Chaarat Gold Holdings Limited

Chaarat Gold Holdings Limited (LON: CGH) is an FTSE AIM All-Share index listed gold mining company with an operational mine in Armenia and also has assets at various stages of development in the Kyrgyz Republic.

Rationale for Valuation – SPECULATIVE BUY at GBX 15.99

• Exceeding Guidance Levels: The company has reportedly exceeded its 2021 production guidance at the Kapan Mine with the production of 63 thousand gold equivalent ounces against the guidance levels of 57 koz.
• Decent Project Prospects: An updated bankable feasibility study in the Tulkubash Development Project confirmed decent project economics.
• 2022 Outlook: The Group has provided Kapan-mine production guidance of 50-53 koz of own-ore production, in addition to 6-9 koz of third-party ore production in 2022. Moreover, the company will continue to focus on reducing its interest-bearing liabilities during the year.
• Reduction in Debt: The company has significantly reduced its interest-bearing debt to USD 38.7 million as of 31 December 2021, from a level of USD 70.5 million as of 31 December 2020.

Key Risks

• Macroeconomic Concerns: The present macro-scenario is volatile with the onset of the Ukraine war, just after the impacts of the fatal COVID-19 waves.
• Disruption in Operations: The debt financing in the Tulkubash project has been delayed owing to a pending resolution of the Kumtor mine situation.

FY21 Operational Highlights (as on 09 February 2022)

(Source: LSE Website)

• Increase in Production: The company reported an increase in production of gold, silver and copper from the Kapan mine in FY21, compared to FY20.
• Uptick in Price Realisation: There has also been a simultaneous increase in commodity prices in 2021.

One Year Share Price Chart

(Data Source: Refinitiv, Analysis by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22) (Illustrative)

*Peers: Pure Gold Mining Inc, Eurasia Mining PLC, Ferro-Alloy Resources Ltd, Altus Strategies PLC

*All four peers are LSE-listed Companies from the Mining sector.

* 1 USD =~ 76.74 GBX 

Conclusion

The company expects to close its debt financing of Tulkubash project in H2 FY22 provided there is a resolution of Centerra's Kumtor situation. It has reduced its debt levels significantly and further aspires to strengthen the balance sheet in 2022.

Based on the exceeding guidance levels, optimistic outlook, reduction in debt levels, and support from the valuation as done using the above method, we have given a “SPECULATIVE BUY” recommendation on Chaarat Gold Holdings Limited at the current market price of GBX 15.99 (as on 17 March 2022, at 10:02 AM GMT), with lower double-digit upside potential based on 61.72x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.)

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’ 

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

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