CGH.L Regulatory News (CGH)

Chaarat Gold Holdings Limited

("Chaarat" or the "Company")

Update on Definitive Feasibility Study

Road Town, Tortola, British Virgin Islands (18th June 2014)Chaarat (AIM - CGH), the AIM quoted exploration and development company with assets in the Kyrgyz Republic, is pleased to provide a further progress update on the Definitive Feasibility Study ("DFS") for the Chaarat Project ("the Project").

Highlights

· Projected production expected to be increased significantly to at least 250,000 ounces of gold per annum - a level appropriate to the size of the Chaarat deposit

· Two stage option to implement the Project identified which would enable production to commence with a lower up-front capital cost

· Heap leach operation estimated to generate circa 120,000 ounces of gold per year

· Production rate from sulphide ore yet to be determined but likely to be higher than the heap leach level of production

· Layout of whole Project revised to improve efficiency, reduce possible environmental impact and eliminate access issues

· Small amount of additional drilling underway to support the implementation strategy and secure more geotechnical information

· Cheaper processing option for refractory ore under investigation

· Timing for completion of DFS revised to early 2015, reflecting the assessment of the enlarged heap leach opportunity

As announced in March 2014, the team of DFS consultants visited the Chaarat site when it opened at the end of April. Their findings have now been evaluated. The first stage of the work involved studying various alternatives and options to conclude on an optimal scope for the development of the Chaarat Project. The DFS will then be prepared in accordance with the agreed scope.

Strategic development of the deposit

The optimal strategic development of the deposit has been identified as two production lines which share elements of the infrastructure, but are economically feasible as standalone Projects. The decision whether to implement the two lines sequentially or in parallel will be based on the likely financing options available to the Company, for example, whether Chaarat will self-develop the deposit or whether it will be developed by a JV with a large operating partner or a strategic investor.

The Chaarat deposit hosts two types of ore which can be treated by different processes. One zone (the Tulkubash Project) is predominantly low sulphur and amenable for heap leaching. The other part of the deposit is more refractory and requires oxidation before gold can be leached out of the ore. 

The involvement and provision of financing from a joint venture partner or strategic investor should enable both stages of the process to be undertaken at once. If this involvement does not materialise, the processes can be undertaken sequentially, dependent on the availability of finance to Chaarat.

The DFS will evaluate the heap leach and refractory options as separate standalone Projects.

Layout of the Project

The Chaarat deposit is located in a narrow valley which could inhibit the expansion of the Project once in production. As part of the DFS, the consultants reviewed other options for the location of the processing plant and associated infrastructure. A trade off study has concluded that there are considerable economic, environmental and operational benefits to locating the production facility in an adjacent valley. 

In order to connect the plant to the mine site a 10km tunnel will need to be constructed through the mountain. The preliminary results of the trade off study have demonstrated that the reduction in haulage and other operating costs will significantly outweigh the capital cost of the tunnel, while also delivering major environmental benefits. Further work is now underway to finalise the design and costs of the tunnel construction.

Scale considerations

A staged development will mean that the heap leach option, which requires significantly less capital investment and is less complex to operate, will be built initially. The indicative capital cost of the tunnel and power line necessary to take the first stage heap leach Project into production will have an impact on the economics of this Project on a standalone basis, but the anticipated increased level of production to 120,000 ounces of gold per annum should support the attractive return on this investment. Conversely, the economics of the second larger refractory Project will benefit very considerably from the capital expenditure carried by the heap leach Project.

Heap leach operational scale

The main feed of ore for the heap leach operation is from the Tulkubash zone. A preliminary mine design of the Tulkubash pit has indicated the economic benefits of processing not only the material grading above 1 g/t cut-off but also the lower grade material situated inside the pit envelope. This early plan shows reserves included in the initial pit will be about 17 million tonnes of ore at a grade of 0.93 g/t being 523,000 ounces of heap leachable reserves. The strip ratio is currently estimated at about 2:1. The low strip ratio, with the consequent reduction in the mining costs of diesel and labour (which are in any case relatively low in the Kyrgyz Republic), will increase the returns generated from the heap leach operation. It has therefore been decided that the heap leach operation will be designed to process 5 million tonnes per annum or 15,000 tonnes per day and produce approximately 120,000 ounces of gold per annum.

As this revised production level is significantly higher than previously expected, additional drilling of about 4-5,000 metres is required to support a sustainable standalone heap leach operation. This drilling has commenced and is expected to be concluded in September. The mineralised zone very clearly extends towards the north which gives us confidence that the required resource can be added.

Scale of the refractory operation

The mine design of both the refractory open pit and underground operation is also in progress. The optimal scale of the operation can only be determined once the mine design is complete. However, the results of the DFS to date indicate that the scale of the Project can be significantly larger than the originally anticipated production of 200,000 ounces per year included in the Prefeasibility Study prepared in 2011. The heap leach Project alone is being designed for 5 million tonnes of ore annually or production of about 120,000 ounces of gold per year. The refractory operation (which will be fed from both the open pit and underground) can support a greater production profile.

Process update

We initially considered that the refractory ore, due to its sulphur content, would need to be processed by oxidation which would probably take the form of flotation followed by pressure oxidation. The capital cost of this process is significant.

Initial work on bio-oxidation of the crushed refractory ore has shown promising results by using a simpler process of heap bio-oxidation followed by heap leaching. The results were achieved following a short oxidation period by a generic culture. More work has been commissioned to develop a tailor made culture and to run larger scale tests. If this process proves to be suitable there will be considerable positive effects on the economics of the Project, by the reduction of both capital and operating costs.

Timing

The results to date of the DFS have exciting implications for the economics of the Project. However in order to complete the work and analyse the results we now expect to complete the DFS in early 2015. The Board firmly believes that the additional work will add value to the Chaarat Project by increasing production, reducing operating costs and reducing the environmental impact.

The Board has carefully reviewed the revised budget and cash flow for the group and is taking measures to source additional funding from the sale of equipment (originally purchased for small scale production so not immediately needed following the revision to the strategy) and other exploration assets to cover the impact of the additional work and enlargement of scope of the DFS. Some equipment has already been sold and further advanced negotiations are in progress. In addition, we have already received expressions of interest in acquiring some of our exploration assets.

Dekel Golan CEO of Chaarat commented: "As the Project starts to take shape we are all excited by the emerging initial results. The purpose of the study is not merely to develop a "spreadsheet" Project but to demonstrate how project risk can be mitigated and the Project as a whole simplified and made more robust.

The decision to build a tunnel removes almost entirely issues of access to site and concerns about environmental protection in a restricted location; considerations which more than outweigh the increase in upfront costs and the delay to production caused by the construction of the tunnel. Having a heap leach operation that, in itself, underpins the economics of all the development- whether or not a second stage is built - is another major positive.

A projected production capacity of 250,000 ounces per annum confirms Chaarat's potential as a top gold producer, and the two stage option delivers flexibility, while not compromising overall returns.

We continue to be of the belief that Chaarat is one of the largest and best undeveloped Projects in the world and the uncompromising objectives of the DFS are to demonstrate both the economic merit of the Project as well as to chart a clear route for its development. On this basis the increased scope of the DFS and additional data collection now underway is more than justified.

Updates will be issued once we have further results to report. I will be giving a presentation at the Proactive Investors event on 26 June and in the meantime the Annual Report will reflect on our progress to date."

Chaarat Gold is an exploration and development company operating in the Kyrgyz Republic with a large, high grade resource - the Chaarat Gold Project. The Company's key objective is to become a low cost gold producer generating significant production from the development of the Chaarat Gold Project. Chaarat is preparing a Definitive Feasibility Study (DFS) and continuing its active community engagement programme to optimise the value of the Chaarat investment proposition. Chaarat has several other promising prospects also located within the Kyrgyz Republic.