24 Jun 2008 07:00
Trans-Siberian Gold plc
Preliminary Results for the year ended 31 December 2007
Trans-Siberian Gold plc ("TSG" or "the Company") (TSG.L) is pleased to report its preliminary results for 2007 and on developments since the year-end.
Highlights
Veduga and Bogunay sold for US$40 million
Development mining commenced at Asacha
Asacha expected to be in production in 3rd quarter 2009
AngloGold Ashanti loan to be converted into TSG shares
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 2007.
The sale of all of TSG's interests in the Veduga and Bogunay projects in Krasnoyarsk Krai to AngloGold Ashanti Limited ("AGA") for a cash consideration of US$40 million was completed on 25 June 2007. The Group recorded a profit on disposal of US$21.1 million. In addition AGA had funded the exploration activities of the two Krasnoyarsk Krai companies with effect from 1 November 2006 and their administration expenses from 1 December 2006 and paid US$505,000 as reimbursement of the costs of the airborne geophysical survey undertaken at the two projects in 2006.
The Group's 2007 operating loss from continuing operations of US$3.9 million (2006 restated: US$5.7 million) is stated after crediting a US$645,000 exchange gain (2006: US$402,000), principally reflecting the impact of the depreciation of the US Dollar during 2007 against Sterling and the Russian Rouble. Administration expenses amounted to US$1.9 million in UK and US$2.7 million in Russia (2006 restated: US$3.1 million and US$3.1 million respectively), in aggregate US$4.6 million (2006 restated: US$6.2 million). UK expenses included US$nil financing costs written off (2006: US$1.1 million).
Finance income was US$935,000 (2006: US$294,000), of which US$770,000 was earned in the second half, when cash balances were higher following the completion of the sale of the two Krasnoyarsk based companies. Interest payable was US$1.3 million (2006: US$491,000) reflecting both the US$10 million loan from AGA in June 2006 and a second US$10 million loan from AGA in March 2007 as advance payment of the sale consideration for the Krasnoyarsk properties.
The Group recorded a profit from discontinued operations for the year of US$20.5 million (2006 restated: US$210,000 loss) and an operating loss from discontinued operations of US$418,000 (2006 restated US$202,000).
Property, plant and equipment increased by US$4.0 million to US$27.2 million, principally reflecting additional US$1.8 million plant and machinery and US$3.5 million assets under construction at Asacha, offset by US$1.5 million assets included in the sale of the Krasnoyarsk Krai properties. Capitalised exploration and evaluation expenditure reduced from US$29.8 million to US$14.1 million, reflecting US$19.8 million disposals. Cash and cash equivalents increased from US$2.6 million to US$27.6 million.
Current liabilities at 31 December 2007 totalled US$3.5 million (2006: US$3.7 million). There was a net increase of US$873,000 in amounts owed to AGA, including the cost of technical services provided by AGA of US$1 million (2006: US$783,000) and interest due under the AGA loan of US$1.5 million (2006: US$492,000), offset by the repayment of short term loans of US$350,000 made by AGA to the Krasnoyarsk subsidiaries.
AGA loan conversion
TSG announced on 25 February 2008 that the previously reported increase in the interest of UFG Asset Management ("UFG") and its associates to 32.96% of the Company's shares constituted an Event of Change of Control ("ECC") in respect of the US$10 million loan provided to TSG by AGA in June 2006. This loan had been repayable in equal tranches, on the first and second anniversaries of the commencement of gold production at Asacha, and was convertible into TSG shares when the Company raised new equity, however as a result of the ECC the capital and accrued interest of the loan became immediately due and payable. TSG subsequently repaid US$4 million and accrued interest, in total US$5.7 million, and has now agreed with AGA that the US$6 million remaining of the loan will be converted into TSG shares at the same time and on the same terms as the planned equity raising which the Company announced on 22 May 2008.
Further funding
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 total project cost until Asacha is cash flow positive is now estimated at US$105.6 million, net of US$6.3 million VAT recoveries, and inclusive of pre-commissioning operating expenditure of US$28.4 million and contingency of US$4 million. US$58.3 million, net of US$1.4 million VAT recovered, has been spent up to the end of April 2008.
TSG reported on 22 May 2008 that the Group's total requirement for additional funds before the Asacha mine is cash flow positive was US$50 million. As a result of the agreement with AGA to convert the US$6 million remaining balance of its loan into TSG shares, as described above, the total additional funding required to provide adequate financing until the Asacha mine is cash flow positive has reduced to US$44 million.
It is currently the intention of the Company to satisfy the forecast additional funding requirement of US$44 million, and to avoid a delay to the project because of funding constraints, through raising additional equity by means of a placing of up to US$19 million, to be undertaken in July 2008, and debt finance of US$25-30 million. UFG has confirmed its commitment to subscribe for a minimum of US$10 million in the placing and if necessary, to provide part of this amount as bridging finance prior to the completion of the placing. Discussions are in progress with several Russian banks with the intention of raising US$25-30 million of debt finance.
Asacha
The current JORC total mineral resource estimate for Asacha is 1.28 million tonnes with average grades of 17.0g/t (gold) and 41.5g/t (silver), for approximately 700,000 oz of gold and 1.71 million oz of silver based on a cut-off grade of 4 g/t.
In 2007 the Asacha project entered into an active phase of development, embracing design elaboration, procurement of materials and equipment, building infrastructure and recruitment. Since the beginning of 2008 the project has gained momentum with mine development activities proceeding according to the Mine Plan.
During 2007, the feasibility study solutions were reviewed, re-engineered and updated. This followed the decision in November 2006 to change the scope of the project in order to mitigate the impact of higher capital costs because of timing delays and inflation, particularly due to increasing commodity and equipment costs and the appreciation of the Russian rouble.
In 2007, it was decided to commission the mine in two stages: first, commencing at a throughput of 70,000 tonnes of ore in 2009, to achieve annual capacity of 150,000 tonnes of ore in 2010; secondly, to increase throughput to 200,000 tonnes of ore in 2011. Following the decision, VNIPI Designing Institute (Moscow) developed a detailed design for the first stage of the mine, while IRGIREDMET Institute (Irkutsk) developed a revised feasibility study of the gold processing plant design.
Preparations to start mine development were completed. Explosives were delivered to site, once explosives storage had been completed and the required licenses obtained. Orders were placed for the mining trackless fleet. Air compressors, power generators and water supply units required for mine development were delivered to site. The first group of initial development miners arrived on site in August 2007. In February 2008, a new mine crew arrived and mining activities started. Miners have expanded the existing main development access adit and entered fresh rock. Installation of underground auxiliary equipment has commenced and the ordered mining equipment is being delivered on schedule.
In December 2007, the supply contract for major plant equipment was signed. Thorough geotechnical drilling, sampling and testing at the gold plant terrace site was completed. Removal of poor soil and the terracing for the gold plant site was also finished. The site is being prepared for concrete works. The procurement of various plant equipment and metal for the structure of the plant building is underway. Infrastructure construction (tailings storage facility, treatment facilities, camp etc.) is progressing well.
Commissioning of the mine at the end of 2008 and of the gold processing plant in the second half of 2009 will require 4.9 MW of electric power (including 2.1 MW for the plant and 1.5 MW for the mine) and 3.4 MW of thermal power to ensure heating. Provision of electric power and heat had been planned to be supplied from stand-alone diesel generators. Given the increasing cost of diesel generator sets and the necessary powerhouse and fuels and lubricants storage with capacity of 5,000 cubic metres, high operating costs and the logistical issues related to the delivery of diesel fuel, it was decided to consider alternative means of supplying power and heat. In 2007, the possibility of laying an overhead 35 kV power transmission line from the Mutnovskaya Geothermal Power Station to Asacha, over a distance of approximately 50 km was investigated. Preliminary study and talks held in Kamchatka at the end of 2007 proved both the efficiency of the grid-line project and the possibility of its construction on a tight schedule.
Emergency power supply is planned to be assured by three emergency diesel generators with capacity of 1,000 kW each, equipped with heat co-generation system, which may be started manually. The emergency diesel generators will be installed in three heat-insulated steel containers equipped with electric heating system, which will allow them to be maintained in constant readiness regardless of weather conditions.
In order to reduce TZ's exposure to increased equipment rental costs and to non-availability of equipment due to increasing activity at other locations in Kamchatka, it was decided to purchase various items of construction equipment, including trucks, excavators, bulldozers and loaders, to cover the demands of construction activities in 2008.
Rodnikova
A comprehensive programme commenced at the Rodnikova deposit in June 2007. During the period, 27 exploratory holes totalling 5,374 metres were drilled. Exploration activities were primarily focused on the central and most fully explored part of Zone 44 between Vilyucha River and Spokoiny Creek, where 19 holes were drilled in seven survey profiles. Three holes were drilled on the northern flank of the zone where virtually no work had been conducted before. The outline of the previously recorded reserves has been extended by 340 metres along strike to the north and from 65 to 130 metres at depth.
The 2007 exploration work on Zone 44 has resulted in an increase of the previously stated inferred category resource amounting to 634,000 tonnes of ore, containing 124,100 oz of gold and 652,730 oz of silver. The current JORC total mineral resource estimate for Rodnikova is 1.53 million tonnes with average grades of 7.0g/t (gold) and 59g/t (silver), for approximately 347,000 oz of gold and 2.91 million oz of silver based on a cut-off grade of 4 g/t.
In 2008, it is proposed to complete the evaluation of the southern flank of the zone. Drilling results will be available in the second half of 2008, after which a decision on a further exploration programme will be taken.
Contacts:
TSG
Simon Olsen +44 (0) 1223 265760
Seymour Pierce
Stuart Lane +44 (0) 20 7107 8000
The information in this report relating to mineral resources at Asacha and Rodnikova is based on data reviewed by Mr Vladislav Zhouravlev, Chief Geologist of OOO Trans-Siberian Gold Management who is an expert of the GKZ (State Reserves Commission of the Russian Federation) with 45 years relevant experience in mineral exploration and a Qualified Person under AIM rules. Mr Zhouravlev consents to the inclusion of the information in the form and context in which it appears.
Please see below for the unaudited financial information for the year ended 31 December 2007.
Trans-Siberian Gold plc
Unaudited consolidated balance sheet
| Note | 31 December 2007 US$ | 31 December 2006 US$ | |
| Assets | |||
| Non-current assets | |||
| Property, plant and equipment | 3 | 27,240,876 | 23,265,007 |
| Exploration and evaluation costs | 2 | 14,128,780 | 29,799,969 |
| Trade and other receivables | 4,864,407 | 6,001,683 | |
| 46,234,063 | 59,066,659 | ||
| Current assets | |||
| Trade and other receivables | 6,791,237 | 2,620,603 | |
| Current income tax asset | 61,981 | 101,723 | |
| Cash and cash equivalents | 27,629,429 | 2,551,457 | |
| 34,482,647 | 5,273,783 | ||
| Total assets | 80,716,710 | 64,340,442 | |
| Equity | |||
| Capital and reserves attributable to equity holders of the Company | |||
| Ordinary shares | 6,951,312 | 6,951,312 | |
| Share premium | 60,821,126 | 60,821,126 | |
| Retained earnings | (841,613) | (17,238,935) | |
| 66,930,825 | 50,533,503 | ||
| Minority interest in equity | - | - | |
| Total equity | 66,930,825 | 50,533,503 | |
| Liabilities | |||
| Non-current liabilities | |||
| Borrowings | 10,000,000 | 10,000,000 | |
| Provisions for other liabilities and charges | 266,463 | 200,489 | |
| 10,266,463 | 10,200,489 | ||
| Current liabilities | |||
| Trade and other payables | 3,519,422 | 3,219,904 | |
| Current income tax liabilities | - | 36,257 | |
| Borrowings | - | 350,289 | |
| 3,519,422 | 3,606,450 | ||
| Total liabilities | 13,785,885 | 13,806,939 | |
| Total equity and liabilities | 80,716,710 | 64,340,442 |
Trans-Siberian Gold plc
Unaudited consolidated income statement
| Year ended 31 December 2007 US$ | Year ended 31 December 2006 US$ | ||
| Continuing operations | |||
| Revenue | - | - | |
| Administrative expenses | (4,569,122) | (6,168,449) | |
| Operating income | 6,267 | 39,878 | |
| Net foreign exchange gains on operating activities | 644,365 | 401,817 | |
| Operating loss | (3,918,490) | (5,726,754) | |
| Finance income | 934,617 | 294,325 | |
| Finance costs | (1,289,346) | (491,058) | |
| Net foreign exchange gains on financing activities | 18,492 | 501,165 | |
| Loss before income tax | (4,254,727) | (5,422,322) | |
| Income tax expense (Russian) | (54,752) | (190,665) | |
| Loss from continuing operations | (4,309,479) | (5,612,987) | |
| Discontinued operations | |||
| Profit (loss) from discontinued operations | 20,547,058 | (209,548) | |
| Profit (loss) for the year | 16,237,579 | (5,822,535) | |
| Attributable to: | |||
| Equity holders of the company | 16,237,579 | (5,784,256) | |
| Minority interest | - | (38,279) | |
| Profit (loss) for the year | 16,237,579 | (5,822,535) | |
| Earnings (loss) per share attributable to the equity holders of the company (cents) | |||
| - basic and diluted | 39.45 | (14.05) | |
| Loss per share from continuing operations attributable to the equity holders of the company (cents) | |||
| - basic and diluted | (10.47) | (13.54) |
There is no difference between the loss on ordinary activities before taxation and the loss for the financial period stated above and their historical cost equivalents.
There are no recognised gains or losses other than those stated above.
Trans-Siberian Gold plc
Unaudited consolidated cash flow statement
| Year ended 31 December 2007 US$ | Year ended 31 December 2006 US$ | ||
| Cash flows from operating activities | |||
| Continuing operations | |||
| Cash used in operations | (3,972,804) | (6,404,558) | |
| Interest paid on borrowings | (273,951) | - | |
| Income tax paid | (104,447) | (202,951) | |
| (4,351,202) | (6,607,509) | ||
| Discontinued operations | (566,499) | 232,976 | |
| Net cash used in operating activities | (4,917,701) | (6,374,533) | |
| Cash flows from investing activities | |||
| Continuing operations | |||
| Purchase of property, plant and equipment (PPE) | (10,706,533) | (8,795,970) | |
| Proceeds from sale of PPE | 9,950 | 1,635 | |
| Purchase of exploration and evaluation assets | (1,796,286) | (2,842,463) | |
| Interest received - third party | 918,898 | 303,945 | |
| (11,573,971) | (11,332,853) | ||
| Discontinued operations | 37,085,453 | (2,495,316) | |
| Net cash generated from (used in) investing activities | 25,511,482 | (13,828,169) | |
| Cash flows from financing activities | |||
| Continuing operations | |||
| Proceeds from convertible debt | - | 10,000,000 | |
| - | 10,000,000 | ||
| Discontinued operations | 4,465,699 | 350,289 | |
| Net cash generated from financing activities | 4,465,699 | 10,350,289 | |
| Net increase (decrease) in cash and cash equivalents | 25,059,480 | (9,852,413) | |
| Cash and cash equivalents at beginning of the year | 2,551,457 | 11,902,705 | |
| Exchange gains on cash and cash equivalents | 18,492 | 501,165 | |
| Cash and cash equivalents at end of the year | 27,629,429 | 2,551,457 |
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 US$44 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 the forecast additional requirement of US$44 million, and to avoid a delay to the project because of funding constraints, through raising additional equity by means of a placing of up to US$19 million to be undertaken in July 2008, and debt finance of US$25-30 million. UFG Asset Management has confirmed its commitment to subscribe for a minimum of US$10 million in the placing and, if necessary, to provide part of this amount to the Company as bridging finance prior to the completion of the placing. In addition AngloGold Ashanti has agreed to convert the US$6 million balance of its loan into TSG shares at the same time and on the same terms as the placing. Discussions are ongoing with several Russian banks with the intention of raising US$25-30 million of debt finance. The Company has a reasonable expectation of a successful outcome of the placing and the debt finance raising. Management tightly control the level of committed expenditure to ensure that the Group has sufficient resources available to meet its liabilities as they fall due.
Notwithstanding the material uncertainty related to the raising of additional finance which may cast significant doubt on the Group's ability to continue as a going concern, based on UFG's and AGA's commitments and the Company's reasonable expectation of a successful outcome of the placing and the debt finance raising as set out above, the directors believe that the necessary funds to provide adequate financing until the Asacha mine is cash flow positive can be raised as required and accordingly they are confident that the Group will continue as a going concern and have prepared the financial information on that basis. The financial information does not include the adjustments that would result if the Group was not able to continue as a going concern.
2. Exploration and evaluation costs
Movements on deferred exploration and evaluation expenditure, by location of the property, are as follows:
| Krasnoyarsk | ||||
| Kamchatka US$ | Veduga US$ | Bogunay US$ | Total US$ | |
| At 1 January 2006 | 9,491,185 | 14,181,128 | 1,027,020 | 24,699,333 |
| Additions | 2,518,326 | 1,662,634 | 919,676 | 5,100,636 |
| At 31 December 2006 | 12,009,511 | 15,843,762 | 1,946,696 | 29,799,969 |
| At 1 January 2007 | 12,009,511 | 15,843,762 | 1,946,696 | 29,799,969 |
| Additions | 2,119,269 | 1,622,532 | 400,319 | 4,142,120 |
| Disposals | - | (17,466,294) | (2,347,015) | (19,813,309) |
| At 31 December 2007 | 14,128,780 | - | - | 14,128,780 |
3. Property, plant and equipment
| Buildings US$ | Plant and machinery US$ | Motor vehicles US$ | Office equipment and furniture US$ | Assets under Construction i US$ | Total US$ | |
| Cost | ||||||
| At 1 January 2006 | 981,333 | 1,817,921 | 1,145,838 | 557,965 | 12,753,915 | 17,256,972 |
| Additions | 52,566 | 274,521 | 9,460 | 25,386 | 7,521,558 | 7,883,491 |
| Disposals | (20,898) | (15,388) | - | (28,954) | - | (65,240) |
| At 31 December 2006 | 1,013,001 | 2,077,054 | 1,155,298 | 554,397 | 20,275,473 | 25,075,223 |
| Depreciation | ||||||
| At 1 January 2006 | (210,725) | (367,239) | (299,354) | (279,989) | - | (1,157,307) |
| Charge for year ii | (168,129) | (195,646) | (199,991) | (129,137) | - | (692,903) |
| Disposals | 6,917 | 6,202 | - | 26,875 | - | 39,994 |
| At 31 December 2006 | (371,937) | (556,683) | (499,345) | (382,251) | - | (1,810,216) |
| Net book value | ||||||
| At 1 January 2006 | 770,608 | 1,450,682 | 846,484 | 277,976 | 12,753,915 | 16,099,665 |
| At 31 December 2006 | 641,064 | 1,520,371 | 655,953 | 172,146 | 20,275,473 | 23,265,007 |
| Cost | ||||||
| At 1 January 2007 | 1,013,001 | 2,077,054 | 1,155,298 | 554,397 | 20,275,473 | 25,075,223 |
| Additions | 493,508 | 1,834,810 | 130,061 | 231,353 | 3,474,597 | 6,164,329 |
| Disposals | (17,999) | (5,613) | (17,556) | (48,910) | - | (90,078) |
| Discontinued operations | (315,902) | (938,295) | (747,755) | (157,368) | (360,885) | (2,520,205) |
| At 31 December 2007 | 1,172,608 | 2,967,956 | 520,048 | 579,472 | 23,389,185 | 28,629,269 |
| Depreciation | ||||||
| At 1 January 2007 | (371,937) | (556,683) | (499,345) | (382,251) | - | (1,810,216) |
| Charge for year ii | (169,273) | (182,516) | (191,956) | (71,522) | - | (615,267) |
| Disposals | 11,099 | 1,525 | 7,315 | 47,662 | - | 67,601 |
| Discontinued operations | 124,737 | 389,952 | 340,540 | 114,260 | - | 969,489 |
| At 31 December 2007 | (405,374) | (347,722) | (343,446) | (291,851) | - | (1,388,393) |
| Net book value | ||||||
| At 1 January 2007 | 641,064 | 1,520,371 | 655,953 | 172,146 | 20,275,473 | 23,265,007 |
| At 31 December 2007 | 767,234 | 2,620,234 | 176,602 | 287,621 | 23,389,185 | 27,240,876 |
Assets under construction comprise US$4,457,123 (2006: US$4,379,019) in relation to the construction of an access road to Asacha; US$17,204,772 (2006: US$14,980,660) for building construction and infrastructure, and US$1,721,974 (2006: US$668,519) for plant and equipment at Asacha; US$5,316 (2006: nil) for infrastructure at Rodnikova; and nil (2006: US$247,275) for discontinued operations.
US$528,944 (2006: US$538,711) 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. Events after the balance sheet date
The Company reported on 22 May 2008 that the Group's total requirement for additional funds before the Asacha mine is cash flow positive was US$50 million and that it planned to raise up to US$25 million of new equity through a placing during the next two months.
That funding requirement included US$6 million to repay the remaining balance of the US$10 million AGA loan, which had become immediately due and payable as a result of the Event of Change of Control arising from the interest of UFG and its associates increasing in February 2008 to 32.96% of the Company's shares. TSG repaid US$4 million of the loan and AGA has now agreed to convert the remaining balance of its loan into TSG shares at the same time, and on the same terms, as the placing. The effect of such conversion will be to reduce the funding requirement to US$44 million and the maximum amount required to be raised through the placing to US$19 million, of which UFG has confirmed that it will subscribe for a minimum of US$10 million.
5. Basis of preparation
This preliminary announcement does not constitute the statutory accounts of the Group or the Company for the year ended 31 December 2007. Accordingly, the financial information for 2007 is unaudited and does not have the status of statutory accounts within the meaning of Section 240 of the Companies Act 1985. Financial information for the year ended 31 December 2006 has been extracted from the Group's Annual Report and Accounts 2006, as filed with the Registrar of Companies, subject to restatement to reflect presentation of the financial information in accordance with IFRS. The Auditors' report on the full financial statements for the year ended 31 December 2006 contained an emphasis of matter in respect of the Group's ability to continue as a going concern and did not contain statements under section 237(2) of the United Kingdom Companies Act 1985 (regarding adequacy of accounting records and returns), or under 237(3) (regarding provision of necessary information and explanations). The full financial statements for the year ended 31 December 2007 and the audit report thereon will be circulated to shareholders and filed with the Registrar of Companies in due course.
The financial information contained in this preliminary announcement has been prepared in accordance with the accounting policies set out in the full financial statements for the year ended 31 December 2007.