TSG.L Regulatory News (TSG)

21 Sep 2006 07:02

Trans-Siberian Gold PLC21 September 2006 Trans-Siberian Gold plc Appointment of Chief Executive and proposed consolidation of operations in Far East Russia • Appointment of new Chief Executive • Agreement in principle to sell Veduga and Bogunay properties for US$40 million • Sale to provide equity component of Asacha funding • Proposed acquisition of gold assets in Kamchatka, Far East Russia London: 21 September 2006 - Trans-Siberian Gold plc ("TSG" or "the Company")(TSG.L) is pleased to announce the appointment of Mr Oleg Bagirov as its Moscowbased CEO and as General Director of its Russian subsidiary OOO Trans-SiberianGold Management, with immediate effect. Mr Bagirov, aged 55, is currently, and will remain, CEO of OAO SibirskiyGorno-Metallurgichesky Alyans ("Sigma"), a gold focussed exploration company,with assets held in the Kamchatka peninsula in Far East Russia, where TSG isdeveloping the Asacha mine and also holds the licence for Rodnikova. Mr. Bagirovwas Chairman of United Investment Bank, Moscow from 1994 to 2002 and previouslyheld a number of senior positions with both Russian and international banks. TSG also announces that, subject to limited due diligence and the requiredregulatory approvals, its Board has agreed in principle to sell all of theCompany's interests in its two wholly owned subsidiaries, OOO GRK Amikan("Amikan") and OOO AS Angarskaya Proizvodstvennaya Kompaniya ("AS APK"), toAngloGold Ashanti Limited ("AGA") for a cash consideration of US$40 million (the"AGA transaction"). Amikan holds the licence for exploration and mineral extraction at the Vedugaproject, as well as an exploration licence in respect of the 540km2 areasurrounding Veduga. It has a book value of US$22.9 million and made an operatingloss of US$1.8 million in 2005. AS APK holds the licence for exploration anddevelopment of the Bogunay property. It has a book value of US$2.4 million andmade an operating loss of US$116,000 in 2005. Both Veduga and Bogunay arelocated in Krasnoyarsk Krai, central Siberia. As part of the AGA transaction, AGA has also agreed: •to fund the cost of the airborne geophysical survey currently underway at Veduga and Bogunay up to a maximum of US$900,000; and •to extend its Technical Services Agreement with TSG, under which certain specialist technical consultancy services are available to the Company on an arms-length, commercial basis, for a further two years to 1 July 2009. TSG's Chief Operating Officer, Glen Koropchuk, and Asacha Project Manager, Solly van der Wath, are currently seconded to the Company from AGA under this agreement. TSG intends to utilise the majority of the proceeds from the AGA transaction,together with project finance of up to US$50 million from Standard Bank plc asannounced on 9 June 2006, to bring the Asacha mine into production by late 2008with the balance to be used for the Company's general working capitalrequirements until Asacha is in production. As announced previously, Asacha isexpected to achieve an annual rate of gold production of 100,000 oz from 2009. AGA has also agreed that its existing US$10 million loan announced in June 2006,may be converted into TSG shares by the Company at any time after 31 December2006, subject to shareholder approval and the provisions of the City Code onTakeovers and Mergers ("the Code") should this lead to AGA's interest in theCompany exceeding 29.9%. Since the AGA transaction is a related party transaction the Board (except forRichard Duffy and Ben Guenther who are connected to AGA) consider, havingconsulted with TSG's Nominated Adviser, Seymour Pierce Limited, that the termsof the AGA transaction are fair and reasonable insofar as the shareholders ofTSG are concerned. On the basis of this advice the Board has approved theimplementation of the AGA transaction. The AGA transaction remains subject tothe fulfilment of certain conditions precedent, including limited due diligence,the receipt of certain regulatory approvals in Russia and South Africa, nomaterial adverse change in respect of either Amikan or AS APK and the completionof the necessary agreements. It is anticipated that the conditions to the AGAtransaction, including the finalisation of an amendment to the Veduga licence,should be achieved in the near future. The Board believes that the AGA transaction will not involve any material taxliabilities in either UK or the Russian Federation. In reaching its decision to dispose of TSG's interests in Veduga and Bogunay,the Board recognised that the need for substantial additional Ore Reservediscoveries to support the high cost and technical complexity of treatingVeduga's refractory ore economically, with capital requirements estimated atseveral hundred million dollars and the possibility that production may notcommence for several years until grid hydroelectric power becomes available,makes this project more suitable for development by a larger company. Thesolution to funding Asacha, facilitated by the proceeds from the AGA transactionwithout further dilution of existing shareholders, will enable TSG to focusefficiently on its existing opportunities in Kamchatka as well as elsewhere inthe Russian Far East. In this connection the Board has also received a proposal from UFG PrivateEquity Fund ("UFG"), whereby the Company would acquire 100% of its Kamchatkabased exploration subsidiary Sigma for shares in TSG (the "Sigma transaction").UFG, which acquired a 25% interest in TSG in February 2006, also holds a 72.5%interest in Sigma. Sigma's assets under this transaction comprise two earlystage exploration targets, Porozhistoye and Karymshinskoye, that are locatedreasonably close to TSG's Asacha and Rodnikova in south Kamchatka and theOzernovskoye project in Southern Koryakia, just north of the Kamchatka border,approximately 500 km north of Petropavlovsk-Kamchatskiy. The Ozernovskoyeproject is also an early stage exploration project, however its potential, fromreasonably extensive, although preliminary, previous exploration, is believed tobe 1.3 million oz of open pit mineral resources, as well as an undergroundmineral resource, similar to Asacha, bringing the total mineral resource toapproximately 1.6 million oz. The Sigma transaction also has the attraction of broadening TSG's access toRussian management expertise under Oleg Bagirov's leadership with the potentialfor significant rationalisation of overhead costs. Subject to more detailed due diligence and agreement on relative values, TSG'sBoard, with support from both its major shareholders, believes that thecombination of interests envisaged by the Sigma transaction may provide anattractive prospect for the future development of the Company's interests inKamchatka beyond the Asacha project, as well as elsewhere in Russia. It proposesto progress negotiations as a high priority. This related party transaction willalso necessitate a "fairness opinion" from Seymour Pierce and will requireshareholder approval to waive the requirement for UFG to make an offer for allTSG's outstanding shares, since it would result in UFG's interest in TSGexceeding 29.9%. The Company hopes to be in a position to present a moredetailed proposal in respect of the Sigma transaction and terms agreed betweenthe parties, in principle, to shareholders, within the next few weeks. The Board firmly believes that the matters referred to in this announcementrepresent a highly positive combination of events after a very difficult period,which will enable the Company to move to becoming a profitable gold producer bythe end of 2008 with an interesting portfolio of medium term opportunities andthe ability to respond to new ones as they arise. Ends Contacts: TSG Peter Burnell (Chairman) +44 (0) 1434 632 292Simon Olsen (Finance Director) +44 (0) 1223 265 760 / 07770 484 965 Seymour PierceStuart Lane +44 (0) 207 107 8000 BanksideKeith Irons +44 (0) 20 7367 8873 This information is provided by RNS The company news service from the London Stock Exchange