Chaarat Gold Holdings Limited

("Chaarat" or "the Company")

PRELIMINARY ANNOUNCEMENT OF AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011

Road Town, Tortola, British Virgin Islands (1 June 2012)

Chaarat Gold Holdings Limited today publishes its preliminary results for the year ended 31 December 2011.

Highlights for the year  

• Additional drilling takes resource up 27% to over 5.5m ounces at 4.08g/t 

• Permitting and construction progress at Tulkubash 

• Pre-Feasibility Study for Chaarat Project demonstrates robust economics and that Project can support production of 200,000 ounces of gold per annum 

• �50 million fund raising in March 2011 means that the Company is fully funded until first production 

Post balance sheet

• Temporary halt to expenditure on plant whilst the Company seeks to negotiate stable terms with the Kyrgyz authorities 

• Progress continues on major infrastructure items 

Dekel Golan, CEO of Chaarat, commented:

"We have made considerable progress over the year on all major items and expect to achieve  first production in 2013, albeit slightly later than expected due to the need to negotiate stable  fiscal terms with the government. We are confident that the funds raised in March 2011 will be adequate to complete the construction of all elements to commence production."

Enquiries:  

Chairman's Report

Early in 2011 the Board of your company took a strategic decision to change the focus of Chaarat from exploration to production.  

I am pleased to report on the solid progress which has been achieved since then: the mineralisation of the Tulkubash Zone was confirmed as extending over a strike length of several kilometres and comprising mostly non-refractory ore; together with additional drilling within the existing envelope on the Contact and Main Zones, Chaarat now has more than 5.5 million ounces of gold in resource at an average grade of 4.08g/t.  The extent of known mineralisation in these three zones points to a gold deposit considerably larger than our declared resource.

Progress was made towards the production of gold from the mostly oxide ore from the Tulkubash Zone with the advancement of the permitting and construction programmes, in addition to developing the infrastructure components of the project and completion of the design and engineering works.   The raising of �50 million of new equity in March 2011 by way of a private placing to a spread of London institutions means that the Company is fully funded until first production.

In addition to the progress towards production, we also released the results of the Pre-Feasibility Study for the whole Chaarat Project.  The results demonstrate to investors and possible future partners the broader potential of the project and establish a framework within which the results can be improved upon. The study showed that the project can support production of 200,000 ounces of gold per annum based on the existing resource. With more drilling and better understanding of the process and mining costs, we believe that there is considerable scope for improvement on the production rate and cost.

Following the drilling in the 2011 season we were pleased to announce an increase in the resource of 27%. Chaarat is becoming a very significant deposit. During 2012 management's focus will be on laying the groundwork for first production rather than on further increasing the resource base.

The political system in the Kyrgyz Republic continues to stabilise and 2011 saw parliamentary elections which resulted in a coalition government.  The presidential election two months later promoted the incumbent Prime Minister to President, which resulted in a reshuffle of the coalition.  This process caused delay in the review of our permit application.

At the time of writing we have called a temporary halt to expenditure on building the process plant while we discuss with the government of the Kyrgyz Republic a long term arrangement on royalty and taxation.

The backdrop to this is the likelihood that the new Kyrgyz coalition government will follow the trend of governments elsewhere in seeking larger contributions from extractive  industries.  The Chaarat project will not only be amongst the first to move into production in the country, but is also of sufficient scale to merit, on the part of both government and Chaarat shareholders,  a long term agreement that is mutually beneficial to both parties. There are presently indications that this can be achieved. The benefits to be derived from a certainty of the long term conditions under which the Project operates will considerably outweigh the delay to first production and interruption to current progress on site.

Chaarat staff have worked with determination over the year.  I thank them all for their efforts which I am sure will continue unabated as we move ever closer to production.

Christopher Palmer- Tomkinson

Chairman

Chief Executive Officer's Report

In 2011 Chaarat continued to focus on activities to achieve our strategic target established in 2010 to move to production.

During the year the Company continued to make progress towards its main operational objectives of facilitating early production during 2013, increasing and improving the resource base at Chaarat and developing Chontash into another major deposit.

The following report records our progress to date.

Project update

The Chaarat project will be developed in two principal stages; the Tulkubash Project, which involves the processing of oxide material, and the Kiziltash refractory stage. At first production will be on a small scale at 1,200 tonnes per day (tpd) which equates to 30,000 -35,000 ounces of gold per annum, increasing to 5,000 tpd (equivalent to 180,000 - 200,000 ounces of gold per annum) as the whole project is brought on stream.

In 2011 we completed a Pre-Feasibility Study across the entire project which will be updated this year to reflect our improved knowledge of Chaarat.  In accordance with local requirements we also completed a Feasibility Study for the Tulkubash Project. This will be submitted for approval to meet one of the conditions for the granting of a mining permit.

A major refinement to our strategy, with a consequent effect on the design process, was the decision to build the plant to process the ore from early stage production at the same location as the plant required for full production, rather than as a standalone in a different location. We had originally planned to build a small modular 700-1,000 tpd plant in a separate location to precede construction of a new facility for the larger plant.  This modification of the strategy reflected our desire to increase production from this first phase to generate early cash flow and also to reduce the impact of the fixed costs associated with a production rate of 5,000 tpd or more envisaged for the second phase.

The Pre-Feasibility Study was prepared on the basis of the plant being required to process 5,000 tpd of sulphide ore. From this full production design, development has been planned to allow for construction to be implemented in four phases which can be added without disrupting ongoing operations.  With this design, production and construction will commence at a production rate of 1,200 tpd of free milling ore and be increased, when funds permit and without interruption, to process 5,000 tpd of refractory ore.  This "reverse engineering" will ensure a smooth transition between the phases with the minimum of redundant plant and the maximum utilisation of the limited space available.

The start-up phase for 1,200 tpd of free milling ore is a conventional flow sheet used in many gold operations. It consists of primary and secondary crushing, milling, carbon in leach (CIL), elution, electro-winning and smelting to produce gold dor�.

This change will lower costs and facilitate a smoother increase in production.  Studies have shown that doubling production from 1,200 tpd to 2,500 tpd will cost approximately USD 15-20 million (including the necessary additions to the mining fleet).

Detailed engineering works have commenced and most elements of the project have been designed.  This has enabled us to issue tenders to suppliers for the power supply, road access, processing plant, tailings facility, mining fleet, explosive supply systems and other elements of the operation.

Permits have been granted for the construction of the power line, roads, and the temporary camp site which will be used until the permanent camp is built.

External power supply

Power supply is critical for any mining project and fortunately the Kyrgyz Republic is well endowed with power generation capacity. Chaarat has already secured an allocation of 25 megawatt (MW) from the Kristal substation. We also managed to agree with the national power company that an allocation of at least 10 MW will be made available from the Karavan substation which is much closer to Chaarat.  We are currently considering whether we should build a generating station in the Chatkal valley, as originally planned, or build a line direct to Karavan. We are evaluating the cost implications and establishing whether one of the neighbouring companies may be interested in sharing this cost.  Connecting to the very low cost Kyrgyz grid supply will add significant value to the Chaarat project by considerably reducing the operating costs of production.

Permitting

The new Kyrgyz government, formed early in 2012 after the previous Prime Minister was elected President, is contemplating, like many governments, the right approach towards the taxation of extractive companies. Rather than set clear rules the government has decreed that the fiscal terms of a project will be determined by direct negotiations between the applicant and the government. Chaarat has decided it is better to determine the terms prior to pressing ahead and committing the finance required to bring the project into production.

Chaarat has commenced discussions with the government and we believe that the outcome of these discussions will be both timely and positive. We will keep shareholders updated on progress.

We originally expected to commence mining during 2012 and produce gold in April 2013. This was always subject to having secured permits on time. We still believe we will be producing gold during 2013 with a slight delay caused by the requirement to negotiate an investment agreement with the government.

Funding

As work has progressed, uncertainty over budget has decreased. Cost inflation in the mining industry is a hot topic and many of our investors have been  concerned that we may have underestimated costs. We believe that using standard equipment has helped us avoid the significant cost inflation which has occurred in more dedicated highly specialised equipment, which is produced by a few large suppliers.

We are confident that the funds raised in March 2011 will be adequate to complete the construction of all elements to commence production at the lower rate.. We have already commenced negotiations for a working capital facility of c$20million, which we currently intend to raise from non equity sources.

Chaarat will seek to increase its mostly free milling, open pittable Tulkubash Reserve Base by further drilling and, if the results of the drilling are as expected, develop a Definitive Feasibility Study underpinning a significantly higher production rate for this phase of the project.

Additional investment will be required to achieve both an increased production rate and access to a lower cost source of power, both of which are expected to further improve the project's NPV.  The board will consider the options available when the results of the Definitive Feasibility Study are known.  A number of alternative financing options are available, should the board decide to pursue the upgraded project.  

We continue to strengthen and build our core management and I am privileged to work with an exceptional team of people who continue to drive Chaarat ever onwards towards production; for which I thank them.

Dekel Golan

Chief Executive Officer

Notes:

1. Preparation of accounts 

The financial information set out in this announcement does not constitute the Company's statutory accounts for

the years ended 31 December 2011 or 2010.  The statutory accounts for the year ended 31 December 2011 have

been finalised on the basis of the financial information presented by the directors in this preliminary

announcement.

The consolidated balance sheet at 31 December 2011, the consolidated income statement, consolidated statement of changes in equity, consolidated cash flow statement and associated notes for the year then ended have been extracted from the Group's 2011 annual financial statements upon which the auditors' opinion is unqualified.

2.  Loss per share 

Loss per share is calculated by reference to the loss for the year of USD 12,368,049 (2010: USD 11, 436,103) and the weighted number of shares in issue during the year of 232,963,591 (2010: 125,387,960)

There is no dilutive effect of share options.

3. Selected accounting policies 

BASIS OF PREPARATION

The financial information has been prepared in accordance with IFRS as adopted by the European Union.  As detailed under the Basis of consolidation note, the acquisition of the Company in 2007 was treated as a reverse acquisition by its then operating subsidiary, without the presence of goodwill.  The principal accounting policies adopted in the preparation of the annual financial statements are set out below. The policies have been consistently applied.

There are no new and revised Standards and Interpretations issued by the International Accounting Standards Board ("IASB") that are relevant to its operations and effective for accounting periods beginning 1 January 2011.

The Group has not adopted any standards or interpretations in advance of the required implementation dates. It is not expected that adoption of standards or interpretations which have been issued by the International Accounting Standards Board but have not been adopted will have a material impact on the financial statements.

GOING CONCERN AND FUNDING REQUIREMENTS

In common with many exploration and development groups, the Group raises finance for its exploration, appraisal and development activities in discrete tranches.  A fund raising was completed in March 2011 which raised GBP 51.6 million before expenses (approximately USD 81.5 million). The funds were raised to fast track the Tulkubash Project to production including developing the required infrastructure.  The Company is satisfied that the original budget, as presented when the funds were raised in March 2011, remains adequate to complete construction of all elements to commence production.  

As announced on 16 April 2012, pending negotiations with the Kyrgyz government regarding the fiscal terms of the project, further capital investment activities (other than the infrastructure projects relating to power and roads and certain other key procurements  which have already commenced and will be completed) will be suspended until agreement is reached.  Chaarat has entered into direct negotiation with the government of the Kyrgyz Republic, the aim of which is to secure long term stability for the Chaarat Project by the development of a mutually agreed Investment Agreement, containing a "stabilisation clause", protecting the Group from changes to taxation, ownership structure and royalties.  

Based on a review of the Group's budgets and cash flow plans and the flexibility to alter these to suit prevailing circumstances, the Board considers this is sufficient to maintain the Group as a going concern for a period of over twelve months from the date of signing the annual report and accounts. The Board is satisfied that it has sufficient funds for going concern purposes whether or not agreement is reached with the government on a timely basis. However, additional funds of approximately $20m will be required for working capital purposes to reach production.  The Board believes, based on early indications from suitable sources, that the funding will be available but no such facility is currently in place.  If a working capital facility is not put in place the Group may not be able to fully develop the Tulkubash project and the carrying value of the project may become impaired.

At 31 December 2011, the Group had cash and cash equivalents of USD 61.1million and no borrowings.  

4.  Timetable and distribution of accounts 

The Annual General Meeting will be held at 10:00 on 12th July 2012 at the offices of the Company's Nominated Adviser, Numis Securities Limited, The London Stock Exchange Building,
10 Paternoster Square, London EC4M 7LT.

Additional copies of the Annual Report and Accounts, Notice of AGM and Proxy form will be available, free of charge, from Central Asia Services Limited, 6 Conduit Street, London, W1S 2XE, for a period of 14 days from the date of posting and will be made available on the Company's website - www.chaarat.com.

Note to Editors:

About Chaarat Gold

Chaarat Gold is an exploration and development company operating in the Kyrgyz Republic. The Company's main activity is the development of the  Chaarat Gold Project situated within the Middle Tien Shan Mountains of Kyrgyzstan, which form part of the Tien Shan gold belt. The Company has delineated a JORC compliant mineral resource of 5.59Moz at a grade of 4.08g/t gold. Chaarat's key objective is to become a low cost gold producer; with initial production from the Tulkubash project, targeting increased combined annual production of over 200,000 ounces as the full project comes on stream.

Further information is available at www.chaarat.com