TSG.L Regulatory News (TSG)

19 Jun 2006 07:00

Trans-Siberian Gold PLC19 June 2006 Trans-Siberian Gold plc Preliminary Results for the year ended 31 December 2005 London: 19 June 2006 - Trans-Siberian Gold plc ("TSG" or "the Company") (TSG.L)is pleased to report its preliminary results for 2005 and on developments sincethe year-end. Highlights • Asacha on course for production in 2008 • Indicative terms agreed with Standard Bank for Asacha project finance • Focused exploration targets at Asacha and Veduga • Completion of second share subscription and provision of US$10 million convertible loan by AngloGold Ashanti The Company is in the exploration and development phase of its gold projects inRussia and therefore received no operating income during 2005. Administrationexpenses amounted to US$3.2 million in UK and US$3.7 million in Russia (2004:US$3.1 million and US$3.0 million, respectively). UK expenses includedUS$303,000 financing costs (2004: nil). Excluding this write-off, the 8.3%increase in administration expenses included costs incurred at Bogunay (acquiredin November 2004) and increased activities during the further development of theAsacha and Veduga projects. The operating loss was US$8.7 million (2004: US$4.4 million), after chargingUS$1.9 million exchange loss (2004: US$1.6 million gain) from the impact of astronger US dollar on sterling denominated bank deposits. Since the Company'sIPO in 2003 the majority of its funds have been held in sterling (whose movementagainst the dollar has tended to reflect the movement of the Russian roubleagainst the dollar) in order to mitigate the risk of the rouble appreciatingagainst the dollar. In 2004, the rouble appreciated by 5.1% against the dollar,while sterling appreciated by 8.3% against the dollar and 2.8% against therouble. The unexpected resilience of the dollar in 2005 saw it appreciate by3.5% against the rouble and by 10.7% against sterling. Since the year end boththe rouble and sterling have appreciated against the dollar, by 5.8% and 6.9%respectively in the five and a half months to mid June 2006. Since the IPO boththe rouble and sterling have strengthened by 9.0% and 8.5% against the dollar. Interest earned was US$644,000 (2004: US$678,000). Capitalised exploration and evaluation expenditure at the Group's threeproperties increased by US$6.9 million. Tangible fixed assets increased fromUS$9.0 million to US$16.1 million. Assets under construction increased fromUS$5.7 million to US$12.8 million and include US$4.3 million in respect of theaccess road to Asacha and US$8.4 million building construction andinfrastructure (including a prefabricated camp for Asacha). At the year end the Group had cash and bank balances of US$11.9 million (2004:US$20.4 million). TSG received US$14.4 million net of issuing expenses from the secondsubscription for TSG shares by AngloGold Ashanti Limited ("AGA") under thesubscription agreement dated 30 June 2004 and subsequently amended. The Group has significant funding needs in order to finance the Asacha project,continue exploration at its properties and provide ongoing working capital. The total capital cost of the Asacha project to the start of production is nowestimated at US$100 million (inclusive of US$18 million pre-production operatingcosts, contingency of US$6.3 million and US$12 million recoverable VAT). Thisincludes US$21.8 million expenditure up to 31 December 2005 and a further US$4.6million in the first five months of 2006. On 8 June 2006, the Company signed an indicative term sheet with Standard Bankplc in respect of the provision of up to US$50 million of project financetowards the estimated remaining US$74 million cost of the Asacha project priorto the commencement of production. However the Group is required to fund afurther US$4 million of expenditure at Asacha prior to first drawdown of thedebt finance and, thereafter, to contribute a further US$20 million of equity tothe project on a dollar for dollar basis with the debt finance. It was also announced on 9 June 2006 that AngloGold Ashanti Limited wouldprovide a loan of US$10 million to the Company. This loan is repayable in twoequal tranches after the commencement of gold production at Asacha but isconvertible into TSG shares when the Company raises new equity. After taking into account the US$10 million loan, further funding is alsorequired for continuing exploration at Asacha, Veduga and Bogunay and for theGroup's general working capital requirements. A number of options in respect ofadditional equity are being considered and it is expected that proposals will besubmitted to shareholders in the near future for an equity fund raising to becompleted during the third quarter of 2006. Based on their discussions with the Company's financial advisers and majorshareholders, the directors believe that the proposals to be submitted toshareholders to raise more equity will be successful and will provide adequatefinancing for the foreseeable future, including the equity contribution to theAsacha project and continuing exploration. Asacha At Asacha two challenges have had to be overcome. First, the technical duediligence carried out on behalf of the banks who were mandated to arrangeproject finance for Asacha identified certain shortcomings in the Asacha plan;and, secondly, we had to secure an extension to the condition in the Asachalicence requiring the production of the first 1,000 kg of gold by 30 June 2006before the project could proceed. With the assistance of AGA technical specialists, the feasibility studydeveloped by MDM in 2004 has been updated to address the areas about which thebanks had concerns. It has also been adjusted to comply with Russian regulationsand technical norms. Taking into account both these requirements, the high rateof inflation in Russia and the strengthening of the rouble, the project cost hasincreased to US$100 million as stated above. Changes to the plant design willincrease its capacity to approximately 220,000 tonnes per annum with expectedproduction of approximately 617,000 oz over seven years. The Company, however,believes that there is good potential to increase this level of gold productionby at least 50% from a northern extension to the existing orebody and from twoother orebodies in the proximity. A focused exploration programme to prove upthese areas is planned. An extension to the production condition in the Asacha licence to the end of2008 was granted in May 2006. Certain milestones in the licence for Rodnikovahave also been extended, with production of gold and silver to commence in 2012,or after depletion of Asacha's ore. The current JORC Mineral Resource at Asacha stands at 961,000 tonnes with anaverage gold grade of 21.3g/t and silver grade of 45.1g/t, for 648,000 oz ofgold and 1.4 million oz of silver. The resource estimate is being updated toinclude the results of additional drilling and a slight increase in containedgold ounces is expected. Expenditure in 2005 was restricted to those activities crucial for the timelydevelopment of the project. The first phase of upgrading the dirt road from theMutnovskaya power plant turn-off to the minesite was completed in early 2006. A60-bed temporary camp, erected in 2005, will be the base for the initialconstruction phase. The prefabricated permanent accommodation units were builtin 2005 and the first containerised modules delivered to site in late 2005. Mostconstruction activity at site was curtailed at the end of 2005, but workcontinued on site roads and on the foundations for the permanent camp. Designand optimisation work also continued and final geotechnical studies will becompleted in mid 2006 in order to finish the plant foundation design. Final design work and equipment specification has commenced on the plant andconstruction drawings are expected to start in September 2006. The mining fleethas been specified and procurement of the initial development equipment hasbegun. Selection of process equipment and power plant is largely complete. It islikely that the main items of process equipment will be sourced in China. Theremaining units of the prefabricated camp will be shipped in mid 2006. Minedevelopment at the portal will commence in third quarter 2006, with mainconstruction to begin in fourth quarter 2006. In April 2005, the State Environmental Committee approved the OVOS (RussianEnvironmental Impact Assessment), an important milestone in the permittingprocess. The Environmental Management Plan was developed according to EquatorPrinciples and currently the tailings facility design is being reviewed in thelight of the relevant updated Equator Principles. Gold production is planned to commence in mid 2008, consistent with theextension of the production condition in the mining licence granted in May 2006. Veduga During 2005, Aker Kvaerner (AK), in conjunction with the Russian instituteGiprotsvetmet, conducted a pre-feasibility study on the construction of acomplex metallurgical plant to produce gold at Veduga. AK concluded that,through a combination of high capital costs for the oxidation plant, arelatively small ore resource in relation to the capital costs, and the absenceof grid power, none of the envisaged oxidation processes were economicallyviable at the then current gold price. While this was disappointing to both TSGand its shareholders, a number of initiatives are in progress to find a way toextract this ore economically. Initial work is encouraging, assisted by thepotential availability of grid power from 2010 (from the second phase of theBoguchanskaya power plant), given that power accounts for a large proportion ofthe total cost of extracting gold from sulphide ore. Further test work isrequired as well as an aerial geophysical survey to determine the potential toincrease the size of the resource that will give the benefit of economies ofscale. Much of this work is planned for 2006 and the first half of 2007. Meanwhile options including heap leaching (for oxide ores) and a flotation plantto produce a concentrate for toll treatment (for sulphide ores) are beingstudied. Additional flotation testing and optimisation of the BIOX scheme arebeing prioritised for the next phase of investigation. The current JORC Mineral Resource at Veduga is 16,650,000 tonnes with an averagegold grade of 5.21g/t for 2,790,160 oz of gold. The current strategy for Veduga is to correlate the latest geochemistry datawith the new 3D structural model and new geophysical data to be gathered by theSPECTREM heli-borne geophysical traverse planned for July-August 2006. This workshould identify prospective targets for follow-up drill testing during the2006-2007 winter drilling season. Bogunay In 2005-2006, an evaluation survey was conducted in the Krasnoyarsk Zone andVostochny Areas. A follow-up drilling program, conducted in early 2006,encountered good mineralisation at depth, although initial results (from 10 ofthe first 18 holes drilled) showed disappointing grades. Geochemical analysis,though, has indicated a very strong correlation between lead and zinc and gold.Two very prospective areas were identified in the north where the Pb/Znanomalies were approximately 10 times the magnitude of the Pb/Zn anomalies inthe south. Further geochemical evaluation will be carried out during the summer2006 field season and this information will be correlated with a SPECTREMgeophysical survey. Prospective targets will then be drill tested during thewinter 2006-2007 drilling season. Organisation Jonathan Best's appointment as Managing Director and Chief Executive Officer inNovember 2005 was an interim one, and he has decided to step down at the end ofJune 2006, having overseen an in-depth review of the Company's projects, theextension of the production condition in the Asacha licence and the Group'sfinancing arrangements. The process of recruiting his successor to take theCompany into the next stage of its development is significantly advanced. GlenKoropchuk, the Company's Chief Operating Officer, who was seconded from AGA inNovember 2005, will assume the role of CEO until an appointment is made.Jonathan Best will continue to serve the Company on a consulting basis and willsee the financing to completion. Commenting on the results, Peter Burnell, Chairman, said, "The Company has made significant progress since the appointments of JonathanBest as interim CEO and Glen Koropchuk as Chief Operating Officer in its aim tomove from an exploration company into a growth-orientated producer. Followingthe in-depth review, the plan for Asacha is now robust and we can continue apacewith the construction. The work needed to find an economic method for thetreatment of Veduga is also well scoped. Indicative terms for project financing are now agreed with Standard Bank and aconvertible loan of $10 million has been secured from AGA. We are delighted withthe continued support and input from AGA that enables us to draw upon theirinternational expertise and technical knowledge. We were pleased to welcomeUnited Financial Group Private Equity Fund ("UFG") as a significant shareholderand the appointment of UFG's Boris Fedorov and Florian Fenner to the TSG Board,which will greatly improve our ability to operate efficiently in Russia. This support, together with a proposed equity raising, places the Company in agood position to move forward and we can approach the coming year with renewedconfidence." Ends Contacts: Peter BurnellChairmanTrans-Siberian Gold 01434 632292 Jonathan BestManaging DirectorTrans-Siberian Gold +27 82 5598018 Simon OlsenFinance Director,Trans-Siberian Gold 01223 265768 Keith IronsOliver WintersBankside Consultants 020 7367 8873 / 07885 356639 (Please see below for the following unaudited financial statements for the yearended 31 December 2005.) Unaudited consolidated profit and loss account for the year ended 31 December 2005 --------------------------- --------- --------- Year Year ended ended 31 December 31 December 2005 2004 $ $--------------------------- --------- ---------Turnover - -Administration expenses (6,860,277) (6,055,468)Exchange (loss) gain (i) (1,853,442) 1,635,704--------------------------- --------- --------- Operating loss (8,713,719) (4,419,764) Interest receivable and similar income 643,897 677,861--------------------------- --------- ---------Loss on ordinary activities before taxation (8,069,822) (3,741,903)Tax on loss on ordinary activities (10,843) (50,340)--------------------------- --------- --------- (8,080,665) (3,792,243)Minority interest - equity (38,279) 134,518--------------------------- --------- ---------Loss for the year (8,118,944) (3,657,725)--------------------------- --------- --------- Basic loss per ordinary share (cents) 20.92 11.60--------------------------- --------- --------- 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. i. Exchange loss in 2005 principally reflects the appreciation of the US dollarduring the year on sterling cash deposits. Unaudited consolidated balance sheet --------------------------- ------ --------- --------- Note As at As at 31 December 31 December 2005 2004 $ $--------------------------- ------ --------- ---------Fixed assetsExploration and evaluation properties 2 24,699,333 17,787,680Tangible assets 3 16,099,665 9,016,252--------------------------- ------ --------- ---------Total fixed assets 40,798,998 26,803,932--------------------------- ------ --------- --------- Current assetsDebtors:Amounts falling due within one year 2,187,805 1,253,597Amounts falling due after more than one year 4,608,939 3,198,513--------------------------- ------ --------- --------- 6,796,744 4,452,110Cash at bank 11,902,705 20,419,335--------------------------- ------ --------- --------- 18,699,449 24,871,445 Creditors - amounts falling due within oneyear (2,817,671) (1,473,270)--------------------------- ------ --------- --------- Net current assets 15,881,778 23,398,175--------------------------- ------ --------- --------- Total assets less current liabilities 56,680,776 50,202,107 Provisions for liabilities and charges (156,694) (83,177)--------------------------- ------ --------- ---------Net assets 56,524,082 50,118,930--------------------------- ------ --------- --------- Capital and reservesCalled up share capital 4 6,951,312 5,815,464Share premium account 5 60,821,126 47,471,157Profit and loss account 5 (11,286,635) (3,167,691)--------------------------- ------ --------- ---------Shareholders' funds 56,485,803 50,118,930Minority Interest 38,279 ---------------------------- ------ --------- ---------Capital employed 56,524,082 50,118,930--------------------------- ------ --------- --------- Unaudited consolidated cash flow statement --------------------------- ------ --------- --------- Note Year Year ended ended 31 December 31 December 2005 2004 $ $--------------------------- ------ --------- --------- Net cash outflow from operating activities 6 (8,313,619) (8,272,983) Returns on investments and servicing offinanceInterest received 653,123 706,465Interest paid - ---------------------------- ------ --------- ---------Net cash inflow from returns on investmentsand servicing of finance 653,123 706,465------------------------------- ------ --------- --------- Corporation tax paid (12,949) (48,234)--------------------------- ------ --------- --------- Capital expenditure and financial investmentsPurchase of tangible fixed assets (6,485,043) (7,686,456)Receipts from disposal of tangible fixed assets - 1,000Exploration and evaluation expenditure (7,255,755) (8,013,515)--------------------------- ------ --------- ---------Net cash outflow from capital expenditureand financial investment (13,740,798) (15,698,971)------------------------------- ------ --------- --------- Acquisitions Payments to acquire subsidiary undertakings (10,542) (120,951)--------------------------- ------ --------- --------- Net cash outflow before use of liquidresources and financing (21,424,785) (23,434,674) Management of liquid resourcesDecrease in bank deposits 6,263,975 8,703,504 FinancingIssue of ordinary shares, net of expenses 14,485,817 14,948,892--------------------------- ------ --------- ---------(Decrease) increase in cash for the year (674,993) 217,722--------------------------- ------ --------- --------- Reconciliation of cash balancesCash at start of year 1,066,072 846,369Currency exchange differences (526) 1,981(Decrease) increase in cash for the year (674,993) 217,722--------------------------- ------ --------- ---------Cash at end of year 390,553 1,066,072--------------------------- ------ --------- --------- Notes: 1. Going concern The Group has significant funding needs in order to finance the Asacha project,continue exploration at its properties and provide ongoing working capital. On 8 June 2006, the Company signed an indicative term sheet with Standard Bankplc in respect of the provision of up to $50 million of project finance towardsthe estimated remaining $74 million cost of the Asacha project prior to thecommencement of production. However the Group is required to fund a further $4million of expenditure at Asacha prior to first drawdown of the debt financeand, thereafter, to contribute a further $20 million of equity to the project ona dollar for dollar basis with the debt finance. It was also announced on 9 June 2006 that AngloGold Ashanti Limited wouldprovide a loan of $10 million to the Company. This loan is repayable in twoequal tranches after the commencement of gold production at Asacha but isconvertible into TSG shares when the Company raises new equity. After taking into account the $10 million loan, further funding is also requiredfor continuing exploration at Asacha, Veduga and Bogunay and for the Group'sgeneral working capital requirements. A number of options in respect ofadditional equity are being considered and it is expected that proposals will besubmitted to shareholders in the near future for an equity fund raising to becompleted during the third quarter of 2006. Should the Group be unable to raise the level of equity that it requires in thetimescale indicated, it may not be able to develop its projects nor continue asa going concern for the foreseeable future. Based on their discussions with the Company's financial advisers and majorshareholders, the directors believe that the proposals to be submitted toshareholders to raise more equity will be successful and will provide adequatefinancing for the foreseeable future, including the equity contribution to theAsacha project and continuing exploration. Accordingly they are confident thatthe Company will continue as a going concern and have prepared the financialstatements on that basis. 2. Exploration and evaluation properties Movements on deferred exploration and evaluation expenditure, by location of theproperty, are as follows: -------------------------- -------- -------- -------- 1 January Additions 31 December 2005 $ 2005 $ $-------------------------- -------- -------- --------Kamchatka - Asacha 7,756,941 1,734,244 9,491,185Krasnoyarsk - Veduga 9,701,888 4,479,240 14,181,128Krasnoyarsk - Bogunay 328,851 698,169 1,027,020------------------------- --------- --------- --------- 17,787,680 6,911,653 24,699,333------------------------- --------- --------- --------- 3. Tangible fixed assets------------- -------- -------- -------- -------- -------- -------- Office (a) Plant and Motor equipment Assets under Buildings machinery vehicles and furniture construction Total $ $ $ $ $ $------------- -------- -------- -------- -------- -------- --------CostAt 1 January 2005 839,710 1,713,727 641,505 499,470 5,719,892 9,414,304Additions 143,810 112,443 504,333 58,831 7,034,023 7,853,440Disposals (2,187) (8,249) - (336) - (10,772)------------- -------- -------- -------- -------- -------- --------At 31 December 2005 981,333 1,817,921 1,145,838 557,965 12,753,915 17,256,972------------- -------- -------- -------- -------- -------- -------- Accumulated depreciation At 1 January 2005 (41,865) (145,203) (82,602) (128,382) - (398,052)Charge for year (b) (169,297) (223,476) (216,752) (151,631) - (761,156)Disposals 437 1,440 - 24 - 1,901------------- -------- -------- -------- -------- -------- --------At 31 December 2005 (210,725) (367,239) (299,354) (279,989) - (1,157,307)------------- -------- -------- -------- -------- -------- -------- Net book valueAt 31 December 2004 797,845 1,568,524 558,903 371,088 5,719,892 9,016,252------------- -------- -------- -------- -------- -------- --------At 31 December 2005 770,608 1,450,682 846,484 277,976 12,753,915 16,099,665------------- -------- -------- -------- -------- -------- -------- a. Assets under construction comprises $4,300,503 in relation to theconstruction of an access road to Asacha; and $8,416,515 for buildingconstruction and infrastructure, and $36,897 for plant and equipment at Asacha,Veduga and Bogunay. b. $601,437 of the depreciation charge related to fixed assets used onexploration and evaluation projects and was charged to deferred costs inaccordance with the group's accounting policy. 4. Called up share capital ---------------- --------- --------- --------- --------- 31 December 31 December 2005 2004 Number £ Number £---------------- --------- --------- --------- ---------AuthorisedOrdinary shares of 10p each 100,000,000 10,000,000 100,000,000 10,000,000---------------- --------- --------- --------- ------------------------- --------- --------- --------- --------- 31 December 31 December 2005 2004 Number £ Number £---------------- --------- --------- --------- ---------Allotted and fully paidAt 1 January 2005 34,932,364 5,815,464 28,650,779 4,675,704Shares issued:Placing for cash 6,131,585 1,118,033 6,131,585 1,112,147Options exercised 100,000 17,815 150,000 27,613---------------- --------- --------- --------- ---------At 31 December 2005 41,163,949 6,951,312 34,932,364 5,815,464---------------- --------- --------- --------- --------- On 31 May 2005, 6,131,585 ordinary shares of 10p each were issued at 130p for atotal cash consideration, before issuing costs, of £8.0 million ($14,534,432) toAngloGold Ashanti Limited, being the second subscription under the SubscriptionAgreement dated 30 June 2004 as amended on 22 December 2004, 15 April 2005 and27 April 2005. The revised terms of the Subscription Agreement were approved bythe Company's shareholders at the EGM on 27 May 2005. During the year, options over 100,000 shares were exercised (total value$80,168) and 495,507 options lapsed. No additional options were granted. 5. Reserves ------------------------------- --------- ---------Share premium 31 December 31 December 2005 2004 $ $------------------------------- --------- ---------At 1 January 2005 47,471,157 33,721,190Shares issued:Placing for cash - gross 13,416,399 14,118,705 - costs (128,783) (465,384)------------------------------- --------- --------- 13,287,616 13,653,321Options exercised 62,353 96,646------------------------------- --------- ---------At 31 December 2005 60,821,126 47,471,157------------------------------- --------- --------- Profit and loss account------------------------------- --------- ---------At 1 January 2005 (3,167,691) 490,034(Loss) profit for the year (8,118,944) (3,657,725)------------------------------- --------- ---------At 31 December 2005 (11,286,635) (3,167,691)------------------------------- --------- --------- 6. Reconciliation of operating loss to net cash outflow from operatingactivities ---------------------------- --------- --------- Year ended Year ended 31 December 31 December 2005 2004 $ $---------------------------- --------- ---------Operating loss (8,713,719) (4,419,764)Depreciation 159,719 128,802Loss on disposal of fixed assets 8,871 5,045Increase in provisions for liabilities and charges 73,517 83,177Increase in debtors and prepayments (189,157) (615,485)Increase in VAT debtor (1,405,695) (2,195,467)Increase in creditors and accruals 175,183 262,811Loss (profit) on foreign exchange 1,577,662 (1,522,102)---------------------------- --------- ---------Net cash outflow from operating activities (8,313,619) (8,272,983)---------------------------- --------- --------- This information is provided by RNS The company news service from the London Stock Exchange