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Chaarat Gold plots deal-linked refinancing

With a $100m fundraising, the self-billed “next leading emerging markets gold company” is stepping up to the plate
August 29, 2018

Chaarat Gold (CGH) calls itself the “next leading emerging markets gold company”. It boasts two development projects in the Kyrgyz Republic, is locked in a battle to acquire Kumtor, the central Asian nation’s largest mine, and has identified a dozen other “tangible” takeover targets. But until now it has had no production to speak of. That looks set to change, after the Aim-listed group this week announced plans to raise up to $100m (£78m) to fund the acquisition of a “medium-sized polymetallic asset” in an unnamed former Soviet republic.

IC TIP: Hold at 24p

The proposed deal, which under market rules is classed as a reverse takeover and has resulted in the suspension of the company’s shares, will cost $75m, and give Chaarat access to an asset that produced 50,000 gold-equivalent ounces last year. According to the buyer, the development generated a pre-tax profit of $19m in the same period, suggesting the mine’s cost base sits below $900 an ounce, after interest and depreciation charges.

Following “significant investment in the asset over the last two years”, Chaarat also expects mine output to grow “by nearly 25 per cent per annum in 2018 and 2019”, although due diligence is yet to complete, and Chaarat has provided little detail on grades, country risk profile, mine life or resource size. Once documents are signed, the transaction is set to complete in November.  

Chaarat expects the deal to be funded through existing debt and the issue of new secured convertible notes, which carry an interest rate that starts at 10 per cent and rises to 12 per cent in the 18 months before they mature, on 31 October 2021. The remainder of the $100m fundraising will be put towards general corporate purposes, including future acquisitions, and the refinancing of $14m of existing debt. Around $40m will also be set aside for the development of the Tulkubash oxide heap leach project, which following a recently completed feasibility study is expected to cost $132m, and pay for itself in just over three years.