TSG.L Regulatory News (TSG)

Trans-Siberian Gold plc

Interim Results for the half year ended 30 June 2014

Highlights

· 1st half production 16,342 oz. gold, 22,226 oz. silver, increases of 17.1% and 25.6% respectively

· Asacha plant processed average 13,259 tonnes per month, 12.2% increase

Chief Executive's Operating Review

Trans-Siberian Gold plc ("TSG" or the "Company") (TSG.L) reports that its results for the six months to 30 June 2014 included a 17.1% increase in gold production and a 25.6% increase in silver production compared to the first half of 2013. The principal operational problem at the Asacha mine continued to be dilution affecting the grade of ore delivered to the plant, however there was a marginal improvement to 6.87 g/t in the period (2013 first half: 6.48 g/t) and a significant increase to 8.49 g/t in July/August. We expect further improvements in the remainder of 2014 and in 2015.

Revenue from the sale of 15,244 oz. of refined gold and 21,178 oz. of refined silver (2013 first half: 14,149 oz. and 18,369 oz. respectively) was $19.7 million and $403,000 respectively (2013 first half: $21.6 million and $476,000). Average realised prices were $1,290 per oz. gold and $19 per oz. silver (2013 first half: $1,528 per oz. and $26 per oz.). Cost of sales per oz. gold, net of the credit from silver sales revenue, was $1,269 (2013 first half: $1,486). Cash cost per oz. gold including depletion, net of the silver credit and excluding royalty, was $824 (2013 first half: $1,058). Cash cost per oz. gold excluding depletion, net of the silver credit and excluding royalty, was $591 (2013 first half: $817).  

Administrative expenses for the half year amounted to $493,000 in UK and $2.4 million in Russia, in aggregate $2.9 million compared to $408,000 and $2.8 million respectively, in aggregate $3.2 million, for the corresponding period of 2013.

Finance income was $29,000 (2013 first half: $7,000). Finance costs were $1.6 million (2013 first half: $1.7 million).

The loss for the period was $3.1 million (2013 first half: $4.6 million) net of exchange gains of $1.8 million (2013 first half: $182,000). The loss for the period included a tax charge of $862,000 (2013 first half: $505,000).

Cash and cash equivalents increased from $2.3 million at 31 December 2013 to $2.6 million.

Borrowings reduced from $28.5 million at 31 December 2013 to $27.2 million, reflecting the Company's repayment of a short term $800,000 loan and the first scheduled repayment of the restructured project finance facilities provided by Sberbank for the development of Asacha. On 20 September 2013 Sberbank agreed to extend the terms of the two loan facilities (originally $43 million) to December 2018. Repayment of the $26.5 million then outstanding under the two facilities commenced in March 2014, with a further $1.0 million due to be repaid in 2014 and $2.0 million in 2015.

In 2012 the Company's major shareholders UFG Asset Management (UFG) and AngloGold Ashanti Limited (AGA)provided TSG with short term loan facilities in aggregate $781,000 on commercial terms, increased to an aggregate $891,000 in January 2013. The terms of these facilities have been extended, initially to 1 March 2013, with several subsequent extensions, most recently to 30 September 2014, the revised facility agreements including an option for the lenders, subject to the requisite approval of TSG's shareholders, to convert any part of the outstanding loans 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.

Asacha Project, Kamchatka Krai

In the six months to 30 June 2014 mine development and preparation works, by-product extraction works and exploration works comprised 1,714 metres with more than 99,000 tonnes of ore extracted. 

In the reporting period the Asacha plant processed an average 13,259 tonnes of ore per month (2013 first half: 11,814 tonnes per month). Gold recovery averaged 94.66% during the reporting period (2013 first half: 94.05%) but ore dilution remained a problem with average processed gold grades of 7.05 g/t and 6.72 g/t in the first and second quarters, howeverthe average gold grade of ore processed in August 2014 was 10.69 g/t, the plant's second highest monthly average. The improved grade is attributed to the quality of ore mined from a richer block and, to some extent, to the previously reported changes in mining methods intended to reduce ore dilution. Although the plant underwent a two week maintenance period in August, it processed 10,150 mt (81% of the normal full month target) in the month, to produce 3,135 oz. gold, the second highest monthly production in 2014.

The average gold grade in July and August 2014 was 8.49 g/t. Although it is likely that the gold grade in September will be below that achieved in August, the Company expects that the average gold grade in the third quarter will be higher than the average grades in 2012, 2013 and the first half of 2014. TSG remains cautiously optimistic that the previously reported changes in mining methods will result ina steady improvement in the mine's performance.

Mining and production at Asacha in the first half of 2014 is shown in the following table.

As previously reported there was a fatal accident in the plant on 22 February 2014, following the unauthorised entry into an agitator by two employees, one of whom was undertaking planned external maintenance on that equipment. Neither employee had donned the mandatory breathing protection equipment, also in breach of the plant's safety instructions. Both were overcome by cyanide fumes and although they were quickly brought out of the agitator and resuscitation techniques applied, including cyanide antidote treatment, one of them could not be revived. The other survived and was transported by an emergency helicopter to a hospital in Petropavlovsk-Kamchatskiy. Following investigation by the authorities, fines in approximate amount $14,000 were imposed. Legal action to challenge these is in progress as, notwithstanding the tragic consequences of the men's actions, those actions contravened the plant's strict safety procedures.

Rodnikova Project, Kamchatka Krai

In 2012 the federal authorities prescribed the finalisation of the design documentation and the commencement of work at the deposit by April 2014, failing which the federal authorities would consider the termination of the licence. It was unclear in 2012 whether there was adequate time or available funding to comply with these requirements, wherefore a full impairment provision was recognised in the 2012 financial statements in respect of Rodnikova's exploration and evaluation costs. A design institute's pre-feasibility study indicated that exploitation of the deposit would not be economically justified at the lower gold prices which have prevailed since the second half of 2013. The Company applied to the federal authorities for an extension of the licence term beyond its scheduled expiry on 1 September 2014 in order to evaluate the cost effectiveness of various technical solutions to improve the project's economics identified by the design institute, however on 5 September 2014 the Company was informed that the licence had been terminated. This termination will have no material impact on the Company's 2014 results.

Personnel

As at 30 June 2014, 486 personnel were employed in Kamchatka, with an increase to 495 by the end of August.

Contacts:

TSG +44 (0) 1480 811871

Simon Olsen

The information in this report relating to Asacha's mineral resources is based on information compiled by Michael Stewart, a member of the Australasian Institute of Mining and Metallurgy, who has sufficient experience relevant to the styles of mineralisation and types of deposit under consideration and to the activity he is undertaking to qualify as a Competent Person as defined in the 2012 edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves. Mr Stewart is a Qualified Person as defined by the AIM Rules and consents to the inclusion in the report of the matters based on his information in the form and context in which it appears.

Condensed Consolidated Statement of Financial Position

at 30 June 2014

Condensed Consolidated Statement of Comprehensive Income - for the 6 months ended 30 June 2014

Condensed Consolidated Statement of Changes in Equity

for the 6 months ended 30 June 2014

Condensed Consolidated Statement of Cash Flows

for the 6 months ended 30 June 2014

Unaudited notes forming part of the condensed consolidated interim financial information for the period ended 30 June 2014

1. General information

Trans-Siberian Gold plc (the Company) is a UK-based resources company, with the objective of acquiring and developing a portfolio of quality gold-mining assets in Russia.

The Company is a public limited company, incorporated and domiciled in the United Kingdom, and has subsidiaries based in the Russian Federation. The Company's registered office is 39 Parkside Cambridge CB1 1PN United Kingdom. The registered number of the Company is 1067991. The Company's shares are traded on the AIM Market of the London Stock Exchange.

This condensed consolidated interim financial information was approved by the Board on 29 September 2014.

The interim financial information for the six months ended 30 June 2014 and 30 June 2013 is unreviewed and unaudited and does not constitute statutory accounts as defined in Section 435 of the Companies Act 2006. The comparative financial information for the year ended 31 December 2013 has been derived from the statutory financial statements for that year. Statutory accounts for the year ended 31 December 2013 were approved by the Board of directors on 6 June 2014 and filed with the Registrar of Companies. The Independent Auditors' Report on those accounts was unqualified but contained an emphasis of matter in respect of the Group's going concern.

2. Going concern

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. Regular cash forecasts are reviewed to assess the potential impact of factors such as changes in commodity prices, production rates and the timing of capital expenditure. These forecasts, taking account of reasonably possible changes in commodity prices, trading performance and expenditure, show that the Group has adequate resources to continue in operational existence for the foreseeable future, wherefore the directors are confident that the Group will continue as a going concern and have prepared the interim financial information on that basis.

The Independent Auditors' Report on the statutory accounts for the year ended 31 December 2013 contained an emphasis of matter in respect of the Group's going concern, reflecting the relatively limited headroom in the Group's cash flow forecast for the period to 31 December 2015, achievement of which required the continuation of the then current gold price and operating performance.

3. Principal accounting policies

The Group's principal accounting policies applied in the presentation of the consolidated interim financial information are set out below. These policies have been consistently applied to all periods presented, unless otherwise stated, and are consistent with those that the directors intend to use in the financial statements for the year ending 31 December 2014 which will be prepared in accordance with IFRS as adopted by the EU.

Basis of preparation

The condensed consolidated interim financial information for the six months ended 30 June 2014 has been prepared in accordance with the AIM Rules and complies with IAS 34 Interim financial reporting as adopted by the EU. The interim condensed consolidated financial report does not include all disclosures that would otherwise be required in a complete set of financial statements and should be read in conjunction with the annual report and accounts for 2013.

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The areas involving a higher degree of judgement or complexity, or where assumptions and estimates are significant to the consolidated financial statements, are disclosed in Note 4.

The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision only affects that period or in the period of revision and future periods if the revision affects both current and future periods.

The same accounting policies, presentation and methods of computation are followed in this condensed consolidated interim financial information as were applied in the Group's latest annual audited financial statements except that, in the current financial year, the Group has adopted a number of new or revised Standards and interpretations. However none of these has had a material impact on the Group's reporting.

None of the IFRS and IFRIC amendments or interpretations issued by the IASB since the publication of the latest annual report is expected to have a material impact on the Group.

Basis of consolidation

The consolidated financial statements of the Group include the accounts of Trans-Siberian Gold plc and its subsidiaries. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date on which control ceases. Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated but considered an impairment indicator of the asset transferred. The accounting policies and financial year ends of its subsidiaries are consistent with those applied by the Company.

Business combinations

The consolidated financial statements incorporate the results of the business combinations using the acquisition method of accounting. In the consolidated statement of financial position, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated statement of comprehensive income from the date on which control is obtained.

Foreign currency translation

a) Functional and presentation currency

Items included in the financial information of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The consolidated financial information is presented in US dollars ($), which is the functional and presentation currency of the Company and the functional currency of its subsidiaries.

b) Transactions and balances

Foreign currency transactions are translated into the functional currency at the average exchange rate ruling during the month in which the transactions occur. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. Foreign exchange gains and losses resulting from the translation of cash, cash equivalents and borrowings denominated in foreign currencies are shown as financing activities; all other foreign exchange gains and losses are shown as operating activities.

Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision makers. The chief operating decision makers have been identified as the Chief Executive Officer, Finance Director and the non-executive board members.

The operating results of each of the geographical segments are regularly reviewed by the Group's chief operating decision makers in order to make decisions about the allocation of resources and to assess their performance. The Group has one operating segment in Russia which has production, exploration and development activities. The Group's activities in the United Kingdom are of an administrative and corporate nature and do not form part of the operating segment.

Property, plant and equipment

Property, plant and equipment are recorded at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Depreciation of property, plant and equipment is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, being:

Buildings - 3-20 yearsMotor vehicles - 4-7 yearsPlant and machinery - 4-7 yearsOffice furniture and equipment - 3-5 years

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within administrative expenses in profit or loss. Assets under construction are not subject to depreciation until the date on which the Group brings them into use.

Leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on a straight-line basis over the period of the lease.

Assets held under finance leases are capitalised as property, plant and equipment at the estimated present value of theunderlying lease payments. The corresponding finance lease obligation is included in creditors due within or after morethan one year. The interest element is allocated to accounting periods during the lease term to reflect a constant rate ofinterest on the remaining balance of the obligation for each accounting period.

Exploration and evaluation costs

When the Group incurs expenditure on mining properties that have not reached the stage of commercial production, the costs of acquiring the rights to such mining properties and related exploration and evaluation costs, including directly attributable employment costs, are deferred where the expected recovery of costs is considered probable by the successful exploitation or sale of the asset. General overheads are expensed immediately. A project's deferred exploration and evaluation expenditure is transferred to non-current mining assets when the decision to proceed to the development stage of that project is taken. Depreciation on property, plant and equipment used on exploration and evaluation projects is charged to deferred costs, or to non-current mining assets, whilst the projects are in progress. The Group capitalises 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. Finance costs incurred in respect of the Group's general borrowings are expensed in profit or loss as incurred. Exploration and evaluation costs are not amortised.

Where a feasibility study indicates that the future recovery of costs is not probable, full provision is made in respect of any deferred costs. Where mining properties are abandoned, deferred expenditure is written off in full.

Deferred exploration and evaluation costs are assessed at each reporting date to determine whether there are indicators that the asset may be impaired. If any such indicator exists, a review for impairment is conducted.

The amounts shown as deferred exploration and evaluation expenditure represent costs incurred and do not necessarily reflect present or future values.

Mining properties

Once a project reaches the stage of commercial production, the capitalised exploration and evaluation expenditure, other than that on buildings, plant and machinery and equipment, related to that project is transferred to tangible assets as mining properties.

Mining properties are depleted over the estimated life of the reserves on a 'unit of production' basis.

Commercial reserves are proven and probable reserves. Changes in commercial reserves affecting unit of production calculations are dealt with prospectively over the revised remaining reserves. 

Impairment

The carrying amount of the Group's non-current assets is compared to the recoverable amount of the assets whenever events or changes in circumstances indicate that the net book value may not be recoverable. The recoverable amount is the higher of value in use and the fair value less costs to sell.

Value in use is estimated by reference to the net present value of expected future cash flows of the relevant cash generating unit. Individual mining properties are considered to be separate income generating units for this purpose, except where they would be operated together as a single mining business.

If the recoverable amount is less than the carrying amount of an asset, an impairment loss is recognised. The revised carrying amounts are amortised in line with the Group's accounting policy.

A previously recognised impairment loss is reversed if the recoverable amount increases as a result of a reversal of the conditions that originally resulted in the impairment. The reversal is recognised in the income statement and is limited to the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised in the prior reporting periods.

Financial assets

The Group classifies all of its financial assets as loans and receivables which comprise trade and other receivables and cash and cash equivalents.

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers (e.g. trade receivables), but also incorporate other types of contractual monetary asset. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.

Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Group will be unable to collect all of the amounts due under the terms receivable, the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable. For trade receivables, which are reported net, such provisions are recorded in a separate allowance account with the loss being recognised within administrative expenses in the consolidated statement of profit or loss. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.

Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short term highly liquid investments with original maturities of three months or less, and - for the purpose of the statement of cash flows - bank overdrafts. Bank overdrafts are shown within loans and borrowings in current liabilities on the consolidated statement of financial position.

Financial liabilities

The Group classifies all of its financial liabilities as other financial liabilities which include trade payables, other short-term monetary liabilities and bank borrowings.

Bank borrowings are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument. Such interest bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the consolidated statement of financial position. For the purposes of each financial liability, interest expense includes initial transaction costs and any premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding.

Trade payables and other short-term monetary liabilities are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method.

Inventories

Raw materials and consumables, which consist of tools for development activities, spare parts, fuel and materials used in mining operations, are initially recognised at cost, and subsequently valued at the lower of cost and net realisable value.

Stockpiles comprise ore stocks containing gold and are valued at the lower of weighted average cost (including direct labour costs and related overheads) and net realisable value (using assay data to estimate the amount of gold contained in the stockpiles, adjusted for expected gold recovery rates).

Finished goods (comprising refined gold and silver) and work in progress (including gold in circuit and gold dore) are stated at the lower of weighted average cost and net realisable value. Cost includes direct materials, direct labour costs and production overheads, including depreciation and depletion of relevant property, plant and equipment and mining properties.

Net realisable value represents the estimated selling price less all expected costs to completion and costs to be incurred in selling and distribution.

Share capital

Financial instruments issued by the Group are classified as equity only to the extent that they do not meet the definition of a financial liability or financial asset.

The Group's ordinary shares are classified as equity instruments.

Revenue

The Group has entered into contracts for the sale of refined gold and silver. Revenue arising from sales under these contracts is recognised when the price is determinable, the product has been delivered in accordance with the terms of the contract, the significant risks and rewards have been transferred to the customer and collection of the sale price is reasonably assured.

Taxation

Current tax is the expected tax payable or recoverable on the taxable profit or loss for the year, using rates enacted at the reporting date and any adjustments to the tax payable in respect of previous years.

Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the reporting date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

Share-based payment transactions

The Company makes equity-settled share-based payments to certain Group employees under the terms of its employee share option scheme. The fair value of options granted to employees is recognised as an employee expense, with a corresponding increase in equity by way of a credit to retained earnings.

The fair value is measured at grant date and expensed on a straight-line basis over the expected vesting period. The fair value of the options granted is measured using a Black-Scholes valuation model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest or are likely to vest except where non-exercise is only due to the Company's share price not achieving the threshold for vesting. Non-market based vesting conditions are taken into account in estimating the number of options likely to vest. The estimate of the number of options likely to vest is reviewed at each reporting date up to the vesting date, at which point the estimate is adjusted to reflect the actual options exercised. No adjustment is made after the vesting date even if the options are not exercised.

Defined contribution personal pension plan

Contributions to employees' defined contribution personal pension plans are recognised as an expense in profit or loss as the services giving rise to the Group's obligations are rendered by the employees.

Provisions

Provisions for decommissioning, environmental restoration and legal claims are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Provisions are not recognised for future operating losses.

Group companies are generally required to restore mine and processing sites at the end of their productive lives to a condition acceptable to the relevant authorities and consistent with the Group's environmental policies. The expected cost of any committed decommissioning or restoration programme, discounted to its net present value where the effect of discounting is material, is provided and capitalised at the beginning of each project. The capitalised cost is amortised over the life of the operation and the increase in the net present value of the provision for the expected cost is included with interest and similar charges.

The costs of on-going programmes to prevent and control pollution and to rehabilitate the environment are charged to profit or loss as incurred.

Determination of ore reserves

The Group estimates its ore reserves and mineral resources based on information compiled by Competent Persons as defined in accordance with the 2012 edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (the JORC code).

4. Critical accounting estimates and judgements

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Use of estimates and assumptions

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results.

The more significant areas requiring the use of management estimates and assumptions relate to mineral reserves that are the basis of future cash flow estimates and unit-of-production depreciation, depletion and amortisation calculations; decommissioning, site restoration, environmental costs and closure obligations; estimates of recoverable gold and othermaterials; asset impairments; the fair value and accounting treatment of financial instruments and deferred taxation.

The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Critical judgements in applying the entity's accounting policies

a) Mining properties

The recoverability of the amounts shown in the Group statement of financial position in relation to mining properties (and also the carrying value of the Company's investments in its subsidiaries) are dependent upon compliance with the terms of the relevant mineral rights licences, the political, economic and legislative stability of the regions in which the Group operates, the Group's ability to obtain the necessary financing to fulfil its obligations as they arise and upon future profitable production or proceeds from the disposal of properties.

b) Deferred exploration and evaluation costs

The recoverability of the amounts shown in the Group statement of financial position in relation to deferred exploration and evaluation expenditure (and also the carrying value of the Company's investments in its subsidiaries) are dependent upon the discovery of economically recoverable reserves, continuation of the Group's interests in the underlying mining claims, the political, economic and legislative stability of the regions in which the Group operates, compliance with the terms of the relevant mineral rights licences, the Group's ability to obtain the necessary financing to fulfil its obligations as they arise and upon future profitable production or proceeds from the disposal of properties.

c) Ore stocks

The recoverability of the amounts shown in the Group statement of financial position in relation to ore stocks is dependent on the gold price and, in the case of lower grade stockpiles, on the feasibility of blending with higher grade ore. Impairment provisions are recognised in accordance with the Group's accounting policies to reflect any anticipated shortfall between net realisable value and cost, including processing and refining. A 100% impairment provision is recognised in respect of ore whose grade precludes blending with higher grade ore to achieve a net realisable value greater than cost. Part of the Group's ore stockpile may be classified as non-current inventories, if it is expected to be processed through blending with higher grade ore later than one year from the reporting date.

d) Decommissioning, site restoration and environmental costs

The Group's mining and exploration activities are subject to various laws and regulations governing the protection of the environment. The Group recognises management's best estimate for asset retirement obligations in the period in which they are incurred. Actual costs incurred in future periods could differ materially from the estimates. Additionally, future changes to environmental laws and regulations, life of mine estimates and discount rates could affect the carrying amount of this provision. Such changes could similarly impact the useful lives of assets depreciated on a straight-line-basis, where those lives are limited to the life of mine.

e) Contingencies

By their nature, contingencies will only be resolved when one or more future events occur or fail to occur. The assessment of such contingencies inherently involves the exercise of significant judgement and estimates of the outcome of future events.

5. Segment information

The Group's operations are entirely focused on gold production and exploration and development activities within the Russian Federation, with its corporate head office in the UK. The operating segment has been identified on the basis of internal reports about the components of the Group. The Group has one reportable segment, being operations in Russia, whose accounting policies are in line with those set out in Note 3. The operating results of this segment are regularly reviewed by the Group's chief operating decision makers in order to make decisions about the allocation of resources and to assess their performance. With the exception of $493,000 corporate costs, the numbers in the primary statements reflect the results of the sole operating segment.

6. Mining properties

Mining properties assets relate to the Asachinskoye (Asacha) mining licence held by the Company's subsidiary ZAO Trevozhnoye Zarevo (TZ).

7. Property, plant and equipment

a. Assets under construction at 30 June 2014 comprise $1,721,005 (31 December 2013: $1,781,801) for building construction and infrastructure at Asacha and $61,896 (31 December 2013: $78,477) for plant and equipment at Asacha.

b. $392,737 (2013 first half: $574,642) of the depreciation charge related to property, plant and equipment used on exploration and evaluation projects or assets under construction and was capitalised in exploration and evaluation costs or property, plant and equipment in accordance with the Group's accounting policy. $881,994 (2013 first half: $679,106) of the depreciation charge is included in inventories.

c. The net carrying amount of property, plant and equipment includes the following amounts in respect of assets held under finance leases:

8. Deferred Exploration and evaluation costs

Movements on deferred exploration and evaluation expenditure, by location of the property, are as follows:

i Additions include capitalised PPE depreciation (see Note 7b).

ii A full provision in respect of expenditure at Rodnikova was recognised in 2012. The Company's licence in respect of that property was terminated on 27 August 2014.

9. Inventories

10. Borrowings

Current:

In 2009 ZAO Trevozhnoye Zarevo (TZ) refinanced its initial borrowing for the Asacha project with a five year $25 million loan facility from Sberbank at an annual interest rate of 11.75%, reduced to 10.5% in May 2010. Repayments commenced in November 2011. In 2010 TZ agreed a further four year loan facility of $18 million for the Asacha project with Sberbank at an annual interest rate of 10.5%. Repayments commenced in September 2012. In September 2013 Sberbank and TZ agreed to extend the terms of the facilities to December 2018. Repayment of the $26.5 million then outstanding commenced in March 2014, with repayments of $1.3 million and $2.0 million due in 2014 and 2015 respectively.

It was agreed that a gold price hedge programme would be implemented for the revised term of the facilities, with gold price protection for the initial 12 month period to be put in place by 1 November 2013. It was subsequently agreed with the bank to defer the start of the price protection programme with an amendment to the interest rate until such commencement at an annual cost of approximately $250,000.

In June 2012 UFG Asset Management (UFG) and AngloGold Ashanti Limited (AGA), each a related party by virtue of their then respective 54.42% and 31.17% holdings in the shares of the Company, agreed to provide additional short term facilities, in aggregate $781,000, on commercial terms. These facilities were increased to an aggregate $891,000 in January 2013 and their terms extended to 30 September 2013, the revised agreements also including an option for the lender, 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. In September 2013 UFG and AGA agreed to extend the terms of the two facilities to 31 March 2014, with a subsequent extension to 30 September 2014 agreed in March 2014.

In consideration of an earlier loan facility provided by UFG in 2009, the Company 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 considered as fair and reasonable by the Company's Board (excluding those directors connected to UFG) after consultation with TSG's Nominated Adviser. No warrants were issued between 2010 and 2013, in 2014 or after the reporting date.

11. Provisions

The above provision relates entirely to site restoration at the Asacha mine. The amount of $980,093 (31 December 2013: $916,783) is included in Mining Properties and is calculated based on regional data from the Monitoring Ecological Centre of Kamchatka.

12. Revenue

13. Cost of sales

14. Earnings per share

The calculation of basic and diluted loss per share has been based on the loss for the period of $3,060,672 (2013 first half: $4,615,817) and the weighted average number of shares being 110,053,073 ordinary shares issued for the period ended 30 June 2014 (2013 first half: 110,053,073).

15. Share capital and premium

All shares are ordinary shares with a par value of 10 pence.

Retained earnings represents the cumulative net gains and losses recognised in the statement of comprehensive income less any amounts reflected directly in other reserves.

The share premium account represents the amounts received by the Company on the issue of its shares which were in excess of the nominal value of the shares.

16. Related party transactions

There are no related party transactions other than those relating to major shareholders AngloGold Ashanti Limited (AGA) and UFG Asset Management (UFG) as detailed below:

Loan facilities provided by UFG and AGA are discussed in Note 10.

The directors of the Company consider that there are no key management personnel, as defined by IAS 24, Related party transactions, other than the directors themselves.

17. Events after the reporting date

In 2012 the federal authorities prescribed the finalisation of the design documentation and the commencement of work at the Rodnikova deposit by April 2014, failing which the federal authorities would consider the termination of the licence. Since it was unclear whether there was adequate time or available funding to comply with these requirements a full impairment provision was recognised in the 2012 financial statements in respect of Rodnikova's exploration and evaluation costs. The Company applied to the federal authorities for an extension of the licence term beyond its scheduled expiry on 1 September 2014 in order to evaluate the cost effectiveness of various technical solutions identified by a design institute, which had concluded that exploitation of the deposit was not economically feasible at the current gold price, however on 5 September 2014 the Company was informed that the licence had been terminated on 27 August 2014. This termination will have no material impact on the Company's 2014 results.