Chaarat Gold Holdings expects annual production at Chaarat Gold Project will be increased significantly to at least 250,000 ounces of gold, which it says is a level appropriate to the size of the deposit.

This expectation follows a visit to the Chaarat site earlier this year by team of definitive feasibility study (DFS) consultants. The first stage of the work involved studying various alternatives and options to conclude an optimal scope for development of the project. The DFS will then be prepared in accordance with the agreed scope.

The optimal strategic development 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 JV partner or strategic investor should enable both stages of the process to be undertaken at once. If this involvement does not materialize, 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.

The deposit is 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 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 under way to finalize the design and costs of the tunnel construction.

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 annual production to 120,000 ounces 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.

The main feed of ore for the heap leach operation is from Tulkubash zone. A preliminary mine design of the Tulkubash pit has indicated the economic benefits of processing not only the material grading above 1 grams/tonne cut-off but also the lower grade material 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 grams/tonne being 523,000 ounces of heap leachable reserves.

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 annually process 5 million tonnes, or 15,000 tonnes/day, and produce approximately 120,000 ounces of gold.

As this revised production level is significantly higher than previously expected, additional drilling of about 4000-5000 metres is required to support a sustainable standalone heap leach operation. This drilling is expected to be concluded in September. The mineralized zone very clearly extends towards the north which gives the company confidence that the required resource can be added.

Chaarat Gold 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.

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 the company now expects to complete the DFS in early 2015.

The Board has carefully reviewed the revised budget and cashflow 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. www.chaarat.com

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