Cracking the Central Asia funding code

This is the same Andersson, we are reminded, who was a key adviser to the Russian government's privatisation programme in the 1990s and made a mint when he sold his Moscow-based Brunswick brokerage to UBS.And this is the same Volynets who worked alongside Russian oligarch Oleg Deripaska at En+ when the latter was the controlling shareholder of Rusal, the world's second largest aluminium company.Now they're at Chaarat Gold. That's right, the firm which for so long was headed by affable co-founder Delek Golan, whose decade-long promises of hidden riches in Kyrgyzstan eventually became (unfairly) a jam-tomorrow story to (some) impatient investors.The mood has changed somewhat since Golan stepped aside in 2017, followed by Volynet's appointment at the end of June 2018, about the same time Andersson became executive chairman.With their network of contacts in Russia, Asia and Western Europe, Andersson and Volynets were able to recruit Chris Eger, a former M&A director at Trafigura, as CFO.With Russian contacts aplenty, the duo pulled off their biggest coup in October 2018 when Russian mining giant Polymetal agreed to sell them the producing Kapan gold mine in Armenia, illustrating how their contacts books were good across the FSU, where Russian companies (no surprise here) have been operating a long time.Kapan, forecast to produce 65,000oz in 2019, was a game changer. Overnight, Chaarat moved up the food chain from developer to producer, able to borrow against cashflow as well as woo lenders to bankroll what Golan had long trumpeted - a mine in Chaarat's highly prospective gold camp in Kyrgyzstan.A confirmation of funding for Tulkubash and higher reserves at both assets could provide a catalyst for a re-ratingIn the past year or so Chaarat has been able to raise US$120 million, with less than $3 million via the issue of conventional equity, limiting dilution.Its Tulkubash project in Kyrgyzstan is relatively low grade and with a short mine life, but reserves will grow as a widening drilling programme proves up further resources.Chaarat needs only another $80 million to bring Tulkubash into production in late 2021, and a financing package has already been tentatively agreed. Then it's onto Kyzyltash, a much bigger and more valuable sulphide deposit in another part of the licence area.Volynets is talking about Chaarat becoming a regional player in Central Asia, open to M&A - a potential consolidator in a fragmented geography.And always, behind Volynets, is Andersson whose Labro vehicle speaks for nearly 35% of the company's issued share capital.The Swede has spent millions buying into the group since 2011 when he first bought shares, before joining the board in 2016.Labro is big news for Chaarat: it has guaranteed a $17 million loan from an unnamed bank, as well as furnishing its own credit facility of $15 million.So here we have some big beasts of the sector appearing at a company with a market capitalisation in London of just £166 million, the shares trading well below the IPO price of 60p that Golan secured 12 years ago.Nevertheless, investors have been buying into the shares this year with the price 30% to the good, year-to-date. There was excitement last month when Chaarat signed a joint venture with a Turkish mining contractor, a deal that will see the Turks progressively invest up to $31.5 million for a 12.5% stake in Tulkubash and Kyzyltash, a boost for the firm and the Kyrgyz Republic.SP Angel, Numis Securities and Hannam and Partners all agree the shares are undervalued. They argue that short life-of-mine at Kapan and Tulkubash has been a drag on valuation. A confirmation of funding for Tulkubash and higher reserves at both assets could provide a catalyst for a re-rating.Hannam's share price target, similar to SP Angel's, is 41p, 14% higher than the current price. On publication of the interim numbers in September, the company recorded an update of the JORC compliant BFS for Tulkubash. The initial reserve base of 22.2 million tonnes ore grading 0.92g/t gold contains 658,000oz, an increase of 39%, with average gold production of 94,000 ounces per annum over an initial mine life of 5.3 years. AISC was put at $819 per ounce, including all taxes; the IRR was 20% using a $1,300/oz gold price. Capex was reduced to a mere $110 million.And all the above without any more M&A from a top flight team of dealmakers parachuted onto the board little more 12 months ago.There are no guarantees, of course. Kyrgyzstan has been a proved risky jurisdiction in the past, with Centerra's Kumtor mine seeing a number of protests and state environmental damages claims over the years.Still, the market has picked up there's something's going on here and is waiting to find out if management can deliver what trailblazer Golan spoke about so often - a Central Asian treasure chest.

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