TSG.L Regulatory News (TSG)

12 Mar 2007 07:01

Trans-Siberian Gold PLC12 March 2007 Trans-Siberian Gold plc Notice of Extraordinary General meeting and Asacha project update London: 12 March 2007 - Trans-Siberian Gold plc ("TSG" or "the Company") (TSG.L)reports that an Extraordinary General Meeting has been called for 30 March 2007at which shareholders will be asked to approve the sale of the Company's twoKrasnoyarsk based subsidiaries, OOO GRK Amikan ("Amikan") and OOO AS AngarskayaProizvodstvennaya Kompaniya ("AS APK") to AngloGold Ashanti Limited ("AGA") fora cash consideration of US$40 million (the "AGA Transaction"). A circular inrespect of the AGA Transaction has been sent to TSG shareholders. On 22 February 2007, TSG announced that the AGA Transaction had been approved bythe South African Reserve Bank ("SARB"), after which AGA made an initial paymentof US$8.7 million and will make a further payment of US$1.3 million ("theInitial Payments") to TSG. The second initial payment is being made followingthe cancellation of an undrawn facility of US$1.3 million, guaranteed by theCompany, which had been made available by a subsidiary of AGA to ZAO TrevozhnoyeZarevo ("TZ"), TSG's 90.05% owned subsidiary, for the purposes of TZ's Asachaproject. Following SARB approval, AGA has also made available facilities, guaranteed bythe Company, of up to US$4 million and US$1 million ("the Interim Facilities")to Amikan and AS APK respectively to fund their exploration expenditure witheffect from 1 November 2006 and their administration costs with effect from 1December 2006. It is anticipated that the remaining conditions to the completion of the AGATransaction which comprise: •the approval of the Federal Agency for Subsoil Use ("FASU") of the Russian Federation to an extension of the Veduga licence; •the approval of the Federal Anti-Monopoly Service of the Russian Federation; and •the completion of a due diligence review by AGA will be satisfied in the near future. The Company's Nominated Adviser, Seymour Pierce Limited, advised the TSG Boardon 19 September 2006 that in its view, the AGA Transaction was fair andreasonable so far as TSG's shareholders were concerned. Seymour Piercere-confirmed its opinion on 9 March 2007. Based upon professional advice, the Company believes that the AGA Transactionwill not give rise to any material tax liabilities in either the United Kingdomor the Russian Federation. AMIKAN Amikan had an unaudited book value of US$27.0 million as at 31 December 2006 andmade an unaudited operating loss of US$1.8 million in 2006. The decision to dispose of TSG's interests in Veduga and Bogunay recognised thatthe need for substantial additional ore reserve discoveries to support the highcost and technical complexity of treating Veduga's refractory ore economically,with capital requirements estimated at several hundred million dollars, and theprobability that production could not commence for several years until gridhydroelectric power became available, made Veduga more suitable for developmentby a larger company. Prior to receiving AGA's offer to acquire Amikan and AS APK, information inrespect of Veduga was provided to several Russian companies which had expresseda potential interest in the property, however this did not elicit anysubstantive proposals. TSG has received no enquiries or offers in respect ofAmikan or the Veduga property, either prior to receiving AGA's offer to acquireAmikan and AS APK or following the announcement of the proposed AGA Transactionon 21 September 2006. AS APK AS APK had an unaudited book value of US$2.8 million as at 31 December 2006 andmade an unaudited operating loss of US$459,000 in 2006. CONVERSION OF AGA LOANS On 9 June 2006, the Company reported that AGA had provided a US$10 million loanto TSG (the "AGA Loan"). As announced on 12 February 2007 TSG and AGA haveagreed that, on or after 30 April 2007, either party may serve notice in respectof the conversion of the AGA Loan into TSG ordinary shares, subject toshareholder approval and the provisions of the City Code on Takeovers andMergers ("the Code") should this lead to AGA's interest in the Company exceeding29.9%. The exercise price for such conversion will be TSG's volume weightedaverage share price at the close of business on the 20 trading days immediatelyprior to the date on which such notice is served. If the sale and purchase agreements relating to the AGA Transaction do notcomplete as a result of the Company's breach of those agreements or a failure toobtain the required FASU approval, then the Initial Payments become immediatelyrepayable. If those agreements do not complete for any other reason, including afailure by shareholders to approve the AGA Transaction, either TSG or AGA mayserve notice, but not before 30 April 2007, requiring the conversion of theInitial Payments into TSG ordinary shares, subject to shareholder approval andthe provisions of the Code should this lead to AGA's interest in the Companyexceeding 29.9%. The exercise price for such conversions would be calculated inthe same manner as detailed above. The Interim Facilities are also convertible on the same basis if the AGATransaction does not complete, save in circumstances where shareholderssubsequently fail to approve the adoption of conversion amendment deeds thatwill govern the equity conversion of the Interim Facilities by the Company, inwhich case the Interim Facilities become immediately due and payable, If the above mentioned approvals related to the provisions of the Code are notobtained, only such shares as may be issued without AGA's interest in theCompany breaching the 29.9% threshold may be issued and the balance of anyamounts owing under the AGA Loan, the Initial Payments and the InterimFacilities will remain outstanding, with repayments of any amounts under the AGALoan due on the first and second anniversary of the first gold production atAsacha and repayments of the Initial Payments and the Interim Facilities inequal tranches on the third and fourth anniversary of the signing of therespective agreements. A circular in respect of these matters will be sent to shareholders in duecourse. ASACHA As a result of the Company's inability to raise additional equity in the thirdquarter of 2006 and the withdrawal in November 2006 of Standard Bank plc fromits mandate to arrange project finance for Asacha, it became necessary to reducethe previously envisaged initial scale of operation at Asacha to a level whichcan realistically be financed in conjunction with the sale proceeds from the AGATransaction, while maintaining the commencement of production during the secondhalf of 2008. It is therefore now planned to treat 100,000 tonnes of ore in 2009 to produceapproximately 40,000 ounces of gold, increasing in 2010 to an annual treatmentrate of around 140,000 tonnes of ore to produce 60,000 ounces of gold per annum.The phased build up will facilitate training and reduce mine development leadtimes. Flexibility will be built in to increase production later shouldreserves, as anticipated, increase to in excess of 1 million ounces. Expenditure on developing the Asacha project up to the end of January 2007amounted to US$37.0 million with additional capital expenditure (includingpre-production operating costs) until the commencement of production estimatedat US$70.2 million. Total estimated expenditure of US$107.2 million includesrecoverable VAT of US$15.1 million. TSG's total expenditure until Asacha is inpositive cash flow, including the Company's general working capital requirementsand exploration at Rodnikova, TSG's other property in Kamchatka, is estimated atUS$78 million, assuming the completion of the AGA Transaction and that the AGALoan is converted into TSG ordinary shares by mid 2007. The Company is confidentthat the additional funding requirement of US$38 million, net of the saleproceeds of the AGA Transaction, can be met through loan finance and/oradditional equity once it is clear that the Asacha project is progressingsatisfactorily towards completion. Life of mine cash costs at an annual treatment rate of 140,000 tonnes areestimated at approximately US$275/oz and therefore the Company believes that theeconomics of the scaled down Asacha project remain robust and capable ofdelivering acceptable returns to shareholders. Activity at the Asacha site during the winter has been primarily focussed onerection of the camp and completion of the remaining earthworks for the plantsite. All main site roads have been completed. The camp will be ready for thespring-summer season when the main construction activities will commence. Asoriginally planned, mine development and horizontal transportation will beundertaken using trackless equipment and stoping will use mainly mechanizedmethods, for which a suite of equipment is ready to be procured. The portal areahas been prepared and initial mine development is expected to commence in July2007. The current term of the Technical Services Agreement (the "AGA TSA"), underwhich AGA makes available certain specialist technical consultancy services tothe Company on an arms-length, commercial basis, expires on 1 July 2007. On 21September 2006 the Company announced that AGA had agreed to extend the AGA TSAfor a further two years to 1 July 2009. AGA's offer of this extension was madein the context of the requirements of Standard Bank plc in arranging projectfinance for Asacha. In light of the revised plans for the development of Asacha,the Company and AGA are discussing the continuing requirement for the AGA TSAand for staff seconded by AGA to TSG and will make a further announcement in duecourse. TSG firmly believes that completion of the AGA Transaction now provides the onlypracticable way forward for the development of the Asacha project and that itwill enable the Company to move to becoming a profitable gold producer at Asachawith the ability, once Asacha is in production, to respond to new opportunitiesas they arise. Further announcements in respect of the satisfaction of the remaining conditionsto the completion of the sale of the Krasnoyarsk companies will be made in duecourse. Ends Contacts: TSGSimon Olsen +44 (0) 1223 265760 Seymour PierceStuart Lane +44 (0) 20 7107 8000 BanksideKeith Irons +44 (0) 20 7367 8873Oliver Winters This information is provided by RNS The company news service from the London Stock Exchange