TSG.L Regulatory News (TSG)

30 Mar 2007 11:49

Trans-Siberian Gold PLC30 March 2007 Trans-Siberian Gold plc Results of Extraordinary General Meeting Chairman's statement LONDON, 30 March 2007: Trans-Siberian Gold plc ("TSG" or "the Company") ispleased to report that the resolution to approve the disposal of the Company'sinterests in its two wholly owned subsidiaries, OOO GRK Amikan and OOO ASAngarskaya Proizvodstvennaya Kompaniya to Anglo Gold Ashanti Limited ("AGA") wasapproved by shareholders at an extraordinary general meeting in London todaywith 15,589,351 votes in favour and 4,913,710 against. AGA, which holds a 29.8%interest in TSG did not vote its shares. The Chairman, Mr Peter Burnell, told shareholders at the EGM: "I shall begin by responding to the statement requisitioned by Jocelyn Wallerand others in relation to the proposals to be put to shareholders today, whichwas sent to shareholders on 22 March. The requisitioned statement appears to have two objectives: first, to persuadeshareholders not to approve the sale of Veduga and Bogunay for US$40 million, onthe grounds that the consideration is inadequate and that they doubt that thebalance of the funding to develop Asacha will be forthcoming; and secondly topersuade AngloGold Ashanti to make a cash offer to the minority shareholders "ata price commensurate with the intrinsic worth of the assets" which would alsorepresent a "satisfactory valuation" for them. This valuation is not stated, butby implication it would be in excess of US$100 million, based on the mid pointof Loeb Aron's valuation range for Veduga of around US$70 million plus anappropriate NPV valuation of Asacha. While many of us would undoubtedly beinterested to receive such an offer, it is patently not something that theCompany or its Board can deliver; in my view there is no likelihood that it willhappen. What the requisitionists do not say is how they would see TSG funding itself todevelop Asacha, given no other prospect of selling Veduga for the same value asAGA has offered. It is worth reiterating that TSG has received no otherenquiries or offers in respect of Amikan or the Veduga property, eitherfollowing the announcement in October 2005 of the results of the Aker Kvaernerpre-feasibility study or prior to receiving AGA's offer to acquire the twocompanies or following the announcement of the proposed AGA Transaction on 21September 2006. The alternatives to this transaction in our view are a distressed sale, with orwithout a highly dilutive rights issue, or liquidation. 1. VALUATION ISSUES In reference to the agreed sale consideration I would like to point out that: Seymour Pierce Limited's note in June 2006 calculated valuations of TSG on ninedifferent bases. The Veduga valuation "in excess of US$130 million" quoted inthe statement appears to be derived from a 131p per share value based on averageresource values for other Russian gold stocks, including companies inproduction. This metric was irrelevant to the TSG Board's consideration of theAGA proposal on its own merits. US$130 million equates to US$47/ounce forVeduga's JORC compliant resource, or US$64/ounce based on the mineable ounceswithin the overall JORC resource. Seymour Pierce cited a "rule of thumb" US$30/ounce for peer group comparison ofexploration asset valuations, with the caveat that "not all ounces in the groundare equal". This US$30/ounce value was predicated on production costs of betweenUS$200 and US$300/ounce. In the case of Veduga, its anticipated higherproduction costs (even with grid power and the metallurgical improvementstargeted but not yet realised) would necessitate a discount to this valuation. It is, however, worth pointing out that Seymour Pierce's valuations were on a"sum of the parts" basis for a going concern which was assumed to be able tofund all of its future development requirements. The "disposal value" of amineral resource, following a failed equity raising, will evidently be verydifferent; this is particularly so when the mineable resource requires anincrease of more than 50% to be viable at present prices, as well as grid power,the availability of which remains uncertain, an improved treatment route andlicence extensions which are problematic in Russia, and cannot be brought intoproduction before 2011 at the earliest, and more likely later. We cannot comment on Loeb Aron's valuation "as an exploration asset" of US$55-81million since the assumptions used have not been given. However, a mid point ofUS$70 million and 2.0 million "mineable ounces" gives US$35/ounce, which is farin excess of any acquisition value in Russia of exploration stage mineralresources which are a long way from constituting an economically viabledevelopment project. Your Board remains absolutely satisfied that US$40 million was and is a fair andvery reasonable price after taking account of the improvement in a number offactors subsequent to the 2005 pre-feasibility study - contrary to theassertions in the requisitionists' note and as clearly referred to in the 9March circular to shareholders. In support of our recommendation and the rationale for its being fair andreasonable, we draw your attention to the following: (i) in its internal valuations for the equity roadshow in July/August 2006, TSGmanagement used US$20/ounce for measured and indicated and US$10/ounce forinferred ounces, for a "going concern" value of US$47m for Veduga, with no valueascribed to Bogunay; (ii) Seymour Pierce's fairness opinion observed that "exploration resources" inRussia could have been acquired for US$1-5/ounce in the 1990's, with more recenttransactions at "up to US$20/ounce". The opinion concluded that AGA's offerrepresented "exceptional value" given: •Russian/AIM mining asset values being highly volatile and much reduced by September 2006, compared with earlier in the year; •a comparison with other transactions in Russia; •the uncertain licence and grid power situations; •increasing Russian rouble denominated costs and the appreciation of the rouble against the US dollar; and •especially, the lack of third party interest and the urgent need for cash to fund the development of Asacha after the failed equity raising and (as was then hoped) to keep the bank financing for Asacha, which TSG had been negotiating since 2004, in place. (iii) RBC commented in September 2006 that the AGA Transaction was a good dealand represented a good price compared with their valuation of US$15 million,particularly as it avoided excessive equity dilution in developing Asacha; (iv) TSG's other major shareholder, UFG, has been fully supportive of the AGATransaction since the initial offer was made and would hardly have acquiesced toAGA's acquisition of the Company's so-called "crown jewels" at an inadequateprice; (v) Jocelyn Waller, who was a TSG director when the Seymour Pierce note wasissued in June 2006, stated at the TSG Board meeting which approved the AGAproposal in principle that the proposal would provide a clear benefit to theCompany in that it would achieve the purpose of financing the Asacha project,which was TSG's first priority; after his departure from the Board in October hemade no attempt to discuss any concerns with the Company until TSG received asolicitor's letter on his behalf in February demanding a response within oneweek. 2. THE POLYMETAL ALLIANCE We consider that AGA's plan to put the Veduga project into its joint venturewith Polymetal is absolutely irrelevant to what represents fair consideration toTSG. We also consider that it is highly improbable that AGA would have offeredUS$40 million (or any other price) to buy Veduga, had this not been seen as theonly way of enabling the Asacha project to proceed and, thereby, protecting itsexisting US$40 million investment in TSG. The TSG Board was aware of AGA's plans to seek a joint venture with anotherRussian company when the sale of Veduga was agreed and announced, although notof the details of such a joint venture. Furthermore, it would be most unlikelyin any event that AGA would plan to progress the Veduga project without aRussian partner. The inference, in the requisitionists note, that AGA'sunwillingness to "fully contribute" to the equity raising which TSG attempted inJuly/August 2006 was due to its wish to acquire assets of its choice does notwarrant comment save to recall that AGA had in June 2006 in effect alreadyunderwritten US$10 million of its potential maximum US$16 million contributionto the proposed equity raising. 3. EXPLORATION UPDATE There are no unreported "new" exploration results, which were or would berelevant to a judgment as to whether the sale at US$40 million agreed inprinciple in September 2006 was, and is, fair and reasonable. No meaningfulexploration was undertaken earlier in the year. Subsequent exploration hasprovided no information which would have justified a different price were thenegotiations to be undertaken today. As Mr Waller will recall, in early 2006 drilling equipment was moved from Vedugato Bogunay, where limited drilling has yielded no positive results. No potentialtargets were identified by the SPECTREM survey at Bogunay and the ability tojustify continuing exploration is questionable. At Veduga work in the mining licence area has increased the potentially mineableresource of 1.85 million ounces as used by Aker Kvaerner in the 2005prefeasibility study to around 2.0 million ounces, without changing the overallJORC resource previously reported. In the surrounding exploration licence area,the GLA, drilling of the LEP prospect during the winter season has not beenencouraging, although assay results are awaited. The SPECTREM survey hasidentified 13 potential drilling targets in line with expectations. The overallexploration target is to generate at least an additional 1 million mineableounces over 18 months. Even if all targets in the 2007 programme in the mininglicence area are fully realised, this would still require around 400,000 ouncesfrom the GLA, i.e. at least one substantial discovery, probably more, as well asthe extension of its licence later in 2007, making the attainment of an adequateresource base still a high risk proposition. The total exploration budget for 2007 is US$6.6 million which is substantiallymore than would have been available if TSG's equity raising in July/August 2006had been successful and significant additional funding will be needed formetallurgical process development. 4. CONCLUSION The reality is that the sale of Veduga at what is a good, fair and reasonableprice now provides the only basis for TSG to develop Asacha. Even at its plannedreduced level of output Asacha remains a good project which your Board firmlybelieves should provide a good return on future investment, especially on thebasis of the most likely outturn of a mineable mineral resource of around 1million ounces. To proceed without the balance of the funding requirement inplace is certainly a risk which I, for one, would normally be most reluctant totake. However given the confidence of management and both the majorshareholders, AGA and UFG who, between them, already have over US$60 millioninvested in the Company without considering their share of the saleconsideration, that funding will be procured, the Board believes thatconstruction should proceed as fast as possible once the sale proceeds are tohand. Failure to approve this transaction would most likely result in the valueinherent in Asacha and Rodnikova being realised by third parties." Ends Contacts: TSGSimon Olsen +44 (0) 1223 265760/ (0) 7770 484965 Seymour PierceStuart Lane +44 (0) 20 7107 8000 BanksideKeith Irons +44 (0) 20 7367 8873Marc Cohen +44 (0) 20 7367 8875 This information is provided by RNS The company news service from the London Stock Exchange