Chaarat Gold Holdings Ltd

Chaarat Gold Holdings Ltd (LON: CGH) is an FTSE AIM All-Share listed gold mining entity. It owns Kapan operating mine in Armenia and the Tulkubash & the Kyzyltash Gold Projects in the Kyrgyz Republic.

Investment Rationale for Valuation – Speculative Buy at GBX 14.00

• Tulkubash Resource Update: On 24 May 2022, the Group updated that gold ounces contained in the Tulkubash Mineral Resource Estimate increased by 13% to 647 thousand ounces, compared to 571 koz (thousand ounces) reported in the 2021 bankable feasibility study.
• Increase in Reserves: Proven & Probable Reserves grew from 20.9Mt to 23.1Mt, with a better grade of 0.87g/t compared to 0.85 g/t in the bankable feasibility study.
• Q1FY22 Update: The company reported a 12-month recordable injury frequency rate of zero for the first time during the first quarter from the Kapan project. It mined total ore of 163,652 tonnes, compared to 149,102 tonnes mined in Q1FY21.
• Technical Indicator: The price of the stock is trading close to the lower Bollinger band with 14-day RSI level of ~32.07, reflecting an oversold stance.

Key Risks

• Macro Risk: The US Fed has raised interest rates by 75 bps in its recent meet which signals a hawkish stance for growth in the near term and can support the US dollar. This can impact gold prices in the near term.    
• Safety Risk: The company has reported a fatal incident on 16 May 2022, involving an employee of its contractor due to rock fall at the Kapan mining site.  

Operational Highlights (for the quarter ended 31 March 2022, as of 29 April 2022)

(Source: Company Website)

• Price: Realised gold price during the quarter stood at 1,853 USD/oz, compared to 1,762 USD/oz reported in Q1FY21.     
• Gold Production: Gold equivalent production was at 15,266 oz in Q1FY22, compared to 16,403 oz in Q1FY21.

One Year Share Price Chart

(Source: REFINITIV; Analysis done by Kalkine Group)

Valuation Methodology: Price/Cash Flow Approach (FY22E)

*Peers: Few peers considered are Hummingbird Resources PLC, EVRAZ plc and Bushveld Minerals Ltd.   

*All selected peers are LSE-listed Companies from the Basic Materials sector.

*1 USD=~82.59 GBX.

Conclusion

The updated ore reserve for the Tulkubash project based on a gold price of US$1,600/oz is depicted in the image below:

(Source: Company Website)

Based on the positive update from Tulkubash, increase in reserves and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Chaarat Gold Holdings Ltd at the closing market price of GBX 14.00 (as of 16 June 2022) with lower double-digit upside potential based on 0.65x Price/NTM Cash Flow (approx.) on FY22E cash flow 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: 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 4: ‘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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