Late in October 2018, Chaarat Gold Holdings Ltd (LON:CGH) entered into a special purchase agreement with the Russian mining giant Polymetal for the acquisition of Kapan Mining and Processing Company.
The key asset in question is a polymetallic mine in Armenia.
The consideration agreed was US$55 million, subject to net debt, working capital and other adjustments, payable in cash, save that US$5 million of the consideration could be satisfied in convertible notes.
Chaarat’s backers have deep pockets and, more to the point, access to those with even deeper pockets, and the company was able to put together a debt financing facility which, combined with existing cash resources and the proceeds of convertible notes offering was enough to fund the acquisition.
Bringing in Kapan is an important step for Chaarat in achieving its stated 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.
Plan to build leading emerging market gold company
"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.
Tulkubash will shortly enter the construction phase
It will complement the ongoing development work at the Tulkubash gold project in Kyrgyzstan, where the measured and indicated resource rings in at 1.35mln ounces at a grade of 1.35 grams per tonne.
The wider known gold occurrence at the site runs to 6.4mln ounces, but for now, Chaarat is simply focussing on the oxide portion of Tulkubash, and expects construction to begin in the early part of 2019. According to a feasibility study completed earlier in 2018, the annual output is expected to be just over 95,000 ounces of gold per year over the first 3.75 years of the mine life.
Elsewhere, Chaarat has also publicly expressed an interest in acquiring the Kumtor mine from Centerra, but so far no deal has been reached.