oz) 22 25
------- --------
Copper (USD/t) 8,860 9,157
------- --------
Zinc (USD/t) 3,169 3,001
------- --------
Kapan - Exploration Potential
As well as the current Shahumyan deposit, there are several
other mineralised areas close by that have been identified by
Soviet-era drilling and also more recently confirmed by Dundee
Precious Metals diamond drilling results from 2011. East Flank is
one of these areas. It lies approximately 100 metres to the east of
the current Shahumyan ore body and has an anticipated strike length
of approximately 600 metres.
A review by Chaarat of the historical drilling results has
outlined eight mineralised zones which are the target of the
current exploration campaign. An initial four (4) drill chambers
were completed in 2022 with additional drilling planned for
2023-2024. Additional drill chambers will be completed on an as
needed basis. A total of 40 HQ (63.5mm diameter) drill holes,
totalling approximately 13,370 metres of core-oriented diamond
drilling on 100 by 100 metres spaced centres, is planned. This
drilling is designed to provide an inferred level of certainty
around this initial target area.
Work is also continuing to assess additional exploration and
development opportunities in the region.
Ore Resources and Reserves
57,217 metres of resource drilling were carried out in 2022.
Combined with 69,000 metres in 2021, this work has helped to
provide a more detailed understanding of the mineralisation in
close proximity to the current underground working areas at
Kapan.
Given the nature of the ore bodies at Kapan, exploration has to
be carried out from underground drill stations to provide JORC
compliant levels of certainty. This method of drilling limits the
extent of the ore body that can be mapped in advance of mining,
effectively limiting the stated reserve, despite extensive
mineralisation still being present in the ore body.
UNAUDITED UPDATED MINERAL RESOURCE ESTIMATE AND ORE RESERVES
STATEMENT
The following table summarises the 2022 Kapan MRE (effective 1
September 2022):
Classi fication Tonnes (Mt) AuEq (g/t) AuEq koz
Measured 0.3 12.1 132
------------ ----------- ----------
Indicated 2.3 8.1 590
------------ ----------- ----------
M&I 2.6 8.6 722
------------ ----------- ----------
Inferred 1.9 6.5 389
------------ ----------- ----------
Note 1:
-- The effective date of the resource is 1st September 2022. The
Mineral Resources that are not Mineral Reserve do not demonstrate
economic viability. Numbers may not sum due to rounding.
-- The gold equivalency (AuEq) formula is based on the following
metal prices: Au 1750 USD/oz; Ag 21.8 USD/oz; Cu 8300 USD/t; Zn
2950 USD/t
-- The AuEq formula used is as follows: AuEq= Au+Ag*21.8/1750+Cu*8300/1750*31.1035*100+Zn*2950/1750*31.1035*100
-- Grade interpolation is done by Ordinary Kriging method.
-- The applied MSO assumes a COG = 2.1g/t AuEq and minimum
mining widths of: 2.2m for the veins dipping < 70deg; 1.8m for
veins dipping 70deg - 80deg and 1.2m for veins dipping
80deg-90deg
-- Mineral Resources are with applied depletion and inclusive of Ore Reserves.
-- The resource estimate and classification are according the
JORC Code (2012) reporting code.
The following table summarises the recent Kapan ORE (effective
31 December 2022):
Grade Metal
Classification Tonnes Cu Au Ag
(Mt) Au Ag (%) Zn AuEq (Koz) (Koz) Cu Zn AuEq
(g/t) (g/t) (%) (g/t) (Kt) (Kt) (Koz)
------- ------- ------- ----- ------ ------- ------- -------- ------ ------ -------
Proven 0.21 2.40 42.07 0.51 1.85 4.64 16.2 284.5 1.1 3.9 31.4
------- ------- ------- ----- ------ ------- ------- -------- ------ ------ -------
Probable 2.93 1.59 31.78 0.35 1.29 3.18 150.0 2,991.1 10.1 37.8 299.0
------- ------- ------- ----- ------ ------- ------- -------- ------ ------ -------
Total Proven
and Probable 3.14 1.65 32.47 0.36 1.33 3.28 166.2 3,275.6 11.2 41.7 330.4
------- ------- ------- ----- ------ ------- ------- -------- ------ ------ -------
Notes:
-- Ore Reserves are reported in accordance with the JORC Code (2012).
-- Ore Reserves based on August 2022 consensus prices for LOM of
USD1,750/oz Au, USD21.8/oz Ag, USD8,300/t Cu, and USD2,950 Zn.
-- Ore Reserves are based on a gold equivalent cut-off of 2.3g/t Au.
-- Mineral Resources which are not Ore Reserves do not have
demonstrated economic viability.
-- Table is subject to rounding errors.
-- The average density of 2.64 t/m(3) was used for unmodelled diluting waste material.
-- Tonnes reported are in situ, dry tonnes.
AMC Consultants (UK) Limited ("AMC") were engaged by Chaarat
Kapan CJSC ("Chaarat") to undertake a review of the Kapan Mine
("Kapan") Ore Reserves and to act as a competent person ("CP") as
defined by the JORC (2012) reporting code.
Proven & Probable Ore Reserves totalled 3.14 Mt with
330.4kAuEq oz resulting in a 5-year mine life.
Reserves increased by 25% from the prior Ore Reserves Estimate
("ORE"), replacing depletion and increasing the life of mine plan
by two (2) years.
Resource definition drilling is an ongoing activity at Kapan to
continue the conversion of inferred and unclassified mineralisation
to a JORC-compliant level for resource and reserve estimation,
allowing for further mine life extension.
KYRGYZ REPUBLIC
TULKUBASH
Introduction
Tulkubash is the Company's oxide gold deposit in the Kygyz
republic. The project has a fully detailed bankable feasibility
study and early-stage development of the site is well advanced,
including ore haul road, camp, and initial preparations on the heap
leach area.
During 2022, the Company published a revised Mineral Resource
estimate, and an updated Ore Reserves estimate that included the
additional infill drilling on the Tulkubash ore body. Additional
exploration was also carried out on the wider licence area as well
as initial trenching and drilling on two (2) satellite oxides areas
just to the northeast of the current Tulkubash reserve.
As announced on 24 May 2022, the results of the Tulkubash
exploration programme resulted in contained gold ounces in the ore
increasing by 13% to 647 thousand ounces compared to the 571 koz in
the 2021 bankable feasibility study. Proven & Probable Reserves
increased from 20.9Mt to 23.1Mt (+11%) with a slightly increased
grade of 0.87 g/t compared to 0.85 g/t (+2%) in the BFS.
The Tulkubash project remains ready for execution pending
project financing being finalised. Financing discussions continue
with various financial and strategic parties.
Exploration
The wide area exploration potential work was completed during
the 2022 season. The work consisted of aerial drone-based magnetic
surveys of the entire exploration licence area along approximately
8km of strike, as well as potential porphyry/scarn systems further
northeast. This work will help determine future exploration
programmes as well as provide details regarding the exploration
licence renewal during 2023.
A total of 7,419 linear metres of trenching was completed to
test the areas to the south-east of Karator and Ishakuldy. They
were sampled and logged lithologically and structurally.
Additionally, more detailed structural logging was done at the
Karator and Ishakuldy 2021 trenches, aiming to advance the 2021
exploration data in these areas and improve the Company's
understanding of the outlined gold mineralization. A total of 3296
samples (including the QA/QC samples) were assayed.
The initial plan was for Unmanned Ariel Vehicle ("UAV") based
magnetic and gamma spectrometry survey over the full exploration
licence area. Difficulties with the terrain and high wind shear
affected drone surveying work, and the difficult access to the
north-eastern part of the licence area limited the scope of work
slightly. Most of the prospective areas are covered by a
combination of ground magnetic survey, and UAV, including 982
linear kilometres of UAV reconnaissance covering 44.4 sq.km of
ground.
Resource and Reserve Update
Drilling during 2021 to upgrade Inferred and Unclassified
Mineral Resources in the mid zone and east area resulted in a 13%
increase in contained gold ounces in the Ore Reserves (647koz)
compared to 571 koz in the 2021 bankable feasibility study
("BFS").
Tonnage increased to 23.1Mt from 20.9Mt (+11%) with a slightly
increased grade of 0.87 g/t compared to 0.85 g/t (+2%) in the
BFS.
The updated Tulkubash 2021 Year End Mineral Resource Estimate
and 2022 updated Ore Reserve Estimate tables are shown below.
Table 1. 2021 Year End Mineral Resource Estimate ("EOY
2021")
Classi Tonnes Au (g/t) Au (koz)
fication (Mt)
Measured - - -
------- --------- ---------
Indicated 25.1 0.98 789
------- --------- ---------
M&I 25.1 0.98 789
------- --------- ---------
Inferred 11.2 0.62 222
------- --------- ---------
TOTAL 36.3 0.87 1,011
------- --------- ---------
Notes
-- Figures are rounded in accordance with disclosure guidelines.
-- The Mineral Resource was estimated using 5 m x 5 m x 5 m (x,
y, z) blocks, with minimum sub-block dimensions of 1 m x 1 m x 1 m
(x, y, z).
-- The estimate was constrained to the mineralised zone using wireframe solid models.
-- Grade estimates were based on 1.5 m composited assay data.
-- The interpolation of the metal grades was undertaken using Ordinary Kriging.
-- The Mineral Resource was bounded by a pit shell based on a gold price of $1,800/oz Au.
-- A cut-off grade of 0.21 g/t Au was applied to report the Mineral Resources.
Table 2. 2022 Tulkubash Ore Reserve Estimate (May 18,2022)
Classification Ore (Mt) Au (g/t) Au (koz)
Proven -- -- --
--------- --------- ---------
Probable 23.1 0.87 647
--------- --------- ---------
Total 23.1 0.87 647
--------- --------- ---------
Notes:
-- This statement of Ore Reserves has been prepared by Mr. Peter
C. Carter, an independent consulting mining engineer, based on a
review of work performed by Chaarat Gold and associated technical
staff.
-- Mr. Carter is a member of the Association of Professional
Engineers and Geoscientists of British Columbia and is qualified as
a Competent Person under the JORC Code, 2012.
-- There are no Proven Reserves as drillhole density and
historical data quality do not support Measured Resources.
-- Tonnages are in metric tonnes.
-- Figures have been rounded to three significant figures.
-- Ore Reserves are reported inclusive of mining dilution (10%)
and mining recovery (97.5%).
-- A gold price of US$1,600/oz was used in the preparation of the estimate.
-- Ore Reserves are based on a marginal cut-off grade of 0.22 g/t Au.
-- Estimated metallurgical recovery for the Ore Reserve is 74.0%
based on a geo-metallurgical model.
-- Reserve is contained in a minable pit design generated from
an optimised pit shell based on a gold price of $1,350/oz.
KYZYLTASH
The Kyzyltash deposit is a sulphide ore body that lies below and
extends beyond the Oxide Tulkubash ore zones. It has an
Unconstrained Measured and Indicated Resource of 4.6M ounces of
gold.
During 2022, a detailed metallurgical review was carried out on
representative core drilled during the 2021 exploration season.
Over 3,500 metres of large diameter diamond drilling comprising 16
holes were sampled to make representative composites of the
Kyzyltash ore body.
These samples were sent to SGS Lakefield in Canada for a full
suite of metallurgical testing. SGS Lakefield is a highly respected
international laboratory with expertise in metallurgical testing.
They were able to undertake testing on pressure oxidation (POX),
biological oxidation (BIOX) and Albion oxidation of refractory
sulphide gold ores in the same facility. These three (3)
technologies were selected to assess the most likely processing
routes for Kyzyltash's refractory ore.
The programme included testing milling indices, flotation,
oxidation, and leaching kinetics.
The results showed strong recoveries for all three of the
technologies tested. POX and Albion(TM) had comparable results,
with BIOX returning the best overall recoveries.
POX uses high-pressure and temperature conditions to oxidize
refractory sulphides prior to gold extraction. The Albion (TM)
process employs ultra-fine grinding followed by low pressure
aeration with cyanide to extract gold. Bio-oxidation uses specific
bacteria in the oxidation process.
Highlights of the Metallurgical Testing Programme results
included:
-- flotation recoveries of 87-90% for gold with a 23-24% mass pull;
-- leach recovery for both Albion and POX averaged 80-90% with
similar results between the two processes; and
-- leach recovery for BIOX averaged 84-96% using flotation, BIOX and carbon in leaching ("CIL").
These test results will be used as part of an economic trade-off
study to determine the preferred processing option. This study will
include an assessment on flotation and full ore processing options
before proceeding with other workstreams required towards a
feasibility level study.
PRINCIPAL RISKS AND UNCERTAINTIES
Risk Existing mitigating actions
KGZ geohazards - Avalanches, Implementation of proper geohazard
rockfalls and mudslides could mitigation measures and maintenance
cause multiple fatalities or of a proper hazard management
serious injuries. They could programme, including engineering
severely damage buildings, roads, hazard mitigation measures.
plant, infrastructure and heap
leach pad
----------------------------------------
Liquidity - The Group requires Maintain discussions with existing
significant additional financing lenders and potential finance
in the future to develop projects providers.
and to meet ongoing financial Address potential gating items
needs. The Group's US$29.2 million to securing project finance.
(US$31.7 million at maturity) Looking for new funding options.
convertible loan notes fall
due on 31 July 2023. There can
be no assurance that additional
financing will be available,
or if available, that it will
be on acceptable or favourable
terms. The failure to obtain
additional financing as needed
on reasonable terms, or at all,
may require the Group to reduce
the scope of its operations
or anticipated expansion, dispose
of or forfeit its interest in
some or all of its properties
and licences, incur financial
penalties or reduce or terminate
its operations. Further detail
on this material uncertainty
is set out in note 2.
----------------------------------------
Country Risk - T he laws and Processes in place to monitor
regulations related to mineral prospective legislative changes,
exploration, extraction and and to engage with government
development are constantly being via industry bodies and directly
reviewed and adjusted by both to ensure that the industry
the Armenian and Kyrgyz governments. and company perspectives on
the requirements to develop
a solid extractive industry
are shared.
----------------------------------------
Commodity price volatility - Hedging strategies are periodically
Adverse movements in precious considered.
metals prices could materially Conservative long-term prices
impact the Group in various are used to evaluate projects.
ways beyond a reduction in the AISC at Kapan remains below
financial results of operations. gold prices.
These include the feasibility
of projects and the economics
of mineral resources.
----------------------------------------
Health and Safety - Mining and Identification of hazards and
minerals processing have inherent associated risks. Development
health and safety risks associated of appropriate risk mitigation
with them that need to be effectively measures including engineering
managed to ensure the wellbeing controls, procedures and the
of our employees and contractors. use of protective equipment.
Failure to manage these risks Planned preventative maintenance
can result in occupational illness, programmes for equipment including
injuries, and loss of life. timely replacement.
Targeted recruitment of specialists
in the field of HSE and regular
training of employees and contractors.
Continuous monitoring of high-risk
workplace activities.
----------------------------------------
Climate change - climate related Development of a Climate change
uncertainty is increasing as policy.
experienced by changing weather Data collection to determine
patterns, increased unpredictability highest areas of energy usage.
and increased frequency of extreme Development of alternate practices
weather events. The impact of and implementation of new technologies
greenhouse gases and human activity to reduce dependence on carbon
on the climate broadly accepted fuels and water within our businesses.
----------------------------------------
FINANCIAL REVIEW
Basis of Preparation including Going concern
As set out in Notes 2 and 3 to the financial statements, the
consolidated financial information has been prepared in accordance
with United Kingdom adopted international accounting standards and
International Financial Accounting Standards issued by the
International accounting Standards Board and on a going concern
basis.
In order to achieve the planned future capital developments of
assets, to sustain corporate activities and to repay the
convertible loan notes due on 31 July 2023, management will need to
raise future financing. 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
ability to refinance the US$29.2 million (US$31.7 million at
maturity) of convertible loan notes prior to 31 July 2023
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. Accordingly, the Directors
have adopted the going concern basis of accounting in preparing the
consolidated financial statements. Further details of the Group's
status as a going concern and expected future financing plans are
set out in Note 2 to the financial statements.
Income statement
Revenue during 2022 amounted to US$92.3 million (2021: US$92.4
million), comprising US$76.6 million of own ore revenue and US$15.7
million third-party revenue (2021: US$72.8 million own ore and
US$19.6 million third-party revenue). During the year, Kapan sold
56,978 ounces of AuEq (2021: 57,212 ounces), including third-party
sales, with a realised gold price per ounce of US$1,794 (2021:
US$1,784), a realised silver price per ounce of US$21.7 (2021:
US$25.0), a realised copper price per tonne of US$8,860 (2021:
US$9,157) and a realised zinc price per tonne of US$3,169 (2021:
US$3,001).
The Group operating loss for the year was US$0.5 million (2021:
US$7.8 million profit) and the Group EBITDA was US$6.5 million
(2021: US$13.5 million). The decrease in EBITDA was mainly due to
inflationary pressures and the strengthened AMD/USD FX rate effects
on the cost base.
2022 Armenia 2022 2022 2021 2021 2021
Kyrgyz Republic & Total Armenia Kyrgyz Republic & Total
Corporate Corporate
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
--------------------- ------------- --------------------- ---------- ---------- --------------------- ----------
EBITDA 12,634 (6,164) 6,470 22,6 53 (9,167) 13,4 86
Depreciation and
amortisation (11,161) (505) (11,666) (6,621) (494) (7,115)
Net finance costs (3,107) (3,578) (6,685) (3,026) (4,847) (7,873)
Unrealised foreign
exchange
gain/(loss) 3,247 - 3,247 2,090 - 2,090
Fair value gain on
warrant - 367 367 - 434 434
Change in provisions 1,785 - 1,785 (673) - (673)
Share option expense - (373) (373) - - -
Profit/(loss) before
tax 3,396 (10,252) (6,856) 14,423 (14,074) 349
--------------------- ------------- --------------------- ---------- ---------- --------------------- ----------
Income tax charge (1 ,721 ) - (1 ,721 ) ( 3,937 ) - ( 3,937 )
--------------------- ------------- --------------------- ---------- ---------- --------------------- ----------
Profit/(loss) after
tax 1,675 (10,252) (8,577) 10,486 (14,074) (3,588)
--------------------- ------------- --------------------- ---------- ---------- --------------------- ----------
Finance costs in 2022 were US$6.7 million (of which US$5.3
million was non-cash) compared to US$7.9 million in 2021 (of which
US$5.6 million was non-cash).
Income taxes in 2022 were US$1.7 million compared to US$3.9
million in 2021. Consequently, the Group made a loss after tax of
US$8.6 million compared to a loss after tax of US$3.6 million in
the 2021 financial year.
Balance sheet
The borrowings at the balance sheet date comprised US$29.2
million of convertible loan notes due in July 2023 (2021: US$25.6
million), US$17.8 million of other loans (2021: US$21.3 million),
US$3.7 million of contract liabilities (2021: US$2.4 million),
US$1.2 million of lease liabilities (2021: US$1.0 million) and
US$0.0 million of warrant financial liabilities (2021: US$0.4
million).
The Group's net debt increased from US$39.6 million at 31
December 2021 to US$51.3 million at 31 December 2022 (refer to Note
22 (a)).
Non-current assets increased from US$119.7 million at 31
December 2021 to US$130.7 million at 31 December 2022. The increase
was mainly due to the purchase of property, plant, and equipment at
Kapan. Additionally, exploration and evaluation costs of US$2.9
million were capitalised relating to the asset in the Kyrgyz
Republic.
Current assets were US$27.5 million at 31 December 2022 compared
to US$51.8 million at 31 December 2021. The decrease mainly related
to trade receivables from Kapan's customers due to the timing of
sales close to year-end and lower cash at year end. Current assets
at 31 December 2022 included cash and cash equivalents of US$0.6
million (2021: US$11.1 million).
Total liabilities at 31 December 2022 were US$85.6 million
compared to US$94.7 million at 31 December 2021. This was mainly
due to a decrease in Kapan's trade payables.
Total equity was US$72.6 million at 31 December 2022 compared to
US$76.9 million at 31 December 2021.
Cash flow
Cash and cash equivalents decreased from US$11.1 million at 1
January 2022 to US$0.6 million at 31 December 2022. The movement
comprised of:
-- net operating cash flows of US$7.1 million (2021: US$3.3
million), mainly due to positive EBITDA and working capital
movements at Kapan;
-- net cash used in investing activities of US$10.1 million
(2021: US$15.5 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; and
-- cash outflows from financing activities of US$5.8 million
(2021: cash used of US$16.7 million) mainly relating to external
debt repayments, including interest, of US$11.1 million offset by
additional funding obtained during the year.
Consolidated Income Statement
For the year ended 31 December 2022
2022 2021
Note US$'000 US$'000
Revenue 4 92,346 92,434
Cost of sales 5 (82,236) (69,258)
Gross p rofit 10,110 23,176
Selling expenses 7 (2,196) (2,444)
Administrative expenses 8 (8,452) (12,966)
Other income - 22
Operating (loss)/profit 6 (538) 7,788
Finance income 29 23
Finance costs 12 (6,714) (7,896)
Fair value gain on warrant 30 367 434
------------------------------------------- ------ ---------- ----------
(Loss)/profit before tax for the year (6,856) 349
Income tax charge 13 (1,721) (3,937)
------------------------------------------- ------ ---------- ----------
Loss for the year (8,577) (3,588)
------------------------------------------- ------ ---------- ----------
Loss per share (basic and diluted) - US$
cents 14 (1.24) (0.53)
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2022
2022 2021
US$'000 US$'000
Loss for the year (8,577) (3,588)
Items which may subsequently be reclassified
to the income statement
Exchange differences on translating foreign
operations and investments 3,873 849
Other comprehensive income for the year,
net of tax 3,873 849
Total comprehensive loss for the year (4,704) (2,739)
----------------------------------------------- --------- ---------
The accompanying notes are an essential part of these financial
statements.
Consolidated Balance Sheet
As at 31 December 2022 2022 2021
Note US$'000 US$'000
----------------------------------------- ------ ---------- ----------
Assets
Non-current assets
Exploration and evaluation costs 15 69,182 66,305
Other intangible assets 16 1,260 1,213
Property, plant and equipment 17 55,401 47,306
Prepayments for non-current assets 373 530
Deferred tax assets 18 4,489 4,381
Total non - current assets 130,705 119,735
----------------------------------------- ------ ---------- ----------
Current assets
Inventories 19 16,208 18,442
Trade and other receivables 20 10,666 22,247
Cash and cash equivalents 21 616 11,134
Total current assets 27,490 51,823
Total assets 158,195 171,558
----------------------------------------- ------ ---------- ----------
Equity and liabilities
Equity attributable to shareholders
Share capital 22(b) 6,897 6,894
Share premium 242,757 242,695
Own shares reserve 22(e) (104) (132)
Convertible loan note reserve 22(d) 1,420 1,420
Merger reserve 10,885 10,885
Share option reserve 22(c) 9,259 11,383
Translation reserve (10,560) (14,433)
Accumulated losses (187,944) (181,836)
----------------------------------------- ------ ---------- ----------
Total equity 72,608 76,876
----------------------------------------- ------ ---------- ----------
Liabilities
Non-current liabilities
Provision for environmental obligations 23 11,707 10,521
Lease liabilities 28 885 732
Other loans 29 - 9,688
Total non-current liabilities 12,592 20,941
----------------------------------------- ------ ---------- ----------
Current liabilities
Trade and other payables 27 19,714 30,717
Contract liabilities 26 3,720 2,379
Lease liabilities 28 300 246
Other loans 29 17,806 11,640
Warrant financial liability 30 13 380
Convertible loan notes 25 29,203 25,625
Other provisions for liabilities and
charges 31 2,239 2,754
Total current liabilities 72,995 73,741
----------------------------------------- ------ ---------- ----------
Total liabilities 85,587 94,682
----------------------------------------- ------ ---------- ----------
Total liabilities and equity 158,195 171,558
----------------------------------------- ------ ---------- ----------
The financial statements were approved and authorised for issue
by the Board of Directors on 14 June 2023.
Mike Fraser Martin Andersson
Chief Executive Officer Executive Chair
The accompanying notes are an essential part of these financial
statements
Consolidated Statement of Changes in Equity
For the Year Ended 31
December 2022
Share Capital Share Own Convertible Merger Share Translation Accumulated Total
Premium Shares Loan Note Reserve Option Reserve Losses
Reserve Reserve Reserve
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
----------------------------- ------- ---------------- ------------ -------- --------------- ---------- ---------- ------------ -------------- ----------
As at 1 January 2021 5,401 191,594 (216) 2,493 10,885 14,103 (15,282) (184,527) 24,451
----------------------------- ------ ------------- ---------------- -------- --------- --------------- ----------- ---------------- ---------- --------
Loss for the year - - - - - - - (3,588) (3,588)
Translation losses for the
year - - - - - - 8 49 - 849
----------------------------- ------- ---------------- ------------ -------- --------------- ---------- ---------- ------------ -------------- ----------
Total comprehensive loss for
the year - - - - - - 849 (3,588) (2,739)
----------------------------- ------- ---------------- ------------ -------- --------------- ---------- ---------- ------------ -------------- ----------
Share options lapsed - - - - - (715) - 715 -
Share-based payment charge - - - - - 1,251 - - 1,251
Issuance of shares for cash 841 28,711 - - - - - - 29,552
Issuance of shares for
settlement of liabilities 652 22,390 - - - - - (101) 22,941
Transfer of treasury shares - - 84 - - (3,256) - 3,172 -
Modification of convertible
loan notes - - - ( 1,073) - - - 2,493 1,420
As at 31 December 2021 6,894 242,695 (132) 1,420 10,885 11,383 (14,4 33 ) ( 181,836) 76,876
----------------------------- ------- ---------------- ------------ -------- --------------- ---------- ---------- ------------ -------------- ----------
Loss for the year - - - - - - - (8,577) (8,577)
Translation gains for the
year - - - - - - 3,873 - 3,873
-----------------------------
Total comprehensive loss for
the year - - - - - - 3,873 (8,577) (4,704)
----------------------------- ------- ---------------- ------------ -------- --------------- ---------- ---------- ------------ -------------- ----------
Share options lapsed 22 (c) - - - - - (2,126) - 2,126 -
Share-based payment charge 6 - - - - - 373 - - 373
Issuance of shares for cash 22 (b) - - - - - - - - -
Issuance of shares for
settlement of liabilities 22 (b) 3 62 - - - - - - 65
Transfer of treasury shares 22 (e) - - 28 - - (371) - 343 -
Modification of convertible 22 (d)
loan notes - - - - - - - - -
As at 31 December 2022 6,897 242,757 (104) 1,420 10,885 9,259 (10,560) ( 187,944) 72,608
----------------------------- ------- ---------------- ------------ -------- --------------- ---------- ---------- ------------ -------------- ----------
Consolidated Cash Flow Statement
For the Year Ended 31 December 2022 2022 2021
Note US$'000 US$'000
--------------------------------------------------- ---- -------- --------
Cash flows from operating activities
Operating (loss)/profit (538) 7,788
Depreciation and amortisation 6 11,474 7,115
(Profit)/loss on disposal of property, plant
and equipment 6 (12) 4
Non-cash expenses 20 66 87
Change in provisions (2,125) 75
Unrealised foreign exchange gains 6 (3,455) (1,475)
Share-based payments 6 373 1,251
Decrease/(increase) in inventories 5,838 (6,507)
Decrease/(increase) in trade and other receivables 17,969 (15,915)
(Decrease)/increase in trade and other payables (20,915) 15,920
Increase/(decrease) in contract liabilities 26 974 (3,250)
--------------------------------------------------- ---- -------- --------
Cash generated in operations 9,649 5,093
Income taxes paid (2,505) (1,806)
Net cash generated in operations 7,144 3,287
--------------------------------------------------- ---- -------- --------
Investing activities
Purchase of property, plant & equipment 17 (7,746) (9,117)
Purchase of intangible assets 16 (11) (152)
Exploration and evaluation costs 15 (2,385) (6,212)
Proceeds from sale of property, plant &
equipment 19 1
Interest received 28 17
--------------------------------------------------- ---- -------- --------
Net cash used in investing activities (10,095) (15,463)
--------------------------------------------------- ---- -------- --------
Financing activities
Proceeds from issue of share capital 22 - 29,983
Share issue costs paid - (431)
Repayments of principal portion of lease
liabilities 28 (709) (674)
Finance costs paid for modifications of
other loans 24 - (104)
Repayments of principal amount of loan 29 (9,500) (9,800)
Payments of interest 29 (1,633) (2,295)
Proceeds from loans 29 6,000 -
Net cash (used in)/from financing activities (5,842) 16,679
--------------------------------------------------- ---- -------- --------
Net change in cash and cash equivalents (8,793) 4,503
Cash and cash equivalents at beginning of
the year 11,134 6,928
Effect of changes in foreign exchange rates (1,725) (297)
--------------------------------------------------- ---- -------- --------
Cash and cash equivalents at end of the
year 21 616 11,134
--------------------------------------------------- ---- -------- --------
Notes to the Consolidated Financial Statements
1. General information and group structure
Chaarat Gold Holdings Limited (the "Company") (registration
number 1420336) was incorporated in the British Virgin Islands
(BVI) and is the ultimate holding company for the companies set out
below (the "Group"). The Company's shares are admitted to trading
on the Alternative Investment Market of the London Stock Exchange
(AIM:CGH).
The registered address of the Company is: Palm Grove House, PO
Box 438, Road Town, Tortola, British Virgin Islands, VG1110.
As at 31 December 2022 the Group consisted of the following
companies all of which are wholly owned:
Group company Country of incorporation Principal activity
Chaarat Gold Holdings BVI Ultimate holding company
Limited
Zaav Holdings Limited BVI Holding company
Chon-tash Holdings Limited BVI Holding company
At-Bashi Holdings Limited BVI Holding company
Akshirak Holdings Limited BVI Holding company
Goldex Asia Holdings Limited BVI Holding company
Chon-tash Mining LLC* Kyrgyz Republic Exploration
At-Bashi Mining LLC* Kyrgyz Republic Exploration
Akshirak Mining LLC* Kyrgyz Republic Exploration
Goldex Asia LLC* Kyrgyz Republic Exploration
Chaarat Zaav CJSC* Kyrgyz Republic Exploration
Chaarat Gold International Cyprus Holding company
Limited
Chaarat Gold Services En gland and Wales Services company
Limited Armenia Production company
Chaarat Kapan CJSC*
*Companies owned indirectly by the Company.
2. Going concern
As at 31 May 2023 the Group had approximately US$0.5 million of
cash and cash equivalents and US$47.5 million of debt (excluding
lease liabilities, contract liabilities and warrants) comprising
the following:
-- US$31.1 million (USD$31.7 million at maturity) convertible
loan notes including accrued interest to 31 May 2023 (Note 25)
-- US$16.4 million other loans outstanding (Ameriabank US$13.2,
other borrowings US$1.2 million and corporate Working Capital
Facility US$2.0 million), including accrued interest to 31 May 2023
(Note 29)
Kyrgyz Republic and corporate activities
In order to achieve the planned (though as yet uncommitted)
capital developments of assets in the Kyrgyz Republic and to
sustain future corporate activities, future financing will need to
be raised.
Kapan
The Board has based the cash flow forecasts for Kapan on the
most recent forecasts which show that Kapan is expected to generate
sufficient revenue to cover its operating costs and principal and
interest payments.
Convertible Loan Notes
By 31 July 2023, the convertible loan notes are due to be
redeemed by conversion into equity at approximately GBP0.30 per
ordinary share, at the holder's option, or will be repaid in cash
for a total of US$31.7 million (which includes accrued
interest).
Conclusion (including material uncertainty)
The convertible loan notes will need to be refinanced with cash
or alternative funding, to the extent that loan note holders do not
choose to convert to equity, prior to 31 July 2023. To proceed with
the development in Kyrgyz Republic and to sustain corporate
activities, further financing will also be required. A number of
workstreams including but not limited to the non-binding letter of
intent referred to in note 35 for the potential equity investment
of US$250 million are underway to secure financing for the Company
for these purposes. The directors consider there is a reasonable
expectation that sufficient funding will be raised and therefore
have continued to adopt the going concern basis.
However, 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. Therefore, this indicates the
existence of a material uncertainty which may cast significant
doubt over the Group's ability to continue as a going concern and,
therefore, it may be unable to realise its assets and discharge its
liabilities in the normal course of business.
Should the project funding not be available for the Kyrgyz
Republic development projects or should other strategic options
including potential monetisation of the assets not prove to be
viable, there may be a material impairment of the US$82 million
carrying value of the related assets. The financial statements do
not include the adjustments that would result if the Group were
unable to continue as a going concern.
3. Accounting policies
The significant accounting policies which have been consistently
applied in the preparation of these consolidated financial
statements are summarised below:
Basis of preparation
The consolidated financial information has been prepared in
accordance with United Kingdom adopted International Accounting
Standards and International Financial Reporting Standards (IFRS) as
issued by the International Accounting Standards Board (IASB) and
on a historical cost basis with exception to fair value gain on
warrants that are carried at FVTPL.
New standards, interpretations and amendments adopted by the
Group
Adoption of new and revised Standards
In the current year, the Company has adopted all new and revised
IFRS standards that became effective as of 1 January 2022, the
changes being:
i. Amendments to IFRS 9 Financial Instruments, IFRS 1 First-time
Adoption of International Financial Reporting Standards and IFRS 16
Leases, resulting from Annual Improvements to IFRS Standards
2018-2020, effective for annual periods beginning on or after 1
January 2022.
ii. Amendments to IAS 37 Provisions, Contingent Liabilities and
Contingent Assets resulting the costs to include when assessing
whether a contract is onerous, effective for annual periods
beginning on or after 1 January 2022.
iii. Reference to the Conceptual Framework (Amendments to IFRS 3
Business Combinations), effective for annual periods beginning on
or after 1 January 2022. The amendments update an outdated
reference to the Conceptual Framework in IFRS 3 without
significantly changing the requirements in the standard.
These amendments did not have a material impact on the Company.
It is expected that where applicable, these standards and
amendments will be adopted on each respective effective date.
Revised standards not yet effective
At the date of the authorisation of these consolidated financial
statements, the following revised IFRS standards, which are
applicable to the Company, were issued but not yet effective:
i. Amendments to IAS 1 Presentation of Financial Statements
regarding the classification of liabilities as current and
non-current, effective for annual periods beginning on or after 1
January 2023;
ii. IFRS 17 Insurance Contracts, effective for annual period
beginning on or after 1 January 2023 with earlier application
permitted;
iii. Amendments to IAS 1 and IFRS Practice Statement 2 requiring
that an entity discloses its material accounting policies, instead
of its significant accounting policies, effective for annual period
beginning on or after 1 January 2023 with earlier application
permitted;
iv. Amendments to IAS 8 replacing the definition of a change in
accounting estimates with a definition of accounting estimates,
effective for annual period beginning on or after 1 January 2023
with earlier application permitted;
v. Amendments to IAS 12 clarifying that the initial recognition
exemption does not apply to transactions in which equal amounts of
deductible and taxable temporary differences arise on initial
recognition, effective for annual period beginning on or after 1
January 2023 with earlier application permitted; and
vi. Amendments to IFRS 10 Consolidated Financial Statements and
IAS 28 Investments in Associates and Joint Ventures regarding the
sale or contribution of assets between an investor and its
associate or joint venture, the effective date of the amendments
has yet to be set. However, earlier application of the amendments
is permitted.
No significant changes to presentation or disclosures within
these financial statements are expected following the adoption of
these amendments.
Basis of consolidation
The consolidated financial statements of the Group include the
financial statements of the Company and its subsidiaries, from the
date that control effectively commenced until the date that control
effectively ceased. Control is achieved where the Company is
exposed, or has rights, to variable returns from its involvement
with the investee and has the ability to affect those returns
through its power over the investee.
Income and expenses of subsidiaries acquired or disposed of
during the period are included in the consolidated income statement
from the effective date of acquisition and up to the effective date
of disposal, as appropriate.
When the Group loses control of a subsidiary, the gain or loss
on disposal recognised in the income statement is calculated as the
difference between (i) the aggregate of the fair value of the
consideration received and the fair value of any retained interest
and (ii) the previous carrying amount of the assets (including
goodwill), less liabilities of the subsidiary and any
non-controlling interests.
When necessary, adjustments are made to the financial statements
of subsidiaries to bring their accounting policies into line with
those used by the Group.
All intra-group balances, transactions and any unrealised
profits or losses arising from intra-group transactions are
eliminated on consolidation.
Business Combinations
IFRS 3 Business Combinations applies to a transaction or other
event that meets the definition of a business combination. When
acquiring new entities or assets, the Group applies judgement to
assess whether the assets acquired and liabilities assumed
constitute an integrated set of activities, whether the integrated
set is capable of being conducted and managed as a business by a
market participant, and thus whether the transaction constitutes a
business combination, using the guidance provided in the standard.
Acquisitions of businesses are accounted for using the acquisition
method. The consideration for each acquisition is measured at the
aggregate of the fair values (at the date of exchange) of assets
given, liabilities incurred or assumed, and equity instruments
issued by the Group in exchange for control of the acquiree.
Acquisition-related costs are recognised in the consolidated income
statement as incurred. Transaction costs incurred in connection
with the business combination are expensed. Provisional fair values
are finalised within 12 months of the acquisition date.
Where applicable, the consideration for the acquisition may
include an asset or liability resulting from a contingent
consideration arrangement. Contingent consideration is measured at
its acquisition date fair value and included as part of the
consideration transferred in a business combination. Subsequent
changes in such fair values are adjusted against the cost of
acquisition retrospectively with the corresponding adjustment
against the fair value of the assets and liabilities acquired.
Measurement period adjustments are adjustments that arise from
additional information obtained during the measurement period about
facts and circumstances that existed at the acquisition date. The
measurement period may not exceed one year from the effective date
of the acquisition. The subsequent accounting for contingent
consideration that does not qualify for as a measurement period
adjustment is based on how the contingent consideration is
classified. Contingent consideration that is classified as equity
is not subsequently remeasured. Contingent consideration that is
classified as an asset or liability is remeasured at subsequent
reporting dates in accordance with IAS 37 Provisions, Contingent
Liabilities and Contingent Assets or IFRS 9 Financial Instruments
with the corresponding amount being recognised in profit or
loss.
The identifiable assets acquired, and the liabilities assumed
are recognised at their fair value at the acquisition date, except
that:
-- Deferred tax assets or liabilities and liabilities or assets
related to employee benefit arrangements are recognised and
measured in accordance with IAS 12 Income Taxes and IAS 19 Employee
Benefits, respectively;
-- Liabilities or equity instruments related to share-based
payment arrangements of the acquiree or share-based payment
arrangements of the Group entered into to replace share-based
payment arrangements of the acquiree are measured in accordance
with IFRS 2 Share-based Payment at the acquisition date; and
-- Assets (or disposal groups) that are classified as held for
sale in accordance with IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations are measured in accordance with that
Standard.
Revenue recognition
Revenue is recognised in a manner that depicts the pattern of
the transfer of goods and services to customers. The amount
recognised reflects the amount to which the Group expects to be
entitled in exchange for those goods and services. Sales contracts
are evaluated to determine the performance obligations, the
transaction price and the point at which there is transfer of
control. The transactional price is the amount of consideration due
in exchange for transferring the promised goods or services to the
customer and is allocated against the performance obligations and
recognised in accordance with whether control is recognised over a
defined period or a specific point in time.
Performance obligation and timing of revenue recognition
The revenue arises from extraction of complex ore as well as ore
purchased from third parties and production of copper and zinc
concentrates to wholesale customers. Though in all contracts the
total transaction value mainly depends on the market prices of the
metals based on the preliminarily estimated contents in the
concentrates, those separate materials are not distinct but
represent a bundle of materials. As there are no other significant
promises, each contract contains one performance obligation to
which the total transaction value is allocated.
The control passes to the customers and the revenue is
recognized either on a Cost, Insurance and Freight "CIF" basis
meaning that control passes to the buyer when the concentrate is
loaded on the vessel in the port of shipment (e.g., port of Poti,
Georgia) or on the Ex Works basis meaning that control passes to
the buyer at the point the concentrate is loaded on the truck at
the Kapan mine. In respect of freight revenues, these are
recognised over time.
Determining the transaction price
Consideration is variable and depends on the fluctuations of
metal prices for the quotation period (usually one or three months)
and the changes in estimated metal contents and price
deductions.
At the date the concentrate is loaded on the truck at the Kapan
mine or the vessels at the specified port the provisional invoice
is issued based on the estimates of the amount of
consideration.
Sales are based on provisional 1-3 1-3-month commodity forward
prices on the London Metal Exchange (LME) and as such, contain an
embedded derivative which is marked-to-market at each month end
using the forward price for the month of price finalisation. The
estimated transaction price is updated for the quotational period
(usually one or three months) and any changes in the estimates of
the metal content. The change is recognised as an increase in
revenue, or as a reduction of revenue, in the period in which the
estimated transaction price is finalised.
Final prices of copper and zinc concentrates are determined at
the contract settlement date based on the LME commodity market
prices at that date and final adjustments for weighting, sampling,
or moisture determination changes.
Third-party revenue
In addition to own concentrates, the Group also processes third
party ore into concentrate and sells it to customers. The revenue
from these sales is recognised in accordance with the revenue
recognition principles above.
Where the group does not purchase the third party ore for sale
but provides a processing service the processing fee is recognised
as revenue over the processing period.
Advance payments from customers
The Group receives advance payments from its customers which
represent prepayments for the future transfer of concentrate. These
are either classified as contract liabilities or financial
liabilities under IFRS 15 or IFRS 9, respectively, depending on the
terms of the customer agreements and how the prepayments are
settled. If settled in cash, they are classified as financial
liabilities and if offset against final invoices, they are
classified as contract liabilities. The contract liabilities are
unwound, and revenue is recognised when shipments take place and
control passes to the customers. The advance payments accrue
interest which is separately recognised from revenue in the
Consolidated Income Statement.
Royalties
Under Armenian law a royalty is payable to the state, the base
of which is driven by the revenue earned from the supply of
concentrates. Royalty expense is calculated on an accruals basis at
rates set by the government and included in cost of sales.
Interest
Interest is recognised using the effective interest method which
calculates the amortised cost of a financial asset or liability and
allocates the interest income or payments over the relevant period.
The effective interest rate is the rate that exactly discounts
estimated future cash receipts or payments through the expected
life of the financial asset or liability to the gross carrying
amount of the financial asset or liability.
Taxation
The income tax expense includes the current tax and deferred tax
charge recognised in the income statement.
The current tax charge is calculated on the basis of the tax
laws enacted or substantively enacted at the balance sheet date in
the countries where the Company and its subsidiaries operate. The
Group is not subject to corporate tax in the British Virgin
Islands, therefore as at 31 December 2022 the Group's operations in
this region have an effective tax rate of 0%. Companies engaged in
the production and sale of gold in the Kyrgyz Republic pay a
revenue-based tax on the sales of gold rather than tax on profit .
The remaining Group's operations are subject to income tax at a
rate of 18% in Armenia, 19% in the United Kingdom and 12.5% in
Cyprus (Note 13). Non-profit based taxes are included within
administrative expenses and Kapan's royalty taxes are included
within cost of sales.
Deferred tax is recognised in respect of temporary differences
between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation
purposes. Deferred tax liabilities are generally recognised for all
taxable temporary differences and deferred tax assets are
recognised to the extent that it is probable that taxable profits
will be available against which deductible temporary differences
can be utilised. Probable taxable profits are based on evidence of
historical profitability and taxable profit forecasts limited by
reference to the criteria set out in IAS 12 Income Taxes. Such
assets and liabilities are not recognised if the temporary
differences arise from the initial recognition of goodwill or of an
asset or liability in a transaction (other than a business
combination) that affects neither taxable profit nor accounting
profit.
Deferred tax liabilities are recognised for taxable temporary
differences arising on investments in subsidiaries, except where
the Group is able to control the reversal of the temporary
difference and it is probable that the temporary difference will
not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each
reporting date and is adjusted to the extent that it is no longer
probable that sufficient taxable profit will be available to allow
all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset is
realised, based on the laws that have been enacted or substantively
enacted by the reporting date. Deferred tax is charged or credited
to other comprehensive income or equity in which case the related
deferred tax is also recognised directly in other comprehensive
income or equity.
Deferred tax assets and liabilities are offset when they relate
to income taxes levied by the same taxation authority and the Group
intends to settle its current tax assets and liabilities on a net
basis with that taxation authority.
Non-current Assets
Intangible Assets
Exploration and evaluation costs
During the initial stage of a project, exploration costs are
expensed in the income statement as incurred.
Exploration expenditure incurred in relation to those projects
where such expenditure is considered likely to be recoverable
through future extraction activity or sale or where the exploration
activities have not reached a stage that permits a reasonable
assessment of the existence of reserves, are capitalised and
recorded on the balance sheet within exploration and evaluation
assets for mining projects at the exploration stage. Capitalised
evaluation and exploration costs are classified as intangible
assets.
Exploration and evaluation expenditure comprise costs directly
attributable to:
-- Researching and analysing existing exploration data;
-- Conducting geological studies, exploratory drilling, and sampling;
-- Examining and testing extraction and treatment methods;
-- Compiling pre-feasibility and feasibility studies; and
-- Costs incurred in acquiring mineral rights, the entry
premiums paid to gain access to areas of interest and amounts
payable to third parties to acquire interests in existing
projects.
Exploration and evaluation assets are subsequently valued at
cost less impairment. In circumstances where a project is
abandoned, the cumulative capitalised costs related to the project
are written off in the period when such decision is made.
Exploration and evaluation assets are not depreciated. These
assets are transferred to mine development costs within property,
plant and equipment when a decision is taken to proceed with the
development of the project which is when a bankable feasibility
study is obtained, and project finance is in place.
Other intangible assets (excluding goodwill)
Intangible assets acquired by the Group are measured on initial
recognition at cost or at fair value when acquired as part of a
business combination. Following initial recognition, intangible
assets are carried at cost less accumulated amortisation and
accumulated impairment losses. Intangible assets are amortised over
the estimated useful lives using the straight-line-basis and
assessed for impairment whenever there is an indication that the
intangible asset may be impaired. The estimated useful life and
amortisation method are reviewed at the end of each annual
reporting period, with the effect of any changes in estimate being
accounted for on a prospective basis.
Other intangible assets comprise computer software and other
intangible assets, which are initially capitalised at cost.
Amortisation is provided on a straight-line basis over a period of
1 to 10 years.
Property, plant and equipment
Property, plant and equipment is stated at cost, excluding the
costs of day-to-day servicing, less any subsequent accumulated
depreciation and impairment losses. The historical cost of
property, plant and equipment comprises its purchase price,
including import duties and non-refundable purchase taxes and any
directly attributable costs of bringing the assets to their working
condition and location for their intended use. Depreciation of
these assets commences when the assets are ready for their intended
use.
Depreciation is charged on each part of an item of property,
plant and equipment so as to write off the cost or valuation of
assets over their estimated useful lives, using the straight-line
method. Depreciation is charged to the income statement, unless it
is considered to relate to the construction of another asset, in
which case it is capitalised as part of the cost of that asset.
Land and assets in the course of construction are not depreciated.
The estimated useful lives are as follows:
-- Land and buildings 5 to 20 years
-- Mining Properties Mining properties that are used in
production are
depreciated under the unit of production basis, and
other physical assets depreciated over their useful
lives which are 5 to 20 years
-- Fixtures and fittings 2 to 20 years
-- Motor vehicles 2 to 7 years
-- Right-of-use assets 5 to 20 years
Residual values, remaining useful lives and depreciation methods
are reviewed annually and adjusted if appropriate.
Expenses incurred in respect of the maintenance and repair of
property, plant and equipment are charged against income when
incurred. Refurbishments and improvements expenditure, where the
benefit enhances the capabilities or extends the useful life of an
asset, is capitalised as part of the appropriate asset.
An item of property, plant and equipment is derecognised upon
disposal or when no future economic benefits are expected from its
use. Any gain or loss arising on derecognition of the asset
(calculated as the difference between the net disposal proceeds and
the carrying amount of the asset) is included in the income
statement in the year the asset is derecognised.
Mining properties
Mining properties include the cost of acquiring and developing
mining assets and mineral rights. Mining properties, which include
development structures, are depreciated to their residual values
using the unit-of-production method based on proven and probable
ore reserves according to the JORC Code, which is the basis on
which the Group's mine plans are prepared. Changes in proven and
probable reserves are dealt with prospectively. Depreciation is
charged on new mining ventures from the date that the mining asset
is capable of commercial production.
Mineral rights for the assets not ready for production are
included within Exploration and evaluation costs. When a production
phase is started, mineral rights are transferred into Mining assets
and are depreciated as described above.
Assets under construction
Assets under construction are measured at cost less any
recognised impairment. Depreciation commences when the assets are
ready for their intended use.
Assets under construction include costs incurred for the
development of tangible assets that will form part of a category of
property, plant and equipment which is not yet complete. Once the
project ready for use capitalisation will cease (other than for
large development programmes), the asset will be reclassified to
the respective property, plant and equipment category it relates to
from assets under construction, and depreciation will commence.
Estimated ore reserves
Estimated proven and probable ore reserves reflect the
economically recoverable quantities which can be legally recovered
in the future from known mineral deposits. The Group's reserves are
estimated in accordance with JORC Code.
Impairment of exploration and evaluation assets
All capitalised exploration and evaluation assets and other
intangible assets are monitored for indications of impairment.
Where a potential impairment is indicated, assessment is made for
the group of assets representing a cash generating unit ("CGU").
Indicators of impairment include:
-- the period for which the entity has the right to explore in
the specific area has expired during the period or will expire in
the near future, and is not expected to be renewed;
-- substantive expenditure on further exploration of mineral
resources in the specific area is nether budgeted nor planned;
-- exploration for and evaluation of mineral resources in the
specific area have not led to the discovery of commercially viable
quantities of mineral resources and the entity has decided to
discontinue such activities in the specific area; and
-- sufficient data exist to indicate that, although a
development in the specific area is likely to proceed, the carrying
amount of the exploration and evaluation asset is unlikely to be
recovered in full from successful development or by sale.
If any indication of impairment exists, the recoverable amount
of the asset is estimated, being the higher of fair value less
costs to sell and value in use. If the recoverable amount of an
asset (or CGU) is estimated to be less than its carrying amount,
the carrying amount of the asset (or CGU) is reduced to its
recoverable amount. Such impairment losses are recognised in profit
or loss for the year.
Impairment of property, plant and equipment
An impairment review of property, plant and equipment is carried
out when there is an indication that those assets have suffered an
impairment loss or there are impairment reversal indicators. If any
such indication exists, the carrying amount of the asset is
compared to the estimate recoverable amount of the asset in order
to determine the extent of the impairment loss or reversal (if
any). Where it is not possible to estimate the recoverable amount
of an individual asset, the Group estimates the recoverable amount
of the cash-generating unit ("CGU") to which the asset belongs.
Recoverable amount is the higher of fair value less costs of
disposal and value in use. The carrying amounts of all
cash-generating units are assessed against their recoverable
amounts determined on a fair value less costs of disposal
calculation. Fair value is based on the applicable Discounted Cash
Flow ("DCF") method using post-tax cash flows and post -tax
discount rate, this is considered to give a materially similar
result to a basis that uses pre-tax cash flows and pre-tax discount
rate. The DCF method is attributable to the development of proved
and probable reserves.
If the recoverable amount of an asset (or CGU) is estimated to
be less than its carrying amount, the carrying amount of the asset
(or CGU) is reduced to its recoverable amount. An impairment loss
is recognised as an expense immediately in the consolidated income
statement.
Where an impairment loss subsequently reverses, the carrying
amount of the asset (or CGU) is increased to the revised estimate
of its recoverable amount, but only to the extent that the
increased carrying amount does not exceed the original carrying
amount that would have been determined had no impairment loss been
recognised in prior periods. Impairment loss may be subsequently
reversed if there has been significant change in estimates used to
determine the asset's recoverable amount since the last impairment
loss was recognised.
A reversal of impairment loss is recognised in the consolidated
income statement immediately.
Leases
The Group assesses whether a contract is or contains a lease, at
inception of the contract. The Group recognised a right-of-use
asset and a corresponding lease liability with respect to all lease
arrangements in which it is the lessee, except for short-term
leases (defined as leases with a lease term of 12 months or less),
leases of low value assets and leases for the purposes of mining
and exploration activities, which qualify for an exemption under
IFRS 16 which the Group has applied. For these leases, the Group
recognises the lease payments as operating expenses on a
straight-line basis over the term of the lease.
The lease liability is initially measured at the present value
of the lease payments that are not paid at the commencement date,
discounted by using the rate implicit in the lease. If this rate
cannot be readily determined, the Group uses its incremental
borrowing rate.
The lease liability is presented as a separate line in the
consolidated statement of financial position. The lease liability
is subsequently measured by increasing the carrying amount to
reflect interest on the lease liability and by reducing the
carrying amount to reflect the lease payments made. Interest is
charged over the term of the lease at an even rate over the
carrying amount of the liability. The right-of-use assets comprise
the initial measurement of the corresponding lease liability, lease
payments made at or before the commencement day and any initial
direct costs. They are subsequently measured at cost less
accumulated depreciation and impairment losses and are presented as
a separate line in the consolidated financial statements.
Right-of-use assets are depreciated over shorter period lease
term and useful life of the underlying asset. Where ownership of
the underlying asset transfers to the entity at the end of the
lease depreciation is charged over the useful life of the
underlying asset. The Group applies IAS 36 to determine whether the
right-of use asset is impaired and accounts for any identifiable
impairment loss as described above.
When the Group revises its estimate of the term of any lease, it
adjusts the carrying amount of the lease liability to reflect the
payments to make over the revised term, which are discounted at a
revised discount rate. The discount rate on commencement is only
applied to changes in estimates of payments. An equivalent
adjustment is made to the carrying value of the right-of-use asset,
with the revised carrying amount being amortised over the remaining
(revised) lease term. Any gain or loss relating to the partial or
full termination of any lease is recognised in profit or loss.
Inventories
Copper and zinc concentrates
Inventories including metals in concentrate and in process are
stated at the lower of production cost or net realisable value.
Cost of finished goods and work in progress are determined on
the first-in-first-out (FIFO) method. The cost comprises raw
material, direct labour, other direct costs, and related production
overheads (based on normal operating capacity), excluding borrowing
costs.
Consumables and spare parts
Consumables and spare parts are stated at the lower of cost or
net realisable value. Costs are determined on the
first-in-first-out (FIFO) method.
The Company's policy is to write-down to nil the items that have
not been utilised for more than two years. This is done on a
quarterly basis.
Inventory items used in the production process are recognised as
cost of sales when the related sale of concentrate takes place.
This includes the cost of purchased ore and consumables and spare
parts.
Cost of purchased ore
The Group purchases ore from third parties which is processed
and sold to Kapan's customers. The amount expensed in cost of sales
is equal to the price paid to third parties in line with the
purchase agreements.
Cost of purchased concentrate
The Group processes third party ore into concentrate and then
purchases the concentrate to sell to Kapan's customers. The
substance and accounting for these transactions is that of an ore
purchase agreement with the amount expensed in cost of sales equal
to the price paid to third parties in line with the purchase
agreements, which is net of a processing fee charged by Kapan.
Cash and cash equivalents
Cash includes petty cash and cash held in current bank accounts.
Cash equivalents include short-term investments that are readily
convertible to known amounts of cash and which are subject to
insignificant risk of changes in value.
Equity
Equity comprises the following:
-- "Share capital" represents the nominal value of equity shares.
-- "Share premium" represents the excess over nominal value of
the fair value of consideration received for equity shares, net of
transactions costs directly related to the share issue.
-- "Own shares reserve" represents the nominal value of equity
shares that have been repurchased by the company.
-- "Convertible loan note reserve" represents the equity
component of convertible loan notes issued by the Company.
-- "Merger reserve" represents the difference between the issued
share capital and share premium of the Company and its former
subsidiary Chaarat Gold Limited arising as a result of the reverse
acquisition.
-- "Share option reserve" represents the equity component of share options issued.
-- "Translation reserve" represents the differences arising from
translation of investments in foreign operations.
-- "Accumulated losses" includes all current and prior period
results as disclosed in the income statement or other comprehensive
statement.
Functional and presentational currency
The functional currency for each entity in the Group is
determined as the currency of the primary economic environment in
which it operates . The functional currency of the Group's entities
located in the Kyrgyz Republic, Cyprus and BVI is US Dollars (US$)
as the current exploration and evaluation expenditure is currently
primarily in USD. The functional currency of the subsidiary located
and operating in Armenia is the Armenian Dram (AMD). The functional
currency of the parent company Chaarat Gold Holdings Limited is the
US Dollar.
The Group has chosen to present its consolidated financial
statements in US Dollars (US$), as management believe it is a more
comparable presentation currency for international users of
consolidated financial statements of the Group as it is a common
presentation currency in the mining industry. The translation of
the financial statements of the Group entities from their
functional currencies to the presentation currency is performed as
follows:
-- All assets and liabilities are translated at closing exchange
rates at each reporting period end date;
-- All income and expenses are translated at the average
exchange rates for the periods presented, except for significant
transactions that are translated at rates on the date of such
transactions;
-- Resulting exchange differences are recognised in other
comprehensive income and presented as movements relating to the
effect of translation to the Group's presentation currency within
the Translation reserve in equity; and
-- In the consolidated statement of cash flows, cash balances at
the beginning and end of each reporting period presented are
translated using exchange rates prevalent at those respective
dates. All cash flows in the period are translated at the average
exchange rates for the period presented, except for significant
transactions that are translated at rates on the date of the
transaction.
The amounts reported are rounded to the nearest thousand, unless
overwise stated.
Foreign currency transactions
Transactions entered into by Group entities in a currency other
than the currency of the primary economic environment in which they
operate (the "functional currency") are recorded at the rates
ruling when the transactions occur. Foreign currency monetary
assets and liabilities are translated at the rates ruling at the
balance sheet date. Exchange differences arising on the
retranslation of unsettled monetary assets and liabilities are
similarly recognised immediately in the income statement.
Non-monetary assets and liabilities that are measured in terms
of historical cost in a foreign currency are translated using the
exchange rate at the date of the transaction.
On the disposal of a foreign operation (i.e. a disposal of the
Group's entire interest in a foreign operation, or a disposal
involving loss of control over a subsidiary that includes a foreign
operation, a disposal involving loss of joint control over a
jointly controlled entity that includes a foreign operation, or a
disposal involving loss of significant influence over an associate
that includes a foreign operation), all of the exchange differences
accumulated in equity in respect of that operation attributable to
the owners of the Company are reclassified to profit or loss. In
the case of a partial disposal that does not result in the Group
losing control over a subsidiary that includes a foreign operation,
the proportionate share of accumulated exchange differences
reattributed to non-controlling interests and are not recognised in
the consolidated income statement. For all other partial disposals
(i.e. reductions in the Group's ownership interest in associates or
jointly controlled entities that do not result in the Group losing
significant influence or joint control), the proportionate share of
the accumulated exchange differences is reclassified to the
consolidated income statement.
Share-based payments
The Company operates equity-settled share-based remuneration
plans for directors and some employees. The Company awards share
options to certain Company directors and employees to acquire
shares of the Company.
All goods and services received in exchange for the grant of any
share-based payment are measured at their fair values. Where
employees are rewarded using share-based payments, the fair values
of employees' services are determined indirectly by reference to
the fair value of the instrument granted to the employee.
The fair value is appraised at the grant date and excludes the
impact of non-market vesting conditions. Fair value of restricted
stock units is measured by reference to the share price at the date
of grant. Fair value of options is measured by use of the Black
Scholes model. The expected life used in the model has been
adjusted, based on management's best estimate, for the effects of
non-transferability, exercise restrictions, and behavioural
considerations.
All equity-settled share-based payments are ultimately
recognised as an expense in the income statement with a
corresponding credit to "other reserves".
If vesting periods or other non-market vesting conditions apply,
the expense is allocated over the vesting period, based on the best
available estimate of the number of share options expected to vest.
Estimates are subsequently revised if there is any indication that
the number of share options expected to vest differs from previous
estimates. Any cumulative adjustment prior to vesting is recognised
in the current period. No adjustment is made to any expense
recognised in prior periods if the number of share options
ultimately exercised are different to that estimated on
vesting.
Upon exercise of share options and through settlement of the
issue of new shares, the proceeds received net of attributable
transaction costs are credited to share capital and, where
appropriate, share premium.
After the vesting date, no subsequent adjustments are made to
total equity. In the year when the share options lapse the total
accumulated charge to the share-based payment reserve is
transferred to retained earnings.
When the terms and conditions of equity-settled share-based
payments at the time they were granted are subsequently modified,
the fair value of the share-based payment under the original terms
and conditions (the "original fair value") and under the modified
terms and conditions (the "modified fair value") are both
determined at the date of the modification. Any excess of the
modified fair value over the original fair value is recognised over
the remaining vesting period in addition to the grant date fair
value of the original share-based payment. The share-based payment
expense is not adjusted if the modified fair value is less than the
original fair value.
In certain instances, the Company issues shares to satisfy
outstanding financial liabilities. The measurement of these
equity-settled share-based payment transactions is outlined below.
Shares are also issued to satisfy obligations under warrant
agreements whereby the estimated fair value of the warrants issued
is measured by use of the Black Scholes model as detailed in Note
30.
The Company operates an Employee Benefit Trust ("the Trust") and
has de facto control of the shares held by the Trust and bears
their benefits and risks. The Trust is consolidated into the group
accounts with a debit to equity for the cost of shares acquired.
Administrative expenses are charged as they accrue.
Exchange of financial liabilities for equity
When equity instruments are issued to extinguish all or part of
a financial liability, the Group measures them at the fair value of
the equity instruments issued, unless that fair value cannot be
reliably measured. The difference between the carrying amount of
the financial liability (or part of a financial liability)
extinguished, and the consideration paid, is recognised in profit
or loss. The equity instruments are recognised initially and
measured at the date the financial liability (or part of that
liability) is extinguished. This does not include transactions with
a creditor who is also a direct or indirect shareholder and is
acting in its capacity as a direct or indirect shareholder, in
accordance with IFRIC 19.
Retirement and Other Benefit Obligations
The Group offers defined contribution pension arrangements in
the United Kingdom as well as under the State pension system of the
Kyrgyz Republic, which requires current contributions by the
employer, calculated as a percentage of current gross salary
payments. Such expense is charged in the period the related
salaries are earned. The Group does not have any obligations in
respect of post-retirement or other significant compensation
benefits.
Financial Instruments
Financial assets and financial liabilities are recognised when a
Group entity becomes a party to the contractual provisions of the
instrument.
Financial assets and financial liabilities are initially
measured at fair value. Transaction costs that are directly
attributable to the acquisition or issue of financial assets and
financial liabilities (other than financial assets and financial
liabilities at fair value through profit or loss) are added to or
deducted from the fair value of the financial assets or financial
liabilities, as appropriate, on initial recognition.
Financial assets
All recognised financial assets are measured subsequently in
their entirety at either amortised cost or fair value, depending on
the classification of the financial assets. Financial assets are
classified as either financial assets at amortised cost, at fair
value through other comprehensive income (FVTOCI) or at fair value
through profit or loss (FVTPL) depending upon the business model
for managing the financial assets and the nature of the contractual
cash flow characteristics of the financial asset.
Trade receivables without provisional pricing that do not
contain provisional price features, loans and other receivables are
held to collect the contractual cash flows and therefore are
carried at amortised cost adjusted for any loss allowance. The loss
allowance is calculated in accordance with the impairment of
financial assets policy described below.
Trade receivables arising from sales of copper and zinc
concentrates with provisional pricing features are exposed to
future movements in market prices and have contractual cash flow
characteristics that are not solely payments of principal and
interest and are therefore measured at fair value through profit or
loss and do not fall under the expected credit losses model (ECL)
described below.
Impairment of financial assets
The Group recognises a loss allowance for expected credit losses
on investments in debt instruments that are measured at amortised
cost, trade and other receivables and contract assets, except for
trade accounts receivable with provisional pricing. The amount of
expected credit losses is updated at each reporting date to reflect
changes in credit risk since initial recognition of the respective
financial instrument.
The Group always recognises lifetime ECL for trade receivables
and other receivables. The expected credit losses on these
financial assets are estimated using a provision matrix based on
the Group's historical credit loss experience, adjusted for factors
that are specific to the debtors, general economic conditions, and
assessment of both the current as well as the forecast direction of
conditions at the reporting date, including time value of money
where appropriate.
For all other financial instruments, the Group recognises
lifetime ECL when there has been a significant increase in credit
risk since initial recognition. However, if the credit risk on the
financial instrument has not increased significantly since initial
recognition, the Group measures the loss allowance for that
financial instrument at an amount equal to 12-month ECL.
Lifetime ECL represents the expected credit losses that will
result from all possible default events over the expected life of a
financial instrument. In contrast, 12-month ECL represents the
portion of lifetime ECL that is expected to result from default
events on a financial instrument that are possible within 12 months
after the reporting date.
The Group writes off a financial asset when there is information
indicating that the debtor is in severe financial difficulty and
there is no realistic prospect of recovery, e.g., when the debtor
has been placed under liquidation or has entered into bankruptcy
proceedings, or in the case of trade receivables, when the amounts
are over two years past due, whichever occurs sooner. Financial
assets written off may still be subject to enforcement activities
under the Group's recovery procedures, taking into account legal
advice where appropriate. Any recoveries made are recognised in
profit or loss.
Derivative financial instruments
Derivatives embedded in the Group's sale contracts are accounted
for at fair value with gains or losses reported in the statement of
comprehensive income. These embedded derivatives are not separated
from the sale contracts and therefore any gains or losses are
included in the lines of sale of concentrates in the year.
Derecognition of financial assets
The Group derecognises a financial asset only when the
contractual rights to the cash flows from the asset expire, or when
it transfers the financial asset and substantially all the risks
and rewards of ownership of the asset to another entity. If the
Group neither transfers nor retains substantially all the risks and
rewards of ownership and continues to control the transferred
asset, the Group recognises its retained interest in the asset and
an associated liability for amounts it may have to pay. If the
Group retains substantially all the risks and rewards of ownership
of a transferred financial asset, the Group continues to recognise
the financial asset and also recognises a collateralised borrowing
for the proceeds received.
Financial liabilities
The Group's financial liabilities consist of financial
liabilities measured subsequently at amortised cost using the
effective interest rate method (including trade payables, other
loans, and borrowings) and financial liabilities at fair value
through profit or loss.
Warrant financial liability
The Group's warrant financial liability relates to warrants to
purchase ordinary shares. The warrants are recognised initially at
their fair value using the Black-Scholes model and subsequently
remeasured at each reporting date with the corresponding fair value
gains or losses recognised through profit or loss.
Convertible loan notes
The convertible loan notes are compound financial instruments
that can be converted to ordinary shares at the option of the
holder.
The liability component of convertible loan notes is initially
recognised at the fair value of a similar liability that does not
have an equity conversion option. The equity component is initially
recognised at the difference between the fair value of the
convertible loan note as a whole and the fair value of the
liability component. Any directly attributable transaction costs
are allocated to the liability and equity components in proportion
to their initial carrying amounts.
The modification of a standard loan is considered substantial
where a conversion option is added. Upon modification, the original
liability is extinguished, new liability and equity components are
recognised at the fair values with a difference attributed to
profit or loss.
Subsequent to initial recognition, the liability component of a
compound financial instrument is measured at amortised cost using
the effective interest method. The equity component of a
convertible loan note is not remeasured.
Interest related to the financial liability is recognised in
profit and loss. On conversion at maturity, the financial liability
is reclassified to equity and no gain or loss is recognised. When
conversion option is not exercised, the equity element is
transferred to accumulated losses.
Derecognition of financial liabilities
A financial liability is removed from the balance sheet when it
is extinguished, being when the obligation is discharged,
cancelled, or expired. On extinguishment of a financial liability,
any difference between the carrying amount of the liability and the
consideration paid, including any non-cash assets transferred or
liabilities assumed, is recognised in profit or loss.
A modification or exchange of a financial liability is either
accounted for as an extinguishment of the original financial
liability or a renegotiation of the original financial liability.
An extinguishment or substantial modification of a financial
liability results in de-recognition of the original financial
liability and any unamortised transaction costs associated with the
original financial liability are immediately expensed to the profit
and loss account. Where the change in the terms of the modified
financial liability is not substantial, it is accounted for as a
modification of the original liability. With the modified financial
liability measured at amortised cost using the original effective
interest rate when appropriate. Part of the assessment includes
consideration whether the discounted present value of the cash
flows under the new terms, including any fees paid net of any fees
received and discounted using the original effective interest rate,
is at least 10% different from the discounted present value of the
remaining cash flows of the original financial liability.
If an exchange of debt instruments or modification of terms is
accounted for as an extinguishment, any costs or fees incurred are
recognised as part of the gain or loss on the extinguishment. If
the exchange or modification is not accounted for as an
extinguishment, any costs or fees incurred adjust the carrying
amount of the liability and are amortised over the remaining term
of the modified liability.
Borrowing costs
Borrowing costs directly attributable to the acquisition,
construction, or production of qualifying assets, which are assets
that necessarily take a substantial period of time to get ready for
their intended use or sale, are added to the cost of those assets,
until such time as the assets are substantially ready for their
intended use or sale.
Investment income earned on the temporary investment of specific
borrowings pending their expenditure on qualifying assets is
deducted from the borrowing costs eligible for capitalisation.
All other borrowing costs are recognised in the consolidated
income statement in the period in which they are incurred.
Provisions
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event, it
is probable that the Group will be required to settle the
obligation, and a reliable estimate can be made of the amount of
the obligation.
The amount recognised as a provision is the best estimate of the
consideration required to settle the present obligation at the
reporting date, taking into account the risks and uncertainties
surrounding the obligation. Where a provision is measured using the
cash flows estimated to settle the present obligation, its carrying
amount is the present value of those cash flows.
Contingent liability
Contingent liabilities are recognised when the Group has a
probable obligation that may arise from an event that has not yet
occurred. A contingent liability which is not probable is not
recognised in the Group's financial statements however disclosure
within the notes to the financial statements will be included
unless the possibility of payment is remote.
Provision for environmental obligations
An obligation to incur environmental restoration, rehabilitation
and decommissioning costs arises when disturbance is caused by the
development or ongoing production of mining assets. Such costs
arising from the decommissioning of plant and other site
preparation work, discounted to their net present value using a
risk-free rate applicable to the future cash flows, are provided
for and capitalised at the start of each project, as soon as the
obligation to incur such costs arises. These decommissioning costs
are recognised in the consolidated income statement over the life
of the operation, through the depreciation of the asset in the cost
of sales line and the unwinding of the discount on the provision in
the finance costs line.
Changes in the measurement of a liability relating to the
decommissioning of plant or other costs for restoration of
subsequent site damage which is created on an ongoing basis during
production are provided for at their net present values and
recognised in the consolidated income statement as extraction
progresses . If a decrease in the liability exceeds the carrying
amount of the asset, the excess is recognised immediately as a
reduction in the consolidated income statement.
The provision for closure cost obligations is remeasured at the
end of each reporting period for changes in estimates and
circumstances. Changes in estimates and circumstances include
changes in legal or regulatory requirements, increased obligations
arising from additional mining and exploration activities, changes
to cost estimates and changes in risk free interest rate.
Value Added Tax
Output value added tax (VAT) related to sales generated in
Armenia is payable to tax authorities on the delivery of goods and
services to customers. The standard rate of VAT on domestic sales
of goods and services and the importation of goods is 20%. Input
VAT is recoverable against output VAT upon receipt of the VAT
invoice . VAT related to sales and purchases is recognised in the
statement of financial position on a gross basis and disclosed
separately as an asset and liability. The VAT assets and
liabilities are short term and will be settled within 12 months and
are therefore not discounted.
Under the Kyrgyz Republic Tax Code, the supply and export of
metal-containing ores, concentrates, alloys, and refined metals are
considered to be a VAT exempt supply and therefore all VAT is
expensed as incurred.
Critical accounting judgements and key sources of estimation
uncertainty
In the course of preparing the financial statements, management
necessarily makes judgements and estimates that can have
significant impact on those financial statements. The determination
of estimates requires judgements which are based on historical
experience, current and expected economic conditions, and all other
available information.
Estimated and underlying assumptions are reviewed on an ongoing
basis, with revisions recognised in the period in which the
estimates are revised and in the future periods affected. The
judgements involving a higher degree of estimation or complexity
are set out below.
Critical accounting judgements
The following are the critical accounting judgements (apart from
judgements involving estimation which are dealt with separately
below), made in the process of applying the Group's accounting
policies during the year that have the most significant effect on
the amounts recognized in the financial statements.
Recoverability of exploration and evaluation assets
Exploration and evaluation assets include mineral rights and
exploration costs, including geophysical, topographical,
geological, and similar types of costs. Exploration and evaluation
costs are capitalised if management concludes that future economic
benefits are likely to be realised and determines that economically
viable extraction operation can be established as a result of
exploration activities and internal assessment of mineral
resources.
According to IFRS 6 Exploration for and evaluation of mineral
resources, the potential indicators of impairment include:
management's plans to discontinue the exploration activities, lack
of further substantial exploration expenditure planned, expiry of
exploration licences in the period or in the nearest future, or
existence of other data indicating the expenditure capitalised is
not recoverable. At the end of each reporting period, management
assesses whether such indicators exist for the exploration and
evaluation assets capitalised, which requires significant
judgement.
At 31 December 2022, the capitalised costs of the exploration
and evaluation assets amounted to US$69.2 million, details of which
are set out in Note 15.
The assets relate to the Chaarat Gold Project in the Kyrgyz
Republic, which comprises two distinct mineralised zones: Tulkubash
and Kyzyltash, which will be developed separately. Both zones are
located on a single mining licence and are therefore not capable of
being independently sold.
At 31 December 2022, management does not consider there to be
any indications of impairment in respect of the assets included in
the Chaarat Gold Project CGU. Management has budgeted the costs for
further development of these assets however their recoverability is
dependent on future funding.
As set out in the Going concern conclusion per Note 2, a
material uncertainty exists in relation to the Group's ability to
obtain the additional funding needed to develop the Kyrgyz Republic
development projects as 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. Should that
funding not be available there would be an indication of impairment
which could result in a material provision against the carrying
value of the related exploration and evaluation assets and assets
under construction.
Costs capitalised to exploration and evaluation assets
The costs capitalised to exploration and evaluation assets in
2022 was US$2.9 million (2021: US$5.7 million). Judgement is
applied in the determination of the type of costs that are
capitalised to exploration and evaluation assets as described in
the accounting policy note above. Payroll costs that are directly
attributable to exploration and evaluation related activities are
capitalised.
Costs capitalised to property, plant and equipment (mining
properties)
The costs capitalised to mining properties in 2022 was US$12.3
million (2021: US$7.9 million). Judgement is applied in the
determination of the type of costs that are capitalised to mining
properties as described in the accounting policy note above.
Functional currency of Kapan
The functional currency of the subsidiary located and operating
in Armenia is the Armenian Dram (AMD), as this is the currency of
the primary economic environment in which it operates.
Treatment of royalty expense
Royalties paid in Armenia of US$4.5 million (2021: US$5.7
million) are included in cost of sales as they are calculated on
the basis of revenue earned from the supply of concentrates. The
royalty rate is calculated on fixed rate plus a variable component
based on measure of profitability. The royalty rate is levied on
revenue as a production based component. As the royalty expense is
not a charge on profit or loss before tax, management does not
consider it to be an income tax expense within the scope of IAS 12
Income Taxes.
Accounting for the concentrate purchase agreement
The Group has a contractual arrangement under which third party
ore is received, processed, purchased and sold to the customer.
The Group is deemed principal as opposed to agent as the
substance of this arrangement is considered to be an ore purchase
agreement such that inventory recognition occurs from that point
and the processing fee recoverable is deducted from the cost of the
material purchased.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources
of estimation uncertainty at the reporting period that may have a
significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year,
are discussed below.
Ore reserves
An ore reserve estimate is an estimate of the amount of product
that can be economically and legally extracted from the Group's
properties. Ore reserve estimates are used by the Group in the
calculation of depreciation of mining assets using the
units-of-production method; impairment charges and in forecasting
the timing of the payment of decommissioning and land restoration
costs. Also, for the purpose of impairment review and the
assessment of the timing of the payment of decommissioning and land
restoration costs, management may take into account mineral
resources in addition to ore reserves where there is a high degree
of confidence that such resources will be extracted.
In order to calculate ore reserves, estimates and assumptions
are required about geological, technical, and economic factors,
including quantities, grades, production techniques, recovery
rates, production costs, transport costs, commodity demand,
commodity prices, discount rates and exchange rates. Estimating the
quantity and/or grade of ore reserves requires the size, shape, and
depth of ore bodies to be determined by analysing geological data
such as the logging and assaying of drill samples. This process may
require complex and difficult geological judgements and
calculations to interpret the data.
Ore reserve estimates may change from period to period as
additional geological data becomes available during the course of
operations or if there are changes in any of the aforementioned
assumptions. Such changes in estimated reserves may affect the
Group's financial results and financial position in a number of
ways, including the following:
-- Assets' carrying values due to changes in estimated future
cash flows;
-- Depreciation charged in the consolidated income statement
where such charges are determined by using the units-of-production
method;
-- Provisions for decommissioning and land restoration costs
where changes in estimated reserves affect expectations about the
timing of the payment of such costs; and
-- Carrying value of deferred tax assets and liabilities where
changes in estimated reserves affect the carrying value of the
relevant assets and liabilities.
Inventory impairment policy and estimate
For concentrate and ore stockpiles the net realisable value
represents the estimated selling price for that product based on
forward metal prices according to the applicable contract terms,
less the estimated costs to complete production and selling costs,
including royalty. Production cost is determined as the sum of the
applicable expenditures incurred directly or indirectly in bringing
inventories to their existing condition and location. The estimated
costs to complete and selling costs are obtained from the current
production budgets, approved for the reporting year. The carrying
value of inventory at 31 December 2022 was US$9.9 million (2021:
US$16.2 million) and the inventory write-down provision to net
realisable value amounted to US$1.9 million as at 31 December 2022
(2021: US$1.9 million), relating mainly to consumables and spare
parts.
Provision for environmental obligations
A provision for the costs to restore working areas on the Kapan
mine, including decommissioning of plant and securing of the
tailings dam, requires estimates and assumptions to be made. These
include estimates and assumptions around the relevant environmental
and regulatory requirements, inflation, the magnitude of the
possible disturbance and the timing, extent, and costs of the
required decommissioning activities.
In calculating the provision, cost estimates of the future
potential cash outflows based on current assessments of the
expected decommissioning activities and timing thereof, are
prepared. These forecasts are then discounted to their present
value using a discount rate as disclosed in Note 23. The works and
technical studies are continuing and as the actual future costs can
differ from the estimates due to changes in regulations,
technology, costs and timing, the provision including the estimates
and assumptions contained therein are regularly reviewed by
management. The current estimate reviewed by management is based on
a new estimate completed in 2021. The provision at 31 December 2022
is US$11.7 million (2021: US$10.5 million). A 25% increase or
decrease in the potential cash flows would increase or decrease the
provision by US$2.9million. The basis of the provision recognised
is an assumed mine closure date of 2027 with rehabilitation being
primarily completed in the subsequent year. An acceleration or
deferral of this expenditure by one year would increase/decrease
the provision by US$1.3 million.
Legal claim provisions
As disclosed in Note 31, legal claim provisions totalling US$2.2
million have been recognised as the Group has a present obligation
as a result of a past event, it is probable that an outflow of
resources will be required to settle the disputes, a reliable
estimate can be made of the amount of the obligation however there
is uncertainty around the timing of payments to be made.
4. Revenue
The revenue recognised from contracts with customers consisted
of the following:
2022 2021
US$'000 US$'000
--------------------------------- -------- --------
Copper concentrate 72,725 77,134
Zinc concentrate 16,670 13,114
3(rd) party ore processing fees 1,468 -
Zinc concentrate freight 1,483 2,186
Total 92,346 92,434
--------------------------------- -------- --------
The Group's sales of copper and zinc concentrate are based on
provisional 1-3 month commodity forward prices and as such, contain
an embedded derivative which is marked-to-market at each month
end.
The Group's sales are to internationally well-established
commodity traders under standard offtake terms.
Copper concentrate sales are made on an Ex Works basis meaning
that control passes to the buyer when the concentrate is loaded on
the truck at the Kapan mine. Zinc concentrate sales were made on a
cost, insurance, and freight ("CIF") basis meaning that control
passes to the buyer when the concentrate is loaded on the vessel in
the port of shipment (e.g., port of Poti, Georgia).
In addition to the Group's own concentrates, it processes third
party ore into concentrate and sells it to customers. Of the
US$92.4 million generated from concentrate sales in 2022, US$76.6
million relates to own concentrate sales and US$15.7 million
relates to third-party concentrate sales (2021: US$72.8 million and
US$19.6 million).
In 2022, the Group has continued to recognise contract
liabilities in relation to its contracts with customers for
prepayments received for the future transfer of concentrates, as
set out in Note 26.
5. Cost of sales
2022 2021
US$'000 US$'000
------------------------------------------- ------------ --------------
Depreciation and amortisation 10,816 5,941
Employee benefit expenses 11,504 8,817
Materials 18,130 12,973
Services 19,322 14,616
Royalties 4,543 5,665
Energy and fuel 6,710 4,103
Cost of purchased ore and concentrate* 9,911 16,143
Short-term lease charges 1,234 951
Other 66 49
Total 82,236 69,258
------------------------------------------- ------------ --------------
* In both 2021 and 2022, the Group processed third party ore
into concentrate for a fee. The Group purchases the processed
concentrate and sells it to customers, resulting in third-party
revenue, which is recognised in addition to own ore revenue, as
disclosed in note 4. The amount expensed in cost of sales is equal
to the price paid to the third party, which is net of the
processing fee charged by the Group on the basis the substance of
these arrangements is that of an ore purchase agreement.
6. Operating profit
The operating profit is stated after charging/(crediting):
2022 2021
US$'000 US$'000
----------------------------------------------- --------- ---------
Depreciation of property, plant and equipment 11,415 6,841
Amortisation of intangible assets 252 274
Short-term/low value lease charges 1,395 1,083
Share based payment charges 373 1,251
Loss on the sale of fixed assets (12) 4
(Gain)/loss on foreign exchange (3,455) (1,475)
Fees payable to Group auditors for the audit
of the Group financial
statements 186 234
Fees payable to associated firms of the
auditor for the audit of subsidiaries 63 83
Change in legal provision 535 75
Selling expenses 2,196 2,444
7. Selling expenses
Selling expenses consisted of the following:
2022 2021
US$'000 US$'000
------------------------------- -------- --------
Transportation expenses 1,483 1,099
Sampling and inspection 132 125
Staff costs 208 246
Customs clearance 49 675
Utilities 36 30
Depreciation and amortisation 8 6
Material 263 77
Services 16 27
Other 1 159
Total 2,196 2,444
------------------------------- -------- --------
8. Administrative expenses
The administrative expenses consisted of the following:
2022 2021
US$'000 US$'000
----------------------------------- -------- --------
Readmission and acquisition costs 81 242
Legal and compliance 71 422
Regulatory 280 359
Investor relations 241 363
Salaries 5,862 6,383
Corporate support 1,383 3,787
Travel and subsistence 161 159
Share-based payment charges 373 1,251
Total 8,452 12,966
----------------------------------- -------- --------
9. Segmental analysis
Operating segments are identified based on internal reports
about components of the Group that are regularly reviewed by the
Board, in order to allocate resources to the segments and to assess
their performance.
Based on the proportion of revenue and profit within the Group's
operations and on the differences in principal activities, the
Board considers there to be two operating segments:
-- Exploration for mineral deposits in the Kyrgyz Republic with
support provided from the British Virgin Islands ('Kyrgyz
Republic')
-- Exploration and production of copper and zinc concentrates at Kapan in Armenia ('Armenia')
Kyrgyz Republic Armenia Corporate Total
31 December 2022 US$'000 US$'000 US$'000 US$'000
Revenue
Sales to external customers - 92,436 - 92,346
Total segment revenue - 92,436 - 92,346
---------------- -------- ---------- --------
Operating profit/(loss) (2,033) 6,504 (5,008) (538)
Finance income - 28 - 28
Finance costs - (3,136) (3,578) (6,714)
Fair value gain on warrant - - 367 367
Profit/(loss) before income tax (2,033) 3,396 (8,219) (6,856)
---------------- -------- ---------- --------
Income tax charge - (1,721) - (1,721)
---------------- -------- ---------- --------
Profit/(loss) after income tax (2,033) 1,675 (8,219) (8,577)
---------------- -------- ---------- --------
Assets
Segment assets - non-current 82,399 48,306 - 130,705
Segment assets - current 154 26,791 484 27,430
Total assets 82,553 75,097 484 158,134
---------------- -------- ---------- --------
Liabilities
Segment liabilities 2,308 53,380 29,838 85,526
Total liabilities 2,308 53,380 29,838 85,526
---------------- -------- ---------- --------
Kyrgyz Republic Armenia Corporate Total
31 December 2021 US$'000 US$'000 US$'000 US$'000
Revenue
Sales to external customers - 92,434 - 92,434
Total segment revenue - 92,434 - 92,434
---------------- -------- ---------- --------
Operating profit/(loss) (2,299) 17,448 (7,361) 7,788
Finance income - 17 6 23
Finance costs - (3,043) (4,853) (7,896)
Fair value gain on warrant - - 434 434
Loss before income tax (2,299) 14,422 (11,774) 349
---------------- -------- ---------- --------
Income tax charge - (3,937) - (3,937)
---------------- -------- ---------- --------
Loss after income tax (2,299) 10,485 (11,774) (3,588)
---------------- -------- ---------- --------
Assets
Segment assets - non-current 78,562 41,173 - 119,735
Segment assets - current 277 43,797 7,749 51,823
Total assets 78,839 84,970 7,749 171,558
---------------- -------- ---------- --------
Liabilities
Segment liabilities 2,253 65,753 26,675 94,682
Total liabilities 2,253 65,753 26,675 94,682
---------------- -------- ---------- --------
10. Staff numbers and costs
2022 2021
Number Number
--------------------------------------------- ------- -------
Management and administration 135 167
Exploration and evaluation 50 54
Production and service 947 948
Total 1,132 1,169
--------------------------------------------- ------- -------
The aggregate payroll costs of these persons US$'000 US$'000
were as follows:
Staff wages and salaries 19,310 17,725
Employee share-based payment charges - 966
Directors' remuneration as detailed in the
Remuneration Report
Wages and salaries 1,202 880
Termination benefits - 575
Share-based payment charges 373 285
--------------------------------------------- ------- -------
Total 20,886 20,431
--------------------------------------------- ------- -------
The share-based payment charge in 2022 relates to the fair value
charge attributed to share options issued to the Chief Executive
Officer which vested immediately in January 2022.
The staff wages and salaries include amounts capitalised to
exploration and evaluation assets of US$2.9 million (2021: US$3.1
million).
11. Directors' remuneration
The costs of certain Directors' services were charged to the
Company via consultancy companies, as separately detailed below and
in the related party transactions Note 32, rather than directly as
short-term employment costs. These arrangements are in place purely
for administrative convenience and are not methods to mitigate,
reduce or remove liabilities to taxation in the respective
Director's country of residence. Details of Directors' remuneration
are provided in the Remuneration Report.
Total remuneration 2022 2021
US$'000 US$'000
--------------------------------------------------- --------- ---------
Salary and fees paid directly 1,152 830
Salary and fees paid via related party consultancy
companies 50 50
Termination benefits - 575
Share-based payment charges 373 285
--------------------------------------------------- --------- ---------
Total 1,575 1,740
--------------------------------------------------- --------- ---------
The share-based payment charge in 2022 relates to the fair value
charge attributed to share options issued to the Chief Executive
Office which vested immediately in January 2022.
The share-based payment charge in 2021 relates to the fair value
charge attributed to tranche 3 RSUs which vested in April 2021.
12. Finance costs
2022 2021
US$'000 US$'000
--------------------------------------- --- -------- --------
Interest on convertible loan notes 25 3,899 3,793
Interest on other loans 29 1,605 2,184
Interest on lease liabilities 28 123 128
Interest on contract liabilities 26 117 204
Unwinding of discount - provision for
environmental obligations 23 1,291 705
Financing costs 25 (321) 867
Other - 15
Total 6,714 7,896
--------------------------------------- --- -------- --------
The interest on other loans of US$1.6 million includes interest
on borrowings of US$1.3 million, interest on other borrowings of
US$0.2 million and interest on the working capital facility of
US$0.1 million. No finance costs have been capitalised.
The financing credit of US$0.3 million, a non-cash credit,
relates to non-substantial modification of the convertible loan
notes as disclosed in Note 25. In 2021, the financing costs of
US$0.9 million related to the amortisation of the Labro Facility
commitment fee.
13. Taxation
The Group is not subject to corporate tax in the British Virgin
Islands. Companies engaged in the production and sale of gold in
the Kyrgyz Republic pay a revenue-based tax on the sales of gold
rather than tax on profit. Accordingly, the Group has an effective
rate of tax on profit of 0% in these jurisdictions. In the
remaining jurisdictions in which the Group operates, being Armenia,
Cyprus and the United Kingdom, profits are subject to corporate
income tax at a rate of 18%, 12.5% and 19%, respectively.
Within Armenia, the rate of corporate income tax is 18% for
resident companies (with a worldwide tax base) for 2022. The tax
period of corporate income tax is one calendar year (1 January - 31
December). Advance payments of corporate income tax are required to
be made quarterly by the 20(th) day of the third month of each
quarter. The advance payment is equal to 20% of the corporate
income tax reported in the previous tax year. The balance of tax
due must be paid by 20 April of the year following the reporting
year. Corporate income tax is determined based on rules and
principles of accounting defined by the law or other legal
acts.
Within the Kyrgyz Republic, a fixed royalty is payable on the
sale of gold. In 2022, the fixed royalty percentage remained at 8%,
comprising a royalty of 5% and a contribution to local
infrastructure of 3% (2021: 8%, 5% and 3%). However, due to the
Stabilisation Agreement that was signed in 2019 which entitled the
Company's local subsidiary, Chaarat Zaav, to benefit from any
future changes in direct taxes during the 10 years from the date of
the agreement, the fixed royalty percentage is capped at 7%. A
further percentage rate of tax is based on the average monthly
international gold price, being 1% if the gold price is below
US$1,300 per ounce and up to 20% when the gold price exceeds
US$2,501 per ounce. The maximum royalty payable when the gold price
is above US$2,501 per ounce is therefore 27%. However, as the
Group's assets in the Kyrgyz Republic are at an exploration stage,
the Group has no royalty payable in respect of these assets for the
years ended 31 December 2022 or 31 December 2021.
Further, under the Article 301 of the Tax Code of the Kyrgyz
Republic, an entity is subject to a taxation in payment of the
right to use subsoil, including for the purpose of developing a
mineral deposit. The tax base for calculating this is the amount of
geological reserves and forecast resources taken into account by
the State Balance of deposits of mineral resources of the Kyrgyz
Republic.
At the balance sheet date, the Group has received no tax claims
and the Directors believe that the Group is in compliance with the
tax laws affecting its operations and therefore there are no
further uncertain tax positions which require disclosure in
accordance with IFRIC 23.
The Group has recognised deferred tax assets which relate to
temporary differences arising at the Kapan mine in Armenia, as
detailed in Note 18.
Analysis of tax charge for the year
2022 2021
US$'000 US$'000
--------------------------------------- --- -------- --------
Armenian tax 947 2,269
Current tax 947 2,269
Origination and reversal of temporary
differences 774 1,668
Deferred tax 18 774 1,668
--------------------------------------- --- -------- --------
Income tax expense 1,721 3,937
--------------------------------------- --- -------- --------
Reconciliation of tax charge for the year
2022 2021
US$'000 US$'000
Profit/(loss) before tax (6,856) 349
---------------------------------------- -------- --------
Tax calculated at applicable
corporation tax rate:
Armenian corporation tax at
18% (2020:18%) 1,234 63
Tax effects of:
Items non-deductible/(non
- taxable) for tax purposes (1,110) (439)
Different tax rates applied
in overseas jurisdictions (1,539) (2,188)
Current tax losses not recognised (306) (345)
Write-down of previously recognised
deferred tax assets - (1,028)
---------------------------------------- -------- --------
Income tax expense (1,721) (3,937)
---------------------------------------- -------- --------
Tax losses
2022 2021
US$'000 US$'000
----------------------------------------- -------- --------
Unused tax losses for which no deferred
tax asset has been recognized
United Kingdom 201 278
Tax benefit at 25 % 50 53
Deferred tax assets are only recognised to the extent that it is
probable that taxable profits will be available against which
unused tax losses and unused tax credits can be utilised.
14. Loss per share
Loss per share is calculated by reference to the loss for the
year of US$8.6 million (2021: loss of US$3.6 million) and the
weighted average number of ordinary shares in issue during the year
of 689,655,467 (2021: 673,320,329).
At 31 December 2022, 8,920,341 (2021: 8,920,341) warrants,
44,170,931 (2021: 49,692,252 ) share options and convertible loan
notes have been excluded from the diluted weighted average number
of ordinary shares calculation because their effect would have been
anti-dilutive.
15. Exploration and evaluation costs
Tulkubash Kyzyltash Total
US$'000 US$'000 US$'000
-------------------------------- ---------- ---------- --------
At 1 January 2021 52,157 9,202 61,359
Additions 4,775 899 5,674
R eclassification to property,
plant & equipment (728) - (728)
-------------------------------- ---------- ---------- --------
At 31 December 2021 56,204 10,101 66,305
Additions 2,592 285 2,877
R eclassification to property, - - -
plant & equipment
-------------------------------- ---------- ---------- --------
At 31 December 2022 58,796 10,386 69,182
-------------------------------- ---------- ---------- --------
Exploration and evaluation assets comprise costs associated with
exploration for, and evaluation of, mineral resources together with
costs to maintain mining and exploration licences for mining
properties that are considered by the Directors to meet the
requirements for capitalisation under the Group's accounting
policies as disclosed in Note 3. As at 31 December 2022, management
does not consider there to be any impairment in respect of these
assets.
In 2021, the Company entered into an investment agreement ("The
Investment Agreement") with Çiftay which supersedes the previous
agreement that was signed in September 2019. Çiftay and the Company
decided to replace the previous agreement with the Investment
Agreement, in order to simplify the structure of the partnership
and further align the interests of both parties. Under the
Investment Agreement, Chaarat retains 100% ownership of the
Tulkubash and Kyzyltash projects with Çiftay becoming a strategic
investor at the Company level, through the issuance of new ordinary
shares. In July 2021, the Company issued 2.8 million new ordinary
shares to Çiftay with a fair value of US$0.8 million in settlement
of accrued expenses relating to Tulkubash construction activities.
Further shares issues will only take place once certain terms of
the agreement are triggered by securing project finance.
16. Intangible assets
Computer Other intangible
Software assets Total
US$'000 US$'000 US$'000
Cost
At 1 January 2021 1,451 281 1,732
Prior year reclassification
from PPE 18 - 18
Additions 152 - 152
Reclass from PPE
to IA 18 - 18
Effect of translation
to presentation currency 120 26 146
At 31 December 2021 1,741 307 2,048
Additions 67 - 67
Effect of translation
to presentation currency 348 66 414
At 31 December 2022 2,156 374 2,530
-------------------------------------------- --------- ---------------- -------
Accumulated amortisation
At 1 January 2021 491 20 511
Charge for the year 246 28 274
Effect of translation
to presentation currency 45 5 50
At 31 December 2021 782 53 835
Charge for the year 221 31 252
Effect of translation
to presentation currency 169 14 183
At 31 December 2022 1,172 98 1,270
-------------------------------------------- --------- ---------------- -------
Net book value
---------------------------- --------- ---------------- -------
At 31 December 2022 984 276 1,260
At 31 December 2021 959 254 1,213
At 1 January 2021 960 261 1,221
-------------------------------------------- --------- ---------------- -------
17. Property, plant and equipment
Land and Fixtures Right-of-use
buildings Mining and Motor Assets under Assets
properties fittings vehicles construction Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Cost
At 1 January 2021 9,014 32,223 1,467 648 6,447 1,781 51,580
Additions - 4,35 8 16 - 2,955 - 7,32 9
Transfers 32 510 1 - (543) - -
Changes in
estimates of
provision for
environmental
obligations - 1,566 - - - - 1,566
Disposals - (508) (2) - - - (510)
Reclassification
from inventories - 1,499 - - 165 - 1,6 64
Reclassification
from exploration
and evaluation
asset - - - - 728 - 728
Effect of
translation to
presentation
currency 330 3,05 5 105 19 120 157 3,78 6
At 31 December
2021 9,376 42, 703 1,587 667 9,872 1,938 66 ,143
Additions 122 8,354 - 200 2,960 674 12,310
Transfers - (84) - 107 (23) - -
Changes in
estimates of
provision for
environmental
obligations - (1,120) - - - - (1,120)
Disposals - (56) (34) (19) - (1,011) (1,120)
Effect of
translation to
presentation
currency 911 9,758 282 62 573 391 11,977
At 31 December
2022 10,409 59,555 1,835 1,017 13,382 1,992 88 ,190
------------------ ------------ ------------ ------------ ------------ ---------------- ------------ --------
Accumulated
depreciation
------------------ ------------ ------------ ------------ ------------ ---------------- ------------ --------
At 1 January 2021 2,242 7,281 663 343 - 513 11,042
Charge for the
year 802 5 ,431 375 109 - 590 7 ,307
Disposals - (503) (2) - - - (505)
Effect of
translation to
presentation
currency 100 75 4 54 11 - 74 99 3
At 31 December
2021 3,144 12 ,963 1,090 463 - 1,177 18 ,837
Charge for the
year 873 8,561 476 149 - 711 10,770
Disposals - (53) (30) (19) - (1,011) (1,113)
Effect of
translation to
presentation
currency 370 3,423 229 46 - 227 4,295
At 31 December
2022 4,387 24 ,894 1,765 639 - 1,104 32 ,78 9
------------------ ------------ ------------ ------------ ------------ ---------------- ------------ --------
Net book value
----------------- ------------ ------------ ------------ ------------ ---------------- ------------ --------
At 31 December
2022 6,022 34,661 7 0 378 13,382 888 55,401
At 31 December
2021 6,232 29,740 497 204 9,872 761 47,306
At 1 January 2021 6,772 24,942 804 305 6,447 1,268 40,538
------------------ ------------ ------------ ------------ ------------ ---------------- ------------ --------
The Group's property, plant and equipment relating to the
operations in Armenia, Kapan, are pledged as security to the
respective banks that have supplied bank debt to the Group.
As at 31 December 2022, management does not consider there to be
any indicators of impairment in respect of the Group's property,
plant and equipment.
18. Deferred Tax
Deferred tax assets have been recognised as a result of
temporary differences where the directors believe it is probable
that these assets will be recovered. The Group's deferred tax asset
relates to the Kapan mine in Armenia. Recoverability of the
recognised deferred tax asset is considered more likely than not
based upon expectations of future taxable income in Armenia. The
Group's estimate of future taxable income is based on established
proven and probable reserves which can be economically developed.
No deferred tax has been recognized in respect of the Group's
operations in the Kyrgyz Republic. As disclosed in Note 13, unused
tax losses for which no deferred tax asset has been recognised
amounts to US$0.2 million (2021: US$0.3 million).
The movement in net deferred tax assets during the year is as
follows:
2022 2021
US$'000 US$'000
---------------------------------- --------- ---------
At 1 January 4,381 5,631
Charged to the income statement (774) (1,668)
Effect of currency translation 882 418
At 31 December 4,489 4,381
---------------------------------- --------- ---------
Comprising:
Deferred tax assets 4,489 4,381
Deferred tax liabilities - -
---------------------------------- --------- ---------
Movements in temporary differences during the years ended 31
December are presented as follows:
2022 At 1 January Charged Effect Total
to the of currency
income translation
statement
US$'000 US$'000 US$'000 US$'000
----------------------------- ------------- ----------- --------------- ----------
Property, plant and
equipment 4,175 (1,018) (145) 3,012
Trade and other receivables 177 (181) 20 16
Inventories (190) 281 864 955
Other provisions 54 56 18 128
Trade and other payables 54 113 24 191
Lease liabilities 111 (25) 101 187
Total 4,381 (774) 882 4,489
----------------------------- ------------- ----------- --------------- ----------
2021 At 1 January Charged Effect Total
to the of currency
income translation
statement
US$'000 US$'000 US$'000 US$'000
----------------------------- ------------- ----------- --------------- ----------
Property, plant and
equipment 4,516 (706) 365 4,175
Trade and other receivables 49 119 9 177
Inventories 684 (892) 18 (190)
Other provisions 48 2 4 54
Trade and other payables 108 (61) 7 54
Lease liabilities 226 (130) 15 111
----------------------------- ------------- ----------- --------------- ----------
Total 5,631 (1,668) 418 4,381
----------------------------- ------------- ----------- --------------- ----------
19. Inventories
Inventories represent goods held for sale in the ordinary course
of business (copper and zinc concentrate), ore being processed into
a saleable condition (ore stockpiles) and consumables and spares to
be used in the production process.
2022 2021
US$'000 US$'000
----------------------------------------- --------- ---------
Consumables and spare parts 10,802 8,861
Copper and zinc concentrate in stock 683 5,984
Copper and zinc concentrate in transit 1,056 1,432
Ore stockpiles extracted 3,667 2,157
Other - 8
At 31 December 16,208 18,442
----------------------------------------- --------- ---------
20. Trade and other receivables
2022 2021
US$'000 US$'000
------------------------------ -------- --------
Trade receivables 6,654 18,620
Other receivables 984 2,856
Unpaid shares issued - 6
Prepayments 3,118 766
Less: expected credit losses (90) (1)
At 31 December 10,666 22,247
------------------------------ -------- --------
The movement in the loss allowance for expected credit losses is
detailed below:
2022 2021
US$'000 US$'000
-------------------------------- -------- --------
At 1 January 1 271
Movement during the year (242) (270)
Effect of currency translation 331 -
At 31 December 90 1
-------------------------------- -------- --------
21. Cash and cash equivalents
2022 2021
US$'000 US$'000
------------------------------------------ --------- ---------
Cash on hand 1 2
Current accounts in UK 378 7,646
Current accounts in the Kyrgyz Republic 138 264
Current accounts in Armenia 99 3,222
At 31 December 616 11,134
------------------------------------------ --------- ---------
There are no amounts of cash and cash equivalents which are not
available for use by the Group. All amounts held in current
accounts can be drawn on demand if required.
22. Capital and reserves
The share capital of the Company consists of shares of US$0.01
par value of a single class. All shares have equal rights to
receive dividends or capital repayments and all shares represent
one vote at meetings of shareholders of the Company.
22(a) Capital management policies and procedures
The Group's objectives for the management of capital have not
changed in the year. The Directors seek to ensure that the Group
will continue to operate as a going concern in order to pursue the
development of its mineral properties, to sustain future
development and growth as well as to maintain a flexible capital
structure which optimises the cost of capital at an acceptable
risk. The Company manages the capital structure and adjusts it in
light of changes in economic conditions and the risk
characteristics of the underlying assets. In order to maintain or
adjust the capital structure, the Company may issue shares, seek
debt financing, or acquire or dispose of assets. The Company,
following approval from the Board of Directors, will make changes
to its capital structure as deemed appropriate under specific
circumstances.
The Group considers equity to be all components included in
shareholders' funds and net debt to be short and long-term
borrowings including convertible loan notes less cash and cash
equivalents. The Group's net debt to equity ratio at 31 December
was as follows:
2022 2021
US$'000 US$'000
---------------------------------- --------- ---------
Total Equity 72,608 76,876
Convertible loan notes 29,203 25,625
Other loans 17,806 21,328
Contract liabilities 3,720 2,379
Lease liabilities 1,186 978
Warrant financial liability 13 380
Less: cash and cash equivalents (616) (11,134)
---------------------------------- --------- ---------
Net debt 51,312 39,556
---------------------------------- --------- ---------
Net debt to equity ratio 71% 51%
---------------------------------- --------- ---------
Other loans include borrowings which relate to external bank
financing obtained for the acquisition of Kapan. This bank
financing has certain covenants attached to it that the Group needs
to adhere to. Two covenants of the loan were not satisfied during
the year and have been considered as part of the Group's going
concern assessment in Note 2. Ameriabank waived the non-compliance
for not meeting the covenants and decided not to apply any waiver
fees.
The convertible loan notes, as disclosed in Note 25,
respectively, do not have covenants attached to them. As the
convertible loan notes are repayable within the next 12 months,
they have been disclosed as a current liability as at 31 December
2022.
22 (b) Share capital
2022 2021
Ordinary shares of US$0.01 Number of Nominal Number of Nominal
each Shares ('000) Value US$'000 Shares ('000) Value US$'000
----------------------------- --------------- --------------- --------------- ---------------
Authorised 1,395,167 13,952 1,395,167 13,952
----------------------------- --------------- --------------- --------------- ---------------
Issued and fully paid
At 1 January 689,411 6,894 540,061 5,401
Issued for cash 9 - 84,115 841
Issued to settle liabilities 247 3 65,235 652
Exercise of warrants - - - -
Exercise of share options - - - -
----------------------------- --------------- --------------- --------------- ---------------
At 31 December 689,667 6,897 689,411 6,894
----------------------------- --------------- --------------- --------------- ---------------
The share capital of the Company consists of ordinary shares of
a single class. All shares have equal rights to receive dividends
or capital repayments and all shares represent one vote at meetings
of the Company.
The company issued 247,368 ordinary shares of US$0.01 each in
the company to Mike Fraser as a sign on bonus. Due to human error,
one of the MMQs used to calculate the three-day average MMQ was
incorrect which resulted in 255,935 shares being issued to the CEO
rather than 247,368. The CEO rectified this by paying the Company a
cash subscription price for the additional 8,567 shares at the
three-day average MMQ .
Trust
On 7 October 2019, the Group established the Chaarat Gold
Holdings Limited Employee Benefit Trust in order to acquire and
hold sufficient shares to satisfy the awards under the new Plan.
The Company has control over the Trust and therefore the results of
the Trust were consolidated within these financial statements.
During the year, expenses of US$0.07 million were incurred by the
Trust (2021: US$0.05 million). At 31 December 2022, the Trust held
1,070,194 shares (2021: 1,070,194 shares).
22 (c) Share options and share-based payments
Share options
The Group operates a share option plan under which directors,
employees, consultants, and advisers have been granted options to
subscribe for ordinary shares. All options are share settled. The
number and weighted average exercise price of share options are as
follows:
2022 2021
Weighted
average Weighted
exercise average
Number of price Number of exercise
Options (US$) Options price (US$)
---------------------------- ------------------ ---------- ---------------- -------------
Outstanding at 1 January 49,692,252 0.567 55,027,006 0.523
Exercised during the - - - -
year
Granted during the
year 5,000,000 0.574 - -
Replaced during the - - - -
year
Lapsed during the year (10,521,322) 0.519 (5,334,754) 0.578
---------------------------- ------------------ ---------- ---------------- -------------
Outstanding at 31
December 44,170,930 0.508 49,692,252 0.567
---------------------------- ------------------ ---------- ---------------- -------------
Exercisable at 31 December 44,170,930 0.508 49,692,252 0.567
---------------------------- ------------------ ---------- ---------------- -------------
The share options outstanding at 31 December 2022 had a weighted
average remaining contractual life of 1.6 years (2021: 2.7 years).
Maximum term of the options granted was 5 years from the grant
date. The share options outstanding at 31 December 2022 had an
exercise price of GBP0.42 (2021: GBP0.42).
All goods and services received in exchange for the grant of any
share-based payment are measured at their fair values. Where
employees are rewarded using share-based payments, the fair values
of employees' services are determined indirectly by reference to
the fair value of the instrument granted to the employee. This
estimate is based on a Black-Scholes model which is considered most
appropriate considering the effects of the vesting conditions and
expected exercise period.
The total number of options over ordinary shares outstanding at
31 December 2022 was as follows:
Exercise
Exercise period Number price
---------------------------------------- ------------ ---------
18 September 2019 to 18 September 2024 28,056,857 GBP0.42
18 September 2019 to 4 February 2023* 8,150,320 GBP0.42
18 September 2019 to 3 April 2023* 2,963,753 GBP0.42
18 January 2022 to 18 January 2027 5,000,000 GBP0.42
---------------------------------------- ------------ ---------
Total 44,170,930 GBP0.42
---------------------------------------- ------------ ---------
*Options lapsed post year end.
Management Incentive Plan
On 18 September 2019, the Group adopted a new Management
Incentive Plan ("MIP") whereby 56,805,258 share options exercisable
at GBP0.42 per share and 21,494,198 restricted stock units ("RSUs")
were granted to key management personnel ("KMPs") and other
employees (subject to performance conditions for executives in the
case of the RSUs). 33% of the share options and RSUs vested on 15
October 2019 (Tranche 1), 33% on 31 December 2019 and (in the case
of RSUs subject to performance conditions) on 21 February 2020
(Tranche 2), and the remaining 33% of share options vested on 31
December 2020 subject to a vesting condition of continued
employment by the Group. On 15 April 2021, 5,308,640 RSUs (Tranche
3) vested following final determination by the remuneration
committee of the extent to which performance criteria had been
achieved, in the case of awards subject to performance conditions.
RSUs not subject to performance conditions in Tranche 3 vested at
the same time.
On 22 April 2021, a further 2,122,466 RSUs were granted to KMPs
and other employees which vested immediately on this date. As a
result, a total share-based payment charge of US$1.3 million was
recognised during 2021, US$0.5 million of which related to the
remaining Tranche 3 RSUs and US$0.8 million to the additional RSUs
granted on 22 April 2021.
There was no exercise of share options during 2021, however
5,334,754 share options lapsed due to two employees leaving the
Company during the year.
On 18 January 2022, a further 5,000,000 share options
exercisable at GBP0.42 per share were granted to the Company's
Chief Executive Office which vested immediately on this date. As a
result, a total share-based payment charge of $0.4 million was
recognised during 2022.
There was no exercise of share options during 2022, however
10,521,322 share options lapsed due to employees leaving the
Company during the year. A further 11,114,073 share options lapsed
between the year-end date and the date of this report.
22 (d) Convertible loan note reserve
The convertible loan note reserve represents the equity
component of convertible loan notes issued by the Company. Refer to
Note 25 for f urther information.
2022 2021
US$'000 US$'000
----------------------------------------- --------- ---------
At 1 January 1,420 2,493
Modification of convertible loan notes - (1,073)
At 31 December 1,420 1,420
----------------------------------------- --------- ---------
22 (e) Own shares reserve
The own shares reserve represents the nominal value of equity
shares that have been repurchased by the company. The movement in
the reserve is as follows:
2022 2021
US$'000 US$'000
------------------------------ --------- ---------
At 1 January (132) (216)
Transfer of treasury shares 28 84
At 31 December (104) (132)
------------------------------ --------- ---------
23. Provision for environmental obligations
The provision for environmental obligations relates to the Kapan
mine in Armenia. According to Armenian legislation and licence
agreements, the Company is committed to restoring working areas on
the mine, including decommissioning of plant and securing of the
tailings dam. Movements in the provision are as follows:
2022 2021
US$'000 US$'000
---------------------------------------- --------- ---------
At 1 January 10,521 7,479
Change in provision (2,313) 1,566
Unwinding of discount 1,291 705
Reclassification to deferred expenses - -
Effect of currency translation 2,208 771
---------------------------------------- --------- ---------
At 31 December 11,707 10,521
---------------------------------------- --------- ---------
Further details relating to the calculation of the balance as at
31 December 2022 are as follows:
31/12/2022 31/12/2021
-------------------------------------------------------------------- ------------------ ------------------
Discount rates 11.98 % 9 .91%
Provision settlement date 3 1/12/2028 3 1/12/2027
Estimated undiscounted cash flow required to settle the provision U S$14.1 million U S$14.1 million
-------------------------------------------------------------------- ------------------ ------------------
24. Reconciliation of liabilities
Contract Other loans Total
Convertible loans liabilities Lease liabilities
Li abilities from financing US$'000 US$'000
activities US$'000 US$'000 US$'000
---------------------------------- ------------------ ------------- ------------------ ------------ -------------
At 1 January 2021 23,252 5,328 1,425 53,347 83,352
---------------------------------- ------------------ ------------- ------------------ ------------ -------------
Cash flows:
Cash proceeds - - - - -
Payment of interest - - - (2,295) (2,295)
Payment of principal amount - - - (9,800) (9,800)
Lease payments - - (674) - (674)
---------------------------------- ------------------ ------------- ------------------ ------------ -------------
Net proceeds - - (674) (12,095) (12,769)
---------------------------------- ------------------ ------------- ------------------ ------------ -------------
Non-cash items:
Loan modification (1,420) - - 8 (1,412)
Converted to equity - - - (22,117) (22,117)
Interest accrued 3,793 204 128 2,184 6,309
Settlement of interest against
receivables - (120) - - (120)
Amounts recognised as revenue
during the year - (3,250) - - (3,250)
Effect of currency translation 217 99 1 317
---------------------------------- ------------------ ------------- ------------------ ------------ -------------
Total liabilities from financing
activities at 31 December 2021 25,625 2,379 978 21,328 50,310
---------------------------------- ------------------ ------------- ------------------ ------------ -------------
Non-current - - 732 9,688 10,420
Current 25,625 2,379 246 11,640 39,890
---------------------------------- ------------------ ------------- ------------------ ------------ -------------
Cash flows:
Cash proceeds - 3,000 - 6,000 9,000
Payment of interest - - - (1,633) (1,633)
Payment of principal amount - - - (9,500) (9,500)
Lease payments - - (709) - (709)
Net proceeds - 3,000 (709) (5,133) (2,842)
Non-cash items:
Additions - 578 - 578
Loan modification (321) - - - (321)
Lease modification - - 124 - 124
Interest accrued 3,899 117 123 1,605 5,744
Settlement of interest against
receivables - (50) - - (50)
Reversal of lease payable - - (123) - (123)
Amounts recognised as revenue
during the year - (2,026) - - (2,026)
Effect of currency translation 300 215 7 522
---------------------------------- ------------------ ------------- ------------------ ------------ -------------
Total liabilities from financing
activities at 31 December 2022 29,203 3,720 1,185 17,806 51,915
---------------------------------- ------------------ ------------- ------------------ ------------ -------------
Non-current - - 885 - 885
Current 29,203 3,720 300 17,806 51,030
---------------------------------- ------------------ ------------- ------------------ ------------ -------------
25. Convertible loan notes
During the year no new convertible loan notes were issued,
however the maturity date was extended by 9 months from 31 October
2022 to 31 July 2023. The conversion price of the notes remained at
GBP0.30 per share. The only other transaction during the year was
accrued interest of US$3.9 million (2021: US$3.8 million).
2022 Notes US$'000
--------------------- --------
At 31 December 2020 23,252
Cash proceeds -
Transaction costs -
--------------------- --------
Net proceeds -
--------------------- --------
Loan modification (1,420)
Accrued interest 3,793
--------------------- --------
At 31 December 2021 25,625
--------------------- --------
Cash proceeds -
Transaction costs -
--------------------- --------
Net proceeds -
--------------------- --------
Loan modification (321)
Accrued interest 3,899
--------------------- --------
At 31 December 2022 29,203
--------------------- --------
The number of shares to be issued on conversion is fixed. There
are no covenants attached to the convertible loan notes.
The 2021 notes accrued interest at 10% p.a. until 30 April 2020
and then at a rate of 12% p.a. until 31 October 2021. The notes are
secured on the shares of the Group's principal operating
subsidiary, Chaarat Zaav CJSC via the intermediate holding company
Zaav Holdings Limited.
On 21 October 2021, the maturity date of the convertible loan
notes was extended from 31 October 2021 to 31 October 2022 and the
conversion price reduced from GBP0.37 to GBP0.30 per share, which
was treated as a substantial modification for accounting purposes.
The coupon interest rate remains at 12% p.a.
The value of the liability and equity conversion component was
reassessed at the date of the modification. The fair value of the
liability component was calculated using a market interest rate of
15% for an equivalent instrument without conversion option.
In October 2022, the maturity date of the conversion loan notes
was extended by a further 9 months from 31 October 2022 to 31 July
2023 and accrued interest of US$9.2 million was capitalised as at
31 October 2022, which increased the principal value of the notes
to US$28.9 million. The extension was treated as a non substantial
modification for accounting purposes. The coupon interest rate
remains at 12% p.a. Further, a one off restructuring fee equal to
1% of the original principal amount of the notes became payable to
the holders at this date.
As the notes fall due in July 2023 , they have been classified
as current liabilities at 31 December 2022 .
26. Contract liabilities
The movements in the Group's contract liabilities for the year
are presented below:
2022 2021
US$'000 US$'000
-------------------------------------------- -------- --------
At 1 January 2,379 5,328
Cash received in advance of performance 3,000 -
Interest on contract liabilities 117 204
Settlement of interest against receivables (50) (120)
Amounts offset against revenue during the
year (2,026) (3,250)
Effect of currency translation 300 217
At 31 December 3,720 2,379
-------------------------------------------- -------- --------
Non-current - -
Current 3,720 2,379
-------------------------------------------- -------- --------
The contract liabilities balance relates to prepayments received
from one of Chaarat Kapan's customers for the future sale of
concentrates. The prepayments accrue interest at a rate defined in
the sales contract of 6-month SOFR plus 5% p.a. and are settled by
way of deduction against future outstanding invoices.
27. Trade and other payables
Trade and other payables at 31 December consisted of the
following:
2022 2021
US$'000 US$'000
Trade payables 16,541 27,799
Social security and employee taxes 2,305 1,951
Accruals 868 967
As at 31 December 19,714 30,717
----------------------------------- -------------- --------------
Trade and other payables are all unsecured.
28. Leases
The Group's leases are accounted for by recognising a
right-of-use asset and a lease liability except for leases of low
value assets and leases with a duration of 12 months or less.
The Group leases equipment and land in the jurisdictions from
which it operates, the most notable being the land that is leased
in Armenia. Certain items of property, plant and equipment are also
leased in the Kyrgyz Republic which contain variable payments over
the lease terms, therefore these leases do not fall within the
scope of IFRS 16, and right-of-use assets and lease liabilities are
not recognised as a result.
The movements in the Group's right-of-use assets and lease
liabilities for the year are presented below:
Right-of-use assets
Land Property Equipment Total
US$'000 US$'000 US$'000 US$'000
----------------------------------------------- -------- --------- ---------- --------
At 1 January 2021 808 - 460 1,268
Depreciation charge (114) - (476) (590)
Effect of translation to presentation currency 66 19 85
At 31 December 2021 760 - 3 763
------------------------------------------------ -------- --------- ---------- --------
Land Property Equipment Total
US$'000 US$'000 US$'000 US$'000
----------------------------------------------- -------- --------- ---------- --------
At 1 January 2022 760 - 3 763
Additions - - 578 578
Lease modification 97 - - 97
Depreciation charge (132) - (579) (711)
Effect of translation to presentation currency 165 (2) 163
At 31 December 2022 89 0 - - 89 0
------------------------------------------------ -------- --------- ---------- --------
Lease liabilities
Land Property Equipment Total
US$'000 US$'000 US$'000 US$'000
----------------------------------------------- -------- --------- ---------- --------
At 1 January 2021 859 - 566 1,425
Interest expense 97 - 31 128
Lease payments (189) - (485) (674)
Effect of translation to presentation currency 72 - 27 99
At 31 December 2021 839 - 139 978
------------------------------------------------ -------- --------- ---------- --------
Land Property Equipment Total
US$'000 US$'000 US$'000 US$'000
----------------------------------------------- -------- --------- ---------- --------
At 1 January 2022 839 - 139 978
Additions - - 578 578
Interest expense 86 - 36 122
Lease payments (217) - (491) (708)
Reversal of lease payable - - (123) (123)
Lease modification 124 - - 124
Effect of translation to presentation currency 184 - 30 214
At 31 December 2022 1,016 - 169 1,185
------------------------------------------------ -------- --------- ---------- --------
The maturity of the gross contractual undiscounted cash flows
due on the Group's lease liabilities is set out below based on the
period between 31 December and the contractual maturity date.
Within 6 months 6 months 1 to 5 Over 5 Total
to 1 years years at 31 December
year 2022
US$'000 US$'000 US$'000 US$'000 US$'000
------------- ---------------- --------- -------- -------- ----------------
Land leases 120 121 935 230 1,405
Equipment
leases 169 - - - 169
------------- ---------------- --------- -------- -------- ----------------
Total 289 121 935 230 1,574
------------- ---------------- --------- -------- -------- ----------------
Within 6 months 6 months 1 to 5 Over 5 Total
to 1 years years at 31 December
year 2021
US$'000 US$'000 US$'000 US$'000 US$'000
------------- ---------------- --------- -------- -------- ----------------
Land leases 9 8 99 774 189 1,160
Equipment
leases 1 39 - - - 1 39
------------- ---------------- --------- -------- -------- ----------------
Total 237 99 774 189 1,299
------------- ---------------- --------- -------- -------- ----------------
As at 31 December 2022, the gross contractual discounted cash
flows due on the Group's lease liabilities amounts to US$1.2
million (2021: US$1.0 million).
The discount rate used in calculating the lease liabilities is
the rate implicit in the lease, unless this cannot readily be
determined, in which case the Group's incremental rate of borrowing
is used instead. In 2022, a discount rate of 12% per annum has been
used to calculate the Group's lease liabilities for its land and
equipment leases.
29. Other loans
Other loans at 31 December consisted of the following:
Borrowings WC Facility Other Borrowings Total
US$'000 US$'000 US$'000 US$'000
--------------------------------------- ------------ ------------- ------------------ ---------
At 1 January 2022 19,286 - 2,042 21,328
Borrowing attracted in cash - 6,000 - 6,000
Interest accrued 1,281 149 175 1,605
P ayment of interest in cash (1,429) (56) (148) (1,633)
P ayment of principal amount in cash (9,500) - - (9,500)
Effect of currency translation 4 15 (13) 7
--------------------------------------- ------------ ------------- ------------------ ---------
At 31 December 2022 9,642 6,108 2,056 17,806
--------------------------------------- ------------ ------------- ------------------ ---------
Non-current - - - -
Current 9,642 6,108 2,056 17,806
--------------------------------------- ------------ ------------- ------------------ ---------
Borrowings
On 30 January 2019, the documentation was finalised for the
Kapan Acquisition Financing totalling US$40 million, which is
syndicated with Ameriabank CJSC (US$32 million), HSBC Bank Armenia
CJSC (US$5 million) and Ararat Bank OJSC (US$3 million). The loan
incurs interest at LIBOR plus 8% and was originally repayable
through quarterly payments over a four-year period however in July
2021, the maturity date of the facility was extended from 31
January 2023 to 2 October 2023.
This bank financing has certain covenants attached to it that
the Group needs to adhere to. Two covenants of the loan were not
satisfied during the year. Social spending should not exceed US$0.3
million per year with 2022 totalling US$0.5 million. The minimum
cash balance at year end should not be less than US$1.0 million
with cash on hand at year end totalling US$0.1 million. Ameriabank
waived the non-compliance for not meeting the covenants and decided
not to apply any waiver fees.
WC Facility
In 2022, the Company entered into two new agreements with
Ameriabank CJSC totalling US$6.0 million. This included a line of
credit agreement with a maximum limit of US$4.0 million on August
12, 2022. The loan incurs interest at an annual floating interest
rate of 11% and is repayable through quarterly instalments starting
from January 20, 2023. An additional loan agreement was entered on
November 11, 2022 for US$2.0 million. The loan interest rate is
12.5% per annum and the principal is repayable through two equal
instalments on July 17, 2023 and October 2, 2023.
Other borrowings
Other borrowings include an amount owing to one of Chaarat
Kapan's customers in respect of prepayments for the future sale of
concentrates. The prepayments accrue interest at 1-month LIBOR plus
6% p.a. and are expected to be settled in cash in accordance with a
repayment schedule defined in the sales contract. The prepayments
can be requested upon notice and therefore are repayable on
demand.
The contractual maturities of other loans (representing
undiscounted cash-flows) are disclosed in Note 34.
30. Warrant financial liability
In October 2020, as compensation for the extension option of the
Investor Loan, 8,920,341 warrants were issued with an exercise
price of GBP0.26, expiring on 5 October 2023. The warrants are
revalued at each reporting date. In 2022, a fair value gain of
US$0.4 million was recognised in profit or loss due to a decline in
the share price. The movement in the balance is set out below:
2022 2021
US$'000 US$'000
At 1 January 380 814
Issue of warrants - -
Fair value gain (367) (434)
As at 31 December 13 380
------------------ ------------- -------------
The warrants to purchase ordinary shares remain outstanding at
31 December 2022 as follows:
2022 2021
Exercise
Number of price Number of Exercise
Expiry date Warrants (GBP) Warrants price (GBP)
---------------- --------------- --------- --------------- -------------
5 October 2023 8,920,342 0.26 8,920,342 0.26
Total 8,920,342 0.26 8,920,342 0.26
---------------- --------------- --------- --------------- -------------
The estimated fair value of the warrants was measured based on
the Black-Scholes model. The inputs used in the calculation of the
fair value of the warrants at 31 December 2022, using an exchange
rate of 1.21, were as follows:
31 December 2022
---------------------------------- ----------------
Fair value US$0.001
Share price US$0.13
Weighted average exercise price US$0.31
Expected volatility 59.33%
Expected life 0.63 years
Expected dividend yield 0.00%
Risk-free interest rate 4.75%
---------------------------------- ----------------
The expected volatility is based on the historical share price
of the Company.
31. Other provisions for liabilities and charges
Other provisions for liabilities and charges relate mainly to
employment disputes in Armenia ("Legal Claims Provision") of US$0.7
million at 31 December 2022 (2021: US$1.2 million) and a legal
claim of US$1.3 million at 31 December 2022 (2021: US$1.3 million)
that was charged against Chaarat in the Kyrgyz Republic whereby
compensation for agricultural losses was demanded ("Land
Provision"). US$0.8 million of the employment dispute provision was
covered by an indemnity included in the original Kapan acquisition
agreement. At 31 December 2021, the Directors considered
recoverability virtually certain and accordingly recognised a
corresponding within other receivables, however this has
subsequently been written-off at 31 December 2022 as recoverability
is no longer virtually certain.
The provisions have been recognised as, based on the Group's
legal views, it is considered probable that an outflow of resources
will be required to settle the disputes, however there is
uncertainty around the timing of payments to be made. There are no
expected reimbursements relating to these provisions.
The movement in provisions in 2022 is as follows:
Legal Land Other Total
Claims Provision Provision
Provision
US$'000 US $'000 US$'000 US$'000
--------------------- ----------- ----------- ----------- --------
At 1 January
2022 1,207 1,342 205 2,754
Change in provision 535 - - 535
Settlement of
provision in
cash (1,227) - - (1,227)
Foreign exchange
on conversion 193 (15) (1) 177
-------------------------- ----------- ----------- ----------- --------
At 31 December
2022 708 1,327 204 2,239
-------------------------- ----------- ----------- ----------- --------
32. Related party transactions
Remuneration of key management personnel
Remuneration of key management personnel is as follows:
2022 2021
US$'000 US$'000
Short term employee benefits 1,758 1,618
Termination benefits - 575
Share-based payments charge 373 856
Total 2,131 3,049
----------------------------- ------------- -------------
Included in the above key management personnel are 8 directors
and 2 key managers (2021: 8 and 2)
The Company issued 247,368 ordinary shares of US$0.01 each in
the company to Mike Fraser as a sign on bonus. Due to human error,
one of the MMQs used to calculate the three-day average MMQ was
incorrect which resulted in 255,935 shares being issued to the CEO
rather than 247,368. The CEO rectified this by paying the Company a
cash subscription price for the additional 8,567 shares at the
three-day average MMQ .
Short-term employee benefits totalling US$312,500 have not yet
been paid to Mr Andersson ($US175,000) and Mr Fraser
($US137,500).
Entities with significant influence over the Group
At 31 December 2022, Labro Investments Limited, Chaarat's
largest shareholder, owned 44.77% (2021: 44.17%) of the ordinary
US$0.01 shares in Chaarat ("Ordinary Shares") and US$1.47 million
of 12% secured convertible loan notes which, assuming full
conversion of principal and interest to maturity on 31 July 2023,
are convertible into 3,947,260 Ordinary Shares.
There were no share issues to Labro in 2022. In 2021, for all
share issues to Labro, the independent directors of the Company
considered, having consulted with the Company's nominated adviser
at the time of the transactions, that the terms were fair and
reasonable insofar as the Company's shareholders are concerned.
33. Commitments and contingencies
Capital expenditure commitments
The Company had a commitment of US$0.6 million at 31 December
2022 (2021: US$4.9 million) in respect of capital expenditure
contracted for but not provided for in these financial
statements.
Lease liability commitments
Details of lease liability commitments are set out in Note
28.
Licence retention fee commitments
The Company has calculated a commitment of US$0.10 million at 31
December 2022 (2021: US$0.10 million) in respect of licence
retention fees not provided in these financial statements. The
amount to be paid will be determined by the Kyrgyz authorities and
is not payable until a demand for payment is received by the
Company. No demand in respect of extant licences had been received
at the date of these financial statements.
Licence agreements
There are minimum expenditure commitments under the exploration
and mining licence agreements. These minimum levels of investment
have always been achieved. The commitment recognised in 2022 is
US$0.10 million (2021: US$0.06 million).
34. Financial instruments and financial risk management
The Group is exposed to a variety of financial risks which
result from its operating activities. The Group's risk management
is coordinated by the executive Directors, in close co-operation
with the Board of Directors, and focuses on actively securing the
Group's short to medium term cash flows by minimising the exposure
to financial markets. The Group does not actively engage in the
trading of financial assets for speculative purposes. The most
significant financial risks to which the Group is exposed are
described below.
Categories of financial instruments
2022 2021
Financial assets measured at fair value US$'000 US$'000
Trade and other receivables 10,666 22,247
Total financial assets 10,666 22,247
----------------------------------------------- --------- ---------
Financial liabilities measured at amortised
cost
Trade and other payables 17,408 28,766
Contract liabilities 3,720 2,379
Lease liabilities 1,185 978
Other loans 17,806 21,328
Convertible loan notes 29,203 25,625
Financial liabilities measured at fair value
through profit or loss
Warrant financial liability 13 380
Total financial liabilities 69,337 79,456
----------------------------------------------- --------- ---------
Credit risk
Credit risk is the risk that a customer may default or not meet
its obligations to the Group on a timely basis, leading to
financial losses to the Group. The Group's financial instruments
that are potentially exposed to concentration of credit risk
consist primarily of cash and cash equivalents.
Trade accounts receivable at 31 December 2022 are represented by
provisional copper and zinc concentrate sales transactions. A
significant portion of the Group's trade accounts receivable is due
from reputable export trading companies. With regard to other loans
and receivables the procedures of accepting a new customer include
checks by a security department and responsible on-site management
for business reputation, licences and certification,
creditworthiness, and liquidity. Generally, the Group does not
require any collateral to be pledged in connection with its
investments in the above financial instruments. Credit limits for
the Group as a whole are not set up. In line with 2021, COVID-19
did not significantly impact the credit risk of the Group's
customers in 2022 and therefore no changes were required to the
Group's credit risk management in response to the pandemic.
The credit risk on liquid funds is limited because the
counterparties are banks with high credit-ratings assigned by
international credit rating agencies. The major financial assets at
the balance sheet date other than trade accounts receivable
presented in Note 21 are cash and cash equivalents at 31 December
2022 of US$0.6 million (2021: US$11.1 million).
Market risk
Market risk arises from the Group's use of interest bearing,
tradable and foreign currency financial instruments. It is the risk
that the fair value or future cash flows of a financial instrument
will fluctuate because of changes in interest rates (interest rate
risk) or foreign exchange rates (currency risk). The Group's
financial instruments affected by market risk include bank
deposits, trade and other receivables and trade payables.
The Group holds short term bank deposits on which short term
fluctuations in the interest rate receivable are to be expected but
are not deemed to be material.
Foreign currency risk
The Group carries out expenditure transactions substantially in
US dollars (USD), Armenian Dram (AMD), British Pounds (GBP) and
Kyrgyz Som (KGS). Equity fund-raising has taken place mainly in US
dollars, with debt denominated in US dollars as well. Any resulting
gains or losses are recognised in the income statement.
Foreign currency risk arises principally from the Group's
holdings of cash in GBP.
The Group's presentation and subsidiary's functional currency is
the US dollar, except for Chaarat Kapan, which has a functional
currency of AMD.
To mitigate the Group's exposure to foreign currency risk, cash
holdings are maintained to closely represent the expected
short-term profile of expenditure by currency. Apart from these
resultant offsets, no further hedging activity is undertaken.
As at 31 December the Group's net exposure to foreign exchange
risk was as follows:
Net foreign currency financial assets/(liabilities) 2022 2021
-----------------------------------------------------
US$'000 US$'000
----------------------------------------------------- -------- --------
GBP 279 5,866
AMD (8) (3)
KGS 219 268
Other (10) (7)
----------------------------------------------------- -------- --------
Total net exposure 480 6,124
----------------------------------------------------- -------- --------
The table below sets out the impact of changes in exchange rates
on the financial assets of the Group due to monetary assets
denominated in GBP, AMD, and KGS, with all other variables held
constant:
2022 Income 2021 Income
Move statement Move statement
US$ '000 (%) Profit/(loss) Equity (%) Profit/(loss) Equity
---------------------- ------ --------------- ------- ------ --------------- -------
Fall in value of GBP
vs US$ 5 15 15 5 309 309
Increase in value of
GBP vs US$ 5 (13) (13) 5 (279) (279)
Fall in value of AMD
vs US$ 5 - - 5 - -
Increase in value of
AMD vs US$ 5 - - 5 - -
Fall in value of KGS
vs US$ 10 24 24 10 30 30
Increase in value of
KGS vs US$ 10 (20) (20) 10 (24) (24)
---------------------- ------ --------------- ------- ------ --------------- -------
The percentage change for each currency represents management's
assessment of the reasonable possible exposure given the current
level of exchange rates and the volatility observed both on a
historical basis and market expectations for the future.
Fair value of financial instruments
The fair value of the Group's financial instruments at 31
December 2022 and 2021 did not differ materially from their
carrying values. In both 2022 and 2021 all financial instruments
are valued under a Level 3 hierarchy.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to
settle its liabilities as they fall due.
The Group's liquidity position is carefully monitored and
managed. The Group manages liquidity risk by maintaining detailed
budgeting, cash forecasting processes and matching the maturity
profiles of financial assets and liabilities to help ensure that it
has adequate cash available to meet its payment obligations.
The Group, at its present stage, generates sales revenue from
the mining operations in Armenia. The Company still relies on
financing its operations through the issue of equity share capital
and debt in order to ensure sufficient cash resources are
maintained to meet short-term liabilities. The Group aims to
mitigate liquidity risk by monitoring availability of funds in
relation to forecast expenditures in order to ensure timely
fundraising. Funds are raised in discrete tranches to finance
activities for limited periods. Funds surplus to immediate
requirements are placed in liquid, low risk investments. The Group
has prepared financial forecasts for the foreseeable future, and
these indicate that the Group should be able to operate and
continue to grow within the level of its current working capital
availability.
The Group's ability to raise finance is partially subject to the
price of gold, from which sales revenues are derived. There can be
no certainty as to the future gold price.
The following table details the Group's remaining contractual
maturity for its financial liabilities with agreed repayment
periods. The table has been drawn up based on the undiscounted cash
flows of financial liabilities based on the earliest date on which
the Group can be required to pay. The table includes both interest
and principal cash flows. To the extent that interest flows are
floating rate, the undiscounted amount is derived from interest
rate curves at the end of the reporting period. The contractual
maturity is based on the earliest date on which the Group may be
required to pay.
At 31 December Between Between Between
2022 Up to 3 3 and 12 1 and 2 2 and 5
months months years years Over 5 years
US$'000 US$'000 US$'000 US$'000 US$'000
------------------- -------- ---------- --------- --------- -------------
Trade and 19,714 - - - -
other payables
Contract - 3,720 - - -
liabilities
Lease liabilities 231 180 240 693 230
Other loans 3,351 15,314 - - -
Convertible - 31,672 - - -
loan notes
------------------- -------- ---------- --------- --------- -------------
Total 23,296 50,887 240 693 230
------------------- -------- ---------- --------- --------- -------------
At 31 December Between Between Between
2021 Up to 3 3 and 12 1 and 2 2 and 5
months months years years Over 5 years
US$'000 US$'000 US$'000 US$'000 US$'000
------------------- -------- ---------- --------- --------- -------------
Trade and 3 0,717 - - - -
other payables
Contract - 2 ,379 - - -
liabilities
Lease liabilities 175 162 196 577 189
Other loans 3 ,072 9 ,425 1 0,223 - -
Convertible - 2 8,777 - - -
loan notes
------------------- -------- ---------- --------- --------- -------------
Total 3 3,964 40,743 10,419 577 189
------------------- -------- ---------- --------- --------- -------------
As a result of the maturity date extension that took place in
2022, the Group's convertible loan notes are repayable on 31 July
2023.
35. Post balance sheet events
Letter of Intent and Preliminary Investment Agreement
Non-binding Letter of Intent and indicative term sheet signed on
the 17 May 2023 with Xiwang International Company Limited for a
potential equity investment of US$250 million. This was followed by
a Preliminary Investment Agreement signed on 31 May 2023.
Working Capital Facility
During 2023, working capital facility arrangements were put in
place with a short-term loan provider . As at 31 May 2023, US$2.0
million had been drawn down on the facility with a further US$2.0
million available to the company on the working capital facility.
The working capital facility is incurring interest at 12% per annum
and is repayable by 31 September 2023, unless otherwise agreed by
both parties.
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END
FR EAPKLFSEDEFA
(END) Dow Jones Newswires
June 15, 2023 02:00 ET (06:00 GMT)
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