Oxus Gold Plc Regulatory News (OXS)

10 Oct 2006 14:00

Oxus Gold PLC10 October 2006 news release For immediate release: 10 October 2006 Oxus Gold plc Final Results for the twelve months ended 30 June 2006 LONDON: 10 October 2006 - Oxus Gold plc ("Oxus", the "Company" or "the Group")is pleased to report on its final results for the 12 months ended 30 June 2006(the "year"). Highlights • Amantaytau Goldfields ("AGF") reports $11.29 million profit for the six month period to 30 June 2006 and $20.33 million profit for the year • Oxus reports gross profit of $6.57 million for the year (2005: $4.76 million); retained profit of $2.11 million (2005: $2.28 million) • AGF produced 62,818 ounces of gold in the six month period to 30 June 2006 and 146,937 ounces for the year • AGF project finance repaid and hedge commitments eliminated • AGF has produced more than 371,500 ounces of gold since commencement of operations in 2004 • AGF's Vysokovoltnoye has to date produced 2,122 kgs of dore containing 53,606 ounces of silver and 2,303 ounces of gold that awaits refining prior to sale. In addition, the plant has stockpiled over 45.5 tonnes of concentrate containing 257,052 ounces of silver and 3,878 ounces of gold • Feasibility study for AGF's Phase 2 sulphides underground project is progressing through the approval stage as part of Uzbek Government State Review • AGF reports encouraging drilling results for the Asaukak cluster of deposits • Major exploration and reserve development drilling programme underway with the intention of producing upgraded JORC resource and reserve statements at AGF • Pre-stripping of overburden has started at the Asaukak deposit with the goal of commencing hard rock mining by end of October 2006 to supply additional feed to the AGF plant • The Group increased its stake in Marakand Minerals to 85.78% • $20 million corporate credit facility drawn down in January 2006 • International arbitration commenced in respect of the Jerooy gold deposit Report on Activities Financial Results The Group reports a rise in gross revenue, including attributable joint ventureincome, to $13.55 million (2005: $10.11 million) and an audited profit aftertaxation and minority interest of $2.11 million (2005: $2.28 million). The profit on ordinary activities was $0.411 million (2005: $1.87 million) afterdeducting $1.39 million (2005: $nil) for stock based compensation. This is inaccordance with International Financial Reporting Standard 2, which is beingapplied to the Group's accounts for the first time. A further $4.67 million(2005: $1.41 million) was deducted in respect of legal and other costs arisingfrom the abortive 2002 project financing. This includes the costs of High Courtlitigation that resulted in a judgment in April 2006 which ruled that thecancellation by the Company in August 2003 of five million warrants granted toTempleton Insurance Limited in August 2001 was invalid. Net assets increased to $133.07 million (2005: $122.73 million), including cashand cash equivalents of $13.71 million (2005: $34.83 million). During the yearthe Company issued 11,102,855 shares. The total number of shares in issue at 30June 2006 was 298,120,198. Earnings per share, based on the average number ofshares in issue during the year, were 0.73 US cents (2005: 0.92 US cents). AGF in Uzbekistan contributed $10.16 million (2005: $6.43 million) towards thegross revenue, being the Group's 50% attributable share of profits for the year. During July and August 2006 AGF underwent a State 'complex' tax, customs andcompliance audit as part of the established regulatory procedure. Allenterprises in Uzbekistan, whether State owned or otherwise, are subject to thisprocedure every three years. As a result of the audit, at 30 June 2006 AGF has provided for $2.60 million intaxes and interest relating to the period 1 January 2003 to 31 December 2005. Inaddition, a further amount of approximately $7.00 million in withholding taxeson subcontractor invoices and customs duties is the subject of ongoingdiscussion with the relevant Uzbek authorities. The audit sought to imposevarious fines and penalties on AGF, and AGF is negotiating to have these amountswaived. The Uzbek government has introduced two decrees that remove the tax privilegespreviously granted to AGF. As a result, AGF is currently operating under theregular Uzbek tax regime. AGF's legal advisors maintain that AGF is protectedunder Uzbek law from adverse changes to its investment environment until 2010,and AGF has applied to the relevant authorities, based on the 10 year legalprotection, to have these privileges confirmed or reinstated as applicable. Whatever the final outcome, AGF understands that it will be given reasonabletime to pay any amounts due and is cooperating with the Uzbek authorities toensure the minimum adverse effect on AGF's ongoing operations and expansionplans. Operations Amantaytau Goldfields Phase 1 oxides project The following table summarises AGF's operating results: Six months to 30 Six months to 31 Year to 30 Year to 30 June 2006 December 2005 June 2006 June 2005Ore mined, tonnes 770,930 746,644 1,517,574 1,407,200Ore processed, tonnes 814,329 795,397 1,609,726 1,225,600Average grade (g/t) 3.4 4.3 3.9 5.3Average gold recovery (%) 69.8 76.7 73.6 79.1Gold produced, ounces 62,818 84,119 146,937 166,318Gold sales, ounces 62,843 91,195 154,038 158,670Hedge ounces Nil 76,699 76,699 134,270Spot ounces 62,843 14,496 77,339 24,400Average gold price $ per ounce 594 353 451 338Average cash cost $ per ounce 329 196 250 177Average total cost $ per ounce 366 221 302 225Net profit after tax& debt service $11,295m $9.042m $20.337m $12.872m Despite the increase in tonnes mined and treated, year on year, annual goldproduction was down. This was due to the combined effect of lower grades andlower metallurgical recoveries. The former was related to a combination ofdilution and lower grade ore mined. The latter was related to the increase ofsulphidic and carbonaceous ore in the deeper parts of the pits. As a consequence of the above, combined with the imposition of new, non-profittaxes total cost per ounce has increased substantially. During the six month period to 31 December 2005 the AGF hedge book waseliminated, ahead of schedule, and Oxus bought out the balance of the projectfinance debt of $8.40 million. The AGF Vysokovoltnoye heap leach project produced its first silver and golddore during the six month period to 30 June 2006. The stacking of agglomeratedore on the pads commenced during January 2006 and has shown a steady increase upto June 2006 when the tonnage of ore stacked was regularly exceeding designexpectations. By June 2006 a total of 182,000 tonnes had been stacked of whichonly 76,000 tonnes was under irrigation. The tonnage difference is found on theside slopes which have yet to be irrigated. The Merrill Crowe plant is runningat full capacity of 230 cubic metres per hour. To date Vysokovoltnoye has produced 2,122 kgs of dore containing 53,606 ouncesof silver and 2,303 ounces of gold. In addition to this the plant has stockpiled45.58 tonnes of concentrate containing 257,052 ounces of silver and 3,878 ouncesof gold. Difficulties have been experienced with smelting capacity and acidtreatment which have prevented Vysokovoltnoye from converting the concentrate todore product for refining and sale. It is anticipated that these difficultieswill be overcome within the next 2 months, at which time the project will befully operational, and the stockpile of concentrates will be refined and soldinto the market. Amantaytau Goldfields Phase 2 underground sulphides project The underground AGF Sulphides project study has been converted to meet Uzbekregulatory requirements. In September 2006 the Uzbek Government approved thetechnical scope of the feasibility study for the Phase 2 underground sulphidesoperation representing a significant step forward in the overall State expertiseproject approval procedure. Following this, the feasibility study was formallysubmitted to the Government for approval. Progress of the detailed process design criteria is ongoing, and in particularconsideration of various process technology partners. Access to the undergroundore-body was obtained in mid-March 2006 following the refurbishment of Shaft 10and bulk samples were obtained for confirmatory testwork, essential for thedetailed design of plant with a long lead time. The Sulphides project is designed to mine the deeper sulphide extensions to theoxide ore-bodies currently being mined by open-pit methods by AGF at Centralnyand to mine the underground Severny ores. Combined, these deposits contain orereserves of 9.71 million tonnes at an average grade of 7.71 g/t containing 2.41million ounces of gold, within a mineral resource of 12.4 million tonnes at anaverage grade of 8.7g/t, and containing 3.50 million ounces of gold at a cut-offof 3.5 g/t gold. The total resource is 17.73 million tonnes at an average gradeof 6.84g/t, and containing 3.90 million ounces of gold at zero cut-off grade. Simultaneous submission of the study to the relevant State bodies should ensurethe earliest approval. It is anticipated to receive final approval for theproject late in the first quarter of 2007. Subject to the availability offinance, construction of the process plant could then start in April 2007although it should be possible to begin construction of the access decline tothe underground ore body in January. It is anticipated that commissioning andfirst gold would be around mid 2008 with full production attained three to fourmonths later. Jerooy In June 2006 Oxus served a notice of arbitration on the Kyrgyz Government inrespect of the investment dispute over the Jerooy gold project. The notice wasserved pursuant to the UK-Kyrgyz Bilateral Investment Treaty. The Company,however, remained in ongoing discussions with the Kyrgyz Government andindicated that it was prepared to improve the returns to the Kyrgyz Governmentfrom the joint venture as originally structured. Despite management's best efforts the Kyrgyz Government failed to respondpositively and to reinstate the mining licence for the Jerooy project which wasawarded on 19 July 2006 to another party. Group expenditure to date on Jerooyamounts to $54.5 million before management fees and interest charges. Oxus will continue to pursue all legal remedies available to it both withinKyrgyzstan and internationally, in order to have the licence reinstated or toseek appropriate compensation for the costs incurred to date and lost profits. The Arbitration is ongoing and the parties have been directed to respect theconfidentiality of these proceedings in public statements. Other activity Eurogold During 2005 Oxus agreed to acquire certain assets of, and subsidiary companyshares in, Eurogold Limited, a company listed on the Australian Stock Exchangeand on the AIM market of the London Stock Exchange. In October 2005 the Companyannounced that it was withdrawing from this offer. But, as the majorshareholder, with 15.4% of Eurogold, the Company continued to monitordevelopments as part of its ongoing planned investment strategy. After further discussions Oxus entered into an asset purchase agreement in April2006 with Eurogold to acquire certain assets owned by Eurogold in the Ukrainefor £9.16 million cash consideration and agreed to the cancellation of theshares it holds in Eurogold, valued at that time at approximately £1.727million. Oxus terminated the asset purchase agreement when it became apparent that theGovernment approved C1/C2 reserves were significantly less than the 578,000ounces that Oxus had been led to believe. Eurogold later confirmed that only aportion of the C1/C2 reserves had been fully approved and stated "Eurogoldremains confident that the Central Planning Committee in Kiev will ultimatelyapprove a C1/C2 ore reserve broadly in line with the 580,000 ounces estimate ofthe Regional Expedition". The issue is now the subject of litigation. Marakand Minerals Limited During 2006, the Company acquired a further 28,842,066 shares in MarakandMinerals, increasing its stake from 57.23% to 85.78%. This acquisition, on athree for one basis, was settled by the issue of 9,614,016 shares in theCompany. Marakand's involvement in the development of the Khandiza deposit was to be byway of a Joint Venture ('JV') with the State Committee of Geology of theRepublic of Uzbekistan ("Goscomgeology"). However, a recent decree of the UzbekGovernment, transferring the Khandiza mineral reserves from Goscomgeology to thestate owned Almalyk Mining and Metallurgical Combinat ("AMMC") has meant thepreviously proposed JV with Goscomgeology appears to have fallen away. Marakandis presently seeking to clarify the nature of its continued role in the projectwith the Uzbek Government. Regional exploration work carried out in the South East Uzbekistan explorationareas during the year continued to indicate encouraging results. Marakand has entered into exclusive option arrangements to acquire majorityinterests in two separate copper / gold license areas situated in southernTurkey, on which it is currently conducting exploration work. Initial work atthe Hatay project shows that mineralisation, extends over at least 1,600m alongstrike. Grab samples collected by Marakand confirm significant levels of goldand copper. Analyses of samples from the eastern end of the area indicated thepresence of up to 9.48 g/t gold and 3.09 % copper, whilst samples from the westof the area indicate up to 17.28 g/t gold but with less copper (0.15 %). Astream sediment sampling programme, together with further rock sampling, isexpected to increase the overall strike extent of mineralization. Marakand has established a technical office in Antakya and has commencedsatellite image interpretation of the area. A programme of geological mapping,sampling and surveying has commenced, to be followed by surface drilling beforethe end of 2006. On the 26 September 2006 the Company entered into a loan agreement whichprovides for Marakand to borrow up to $500,000 of which $260,000 had beenadvanced by 30 June 2006, and is renewable by mutual agreement. Interest ispayable at 3% above 1 month LIBOR and the loan is secured by a pledge overMarakand's assets. Exploration Exploration activities during the period were focussed on proving up new oxidereserves for AGF and latterly on upgrading resources at the deep sulphideproject. Reverse circulation (RC) drilling programmes on the Uzunbulak, and the AsaukakCluster (Asaukak, Northern Asaukak, Sredinny and North Western deposits) wereundertaken during the year. At Uzunbulak and Asaukak resource definitiondrilling programmes and geological modelling were completed. Explorationdrilling programmes were also completed on Northern Asaukak and Aksai wheregeological modelling is now in progress. Project development work comprised condemnation RC drilling for waste dumpextensions and an infill drilling programme in the vicinity of the existingAmantaytau Centralny open pits as part of the assessment of the feasibility of a"Superpit" alternative option for mining the Centralny sulphides. A total of37,196m of exploration and development RC drilling was completed during theyear, of which 32,924m was exploration work. The drill results from Aksai are particularly encouraging as the strike lengthof the oxide mineralisation has been extended beyond the original deposit limitsdefined by the Soviets/Uzbeks from 500m to 700m. Exploration drilling has beencompleted along the 800m strike length of the Northern Asaukak deposit. A 600mzone in the west and centre of the deposit has returned results which confirmthe presence of a series of consistent mineralised bodies. Computer basedgeological modelling is in progress on these two deposits. Drilling continues atSredinny where two 300m long zones on the western side of the deposit havereturned relatively thick (10-20m) drill intersections with consistentmineralisation. Drilling to date on these deposits has returned values in linewith the previously quoted resource figures. An AGF revised Mineral Resource and Ore Reserve statement will be published withthe 2006 Annual Report. AGF has purchased two core drilling rigs and drilling operations commenced withthe CS14 surface rig. A total of 942m of core drilling was achieved during theyear. A total of 183m of exploration core drilling took place using both the AGFCS14 and contract drillers. The CS14 was primarily used to complete 659m ofgeotechnical drilling along the proposed access decline to the Amantaytausulphides. The second core rig, a Diamec U6 underground drilling rig, waspurchased with the intention of carrying out underground development andexploration drilling on the Amantaytau sulphide project. During the year a structural and alteration geology interpretation of the AGFlicence area using ASTER satellite imagery was completed. The results confirmthe presence of areas of argillic alteration and silicification within the AGFlicence area. The gold deposits at Amantaytau, Daugystau, Asaukak andVysokovoltnoye are all characterised by the presence of this type of alteration.Based on the association between the alteration style and the goldmineralisation favourably altered areas will form the focus of ongoingexploration. Directors Gordon Wylie joined the board of the Company as a non-executive director inFebruary 2006. Mr Wylie is a geologist with over 30 years experience in themining industry both as an exploration and mining geologist mainly with theAnglo American Group. He is a former Executive Officer of Exploration andGeology for AngloGold Ashanti. Gordon Wylie also serves as a geologicalconsultant to the Group. Darryl Norton was appointed as alternate director. Mr Norton has in excess of 23years experience in the engineering and mining industry. He was responsible onbehalf of the contractors, Maed Limited, for the construction of the AmantaytauGoldfields Oxide plant in Uzbekistan. Mr Norton was previously employed byFluor, TWP, Bateman and Gencor before joining Maed Limited. Outlook The Group has been through an uncertain period. Developments at Jerooy andKhandiza have been disappointing. However, with a strong production base at AGFunderpinning ongoing operations, there is a solid foundation on which to buildand the Group remains committed to expanding its production output from itscurrent levels. The underground sulphides project at AGF, subject toavailability of finance, will enable significant expansion. Expectations remainhigh and the directors are committed to protecting shareholder value. Themitigation of political risk and geographic diversification will also form anintegral part of the strategy going forward. Operations will be expanded in bothTurkey and the Ukraine. In addition, a major geological programme is well advanced to convert theGroup's resources into reserves, with the full resource statement to bepublished with the Annual Accounts. Despite setbacks the year ended 30 June 2006 has seen record profits at AGF andthe Company continues to look to the future with confidence. For further information please visit www.oxusgold.co.uk or contact: OXUS GOLD PLC Jonathan Kipps - Finance Director Tel: +44 (0) 207 907 2000Richard Wilkins - Company Secretary Tel: +44 (0) 207 907 2000 BANKSIDE CONSULTANTS Keith Irons Tel: +44 (0) 207 367 8888Oliver Winters Tel: +44 (0) 207 367 8888 CONSOLIDATED INCOME STATEMENT ---------------------------- ------------- ------------(US$000) Year Year ended ended 30 June 2006 30 June 2005---------------------------- ------------- ------------ RevenueGross revenue 3,383 3,678Income attributable from joint venture 10,169 6,437---------------------------- ------------- ------------ 13,552 10,115ExpensesAdministration expenses (5,749) (3,067)Deferred exploration and evaluation expenditureincurred by Marakand Minerals Limited (1,224) (2,281)---------------------------- ------------- ------------Gross profit 6,579 4,767Stock-based compensation (1,393) -Foreign exchange loss (158) (1,487)Costs arising from abortive 2002 projectfinancing (4,617) (1,410)---------------------------- ------------- ------------Profit from operations 411 1,870Net interest receivable: - Group 3 696 - Joint venture 1,969 914---------------------------- ------------- ------------Profit before taxation 2,383 3,480Taxation 15 (6)---------------------------- ------------- ------------Profit after taxation 2,398 3,474Minority interests (288) (1,191)---------------------------- ------------- ------------Profit for the year 2,110 2,283---------------------------- ------------- ------------Profit per share (US cents)Basic 0.73 0.92---------------------------- ------------- ------------Diluted 0.71 0.90---------------------------- ------------- ------------ CONSOLIDATED BALANCE SHEET ----------------------------- ------------ ------------(US$000) As at 30 June As at 30 June 2006 2005----------------------------- ------------ ------------ASSETSCurrent assetsCash and cash equivalents 13,717 34,834Trade and other receivables 10,172 5,954----------------------------- ------------ ------------ 23,889 40,788Non-current assetsExploration and mining properties and othertangible assets 95,870 60,228Investments 51,318 43,306----------------------------- ------------ ------------ 147,188 103,534----------------------------- ------------ ------------ 171,077 144,322----------------------------- ------------ ------------ LIABILITIESCurrent liabilitiesTrade and other payables due in less than oneyear 13,533 2,635 Non-current liabilitiesTrade and other payables due after one year 20,449 6,093 Minority interests 4,020 12,858 Shareholders' EquityCapital stock 4,774 4,581Reserves 128,301 118,155----------------------------- ------------ ------------ 133,075 122,736----------------------------- ------------ ------------ 171,077 144,322----------------------------- ------------ ------------ CONSOLIDATED STATEMENT OF CASH FLOWS -------------------------------- ----------- -----------(US$000) Year Year ended ended 30 June 2006 30 June 2005-------------------------------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Profit for the year 2,110 2,283 Adjustments for: Depreciation 136 16Profit on sale of assets - (6)Salaries and bonuses converted to shares 42 33Debt for services converted to shares 503 -Income attributable from joint venture (10,169) (6,437)Dividend from joint venture 1,250 -Stock-based compensation 1,393 -Profit on foreign exchange - 13-------------------------------- ----------- -----------Operating loss before working capital changes (4,735) (4,098)(Increase) decrease in trade and otherreceivables (4,218) 1,153Increase in trade and other payables 25,254 6,226-------------------------------- ----------- -----------Net cash generated from operations 16,301 3,281-------------------------------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIESCapital expenditure and financial investmentExploration and mining properties expenditure (35,778) (19,235)Funding of joint venture's capital expenditure (572) (8,852)Investments (895) (6,839)Loan (416) --------------------------------- ----------- -----------Net cash used in investing activities (37,661) (34,926)-------------------------------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIESWarrants and options exercised 243 146Shares issued - 60,792-------------------------------- ----------- -----------Net cash provided by financing activities 243 60,938-------------------------------- ----------- -----------Net (decrease) increase in cash and cashequivalents (21,117) 29,293-------------------------------- ----------- -----------Cash and cash equivalents as at 1 July 34,834 5,541-------------------------------- ----------- -----------Cash and cash equivalents as at 30 June 13,717 34,834-------------------------------- ----------- ----------- STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (US$000) Share Capital Accumulated Total Minority Total capital reserve loss interests ----------------- ------- --------- -------- -------- --------- -------Balance as at 1 July 2004 3,289 60,446 (4,416) 59,319 14,125 73,444Shares issued 1,281 59,511 - 60,792 - 60,792Warrants and options exercised 10 136 - 146 - 146Conversion of directors'remuneration to shares 1 32 - 33 - 33Stock-based compensation - - - - - -Capital reserve arising onrevaluation of investments - (1,117) - (1,117) - (1,117)On consolidation - 4 85 89 (76) 13Profit for the year - - 3,474 3,474 (1,191) 2,283----------------- ------- --------- -------- -------- --------- -------Balance as at 1 July 2005 4,581 119,012 (857) 122,736 12,858 135,594Shares issued 167 11,105 - 11,272 - 11,272Warrants and options exercised 15 228 - 243 - 243Conversion of services forequity 10 493 - 503 - 503Conversion of directors'remuneration to shares 1 41 - 42 - 42Stock-based compensation - 1,364 - 1,364 29 1,393Capital reserve arising onrevaluation of investments - (2,790) - (2,790) - (2,790) Capital reserve arising on shares in Marakand acquired during year - (11,272) - (11,272) - (11,272)On consolidation of minority interests - 9,794 (1,215) 8,579 (8,579) -Profit for the year - - 2,398 2,398 (288) 2,110----------------- ------- --------- -------- -------- --------- -------Balance as at 30 June 2006 4,774 127,975 326 133,075 4,020 137,095----------------- ------- --------- -------- -------- --------- ------- NOTES 1. The above financial information for the year ended 30 June 2006 is audited, with an unqualified opinion, and does not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985. The financial information for the year ended 30 June 2005 has been extracted from the accounts for that year, which have been delivered to the Registrar of Companies and on which the auditors gave an unqualified opinion. Statutory accounts for the year ended 30 June 2006 will be delivered to the Registrar of Companies. The Annual Report will be posted to shareholders in mid-November 2006 and the Annual General Meeting will be held on the 7 December 2006. 2. The basic and diluted profit per share has been calculated by reference to profit for the year, after taxation, of $2.110 million (2005: $2.283 million) and the weighted average number of ordinary shares in issue of 290,744,132 (2004: 248,790,894). 3. The directors do not recommend the payment of a dividend in respect of this period (2005: Nil). 4. The Consolidated Financial Statements, including comparatives, have been prepared in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board ("IASB") and the interpretations issued by the Standing Committee of the IASB. 5. The licence relating to the Jerooy project is under dispute with the Government of the Republic of Kyrgyzstan, whilst Marakand is seekingclarification of its role in the Khandiza project in Uzbekistan. The Company isof the opinion that the licences will be reinstated or that the Company willreceive appropriate compensation to include the sunk expenditure, therefore thatno diminution in value is appropriate. 6. On 4 August 2003 the Company cancelled 5,000,000 warrants for shares exercisable at £0.1525 per share, believing that it was entitled todo so. The grantee disputed this cancellation, and following litigation thewarrants were ordered by the court to be re-instated. The warrants have beenreturned to the ownership of Oxus. After the year-end, the Company paid aninterim amount of £2.97 million in damages (including interest) plus £0.36million in costs, on account of the damages, interest and costs claimed by thegrantee. The interim amount has been accrued at 30 June 2006 and set off againsta credit for the value to the Company of the re-instated warrants less theexercise price. The net charge to the Profit and Loss Account in the year forthe interim amount was $2.028 million excluding legal costs already provided.These warrants, which were due to expire on 8 August 2006, have been extendedfor a further six months. In the litigation, the grantee asserted an entitlement, under an adjustmentprovision in the original warrant deed, to an additional 3,313,380 warrants. TheCompany disputes this entitlement. 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