Chaarat Gold: New resource tops 4.4 mln ounces with open-pit production on horizon

It was a busy morning for Chaarat Gold (LON:CGH) as it unveiled plans for a £52 million placing whilst simultaneously releasing a significant resource upgrade for its flagship project in the Tien Shan Mountains of the Kyrgyz Republic.

It has added 397,000 ounces to the project’s JORC resource as a result of the 2010 exploration drilling programme. Last year it drilled 66 new holes for 10,119 metres. The Chaarat project now contains 4.4 million ounces of gold in total indicated and inferred resources.

Separately it announced that it will raise £51.6 million through an equity placing, issuing 103 million new shares at 50 pence each. 

The placing - which was priced at a 14.5 percent discount to Friday’s close - put a dampener on the positives from the resource update. The shares slipped 3.5 pence, or 6 percent, to 54.5 pence.

The Chaarat project is split between two distinct areas, the Tulkubash open-pit project and the Kiziltash underground mine project.  Its two-pronged approach will see Chaarat fast-track an open-pit mine into production at Tulkubash, while it continues the feasibility work on the much the larger Kiziltash underground mine development project.

The new capital is expected to facilitate Chaarat’s first production, which is expected by mid-2012. 

We caught up with Mark Heyhoe, mining analyst at Westhouse Securities, to get an analyst’s take on the central Asian gold mining story. Westhouse, along with Liberum Capital, is the company’s broker and as such it helped arrange this morning’s placing.

“The main part of the orebody is Kiziltash, where the bulk of the resource is. It is probably going to be a couple of years before (Chaarat) will get that into production,” Heyhoe said.

“But in the short term we have Tulkubash, which is a non-refractory part of the orebody. Chaarat hopes to start mining there at the end of this year and the first gold pour in the first half of next year.

“This funding is largely for infrastructure and for building the first stage of the Tulkubash project. It is only going to be small, initially around 40,000 ounces a year production."

The analyst also emphasised the size of the gold resource, whilst noting that there is room for improvement.

“The Chaarat project in its entirety has about 10 kilometres of strike length, around a third of it has been drilled so far,” Heyhoe said. He notes that this morning’s 4.4 million ounce resource statement also had improved grades. 

He added: “It is looking very good. I suspect they want to fast track the Tulkubash part of the project as soon as possible.”

The analyst explained that the non-refractory Tulkubash ore doesn’t need to be pre-treated under high pressures - a technique known as pressure oxidisation that is used to ‘clean’ refractory (resistant) ore like that found in the rest of the orebody, which has sulphide impurities that are naturally resistant to standard recovery methods.

It is important to note that the studies on the ore from the Kiziltash part of the project have already found that 88 percent of contained gold can be recovered.

Heyhoe emphasised that by mining the cleaner Tulkubash ore first, the company will bring the whole project’s initial capex-costs down. 

“Part of the Tulkubash project is about showing the market that you can produce (commercial) gold in that part of the world,” he added.

Indeed one the challenges of operating in this remote, and potentially unstable, central Asia region was demonstrated last year. 

Kyrgyz Republic's previous president Kurmanbek Bakiyev was ousted amid mass protests in April 2010. This was followed by months of unrest. While this had little operational impact on the Chaarat project way-up in the Tien Shan Mountains, it did hold the stock back somewhat.

“Obviously there were some problems last year which knocked Chaarat, and everyone else in the Kyrgyz Republic, back whilst everyone else in the gold sector rallied quiet strongly. 

“So you have got a discount to do with that. It is also discounted for (the lack of) infrastructure but this capital raising should sort out most of those problems.

“They are going to use diesel (generators) initially, then put in power lines for the main part of the project.”

Indeed while the Tulkubash project provides the near term interest, in the longer term the scale of the Kiziltash project is likely to come to the fore.

Kiziltash comprises two separate areas, the 1.9 million ounce ‘Main Zone’ and the 2 million ounce ‘Contact Zone’. 

Chaarat chief executive Golan reckons that the Contact Zone will become a ‘significant linchpin’ in the company’s future production as the underground project develops. 

"During 2010, which was a challenging year, our exploration work focused primarily on improving our understanding of the Contact Project - which was previously known as C5300 and C4600. These sections have now been combined into one large project which now comprises more than 2 million ounces of gold,” Golan said.

“Exploration work on this section is ongoing and we firmly believe that the Contact Zone will grow to become a significant linchpin for our future production.”