7 May 2009 07:00
Trans-Siberian Gold plc
Asacha project and funding update
LONDON: 7 May 2009 - Trans-Siberian Gold plc ("TSG" or "the Company") (TSG.L) reported on 16 December 2008 that the requirement for additional funds before the Asacha mine is cash flow positive, previously forecast at US$27 million, had reduced to US$22 million. It also reported that a leading Russian bank had expressed its positive view of the project and indicated its willingness to proceed further, while making clear that no new credit approvals would be obtained until early 2009. Accordingly the Group's short term spending plans were revised to ensure that existing funds were sufficient until April 2009.
The Company reports that while the Russian bank has maintained its positive stance towards the project, it has not yet provided its decision in respect of project finance. The Group's short term spending plans have therefore been revised further to ensure that existing funds are sufficient until mid June 2009.
Given the deteriorating conditions in the Russian credit market and the potential for a delayed decision from the bank, the Company has also been discussing the Group's further funding requirements with other parties including the Company's major shareholder UFG Asset Management.
UFG has agreed in principle to contribute part of the additional funding required, which is now forecast at US$25 million, provided that the Company secures the balance from other sources. UFG has also agreed to consider the provision of bridge finance while negotiations continue with other potential sources of funding.
Although the Company believed in December 2008 that first gold production by the end of 2009 remained feasible in spite of the delay in plant commissioning due to the short term expenditure cuts, the further expenditure slowdown, which has included a two stage reduction in the Asacha workforce of approximately 50%, will inevitably impact on the work which can be undertaken during the 2009 summer season in Kamchatka. As a consequence, TSG now expects first gold production at Asacha in the second half of 2010, by which time the ore stockpile (currently around 30,000 tonnes) will have increased to 69,000 tonnes. The Company believes that, in the current economic environment, this delay will not create any serious problems in its relationship with the authorities with respect to fulfilling the license agreement.
The total capital cost of the Asacha project prior to commencement of production is now estimated at US$102.9 million, net of US$9.7 million VAT recoveries, compared to the December 2008 estimate of US$101.6 million. The total project cost includes pre-commissioning mining costs of US$3.8 million, other pre-operating expenditure of US$29.1 million, "first fill" equipment spares and consumables of US$1 million and contingency of US$1.6 million. Increased pre-operating costs stemming from the later commencement of production are expected to be offset by a US$3.4 million reduction in capital costs (including a US$1.4 million reduction in the costs of installing the external power supply), in part reflecting a weaker Russian rouble (RUR35:US$1, compared with RUR27:US$1 in the December 2008 projection).
Projected operating costs have also further reduced through the changed exchange rate assumption. At a gold price of US$750/oz, Life of mine ("LOM") cash costs on an all equity basis on total gold production of 590,000 oz are forecast at US$163/oz, before taking account of a US$18/oz credit from silver production. Cash costs including all royalties and taxes (in total US$66 million, net of VAT recoveries) on an all equity basis are forecast at US$274/oz. Total costs on the same basis, after depreciation of all capital expenditure (including US$9.3 million post start up) and pre-start up mining and other operating expenditure, are forecast at US$467/oz, giving a US$283/oz margin at a gold price of US$750/oz.
Actual expenditure on the project up to February 2009 amounted to US$79.8 million, net of US$4.2 million VAT recovered. The remaining costs prior to the commencement of production are estimated at US$23.1 million, net of further VAT recoveries of US$5.5 million, comprising:
| US$ million | ||
| Capital expenditure | Mine and mining equipment and facilities | 2.5 |
| Gold plant, site facilities and tailings storage (1st phase) | 5.5 | |
| Off-site power supply and other infrastructure | 7.9 | |
| Contingency | 1.6 | |
| Total capital | 17.5 | |
| Other costs | Pre-production mining, spares and consumables and other operating costs | 11.1 |
| 28.6 | ||
| Less VAT recoveries | 5.5 | |
| 23.1 |
A further US$9.3 million of capital expenditure (including US$0.8 million contingency) will be incurred after the commencement of production on mine development and the second phase of tailings storage and solid waste landfill, previously estimated at US$9.2 million.
In line with the aim to minimise all expenditure not directly related to the Asacha project, the Toft office has been closed, at an annual saving of around US$50k, although TSG's Finance Director remains UK based.
A further announcement will be made in due course.
Ends
Contacts:
TSG
Simon Olsen +44 (0) 1480 811871
Seymour Pierce
John Depasquale +44 (0) 20 7107 8000