Oxus Gold Plc Regulatory News (OXS)

2 Apr 2007 07:03

Oxus Gold PLC02 April 2007 news release For immediate release - Monday, 2 April 2007 OXUS GOLD PLC Interim results for the six months ended 31 December 2006 LONDON: Monday, 2 April 2007 - Oxus Gold plc ("Oxus") or ("the Company") ispleased to report its interim results for the six months ended 31 December 2006(the "period"). Highlights • Net loss on ordinary activities of $4.214 million compared to a net profit of $4.293 million for the same period for 2005. • AGF reports $2.440 million loss for the period and $8.855 million profit for the year ended 31 December 2006. • AGF operations materially disrupted by a State 'complex' tax, customs and compliance audit, but normal operations now being restored. • Uzbek courts reject $224 million out of a total $225 million in tax and customs claims arising from the State audit. • AGF Vysokovoltnoye project has to date produced 2,814 kgs of dore containing 74,351 ounces of silver and 2,552 ounces of gold. Refining contract signed and first silver sales expected in April 2007. • AGF Vysokovoltnoye plant stockpile of 62.78 tonnes of concentrate containing 617,508 ounces of silver and 7,864 ounces of gold. • Production commenced at AGF's Asaukak oxide deposit. • AGF's exploration activities focus on finding new oxide resources and extensive exploration programme planned for 2007. • Encouraging results from further metallurgical testwork at AGF's underground sulphide project. • Agreement in principle to sell Kyrgyz, Romanian and Turkish interests for minimum consideration of 3.54 million KazakhGold shares, currently valued at approximately $81 million with potential additional consideration of up to $80 million in cash conditional on KazakhGold obtaining a licence to develop the Jerooy gold project. • Zeromax, Uzbekistan's largest private sector company, purchases a 6.94% strategic stake in the Company. FINANCIAL RESULTS The Group reported an unaudited loss on ordinary activities of $4.214 millionfor the six months ended 31 December 2006 (2005: $4.293 million profit) and aloss of $4.232 million (2005: $3.779 million profit) after taxation and minorityinterests. The Group's activities during the period were adversely affected by a State 'complex' tax, customs and compliance audit carried out by the Uzbek authoritiesat the Amantaytau Goldfields (AGF) project in Uzbekistan, which materiallydisrupted the ongoing operations at AGF. As a result AGF contributed a loss of$1.220 million (2005: $4.521 million profit) towards gross revenue, being theGroup's 50% share of the loss for the six month period. However, AGF reports aprofit of $8.855 million (2005: $13.263 million) for the year to 31 December2006 after tax and debt service. OPERATIONS The following table summarises AGF's operating results for the six months to 31December 2006. AGF Operations 6 months 6 months 6 months Year Year 31/12/06 30/6/06 31/12/05 31/12/06 31/12/05 Ore mined, tonnes 454,400 770,900 746,700 1,225,400 1,567,500Ore processed, tonnes 561,100 814,300 795,400 1,375,500 1,465,500Average grade (g/t) 2.4 3.4 4.3 3.0 4.5Average gold recovery (%) 80.6 69.8 76.7 73.4 77.1Gold produced, ounces 35,235 62,818 84,119 98,053 161,615Gold sales, ounces 27,499 62,843 91,195 90,342 163,666Hedge ounces 0 0 76,699 0 140,307Spot ounces 27,499 62,843 14,496 90,342 23,359Average gold price per ounce ($) 608 594 353 598 346Average cash cost per ounce ($) 536 329 196 392 202Average total cost per ounce ($) 623 366 221 445 230Net profit (loss) after tax & debt (2,440) 11,295 9.042m 8,855 13,263service ($m) During July and August 2006 AGF underwent a State 'complex' tax, customs andcompliance audit as part of the established regulatory procedure. Allenterprises in Uzbekistan are subject to this procedure every three years. As aresult of the audit, the State tax and customs authorities claimed approximately$225 million in taxes, customs duties, fines and penalties for alleged breachesof the Uzbek tax law. Subsequently the Navoi Regional Economic Court and theTashkent Supreme Economic Court have rejected $224 million of these claims. Oxusmade provision within its annual accounts to 30 June 2006 to cover its 50% shareof the outstanding liability of $1 million. The State audit materially disrupted the ongoing operations of AGF due tovarious restrictions imposed on assets and bank accounts whilst the tax andcustoms claims were passing through the Uzbek legal process. Although operationswere able to continue at a reduced level, AGF was unable to operate at maximumefficiency resulting in accelerated depletion of oxide ore stockpiles and asubsequent reduction in the grade and quality of ore feed to the processingplant and reduced plant running times. In addition the financial disruption ledto shortages of diesel, lime and steel balls, and interruptions to the refiningprocess. As a result, at 31 December 2006 approximately 16,000 ounces of gold inrefined or dore format had been stockpiled. This gold has been sold during 2007and as various restrictions have been lifted, normal operations are now beingrestored. Gold production for the latter half of 2006, however, was still wellbelow target. Production at Vysokovoltnoye was also disrupted although the irrigation of thestacked ore and the operation of the Merrill Crowe plant continued throughoutthe period. Hence production of concentrate continued. At 31 December 2006 atotal of 358,800 tonnes had been stacked, all of which was under irrigation, andto date 2,814 kgs of dore containing 74,351 ounces of silver and 2,552 ounces ofgold have been produced. In addition to this the plant has stockpiled 62.78tonnes of concentrate containing 617,508 ounces of silver and 7,864 ounces ofgold. A new smelting furnace will be commissioned during April and a refiningcontract with the Almalyk Mining and Metallurgical Combinat has now been signed.First silver sales are expected in April and are then scheduled to average 5tonnes per month for the remainder of 2007, increasing to 8 tonnes per month in2008 with increased production and improved refinery performance. During the period AGF also paid approximately $3.5 million in taxes that it hadpreviously been exempted from by virtue of tax privileges granted to AGF bydecrees of the Uzbek Government. AGF's legal advisers maintain that Oxus, as aforeign investor, is protected under Uzbek law from adverse changes to itsinvestment environment until 2010. Discussions are currently underway with theUzbek Government with a view to mitigating the impact of these additional taxes,and Oxus is hopeful that a positive outcome will be forthcoming. Underground Sulphides Project The underground AGF sulphides project study is currently receiving finalcomments from the relevant Uzbek State authorities, and the study is expected tobe submitted for final approval during May. This report will provide thepositive go-ahead for AGF to develop the sulphides project. 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 also to mine the underground Severny ores. Combined they 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 8.7 g/t and containing 3.5 million ounces of gold at a cut-offgrade of 3.5 g/t gold. The total mineral resource is 17.73 million tonnes at anaverage grade of 6.84 g/t containing 3.9 million ounces of gold at zero cut-offgrade. The project is expected to commence production in 2009 and will producean average of 6.8 tonnes of gold annually. AGF has also commenced testwork and investigations into the option of creating asuperpit from the existing Centralny oxide pits. This transitional and sulphidicore would be fed to a modification of the existing oxide processing plant. Ifeconomically viable, initial capital costs would be greatly reduced and firstproduction from the project would be accelerated. A proposal to carry out thescoping study for this option is currently being compiled. Exploration Exploration activities during the period continued to focus on finding new oxideresources and proving up new reserves for AGF. Initial grade control evaluationhas been completed for the upper benches of the Asaukak deposit. Pre-strippingis now completed and ore production started in the first quarter of 2007. Pit designs have been prepared for the Uzunbulak deposit, and are currentlybeing submitted to the relevant Uzbek authorities for approval prior tofinalising production schedules and revising the operational reserve estimate. Work has progressed on new deposit models for the Northern Asaukak, Aksai andSredinny deposits. Final resource definition reverse circulation (RC) drillingfor these deposits remains to be completed in the first half of 2007, prior tocompleting wire framing and geostatistical modelling. In addition RC drilling isscheduled in 2007 for the Sredinny South, Aksai North, North Western andNorthern Daugystau deposits. A detailed RC drilling programme is planned for2007 at a cost of approximately $2.3 million, and a tender has been issued for anew RC drilling contract. Trenching and sampling is also planned for the Aksai North, North Western andNorthern Daugystau deposits. The Amantaytau underground sulphide project is regarded as AGF's future mainsource of high grade ore, and a programme of geotechnical drilling has beencompleted as part of the decline access design. A total of 659 metres ofdrilling was carried out using AGF's CS14 coring rig. Metallurgical testwork hasbeen carried out on the Amantaytau Severny sulphide ores and their amenabilityto ultra fine grinding (UFG) and flotation as an alternative to biologicaloxidation, which was the process technology originally selected. Testwork on UFGof the sulphidic ores has produced very encouraging results. After initialflotation the UFG results show that recoveries of almost 95% are achievable.Additional sampling and testwork programmes are now being established. Five holes have been drilled, again using AGF's CS14 rig, from the base of theAmantaytau Centralny oxide pits, to intersect 'transition zone' and 'primarysulphides' and provide further material for ultra fine grind and flotationtestwork. Consideration is being given to the deepening of the Centralny oxidepits (now exhausted) into the underlying sulphides, as this may enableproduction of high grade sulphide ores to be accelerated, in advance of Severnyunderground sulphide production. TRANSFER OF KYRGYZ AND ROMANIAN INTERESTS TO KAZAKHGOLD On 12 March 2007 Oxus announced that it has agreed in principle to sell toKazakhGold Group Limited (KazakhGold) its 100% interest in Norox Mining CompanyLimited, which owns 66.67% of Talas Gold Mining Company in Kyrgyzstan, its 50%interest in the Romaltyn joint venture in Romania, and certain explorationassets in Turkey currently owned by Oxus' 86% subsidiary, Marakand MineralsLimited, subject to Marakand board approval. KazakhGold is listed on the LondonStock Exchange (KZG.L). The consideration for the sale of the assets will be satisfied by the issuanceto Oxus of 3,541,666 new ordinary shares in KazkhGold (currently valued atapproximately $81 million), plus a deferred payment of up to $80 million incash, payable in instalments, provided that KazakhGold obtains the requisitelicence to enable it to continue with the development of the Jerooy gold projectin Kyrgyzstan. Appropriate due diligence and asset valuations are currentlyunderway, together with the drafting of the relevant legal documentation and itis hoped that the transaction can be completed as contemplated during April. Oxus has spent approximately $65 million on the Jerooy gold project to date,which is currently the subject of an investment dispute and internationalarbitration. This expenditure includes the construction of a processing plantwhich is approximately 80% complete. Construction was suspended in February2006. The Romaltyn joint venture in Romania, in which KazakhGold already has a 50%interest, owns a gold processing plant in Baia Mare and certain explorationlicences. These assets were jointly acquired by Oxus and KazakhGold in January2007 following a successful bid in open auction. Oxus has spent approximately $4million on the project to date, including its share of the purchase price. The transfer of the Hatay and Karakilise exploration licences in Turkey will besubject to KazakhGold's assessment of the economic viability of such assets, thedetermination of an appropriate fair market value to be paid to Marakand byOxus, and approval of the Marakand board. OTHER ACTIVITY On 30 November 2006 Oxus announced that it had signed a subscription agreementwith Zeromax, Uzbekistan's largest private sector company, which brings Zeromaxinto Oxus as a strategic investor and alliance partner. Pursuant to thatagreement Zeromax has purchased 22,255,293 shares and currently owns 6.94% ofthe Company. The original subscription agreement provided for Zeromax topurchase up to 57 million shares at 21.5 pence per share. Oxus has received awritten commitment from Zeromax that the balance of the subscription shares willbe paid for by 6 April 2007. As announced in July 2006 Oxus terminated its contract to acquire the Ukrainianassets of Eurogold when it became apparent that Eurogold's approved C1/C2 goldresources were not 578,000 ounces as the Company had been led to believe, butonly 364,000 ounces. Oxus offered to pay for the approved ounces, and for thebalance once proved up. Eurogold rejected this offer and commenced litigation inthe Australian Federal Court. Oxus has opposed the jurisdiction of the Court andawaits the Court's decision. Costs of $482,000 have been incurred during theperiod with respect to this litigation. On 4 August 2003 the Company cancelled 5,000,000 warrants for shares exercisableat 15.25 pence per share, believing that it was entitled to do so. The grantee,Templeton Insurance Limited, disputed this cancellation, and followinglitigation the warrants were ordered by the court to be reinstated. In thelitigation the grantee asserted an entitlement, under an adjustment provision inthe original warrant deed, to an additional 3,313,380 warrants. The Companydisputes this entitlement and the results of a recent court hearing arecurrently awaited. During the period a further $2.35 million was charged to theprofit and loss account, representing additional legal costs of $1.1 million anda provision of $1.25 million to reflect a reduction in the value to the Companyof the reinstated warrants based on the Company's share price at 31 December2006. The Board has decided to cancel a total of 2,705,000 options, of which 2,675,000were held by directors, and which were exercisable at 54p and were due to veston the first gold pour at Jerooy. DIRECTORS As previously announced, on 12 March 2007 Darryl Norton resigned as a directorin order to join the board of KazakhGold as Joint Managing Director as part ofthe agreement with KazakhGold. Mr. Norton served as an alternate director from 1December 2005 and joined the Board on 8 January 2007. The Company wishes tothank Mr Norton for the time that he served both as an alternate and as anexecutive director and wishes him every success for the future in his new rolewith KazakhGold. PROPOSED DIVIDEND Whilst announcing the agreement in principle with KazakhGold, the Company alsoannounced that it intends to distribute all or a large portion of the KazakhGoldshares arising from the transaction as a dividend to its shareholders. Itremains the Company's intention to declare this dividend and further detailswill be supplied to shareholders following the completion of the KazakhGoldtransaction. OUTLOOK The Group is intent on continuing to build on the recent positive developments.The claims arising from the State audit at AGF have been rejected by the Uzbekcourts and operations are returning to normal following a period of severeoperational and financial disruption. Vysokovoltnoye will shortly receive itsfirst revenue from silver production and Asaukak has commenced production. Theunderground sulphide project will be brought into production as quickly aspossible and AGF has an impressive potential reserve base from which to generatefurther significant growth as a gold producer. Exploration will continue apacein order to realise that potential. The Company will also focus on the strategic alliance with Zeromax in order toevaluate other opportunities in Uzbekistan and to expand the project portfolio. The transaction with KazakhGold, if completed, will provide a satisfactoryresolution to the difficult issues that have arisen at the Jerooy gold projectin Kyrgyzstan, and will enable the Company to pay a dividend to itsshareholders. The Group is committed to restoring profitability as a priority and toprotecting and enhancing shareholder value during 2007 and beyond. _________________________ Further enquiries: Oxus Gold plc Tel: + 44 (0)20 7907 2000 Richard Wilkins, Company Secretary Bankside Keith Irons Tel: + 44 (0)20 7367 8873 Marc Cohen Tel: + 44 (0)20 7367 8875 Oxus Gold plcConsolidated Income Statement (US$'000) Six months Six months Twelve months ended ended ended 31 December 31 December 30 June 2006 2006 2005 (Unaudited) (Unaudited) (Audited)Gross revenue 2,144 2,406 3,383Interest in joint venture (Loss) Income attributable (1,220) 4,521 10,169 924 6,927 13,552 Administration expenses (3,207) (1,889) (5,749)Deferred revenue expenditure incurred by Marakand Minerals Limited (0) (717) (1,224)Gross (2,283) 4,321 6,579profit Stock-based compensation 160 (653) (1,393) Foreign exchange loss (222) (123) (158) Legal costs arising from abortive 2002 project (2,350) (287) (4,617) financing (Loss) profit on operations (4,695) 3,258 411Net interest receivable Group (758) 78 3 Joint venture 926 957 1,969 168 1,035 1,972Profit on sale of investments 313 - - (Loss) profit before taxation (4,214) 4,293 2,383Tax on profit on ordinary activities (2) 16 15(Loss) profit after taxation (4,216) 4,309 2,398Minority interests (16) (530) (288)(Loss) profit for the year (4,232) 3,779 2,110 (Loss) profit per share (US cents)- basic (1.41) 1.31 0.73 - diluted (1.40) 1.29 0.71 Oxus Gold plcConsolidated Balance Sheet (US$'000) As at 31 December As at 31 December As at 30 June 2006 2005 2006 (Unaudited) (Unaudited) (Audited) Current assetsCash and cash equivalents 3,108 7,459 13,717Trade and other receivables 17,689 11,008 10,172 20,797 18,467 23,889Non-current assetsExploration and mining properties and other intangible 100,695 86,101 95,870assetsInvestments 47,570 49,887 51,318 148,265 135,988 147,188 169,062 154,455 171,077 Current liabilitiesTrade and other payables due in less thanone yearTrade and other creditors 6,685 4,466 3,876Nedbank Limited corporate loan facility 5,000 - 5,000 AGF Phase 2 Project development Fund 9,314 4,657 4,657 20,999 9,123 13,533 Non-currentliabilitiesTrade and other payables due after oneyearAGF Phase 2 Project development Fund 1,553 6,209 6,209Nedbank Limited corporate loan facility 11,250 - 13,750Leasing 602 547 490 13,405 6,756 20,449 Minority interests 4,009 12,385 4,020 Shareholders' equityCapital stock 4,942 4,606 4,774Reserves 125,707 121,585 128,301 130,649 126,191 133,075 169,062 154,455 171,077 Oxus Gold plcStatement of Changes in Shareholders' Equity (US$'000) Share Capital Accumulated Total Minority Total capital reserve profit / (loss) interests (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) Balance as at 1 July 2005 4,581 119,012 (857) 122,736 12,858 135,594Shares issued 0 0 0Warrants & Options exercised 25 709 734 734Conversion of directors' 17 17 17remuneration to sharesStock-based compensation 755 (57) 698 57 755Revaluation of investments (2,303) (2,303) (2,303)Profit for the period 4,309 4,309 (530) 3,779Balance as at 31 December 4,606 118,190 3,395 126,191 12,385 138,5762005Shares issued 167 11,105 11,272 11,272Warrants & Options exercised 1 12 13 13Conversion of directors' 0 24 24 24remuneration to sharesStock-based compensation 609 57 666 (28) 638Revaluation of investments (487) (487) (487)Capital reserve re MML 2006 (11,272) (11,272) (11,272)On consolidation, adjustment 9,794 (1,215) 8,579 (8,577) 2of minority interestLoss for the period (1,911) (1,911) 240 (1,671) Balance as at 1 July 2006 4,774 127,975 326 133,075 4,020 137,095 Shares issued 167 3,419 - 3,586 - 3,586 Conversion of directors' 1 31 - 32 - 32remuneration to shares Stock-based compensation - (165) - (165) 5 (160) Revaluation of investments - (1,663) - (1,663) - (1,663)Loss for the period - - (4,216) (4,216) (16) (4,232) Balance as at 31 December 4,942 129,597 (3,890) 130,649 4,009 134,6572006 Oxus Gold plcConsolidated Statement of Cash Flows (US$'000) Six months Six months Twelve months ended ended ended 31 December 31 December 30 June 2006 2006 2005 (Unaudited) (Unaudited) (Audited) CASH FLOWS FROM OPERATING ACTIVITIES(Loss) profit for the period (4,232) 2,981 2,110Adjustments for:Depreciation 103 28 136 Profit on sale of investments (313) - -Salaries and bonuses converted to shares 32 15 42 Debt for services converted to shares - 503Loss (Income) attributable to joint venture 1,220 (4,168) (10,169) Dividend from joint venture - 1,250 Stock-based compensation (160) - 1,393 (Profit) loss on foreign exchange - Operating loss before working capital changes (3,350) (1,144) (4,735)(Increase) decrease in trade and other receivables (7,517) 2,192 (4,218)Increase in trade and other payables 422 2,982 25,254Net cash (used by) generated from operations (10,445) 4,030 16,301 CASH FLOWS FROM INVESTING ACTIVITIESCapital expenditure and financial investmentExploration and mining expenditure (4,928) (6,244) (35,778)Funding of joint venture's capital expenditure 865 (856) (572) Investments 313 - (895) Loan - - (416) Net cash used in investing activities (3,750) (7,100) (37,661) CASH FLOWS FROM FINANCING ACTIVITIESWarrants & options exercised - 243 Shares issued 3,586 24,503 - Net cash provided by financing activities 3,586 24,503 243Net (decrease) increase in cash and cash equivalents (10,609) 21,433 (21,117)Cash and cash equivalents as at 1 July 13,717 5,541 34,834Cash and cash equivalents as at 31 3,108 26,974 13,717December NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS 1. The unaudited Interim Consolidated Financial Statements, includingcomparatives, have been prepared in accordance with International FinancialReporting Standards ("IFRS"). Certain prior year amounts have been reclassified to conform to account presentation in the current period. 2. Save for the fact that depreciation for this period on plant at Amantaytauhas been adjusted to conform to the life of the reserves, these InterimConsolidated Financial Statements follow the same accounting policies and theirmethods of application as the 2006 accounts and should be read in conjunctionwith the Company's 2006 audited Consolidated Financial Statements. 3. The interim financial information does not constitute statutory accounts asdefined in Section 240 of the Companies Act 1985. Statutory accounts for theyear ended 30 June 2006 have been filed with the Registrar of Companies 4. The consolidated income statement includes Oxus Gold plc and its attributableshares of subsidiaries and joint ventures. 5. In accordance with the terms of IFRS2, the cost of stock based compensation,amounting to $160,000 has been written back during the period. 6. The basic and diluted profit per share has been calculated by reference to aloss, after taxation, of $4,232,000 (December 2005: $3,779,000 profit) (June2006: $2,110,000 profit) and the weighted average number of ordinary shares inissue of 299,535,057 (December 2005: 287,432,807) (June 2006: 298,120,198). 7.The Directors are not declaring a dividend for this period. 8. Copies of this report are being sent to all shareholders. Additional copieswill be available to the public at the registered office, 105 Piccadilly,London, W1J 7NJ and will be posted on the company's website www.oxusgold.co.uk This information is provided by RNS The company news service from the London Stock Exchange