Managing shareholder dilution will be uppermost in the decision-making of Dekel Golan, chief executive of Chaarat Gold.
The issue is pertinent as the company looks to take its Kyrgyz mine into production.
The capital cost of building a facility that produces 211,000 ounces of the yellow metal per year was initially put at US$684mln – a huge sum for a company valued at just US$22mln (£15mln).
Even funding a very small portion of that investment would have been a huge undertaking for shareholders.
But after an optimised feasibility study, led by Chinese engineering specialists at NERIN, the initial investment at the mine is now looking to be more like US$470mln.
The new feasibility report now tips the cost of gold at the project to be US$605 per oz, which would make it the cheapest gold producer in the world.
“Every step you move forward is adding value. What I want to do is add value with as little dilution as possible,” said Golan in an interview with Proactive Investors earlier in the year.
The company unveiled the final draft of its feasibility study in February which provided the economic case for the Chaarat mine, which was valued at US$351mln.
The feasibility study was produced by NERIN, a Chinese firm, with a view to sourcing a large slug of the financing from the People’s Republic, valued the project at US$615mln.
“The objective is not build a big operation, the objective is to create value for shareholders,” said Golan after the final draft was released, presaging the cuts made in the revised feasibility report.
It was a “mixed experience” working with NERIN, he said. Technically its experts were top notch. However the study was “conservative” and so probably didn’t fully recognise Charaat’s economic potential.
There was “significant potential” to improve returns by re-looking at and “optimising” this important blue-print.
“They [NERIN] are very smart and we enjoyed working with them. On the economic side it was different,” added Golan.
The optimised study slashed the cost of roads and infrastructure by over half, from US$52mln to US$22mln, while the cost of its underground mining was cut by a third to US$97mln by opting for open pits in some cases. The pit plans were also revised in favour of a more economical terraced layout.
The biggest savings however were seen in the tailings management facility, cutting US$43mln from the initial estimated cost.
The initial report by NERIN took into account local pricing; a majority of the savings was achieved through revising the quotes and sourcing elsewhere. Lower fuel costs and the depression in the mining industry, including more favourable exchange rates reduced capital expenditure.
Chaarat also removed unnecessary structures from the blue prints, which accounted for around 40% of the overall savings.
The group believed the initial result did not take into account significant inferred resource and the potential to improve recovery, a critical element in generating high returns.
Securing funding from the Chinese is still an option, the Charaat CEO said. However the company is looking at three other options: the sale of the Chaarat project, low cost toll milling or a more modest mine based around the Tulkubash deposit.
There has been interest from acquiring the Charaat, but as Golan pointed out: “There is a big difference between wanting to do something and actually doing it. There are lots of moving parts.”
He added: “We need to sit down and think how we want to deal with it. It is a big project to build. Once you go down a route it is not something you want to stop.”
The Chaarat mine, in a remote upland area in the east of the Kyrgyz Republic, is host to an estimated 53mln tonne reserve, grading 2.79 grams per tonne for a total of 4.7mln contained ounces of gold.
The all in sustaining costs of mining the gold is put at a best in class US$605 per ounce following the optimised study.