22 May 2008 07:00
Trans-Siberian Gold plc
Asacha Project update
LONDON: 22 May 2008 - Trans-Siberian Gold plc ("TSG" or "the Company") (TSG.L) reports that it has undertaken a comprehensive review of the scope, costs and economics of its Asacha project over the past eight months. The review took longer than anticipated due to the need for extensive investigations into plant foundation requirements in this seismically active location and the need to supply grid power instead of relying on diesel power generation as previously planned to avoid the latter's increasingly high costs and supply risks. Access to grid power has proven feasible with very significant operating cost savings, albeit at the expense of a slower build up to full production, with the originally planned annual throughput of 200,000 tonnes of ore now expected to be achieved in 2011.
During the review period detailed design work has continued, mining of the main development access adit has commenced, the accommodation camp has been substantially completed after modification and earthworks and foundation work are also in progress.
The total project cost until Asacha is cash flow positive is now estimated at US$105.6 million, net of US$6.3 million VAT recoveries, compared to the September 2007 estimate of US$101.2 million (net of VAT recoveries of US$3.2 million). The total project cost includes pre-commissioning mining costs of US$5.0 million, other pre-start up operating expenditure of US$23.6 million and contingency of US$4.0 million. US$58.3 million, net of US$1.4 million VAT recovered, has been spent up to the end of April 2008.
The US$4.7 million increase in pre-start up capital expenditure from the September 2007 estimate includes a net increase of US$3.5 million for the provision of external power supply. Other capital cost increases have been partially offset by savings in a number of areas, principally through the use of own labour and equipment for a major part of the infrastructure and tailings dam construction.
Projected operating costs have also been substantially reduced. At a gold price of US$750/oz, Life of mine ("LOM") cash costs on an all equity basis on total gold production of 590,000 oz are forecast at US$200/oz, before taking account of a US$32/oz credit from silver production. Cash costs including all royalties and taxes (in total US$70.9 million, net of VAT recoveries) on an all equity basis are forecast at US$320/oz. Total costs on the same basis, after depreciation of all capital expenditure (including US$10.5 million post start up) and pre-start up mining and other operating expenditure, are forecast at US$514/oz.
Mine output is expected to increase from 70,000 mt of ore in 2009 to 150,000 mt in 2010 and 200,000 mt in 2011, with gold production of 12,000 oz in 2009, 56,000 oz in 2010 and 68,000 oz in 2011. Based on the current JORC resource, operations would continue thereafter at that level for four and a half years, with annual production increasing to between 95,000 oz and 111,000 oz due to higher grades. However it is expected that overall exploitable reserves will be increased by at least 50% from the 590,000 ounces assumed in the current feasibility study, principally from the northern extension to the main orebody. Exploration also continues at Rodnikova where the JORC resource currently comprises 166,000 ounces in the indicated category and an additional 238,000 ounces inferred.
The projected return of the Asacha project on an all equity basis at a gold price of US$750/oz is over 20% and close to 50% when expenditure to date is excluded.
TSG reported on 25 February 2008 that the previously reported increase in the interest of UFG Asset Management ("UFG") and its associates to 32.96% of the Company's shares constituted an Event of Change of Control ("ECC") in respect of the US$10 million loan provided to TSG by AngloGold Ashanti Limited ("AGA") in June 2006 (the "AGA loan") The AGA loan had been repayable in equal tranches, on the first and second anniversaries of the commencement of gold production at Asacha, and was convertible into TSG shares when the Company raised new equity, however as a result of the ECC the capital and accrued interest of the loan became immediately due and payable. TSG has repaid US$4 million and accrued interest, in total US$5.7 million, in accordance with an agreed payment schedule, in line with the Company's maturing cash deposits.
The Group's total requirement for additional funds before the Asacha mine is cash flow positive, including further exploration at Rodnikova, corporate costs and the purchase of the remaining 4.98% minority interest in Asacha is US$50 million.
Discussions are in progress with Russian banks in respect of project finance of US$25/30 million. TSG also plans to raise up to US$25 million of new equity through a placing during the next two months. UFG has indicated that it is prepared to subscribe for a minimum of US$10 million of this new equity.
The Asacha licence requires TSG to bring the Asacha mining enterprise into operation at its projected capacity in accordance with the technical design at a rate of not less than 1,000 kg of gold per annum before the end of 2008. Although it is now expected that the Asacha plant will only be commissioned in the third quarter of 2009, due to the delays in resolving the power issue, the mine will be operating at a rate commensurate with the minimum capacity required by the end of 2008. The Company believes that it is operating in full compliance with the license agreement.
The TSG Board believes that, after many setbacks and disappointments, the Company is now on course to complete the necessary funding over the next few months and start commercial production in 2009, with the financial prospects based on currently projected gold prices better than they have ever been.
Ends
Contacts:
TSG
Simon Olsen +44 (0) 1223 265760
Seymour Pierce
Stuart Lane +44 (0) 20 7107 8000
Geological information in this report is based on data reviewed by Mr V Zhouravlev, Chief Geologist of OOO Trans-Siberian Gold Management who is an expert of the GKZ (State Reserves Commission of the Russian Federation) with 45 years relevant experience in mineral exploration and a Qualified Person under AIM rules. Mr Zhouravlev consents to the inclusion of the information in the form and context in which it appears.