Oxus Gold Plc Regulatory News (OXS)

OXUS GOLD plc

("Oxus" or the "Company" or the "Group")

Interim Results for the six months ended 30 June 2012

The Group reports a loss before tax of $3.1 million including costs of the arbitration process (see below) of $1.5 million and interest charges of $0.8 million.

The major portion of management's time during the past six months has been to continue the arbitration proceedings seeking compensation for the Group in respect of the Amantaytau Goldfields and Khandiza mining assets. There are no other operating activities currently being undertaken by the Company and its subsidiaries. The Company's ability to continue with the arbitration process has been strengthened through the further reorganisation of the Group's liabilities, entering into a litigation funding agreement and entering into an equity finance agreement as set out below.

Update on Arbitration and UK Proceedings

The arbitration is proceeding on its merits and accordingly the Company filed its detailed Statement of Claim on 17 September 2012. The Statement of Claim is accompanied by an independent quantum report prepared by accounting expert, Ernst & Young, and an expert opinion on valuation by Wardell Armstrong International, quantifying the losses to Oxus as a result of various breaches of the UK - Republic of Uzbekistan Bilateral Investment Agreement by the Government of the Republic of Uzbekistan. A procedural calendar for the remainder of the arbitration proceedings is currently being discussed.

With regard to the UK proceedings initiated in the English High Court by the Ministry of Finance of the Republic of Uzbekistan, the parties have agreed that all proceedings in this UK court action will be stayed until after the Arbitral Tribunal has rendered its final award in the UNCITRAL arbitration proceedings, or the arbitration is finally discontinued or disposed of.

Whilst the above proceedings are ongoing, the Company remains open to offers to settle the dispute on an amicable basis.

Convertible loan notes

On 30 May 2012, Oxus Gold Plc announced its annual results, including a statement that a majority of convertible loan-note holders had agreed in principle to postpone the conversion date of their loan notes until the award and settlement of the arbitration process. It was also announced that the loan note holders had agreed in principle to capitalise the interest due on the notes until settlement of the claim and would consider taking shares in the Company on the basis of a pre-determined formula.

The resolution proposed at the loan note holder meeting convened for 30 July 2012 to approve amendments to the convertible loan note instrument dated 14 May 2008 was passed. 

The amendments to the loan note instrument have, amongst other things, extended the repayment date of the loan notes until the earlier of (a) 14 December 2015; (b) the date on which the proceeds of an award, settlement or other realisation for value of the rights in the arbitral proceedings are received by the Company; and (c) 60 calendar days from the date on which the proceedings conclude or terminate or a settlement is reached, in each case where no payment is receivable by the Company. The loan note holders have also agreed that interest payable under the loan notes which falls due on or after 6 July 2012 shall accrue but remain unpaid, and be convertible at the option of the loan note holder at the average closing middle market price of the Company's ordinary shares for each separate 6 month interest period to which that portion of interest relates.

As this was after the interim reporting date of 30 June 2012 the convertible loan notes are shown as a current liability. The amount of this liability at 30 June 2012 was $15.9 million.

Lease finance agreement

From 1 February 2012, Atlas Copco Customer Finance AB granted the Company a grace period of six months, with payment of interest only, in respect of exploration equipment leased under a finance lease and entered into in April 2010, with an original lease term of three years. The lease is now due to be repaid by 31 January 2014. The outstanding capital amount due on 30 June 2012 is $1.1 million.

Equity financing facility

On 20 August 2012 the Company entered into a £3m Equity Financing Facility ("EFF") with Darwin Strategic Limited ("Darwin"), a majority owned subsidiary of Henderson Global Investors' Alphagen Volantis fund.

Under the terms of the EFF, the Company may make drawdowns up to an aggregate of £3,000,000 by way of Darwin subscribing for new ordinary shares of 1p each in the Company during the period of 36 months commencing on 20 August 2012. The EFF will be drawn down at the Company's sole discretion and the proceeds will be used to fund its working capital requirements.

In respect of agreeing to provide the EFF to Oxus Gold, Darwin has been granted warrants over 3 million ordinary shares in the Company. The warrants are exercisable at Darwin's discretion at a price of 4.5 pence per ordinary share over a period of three years commencing on 20 August 2012.

Litigation funding agreement

The existing agreements with a funder to support the Company's arbitration through funding of legal and related fees arising from the arbitration process remain in place. At 30 June 2012 the Company had received $1.1 million of funding.

Shares issued since 30 June 2012

The Company has issued a further 906,226 ordinary shares since 30 June 2012 in settlement of directors fees and other legal and professional fees. The Company's issued share capital, after these shares were issued, now comprises 419,722,329 ordinary shares.

Outlook

The directors remain extremely confident that your Company will be awarded fair compensation by the Arbitration Tribunal for its investments in Uzbekistan and your Board will continue to take whatever steps are required to maximise such compensation for the benefit of all Oxus stakeholders.

For further information on Oxus Gold Plc visit www.oxusgold.co.uk or contact the following:

Condensed consolidated financial statements for the six month period ended 30 June 2012

Condensed consolidated statement of comprehensive income

All amounts relate to continuing operations.

Selected notes to the interim condensed consolidated financial statements for the six month period ended 30 June 2011

1. Corporate information

Oxus Gold plc ("the Company") is a company incorporated in England.

2. Basis of preparation

These condensed interim financial statements of the Company and its subsidiaries ("the Group") for the six months ended 30 June 2012 (the Period) have been prepared using accounting policies consistent with International Financial Reporting Standards (IFRSs). The same accounting policies, presentation and methods of computation are followed in the condensed set of financial statements as applied in the Group's latest audited financial statements for the year ended 31 December 2011. These condensed interim financial statements have not been audited, do not include all of the information required for full annual financial statements, and should be read in conjunction with the Group's consolidated annual financial statements for the year ended 31 December 2011. The auditors' opinion on these Statutory Accounts was modified and contained an emphasis of matter in respect of the Group's ability to continue as a going concern. While the financial figures included within this half-yearly report have been computed in accordance with IFRSs applicable to interim periods, this half-yearly report does not contain sufficient information to constitute an interim financial report as set out in International Accounting Standard 34 Interim Financial Reporting.

Due to the restrictions which impaired the Group's ability to manage AGF's operations, the Group, with effect from March 2011, no longer has had joint control over AGF. The Group therefore discontinued the use of the equity accounting method from the date that it ceased to have joint control, or significant influence, over the operations of AGF. The investment which the Group retains in the AGF and Khandiza mining properties is measured in accordance with IFRS 9 and since March 2011 has been classified as Available for Sale Investments.

3. Total Comprehensive income

There are no additional items of income and expense which are not included within the profit and loss for the period.

4. Arbitration expenses

Legal costs associated with the international arbitration against the Uzbek Government in order to seek appropriate compensation for the Group's investments in the AGF and Khandiza mining properties constituted $1.45 million (30 June 2011 $0.70 million and the year to 31 December 2011 $1.96 million). Of these an amount of $1.1 million has been funded by Calunius under the terms of the Litigation Funding Agreement entered into on 29 February 2012.

5. Loss per share

The calculation of the basic loss per share for the six month period ended 30 June 2012 is based on the following data:

Diluted earnings /(loss) per ordinary share (US cents)

The calculation of diluted earnings per share for 31 December 2011 relates to the convertible loan notes. The earnings figure used therefore adds back the related interest charge of $1,369,000 and the weighted average number of ordinary shares includes an additional figure of 80,729,166. The effect of share options was anti-dilutive in the six month period ended 30 June 2012 as the Group was loss making in that period. 

6. Mining property

The Group made a full provision against the carrying value of its investment in the Khandiza project during the year ended 31 December 2008 as, at that time, it was uncertain whether the Group would be invited to participate in the future development of this asset or would as an alternative commence international arbitration proceedings with regards to it. On 31 August 2011 the Group included the loss of the Khandiza project within the international arbitration proceedings commenced against the Uzbek Government in respect of AGF. Accordingly the carrying value of Khandiza has been reinstated.

7. Available-for-sale financial assets

The amounts stated represents the net investment of the Group in AGF up to the time that joint control was lost in March 2011 following the declaration of force majeure. In the view of the directors, due to the uncertainties surrounding the arbitration with the Uzbek government, there is no reliable measure available to determine the fair-value of AGF in March 2011 and they have accordingly valued their interest in AGF at that date at its historical carrying value.

8. Loans and borrowings

Convertible loan notes

On 30 May 2012, Oxus Gold Plc announced its annual results, including a statement that a majority of convertible loan-note holders had agreed in principle to postpone the conversion date of their loan notes until the award and settlement of the international arbitration in relation to the expropriation of the Company's investments in Amantaytau Goldfields and Khandiza. It was also announced that the loan note holders had agreed in principle to capitalise the interest due on the notes until settlement of the claim and would consider taking shares in the Company on the basis of a pre-determined formula.

The resolution proposed at the loan note holder meeting convened for 30 July 2012 to approve amendments to the convertible loan note instrument dated 14 May 2008 was passed. 

The amendments to the loan note instrument have, amongst other things, extended the repayment date of the loan notes until the earlier of (a) 14 December 2015; (b) the date on which the proceeds of an award, settlement or other realisation for value of the rights in the arbitral proceedings are received by the Company; and (c) 60 calendar days from the date on which the proceedings conclude or terminate or a settlement is reached, in each case where no payment is receivable by the Company. The loan note holders have also agreed that interest payable under the loan notes which falls due on or after 6 July 2012 shall accrue but remain unpaid, and be convertible at the option of the loan note holder at the average closing middle market price of the Company's ordinary shares for each separate 6 month interest period to which that portion of interest relates.

As this was after the interim reporting date of 30 June 2012 the convertible loan notes are shown as a current liability. The amount of this liability at 30 June 2012 was $15.9 million.

The loan notes contain two components: liability and equity elements. The equity element is presented in equity under the heading of "Capital Reserve". The effective interest rate of the liability element on initial recognition subsequent to substantial modification in January 2010 is 9.8% per annum.

If all the loan notes outstanding at 31 December 2011 are converted, a total of 80,729,166 new ordinary shares in the Company would be issued.

Obligations under finance lease

In April 2010, the Group entered into a credit agreement with Atlas Copco Craelius AB under the terms of which the Group leased certain of its exploration equipment under finance lease. The lease term is 3 years. The ownership title for the leased assets will be transferred to the Group at the end of the lease term for no charge. The Group's obligations under finance leases are secured by the lessor's title to the leased assets. Interest rates underlying all obligations under the finance lease were fixed at the contract date at 8.7% per annum.

Also in April 2010 AGF entered into an operating agreement with Oxus Resources Corporation ("ORC") whereby AGF leased a drilling rig from ORC. As a condition of this agreement AGF arranged insurance against Physical Loss of, or Damage to, the drill rig and its spares for a policy period of 12 months commencing 2 August 2010 with a sum insured of $2.37 million and ORC was a named co-insured. 

On 10 May 2011 ORC wrote to AGF terminating the agreement in accordance with its provisions. AGF have not responded to this letter nor have they returned the drill rig as requested.

Having had no response, on 26 July 2011, ORC, as a named co-insured, filed a claim for Physical Loss of the rig seeking $2.37 million from the insurer, Uzbekinvest National Export-Import Insurance Company, and this is being vigorously pursued by EOS Risq, the Insurance Broker that arranged the policy.

In February 2012 the lessor of the drilling rig agreed to defer interest and capital repayments until the resolution of the arbitration proceedings. The outstanding capital amount due is $1.1 million.

9. Trade and other payables

Trade and other payables includes an amount of $1.1 million due to the litigation funder which will only become payable upon receipt of a settlement in respect of the arbitration proceedings (see note 4).

10. Approval of interim group financial statements

The interim group condensed financial statements for the six months to 30 June 2012 were approved by the directors on 19 September 2012.