TSG.L Regulatory News (TSG)

27 Sep 2007 07:00

Trans-Siberian Gold PLC27 September 2007 Trans-Siberian Gold plc Interim Results for the half year ended 30 June 2007 Highlights • Sale of Krasnoyarsk properties for $40 million completed • Asacha interest increased from 90.05% to 95.03% • Asacha mine development commenced in July 2007 • Drilling commenced at Rodnikova Chief Executive Officer's Report Trans-Siberian Gold plc ("TSG" or the "Company") (TSG.L) is pleased to reportits results for the six months to 30 June 2007, which are presented for thefirst time in accordance with International Financial Reporting Standards (IFRS)as adopted by the European Union (including IAS 34 Interim Financial Reporting),and further progress in the development of our Russian gold projects inKamchatka. Trans-Siberian Gold plc is in the exploration and development phase of its goldprojects and therefore received no operating income in the period.Administration expenses for the half year amounted to $2.5 million compared to$3.1 million for the corresponding period of 2006 and $6.2 million for 2006 as awhole. The operating loss was $2.4 million (2006 first half: $2.8 million),after crediting $130,000 of exchange gains (2006 first half: $253,000). Finance income (interest earned) was $164,000 (2006 first half: $154,000).Finance costs (interest payable) of $778,000 (2006 first half: $11,000)comprised $504,000 (2006 first half: $11,000) interest on the $10 million loanfrom AngloGold Ashanti Limited (AGA) received in June 2006 and $274,000 on $10million advance payment of the sale consideration for the Krasnoyarskproperties. The profit for the period was $17.6 million (2006 first half: $2.3 millionloss), net of losses from discontinued operations of $509,000 (2006 first half:$147,000) and $21.1 million profit on disposal of the Krasnoyarsk Kraisubsidiaries to AGA. Property, plant and equipment and capitalised exploration and evaluation costsdecreased by $758,000 and $17.1 million respectively since 31 December 2006(2006 first half: $3.5 million and $3.0 million increases respectively). Thereductions attributed to discontinued operations amounted to $1.6 million and$19.8 million respectively (2006 first half: nil). Cash and cash equivalentsincreased from $2.6 million to $38.1 million, including the receipt of theKrasnoyarsk Krai disposal proceeds. Asacha Project, Kamchatka Oblast In December 2006, it was decided to adopt a phased approach with pre-productionmine development expenditure minimised and the plant capacity reduced to 150,000tonnes per annum. During the first half of 2007, a senior technical team was appointed and beganwork in Petropavlovsk-Kamchatsky and on site. The mining plan for 2007 wasapproved by the authorities. An experienced mine construction team commencedwork on the portal area and preparations for full-scale mine developmentactivities. The mine detailed design contract was concluded and the firstportions of drawings were submitted. Advance orders for mining equipment,sourced inside and outside Russia, were placed. Construction of the explosivesstorage facility according to the approved design was completed and the facilitywas accepted by the State Commission on 23 August 2007. Following this, licencesfor the storage and use of explosives were obtained. As part of the process, the plant design was modified to incorporate certainprocessing scheme changes and practical design requirements. Design criteria forthe plant were developed. The contract for plant design was concluded with theIrkutsk design institute (Irgiredmet). Negotiations on the purchasing of theplant were also held with Irgiredmet. The design process is ongoing. Plantlayout drawings are to be received in October 2007 and the first workingdrawings of the plant foundations are expected in November 2007. There was somedelay as a consequence of several geotechnical studies of the plant sitereaching different conclusions, but this has now been resolved. It is anticipated that approximately 40,000 tonnes of ore will have been minedand stockpiled by the end of December 2008, with first gold production in thesecond half of 2009. The directors consider that this delay should not endangerthe Asacha licence, given the progress that will have been achieved by the endof December 2008. The delay will also not result in any increase to the capitalcost of the project. Actual expenditure on the Asacha project up to July 2007 amounted to $41.6million. The remaining costs prior to the commencement of production areestimated at $62.0 million, comprising: $ million----------- ------------------------------------ ---------Capital Mine and mining equipment and facilities 9.8expenditure Gold plant, site facilities and tailings storage (1st 22.8 phase) Diesel power plant and other infrastructure 12.1 Contingency 4.5----------- ------------------------------------ --------- Total capital 49.2Other costs Pre-production operating costs 12.8----------- ------------------------------------ --------- 62.0----------- ------------------------------------ --------- Including sunk costs, the estimated total cost of the Asacha project prior tocommencement of production has reduced from $111.0 million to $103.6 million(comprising capital expenditure of $76.3m and $27.3 million pre-productionoperating costs). A further $11.0 million of capital expenditure will be incurred after thecommencement of production (including $4.0 million on mine development, $5.3m onthe second phase of tailings storage and $1.0m contingency). In addition to the $40 million disposal proceeds of the Krasnoyarsk Krai basedsubsidiaries, we believe that additional funding of $42 million, including debtservice on the assumption that the $10 million AGA loan is not converted toequity, will be required to provide adequate financing for the Group until theAsacha mine is cash flow positive. The disposal proceeds of $40 million will besufficient for the Group's funding requirements until the beginning of thesecond quarter of 2008, by which time significant progress with mine developmentand plant construction is expected to have been achieved at Asacha. It iscurrently the intention of the Board to satisfy the forecast additionalrequirement of $42 million through raising additional equity, debt finance,equipment supplier credits or a combination of these, in respect of which anumber of options are being considered. On 17 September 2007, TSG completed the acquisition of an additional 4.98% ofthe shares in ZAO Trevozhnoye Zarevo at a cost of $425,000, thereby increasingits interest in the Asacha and Rodnikova projects to 95.03%. Rodnikova Project, Kamchatka Oblast In accordance with an exploration programme approved in March 2007, fieldexploration activities in 2007 will focus on exploration and update of existingdata on the boundaries of previously delineated ore bodies on the main area ofthe field with a drilling target of 7,400 metres. The planned target for 2008 is1,400 metres with preparation of a report with reserves estimate and itssubmission for examination to the Russian GKZ (State Committee on Reserves) by31 December 2008 as stipulated by the licence agreement. Preparation of the exploration site at Rodnikova was finished on schedule inJune and exploratory drilling commenced. By the end of August sixteen holes hadbeen drilled, totalling 2,843 metres. First assay results are expected byDecember 2007. Veduga and Bogunay Projects, Krasnoyarsk Krai The sale of all of TSG's interests in the Veduga and Bogunay projects inKrasnoyarsk Krai to AGA for a cash consideration of $40 million was completed on25 June 2007. In addition, AGA reimbursed to TSG the costs of the SPECTREMairborne geophysical surveys undertaken at those properties in 2006 totalling$505,000. AGA had funded the exploration activities of the Krasnoyarsk Kraicompanies with effect from 1 November 2006 and all their expenditure from 1December 2006. On completion of the sale, those companies refunded $536,000 oftheir intra-group loans, corresponding to the advance funding provided by TSGfor their November and December 2006 expenditure. Oleg Bagirov26 September 2007 Contacts: TSGSimon Olsen +44 (0) 1223 265760 Seymour PierceStuart Lane +44 (0) 20 7107 8000 BanksideKeith Irons +44 (0) 20 7367 8873Oliver Winters Independent review report to Trans-Siberian Gold plc Introduction We have been instructed by the Company to review the financial information forthe six months ended 30 June 2007 which comprises the condensed consolidatedinterim balance sheet as at 30 June 2007 and the related condensed consolidatedinterim income statement, condensed consolidated interim statement of changes inequity and condensed consolidated interim cash flow statement for the six monthsthen ended and related notes. We have read the other information contained inthe interim report and considered whether it contains any apparent misstatementsor material inconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The directors areresponsible for preparing the interim report in accordance with the AIM Rulesfor Companies which require that the financial information must be presented andprepared in a form consistent with that which will be adopted in the company'sannual financial statements. This interim report has been prepared in accordance with IAS 34 InterimFinancial Reporting as adopted by the European Union. As disclosed in Note 3,the next annual financial statements of the company will be prepared inaccordance with IFRSs as adopted by the European Union. The accounting policiesare consistent with those that the directors intend to use in the next annualfinancial statements. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of Group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the disclosed accounting policies havebeen applied. A review excludes audit procedures such as tests of controls andverification of assets, liabilities and transactions. It is substantially lessin scope than an audit and therefore provides a lower level of assurance.Accordingly we do not express an audit opinion on the financial information.This report, including the conclusion, has been prepared for and only for theCompany for the purpose of the AIM Rules for Companies and for no other purpose.We do not, in producing this report, accept or assume responsibility for anyother purpose or to any other person to whom this report is shown or into whosehands it may come save where expressly agreed by our prior consent in writing. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2007. Emphasis of matter - going concern In arriving at our review conclusion, which is not qualified, we have consideredthe adequacy of the disclosures made in Note 5 to the financial informationconcerning the Group's requirements for additional financing. These conditionsindicate the existence of a material uncertainty which may cast significantdoubt about the Group's ability to continue as a going concern. The financialinformation does not include the adjustments that would result if the Group wasnot able to continue as a going concern. PricewaterhouseCoopers LLPChartered AccountantsLondon26 September 2007 Condensed consolidated interim balance sheet at 30 June 2007 Note 30.06.2007 30.06.2006 31.12.2006 $ $ $--------------------------- ------ --------- --------- ---------AssetsNon-current assetsProperty, plant and equipment 7 22,507,305 19,569,258 23,265,007Exploration and evaluation costs 8 12,679,585 27,701,712 29,799,969Taxes recoverable - value added tax 4,948,316 4,853,568 6,001,683--------------------------- ------ --------- --------- --------- 40,135,206 52,124,538 59,066,659--------------------------- ------ --------- --------- ---------Current assetsTrade and other receivables 3,464,600 3,370,274 2,722,326Cash and cash equivalents 38,128,605 12,301,644 2,551,457--------------------------- ------ --------- --------- --------- 41,593,205 15,671,918 5,273,783--------------------------- ------ --------- --------- ------------------------------------ ------ --------- --------- ---------Total assets 81,728,411 67,796,456 64,340,442--------------------------- ------ --------- --------- --------- Capital and reserves attributable toequity holders of the CompanyOrdinary shares 6,951,312 6,951,312 6,951,312Share premium 60,821,126 60,821,126 60,821,126Retained earnings 429,539 (13,551,043) (17,238,935)--------------------------- ------ --------- --------- --------- 68,201,977 54,221,395 50,533,503Minority interest in equity - - ---------------------------- ------ --------- --------- ---------Total equity 68,201,977 54,221,395 50,533,503--------------------------- ------ --------- --------- --------- LiabilitiesNon-current liabilitiesBorrowings 9 10,000,000 10,000,000 10,000,000Provisions for other liabilities and charges 10 200,489 156,694 200,489--------------------------- ------ --------- --------- --------- 10,200,489 10,156,694 10,200,489--------------------------- ------ --------- --------- ---------Current liabilitiesTrade and other payables 2,980,512 3,398,199 3,219,904Current income tax liabilities - 20,168 36,257Borrowings 9 - - 350,289Provisions for other liabilities and charges 10 345,433 - ---------------------------- ------ --------- --------- --------- 3,325,945 3,418,367 3,606,450--------------------------- ------ --------- --------- ---------Total liabilities 13,526,434 13,575,061 13,806,939--------------------------- ------ --------- --------- ---------Total equity and liabilities 81,728,411 67,796,456 64,340,442--------------------------- ------ --------- --------- --------- The notes below form an integral part of this condensed interim financial information. Condensed consolidated interim income statement for the 6 months ended 30 June 2007 Note 6 months to 6 months to 12 months to 30.06.2007 30.06.2006 31.12.2006 $ $ $--------------------------- ------ --------- --------- ---------Continuing operationsRevenue - - -Administrative expenses (2,486,407) (3,066,748) (6,168,449)Other income 5,886 44,341 39,878Net foreign exchange gains on operating activities 130,295 253,484 401,817--------------------------- ------ --------- --------- ---------Operating loss 6 (2,350,226) (2,768,923) (5,726,754) Finance income 164,106 154,467 294,325Finance costs (778,449) (10,552) (491,058)Net foreign exchange gains on financing activities 18,189 458,450 501,165--------------------------- ------ --------- --------- ---------Loss before income tax (2,946,380) (2,166,558) (5,422,322) Income tax expense (Russian) (10,791) (24,889) (190,665)--------------------------- ------ --------- --------- ---------Loss from continuing operations (2,957,171) (2,191,447) (5,612,987) Discontinued operationsProfit (loss) from discontinued operations 11 20,547,058 (146,955) (209,548)--------------------------- ------ --------- --------- ---------Profit (loss) for the period 17,589,887 (2,338,402) (5,822,535)--------------------------- ------ --------- --------- --------- Attributable to:Equity holders of the company 17,589,887 (2,300,123) (5,784,256)Minority interest - (38,279) (38,279)--------------------------- ------ --------- --------- ---------Profit (loss) for the period 17,589,887 (2,338,402) (5,822,535)--------------------------- ------ --------- --------- --------- Earnings (loss) per share attributableto the equity holders of the company(expressed in cents per share) - basic 42.73 (5.59) (14.05) - diluted 42.72 (5.59) (14.05)Loss per share from continuingoperations attributable to the equityholders of the company (expressed incents per share) - basic (7.18) (5.23) (13.54) - diluted (7.18) (5.23) (13.54) There is no difference between the loss on ordinary activities before taxationand the loss for the financial period stated above and their historical costequivalents. There are no recognised gains or losses other than those stated above. The notes below form an integral part of this condensed interimfinancial information. Condensed consolidated interim statement of changes in equityfor the 6 months ended 30 June 2007 Attributable to equity holders of the Company --------------------- Capital Retained Total Minority Total $ earnings $ interest equity $ $ $--------------------- -------- -------- -------- -------- -------- At 1 January 2006 67,772,438 (11,286,635) 56,485,803 38,279 56,524,082--------------------- -------- -------- -------- -------- -------- Loss for the period - (2,300,123) (2,300,123) (38,279) (2,338,402)--------------------- -------- -------- -------- -------- --------Total recognised income and expense for the period - (2,300,123) (2,300,123) (38,279) (2,338,402)--------------------- -------- -------- -------- -------- -------- Share options scheme: - value of share-based payments - 35,715 35,715 - 35,715 --------------------- -------- -------- -------- -------- --------At 30 June 2006 67,772,438 (13,551,043) 54,221,395 - 54,221,395--------------------- -------- -------- -------- -------- -------- At 1 January 2007 67,772,438 (17,238,935) 50,533,503 - 50,533,503--------------------- -------- -------- -------- -------- -------- Profit for the period - 17,589,887 17,589,887 - 17,589,887--------------------- -------- -------- -------- -------- --------Total recognised income and expense for the period - 17,589,887 17,589,887 - 17,589,887--------------------- -------- -------- -------- -------- -------- Share options scheme: - value of share-based payments - 78,587 78,587 - 78,587--------------------- -------- -------- -------- -------- --------At 30 June 2007 67,772,438 429,539 68,201,977 - 68,201,977--------------------- -------- -------- -------- -------- -------- The notes below form an integral part of this condensed interimfinancial information. Condensed consolidated interim cash flow statement for the 6 months ended 30 June 2007 Note 6 months to 6 months to 12 months to 30.06.2007 30.06.2006 31.12.2006 $ $ $--------------------------- ------ --------- --------- --------- Cash flows from operating activitiesContinuing operationsCash used in operations (2,189,648) (3,146,171) (6,360,763)Interest paid on borrowings (273,951) - -Corporation tax paid (68,586) (10,889) (202,951)--------------------------- ------ --------- --------- --------- (2,532,185) (3,157,060) (6,563,714)Discontinued operations 11 (566,499) 484,592 232,976--------------------------- ------ --------- --------- ---------Net cash used in operating activities (3,098,684) (2,672,468) (6,330,738)--------------------------- ------ --------- --------- --------- Cash flows from investing activitiesContinuing operationsPurchase of property, plant and equipment (PPE) (1,268,605) (3,417,597) (8,795,970)Proceeds from sale of PPE - 1,631 1,635Purchase of exploration and evaluation assets (1,769,876) (3,030,853) (2,886,258)Interest received - third party 144,972 163,529 303,945--------------------------- ------ --------- --------- --------- (2,893,509) (6,283,290) (11,376,648) Discontinued operations 11 37,085,453 (1,103,753) (2,495,316)--------------------------- ------ --------- --------- ---------Net cash generated (used) in investing activities 34,191,944 (7,387,043) (13,871,964)--------------------------- ------ --------- --------- --------- Cash flows from financing activitiesContinuing operationsProceeds from other convertible debt - 10,000,000 10,000,000--------------------------- ------ --------- --------- --------- - 10,000,000 10,000,000Discontinued operations 11 4,465,699 - 350,289--------------------------- ------ --------- --------- ---------Net cash generated from financing activities 4,465,699 10,000,000 10,350,289--------------------------- ------ --------- --------- --------- Net increase (decrease) in cash and cash equivalents 35,558,959 (59,511) (9,852,413) Cash and cash equivalents at beginning of period 2,551,457 11,902,705 11,902,705Exchange gains on cash and cash equivalents 18,189 458,450 501,165--------------------------- ------ --------- --------- ---------Cash and cash equivalents at end of period 38,128,605 12,301,644 2,551,457--------------------------- ------ --------- --------- --------- The notes below form an integral part of this condensed interimfinancial information. Notes to the condensed consolidated interim financial information 1. General information Trans-Siberian Gold plc (the Company) is a UK-based resources company, with theobjective of acquiring and developing a portfolio of quality gold-mining assetsin Russia. During the period, the Company sold its Krasnoyarsk basedsubsidiaries, OOO GRK Amikan (Amikan) and OOO AS Angarskaya ProizvodstvennayaKompaniya (AS APK), to AngloGold Ashanti Limited (AGA). The Company is a public limited company, incorporated and domiciled in theUnited Kingdom and has subsidiaries based in the Russian Federation. TheCompany's registered office and principal place of business is Church Barn, OldFarm Business Centre, Church Road, Toft, Cambridge, CB23 2RF, United Kingdom. The Company's shares are traded on the Alternative Investment Market (AIM) ofthe London Stock Exchange. This consolidated interim financial information was approved by the Board on 26September 2007. These interim financial results do not constitute statutory accounts within themeaning of Section 240 of the Companies Act 1985. Statutory accounts for theyear ended 31 December 2006 were approved by the Board of directors on 19 June2007 and filed with the Registrar of Companies. The Independent Auditors' Reporton those accounts was unqualified, however because of the existence of amaterial uncertainty which cast significant doubt about the Group's ability tocontinue as a going concern, the Independent Auditors' Report contained anemphasis of matter to this effect. The Independent Auditors' Report did notcontain a statement under either Section 237(2) or (3) of the Companies Act1985. 2. First time adoption of International Financial Reporting Standards (IFRS) In accordance with the AIM Rules, the Group is required to present its financialinformation in accordance with IFRS as adopted by the European Union (EU) witheffect from 1 January 2007. In the current year, the Group has adopted all ofthe new and revised Standards and Interpretations issued by the InternationalAccounting Standards Board (the IASB) and the International Financial ReportingInterpretations Committee (IFRIC) of the IASB that have been adopted by the EUand that are relevant to its operations and effective for accounting periodsbeginning on or after 1 January 2007. This adoption has not resulted in anysignificant changes to the Group's accounting policies nor has it affected theamounts reported for the current or prior periods other than their presentationas disclosed in Note 14. 3. Principal accounting policies The Group's principal accounting policies applied in the presentation of theconsolidated interim financial information are set out below. These policieshave been consistently applied to all periods presented, unless otherwisestated, and are consistent with those that the directors intend to use in thefinancial statements for the year ending 31 December 2007 which will be preparedin accordance with IFRS as adopted by the EU. Basis of preparation This condensed consolidated interim financial information for the six monthsended 30 June 2007, has been prepared under the historical cost convention andin accordance with the AIM Rules and complies with IAS 34 Interim financialreporting as adopted by the EU. The disclosures required by IFRS 1 First-timeadoption of International Financial Reporting Standards concerning thetransition from UK GAAP to IFRS are given in Note 14. The 2006 comparatives havealso been presented in accordance with IFRS. The interim condensed consolidatedfinancial report should be read in conjunction with the annual report andaccounts for 2006 which was prepared in accordance with UK GAAP. The financial information is unaudited but has been reviewed by the auditors andtheir report is set out on page 3. The preparation of financial statements in conformity with IFRS requires the useof certain critical accounting estimates. It also requires management toexercise its judgement in the process of applying the Group's accountingpolicies. The areas involving a higher degree of judgement or complexity, orwhere assumptions and estimates are significant to the consolidated financialstatements, are disclosed in Note 4. The following new standards, amendments to standards or interpretations aremandatory for the first time for the financial year ending 31 December 2007: • IFRIC 7 Applying the restatement approach under IAS 29, effective forannual periods beginning on or after 1 March 2006. This interpretation is notrelevant for the Group. • IFRIC 8 Scope of IFRS 2, effective for annual periods beginning on orafter 1 May 2006. This interpretation has no impact on the recognition ofshare-based payments in the Group. • IFRIC 9 Reassessment of embedded derivatives, effective for annualperiods beginning on or after 1 June 2006. This interpretation is not relevantfor the Group. • IFRIC 10 Interims and impairment, effective for annual periodsbeginning on or after 1 November 2006. This interpretation is not relevant forthe Group as there were no previous impairments. • IFRS 7 Financial instruments: Disclosures, effective for annualperiods beginning on or after 1 January 2007. IAS 1 Amendments to capitaldisclosures, effective for annual periods beginning on or after 1 January 2007.IFRS 4 Insurance contracts, revised implementation guidance, effective when anentity adopts IFRS 7. As this interim report contains only condensed financialinformation, and as there are no material financial instrument relatedtransactions in the period, full IFRS 7 disclosures are not required at thisstage. The full IFRS 7 disclosures, including the sensitivity analysis to marketrisk and capital disclosures required by the amendment of IAS 1, will be givenin the annual financial statements. The following new standards, amendments to standards and interpretations havebeen issued, but are not effective for the financial year ending 31 December2007 and have not been early adopted: • IFRIC 11 IFRS 2 - Group and treasury share transactions, effectivefor annual periods beginning on or after 1 March 2007. Management do not expectthis interpretation to be relevant for the Group. • IFRIC 12 Service concession arrangements, effective for annualperiods beginning on or after 1 January 2008. Management do not expect thisinterpretation to be relevant for the Group. • IFRS 8 Operating segments, effective for annual periods beginning onor after 1 January 2009, subject to EU endorsement. Management do not foreseeany changes to the Group's geographical or business segments. Basis of consolidation The consolidated financial information of the Group include the accounts ofTrans-Siberian Gold plc and its subsidiaries. The results of Trans-Siberian Goldplc's subsidiary undertakings are accounted for from the date on which theCompany gains control. Inter-company transactions, balances and unrealised gains on transactionsbetween Group companies are eliminated. Unrealised losses are also eliminatedbut considered an impairment indicator of the asset transferred. The accountingpolicies and financial year ends of its subsidiaries are consistent with thoseapplied by the Company. Foreign currency translation (a) Functional and presentation currency Items included in the financial information of each of the Group's entities aremeasured using the currency of the primary economic environment in which theentity operates ('the functional currency'). The consolidated financialinformation is presented in US dollars ($), which is the functional andpresentation currency of the Company and the functional currency of itssubsidiaries. (b) Transactions and balances Foreign currency transactions are translated into the functional currency at theaverage exchange rate ruling during the month in which the transactions occur.Foreign exchange gains and losses resulting from the settlement of suchtransactions and from the translation at year end exchange rates of monetaryassets and liabilities denominated in foreign currencies are recognised in theincome statement. Foreign exchange gains and losses resulting from thetranslation of cash, cash equivalents and borrowings denominated in foreigncurrencies are shown as financing activities; all other foreign exchange gainsand losses are shown as operating activities. Segment reporting A business segment is a group of assets and operations engaged in providingproducts or services that are subject to risks and returns that are differentfrom those of other business segments. A geographical segment is engaged inproviding products or services within a particular economic environment that aresubject to risks and returns which are different from those of segmentsoperating in other economic environments. Property, plant and equipment Property, plant and equipment are recorded at historical cost less depreciation.Historical cost includes expenditure that is directly attributable to theacquisition of the items. Depreciation of property, plant and equipment iscalculated using the straight-line method to allocate their cost to theirresidual values over their estimated useful lives, being: Buildings - 16 yearsMotor vehicles - 5 yearsPlant and machinery - 4 yearsOffice furniture and equipment - 3-5 years The assets' residual values and useful lives are reviewed, and adjusted ifappropriate, at each balance sheet date. An asset's carrying amount is writtendown immediately to its recoverable amount if the asset's carrying amount isgreater than its estimated recoverable amount. Gains and losses on disposals aredetermined by comparing the proceeds with the carrying amount and are recognisedwithin 'Other income' in the income statement. Assets under construction are not subject to depreciation until the date onwhich the Group brings them into use. Leases Leases in which a significant portion of the risks and rewards of ownership areretained by the lessor are classified as operating leases. Payments made underoperating leases (net of any incentives received from the lessor) are charged tothe income statement on a straight-line basis over the period of the lease. Assets held under finance leases are capitalised as property, plant andequipment at the estimated present value of the underlying lease payments. Thecorresponding finance lease obligation is included within creditors due withinor after more than one year. The interest element is allocated to accountingperiods during the lease term to reflect a constant rate of interest on theremaining balance of the obligation for each accounting period. Exploration and evaluation costs When the Group incurs expenditure on mining properties that have not reached thestage of commercial production, the costs of acquiring the rights to suchmineral properties and related exploration and evaluation costs, includingdirectly attributable employment costs, are deferred where the expected recoveryof costs is considered probable by the successful exploitation or sale of theasset. General overheads are expensed immediately. Depreciation on fixed assetsused on exploration and evaluation projects is charged to deferred costs whilstthe projects are in progress. Finance costs incurred in respect of explorationand evaluation projects are capitalised in those instances where the otherexpenditure attributable to those projects is also being capitalised. Financecosts are also only capitalised during periods when exploration and evaluationactivities are in progress. Finance costs incurred in respect of the Group'sgeneral borrowings are expensed in the profit and loss account as incurred. Anydiscount on deferred purchase consideration is added back to reflect the actualcash paid in respect of net assets acquired on acquisition of companies. Where a feasibility study indicates that the future recovery of costs is notprobable, full provision is made in respect of any deferred costs. Where miningproperties are abandoned, deferred expenditure is written off in full. Deferred exploration and evaluation costs are assessed at each reporting date todetermine whether there are indicators that the asset may be impaired. If anysuch indicator exists, a review for impairment is conducted, by estimating therecoverable amount by reference to the net present value of expected future cashflows of the relevant income generating unit or disposal value if higher. If therecoverable amount is less than the carrying value of an asset, an impairmentloss is recognised. Individual mining properties are considered to be separateincome generating units for this purpose, except where they would be operatedtogether as a single mining business. The amounts shown as deferred exploration and evaluation expenditure representcosts incurred and do not necessarily reflect present or future values. Investments Investments are valued at cost or, where there has been an impairment in value,at their recoverable amount. Investments in subsidiary companies involved inexploration and development are recorded at cost where the expected recovery ofcosts is considered probable. Financial instruments Financial assets are recognised when the Group has rights or other access toeconomic benefits. Such assets consist of cash, equity instruments, contractualrights to receive cash or another financial asset, or contractual rights toexchange financial instruments with another entity on potentially favourableterms. Financial liabilities are recognised when there is an obligation totransfer benefits and that obligation is a contractual liability to deliver cashor another financial asset or to exchange financial instruments with anotherentity on potentially unfavourable terms. When these criteria no longer apply, afinancial asset or liability is no longer recognised. If a legally enforceable right exists to set off recognised amounts of financialassets and liabilities, which are in determinable monetary amounts, and theGroup intends to settle on a net basis, the relevant financial assets andliabilities are offset. Interest costs are charged against income in the year in which they areincurred. Premiums or discounts arising from the difference between the netproceeds of financial instruments purchased or issued and the amounts receivableor payable at maturity are taken to net interest payable over the life of theinstrument. Inventories Inventories of consumables are valued at the lower of cost and net realisablevalue. Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at call withbanks, other short-term highly liquid investments with original maturities ofthree months or less, and bank overdrafts. Bank overdrafts are shown withinborrowings in current liabilities on the balance sheet. Taxation Current tax is the expected tax payable or recoverable on the taxable profit orloss for the year, using rates enacted at the balance sheet date and anyadjustments to the tax payable in respect of previous years. Deferred tax is provided in full, using the liability method, on temporarydifferences arising between the tax bases of assets and liabilities and theircarrying amounts in the consolidated financial statements. However, the deferredincome tax is not accounted for, if it arises from initial recognition of anasset or liability in a transaction other than a business combination that atthe time of the transaction affects neither accounting nor taxable profit orloss. Deferred income tax is determined using tax rates (and laws) that havebeen enacted or substantially enacted by the balance sheet date and are expectedto apply when the related deferred income tax asset is realised or the deferredincome tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable thatfuture taxable profit will be available against which the temporary differencescan be utilised. Deferred income tax is provided on temporary differences arising on investmentsin subsidiaries and associates, except where the timing of the reversal of thetemporary difference is controlled by the Group and it is probable that thetemporary difference will not reverse in the foreseeable future. Share-based payment transactions The Company makes equity-settled share-based payments to certain Group employeesunder the terms of its employee share option scheme. In addition to thosegranted under the Company's employee share option scheme, the Company hasgranted share options to some advisers. The fair value of options granted toemployees is recognised as an employee expense and to advisers as professionalfees, with a corresponding increase in equity by way of a credit to retainedearnings. The fair value is measured at grant date and expensed on a straight-line basisover the expected vesting period. The fair value of the options granted ismeasured using a Black-Scholes valuation model, taking into account the termsand conditions upon which the options were granted. The amount recognised as anexpense is adjusted to reflect the actual number of share options that vest orare likely to vest except where non-exercise is only due to the Company's shareprice not achieving the threshold for vesting. Non-market based vesting conditions are taken into account in estimating thenumber of options likely to vest. The estimate of the number of options likelyto vest is reviewed at each balance sheet date up to the vesting date, at whichpoint the estimate is adjusted to reflect the actual options exercised. Noadjustment is made after the vesting date even if the options are not exercised. Provisions Provisions for decommissioning, environmental restoration and legal claims arerecognised when: the Group has a present legal or constructive obligation as aresult of past events; it is probable that an outflow of resources will berequired 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 atthe end of their producing lives to a condition acceptable to the relevantauthorities and consistent with the Group's environmental policies. The expectedcost of any committed decommissioning or restoration programme, discounted toits net present value where the effect of discounting is material, is providedand capitalised at the beginning of each project. The capitalised cost isamortised over the life of the operation and the increase in the net presentvalue of the provision for the expected cost is included with interest andsimilar charges. The cost of ongoing programmes to prevent and control pollution and torehabilitate the environment is charged to the income statement as incurred. Determination of ore reserves The Group estimates its ore reserves and mineral resources based on informationcompiled by Competent Persons as defined in accordance with the 2004 edition ofthe Australasian Code for Reporting of Exploration Results, Mineral Resourcesand Ore Reserves (the JORC code). 4. Critical accounting estimates and judgements Estimates and judgements are continually evaluated and are based on historicalexperience and other factors, including expectations of future events that arebelieved to be reasonable under the circumstances. Use of estimates and assumptions The Group makes estimates and assumptions concerning the future. The resultingaccounting estimates will, by definition, seldom equal the related actualresults. The more significant areas requiring the use of management estimates andassumptions relate to mineral reserves that are the basis of future cash flowestimates and unit-of-production depreciation, depletion and amortisationcalculations; decommissioning, site restoration, environmental costs and closureobligations; estimates of recoverable gold and other materials; assetimpairments; the fair value and accounting treatment of financial instrumentsand deferred taxation. The estimates and assumptions that have a significant risk of causing a materialadjustment to the carrying amounts of assets and liabilities within the nextfinancial year are discussed below. Critical judgements in applying the entity's accounting policies (a) Exploration and evaluation costs The recoverability of the amounts shown in the Group balance sheet in relationto deferred exploration and evaluation expenditure (and also the carrying valueof the Company's investments in its subsidiaries) are dependent upon thediscovery of economically recoverable reserves, continuation of the Group'sinterests in the underlying mining claims, the political, economic andlegislative stability of the regions in which the Group operates, compliancewith the terms of the relevant mineral rights licences, the Group's ability toobtain the necessary financing to fulfil its obligations as they arise and uponfuture profitable production or proceeds from the disposition of properties. (b) Decommissioning, site restoration and environmental costs The Group's mining and exploration activities are subject to various laws andregulations governing the protection of the environment. The Group recognisesmanagement's best estimate for asset retirement obligations in the period inwhich they are incurred. Actual costs incurred in future periods could differmaterially from the estimates. Additionally, future changes to environmentallaws and regulations, life of mine estimates and discount rates could affect thecarrying amount of this provision. Such changes could similarly impact theuseful lives of assets depreciated on a straight-line-basis, where those livesare limited to the life of mine. (c) Recoverable Value Added Tax (VAT) Generally, Russian VAT on construction costs cannot be recovered untilconstruction is complete and production commences. The directors anticipate thatthe VAT debtor of $4,948,316 (2006 first half: $4,853,568) will be recovered,however if the Group's exploration projects do not proceed to production someVAT may be irrecoverable. (d) Share-based payments The Company makes equity-settled share-based payments to certain Group employeesand advisors. Equity-settled share-based payments are measured at fair valueusing a Black-Scholes valuation model at the date of grant. The fair value isexpensed as services are rendered over the vesting period, based on the Group'sestimate of the shares that will eventually vest and adjusted for the effect ofnon market-based vesting conditions. The expected life used in the model hasbeen adjusted, based on management's best estimate, for the effects ofnon-transferability, exercise restrictions and behavioural considerations. (e) Contingencies By their nature, contingencies will only be resolved when one or more futureevents occur or fail to occur. The assessment of such contingencies inherentlyinvolves the exercise of significant judgement and estimates of the outcome offuture events. 5. Going concern The Group has significant funding needs in order to finance the completion ofthe Asacha project, continue exploration at its properties and provide ongoingworking capital. In addition to the $40 million disposal proceeds of its Krasnoyarsk Krai basedsubsidiaries, the directors believe that total additional funding of $42million, including debt service on the assumption that the $10 million loan fromAngloGold Ashanti Limited is not converted to equity, will be required toprovide adequate financing for the Group until the Asacha mine is cash flowpositive. The disposal proceeds of $40 million will be sufficient for theGroup's funding requirements until the beginning of the second quarter of 2008,by which time significant progress with mine development and plant constructionis expected to have been achieved at Asacha. It is currently the intention ofthe Board to satisfy the forecast additional requirement of $42 million throughraising additional equity, debt finance, equipment supplier credits or acombination of these in respect of which a number of options are beingconsidered. Management tightly control the level of committed expenditure toensure that the Group has sufficient resources available to meet its liabilitiesas they fall due. Notwithstanding the material uncertainty related to the raising of additionalfinance which may cast significant doubt on the Group's ability to continue as agoing concern, the directors believe that the necessary funds to provideadequate financing until the Asacha mine is cash flow positive can be raised asrequired and accordingly they are confident that the Group will continue as agoing concern and have prepared the interim financial information on that basis.The interim financial information does not include the adjustments that wouldresult if the Group was not able to continue as a going concern. 6. Segment information - Geographical Russia UK Total Total Total $ $ continuing discontinued Group operations operations $ $ (Russia) $Six months ended 30 June 2006 Segment revenue - - - - -Segment operating loss (1,695,323) (1,073,600) (2,768,923) (147,016) (2,915,939) Six months ended 30 June 2007 Segment revenue - - - - -Segment operating loss (979,134) (1,025,659) (2,004,793) (418,266) (2,423,059) The Group's operations are entirely focused on exploration and developmentactivities within the Russian Federation, with its corporate head office in theUK. Whilst the directors believe that there is only one relevant class ofbusiness, they recognise that the risks and returns of operating within thesetwo economic environments are significantly different and have accordinglypresented the Group's results by geographical location. The Group was involved in one major transaction in June 2007, the sale of itsKrasnoyarsk based subsidiaries, Amikan and AS APK, to AGA (see Note 11). Inaddition, subsidiary SV was put into liquidation. The results of these threesubsidiaries are shown as discontinued operations. 7. Property, plant and equipment Buildings Plant and Motor Office Assets under Total $ machinery vehicles equipment construction(a) $ $ $ and $ furniture $ CostAt 1 January 2006 981,333 1,817,921 1,145,838 557,965 12,753,915 17,256,972Additions 12,891 227,644 9,364 18,380 3,568,981 3,837,260Disposals (14,208) (14,690) - (1,545) - (30,443)At 30 June 2006 980,016 2,030,875 1,155,202 574,800 16,322,896 21,063,789 Accumulated depreciationAt 1 January 2006 (210,725) (367,239) (299,354) (279,989) - (1,157,307)Charge for period (b) (83,478) (100,161) (98,762) (66,299) - (348,700)Disposals 4,960 6,078 - 438 - 11,476At 30 June 2006 (289,243) (461,322) (398,116) (345,850) - (1,494,531) Net book valueAt 1 January 2006 770,608 1,450,682 846,484 277,976 12,753,915 16,099,665At 30 June 2006 690,773 1,569,553 757,086 228,950 16,322,896 19,569,258 CostAt 1 January 2007 1,013,001 2,077,054 1,155,298 554,397 20,275,473 25,075,223Additions 57,989 107,859 - 77,444 878,460 1,121,752Disposals - (1,403) - (8,537) - (9,940)Discontinued operations (315,902) (938,295) (747,755) (157,368) (360,885) (2,520,205)At 30 June 2007 755,088 1,245,215 407,543 465,936 20,793,048 23,666,830 Accumulated depreciationAt 1 January 2007 (371,937) (556,683) (499,345) (382,251) - (1,810,216)Charge for period (b) (80,557) (104,240) (97,564) (44,141) - (326,502)Disposals - 415 - 7,289 - 7,704Discontinued operations 124,737 389,952 340,540 114,260 - 969,489At 30 June 2007 (327,757) (270,556) (256,369) (304,843) - (1,159,525) Net book valueAt 1 January 2007 641,064 1,520,371 655,953 172,146 20,275,473 23,265,007At 30 June 2007 427,331 974,659 151,174 161,093 20,793,048 22,507,305 a. Assets under construction at 30 June 2007 comprise $15,676,735 forbuilding construction, $4,379,019 in relation to the construction of an accessroad and $737,294 for plant and equipment at Asacha. b. $267,862 (2006 first half: $261,298) of the depreciation charge relatedto property, plant and equipment used on exploration and evaluation projects andwas capitalised in exploration and evaluation costs in accordance with theGroup's accounting policy. c. Contracted commitments for capital purchases amount to $3,353,176(2006 first half: $1,874,896). 8. Exploration and evaluation costs Movements on deferred exploration and evaluation expenditure, by location of theproperty, are as follows: 01.01.2006 Additions Disposals 30.06.2006 $ $ $ $ Kamchatka - Asacha and Rodnikova 9,491,185 1,893,791 - 11,384,976Krasnoyarsk - Veduga 14,181,128 594,558 - 14,775,686Krasnoyarsk - Bogunay 1,027,020 514,030 - 1,541,050 24,699,333 3,002,379 - 27,701,712 01.01.2007 Additions Disposals 30.06.2007 $ $ $ $ Kamchatka - Asacha and Rodnikova 12,009,511 670,074 - 12,679,585Krasnoyarsk - Veduga 15,843,762 1,622,532 (17,466,294) -Krasnoyarsk - Bogunay 1,946,696 400,319 (2,347,015) - 29,799,969 2,692,925 (19,813,309) 12,679,585 9. Borrowings 30.06.2007 31.12.2006 30.06.2006 $ $ $ Non-current 10,000,000 10,000,000 10,000,000Current - 350,289 - 10,000,000 10,350,289 10,000,000 Movement in borrowings is analysed as follows: $-------------------------------------------- ---------Six months ended 30 June 2006At 1 January 2006 -Increase in borrowings 10,000,000-------------------------------------------- ---------At 30 June 2006 10,000,000-------------------------------------------- --------- Six months ended 30 June 2007At 1 January 2007 10,350,289Increase in borrowings by discontinued operations 4,465,699Advance on sale of subsidiaries 10,000,000Repayment of advance upon completion of sale of subsidiaries (10,000,000) Discontinued operations (4,815,988)-------------------------------------------- ---------At 30 June 2007 10,000,000-------------------------------------------- --------- All borrowings were from AngloGold Ashanti Limited (AGA), a related party byvirtue of its 29.79% holding in the shares of the Company. Details of relatedparty transactions are given in Note 12. The sale of Amikan and AS APK to AGA was completed on 25 June 2007 (see Note11). Prior to this date, AGA made two initial payments, comprising $8.7 millionon 1 March 2007 and $1.3 million on 30 May 2007, which were subject to intereston commercial terms. 10. Provisions for liabilities and charges Legal claims Environmental Total provision /site $ restoration $ provision $ Six months ended 30 June 2006 At 1 January 2006 - 156,694 156,694At 30 June 2006 - 156,694 156,694 Six months ended 30 June 2007 At 1 January 2007 - 200,489 200,489Additional provisions 345,433 - 345,433At 30 June 2007 345,433 200,489 545,922 11. Discontinued operations On 22 January 2007, in line with the Group's decision to focus its activities inKamchatka, the Board arranged the appointment of a liquidator of the Company'swholly owned subsidiary OOO Kompaniya Svezhiy Veter (SV) which had been seekinglicences in the Yakutia region. The liquidation process was substantiallycompleted by 30 June 2007. On 12 February 2007, the Company announced that the sale and purchase agreementsin respect of the sale of all of its interests in its two wholly ownedsubsidiaries, OOO GRK Amikan (Amikan) and OOO AS Angarskaya ProizvodstvennayaKompaniya (AS APK), to AngloGold Ashanti Limited (AGA) for a cash considerationof $40 million (the AGA Transaction) had been signed. The AGA Transaction wasapproved by the Company's shareholders on 30 March 2007, and completed on 25June 2007. The income statement and cash flow statement distinguish discontinued operationsfrom continuing operations. The results of SV, Amikan and AS APK are presentedin this condensed interim financial information as discontinued operations.Financial information relating to discontinued operations for the period to thedate of discontinuance or disposal is set out below. 6 months to 6 months to 12 months to 30.06.2007 30.06.2006 31.12.2006Income statement information $ $ $ Revenue - - -Administrative expenses (444,274) (395,414) (834,283)Other income 325 86,010 473,093Net foreign exchange gains on operating 25,683 162,388 158,625activities Operating loss for discontinued (418,266) (147,016) (202,565)operations Finance costs - net (90,237) 61 (314) Loss before income tax for discontinued (508,503) (146,955) (202,879)operations Income tax expense (328) - (6,669) Loss for discontinued operations (508,831) (146,955) (209,548) Loss per share from discontinued operations attributable tothe equity holders of the company(expressed in cents per share) - basic and diluted (1.24) (0.36) (0.51) Cash flow information 6 months to 6 months to 12 months to 30.06.2007 30.06.2006 31.12.2006 $ $ $ Operating cash flows for discontinued operations (566,499) 484,592 232,976 Investing cash flows for discontinued operations (1,717,505) (1,103,753) (2,495,316) Financing cash flows for discontinued operations (a) 4,465,699 - 350,289 Total cash flows for discontinued operations 2,181,695 (619,161) (1,912,051) a. AGA funded the exploration activities of the Krasnoyarsk Krai companieswith effect from 1 November 2006 and all their expenditure from 1 December 2006. $-------------------------------------------- ---------Consideration received on sale of subsidiaries 40,000,000Direct costs relating to the disposal (443,860)Cash transferred on disposal (753,182)-------------------------------------------- ---------Proceeds from sale of subsidiaries, net of cash transferred 38,802,958-------------------------------------------- --------- Net asset value of sold subsidiaries: - property, plant and equipment 1,550,716 - exploration and evaluation costs 19,813,309 - debtors 1,895,331 - trade and other payables (5,512,240)-------------------------------------------- --------- 17,747,116Net asset value of liquidated subsidiary: - trade and other payables (47)-------------------------------------------- --------- 17,747,069-------------------------------------------- ---------Profit on disposal of subsidiaries 21,055,889-------------------------------------------- --------- AGA paid the first $10 million of the sale proceeds in two tranches on 1 March2007 and 30 May 2007, and the balance of $30 million on 25 June 2007. Also on 25June 2007, AGA paid $505,094 as reimbursement of the costs of the airbornegeophysical survey undertaken at the Veduga and Bogunay properties in 2006 whichwas credited to exploration and evaluation costs. The directors currently believe that the disposal qualifies for the SubstantialShareholdings Exemption (SSE) and therefore no tax has been provided on theprofit on disposal. 12. Related party transactions There are no related party transactions other than those relating to majorshareholder AngloGold Ashanti Limited, as detailed below: Related party Nature of Purchases Amount owing/ Purchases Amount owing/ transaction during (owed) at during (owed) at the 6 months the 6 months to to 30 June 2007 30 June 2007 30 June 2006 30 June 2006 $ $ $ $ AngloGold Technical Ashanti services 214,530 997,852 259,521 446,363 Loans (see Note 9) 14,465,699 10,000,000 10,000,000 10,000,000 Loan interest 868,726 995,556 10,552 10,552 Directors' fees - - 21,464 11,019 Other services (5,947) (32,693) (26,746) (26,746) 15,543,008 11,960,715 10,264,791 10,441,188 In addition to the above, on 25 June 2007 the Company completed the sale of itsKrasnoyarsk based subsidiaries, Amikan and AS APK, to AGA for $40 million (seeNote 11). 13. Contingent liabilities Under the terms of its acquisition of ZAO Trevozhnoye Zarevo (TZ), the Company(TSG) agreed with the two minority shareholders to purchase their residualshareholdings, in aggregate 9.95%, for $500,000 each, conditional upon theCompany's directors formally deciding to proceed with mine development of theAsacha deposit. On 17 September 2007, TSG completed the acquisition of one ofthe minority shareholdings in TZ at a cost of $425,000, thereby increasing itsinterest in the Asacha and Rodnikova projects to 95.03%. 14. Explanation of transition to IFRS As set out in Note 2, the Group is required to present its financial informationin accordance with IFRS as adopted by the EU with effect from 1 January 2007,with comparative figures restated. The following disclosures are required in theyear of transition from United Kingdom Generally Accepted Accounting Practices(UK GAAP) to IFRS. The last financial statements under UK GAAP were for the yearended 31 December 2006 and the date of transition to IFRS was therefore 1January 2006. Reconciliation of equity at 1 January 2006 (date of transition to IFRS): Note UK GAAP Effect of IFRS 1.01.2006 transition 1.01.2006 $ to IFRS $ $--------------------------- ------ --------- --------- ---------AssetsNon-current assetsProperty, plant and equipment 16,099,665 - 16,099,665Exploration and evaluation costs 24,699,333 - 24,699,333Taxes recoverable - value added tax a - 4,608,939 4,608,939--------------------------- ------ --------- --------- --------- 40,798,998 4,608,939 45,407,937--------------------------- ------ --------- --------- ---------Current assetsTrade and other receivables a 6,796,744 (4,608,939) 2,187,805 Cash and cash equivalents 11,902,705 - 11,902,705--------------------------- ------ --------- --------- --------- 18,699,449 (4,608,939) 14,090,510--------------------------- ------ --------- --------- --------- --------------------------- ------ --------- --------- ---------Total assets 59,498,447 - 59,498,447--------------------------- ------ --------- --------- --------- Total equity b 56,524,082 - 56,524,082--------------------------- ------ --------- --------- ---------Total equity and liabilities 59,498,447 - 59,498,447--------------------------- ------ --------- --------- --------- a. The directors anticipate that the value added tax debtor will berecoverable when the Group commences production and has been reclassified fromcurrent assets to non-current assets in accordance with IAS 1 Presentation ofFinancial Statements. b. Transition to IFRS had no impact on any line item included in equity orliabilities. Reconciliation of equity at 30 June 2006 (included as equivalent periodcomparatives): Note UK GAAP Effect of IFRS 30.06.2006 transition 30.06.2006 $ to IFRS $ $--------------------------- ------ --------- --------- ---------AssetsNon-current assetsProperty, plant and equipment 19,569,258 - 19,569,258Exploration and evaluation costs 27,701,712 - 27,701,712Taxes recoverable - value added tax a - 4,853,568 4,853,568--------------------------- ------ --------- --------- --------- 47,270,970 4,853,568 52,124,538--------------------------- ------ --------- --------- ---------Current assetsTrade and other receivables a 8,223,842 (4,853,568) 3,370,274 Cash and cash equivalents 12,301,644 - 12,301,644--------------------------- ------ --------- --------- --------- 20,525,486 (4,853,568) 15,671,918--------------------------- ------ --------- --------- --------- --------------------------- ------ --------- --------- ---------Total assets 67,796,456 - 67,796,456--------------------------- ------ --------- --------- --------- Total equity b 54,221,395 - 54,221,395Total liabilities b 13,575,061 - 13,575,061--------------------------- ------ --------- --------- ---------Total equity and liabilities 67,796,456 - 67,796,456--------------------------- ------ --------- --------- --------- a. The directors anticipate that the value added tax debtor will berecoverable when the Group commences production and has been reclassified fromcurrent assets to non-current assets in accordance with IAS 1 Presentation ofFinancial Statements. b. Transition to IFRS had no impact on any line item included in equity orliabilities. Reconciliation of equity at 31 December 2006 (latest period presented in themost recent annual financial statements under UK GAAP): Note UK GAAP Effect of IFRS 31.12.2006 transition 31.12.2006 $ to IFRS $ $--------------------------- ------ --------- --------- ---------AssetsNon-current assetsProperty, plant and equipment 23,265,007 - 23,265,007Exploration and evaluation costs 29,799,969 - 29,799,969Taxes recoverable - value added tax a - 6,001,683 6,001,683--------------------------- ------ --------- --------- --------- 53,064,976 6,001,683 59,066,659--------------------------- ------ --------- --------- ---------Current assetsTrade and other receivables a 8,724,009 (6,001,683) 2,722,326 Cash and cash equivalents 2,551,457 - 2,551,457--------------------------- ------ --------- --------- --------- 11,275,466 (6,001,683) 5,273,783--------------------------- ------ --------- --------- --------- --------------------------- ------ --------- --------- ---------Total assets 64,340,442 - 64,340,442--------------------------- ------ --------- --------- --------- Total equity b 50,533,503 - 50,533,503Total liabilities b 13,806,939 - 13,806,939--------------------------- ------ --------- --------- ---------Total equity and liabilities 64,340,442 - 64,340,442--------------------------- ------ --------- --------- --------- a. The directors anticipate that the value added tax debtor will berecoverable when the Group commences production and has been reclassified fromcurrent assets to non-current assets in accordance with IAS 1 Presentation ofFinancial Statements. b. Transition to IFRS had no impact on any line item included in equity orliabilities. Reconciliation of loss for the period ended 30 June 2006 (included as equivalentperiod comparatives): Note UK GAAP Effect of Reclassification IFRS 6 months to transition of discontinued 6 months to 30.06.2006 to IFRS operations (c) 30.06.2006 $ $ $ $---------------------- ---- --------- --------- --------- ---------Continuing operationsRevenue - - - -Administrative expenses a (3,331,811) (130,351) 395,414 (3,066,748)Other income a - 130,351 (86,010) 44,341Net foreign exchange gains on b 874,322 (458,450) (162,388) 253,484operating activities---------------------- ---- --------- --------- --------- ---------Operating loss (2,457,489) (458,450) 147,016 (2,768,923) Finance income 154,528 - (61) 154,467Finance costs (10,552) - - (10,552)Net foreign exchange gains on financing activities b - 458,450 - 458,450---------------------- ---- --------- --------- --------- ---------Loss before income tax (2,313,513) - 146,955 (2,166,558) Income tax expense (24,889) - - (24,889)---------------------- ---- --------- --------- --------- ---------Loss from continuing operations (2,338,402) - 146,955 (2,191,447) Discontinued operationsLoss from discontinued operations - - (146,955) (146,955)---------------------- ---- --------- --------- --------- ---------Loss for the period (2,338,402) - - (2,338,402)---------------------- ---- --------- --------- --------- --------- Attributable to:Equity holders of the company (2,300,123) - - (2,300,123)Minority interest (38,279) - - (38,279)---------------------- ---- --------- --------- --------- ---------Loss for the period (2,338,402) - - (2,338,402)---------------------- ---- --------- --------- --------- --------- a. Other income, previously included in administration expenses, relatesto the hiring out of staff and drilling equipment from the Veduga project of$86,010 and equipment from the Asacha project of $44,341 during periods ofexploration inactivity. For the year to 31 December 2006, as previouslypresented under UK GAAP, these items were included in 'Operating income'. b. Foreign exchange gains and losses resulting from the translation ofcash, cash equivalents and borrowings denominated in foreign currencies,previously included in operating expenses, have been reclassified as financingactivities in accordance with the Group's revised accounting policies. c. During the period, Group subsidiary Svezhiy Veter (SV) was put intoliquidation and Amikan and AS APK were sold and as such the results of SV,Amikan and AS APK are presented in this condensed interim financial informationas discontinued operations (see Note 11), with comparatives reclassified inaccordance with IFRS 5 Non-current assets held for sale and discontinuedoperations. Reconciliation of loss for the year ended 31 December 2006 (latest periodpresented in the most recent annual financial statements under UK GAAP): Note UK GAAP Effect of Reclassification IFRS 12 months to transition of discontinued 12 months to 31.12.2006 to IFRS operations (b) 31.12.2006 $ $ $ $---------------------- ---- --------- --------- --------- ---------Continuing operationsRevenue - - - -Administrative expenses (7,002,732) - 834,283 (6,168,449)Other income 512,971 - (473,093) 39,878Net foreign exchange gains on a 1,061,607 (501,165) (158,625) 401,817operating activities---------------------- ---- --------- --------- --------- ---------Operating loss (5,428,154) (501,165) 202,565 (5,726,754) Finance income 294,451 - (126) 294,325Finance costs (491,498) - 440 (491,058)Net foreign exchange gains on financing activities a - 501,165 - 501,165---------------------- ---- --------- --------- --------- ---------Loss before income tax (5,625,201) - 202,879 (5,422,322) Income tax expense (197,334) - 6,669 (190,665)---------------------- ---- --------- --------- --------- ---------Loss from continuing operations (5,822,535) - 209,548 (5,612,987) Discontinued operationsLoss from discontinued operations - - (209,548) (209,548)---------------------- ---- --------- --------- --------- ---------Loss for the period (5,822,535) - - (5,822,535)---------------------- ---- --------- --------- --------- --------- Attributable to:Equity holders of the company (5,784,256) - - (5,784,256)Minority interest (38,279) - - (38,279)---------------------- ---- --------- --------- --------- ---------Loss for the period (5,822,535) - - (5,822,535)---------------------- ---- --------- --------- --------- --------- a. Foreign exchange gains and losses resulting from the translation ofcash, cash equivalents and borrowings denominated in foreign currencies,previously included in operating expenses, have been reclassified as financingactivities in accordance with the Group's revised accounting policies. b. During the period, Group subsidiary Svezhiy Veter (SV) was put intoliquidation and Amikan and AS APK were sold and as such the results of SV,Amikan and AS APK are presented in this condensed interim financial informationas discontinued operations (see Note 11), with comparatives reclassified inaccordance with IFRS 5 Non-current assets held for sale and discontinuedoperations. Explanation of material adjustments to the cash flow statement for the sixmonths to 30 June 2006: Bank deposits of $10,785,550 that were held for periods of one week, two weeksand one month and form an integral part of the Group's cash management wereclassified under management of liquid resources under UK GAAP and are classifiedas cash and cash equivalents under IFRS. There are no other material differencesbetween the cash flow statement presented under IFRS and that presented under UKGAAP. Explanation of material adjustments to the cash flow statement for the yearended 31 December 2006: Bank deposits of $1,705,611 that were held for periods of one week and two weeksand form an integral part of the Group's cash management were classified undermanagement of liquid resources under UK GAAP and are classified as cash and cashequivalents under IFRS. There are no other material differences between the cashflow statement presented under IFRS and that presented under UK GAAP. 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