Chaarat Gold Holdings Ltd (LON:CGH) is raising up to US$100mln to help fund the acquisition of a producing and profitable polymetallic mine in the Russian Commonwealth.
In 2017, the mine produced around 50,000 ounces of gold equivalent and turned a profit before tax of US$19mln, while the gross assets were valued at US$100mln.
READ: Chaarat has ambitious plans to become major player in central Asia
AIM-quoted Chaarat estimates that production will grow by 25% per annum in 2018 and 2019, with the current owner having poured in “significant investment” over the past couple of years.
The acquisition would transform the company from a developer into a cash-flow generating producer with a “significant growth profile”.
“The first asset we are acquiring will be an excellent addition to Chaarat's portfolio and accelerates our strategic aim of building a leading emerging markets gold company. It turns the Company cashflow-generative in a single step, and demonstrates Chaarat Gold's ability to execute deals quickly, diligently and on accretive terms,” said chief executive Artem Volynets.
“M&A is a vital component of our growth strategy and we are delighted to be in the process of securing this asset at what management believe is a very attractive price for Chaarat and its shareholders.”
More due diligence is due to be carried out over the next few weeks, but Chaarat hopes to have definitive documents signed by the end of September, with shareholders voting on the transaction in early November.
The acquisition is regarded as a reverse takeover under AIM rules and a new AIM admission document will be posted in mid-October.
US$100mln fundraise
To help fund the acquisition, Chaarat is raising up to US$100mln through the issue of convertible loan notes, which have a conversion price of 37p and a 10% interest rate per year which increases to 12% for the final 18 months.
The notes can be repaid before the October 31 2021 maturity date, provided that the minimum accrued interest payable on early repayment is 5% of the nominal amount.
On top of the new notes, Chaarat has also received support from its long-term convertible notes holders, all of whom have converted their notes into shares.
Through the new and existing convertible notes, the company has raised US$26mln as part of the first round of fundraising.
“This first round of fundraising is a clear expression of confidence in Chaarat's management and growth strategy,” said Volynets.
“We are grateful that nearly all of Chaarat's long-term investors have taken their opportunity to increase their exposure to our company's bright future.”
A second round which will take the total up to US$100mln is expected to close at the end of September.
Chaarat intends to put US$20mln towards the acquisition and US$40mln for the development of its Tulkubash gold project. It has also set aside US$26mln for general working purposes and future acquisitions as well as US$14mln for the refinancing of existing convertible notes.
Pipeline
Chaarat doesn’t seem to be finished with its M&A activity, with the firm noting that it “continues to make progress” with its pipeline of “highly attractive” targets in central Asia, Russia and the Caucasus region.
The company says it is still pushing to complete the acquisition of the Kumtor gold mine, having tabled an offer to owner Centerra Gold (TSE:CG) back in April.
Centerra’s board hasn’t exactly rushed to engage with Chaarat, but that may not be the deciding factor.
Much more important is the attitude of the authorities in Kyrgyzstan and Chaarat said today it is still awaiting decisions regarding the future of Kumtor from the local government.