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On 17th January AIM listed Chaarat Gold (LSE:GCH) announced that the Government of the Kyrgyz Republic had implemented a new tax code effective as of 1st January. The new system is clearer than the old offering more transparency and as it happens will benefit Chaarat when it starts producing around Christmas. Please note Call Me Dave – lower tax rates and simpler systems encourages investment and creates jobs and so creates more tax revenue. It is not hard – they get it in the Kyrgyz Republic if not in SW1. The shares were up yesterday but that has nothing to do with the tax situation out on Borat’s homeland.
For what it is worth the new code sees tax paid at a rate of 5% of sales plus a sales tax of 2% on exported gold and there is another 2% of sales paid as a tax to support local good works. There is a further revenue tax ( instead of former income tax) which is payable at different rates depending on the gold price – this can range from 0% at sub $1200 to a maximum of 20% at $2501 plus. At $1600-1700 it is 9%. Plans mooted last spring to hand 20% of any mine ownership to the State have been dropped. The Kyrgyz may also allow special tax concessions and Chaarat is negotiating to secure these.
The key point here is that fiscal certainty has been achieved – after last spring’s scare that is welcome.
But as I said this is not why the shares are up. Volumes in this stock have been high for a week. And the shares have gone from 21p to 24p in two days ( both before and after the announcement). Two different folks ( one of whom was Lucien Miers) have told me they have been buying in the belief that the Chinese are looking to make an investment at a price materially above the current level.
It was announced on 19th November that Shandong Gold Mineral Resources Group Co. had secured Chinese regulatory approval to negotiate an investment into Chaarat Gold. The word from two independent sources within the past two days is that the Chinese are no prepared to make such an investment and at a price materially above the current level although I am told that a precondition may be boardroom changes.
The maths of Chaarat are compelling and a big investment at a big premium to the current price would spark a material re-rating. I explained in a detailed piece here why this stock could be worth 120p a share on fundamentals and I stand by that view.
Buy
Tom Winnifrith writes for 10 US and UK websites and his work is collated at www.TomWinnifrith.com
Follow Tom on twitter @tomwinnifrith for links to all his articles and the latest rumours
Tom is also an innovative chef and owns a quirky Celtic Italian restaurant in London’s Clerkenwell which today launches its latest utterly unique dish Spaghetti all Chocolata
