Chaarat Gold Holdings Ltd (LON:CGH) has entered into a special purchase agreement with the Russian mining giant Polymetal for the acquisition of Kapan Mining and Processing Company which owns a polymetallic mine in Armenia.
The consideration of US$55 million, subject to net debt, working capital and other adjustments, is payable in cash, save that US$5 million of the consideration may be satisfied in convertible notes.
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Chaarat expects to fund the cash portion of the consideration through a combination of new debt financing facility, its existing cash resources, and the proceeds of the previously announced convertible notes offering.
The acquisition is an important step in achieving Chaarat's goal of building a larger scale gold company with an initial focus on Central Asia and the Former Soviet Union.
The deal will take Chaarat’s anticipated gold equivalent production to 65,000 ounces per year.
"This acquisition is expected to be an excellent addition to Chaarat's portfolio and accelerates our strategic aim of building a leading emerging markets gold company,” said chief executive Artem Volynets.
“It turns the company cashflow-generative in a single step and demonstrates Chaarat's ability to execute deals quickly, diligently and on accretive terms. 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."
Production at the Kapan mine began in 2003 and the current reserve life extends to 2023, although conversion of current inferred resources to reserves and new exploration success is likely to extend the mine life.
Chaarat’s internal modelling assumes production will continue until 2029. For the year ended December 2017, the mine produced around 50,000 ounces of gold equivalent, generating earnings of over US$20mln and profits of US$2mln.