Chaarat Gold announced a binding agreement to sell its 100%-owned Armenian subsidiary Chaarat Kapan on Wednesday, which is responsible for the Kapan mining operation in southern Armenia.
The AIM-traded firm said the deal, worth $55.4m, is between Chaarat and Gold Mining Company – a known entity in the Armenian mining space.
It said the Kapan Mine had been functional since the 1960s, and was known for its polymetallic ore body, producing copper and zinc concentrates as well as by-products including gold and silver.
Chaarat took ownership of the Kapan Mine in 2019, and since then, there had been significant improvements in the mine’s operational performance.
It consistently met production guidance for between 50,000 and 65,000 gold equivalent ounces annually under Chaarat’s administration.
The mine – Chaarat’s sole operating asset – brought in EBITDA of $22.7m in 2021 and $12.6m in 2022.
However, its financial performance in the first half of 2023 was impacted by a persistently high Armenian dram against the dollar, as well as reduced production.
The company said the sale’s consideration consisted of $55.4m, including $5m in cash and the remaining being offset by intra-group payables due to Chaarat Kapan.
No adjustments would be made for debt, working capital, or other obligations.
The board said completion remained contingent on a number of conditions, including approvals from Chaarat shareholders, Ameriabank, the Armenian Competition Protection Commission, and the buyer’s shareholders.
Chaarat Gold justified the sale by highlighting its commitment to enhancing the Kapan Mine’s value over the years.
Despite geopolitical challenges, including hostilities with neighbouring countries and the indirect effects of the Ukraine conflict, the firm said it managed to uphold its operational performance.
However, the appreciation of the Armenian dram significantly affected its financial performance, with the sale set to allow Chaarat to concentrate on developing assets in Kyrgyzstan, and consider other external merger and acquisition opportunities.
Post-sale, the proceeds would bolster Chaarat’s balance sheet, reducing its liabilities by $39m and offering a cash influx of $5m to support its ongoing projects, especially the Tulkubash project.
With the sale, Chaarat would transition from a producer to a developer, as it planned to invest resources in its larger, low-cost development assets while simultaneously seeking funding for the ventures.
Chaarat’s said its focus post-sale would be on its gold development assets, which had a combined book value of $82.5m and a potential production capacity of more than 350,000 ounces of gold annually.
“The proposed sale allows Chaarat to focus on its growth pipeline in the gold sector with the aim of developing lower cost and higher value options within its portfolio,” said chief executive officer Mike Fraser.
“It accelerates our strategic objective of developing the Tulkubash project and evaluating opportunities for inorganic growth options.”
At 0908 BST, shares in Chaarat Gold Holdings were up 10.22% at 7.44p.