TSG.L Regulatory News (TSG)

19 Jun 2007 10:00

Trans-Siberian Gold PLC19 June 2007 Trans-Siberian Gold plc Preliminary Results for the year ended 31 December 2006 Trans-Siberian Gold plc ("TSG" or "the Company") (TSG.L) is pleased to reportits preliminary results for 2006 and on developments since the year-end. Highlights • Agreement to sell Veduga and Bogunay for $40 million • Asacha and Rodnikova mining licences extended • Asacha expected to be in production by end 2008 with reduced initial capital expenditure The Company is in the exploration and development phase of its gold projects inRussia. It therefore received no operating income from those projects during2006, however the hiring out to other operators of staff and equipment duringperiods of exploration inactivity generated income of US$513,000 (2005:US$71,000). The Group's operating loss for the year of US$5.4 million (2005 restated: US$8.9million) is stated after crediting a US$1.1 million exchange gain (2005: US$1.9million loss), principally reflecting the impact of the depreciation of the USdollar during 2006 against sterling and the Russian rouble. Administrationexpenses amounted to US$3.1 million in UK and US$3.9 million in Russia (2005restated: US$3.4 million and US$3.7 million respectively). UK expenses includedUS$1.1 million financing costs written off (2005: US$303,000), following thedecision by Standard Bank plc to withdraw from its mandate to arrange projectfinance of up to US$50 million for the Asacha project in accordance with anindicative term sheet signed by the Company and Standard Bank in June 2006. Although Standard Bank confirmed to the Company in October that it and itsconsultants were satisfied on all the aspects of the Asacha project that wererequired prior to submission for Credit Committee approval, it was then advisedby its intended co-lender that it did not wish to participate and Standard Bankwas unwilling to proceed as sole lender to the project. The write off includesUS$914,000 in respect of the fees of the banks' technical and legal advisers. Interest earned was US$294,000 (2005: US$644,000). Interest payable wasUS$491,000 (2005: nil) reflecting a US$10 million loan from AngloGold AshantiLimited (AGA) in June 2006. Capitalised exploration and evaluation expenditure at the Group's threeproperties increased by US$5.1 million comprising US$2.5 million (2005: US$1.7million) at Asacha and US$2.6 million (2005: US$5.2 million) at the propertiesin Krasnoyarsk Krai which are in the process of being sold to AngloGold AshantiLimited (AGA) as described below. Tangible fixed assets increased from US$16.1million to US$23.3 million. Assets under construction increased from US$12.8million to US$20.3 million and include US$4.4 million in respect of the accessroad to Asacha, US$15.0 million building construction and infrastructure(including a prefabricated camp for Asacha) and US$914,000 for plant andequipment. Current liabilities at 31 December 2006 totalled US$3.6 million (2005: US$2.8million), the increase principally reflecting technical services provided byAGA, US$783,000 (2005: US$187,000), interest due to AGA on its US$10 millionloan, US$491,000 (2005: nil) and short term facilities provided by AGA to theKrasnoyarsk Krai subsidiaries, US$350,000 (2005: nil), offset by a reduction intrade creditors. At the year end the Group had cash and bank balances of US$2.6 million (2005:US$11.9 million). The Group has significant funding needs in order to finance the completion ofthe Asacha project, continue exploration at its properties and provide ongoingworking capital. The total cost of the Asacha project prior to commencement of production is nowestimated at US$111.0 million (inclusive of US$27.1 million pre-productionoperating costs, contingency of US$7.4 million and US$13.1 million recoverableVAT). This includes US$38.5 million actual expenditure up to April 2007. The directors believe that total additional funding of US$80 million will berequired to provide adequate financing until the Asacha mine is cash flowpositive. In the directors' opinion, the disposal of two subsidiaries to AGA(the AGA Transaction) as described in Note 4 to the unaudited financialstatements is expected to be completed by 30 June 2007. $10 million of the total$40 million sale consideration has already been received with the remaining $30million due on completion. If the sale does not complete, the $10 millionbecomes repayable or convertible into ordinary shares of the Company, on thebasis set out in Note 4. The total sales proceeds of $40 million will besufficient for the Group's funding requirements until the first quarter of 2008,by which time significant mine development and plant construction is expected tohave been achieved at Asacha. It is currently the intention of the Board tosatisfy the remaining forecast funding requirement of $40 million until Asachais cash flow positive through raising additional equity, debt finance, equipmentsupplier credits or a combination of these. Asacha A significant milestone in bringing the Asacha deposit into production was theextension of the licences covering both the Asacha and Rodnikova properties inMay 2006. Gold need now only be produced at Asacha by the end of 2008. In thecase of Rodnikova, its ore reserve and mineral resource statements must beapproved by the State geological authorities by December 2008 with production tocommence in 2012. The current JORC total mineral resource estimate for Asacha is 1.28 milliontonnes with an average gold grade of 17.0g/t and silver grade of 41.5g/t, forapproximately 700,000 oz of gold and 1.71 million oz of silver. This is regardedas the base case for the project. A reassessment of Asacha's exploration potential has identified areas ofsignificant interest to the north of the main orebody on strike. A drillingprogramme to increase the mineral resource in that area has been planned butwill only be implemented after Asacha is in production. There are also twosub-parallel zones of mineralisation to the south-west and east of the mainorebody which were delineated through trenching programmes in 2005-6. Bothprospective areas will be followed up with further field-work in 2007-8 anddrilling anticipated in 2009. It is expected that the total Asacha mineralresource will be increased to about 1 million oz of gold (the Asacha upsidecase) through this further exploration. The Asacha feasibility study was re-engineered and updated in the early part ofthe year. The plant design was modified to incorporate certain enhancements andpractical design requirements. The Russian Institute mine plan was adapted towestern mine design and planning standards and allowances were made to cater formining the upper levels by open pit methods in the future to facilitate morecomplete mineral resource extraction and to allow for poorer upper level groundconditions. Mine and plant throughput was optimised for 220,000 tonnes per annum(tpa). The decision was taken in November 2006 to change the scope of the project, inorder to counter the increased capital costs because of timing delays andinflation, due to increasing commodity and equipment costs and Russian roubleappreciation, The mine will now be developed in a phased approach withpre-production mine development expenditure minimised and plant capacity reducedto 150,000 tpa. This increases the treatment life from approximately six to nineyears for the base case and nine to 13 years for the upside case. The total cost of the Asacha project prior to commencement of production is nowestimated at US$111.0 million (inclusive of US$27.1 million pre-productionoperating costs, contingency of US$7.4 million and US$13.1 million recoverableVAT). This includes US$38.5 million actual expenditure up to April 2007. Afurther US$19.9 million of capital expenditure, including contingency of US$2.6million, will be incurred after the commencement of production (principally minedevelopment and the second phase of tailings storage). Construction work at site continued during 2006, although at a reduced pace dueto the shortage of funds. Almost all site roads are now complete. During thesecond half of the year, the accommodation camp foundations, fire walls, watersupply, fire hydrant water supply, sewer and heating piping were completed. Thepre-fabricated camp building modules were shipped to Petropavlovsk-Kamchatskyand transported from there by road to Asacha. 90% of the modules are now mountedon their foundations and the camp is scheduled to be completed by 31 August2007. The cutting and dressing of the hill at the left hand side of the mine portaland the preparation and levelling of the upper mine terrace have been completed.This terrace allows entrance to the mine workings and will also house all theservices required by the mine including the electrical sub station, thecompressors and workshops. The tendering process for the trackless mining fleet and compressors has beencompleted and orders are ready to be placed for this equipment and for the powergenerators and water supply to the mine. The temporary mining change house is complete and will be commissioned beforethe initial development miners arrive on site in August 2007. The ore storagepad has been constructed above the plant terrace. The waste rock site is 30%complete. This work will be completed in the summer of 2007 after the newenvironmental permits required under new legislation promulgated in January 2007have been approved. Six geotechnical holes at the gold plant terrace site were drilled in September.Geotechnical sampling and testing indicated that the ground was suitable for arafted foundation. These are widely used in Kamchatka and operate well inseismically active areas. Tree clearing commenced in the fourth quarter and workon the gold plant foundations will begin during the summer of 2007. No work was done at Rodnikova during 2006, but a comprehensive explorationprogramme will commence in the summer of 2007. Veduga and Bogunay The Veduga licence required completion and permitting of a feasibility studywithin one year of State approval of the reserves in September 2004. Followingthe regional authority's recommendation to the Ministry for Natural Resources in2005 in support of an extension to this deadline, a request for an amendment tothe licence was filed. In June 2007, the Federal Agency for Subsoil Use approvedan amendment to the Veduga licence whereby the development plan for the licencearea must be submitted and approved no later than 1 January 2009, withconstruction of mine infrastructure to begin no later than 1 January 2010. Aminimum designated throughput of 250,000 tonnes per annum must be achieved nolater than 31 December 2013. During the first half of 2006, scoping studies investigated possible improvementof Veduga's economics, using either pressure or biological oxidation processing.Notwithstanding the higher gold price and the expectation of the availability ofgrid power by 2010, these studies indicated that the mineable mineral resourcealso needed to be increased and the process route optimised to reduce capitalexpenditure and operating costs. Other options including heap leaching (foroxide ores) and a flotation plant to produce a concentrate for toll treatment(for sulphide ores) were also studied. A drilling programme at Bogunay was disappointing although geochemical analysesindicated a strong correlation between lead and zinc and gold. A trenching andstream sediment geochemical analysis programme was undertaken to further exploretwo very promising anomalies identified in the north. The findings werecorrelated with the results of the airborne geophysical survey carried out inthe third quarter of 2006, followed by a drilling programme in early 2007, theresults of which have not been that encouraging so far. Sale of the Krasnoyarsk Krai subsidiaries to AngloGold Ashanti Limited In September, the Company accepted AGA's offer to acquire TSG's two KrasnoyarskKrai subsidiaries for a cash consideration of US$40 million, Seymour PierceLimited having advised that in its view the transaction was fair and reasonableso far as TSG's shareholders were concerned. AGA advanced US$10 million of thesale consideration to the Company prior to completion and agreed to fund thepreviously planned airborne geophysical survey of Veduga and Bogunay. AGA alsomade available facilities totalling US$5 million to fund the explorationexpenditure of the two companies with effect from 1 November 2006 and theiradministration costs with effect from 1 December 2006. Following the approval of the Federal Anti-Monopoly Service of the RussianFederation, the sale, which was approved by the Company's shareholders at an EGMon 30 March 2007, is expected to be completed by 30 June 2007. In reaching the decision to dispose of its interests in Veduga and Bogunay, TSGrecognised that the need for substantial additional ore reserve discoveries tosupport the high cost and technical complexity of treating Veduga's refractoryore economically, with capital requirements estimated at several hundred milliondollars, and the probability that production could not commence for severalyears until grid hydroelectric power became available, made this project moresuitable for development by a larger company. Commenting on the results, Peter Burnell, Chairman, said "The Company has been faced with a number of challenges during the past twelvemonths, not least the withdrawal of Standard Bank from its mandate to arrangeproject finance of $50 million for the Asacha project. However, the sale ofVeduga and Bogunay to AGA for $40 million provides the opportunity for theCompany to focus on bringing Asacha into production in 2008 and we remainconfident that the balance of the funding requirements will be forthcoming. The Board believes that Asacha remains a robust project and significant progresshas been made during the year. The successful extension of the mining licencewas a major milestone and with the camp nearing completion, we can look forwardto miners arriving on site in August this year. The Company is grateful for the continuing support of its two majorshareholders, AGA and UFG and believes that their support and experience will beinvaluable as Asacha proceeds towards production." Contacts: TSGSimon Olsen +44 (0) 1223 265760 Seymour PierceStuart Lane +44 (0) 20 7107 8000 BanksideOliver Winters +44 (0) 20 7367 8874 The information in this announcement relating to mineral resources at Asacha isbased upon information compiled by Michael O'Brien, a member of the AustralasianInstitute of Mining and Metallurgy, who is a qualified person for the purpose ofreporting resources under the JORC code and the AIM rules. Please see below for the unaudited financial information for the year ended 31December 2006. Unaudited consolidated profit and loss account Restated Year Year ended ended 31 December 31 December 2006 2005 $ $ --------- --------- Turnover - -Administration expenses (7,002,732) (7,117,146)Operating income 512,971 70,637Exchange gain (loss) (i) 1,061,607 (1,853,442)--------------------------- --------- --------- Operating loss (5,428,154) (8,899,951) Interest receivable and similar income 294,451 643,897Interest payable and similar charges (491,498) ---------------------------- --------- ---------Loss on ordinary activities before (5,625,201) (8,256,054)taxationTax on loss on ordinary activities (197,334) (10,843)--------------------------- --------- --------- (5,822,535) (8,266,897) Minority interest - equity 38,279 (38,279)--------------------------- --------- ---------Loss for the year (5,784,256) (8,305,176)--------------------------- --------- --------- Basic and diluted loss per ordinary share 14.05 21.40(cents) --------------------------- --------- --------- There is no difference between the loss on ordinary activities before taxationand the loss for the year stated above and their historical cost equivalents. There are no recognised gains or losses other than those stated above. 2005 comparatives are restated as a result of the first time adoption of FRS 20Share-based payment (see Note 5). i. Exchange gain in 2006 principally reflects the depreciation of the US dollarduring the year on sterling cash deposits. Unaudited consolidated balance sheet Note As at As at 31 December 31 December 2006 2005 $ $ --------- ---------Fixed assetsExploration and evaluation properties 2 29,799,969 24,699,333Tangible assets 3 23,265,007 16,099,665--------------------------- ------ --------- ---------Total fixed assets 53,064,976 40,798,998--------------------------- ------ --------- --------- Current assetsDebtors:Amounts falling due within one year 2,722,326 2,187,805Amounts falling due after more than one 6,001,683 4,608,939year --------------------------- ------ --------- --------- 8,724,009 6,796,744Cash at bank 2,551,457 11,902,705--------------------------- ------ --------- --------- 11,275,466 18,699,449 Creditors - amounts falling due within (3,606,450) (2,817,671)one year --------------------------- ------ --------- --------- Net current assets 7,669,016 15,881,778--------------------------- ------ --------- --------- Total assets less current liabilities 60,733,992 56,680,776 Convertible debt (10,000,000) -Provisions for liabilities and charges (200,489) (156,694)--------------------------- ------ --------- ---------Net assets 50,533,503 56,524,082--------------------------- ------ --------- --------- Capital and reservesCalled up share capital 6,951,312 6,951,312Share premium account 60,821,126 60,821,126Profit and loss account (17,238,935) (11,286,635)--------------------------- ------ --------- ---------Shareholders' funds 50,533,503 56,485,803Minority Interest - 38,279--------------------------- ------ --------- ---------Capital employed 50,533,503 56,524,082--------------------------- ------ --------- --------- Unaudited consolidated cash flow statement Year Year ended ended 31 December 31 December 2006 2005 $ $ --------- --------- Net cash outflow from operating (6,067,938) (8,313,619)activities Returns on investments and servicing of financeInterest received 304,071 653,123--------------------------- --------- ---------Net cash inflow from returns on 304,071 653,123investments and servicing of finance --------------------------- --------- --------- Corporation tax paid (262,800) (12,949)--------------------------- --------- --------- Capital expenditure and financialinvestmentPurchase of tangible fixed assets (8,794,388) (6,485,043)Receipts from disposal of tangible fixed 1,637 -assetsExploration and evaluation expenditure (5,383,284) (7,255,755)--------------------------- --------- ---------Net cash outflow from capital expenditure (14,176,035) (13,740,798)and financial investment --------------------------- --------- --------- AcquisitionsPayments to acquire subsidiary undertakings - (10,542)--------------------------- --------- --------- Net cash outflow before use of liquid (20,202,702) (21,424,785)resources and financing Management of liquid resourcesDecrease in bank deposits 10,307,511 6,263,975 FinancingIssue of ordinary shares, net of expenses - 14,485,817Debt due within one year 350,289 -Increase in convertible debt 10,000,000 ---------------------------- --------- ---------Net cash inflow from financing activities 10,350,289 14,485,817--------------------------- --------- ---------Increase (decrease) in cash for the year 455,098 (674,993)--------------------------- --------- ---------Reconciliation of cash balancesCash at start of year 390,553 1,066,072Currency exchange differences 195 (526)Increase (decrease) in cash for the year 455,098 (674,993)--------------------------- --------- ---------Cash at end of year 845,846 390,553--------------------------- --------- --------- Notes: 1. Going concern The Group has significant funding needs in order to finance the completion ofthe Asacha project, continue exploration at its properties and provide ongoingworking capital. The directors believe that total additional funding of $80 million will berequired to provide adequate financing until the Asacha mine is cash flowpositive. In the directors' opinion, the disposal of two subsidiaries toAngloGold Ashanti Limited (the AGA Transaction) as described in Note 4 isexpected to be completed by 30 June 2007. $10 million of the total $40 millionsale consideration has already been received with the remaining $30 million dueon completion. If the sale does not complete, the $10 million becomes repayableor convertible into ordinary shares of the Company, on the basis set out in Note4. The total sales proceeds of $40 million will be sufficient for the Group'sfunding requirements until the first quarter of 2008, by which time significantmine development and plant construction is expected to have been achieved atAsacha. It is currently the intention of the Board to satisfy the remainingforecast funding requirement of $40 million until the Asacha mine is cash flowpositive through raising additional equity, debt finance, equipment suppliercredits or a combination of these. Management tightly control the level ofcommitted expenditure to ensure that the Group has sufficient resourcesavailable to meet its liabilities as they fall due. Notwithstanding the material uncertainty related to the raising of additionalfinance which may cast significant doubt on the Group's ability to continue as agoing concern, the directors believe that the necessary funds to provideadequate financing until the Asacha mine is cash flow positive can be raised asrequired and accordingly they are confident that the Group will continue as agoing concern and have prepared the financial statements on that basis. Thefinancial statements do not include the adjustments that would result if theGroup were not able to continue as a going concern. 2. Exploration and evaluation properties Movements on deferred exploration and evaluation expenditure, by location of theproperty, are as follows: 1 January Additions 31 December 2006 2006 $ $ $Kamchatka - Asacha 9,491,185 2,518,326 12,009,511Krasnoyarsk - Veduga 14,181,128 1,662,634 15,843,762Krasnoyarsk - Bogunay 1,027,020 919,676 1,946,696-------------------------- -------- -------- -------- 24,699,333 5,100,636 29,799,969-------------------------- -------- -------- -------- 3. Tangible fixed assets Group Buildings Plant and Motor Office Assets under Total machinery vehicles equipment construction and furniture $ $ $ $ $ $ CostAt 1 January 2006 981,333 1,817,921 1,145,838 557,965 12,753,915 17,256,972Additions 52,566 274,521 9,460 25,386 7,521,558 7,883,491Disposals (20,898) (15,388) - (28,954) - (65,240)------------- ------- ------- ------- ------- -------- --------At 31 December 1,013,001 2,077,054 1,155,298 554,397 20,275,473 25,075,2232006 ------------- ------- ------- ------- ------- -------- -------- Accumulated depreciation At 1 January 2006 (210,725) (367,239) (299,354) (279,989) - (1,157,307)Charge for year (168,129) (195,646) (199,991) (129,137) - (692,903)Disposals 6,917 6,202 - 26,875 - 39,994------------- ------- ------- ------- ------- -------- --------At 31 December (371,937) (556,683) (499,345) (382,251) - (1,810,216)2006 ------------- ------- ------- ------- ------- -------- -------- Net book value At 31 December 770,608 1,450,682 846,484 277,976 12,753,915 16,099,6652005 ------------- ------- ------- ------- ------- -------- -------- At 31 December 641,064 1,520,371 655,953 172,146 20,275,473 23,265,0072006 ------------- ------- ------- ------- ------- -------- -------- Assets under construction comprise $4,379,019 in relation to the construction ofan access road to Asacha; and $14,982,329 for building construction andinfrastructure, and $914,125 for plant and equipment at Asacha, Veduga andBogunay. 4. Post balance sheet events On 12 February 2007, the Company announced that the sale and purchase agreementsin respect of the sale of all of its interests in its two wholly ownedsubsidiaries, OOO GRK Amikan (Amikan) and OOO AS Angarskaya ProizvodstvennayaKompaniya (AS APK), to AngloGold Ashanti Limited (AGA) for a cash considerationof $40 million (the AGA Transaction) had been signed. On 12 February 2007, it was also announced that the Company and AGA had agreedthat, on or after 30 April 2007, either party may serve notice in respect of theconversion of the $10 million loan provided to TSG in June 2006 (the AGA Loan)into TSG ordinary shares, subject to shareholder approval and the provisions ofthe City Code on Takeovers and Mergers (the Code) should this lead to AGA'sinterest in the Company exceeding 29.9%. The exercise price for such conversionwill be TSG's volume weighted average share price at the close of business onthe 20 trading days immediately prior to the date on which such notice isserved. Following approval of the AGA Transaction by the South African Reserve Bank, AGAmade advance payments (interest bearing) of the sale consideration totalling $10million (the Initial Payments) to TSG and also made available facilities,guaranteed by the Company, of up to $4 million and $1 million (the InterimFacilities) to Amikan and AS APK respectively to fund their explorationexpenditure with effect from 1 November 2006 and their administration costs witheffect from 1 December 2006. The AGA Transaction was approved by the Company's shareholders on 30 March 2007,and is expected to be completed by 30 June 2007. If the sale and purchase agreements relating to the AGA Transaction do notcomplete as a result of the Company's breach of those agreements, then theInitial Payments become immediately repayable. If those agreements do notcomplete for any other reason either TSG or AGA may serve notice, on or after 30April 2007, requiring the conversion of the Initial Payments into TSG ordinaryshares, subject to shareholder approval and the provisions of the Code shouldthis lead to AGA's interest in the Company exceeding 29.9%. The exercise pricefor such conversion would be calculated in the same manner as detailed above. Inthe absence of such conversion the Initial Payments remain outstanding as a loancarrying interest at 4% over LIBOR repayable in equal tranches on the third andfourth anniversary of signing. The Interim Facilities are also convertible on the same basis if the AGATransaction does not complete, save in circumstances where shareholderssubsequently fail to approve the adoption of conversion amendment deeds thatwill govern the equity conversion of the Interim Facilities by the Company, inwhich case the Interim Facilities become immediately due and payable. If the above mentioned approvals related to the provisions of the Code are notobtained, only such shares as may be issued without AGA's interest in theCompany breaching the 29.9% threshold may be issued and the balance of anyamounts owing under the AGA Loan, the Initial Payments and the InterimFacilities will remain outstanding on an unchanged basis of interest at 4% overLIBOR and with repayments of any amounts under the AGA Loan repayable on thefirst and second anniversary of the first gold production at Asacha andrepayments of the Initial Payments and the Interim Facilities in equal trancheson the third and fourth anniversary of the signing of the respective agreements. 5. Prior year adjustments The Group has implemented FRS 20 Share-based payment, which became mandatory foraccounting periods beginning on or after 1 January 2006. This resulted in theintroduction of an accounting policy for share-based payment transactions, whichrequired a prior year adjustment. The implementation of FRS 20 resulted in anincrease in administrative expenses and therefore an increase in the loss for2005 of $186,232, with the corresponding credit going to retained losses. As aresult there is no change in the reported retained losses in the balance sheetat 31 December 2005. This information is provided by RNS The company news service from the London Stock Exchange