Oxus Gold Plc Regulatory News (OXS)

RNS Number : 2061N

Oxus Gold PLC

08 June 2010

 

Oxus Gold plc

 

("Oxus" or "Company")

 

Final preliminary results for the year ended 31 December 2009

 

·; Conditional financing agreement signed with Chinese consortium to invest and arrange up to $185 million in new financing in order to expand AGF's operations, including the development of an underground mine

·; AGF returns to profitability, reporting an operating profit before exceptional items of $10.96 million for the year ended 31 December 2009 (2008: $2.7 million), and a net profit after exceptional items and tax of $1.02 million (2008: loss of $610,000)

·; Mining at AGF recommences following refining, export and sale of 18.2 tonnes of stockpiled silver dore

·; Five year exploration programme underway at AGF with $2.5 million budgeted to be spent during 2010

·; AGF is targeting an increase in gold production to 300,000 ounces per annum, and to increase gold reserves from 2.4 million ounces to over 7 million ounces, during the next three to five years

·; The Group reports a loss for the year ended 31 December 2009 of $5.84 million (2008: loss of $54.39 million)

·; Oxus now accounts for AGF using 50% proportionate consolidation

 

Chairman's Statement

 

2009 has proved to be a turning point for the Oxus Group.

 

I am delighted to report that on 6 January 2010 Oxus signed a conditional agreement with the Chinese CITIC Group to provide up to $185 million in equity and debt financing. This was achieved despite what has been an extremely difficult period to raise finance to develop mineral projects. This financing will enable Oxus to construct its first underground mine at the 50% owned Amantaytau Goldfields ("AGF") joint venture in Uzbekistan, to expand existing open pit heap leach operations, and to undertake a very substantial exploration programme within the AGF licence area.

 

The construction of the underground mine will take approximately 18 months from first draw down of funds, which is dependent on finalising an appropriate Foreign Investment Agreement with the Uzbek Government. Discussions with the Government are well underway and we anticipate concluding this agreement in the near future.

 

Shareholders have already demonstrated their support for the CITIC transaction at an EGM held in January 2010, as have our convertible loan note holders, who have restructured the terms of their notes. In addition Nedbank has agreed to convert the balance of its corporate loan facility into shares of the Company upon closing of the CITIC transaction.

 

The directors of your Company believe that with the injection of the funding and technical support offered by the incoming investors, the Oxus Group will be able substantially to increase the value of the Group for the benefit of shareholders, employees and the economy of Uzbekistan.

 

During the year under review AGF finally refined and sold the majority of the 18.2 tonnes of stockpiled silver doré that had accumulated at the mine. The balance was refined and sold in the first quarter of 2010. The cash flow generated enabled AGF to settle long outstanding creditors and to recommence heap leach operations in November 2009, which had been temporarily suspended since January 2009. The carbon-in-pulp plant was also shut down as planned and will now be refurbished and modified to treat the sulphide ore from the underground mine. As a result of further metallurgical testwork and economic analysis AGF decided not to process the Sarybatyr deposit through this plant, but to heap leach it instead. The amended feasibility study in this respect has been resubmitted to the appropriate authorities in order to obtain the relevant mining permit. In the meantime mining at Nukrakon (formerly Vysokovoltnoye) has recommenced at a reduced rate of 35,000 tonnes per month pending the approval to mine Sarybatyr and further exploration work on the surrounding oxide deposits.

 

Oxus and AGF have also undertaken a comprehensive review of the 24 million ounces of gold potential identified within the AGF licence area. A detailed five year exploration programme has been drawn up with a total budget of some $22 million and the objective of increasing AGF's JORC classified proven and probable gold reserves from the current 2.4 million ounces to 7 million ounces, after allowing for depletion from current and future mining. $2.5 million has been budgeted for 2010 which will come from existing cash resources. Over the same five year period, and with the injection of the new financing, we are planning to increase AGF's gold production to approximately 300,000 ounces per annum. As stated above, we believe that this exciting programme should finally unlock substantial value for all stakeholders.

 

Management within the Oxus Group continues to focus on cost control and, wherever possible, costs will continue to be trimmed to ensure that the Group maintains an optimal cash position whilst awaiting first draw down on the CITIC financing. As part of this cost cutting exercise one of the stated intentions during the past year was to strengthen our management team in Uzbekistan and to reduce our reliance on both the London and Malta offices. I am pleased to confirm that where possible this has been achieved, and as we expand AGF's mining and exploration operations going forward, we will continue to relocate appropriate management to Uzbekistan.

 

I would like to express my thanks to the board of directors for their wise counsel over the past twelve

months and to all our staff in London, Malta and Uzbekistan for their dedication and hard work.

 

 

 

 

Richard Shead

Executive Chairman

7 June 2010

 

 

FINANCIAL AND OPERATING REVIEW

 

For the year ended 31 December 2009 the Company has accounted for its joint venture, Amantaytau Goldfields ("AGF"), using proportionate consolidation, rather than equity accounting. Comparatives for the eighteen month period ended 31 December 2008 and the year ended 30 June 2007 have been restated to reflect this change in accounting policy, as required by revised IAS 1.

 

Having divested itself of certain other assets in previous reporting periods, the Group's sole activity is now the development of its 50% interest in AGF in Uzbekistan. It is expected that, in future reporting periods, activities at AGF will be significantly expanded. As a result, the directors consider that proportionate consolidation of 50% of AGF's income, expenditure, assets and liabilities more properly reflects the Group's business in its audited financial statements.

 

Group comparatives are for the eighteen month period ended 31 December 2008. However, AGF has always reported on a calendar year end basis, to 31 December. Accordingly AGF's comparatives are for the year ended 31 December 2008.

 

 

FINANCIAL REVIEW

 

Results for the Year

 

The Group reports gross revenue of $13.26 million for the year ended 31 December 2009 (18 month period ended 31 December 2008: $43.07 million). Gross revenue represents 50% of the proceeds received from the export and sale of gold and silver bullion by AGF.

 

The Group reports a loss for the year ended 31 December 2009 of $5.84 million (1.52 cents per share loss) against a loss of $54.39 million (14.57 cents per share loss) for the 18 month period ended 31 December 2008. The loss for the year is after charging $2.65 million in respect of exceptional AGF restructuring costs, net interest costs of $1.42 million and tax of $0.32 million (2008: $43.63 million, $0.88 million and $0.22 million). The tax charge relates to AGF in Uzbekistan.

 

AGF reports an operating profit before exceptional items for the year ended 31 December 2009 of $10.96 million (year ended 31 December 2008: $2.70 million; 18 month period ended 31 December 2008: $7.27 million) and a profit after exceptional items and tax of $1.02 million (year ended 31 December 2008: loss of $0.61 million; 18 month period ended 31 December 2008: loss of $4.54 million). 50% of these amounts have been reflected in the Group's results (see reconciliation in note 4 to the financial information). Total Group assets decreased to $72.46 million (2008: $84.98 million) including cash and cash equivalents of $9.63 million (2008: $9.94 million).

 

Corporate Activities

 

During the year the Company issued 4,623,175 ordinary shares, representing fees and salaries of directors and senior management capitalised as part of a cash preservation strategy. The total number of shares in issue at 31 December 2009 was 386,062,860. Since the year end a further 10,123,425 ordinary shares have been issued, of which 8,164,425 represented capitalised interest on the Company's convertible loan notes and the balance represented capitalised fees and salaries of directors and senior management.

 

On 7 January 2010 the Company announced that it had signed a conditional agreement with a consortium of Chinese investors to invest and arrange financing in a total aggregate amount of up to approximately $185 million (the "Financing"). These funds will be used to provide working capital to the Company and to finance and develop AGF's operations in Uzbekistan, including the expansion of open pit heap leach mining operations, the development of one or more underground mines, and an accelerated exploration programme, thereby enabling AGF over the next three to five years to target an increase in annual production to approximately 300,000 ounces of gold, and an increase in AGF's gold reserves from 2.4 million ounces to over 7 million ounces (after allowing for mining depletion).

 

Under the terms of the Financing the consortium will invest approximately $85 million by subscription to new ordinary shares in the Company and convertible loan notes. In addition, the consortium will be granted warrants to subscribe for new ordinary shares in the Company for approximately $20 million in return for an undertaking to arrange a further minimum of $80 million in project finance.

 

The consortium consists of CITIC Construction Co Ltd, Baiyin Non-Ferrous Group Co Ltd, and Chang Xin Yuan Su (Tianjin) Equity Investment Fund Management LP. CITIC and Baiyin are ultimately owned and controlled by the Government of the People's Republic of China. Chang Xin is a private equity fund registered in China and managed by Long March Investment Consulting (Beijing) Co Ltd.

 

Pursuant to the Financing, the consortium will subscribe for 573,000,000 new ordinary shares in the Company at 6p per share and for $30 million of convertible loan notes, convertible at 7p per share into 267,857,142 new ordinary shares. The notes will earn interest at US LIBOR + 3% per annum. In addition the consortium will be issued with warrants to subscribe for a further 89,285,714 new ordinary shares at 7p per share, and 62,500,000 new ordinary shares at 10p per share, subject to arranging a further $80 million in project finance.

 

The Company's shareholders approved the terms of the Financing at an EGM held on 26 January 2010. However, the Financing, which has a backstop date of 31 December 2010, is conditional upon the signing of a Foreign Investment Agreement ("FIA") with the Uzbek Government, setting out various tax, fiscal, licensing and other matters in respect of the AGF joint venture, and the customary regulatory approvals from the Government of the People's Republic of China. A draft of the FIA has been submitted to the Uzbek Government and appropriate discussions as to final form and content are underway. The directors believe that the FIA will be concluded and signed in a satisfactory form in the near future, following which the appropriate approvals from the Chinese Government should be forthcoming.

 

At the EGM on 26 January 2010 the Company's shareholders also approved a 1:7 share consolidation, subject to the Financing closing by 31 December 2010.

 

In May 2008 the Company issued convertible loan notes in the principal amount of $18.5 million. These notes were convertible into ordinary shares of the Company at 37p per share, earned interest at 8% per annum and were repayable, if not converted, in May 2010. The notes have now been restructured such that they are now convertible at 12p per share, earn interest at US LIBOR + 3% per annum, and the repayment date has been extended to May 2013. If all the notes are converted the maximum number of new ordinary shares that would be issued is 96,354,166. The noteholders have the option to revert back to the original terms of the notes if the Financing, or an alternative financing in a minimum amount of $80 million, does not occur by 31 December 2010.

 

Each of Zeromax GmbH and RAB Special Situations (Master) Fund subscribed for $6 million of the convertible notes and L-R Managers LLC subscribed for $3 million of the convertible notes. By virtue of the size of their respective shareholdings in the Company, each of these subscriptions and subsequent restructuring of the terms constituted a Related Party Transaction for the purposes of the AIM rules. The directors of the Company, having consulted its nominated adviser, considered that the terms of the subscriptions and subsequent restructuring were fair and reasonable insofar as the Company's shareholders were concerned.

 

At 31 December 2009, the Company owed Nedbank $2.5 million against a $20 million corporate loan facility. Since the year end Nedbank has agreed to convert this amount into ordinary shares of the Company, at 6p per share, subject to the Financing closing by 31 December 2010.

 

The directors continue to undertake a number of measures in order to preserve cash until such time as the Group's operations are fully funded. These measures include a continued reduction in the size of the board, and all directors and most senior management (including those at AGF) continuing to be paid approximately 20% of their salaries or fees in shares, rather than cash. Further cost reduction measures will be pursued wherever appropriate. At 7 May 2010, the Group's cash resources stood at approximately $6.7 million.

 

Going concern is discussed in notes 2 and 3 to the financial information.

 

Review of AGF's Operations

 

All figures relating to AGF are 50% attributable to Oxus.

 

In January 2009 the carbon-in-pulp ("CIP") plant operation was shut down as planned. AGF decided not to process the Sarybatyr open pit oxide ore through the plant as metallurgical testwork and an economic analysis demonstrated that this deposit will be more profitably processed by heap leaching. AGF therefore does not plan to operate the CIP plant until it is converted into a biooxidation plant to treat sulphide ore from the proposed underground mine at Amantaytau Severny and Centralny. In order to reduce costs the associated labour force, with the exception of those required to carry out care and maintenance, was laid off on a temporary basis.

 

Stacking at the Nukrakon (formerly Vysokovoltnoye) heap leach operation was also stopped in January 2009, although the heaps were irrigated until March 2009. The decision was taken pending the refining of an accumulated stockpile of 18.2 tonnes of silver doré, which AGF had been unable to process through the in-country Almalyk silver refinery on a timely basis. Agreement was reached with the Almalyk refinery on further processing in July 2009, following which the stockpile has been refined, exported and sold. Further stacking and irrigation resumed in November 2009, utilising previously mined and stockpiled ore. At 31 December 2009 a total of 13,806 tonnes of ore containing a head grade of 1.01 grammes per tonne ("g/t") of gold and 76.7 g/t of silver had been stacked on the heap leach pads. Since the year end a further 86,596 tonnes of ore had been stacked by 30 April 2010, containing a head grade of 0.92 g/t of gold and 78.2 g/t of silver. An extension to the mining contract with BCM International has also been signed and mining operations restarted in early May 2010.

 

As a result AGF's operations during 2009 and the early part of 2010 largely reflect the refining, export and sale of the stockpile of 18.2 tonnes of silver doré, containing some 6,700 ounces of gold and 568,000 ounces of silver, and the export and sale of 3,860 ounces of gold and 56,750 ounces of silver previously reported as locked-up in the furnace at Almalyk, which amounts have now been recovered following a scheduled refurbishment of the smelter.

 

During the year to 31 December 2009 AGF produced 4,000 ounces of gold and 170,299 ounces of silver (year to 31 December 2008: 50,540 ounces of gold and 938,853 ounces of silver) and sold 16,073 ounces of gold and 664,121 ounces of silver (2008: 54,133 ounces of gold and 723,418 ounces of silver). Gross revenue was $26.53 million (2008: $58.90 million). Of the sales in 2009, 4,415 ounces of gold and 55,951 ounces of silver had been produced in 2008. In addition 386 ounces of gold were recovered from Navoi Combinat's GMZ-2 gold refinery.

 

AGF reports an operating profit before exceptional items of $10.96 million for the year ended 31 December 2009 (2008: $2.70 million), and a profit after exceptional restructuring costs and tax of $1.02 million (2008: loss of $0.61 million).

 

Future Open Pit Oxide Operations

 

Mining of open pit oxides recommenced at the Nukrakon (formerly Vysokovoltnoye) heap leach project in early May 2010, mining higher grade material at a rate of 35,000 tonnes per month from the Nukrakon Orezone No 7 pits. An amended feasibility study in respect of heap leaching Sarybatyr has been resubmitted to the appropriate authorities in order to obtain the mining licence, and exploration work on the surrounding oxide deposits has also commenced. Once the appropriate approvals have been obtained AGF plans to mine the Sarybatyr deposit, which has a Proven and Probable Oxide Reserve of 1.61 million tonnes at an average grade of 1.88 g/t gold, and then the balance of the Nukrakon deposit and a further six deposits in the immediate vicinity (Nukrakon Orezone No 4, Central Karasai, Western Karasai, Tumshuktau, Yasaul and Taskazgan). This one million tonne per annum operation is expected to produce a total of 340,000 ounces of gold equivalent over a twelve year period. Economic appraisals are being carried out to determine the optimum throughput of this operation, with the possibility of increasing the monthly throughput from 80,000 to 120,000 tonnes by the installation of additional crushing equipment.

 

In parallel to the Nukrakon operation, a second one million tonne per annum heap leach plant is being considered for commissioning at Asaukak during 2011. This operation would produce a further 250,000 ounces of gold over a ten year period from the existing stockpile of Asaukak ore (1.32 million tonnes at 0.64 g/t, containing 27,000 ounces of gold) and subsequent mining of surrounding deposits, to include Aksai, Northern Asaukak, Sredinny, North Eastern and Northern Daugystau.

 

Underground Sulphide Project

 

In June 2008 Wardell Armstrong International ("WAI") completed a bankable feasibility study ("BFS") in respect of AGF's underground sulphide Severny deposit, and part of the Centralny deposit. WAI updated the study in November 2008 to include additional reserve ounces. This study envisaged a 750,000 tonnes per annum ("tpa") operation (increasing to 1.2 million tpa) over an initial eight year mine life, at a capital cost of approximately $170 million, and producing an average of 230,000 ounces of gold per annum.

 

In May 2009, WAI completed an addendum to the BFS in respect of a lower capital cost first phase of the underground sulphide project, which also includes AGF's sulphide tailings arising from transitional and sulphide ore previously processed through the CIP plant as part of AGF's open pit oxide operation. This study envisages an initial 450,000 tpa operation at a capital cost of approximately $73 million, and producing an average of 100,000 ounces of gold per annum, until expanded to process a larger tonnage.

 

The BFS envisages that the sulphide mine will be brought into production based only on the current sulphide reserves of the Severny and Centralny deposits and does not take into account possible future production from the remaining resources of these deposits nor any potential future resources at depth. Significant other potential sulphide resources exist in the satellite oxide deposits within the AGF licence area.

 

WAI November 2008 Updated BFS

 

The November 2008 study assumes an underground mining operation accessed via two parallel declines, with the portals located in the northernmost location at the base of the existing Centralny Pit No 1 where the oxide ore has been mined out. The mine design is based on cut and fill mining methods with limited sub-level open stoping. The cut and fill mining method results in high physical extraction ratios and minimal dilution but is relatively expensive. Geotechnical work would be undertaken prior to underground development with a view to improving mining methods and reducing the production cost per ounce.

 

The ore will be processed using bio-oxidation technology provided by Goldfields, South Africa. The existing CIP plant will be modified to accept the sulphide ore. The existing milling, reagent handling, elution, electro-winning and smelting sections will be retained and upgraded while the leach feed thickener will be converted to accept flotation tails. The float concentrate will be biodigested to break down the sulphide minerals, thickened and cyanide leached in a carbon in leach ("CIL") section. The plant will be constructed in two phases in line with the increase in production from the mining operations. Phase 1 will consist of a single flotation bank and two bio-oxidation modules designed to treat 750,000 tpa of ore. Phase 2 will increase the plant capacity to approximately 1.2 million tpa. Overall plant recovery of 88% has been used in the BFS based on 96% float and 92% CIL recovery.

 

The BFS recognises the JORC classified Measured and Indicated resource base for the Amantaytau Severny and Centralny sulphides to total 13.5 million tonnes at 6.89 g/t containing 2.99 million ounces of gold. Based on this resource, JORC classified Proven and Probable reserves have been estimated for stoping blocks within a 3.5 g/t cut-off at Severny and a 2.0 g/t cut-off at Centralny to be 8.96 million tonnes at 6.99 g/t containing 2.01 million ounces of gold.

 

The BFS mine plan has an initial life of eight years. However, based on the wealth of data available from Soviet times and validated by Lonhro and Oxus, there is significant potential to increase the resource base substantially. Neither Centralny nor Severny have been closed off at depth and considerable potential exists for the delineation of mineralisation below existing development levels. A single deep drill hole at Amantaytau Severny intersected mineralisation at 870 metres below surface comprising a drilled width of 8 metres at 51.6 g/t (the estimated true width based on the drill section is 1.73 metres).

 

The project's initial capital funding requirement is estimated to be $167.8 million. A further $48.7 million of sustaining capital over the life of the project is assumed to be funded from the project cash flows. From the time of reaching full production, operating costs are forecast to be $86.30 per tonne of ore mined and $402 per ounce of gold produced.

 

The original BFS was based on the COMEX forward gold price curve at the date of the BFS as supplied by Standard Bank London Ltd. At a flat gold price of $850 per ounce with no inflation of costs, the net present values of the project, ungeared and pre-profits tax, are $582 million at a discount rate of 0% per annum, $364 million at 7% per annum and $299 million at 10% per annum. The internal rate of return is 57.0% and payback is 24 months from start of production.

 

WAI May 2009 Addendum to the BFS

 

The May 2009 addendum to the study assumes that the sulphide mine will be brought into production initially from 213,000 tonnes of sulphide ore tailings at a grade of 3.90 g/t arising from previously processed sulphidic ore, followed by the underground Centralny deposit and the high grade Severny deposit. The project is scheduled to produce 100,000 ounces per annum when in full production. The underground mining operations will be accessed via a single decline, with the existing No 10 Shaft being utilised for ventilation and as a second outlet. The mine design is based on transverse bench and fill, longitudinal retreat stoping and a reduced amount of cut and fill stoping compared to the original BFS. Access development scheduling and costing was done by Shaft Sinkers (of South Africa) and the mine planning was again done by WAI.

 

The ore will be processed using bio-oxidation technology. The plant will be constructed to treat 450,000 tpa, using only one of the existing mills and a single bio-oxidation module. Overall plant recoveries will remain the same at 88% except for the tailings where a recovery of 56% has been assumed. The addendum utilises only a total of 4.1 million tonnes of underground production from Centralny and Severny at an average grade of 7.03 g/t, containing 934,447 ounces of gold. This tonnage represents less than 50% of the JORC classified Proven and Probable reserves. The mine plan has an initial life of 12 years. Optimisation analyses to determine the timing of a production increase are being undertaken.

 

The initial capital funding requirement is estimated to be $73.8 million. A further $55.5 million of sustaining capital over the life of the project is assumed to be funded from the project cash flows. From the time of reaching full production, total operating costs are forecast to be $87.5 per tonne of ore mined and $377 per ounce of gold produced.

 

At a flat gold price of $850 per ounce with no inflation of costs, the net present values of the Project, ungeared and pre-profits tax, are $197 million at a discount rate of 0% per annum, $103 million at 7% per annum and $78 million at 10% per annum. The internal rate of return is 34.7% and payback is 30 months from start of production. These economics take no account of any plans to expand production and to mine the remaining Proven and Probable reserves as utilised in the November 2008 updated BFS. At a 7% discount rate it is estimated that these reserves would add a further $205 million to the net present value. Given that the main access development will already have been completed, it is also anticipated that these additional reserves will be mined at a substantially lower capital cost than envisaged in the November 2008 updated BFS.

 

Whichever study is adopted, construction of the underground mine will take approximately 18 months from first draw down of the Financing, following which gold production would commence immediately and build up rapidly to the planned production level.

 

Exploration

 

A five year exploration programme and budget for the period 2010 to 2014 has been submitted to the State Committee of Geology and Mineral Resources of the Republic of Uzbekistan. The objective of the programme is to accelerate the conversion of mineral resources to reserves and in so doing accelerate the preparation of deposits for production, and to define new resources. AGF is targeting an increase in JORC classified gold reserves from the current 2.4 million ounces to 7 million ounces as a result of the drilling programme, after allowing for mining depletion. The total exploration potential (JORC and Soviet classified) at AGF is currently identified as approximately 24 million ounces of gold and 480 million ounces of silver.

 

Within the 192 sq km licence area of AGF the exploration work being proposed is:

 

·; 35,250 linear metres of trenching (including 8,250m in 2010);

·; 183,625 metres of inclined hole reverse circulation ("RC") drilling, using a new Explorac 220 drill rig purchased from Atlas Copco, to target both oxides and underlying sulphides (including 27,625m in 2010);

·; 52,425 metres of inclined surface deep hole core drilling, principally around Amantaytau Severny, utilising AGF's existing Atlas Copco CS14 drill rig, plus the planned acquisition of a second CS14 drill rig in 2011 (including 4,575m in 2010);

·; 30,713 metres of underground core drilling starting in 2011 from the proposed access development into the Amantaytau Severny underground mine, utilising AGF's existing Atlas Copco U6 underground drill rig, and with the acquisition of a second U6 underground drill rig planned in 2012.

 

Trenching programme

 

About 1,000 linear metres per month of trenching are proposed, which commenced in early May 2010 with infill trenching at Sarybatyr to redefine on surface the hangwall and footwall contacts prior to the start of open pit mining operations. The next priority will be to carry out further trenching in the Nukrakon, Yasaul and Taskazgan areas, before resuming and completing work started in 2008 in the Asaukak and North Daugystau areas.

 

Exploration drilling

 

AGF's drilling strategies are as follows:

 

·; inclined hole RC drilling, both within and around AGF's open pit mining operations for short hole 'orebody definition drilling' and in-pit grade control, and drilling of the transition and primary sulphides immediately below the oxide open-pits, as well as deeper RC exploration drilling of both oxides and sulphides;

·; deep hole core drilling to intersect mineralisation below and adjacent to the Amantaytau Severny underground mine, initially targeting the interval between 500m and 900m below surface, below the existing Severny reserves. Some of this drilling is expected to be carried out from underground, once progress is made with the proposed decline.

 

A new Atlas Copco Explorac 220 RC drill rig has been purchased and is scheduled to be delivered to the AGF mine during June 2010. This rig is capable of drilling 4.5" (114mm) diameter to 300m depth, and initially will carry out all AGF's RC drilling. Oxus is further considering the purchase of a crawler mounted Explorac R50 RC rig which will work within and around AGF's open pit mining operations for short hole 'orebody definition drilling' and in-pit grade control.

 

Additional drilling equipment is being purchased for AGF's existing CS14 surface drill rig, principally enabling the rig to start a deep sulphide core drilling programme around the Amantaytau Severny underground mine, to confirm the continuity of sulphide gold resources at depth. It is proposed that the Explorac 220 will pre-drill the top 150m (approx) of Mesozoic sediments at Amantaytau Severny, where holes will be cased off, prior to the CS14 rig proceeding with drilling to intersect the sulphide resources between 500m and 900m below surface.

 

Discussions are being carried out with international drilling contractors with regard to the supply of drilling supervision and lead drillers, training and technical support. AGF is planning 150m per day RC drilling with the Explorac 220 drill rig and 540m per month core drilling with the CS14 drill rig.

 

A diesel power pack is being purchased for AGF's existing U6 underground drill rig to enable this rig to be used on surface prior to going underground, and for carrying out geotechnical and metallurgical core drilling.

 

The overall budget for the five year exploration programme, including grade control drilling, is approximately $22 million, of which $2.5 million has been committed from current cash resources to be spent during the remainder of 2010.

 

GIS and Database Management System

 

The Group has taken the decision to establish a Geological Information System ("GIS") together with a comprehensive mineral resource database for AGF's exploration area and contained deposits and occurrences. In cooperation with specialist advisers, Oxus will be placing experienced GIS geologists and technicians in the exploration geology department to work alongside and train local AGF staff.

 

Reserves and Resources

 

At 31 December 2009 the Precious Metal Ore Reserve and Mineral Resource statements of AGF (of which 50% are attributable to Oxus), and as agreed by independent mineral consultants, Wardell Armstrong International, are as presented on the following pages:

 

 

Amantaytau Gold Fields Precious Metal Ore Reserves as at 31 December 2009 (50% attributable to Oxus Gold plc)

 

JORC Classified	Proven Reserves						Probable Reserves					Proven and Probable
Amantaytau Goldfields (AGF)	Cut off g/t Au	Mt	Grade g/t		Kozs		Mt	Grade g/t		Kozs		Mt	Grade g/t		Kozs
			Gold	Silver	Gold	Silver		Gold	Silver	Gold	Silver		Gold	Silver	Gold	Silver
Asaukak Oxide Heap Leach
Asaukak (15% Dilution, 95% Ore Recovery)	0.50	0.01	1.18	1.4	1	1	0.16	1.34	1.4	7	7	0.18	1.33	1.4	8	8
Stockpiled low grade ore at Asaukak	0.50	1.32	0.64		27							1.32	0.64		27
Uzunbulak (15% Dilution, 95% Ore Recovery)	0.80	0.09	1.94	3.8	5	11	0.91	1.74	2.5	51	72	1.00	1.76	2.6	56	83
Sub-Total Asaukak Heap Leach		1.42	0.72	0.2	33	11	1.07	1.68	2.3	58	79	2.49	1.14	1.1	91	91
Vysokovoltnoye Silver-Gold Heap Leach
Vysokovoltnoye OB4 (8% Dilution, 95% Ore Recovery)	0.60	0.66	1.33	28.0	28	591	1.77	1.21	26.2	69	1,493	2.43	1.25	26.6	97	2,083
Vysokovoltnoye OB7 (15% Dilution, 95% Ore Recovery)	0.50	0.04	1.00	72.2	1	98	1.64	0.96	38.7	51	2,036	1.68	0.96	39.5	52	2,134
Stockpiled ore at Vysokovoltnoye	0.60	0.06	0.89	104.7	2	205						0.06	0.89	106.3	2	205
Sarybatyr (15% Dilution, 95% Ore Recovery)	0.60	0.75	2.20		53		0.86	1.60		44		1.61	1.88		97
Sub-Total Vysokovoltnoye Heap Leach		1.51	1.73	18.4	84	894	4.27	1.19	25.7	164	3,529	5.78	1.33	23.8	248	4,423
Total AGF Oxide Reserves		2.92	1.25	9.6	117	905	5.34	1.29	21.0	222	3,608	8.27	1.27	17.0	339	4,513
Sulphides (Underground)
Amantaytau Centralny (23.4% Dilution, 91.3% Ore Recovery)	2.00						2.21	4.67		332		2.21	4.67		332
Amantaytau Severny (28.3% Dilution, 99.0% Ore Recovery)	3.50	0.85	7.60		207		5.88	7.77		1,470		6.73	7.75		1,677
Sulphides (Surface / Open Pit))
Sulphidic tailings (5.0% Dilution and 95.0% Reserve Recovery)	1.00						0.21	3.90		27		0.21	3.90		27
Asaukak Open-Pit Expansion (15% dilution, 95% Ore Recovery)	1.42	0.04	3.09	5.4	4	7	0.68	2.67	3.3	58	71	0.72	2.69	3.4	62	77
Total AGF Sulphide Reserves		0.88	7.40	0.2	210	7	8.99	6.53	0.2	1,887	71	9.87	6.61	0.2	2,097	77
TOTAL AGF RESERVES					327	912				2,109	3,679				2,436	4,591
TOTAL OXUS ATTRIBUTABLE RESERVES (50%)					164	456				1,054	1,840				1,218	2,295

Notes:

- Depleted Asaukak and Vysokovoltnoye OB7 reserves are as per 31st December 2009

- Silver grades under 'Total Oxide' and 'Total Sulphide' do not reflect average over total reserve tonnages

- Vysokovoltnoye OB7 oxide cut off grade is 0.5 g/t for gold and 25 g/t for silver

- In addition to the above Ore Reserves, the designed open pits include the following 'in-pit inferred resources' (with mining dilution and recovery) and will be subject to grade control during mining

- In the case of Vysokovoltnoye OB7, included is an 'in-pit inferred sulphide resource (transition zone)' but subject to further metallurgical testwork:

 

Amantaytau Goldfields (AGF)	Cut off	Mt	Grade g/t		Contained Kozs
Oxides	g/t Au		Gold	Silver	Gold	Silver
Sarybatyr (15% Dilution, 95% Recovery)	0.60	0.65	1.96		41
Asaukak (15% Dilution, 95% Recovery)	0.50	0.07	1.18	1.3	3	3
Vysokovoltnoye OB7 (15% Dilution, 95% Recovery)	0.50	0.16	1.00	10.2	5	53
Sub-Total AGF oxide 'in-pit inferred' resources		0.88	1.72	2.0	49	56
Sulphides
Vysokovoltnoye OB7 (15% Dilution, 95% Recovery)	1.42	0.10	0.95	106.9	3	353
Asaukak Open-Pit Expansion (15% dilution, 95% Recovery)	1.42	0.04	2.37	3.4	3	5
Sub-Total AGF sulphide 'in-pit inferred' resources		0.15	1.38	75.7	7	358
Total AGF 'in-pit inferred resources'		1.03	1.68	12.5	56	414
Total Oxus attributable 'in-pit inferred resources' (50%)					28	207

Note :

- Vysokovoltnoye OB7 oxide cut off grade is 0.5 g/t for gold and 25 g/t for silver; and sulphide cut off grade is 1.42 g/t for gold, and 25 g/t for silver

 

The Amantaytau Centralny and Severny underground sulphide reserves are based on the 2008 BFS, within which are the following Stage I reserves:

Amantaytau Goldfields (AGF)	Cut off	Mt	Grade g/t		Contained Kozs
	g/t Au		Gold	Silver	Gold	Silver
Amantaytau Severny Stage I - proven	3.50	0.29	8.66		80
Amantaytau Severny Stage I - probable	3.50	2.80	8.50		764
Amantaytau Severny - sub-total		3.09	8.51		845
Amantaytau Centralny Stage I - proven	3.50	0.08	9.36		23
Amantaytau Centralny Stage I - probable	3.50	0.06	9.16		16
Amantaytau Centralny - sub-total		0.13	9.28		40
AGF Combined Centralny and Severny Stage I Reserve		3.22	8.55		884
Oxus attributable Centralny and Severny Stage I Reserve (50%)					442

 

 

 

Amantaytau Goldfields Precious Metal Mineral Resources as of 31st December 2009 (50% attributable to Oxus)

 

JORC Classified		Mesured Resources					Indicated Resources					Inferred Resources
Deposits	Cut off g/t	Mt	Grade g/t		Kozs		Mt	Grade g/t		Kozs		Mt	Grade g/t		Kozs
			Gold	Sil ver	Gold	Sil ver		Gold	Sil ver	Gold	Sil ver		Gold	Sil ver	Gold	Sil ver
AMANTAYTAU GOLDFIELDS
Oxides
Asaukak	0.50	0.02	1.23	1.3	1	1	0.35	1.43	1.2	16	13	0.22	1.34	1.2	10	8
Uzunbulak	0.60	0.12	1.93	4.0	7	15	1.94	1.52	2.8	95	175	1.28	1.29	2.1	53	88
Amantaytau Centralyny	0.40	0.29	2.40	-	22	-	0.29	2.39	-	22	-	0.31	1.56	-	15	-
Sarybatyr	0.60	0.73	2.46	-	57	-	0.87	1.79	-	50	-	0.78	2.14	-	54	-
Vysokovoltnoye OB4	0.60	1.22	1.29	34.1	50	1,332	3.63	1.20	27.7	140	3,236	0.59	1.43	22.6	27	430
Vysokovoltnoye OB7	0.50*	0.06	0.95	61.7	2	117	2.58	0.86	34.5	71	2,864	0.45	0.81	14.3	12	205
Zapadny Amantaytau	0.60	1.23	1.48	-	58	-	0.46	1.07	-	16	-	0.06	1.16	-	2	-
AGF - 17 deposits	0.60	-	0.00	-	-	-	7.02	1.37	-	308	-	12.59	1.32	-	536	-
AGF - 7 Exploration Targets	0.60	-	0.00	-	-	-	-	0.00	-	-	-	-	0.00	-	-	-
Total Oxides		3.65	1.69	12.5	198	1,465	17.14	1.30	11.4	719	6,288	16.28	1.35	1.4	709	731
Sulphides
Severny	2.00	0.94	8.99	-	272	-	7.95	7.98	-	2,040	-	0.67	5.70	-	123	-
Centralny	2.00	1.99	4.75	-	304	-	2.62	4.46	-	376	-	3.11	4.28	-	428	-
Asaukak	1.50	0.06	3.03	4.6	6	9	1.42	2.68	2.6	122	121	0.70	2.54	2.5	57	56
Azunbulak	0.60	0.06	3.56	5.6	6	10	1.50	1.92	3.6	93	172	8.08	2.83	5.6	736	1,451
Sarybatyr	1.50											2.31	2.58		192
Vysolovoltnoye OB4	0.60	3.71	1.26	33.7	151	4,019	7.28	1.13	35.9	265	8,389	3.85	1.08	32.1	133	3,981
Vysokovoltnoye OB7	0.50*	-	0.00	-	-	-	6.12	0.98	73.1	193	14,391	5.74	0.84	51.4	155	9,488
AGF - 7 deposits (sulphides only)		-	0.00	-	-	-	-	0.00	-	-	-	-	0.00	-	-	-
Total Sulphides		6.75	3.40	18.6	738	4,037	26.89	3.57	26.7	3,089	23,072	24.47	2.32	19.0	1,824	14,975
Total Amantaytau Goldfields		10.41	2.80	16.4	937	5,502	44.04	2.69	20.7	3,809	29,361	40.75	1.93	12.0	2,533	15,706
OXUS ATTRIBUTABLE - 50%					468	2,751				1,904	14,680				1,267	7,853

 

 

Soviet/Uzbek Classified Resources (Additional to JORC)				P1		P2
				Kozs		Kozs
				Gold	Silver	Gold	Silver
	AGF Sulphides			5,841	314,604	3,745	45,110
OXUS ATTRIBUTABLE - 50%				2,921	157,302	1,873	22,555

Notes :

- Asaukak and Vysokovoltnoye OB7 resources take into consideration depletion up to 31st December 2009

- Vysokovoltnoye OB7 oxide and sulphide cut off grades are 0.5 g/t for gold, and 18 g/t for silver

 Silver grades under 'Total Oxide' and 'Total Sulphide' do not reflect average over total resource tonnages

- Silver grades under 'Total Oxide' and 'Total Sulphide' do not reflect average over total resource tonnages

- Exploration results comprise all Soviet/Uzbek B, C1 & C2 resources, and P1/P2 resources to 50m depth for oxide and 3 deposits for sulphide, not yet JORC resource classified

 

 

 

AGF's Proven and Probable Ore Reserves as of 31 December 2009

(50% attributable to Oxus) are:

 

·; Oxide ores : 339,000 ounces gold and 4.513 million ounces silver

·; Sulphide ores : 2.097 million ounces gold and 77,000 ounces silver

·; Combined : 2.436 million ounces gold and 4.591 million ounces silver

 

During the year ended 31 December 2009 the only changes to reserves are the depletion due to stacking of 13,806 tonnes of stockpiled oxide ore at Nukrakon (formerly Vysokovoltnoye) at an average grade of 1.01 g/t gold and 76.8 g/t silver, being 450 ounces gold and 34,000 ounces silver. In anticipation of processing Sarybatyr ore at Nukrakon, the Sarybatyr oxide reserves are included into the Nukrakon silver-gold heap leach reserve base.

 

AGF's Measured and Indicated Mineral Resources as of 31 December 2009 (50% attributable to Oxus) are:

 

·; Oxides : 918,000 ounces gold and 7.753 million ounces silver

·; Sulphides : 3.828 million ounces gold and 27.110 million ounces silver

·; Combined : 4.745 million ounces gold and 34.863 million ounces silver

 

AGF's Inferred Mineral Resources as of 31 December 2009 (50% attributable to Oxus) are:

 

·; Oxides : 709,000 ounces gold and 731,000 ounces silver

·; Sulphides : 1.824 million ounces gold and 14.975 million ounces silver

·; Combined : 2.533 million ounces gold and 15.706 million ounces silver

 

There have been no changes to the Mineral Resources through depletion, remodelling or exploration since 31 December 2008.

 

OTHER ACTIVITY

 

Amantaytau Goldfields / Oxus Gold Scholarship Foundation

 

Oxus Gold plc has created and is sponsoring the Amantaytau Goldfields / Oxus Gold Scholarship Foundation in cooperation with Westminster International University in Tashkent ("WIUT"). The Patron of the Foundation is His Royal Highness Prince Michael of Kent GCVO.

 

The Foundation has been established to award scholarships to support undergraduate and postgraduate studies at WIUT for selected students from the Navoi Province of Uzbekistan, where AGF has its mining operations. In October 2009 the Foundation's first scholar graduated. The Foundation has also opened a Regional Learning Centre in Zarafshan, the local town to AGF's operations, in order to teach English, maths and other subjects to local students and to improve the English language teaching skills of the local teachers. WIUT is managing the Learning Centre on AGF's behalf and the first courses commenced in April 2010, with approximately 60 students already enrolled.

 

WIUT was established in 2002 and is unique in the Central Asian region in that the degrees that it awards are fully internationally accredited since the University is a validated institution of the University of Westminster in London. The degrees are therefore the same as those in London. WIUT currently has some 750 students from Uzbekistan and neighbouring countries, studying a variety of business and economic subjects.

 

 

BOARD OF DIRECTORS

 

On 31 January 2009, Jonathan Kipps, Finance Director and Company Secretary, resigned as a director of the Company. On 1 February 2009 Jyoti Chandhok, a chartered management accountant, was appointed Company Secretary, Richard Shead assumed the role of executive Chairman, and James McBurney joined the board as a non-executive director. James McBurney has over twenty years' experience in the banking sector and has held senior positions at a number of global financial institutions.

 

Richard Wilkins served as Chief Executive Officer until 1 July 2009 and as Finance Director thereafter. Richard Wilkins also assumed the role of Company Secretary from 1 April 2010.

 

John Donald, Chief Operating Officer, retired on 31 March 2010 but has agreed to consult for the Group until 31 December 2010. The position of Chief Operating Officer will remain vacant pending completion of the Financing.

 

The board would like to express its gratitude to both Jonathan Kipps and John Donald for their respective services to the Group.

 

Annual General Meeting

 

The Company's tenth Annual General Meeting will be held on 30 June 2010 at 11.00 am at The Chesterfield Hotel, 35 Charles Street, London W1J 5EB.

 

For further information please visit www.oxusgold.co.uk or contact:

 

Oxus Gold plc

Richard Shead (Chairman) Tel: +44 (0) 207 907 2000

Richard Wilkins (Finance Director and Company Secretary)

 

 

Fairfax I.S. PLC

Ewan Leggat Tel: +44 (0) 207 598 5368

Conduit PR Ltd

Ed Portman / Leesa Peters Tel: +44 (0) 207 429 6607

 

 

 

Consolidated Income statement for the year ended 31 December 2009

 

 

	Year ended 31 December 2009 US$000		18 Months ended 31 December 2008 US$000 (restated)
Continuing operations
Revenue	13,265		43,074
Cost of sales	(4,654)		(33,377)
Gross profit	8,611		9,697
Other operating income	261		4,860
Administrative expenses	(8,743)		(20,095)
Other operating expenses:
Other operating expenses	(1,726)		(4,123)
Exceptional items:
Gain on sale of investments	138		1,336
Net Jerooy arbitration settlement and costs	-		3,339
Eurogold settlement and costs	-		(8,357)
Impairment of Khandiza mining property	-		(28,456)
Impairment of goodwill in Marakand	-		(1,487)
AGF restructuring costs and penalties	(2,645)		(10,001)
Total operating expenses	(12,715)		(62,984)
Operating loss	(4,104)		(53,287)
Financial income	511		1,611
Financial expense	(1,931)		(2,495)
Loss before tax	(5,524)		(54,171)
Taxation	(320)		(217)
Loss for the period / year	(5,844)		(54,388)
Basic loss per share (US cents)	1.52		14.57
Diluted loss per share (US cents)	1.52		14.57

 

 

Consolidated statement of comprehensive income for the year ended 31 December 2009
Loss for the year		(5,844)		(54,388)
Gain on available for sale securities		195		-
		(5,649)		(54,388)

 

 

Consolidated Balance sheet as at 31 December 2009

 

	As at 31 December
	2009		2008
	US$000		US$000
			(restated)
Non-current assets
Goodwill	-		-
Intangible assets	22,808		22,704
Property, plant and equipment	17,142		18,348
Loans due from joint venture	8,975		13,468
Available-for-sale investments	-		895
Total non-current assets	48,925		55,415
Current assets
Trade and other receivables	9,018		11,499
Inventory	4,246		8,130
Available-for-sale investments	643		-
Cash and cash equivalents	9,629		9,938
Total current assets	23,536		29,567
Total assets	72,461		84,982
Current liabilities
Loans and borrowings	22,653		7,425
AGF Phase 2 Project Development Fund	9,866		10,866
Trade and other payables	5,191		10,563
Other provisions	-		-
Total current liabilities	37,710		28,854
Non-current liabilities
Loans and borrowings	478		17,834
Deferred tax liabilities	166		-
Total non-current liabilities	644		17,834
Total net assets	34,107		38,294
Equity
Share capital	6,497		6,425
Share premium	113,517		113,040
Capital reserve	23,479		22,566
Merger reserve	34,929		34,929
Other comprehensive income	195		-
Retained earnings	(144,510)		(138,666)
Equity attributable to ordinary shareholders	34,107		38,294
Minority interests	-		-
Total equity	34,107		38,294

 

 

Consolidated cash flow statement for the year ended 31 December 2009

 

	Year ended 31 December 2009		18 Months ended 31 December 2008
	2009		2008
	US$000		US$000
Cash flows from operating activities
Loss before tax for the year	(5,524)		(54,171)
Adjustments for:
Loss on disposal of property plant and equipment	15		99
Depreciation and amortisation	1,671		7,591
Impairment of Goodwill	-		4,739
Impairment of mining properties and investments	-		37,004
Finance costs	1,931		2,495
Equity-settled share-based payment expenses	913		964
Gain on sale of investments	(138)		(1,336)
Provision for doubtful debts	47		-
Provision for obsolete inventory	330		-
Other reserve movements	549		566
Cash flow from operating activities before changes in working capital	(206)		(2,049)
Decrease in amounts due from joint venture	4,493		(2,205)
Decrease / (increase) in trade and other debtors	2,433		(246)
Decrease in amounts due to subsidiary undertakings	3,555		(6,072)
(Decrease) / increase in trade and other payables	(3,745)		(5,977)
Income tax paid	(146)		(734)
Interest paid	(1,944)		(1,974)
Net cash used in operating activities	4,440		(19,257)
Cash flows from investing activities
Purchase of plant and equipment	(189)		(2,209)
Investment in exploration properties	(395)		(2,589)
Sale of available for sale investments	585		6,273
Costs of acquisition of Marakand Minerals Ltd minority interest	-		(501)
Net cash used in investing activities	1		974
Cash flows from financing activities
Proceeds from the issue of share capital	-		5,670
Proceeds from issue of convertible loan notes	-		17,000
Costs of issue of convertible loan notes	-		(817)
Repayment of bank borrowings	(4,750)		(7,500)
Proceeds from the sale of warrants	-		448
Net cash provided by (used in) financing activities	(4,750)		16,975
Net decrease in cash and cash equivalents	(309)		(1,308)
Cash and cash equivalents at the beginning of year	9,938		11,246
Cash and cash equivalents at 31 December	9,629		9,938

 

 

Consolidated statement of changes in shareholders' equity

for the year ended 31 December 2009

	Capital US$000	Share premium US$000	Capital reserve US$000	Revaluation reserve US$000	Merger Reserve US$000	Other comprehensive income US$000	Retained earnings US$000	Shareholders' equity US$000	Minority interests US$000	Total US$000
Balance at 1 July 2006	4,774	77,407	22,614	(3,907)	34,929	-	326	136,143	4,020	140,163
Losses after tax for the year	-	-	-	-	-	-	(18,908)	(18,908)	(58)	(18,966)
Total recognised in income	_____	_______	_______	_______	_______	_______	_______	_______	_______	_______
and expense for the year	-	-	-	-	-	-	-	(18,908)	(58)	(18,966)
Shares issued in the year	1,125	23,066	-	-	-	-	-	24,191	439	24,630
Warrants and options exercised	5	58	-	-	-	-	-	63	30	93
Equity-settled share-based Payments	198	4,760	185	-	-	-	-	5,143	-	5,143
Conversion of directors remuneration to shares	2	50	-	-	-	-	-	52	-	52
Transfer to income statement	-	-	-	3,907	-	-	-	3,907	-	3,907
Returned warrants	-	-	(2,228)	-	-	-	-	(2,228)	-	(2,228)
Dividend	-	-	-	-	-	-	(65,696)	(65,696)	-	(65,696)
	_____	_______	_______	_______	_______	_______	_______	_______	_______	_______
Balance at 30 June 2007	6,104	105,341	20,571	-	34,929	-	(84,278)	82,667	4,431	87,098
	_____	_______	_______	_______	_______	_______	_______	_______	_______	_______
Balance at 1 July 2007	6,104	105,341	20,571	-	34,929	-	(84,278)	82,667	4,431	87,098
Losses after tax for the period	-	-	-	-	-	-	(54,388)	(54,388)	-	(54,388)
	_____	_______	_______	_______	_______	_______	_______	_______	_______	_______
Total recognised in income and expense for the period	-	-	-	-	-	-	(54,388)	(54,388)	-	(54,388)
Shares issued in the period	321	7,699	-	-	-	-	-	8,020	-	8,020
Equity-settled share-based payments	-	-	981	-	-	-	-	981	-	981
Gain on sale of warrants	-	-	448	-	-	-	-	448	-	448
Acquisition of minority interests	-	-	-	-	-	-	-	-	(4,431)	(4,431)
Capital portion of convertible loan	-	-	566	-	-	-	-	566	-	566
	_____	_______	_______	_______	_______	_______	_______	_______	_______	_______
Balance at 31 December 2008	6,425	113,040	22,566	-	34,929	-	(138,666)	38,294	-	38,294
	_____	_______	_______	_______	_______	_______	_______	_______	_______	_______

 

 

Consolidated statement of changes in shareholders' equity for the year ended 31 December 2009

(continued)

 

	Capital US$000	Share premium US$000	Capital reserve US$000	Revaluation reserve US$000	Merger Reserve US$000	Other comprehensive income US$000	Retained earnings US$000	Shareholders' equity US$000	Minority interests US$000	Total US$000
Balance at 31 December 2008	6,425	113,040	22,566	-	34,929	-	(138,666)	38,294	-	38,294
Total recognised in income and expense for the period	-	-	-	-	-	-	(5,844)	(5,844)	-	(5,844)
Shares issued in the period	72	477	-	-	-	-	-	549	-	549
Equity-settled share-based payments	-	-	913	-	-	-	-	913	-	913
Gain on available for sale securities	-	-	-	-	-	195	-	195	-	195
	_____	_______	_______	_______	_______	_______	_______	_______	_______	_______
Balance at 31 December 2009	6,497	113,517	23,479	-	34,929	195	144,510	34,107	-	34,107
	_____	_______	_______	_______	_______	_______	_______	_______	_______	_______

 

Notes to the financial information for the year ended 31 December 2009

1. General information

Oxus Gold plc (the "Company") is a company incorporated in England and Wales under the Companies Act 2006 and throughout the year ended 31 December 2009 was listed on the London AIM stock exchange. The address of the registered office is 52 Charles Street, London, W1J 5EU. The principal activities and place of business of the Company and its subsidiaries ("the Group") are set out in the chairman's statement and the review of operations above.

 

2. Basis of preparation 

The financial information set out above, which was approved by the board on 7 June 2010, has been compiled in accordance with the recognition and measurement criteria of International Financial Reporting Standards ("IFRS"), but does not contain sufficient information to comply with IFRS. The Company's annual report for the year ended 31 December 2009 and its full financial statements that comply with IFRS are available on its website.

 

The financial information set out above does not constitute the Group and Company's statutory accounts for the years ended 31 December 2009 or 2008, but is derived from those accounts. Statutory accounts for 2008 have been delivered to the Registrar of Companies and those for 2009 will be delivered following the Company's annual general meeting. The auditors have reported on those accounts; their reports were modified by the inclusion of an added emphasis paragraph which highlighted the existence of a material uncertainty that cast significant doubt on the Company's and Group's ability to continue as a going concern. The report did not contain a statement under s498 (2) or (3) Companies Act 2006 or equivalent preceding legislation.

 

The financial information has been prepared on the basis consistent with the accounting policies set out in the 2008 annual accounts, with the following exceptions:

 

·; Prior to the year ended 31 December 2009, the Group used the equity method to account for its interests in joint ventures. During 2009, the Group changed its accounting policy for accounting for its interests in the Amantaytau Goldfields ("AGF") joint venture, so as to apply proportionate consolidation. In the board's view, proportionate consolidation provides a reliable and more relevant presentation of the Group's results and its operating activity than the equity method. Therefore, the Group decided to make a voluntary change in the accounting policy and the new accounting policy was applied retrospectively.

 

Comparatives for the 18 month period ended 31 December 2008 have been restated to reflect this change in accounting policy in line with IAS 1.

 

The change in policy had no effect on net assets or profit recognised by the Group in the 2008 financial statements.

 

·; The Group has adopted, with effect from 1 January 2009, IFRS 8 Operating Segments.

 

IFRS 8 requires operating segments to be identified on the basis of internal reports that are regularly reviewed by the board of directors to allocate resources to segments and to assess their performance. In contrast, the predecessor standard (IAS 14 Segmental Reporting) required the Group to identify two sets of segments (business and geographical), using a risks and rewards approach, with the Group's system of internal financial reporting to the board of directors serving only as a starting point for the identification of such segments.

 

·; The Group, with effect from 1 January 2009, has changed the depreciation method for mining properties from straight line to units of production since there has been a change in the expected pattern of consumption of benefits. The change in depreciation method constituted a change in accounting estimate and was accounted for prospectively.

 

3. Going concern 

The Company and Group's activities are dependent on thier ability to generate or raise the appropriate finance to support such activities, and on the issuance and maintenance of appropriate mining and operating licences and permits.

 

AGF's existing open pit heap leach operations at Nukrakon (formerly Vysokovoltnoye) are largely self supporting now that the accumulated stockpile of silver doré has been refined, exported and sold, precious metals previously locked-up in the furnace at the refinery have been recovered, exported and sold, and some $3.1 million of previously paid VAT has been recovered by AGF and offset against other payments due to the Uzbek State. However, the expansion of open pit operations (at Sarybatyr and Asaukak) and the development of the proposed underground mine at Severny and Centralny will be dependent on finance being made available and on the issuance of the appropriate licences at the relevant time.

 

On 7 January 2010, the Company announced that it had signed a conditional agreement with a consortium of Chinese investors to invest and arrange financing in a total aggregate amount of up to approximately $185 million (the "Financing"). These funds will be used to provide working capital to the Company and to finance and develop AGF's operations in Uzbekistan, including the expansion of open pit heap leach mining operations, the development of one or more underground mines, and an accelerated exploration programme, thereby enabling AGF over the next 3-5 years to target an increase in annual production to approximately 300,000 ounces of gold, and an increase in gold reserves from 2.4 million ounces to over 7 million ounces (after allowing for mining depletion).

 

The Financing is conditional upon, inter alia, the signing of a Foreign Investment Agreement ("FIA") with the Uzbek Government, setting out various tax, fiscal, licensing and other matters in respect of the AGF joint venture, and the customary regulatory approvals from the Government of the People's Republic of China. A draft of the FIA has been submitted to the Uzbek Government and appropriate discussions as to final form and content are underway. The directors believe that the FIA will be concluded and signed in a satisfactory form in the near future, following which the appropriate approvals from the Chinese Government will be forthcoming. It is intended that the FIA will address all the relevant mining and operating licences and permits.

 

In May 2008, the Company issued convertible loan notes in the principal amount of $18.5 million. These notes were convertible into ordinary shares of the Company at 37p per share, earned interest at 8% per annum and were repayable, if not converted, in May 2010. The notes have now been restructured such that they are convertible at 12p per share, earn interest at US LIBOR + 3% per annum, and the repayment date has been extended to May 2013. Should the Financing, or an alternative in a minimum amount of $80 million, not occur by 31 December 2010, the noteholders have the option to revert to the original terms.

 

At 31 December 2009, the Company owed Nedbank $2.5 million against a $20 million corporate loan facility. Since the year end Nedbank has agreed to convert this amount into ordinary shares of the Company, subject to the Financing closing by 31 December 2010.

 

The directors continue to undertake a number of measures in order to preserve cash until such time as the Group's operations are fully funded. These measures include a continued reduction in the size of the board, and all directors and most senior management (including those at AGF) continuing to be paid approximately 20% of their salaries or fees in shares, rather than cash. Further cost reduction measures will be pursued wherever appropriate. At 7 May 2010, the Group's cash resources stood at approximately $6.7 million.

 

The directors' assumption that the Financing, FIA, conversion of the convertible loan notes and the Nedbank debt, will be completed by 31 December 2010, is integral to the Company and Group meeting their forecast cash flows for the 12 months following the signing of these financial statements. Should there be delay in achieving the foregoing there may be insufficient cash flow for the Group to manage its day to day operations without seeking and relying on further financing, which may or may not be available. Therefore, a material uncertainty exists which may cast significant doubt on the Company and Group's ability to continue as a going concern and, therefore, maybe unable to realise its assets and discharge its liabilities in the normal course of the business.

 

After making suitable enquiries, and based on the current status of the discussions and negotiations in respect of the foregoing, the directors have formed a judgment, at the time of approving the Financial Statements, that there is a reasonable expectation that the Group has, or will have, adequate resources to enable the Company and the Group to remain a going concern and to significantly expand its operations. Accordingly, the directors continue to adopt the going concern basis in preparing the financial statements.

 

4. Segmental analysis

 

Business segments

 

The Group has 2 reportable segments under IFRS 8:

 

·; Precious Metals segment, comprising gold & silver operations at different stages, from field exploration through to mine development and precious metals production. The Precious Metals segment includes the Group's principal mining, development and exploration activities in Uzbekistan through its interest in AGF.

·; The Corporate segment includes corporate cost centres primarily serving administrative and fund raising functions to support precious metals mining operations. The future revenue generated by the corporate segment will include revenue from lease of mining equipment to AGF and other third parties and the recharge of administrative costs.

 

The Group only operated in the United Kingdom and Malta in support of its operations in Uzbekistan and all activities are in respect of precious metals mining operations.

 

Segment information

 

Segment information about the Group's reportable segments is presented below. Amounts reported for the prior year have been restated to conform with the requirements of IFRS 8.

Year ended 31 December 2009	Precious metals(*) US$000		Corporate US$000		Consolidated US$000
Gold sales	8,010		-		8,010
Silver sales	5,255		-		5,255
Total Group revenue from external customers	13,265		-		13,265
Cost of sales	(4,654)		-		(4,654)
Net operating expenses and exceptional items	(7,293)		(5,422)		(12,715)
Including:
Depreciation and amortization	(57)		(35)		(92)
AGF restructuring costs and penalties	(4,161)		1,516		(2,645)
Exploration and evaluation costs	(279)		(1,202)		(1,481)
Net finance income/(expense)	(10)		(1,410)		(1,420)
Taxation	(320)		-		(320)
Segment result	988		(6,832)		(5,844)
At 31 December 2009
Segment assets	43,233		29,228		72,461
Segment liabilities	6,802		31,552		38,354
Net assets	36,431		(2,324)		34,107

 

Average number of employees

140

12

152

 

 

Eighteen months ended 31 December 2008	Precious metals(*) US$000		Corporate US$000		Consolidated US$000
Gold sales	32,786		-		32,786
Silver sales	10,288		-		10,288
Total Group revenue from external customers	43,074		-		43,074
Cost of sales	(33,377)		-		(33,377)
Net operating expenses and exceptional items	(16,061)		(46,923)		(62,984)
Including:
Depreciation and amortization	(93)		(28)		(121)
AGF restructuring costs	(10,001)		-		(10,001)
Impairment	-		(29,943)		(29,943)
Exploration and evaluation costs amortized	(279)		(3,657)		(3,936)
Operating loss	(6,364)		(46,923)		(53,287)
Net finance income/(expense)	-		(884)		(884)
Taxation	(217)		-		(217)
Segment result	(6,581)		(47,807)		(54,388)
At 31 December 2008
Segment assets	50,380		34,602		84,982
Segment liabilities	9,336		37,352		46,688
Net assets	41,044		(2,750)		38,294

 

Average number of employees

292

12

304

 

(*) AGF reported revenue and operating profit before exceptional items for the year ended 31 December 2009 of $26.53 million and $10.96 million, respectively (18 month period ended 31 December 2008: revenue of $86.15 million and operating profit before exceptional items of $7.27 million) and a profit after exceptional items and tax of $1.02 million (18 month period ended 31 December 2008: loss of $4.54 million), 50% of which is attributable to Oxus.

 

Revenue reported above for the year ended 31 December 2009 and the 18 months ended 31 December 2008 represents revenue generated from external customers. There were no inter-segment sales in the year (2008: nil). All revenue relates to the sale of gold and silver produced by AGF.

 

Group review analysis is set out below:

Precious Metals segment reconciliation to AGF			Year ended 31 December 2009 US$000		18 Months ended 31 December 2008 US$000
Segment operating profit/(loss)			1,318		(6,364)
Exceptional items			4,161		10,001
AGF operating profit/(loss) pre exceptional items attributable to Oxus (50%)			5,479		3,637
AGF operating profit/(loss) pre exceptional items (100%)			10,958		7,274

 

 

At 30 June 2007 segment assets and liabilities were as follows:

 

At 30 June 2007	Precious metals US$000		Corporate US$000		Consolidated US$000
Segment assets	44,915		146,683		191,598
Segment liabilities	7,534		96,966		104,500
Net assets	37,381		49,717		87,098

 

 

Non-current assets by location of asset(a)

 

At 31 December (2007: 30 June)		2009 US$000		2008 US$000		2007 US$000
Uzbekistan		39,075		40,037		80,340
United Kingdom		875		1,015		3,676
		39,950		41,052		84,016

 

(a) Excluding financial instruments and deferred tax assets.

 

 

5. Loss per share

 

The calculation of the basic loss per share is based on the following data:

 

	Year ended 31 December 2009		18 months ended 31 December 2008
	US$'000		US$'000
Loss for the period attributable to equity shareholders	(5,844,000)		(54,388,000)
Weighted average number of ordinary shares	382,800,886		373,257,305
Basic and diluted loss per ordinary share	(1.52)		(14.57)

 

 

6. AGF restructuring costs and penalties

 

	Year ended 31 December 2009		18 months ended 31 December 2008
	US$'000		US$'000
CIP plant standby costs	2,638		1,453
Penalties	7		-
Impairment of AGF assets	-		8,548
	2,645		10,001

 

In January 2009 the carbon-in-pulp plant operation at AGF was shut down as planned. AGF does not plan to operate the plant again until it is converted into a bio-oxidation plant to treat the sulphide ore from the proposed underground mine. In order to reduce costs the associated labour force, with the exception of those required to carry out care and maintenance, was laid off on a temporary basis. The costs associated with the CIP plant care and maintenance are not operating costs and have been disclosed separately as restructuring costs.

 

In accordance with the minutes of a general meeting of AGF Shareholders held on 15 June 2006 it was resolved to pay dividends based on the operating results of AGF for 2005. As at 31 December 2009, AGF had not paid the dividends to certain of the shareholders, including Oxus Resources Corporation. Therefore, in accordance with a resolution approved by the AGF shareholders in April 2010, a penalty for late payment of dividends has been accrued by AGF in the amount of $2.02 million, of which £1.54 million was due to the Group and proportionately consolidated in the Group's results.

 

During 2008 the value of the Group's investment in AGF was subject to an impairment review by determining the recoverable amount using 'value in use' calculations. The key assumptions used were those relating to discount rates, the gold price and the successful financing and development of the underground mine at AGF. A similar review was conducted in 2009 and no further impairment was considered necessary.

 

 

7. Taxation

 

	Year ended 31 December 2009		18 months ended 31 December 2008
	US$'000		US$'000
Current tax
UK current tax	-		-
Uzbekistan current tax	154		217
	154		217
Deferred tax
Reversal and origination of timing differences (Uzbekistan)	166		-
Total tax charge	320		217

 

The charge for the year can be reconciled to the loss per the income statement as follows:

 

	Year ended 31 December 2009		18 months ended 31 December 2008
	US$'000		US$'000
Loss before tax	(5,524)		(54,171)
Tax at the UK corporation tax rate of 28%	(1,547)		(15,168)
Effect of:
Expenses not deductible for tax purposes	935		240,599
Income and losses not charged to tax	(275)		(229,443)
Accelerated capital allowances in excess of depreciation and other timing differences	(9)		3
Losses carried forward	1,559		4,070
Effect of different tax rate of joint venture operating in other jurisdiction	(983)		(278)
Tax expense for the period	(320)		(217)

 

 

The Group has trading losses available for offset against future income of approximately $24.6 million (2008: $19.6 million), $6.9 million at the Company's corporation tax rate of 28% (2008: $5.5 million).