23 Jun 2009 08:27
Trans-Siberian Gold plc
Final results for the year ended 31 December 2008
Highlights
Asacha expected to be in production in 4th quarter 2010
$12.4 million raised in equity placing, $8.2 million debt converted to equity
Rodnikova geological reserves report submitted
Chairman's Statement
Trans-Siberian Gold plc ("TSG" or "the Company") (TSG.L) was exposed to severe external shocks in 2008. Our business in Russia has been adversely affected by an unprecedented financial crisis, especially since October last year when a fundamental reassessment of their risks by international investors and banks resulted in a massive capital outflow from emerging markets, including Russia. The heavily indebted Russian banks curtailed their lending operations despite active support from the federal government and liberal injections of liquidity from the Central Bank. The banks' extreme shortage of long-term resources has prevented the finalisation of the ongoing negotiations between TSG and several potential local lenders regarding project finance.
However, the impact of the global recession on TSG's business was not wholly painful. Dramatic falls in the prices of fuel and basic metals have benefited the economics of the Asacha project and will probably keep the mine's initial production costs at a lower level than earlier anticipated. As a consequence of the depreciation of the Russian Rouble in the second half of 2008 most of TSG's local expenses have decreased in dollar terms. The gold price has remained relatively strong in spite of the general weakness of commodity markets and some recovery of the US dollar. Gold's role as a safe haven was fostered by financial market turmoil and the threat of future global inflation from immense deficit spending worldwide. The continuing strength of gold improves the prospects for TSG's revenue after production commences at Asacha next year.
In 2008 significant progress was achieved in all major areas at Asacha: underground mining works, plant construction and infrastructure development. TSG also completed the exploration program at Rodnikova and submitted a pre-feasibility study together with the Report on Geological Reserves for this deposit to the State Commission on Reserves in December 2008.
However funding constraints remained the most important impediment to development of the Asacha project and determined the pace of the Company's business activities. In August 2008 TSG secured the necessary funds to maintain momentum at the Asacha site through a placing of new ordinary shares, as described below, in the expectation that the balance of the funding through debt finance would have been available during the fourth quarter.
Unfortunately, the total credit freeze in autumn 2008 destroyed the Company's plans for 2009. TSG was forced to revise its Asacha investment programme for the first two quarters and to concentrate its limited resources on the most essential areas of mine development, plant construction and tailing storage. The Company also had to make a painful decision on staff reduction. The emergency action to scale down investment at Asacha has regrettably caused a further delay in the commencement of gold production.
In spite of the enormous challenges which TSG is facing now, we look to the future with growing confidence and believe that the Company will soon overcome the current funding difficulties. There are already some signs of financial stabilisation in Russia. The acute liquidity crisis in the banking system is easing. Some large commercial banks are resuming new lending operations. Inflation seems to have peaked at its current level and the Central Bank's recent cut in the refinancing rate was a signal for commercial banks to reduce their lending rates. The capital flight is slowing down, and the Rouble's exchange rate is getting support from the recovery of oil prices to around $70/barrel. Investors are returning to emerging markets, and the leading Russian index of Rouble denominated stocks has climbed by more than 60% in 2009.
In a slightly improving economic environment, the Company is intensifying its fund raising efforts and broadening the circle of potential lenders and investors. Negotiations with several commercial banks have now reached the final stage and could be completed within the next few months. At the same time, the Company is continuing discussions with several potential investors. UFG Asset Management (UFG), the Company's largest shareholder, has provided a $3 million bridging loan to close the gap until drawdown of the bank facility is expected to be available.
Financial review
The Company is in the exploration and development phase of its gold projects in Russia. It therefore received no operating income from those projects during 2008.
The Group recorded an operating loss from continuing operations for the year of $7.9 million (2007: $3.9 million), including $3.6 million exchange losses (2007 gain: $644,000). Administration expenses amounted to $1.0 million in UK and $3.3 million in Russia (2007: $1.9 million and $2.7 million respectively), in aggregate $4.3 million (2007: $4.6 million).
Finance income was $440,000 (2007: $935,000). Finance costs were $118,000 (2007 restated: $360,000). The restatement arises from the Group's early adoption of IAS23 (Revised) Borrowing Costs, which requires borrowing costs directly attributable to the acquisition, construction or production of qualifying assets to be capitalised. This change of accounting policy has resulted in a reduction of $280,000 in finance costs in 2008 and a prior year credit adjustment of $929,000. $4 million of the $10 million outstanding loan from AngloGold Ashanti Limited (AGA) was repaid in March 2008. The remaining balance of the loan was converted to equity in August 2008, as described below.
Total Non-current assets increased from $51.6 million (restated) to $75.9m. Property, plant and equipment increased by $23.2 million to $50.4 million, principally reflecting additional $3.5 million plant and machinery and $20.7 million assets under construction at Asacha. Capitalised exploration and evaluation expenditure increased from $15.1 million (restated) to $17.1 million.
In August 2008 the Company placed 26,507,899 new ordinary shares at 25.5 pence per share raising $12.5 million (net of expenses). At the same time its debt facilities, comprising the $6 million remaining balance of the AGA loan and a $2 million loan provided as bridging finance by UFG in July 2008 and accrued interest on the loans, were converted into new ordinary shares, also at 25.5 pence per share, resulting in the issue of 17,241,183 new shares.
Further funding
The total project cost until Asacha is cash flow positive is now estimated at $104.1 million, net of $10.8 million VAT recoveries. The total project cost includes pre-commissioning mining costs of $3.6 million, other pre-operating expenditure of $29.1 million, "first fill" equipment spares and consumables of US$1 million and contingency of $1.7 million. A further $9.3 million of capital expenditure, including contingency of $0.9 million, will be incurred after the commencement of production, principally mine development and the second phase of tailings storage.
Actual expenditure on the project up to April 2009 amounted to $81.5 million, net of $4.2 million VAT recovered. The remaining costs prior to the commencement of production are estimated at $22.6 million, net of further VAT recoveries of $6.6 million, comprising:
| $ million | ||
| Capital expenditure | Mine and mining equipment and facilities | 2.6 |
| Gold plant, site facilities and tailings storage (1st phase) | 6.2 | |
| Off-site power supply and other infrastructure | 8.3 | |
| Contingency | 1.7 | |
| Total capital | 18.8 | |
| Other costs | Pre-production mining, spares and consumables and other operating costs | 10.4 |
| 29.2 | ||
| Less VAT recoveries | 6.6 | |
| 22.6 |
It was reported on 7 May 2009 that the Group's total requirement for additional funds before the Asacha mine is cash flow positive was $25 million. Funding for that requirement, which includes corporate costs and the purchase of the remaining 4.97% minority interest in Asacha, is expected to be provided through debt finance or a combination of debt and equity. On 27 May 2009 UFG Asset Management, TSG's largest shareholder, agreed to provide bridge finance of up to $3 million while discussions continue with several banks and potential investors.
Ends
Contacts:
TSG
Simon Olsen
+44 (0) 1480 811871
Seymour Pierce
John Depasquale
+44 (0) 20 7107 8000
Trans-Siberian Gold plc
Consolidated Balance Sheet
| Note | 31 December 2008 $000 | Restated 31 December 2007 $000 | |
| Assets | |||
| Non-current assets | |||
| Property, plant and equipment | 3 | 50,430 | 27,241 |
| Exploration and evaluation costs | 2 | 17,089 | 15,058 |
| Trade and other receivables | 8,359 | 9,314 | |
| 75,878 | 51,613 | ||
| Current assets | |||
| Trade and other receivables | 3,388 | 2,341 | |
| Current income tax asset | 72 | 62 | |
| Cash and cash equivalents | 4,549 | 27,630 | |
| 8,009 | 30,033 | ||
| Total assets | 83,887 | 81,646 | |
| Equity | |||
| Capital and reserves attributable to equity holders of the Company | |||
| Ordinary shares | 4 | 15,103 | 6,951 |
| Share premium | 4 | 73,311 | 60,821 |
| Retained (deficit) earnings | (7,939) | 88 | |
| 80,475 | 67,860 | ||
| Minority interest in equity | - | - | |
| Total equity | 80,475 | 67,860 | |
| Liabilities | |||
| Non-current liabilities | |||
| Borrowings | - | 10,000 | |
| Provisions | 254 | 267 | |
| 254 | 10,267 | ||
| Current liabilities | |||
| Trade and other payables | 3,158 | 3,519 | |
| 3,158 | 3,519 | ||
| Total liabilities | 3,412 | 13,786 | |
| Total equity and liabilities | 83,887 | 81,646 |
Trans-Siberian Gold plc
Consolidated Income Statement
| Year ended 31 December 2008 $000 | Restated Year ended 31 December 2007 $000 | ||
| Continuing operations | |||
| Revenue | - | - | |
| Administrative expenses | (4,314) | (4,569) | |
| Operating income | - | 6 | |
| Net foreign exchange (losses) gains on operating activities | (3,571) | 644 | |
| Loss from operations | (7,885) | (3,919) | |
| Finance income | 440 | 935 | |
| Finance costs | (118) | (360) | |
| Net foreign exchange (losses) gains on financing activities | (345) | 19 | |
| Loss before income tax | (7,908) | (3,325) | |
| Income tax credit (expense) - (Russian) | 10 | (55) | |
| Loss from continuing operations | (7,898) | (3,380) | |
| Discontinued operations | |||
| Profit from discontinued operations | - | 20,547 | |
| (Loss) Profit for the year | (7,898) | 17,167 | |
| Attributable to: | |||
| Equity holders of the company | (7,898) | 17,167 | |
| Minority interest | - | - | |
| (Loss) Profit for the year | (7,898) | 17,167 | |
| (Loss) earnings per share attributable to the equity holders of the company (expressed in cents) | |||
| - basic and diluted | (15.45) | 41.70 | |
| Loss per share from continuing operations attributable to the equity holders of the company (expressed in cents) | |||
| - basic and diluted | (15.45) | (8.21) |
There are no recognised gains or losses other than those stated above.
Trans-Siberian Gold plc
Consolidated Cash Flow Statement
| Year ended 31 December 2008 $000 | Restated Year ended 31 December 2007 $000 | ||
| Cash flows from operating activities | |||
| Continuing operations | |||
| Cash used in operations | (12,933) | (3,973) | |
| Interest paid on borrowings | (814) | (103) | |
| Income tax received (paid) | 2 | (104) | |
| (13,745) | (4,180) | ||
| Discontinued operations | (2) | (566) | |
| Net cash used in operating activities | (13,747) | (4,746) | |
| Cash flows from investing activities | |||
| Continuing operations | |||
| Purchase of property, plant and equipment (PPE) | (19,265) | (10,707) | |
| Proceeds from sale of PPE | - | 10 | |
| Purchase of exploration and evaluation assets including capitalised interest | (630) | (1,967) | |
| Interest received - third party | 456 | 919 | |
| (19,439) | (11,745) | ||
| Discontinued operations | - | 37,085 | |
| Net cash (used in) generated from investing activities | (19,439) | 25,340 | |
| Cash flows from financing activities | |||
| Continuing operations | |||
| Proceeds from convertible debt | 2,000 | - | |
| Proceeds from issuance of ordinary shares, net of expenses | 12,450 | - | |
| Repayment of long term borrowings | (4,000) | - | |
| 10,450 | - | ||
| Discontinued operations | - | 4,466 | |
| Net cash generated from financing activities | 10,450 | 4,466 | |
| Net (decrease) increase in cash and cash equivalents | (22,736) | 25,060 | |
| Cash and cash equivalents at beginning of the year | 27,630 | 2,551 | |
| Exchange (losses) gains on cash and cash equivalents | (345) | 19 | |
| Cash and cash equivalents at end of the year | 4,549 | 27,630 |
Notes
1. Going concern
The Group has significant funding needs in order to finance the completion of the Asacha project, continue exploration at its properties and provide ongoing working capital.
The directors believe that total additional funding of $25 million will be required to provide adequate financing for the Group until the Asacha mine is cash flow positive. It is currently the intention of the Board to satisfy that funding requirement, and to avoid a delay to the project because of funding constraints, through raising additional equity and/or debt finance. UFG Asset Management has confirmed its commitment to participate in the funding and has provided bridging finance through a $3 million loan. Discussions are ongoing with several Russian banks with the intention of raising up to $25 million of debt finance. The Group believes that the finance raising will be successful. Management tightly control the level of committed expenditure to ensure that the Group has sufficient resources available to meet its liabilities as they fall due.
Notwithstanding the material uncertainty related to the raising of additional finance which may cast significant doubt on the Group's ability to continue as a going concern, based on the progress of the negotiations with potential providers of debt finance and discussions with potential investors including UFG's commitment as set out above, the directors believe that the necessary funds to provide adequate financing until the Asacha mine is cash flow positive can be raised as required and accordingly they are confident that the Group will continue as a going concern and have prepared the financial statements on that basis. The financial statements do not include the adjustments that would result if the Group was not able to continue as a going concern.
2. Exploration and evaluation costs
Movements on deferred exploration and evaluation expenditure, by location of the property, are as follows:
| Kamchatka $000 | Krasnoyarsk $000 | Total $000 | |
| At 1 January 2007 | 12,010 | 17,790 | 29,800 |
| Additions - as previously stated | 2,119 | 2,023 | 4,142 |
| - restatement | 929 | - | 929 |
| Disposals | - | (19,813) | (19,813) |
| At 31 December 2007 - restated | 15,058 | - | 15,058 |
| At 1 January 2008 | 15,058 | - | 15,058 |
| Additions | 2,031 | - | 2,031 |
| Disposals | - | - | - |
| At 31 December 2008 | 17,089 | - | 17,089 |
In 2008 the Group early adopted IAS 23 (Amendment), Borrowing costs, which requires an entity to capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (one that takes a substantial period of time to get ready for use or sale) as part of the cost of that asset. Additions in 2008 include $280,459 interest capitalised, with a prior year adjustment of $928,925. The cumulative amount of interest capitalised in exploration and evaluation costs is $1,330,684 (2007 restated: $1,050,225).
Under the Asacha licence as revised in 2006, the Company's subsidiary ZAO Trevozhnoye Zarevo is required to bring the Asacha mine into operation at its projected capacity in accordance with the technical design at a rate of at least 1,000 kg of gold per annum by 31 December 2008. That requirement was partially fulfilled in 2008, with the commencement of mining activities and first ore extraction. In December 2008, the Kamchatka regional governmental commission noted the delay in mining but concluded that work to finalise construction should continue to put the gold plant into operation in 2009. Although it is now expected that the Asacha plant will only be commissioned in October 2010, due to funding constraints arising in 2008-09, the Company believes that, provided that mine construction continues, the Kamchatka governmental authorities will maintain this position.
3. Property, plant and equipment
| Buildings $000 | Plant and machinery $000 | Motor vehicles $000 | Office equipment & furniture $000 | Assets under construction $000 | Total $000 | |
| Cost | ||||||
| At 1 January 2007 | 1,013 | 2,077 | 1,155 | 554 | 20,275 | 25,074 |
| Additions | 493 | 1,835 | 130 | 231 | 3,475 | 6,164 |
| Disposals | (18) | (6) | (17) | (49) | - | (90) |
| Discontinued operations | (315) | (938) | (748) | (157) | (361) | (2,519) |
| At 31 December 2007 | 1,173 | 2,968 | 520 | 579 | 23,389 | 28,629 |
| Depreciation | ||||||
| At 1 January 2007 | (372) | (557) | (499) | (382) | - | (1,810) |
| Charge for year | (169) | (183) | (192) | (71) | - | (615) |
| Disposals | 11 | 2 | 7 | 48 | - | 68 |
| Discontinued operations | 124 | 390 | 341 | 114 | - | 969 |
| At 31 December 2007 | (406) | (348) | (343) | (291) | - | (1,388) |
| Net book value | ||||||
| At 1 January 2007 | 641 | 1,520 | 656 | 172 | 20,275 | 23,264 |
| At 31 December 2007 | 767 | 2,620 | 177 | 288 | 23,389 | 27,241 |
| Cost | ||||||
| At 1 January 2008 | 1,173 | 2,968 | 520 | 579 | 23,389 | 28,629 |
| Additions | 15 | 3,455 | 100 | 61 | 20,697 | 24,328 |
| Disposals | - | - | - | (3) | - | (3) |
| At 31 December 2008 | 1,188 | 6,423 | 620 | 637 | 44,086 | 52,954 |
| Depreciation | ||||||
| At 1 January 2008 | (406) | (348) | (343) | (291) | - | (1,388) |
| Charge for year | (203) | (714) | (157) | (64) | - | (1,138) |
| Disposals | - | - | - | 2 | - | 2 |
| At 31 December 2008 | (609) | (1,062) | (500) | (353) | - | (2,524) |
| Net book value | ||||||
| At 1 January 2008 | 767 | 2,620 | 177 | 288 | 23,389 | 27,241 |
| At 31 December 2008 | 579 | 5,361 | 120 | 284 | 44,086 | 50,430 |
Assets under construction comprise $4,575,780 (2007: $4,457,123) in relation to the construction of an access road to Asacha; $30,521,497 (2007: $17,204,772) for building construction and infrastructure, and $8,983,105 (2007: $1,721,974) for plant and equipment at Asacha; and $5,316 (2007: $5,316) for infrastructure at Rodnikova.
$1,076,023 (2007: $528,944) of the depreciation charge related to property, plant and equipment used on exploration and evaluation projects and was capitalised in exploration and evaluation costs in accordance with the Group's accounting policy.
4. Share capital and premium
| Number of shares authorised | Number of shares allotted and fully paid | Share capital $000 | Share premium $000 | Total $000 | |
| At 1 January 2007 | 100,000,000 | 41,163,949 | 6,951 | 60,821 | 67,772 |
| At 31 December 2007 | 100,000,000 | 41,163,949 | 6,951 | 60,821 | 67,772 |
| At 1 January 2008 | 100,000,000 | 41,163,949 | 6,951 | 60,821 | 67,772 |
| Shares authorised | 50,000,000 | ||||
| Shares issued | |||||
| - Placing for cash | 43,749,082 | 8,152 | 12,490 | 20,642 | |
| At 31 December 2008 | 150,000,000 | 84,913,031 | 15,103 | 73,311 | 88,414 |
On 18 August 2008 the Company's shareholders approved an increase in the Company's authorised share capital of 50,000,000 ordinary shares to 150,000,000 ordinary shares. On 18 August 2008 26,507,899 ordinary shares were issued at 25.5 pence per share for a total cash consideration, before issuing costs, of £6.8 million ($12,595,003) to entities associated with UFG Asset Management (UFG), two Directors and other shareholders. Also on 18 August 2008 17,241,183 ordinary shares were issued, also at 25.5 pence per share, to UFG and AngloGold Ashanti Limited in consideration of the conversion of the Company's debt facilities, in aggregate US$8,192,002 including accrued interest.
5. Events after the balance sheet date
The Company reported on 7 May 2009 that the Group's total requirement for additional funds before the Asacha mine is cash flow positive was $25 million. On 27 May 2009 UFG Asset Management, TSG's largest shareholder, agreed to provide bridge finance of up to $3 million while discussions continue with several banks and potential investors. 50% of the loan is repayable on the earlier of the first anniversary of the commencement of gold production at Asacha and 30 September 2011, the balance on the earlier of the second anniversary of first gold production and 30 September 2012.
If the Company raises equity during the term of the loan, UFG may convert any part of the outstanding loan into TSG shares at the same time and price per share as that equity raising. UFG also has an option, subject to the requisite approval of TSG's shareholders, to convert any part of the outstanding loan into TSG shares at a price equivalent to the volume weighted average price of TSG's shares for the period of 60 business days prior to notice of such conversion.
The Company has also agreed, subject to obtaining the necessary shareholder approvals, to issue warrants to subscribe for additional TSG shares to UFG on terms to be agreed and confirmed as fair and reasonable by the Company's Board (excluding those directors connected to UFG) after consultation with TSG's Nominated Adviser, Seymour Pierce Limited.
6. Basis of accounting and presentation of financial information
The Group's financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. However this announcement does not in itself contain sufficient information to comply with IFRS.
The financial information does not constitute the Group's statutory financial statements as defined in section 240 of the Companies Act 1985 but is derived from those accounts. The financial information for the year ended 31 December 2008 has been extracted from the audited accounts of Trans-Siberian Gold plc which will be delivered to the Registrar of Companies in due course. The financial information for the year ended 31 December 2007 has been extracted from the audited accounts of Trans-Siberian Gold plc which have been delivered to the Registrar of Companies. The auditors reported on those accounts and their report was unqualified and did not contain a statement under s237(2) or (3) Companies Act 1985. The audit report for the year ended 31 December 2007 did contain an emphasis of matter in respect of going concern to which the auditors drew attention without qualifying their report.