Trans-Siberian Gold (TSG) - Half Yearly Report RNS Number : 2690N Trans-Siberian Gold PLC 27 September 2012 Trans-Siberian Gold plc Interim Results for the half year ended 30 June 2012 Highlights · Asacha 1st half production 12,708 oz. gold, 15,372 oz. silver · Asacha plant operating at planned 150,000 tonnes per annum from June 2012 · $6.4 million debt converted to equity in February 2012 Chief Executive Officer's Report Trans-Siberian Gold plc ("TSG" or the "Company") (AIM:TSG.L) reports that its results for the six months to 30 June 2012 were affected by operational difficulties at the Asacha mine, principally the lower than expected grade of ore delivered to the plant, however is pleased to report on more recent progress towards the resolution of the dilution problem and other issues which affected the performance of the mine during the reporting period. Revenue from the sale of 12,708 oz. of refined gold and 15,372 oz. of refined silver was $21.0 million and $456,000 respectively. Average realised prices were $1,651 per oz. gold and $30 per oz. silver. Cost of sales per oz. gold, net of the credit from silver sales revenue, was $1,663. Cash cost per oz. gold, net of the silver credit and excluding royalty was $651. During the first half of 2011, the Company was still in the exploration and development phase of its gold projects and therefore received no operating income in that period. Administrative expenses for the half year amounted to $462,000 in UK and $3.4 million in Russia, in aggregate $3.8 million compared to $529,000 and $1.3 million respectively, in aggregate $1.8 million, for the corresponding period of 2011 and $1.6 million and $4.2 million respectively, in aggregate $5.8 million, for 2011 as a whole. Russian administrative expenses in the first half of 2012 included the write off of $439,000 non-recoverable Value Added Tax (2011 full year $926,000). Finance income was $3,000 (2011 first half: $6,000). Finance costs were $1.5 million (2011 first half: $193,000), net of interest capitalised $nil (2011 first half: $2.0m). The loss for the period was $3.9 million (2011 first half: $1.0 million) net of exchange gains of $29,000 (2011 first half: $1.0 million). Cash and cash equivalents increased from $2.2 million to $3.7 million. Borrowings reduced from $48.5 million to $39.8 million, principally reflecting the conversion into equity of $6.4 million of short term loan facilities provided by the Company's major shareholders UFG Asset Management (UFG) and AngloGold Ashanti Limited (AGA), scheduled repayments under the first of the two project finance facilities totalling $43 million provided by Sberbank for the development of Asacha and repayment of another short term loan facility provided by UFG. In June 2011 UFG and AGA agreed to provide TSG with additional short term loan facilities in aggregate $781,000 on commercial terms, repayable 90 days after drawdown of the facilities. In September 2012 the term of these facilities was extended to 1 March 2013. The revised facility agreements include an option for the lenders, subject to the requisite approval of TSG's shareholders, to convert any part of the outstanding loans into TSG shares at a price equivalent to the volume weighted average price of TSG's shares for the period of 60 business days prior to notice of such conversion. Asacha Project, Kamchatka Krai In the six months to 30 June 2012 mine development and preparation works, by-product extraction works and exploration works comprised 2,070 metres with more than 63,600 tonnes of ore extracted. The ore stockpile at the end of June 2012 comprised approximately 63,400 tonnes. The main issue during this period was high dilution in the mine, reducing the grade of the ore delivered to the plant. A comprehensive technical underground mine audit concluded that the mining method prescribed in the design of the Asacha mine, long hole blasting, was not appropriate for the fractured rock enclosing the main stoping zone planned for mining in 2012. On the basis of the mine auditor's recommendations, the adjacent blocks are now being mined by shallow hole blasting with better results in terms of dilution. Due to the measures taken, ore grades improved to 7.4-7.7 g/t in June and July. Blending the ore extracted using shallow hole blasting with the ore from the main stoping block is expected to lead to an increase in the average grade of processed ore to 10-11 g/t in the fourth quarter. On this basis, TSG expects 2012 production of 31,000 oz. gold and 48,500 oz. silver. Mine performance in the second half of the third quarter was affected by the breakdown of some underground equipment. This reduced the amount of stoping ore which could be delivered to the plant, necessitating blending the mined ore with lower grade ore from the surface ore stockpile. The problem of equipment breakdown is now being addressed. The necessary spare parts have been ordered and some new machines have been purchased, including a new underground truck which is expected at the site in October. In the first quarter the Asacha plant processed an average 9,626 tonnes per month, increasing to an average 10,968 tonnes per month in the second quarter. By the end of the reporting period monthly plant throughput reached the level of 12,500 tonnes, as envisaged by the design documentation. Gold recovery consistently exceeded 95% during the period and also reached the levels prescribed by the plant's design. Discussions have commenced with a design institute in respect of the planned increase in the plant's annual capacity from the current 150,000 tonnes to 200,000 tonnes. Additional equipment for the site laboratory has increased its sample capacity to more than 100 assays per day. An additional drilling rig, intended to improve the quality of geologic sampling in the mine, was delivered to site in July 2012. Mining and production at Asacha in the first half of 2012 is shown in the following table. 2012 1^st 2^nd 1st July/ year 2011 quarter quarter half August to date Mine (metres) 1,023 1,047 2,070 733 2,803 3,481 development Ore extracted (mine development and (tonnes) 33,525 30,090 63,615 21,128 84,743 34,537 stoping) Ore (tonnes) 28,877 32,963 61,840 25,104 86,944 30,308 processed Average grade gold (g/t) 7.03 6.33 6.66 6.86 6.72 9.35 Average grade silver (g/t) 16.48 10.55 13.32 11.48 12.79 15.66 Recovery rate (%) 95.14 95.48 95.39 95.48 95.43 94.2 gold Recovery rate (%) 48.19 73.67 59.54 76.99 64.04 61.8 silver Gold in (oz.) 6,689 6,462 13,151 5,351 18,502 7,833 dore Silver in (oz.) 7,320 8,991 16,311 7,314 23,625 8,596 dore Gold (oz.) 6,281 6,427 12,708 5,800 18,508 6,539 refined Silver (oz.) 6,975 8,397 15,372 7,903 23,275 7,189 refined Rodnikova Project, Kamchatka Krai The contract for the preparation of the pre-feasibility study on Rodnikova has been signed and work is expected to start by the end of September. Personnel During the first half of 2012 personnel numbers at Kamchatka increased from to 445 to 457, with a further increase to 468 by the end of August. Contacts: TSG +44 (0) 1480 811871 Simon Olsen Seymour Pierce Ltd +44 (0) 207 107 8000 Stewart Dickson / David Foreman (Corporate Finance) Jeremy Stephenson (Corporate Broking) The information in this report relating to Asacha's mineral resources is based on information compiled by Michael O'Brien, a member of the Australasian Institute of Mining and Metallurgy, who has sufficient experience relevant to the styles of mineralisation and types of deposit under consideration and to the activity he is undertaking to qualify as a Competent Person as defined in the 2004 edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves. Mr O'Brien is a Qualified Person as defined by the AIM Rules and consents to the inclusion in the report of the matters based on his information in the form and context in which it appears. Condensed Consolidated Statement of Financial Position at 30 June 2012 30 June 30 June 31 December 2012 2011 2011 unaudited unaudited audited Note $000 $000 $000 Assets Non-current assets Mining properties 6 29,512 - 34,224 Property, plant and equipment 7 80,247 87,670 84,894 Deferred exploration and 8 2,866 31,225 2,866 evaluation costs Deferred tax asset 7,066 - 6,009 Trade and other receivables - 826 - Total non-current assets 119,691 119,721 127,993 Current assets Inventories 9 12,884 796 10,544 Trade and other receivables 2,745 5,708 3,963 Cash and cash equivalents 3,701 4,581 2,190 Total current assets 19,330 11,085 16,697 Total assets 139,021 130,806 144,690 Liabilities Non-current liabilities Loans and borrowings 10 23,196 49,633 32,690 Deferred tax liabilities 320 - 623 Provisions 11 644 331 644 Total non-current liabilities 24,160 49,964 33,957 Current liabilities Trade and other payables 5,367 3,013 4,401 Borrowings 10 16,450 - 15,808 Total current liabilities 21,817 3,013 20,209 Total liabilities 45,977 52,977 54,166 Total net assets 93,044 77,829 90,524 Capital and reserves attributable to owners of the Company Share capital 15 18,988 17,323 18,050 Share premium 15 89,520 77,938 84,013 Retained deficit (15,464) (17,432) (11,539) Total equity 93,044 77,829 90,524 Condensed Consolidated Statement of Comprehensive Income - for the 6 months ended 30 June 2012 6 months to 6 months to 12 months to 30 June 2012 30 June 2011 31 December 2011 unaudited unaudited audited $000 $000 Note $000 Revenue 12 21,441 - 11,930 Cost of sales 13 (21,589) - (8,149) Gross profit (148) - 3,781 Administrative expenses (3,818) (1,836) (5,806) Other income 96 - 635 Net foreign exchange differences 26 1,031 1,980 on operating activities (Loss) profit from operations (3,844) (805) 590 Finance expense (1,529) (193) (1,465) Finance income 3 6 12 Net foreign exchange differences 3 42 54 on financing activities Loss before tax (5,367) (950) (809) Income tax credit (charge) 1,442 (99) 5,393 (Loss) profit for the period (3,925) (1,049) 4,584 Total comprehensive (expense) (3,925) (1,049) 4,584 income for the period (Loss) profit for the period attributable to: Owners of the parent company (3,925) (1,049) 4,584 (Loss) profit for the period (3,925) (1,049) 4,584 Total comprehensive (expense) income for the period attributable to: Owners of the parent company (3,925) (1,049) 4,584 (Loss) profit for the period (3,925) (1,049) 4,584 (Loss) profit per share attributable to the owners of the parent company (expressed in cents) - basic and diluted 14 (3.59) (1.05) 4.57 Condensed Consolidated Statement of Changes in Equity for the 6 months ended 30 June 2012 Attributable to owners of the Company Share Share Retained Total capital premium deficit equity $000 $000 $000 $000 At 1 January 2011 17,323 77,938 (16,462) 78,799 Loss for the period - - (1,049) (1,049) Value of share-based payments - - 79 79 At 30 June 2011 17,323 77,938 (17,432) 77,829 Issue of share capital 727 6,075 - 6,802 Profit for the period - - 5,633 5,633 Value of share-based payments - - 260 260 At 31 December 2011 18,050 84,013 (11,539) 90,524 Issue of share capital 938 5,507 - 6,445 Loss for the period - - (3,925) (3,925) Value of share-based payments - - - - At 30 June 2012 18,988 89,520 (15,464) 93,044 Condensed Consolidated Statement of Cash Flows for the 6 months ended 30 June 2012 6 months to 6 months to 12 months to 30 June 2012 30 June 2011 31 December 2011 unaudited unaudited audited $000 $000 $000 Cash flows from operating activities (Loss) profit for the period (3,925) (1,049) 4,584 Adjustment for: Mining properties depletion 7,108 - 2,828 Mining properties depletion (835) - - charged to inventory Depreciation 6,378 805 3,303 Depreciation charged to inventory, assets under construction, mining (903) (797) (2,636) properties and deferred exploration and evaluation costs Finance expenses - net 1,523 145 1,399 Share based payments - 79 339 Corporation tax (credit) charge (1,442) 99 (5,393) Loss (gain) on sale of property, 1 (3) 1 plant and equipment Cash flows from operating activities before changes in 7,905 (721) 4,425 working capital and provisions Increase in inventories (761) (154) (9,902) Decrease in trade and other 1,217 603 3,204 receivables (Decrease) increase in trade and (495) (475) 1,722 other payables Cash generated from (used in) 7,866 (747) (551) operations Corporation tax received (paid) 386 (68) 7 Interest paid on borrowings (1,398) (193) (857) Net cash flows generated from 6,854 (1,008) (1,401) (used in) operating activities Investing activities Purchase of mining properties (860) - - Purchase of property, plant and (1,999) (13,805) (15,231) equipment (PPE) Proceeds from sale of PPE 45 5 - Purchase of exploration and evaluation assets including - (1,334) (6,493) capitalised interest Interest received - third party 3 6 12 Net cash used in investing (2,811) (15,128) (21,712) activities Financing activities Proceeds from bank borrowings - 12,171 12,087 Repayment of bank borrowings (1,478) - (3,000) Proceeds from short term 781 - 8,000 borrowings Repayment of short term borrowings (1,760) - - Proceeds from long term borrowings - 4,523 4,330 Repayment of finance leases (78) - (149) Net cash (used in) generated from (2,535) 16,694 21,268 financing activities Net increase (decrease) in cash 1,508 558 (1,845) and cash equivalents Cash and cash equivalents at 2,190 3,981 3,981 beginning of the period Exchange gains on cash and cash 3 42 54 equivalents Cash and cash equivalents at end 3,701 4,581 2,190 of the period Unaudited notes forming part of the condensed consolidated interim financial information for the period ended 30 June 2012 1. General information Trans-Siberian Gold plc (the Company) is a UK-based resources company, with the objective of acquiring and developing a portfolio of quality gold-mining assets in Russia. The Company is a public limited company, incorporated and domiciled in the United Kingdom and has subsidiaries based in the Russian Federation. The Company's registered office is 39 Parkside Cambridge CB1 1PN United Kingdom. The registered number of the Company is 1067991. The Company's shares are traded on the AIM Market of the London Stock Exchange. This condensed consolidated interim financial information was approved by the Board on 26 September 2012. The interim financial information for the six months ended 30 June 2012 and 30 June 2011 is unreviewed and unaudited and does not constitute statutory accounts as defined in Section 435 of the Companies Act 2006. The comparative financial information for the year ended 31 December 2011 has been derived from the statutory financial statements for that period. Statutory accounts for the year ended 31 December 2011 were approved by the Board of directors on 25 May 2012 and filed with the Registrar of Companies. The Independent Auditors' Report on those accounts was unqualified and did not draw attention to any matters by way of emphasis. 2. Going concern Management tightly control the level of committed expenditure to ensure that the Group has sufficient resources available to meet its liabilities as they fall due. Regular cash forecasts are reviewed to assess the potential impact of factors such as changes in commodity prices, production rates and the timing of capital expenditure. These forecasts, taking account of reasonably possible changes in commodity prices, trading performance and expenditure, show that the Group has adequate resources to continue in operational existence for the foreseeable future, wherefore the directors are confident that the Group will continue as a going concern and have prepared the interim financial information on that basis. 3. Principal accounting policies The Group's principal accounting policies applied in the presentation of the consolidated interim financial information are set out below. These policies have been consistently applied to all periods presented, unless otherwise stated, and are consistent with those that the directors intend to use in the financial statements for the year ending 31 December 2012 which will be prepared in accordance with IFRS as adopted by the EU. Basis of preparation The condensed consolidated interim financial information for the six months ended 30 June 2012 has been prepared under the historical cost convention and in accordance with the AIM Rules and complies with IAS 34 Interim financial reporting as adopted by the EU. The interim condensed consolidated financial report does not include all disclosures that would otherwise be required in a complete set of financial statements and should be read in conjunction with the annual report and accounts for 2011. The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The areas_ involving a higher degree of judgement or complexity, or where assumptions and estimates are significant to the consolidated financial statements, are disclosed in Note 4. The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision only affects that period or in the period of revision and future periods if the revision affects both current and future periods. The same accounting policies, presentation and methods of computation are followed in this condensed consolidated interim financial information as were applied in the Group's latest annual audited financial statements except that, in the current financial year, the Group has adopted a number of new or revised Standards and interpretations. However none of these has had a material impact on the Group's reporting. None of the IFRS and IFRIC amendments or interpretations issued by the IASB since the publication of the latest annual report is expected to have a material impact on the Group. Basis of consolidation The consolidated financial statements of the Group include the accounts of Trans-Siberian Gold plc and its subsidiaries. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date on which control ceases. Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated but considered an impairment indicator of the asset transferred. The accounting policies and financial year ends of its subsidiaries are consistent with those applied by the Company. Foreign currency translation a) Functional and presentation currency Items included in the financial information of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The consolidated financial information is presented in US dollars ($), which is the functional and presentation currency of the Company and the functional currency of its subsidiaries. b) Transactions and balances Foreign currency transactions are translated into the functional currency at the average exchange rate ruling during the month in which the transactions occur. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. Foreign exchange gains and losses resulting from the translation of cash, cash equivalents and borrowings denominated in foreign currencies are shown as financing activities; all other foreign exchange gains and losses are shown as operating activities. Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision makers. The chief operating decision makers have been identified as the Chief Executive Officer, Finance Director and the non-executive board members. The operating results of each of the geographical segments are regularly reviewed by the Group's chief operating decision makers in order to make decisions about the allocation of resources and to assess their performance. Russia has production, exploration and development activities, the United Kingdom office is an administrative cost centre. Property, plant and equipment Property, plant and equipment are recorded at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Depreciation of property, plant and equipment is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, being: Buildings - 3-20 years Motor vehicles - 4-7 years Plant and machinery - 4-7 years Office furniture and equipment - 3-5 years The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within administrative expenses in profit or loss. Assets under construction are not subject to depreciation until the date on which the Group brings them into use. Leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on a straight-line basis over the period of the lease. Assets held under finance leases are capitalised as property, plant and equipment at the estimated present value of the underlying lease payments. The corresponding finance lease obligation is included in creditors due within or after more than one year. The interest element is allocated to accounting periods during the lease term to reflect a constant rate of interest on the remaining balance of the obligation for each accounting period. Exploration and evaluation costs When the Group incurs expenditure on mining properties that have not reached the stage of commercial production, the costs of acquiring the rights to such mining properties and related exploration and evaluation costs, including directly attributable employment costs, are deferred where the expected recovery of costs is considered probable by the successful exploitation or sale of the asset. General overheads are expensed immediately. Depreciation on property, plant and equipment used on exploration and evaluation projects is charged to deferred costs whilst the projects are in progress. The Group capitalises borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (one that takes a substantial period of time to get ready for use or sale) as part of the cost of that asset. Finance costs incurred in respect of the Group's general borrowings are expensed in profit or loss as incurred. Exploration and evaluation costs are not amortised. Where a feasibility study indicates that the future recovery of costs is not probable, full provision is made in respect of any deferred costs. Where mining properties are abandoned, deferred expenditure is written off in full. Deferred exploration and evaluation costs are assessed at each reporting date to determine whether there are indicators that the asset may be impaired. If any such indicator exists, a review for impairment is conducted. The amounts shown as deferred exploration and evaluation expenditure represent costs incurred and do not necessarily reflect present or future values. In future a project's deferred exploration and evaluation expenditure will be transferred to non-current mining assets when the decision to proceed to the development stage of that project is taken. Mining properties Once a project reaches the stage of commercial production, the capitalised exploration and evaluation expenditure, other than that on buildings, plant and machinery and equipment, related to that project is transferred to tangible assets as mining properties. Mining properties are depleted over the estimated life of the reserves on a 'unit of production' basis. Commercial reserves are proven and probable reserves. Changes in commercial reserves affecting unit of production calculations are deal with prospectively over the revised remaining reserves. Impairment The carrying amount of the Group's non-current assets is compared to the recoverable amount of the assets whenever events or changes in circumstances indicate that the net book value may not be recoverable. The recoverable amount is the higher of value in use and the fair value less costs to sell. Value in use is estimated by reference to the net present value of expected future cash flows of the relevant cash generating unit. Individual mining properties are considered to be separate income generating units for this purpose, except where they would be operated together as a single mining business. If the recoverable amount is less than the carrying amount of an asset, an impairment loss is recognised. The revised carrying amounts are amortised in line with the Group's accounting policy. A previously recognised impairment loss is reversed if the recoverable amount increases as a result of a reversal of the conditions that originally resulted in the impairment. The reversal is recognised in the income statement and is limited to the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised in the prior reporting periods. Business combinations The consolidated financial statements incorporate the results of the business combinations using the acquisition method of accounting. In the consolidated statement of financial position, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated statement of comprehensive income from the date on which control is obtained. Financial instruments Financial assets are recognised when the Group has rights or other access to economic benefits. Such assets consist of cash, equity instruments, contractual rights to receive cash or another financial asset, or contractual rights to exchange financial instruments with another entity on potentially favourable terms. Financial liabilities are recognised when there is an obligation to transfer benefits and that obligation is a contractual liability to deliver cash or another financial asset or to exchange financial instruments with another entity on potentially unfavourable terms. When these criteria no longer apply, a financial asset or liability is no longer recognised. Compound financial instruments are split into their debt and equity components. If a legally enforceable right exists to set off recognised amounts of financial assets and liabilities, which are in determinable monetary amounts, and the Group intends to settle on a net basis, the relevant financial assets and liabilities are offset. The Group has no financial instruments that are classified as fair value through profit or loss. Interest costs are charged against income in the year in which they are incurred. Premiums or discounts arising from the difference between the net proceeds of financial instruments purchased or issued and the amounts receivable or payable at maturity are taken to net interest payable over the life of the instrument. Inventories Raw materials and consumables, which consist of tools for development activities, spare parts, fuel and materials used in mining operations, are initially recognised at cost, and subsequently valued at the lower of cost and net realisable value. Stockpiles comprise ore containing gold and are valued at the lower of weighted average cost (including direct labour costs and related overheads) and net realisable value (using assay data to estimate the amount of gold contained in the stockpiles, adjusted for expected gold recovery rates.) Finished goods (comprising refined gold and silver) and work in progress (including gold in circuit and gold dore) are stated at the lower of weighted average cost and net realisable value. Cost includes direct materials, direct labour costs and production overheads, including depreciation and depletion of relevant property, plant and equipment and mining properties. Net realisable value represents the estimated selling price less all expected costs to completion and costs to be incurred in selling and distribution. Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at call with banks and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the statement of financial position. Revenue The Group has entered into contracts for the sale of refined gold and silver. Revenue arising from sales under these contracts is recognised when the price is determinable, the product has been delivered in accordance with the terms of the contract, the significant risks and rewards have been transferred to the customer and collection of the sale price is reasonably assured. Taxation Current tax is the expected tax payable or recoverable on the taxable profit or loss for the year, using rates enacted at the reporting date and any adjustments to the tax payable in respect of previous years. Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the reporting date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Share-based payment transactions The Company makes equity-settled share-based payments to certain Group employees under the terms of its employee share option scheme. In addition to those granted under the Company's employee share option scheme, the Company has granted share options to some advisers. The fair value of options granted to employees is recognised as an employee expense and to advisers as professional fees, with a corresponding increase in equity by way of a credit to retained earnings. The fair value is measured at grant date and expensed on a straight-line basis over the expected vesting period. The fair value of the options granted is measured using a Black-Scholes valuation model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest or are likely to vest except where non-exercise is only due to the Company's share price not achieving the threshold for vesting. Non-market based vesting conditions are taken into account in estimating the number of options likely to vest. The estimate of the number of options likely to vest is reviewed at each reporting date up to the vesting date, at which point the estimate is adjusted to reflect the actual options exercised. No adjustment is made after the vesting date even if the options are not exercised. Defined contribution personal pension plan Contributions to employees' defined contribution personal pension plans are recognised as an expense in profit or loss as the services giving rise to the Group's obligations are rendered by the employees. Provisions Provisions for decommissioning, environmental restoration and legal claims are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Provisions are not recognised for future operating losses. Group companies are generally required to restore mine and processing sites at the end of their productive lives to a condition acceptable to the relevant authorities and consistent with the Group's environmental policies. The expected cost of any committed decommissioning or restoration programme, discounted to its net present value where the effect of discounting is material, is provided and capitalised at the beginning of each project. The capitalised cost is amortised over the life of the operation and the increase in the net present value of the provision for the expected cost is included with interest and similar charges. The costs of on-going programmes to prevent and control pollution and to rehabilitate the environment are charged to profit or loss as incurred. Determination of ore reserves The Group estimates its ore reserves and mineral resources based on information compiled by Competent Persons as defined in accordance with the 2004 edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (the JORC code). 4. Critical accounting estimates and judgements Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Use of estimates and assumptions The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The more significant areas requiring the use of management estimates and assumptions relate to mineral reserves that are the basis of future cash flow estimates and unit-of-production depreciation, depletion and amortisation calculations; decommissioning, site restoration, environmental costs and closure obligations; estimates of recoverable gold and other materials; asset impairments; the fair value and accounting treatment of financial instruments and deferred taxation. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Critical judgements in applying the entity's accounting policies a) Exploration and evaluation costs The recoverability of the amounts shown in the Group statement of financial position in relation to deferred exploration and evaluation expenditure (and also the carrying value of the Company's investments in its subsidiaries) are dependent upon the discovery of economically recoverable reserves, continuation of the Group's interests in the underlying mining claims, the political, economic and legislative stability of the regions in which the Group operates, compliance with the terms of the relevant mineral rights licences, the Group's ability to obtain the necessary financing to fulfil its obligations as they arise and upon future profitable production or proceeds from the disposal of properties. b) De-commissioning, site restoration and environmental costs The Group's mining and exploration activities are subject to various laws and regulations governing the protection of the environment. The Group recognises management's best estimate for asset retirement obligations in the period in which they are incurred. Actual costs incurred in future periods could differ materially from the estimates. Additionally, future changes to environmental laws and regulations, life of mine estimates and discount rates could affect the carrying amount of this provision. Such changes could similarly impact the useful lives of assets depreciated on a straight-line basis, where those lives are limited to the life of mine. c) Recoverable Value Added Tax (VAT) $1,836,067 Russian VAT was recovered in the first half of 2012 (2011 first half: $1,520,583). The directors anticipate that all of the VAT receivable of $2,446,499 (31 December 2011: $3,284,193) will be recovered during the second half of 2012. d) Share-based payments The Company makes equity-settled share-based payments to certain Group employees and advisers. Equity-settled share-based payments are measured at fair value using a Black-Scholes valuation model at the date of grant. The fair value is expensed as services are rendered over the vesting period, based on the Group's estimate of the shares that will eventually vest and adjusted for the effect of non-market-based vesting conditions. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. e) Contingencies By their nature, contingencies will only be resolved when one or more future events occur or fail to occur. The assessment of such contingencies inherently involves the exercise of significant judgement and estimates of the outcome of future events. 5. Segment information The Group's operations are entirely focused on gold production and exploration and development activities within the Russian Federation, with its corporate head office in the UK. Operating segments have been identified on the basis of internal reports about the components of the Group. The Group has two reportable segments as set out below. The operating results of each of these segments are regularly reviewed by the Group's chief operating decision makers in order to make decisions about the allocation of resources and to assess their performance. The accounting policies of these segments are in line with those set out in note 3. Head Office Russia Total Reportable segments as at 30 June 2012 $000 $000 $000 Revenue - 21,441 21,441 Cost of sales - (21,589) (21,589) Administration expenses (462) (3,356) (3,818) Other income - 96 96 Finance expenses (71) (1,458) (1,529) Finance income 1 2 3 Exchange differences 3 26 29 Taxation credit - 1,442 1,442 Loss for the period after taxation (529) (3,396) (3,925) Non-current assets 5 119,686 119,691 Inventories - 12,884 12,884 Trade and other receivables (current assets) 86 2,659 2,745 Cash and cash equivalents 461 3,240 3,701 Segment assets 552 138,469 139,021 Loans and borrowings 784 38,862 39,646 Trade and other payables (current) 200 5,167 5,367 Deferred tax liability - 320 320 Provisions - 644 644 Segment liabilities 984 44,993 45,977 Segment net assets (liabilities) (432) 93,476 93,044 Head Office Russia Total Reportable segments as at 31 December 2011 $000 $000 $000 Revenue - 11,930 11,930 Cost of sales - (8,149) (8,149) Administration expenses (1,564) (4,242) (5,806) Other income - 635 635 Finance expenses (net) (235) (1,218) (1,453) Exchange differences 54 1,980 2,034 Taxation credit - 5,393 5,393 Profit (loss) for the year after taxation (1,745) 6,329 4,584 Non-current assets 7 127,986 127,993 Inventories - 10,544 10,544 Trade and other receivables (current assets) 36 3,927 3,963 Cash and cash equivalents 1,153 1,037 2,190 Segment assets 1,196 143,494 144,690 Loans and borrowings 8,187 40,311 48,498 Trade and other payables (current) 357 4,044 4,401 Deferred tax liability - 623 623 Provisions - 644 644 Segment liabilities 8,544 45,622 54,166 Segment net assets (liabilities) (7,348) 97,872 90,524 Head Office Russia Total Reportable segments as at 30 June 2011 $000 $000 $000 Revenue - - - Cost of sales - - - Administration expenses (529) (1,307) (1,836) Finance expenses (net) (190) 3 (187) Exchange differences 42 1,031 1,073 Taxation credit - (99) (99) Loss for the period after taxation (677) (372) (1,049) Non-current assets 9 119,712 119,721 Inventories - 796 796 Trade and other receivables (current assets) 80 5,628 5,708 Cash and cash equivalents 4,231 350 4,581 Segment assets 4,320 126,486 130,806 Loans and borrowings 6,572 43,061 49,633 Trade and other payables (current) 219 2,794 3,013 Provisions - 331 331 Segment liabilities 6,791 46,186 52,977 Segment net assets (liabilities) (2,471) 80,300 77,829 · Finance income, finance costs and taxation have been analysed above in line with the way the Group's business is structured. · All material non-current assets other than financial instruments are owned by a Russian subsidiary and are located in Russia. · Share based payments of $nil (2011 first half: $78,902) relate solely to Head Office. · All revenue is generated in Russia from the sale of refined gold and silver to one well established Russian bank. · All material capital expenditure in the current and previous year relates to the Russia segment. 6. Mining properties Mining properties assets relate to the Asachinskoye (Asacha) mining licence held by the Company's subsidiary ZAO Trevozhnoye Zarevo (TZ). Asacha Rodnikova Total $000 $000 $000 At 1 January 2011 - - - At 30 June 2011 - - - Additions - - - Transfers from Deferred exploration and evaluation 37,052 - 37,052 costs Amortisation (2,828) - (2,828) At 31 December 2011 34,224 - 34,224 Additions 2,396 - 2,396 Amortisation (7,108) - (7,108) At 30 June 2012 29,512 - 29,512 7. Property, plant and equipment Office Assets equipment under Plant and Motor and construction Buildings machinery vehicles furniture ^a Total $000 $000 $000 $000 $000 $000 Cost At 1 January 2011 1,167 7,395 2,089 408 67,421 78,480 Additions - 452 - 6 14,942 15,400 Disposals - (2) - - - (2) At 30 June 2011 1,167 7,845 2,089 414 82,363 93,878 Depreciation At 1 January 2011 (940) (2,836) (1,356) (271) - (5,403) Charge for year (44) (526) (206) (29) - (805) ^b Disposals - - - - - - At 30 June 2011 (984) (3,362) (1,562) (300) - (6,208) Net book value At 1 January 2011 227 4,559 733 137 67,421 73,077 At 30 June 2011 183 4,483 527 114 82,363 87,670 Cost At 1 July 2011 1,167 7,845 2,089 414 82,363 93,878 Additions - 22 - (6) (295) (279) Disposals (12) (307) (44) - - (363) Re-classification 71,455 8,408 294 88 (80,245) - At 31 December 72,610 15,968 2,339 496 1,823 93,236 2011 Depreciation At 1 July 2011 (984) (3,362) (1,562) (300) - (6,208) Charge for year (1,590) (685) (194) (29) - (2,498) ^b Disposals 12 308 44 - - 364 At 31 December (2,562) (3,739) (1,712) (329) - (8,342) 2011 Net book value At 1 July 2011 183 4,483 527 114 82,363 87,610 At 31 December 70,048 12,229 627 167 1,823 84,894 2011 Cost At 1 January 2012 72,610 15,968 2,339 496 1,823 93,236 Additions - - - - 1,777 1,777 Disposals - (79) - (10) 0 (89) Re-classification - 121 - - (121) 0 At 30 June 2012 72,610 16,010 2,339 486 3,749 94,924 Depreciation At 1 January 2012 (2,562) (3,739) (1,712) (329) - (8,342) Charge for year (5,174) (1,057) (113) (34) - (6,378) ^b Disposals - 34 - 9 - 43 At 30 June 2012 (7,736) (4,762) (1,825) (354) - (14,677) Net book value At 1 January 2012 70,048 12,229 627 167 1,823 84,894 At 30 June 2012 64,874 11,248 514 132 3,479 80,247 a. Assets under construction at 30 June 2012 comprise $2,509,164 (31 December 2011: $798,727) for building construction and infrastructure, and $969,545 (31 December 2011: $1,023,727) for plant and equipment at Asacha. b. $157,572 (2011 first half: $794,493) of the depreciation charge related to property, plant and equipment used on exploration and evaluation projects or assets under construction and was capitalised in exploration and evaluation costs or property, plant and equipment in accordance with the Group's accounting policy. c. The net carrying amount of property, plant and equipment includes the following amounts in respect of assets held under finance leases: 30 June 2012 30 June 2011 30 December 2011 $000 $000 $000 Plant and machinery 469 - 437 Motor Vehicles - - - Office equipment and furniture - - - 469 - 437 8. Deferred Exploration and evaluation costs Movements on deferred exploration and evaluation expenditure, by location of the property, are as follows: Asacha Rodnikova Total $000 $000 $000 At 1 January 2011 27,027 2,848 29,875 Additions ^i 1,332 18 1,350 At 30 June 2011 28,359 2,866 31,225 At 1 July 2011 28,359 2,866 31,225 Additions ^i 8,693 - 8,693 Transfers to mining properties (37,052) - (37,052) At 31 December 2011 - 2,866 2,866 At 1 January 2012 - 2,866 2,866 Additions ^i - - - At 30 June 2012 - 2,866 2,866 i Additions include capitalised PPE depreciation (see Note 7^b). 9. Inventories 30 June 2012 30 June 2011 31 December 2011 $000 $000 $000 Finished goods - - - Gold in progress 2,844 - 1,246 Silver in progress 92 - 40 Ore stocks 6,280 - 4,700 Fuel 1,314 652 1,838 Other materials and supplies 2,354 144 2,720 At end of period 12,884 796 10,544 10. Borrowings 30 June 2012 30 June 2011 31 December 2011 $000 $000 $000 Non-current: Bank borrowings 23,000 43,061 32,500 Related party - convertible debt - 6,572 - Finance lease obligations 196 - 190 At end of period 23,196 49,633 32,690 Current: Bank borrowings 15,500 - 7,477 Related party - other loans 784 - 8,187 Finance lease obligations 166 - 144 At end of period 16,450 - 15,808 39,646 49,633 48,498 Movement in borrowings is analysed as follows: 6 months to 6 months to 12 months to 30 June 2012 30 June 2011 31 December 2011 $000 $000 $000 At beginning of period 48,498 32,939 32,939 Increase in borrowings 781 16,452 24,417 Interest on related party loans 71 242 610 Repayment of loans (3,288) - (3,000) Conversion of loans to equity (6,445) - (6,802) Finance leases 29 - 334 At end of period 39,646 49,633 48,498 In 2009 ZAO Trevozhnoye Zarevo (TZ) refinanced its initial borrowing for the Asacha project with a five year $25 million loan facility from Sberbank at an annual interest rate of 11.75%, reduced to 10.5% in May 2010. Repayments were scheduled to commence in December 2011, however TZ prepaid the first instalment in November 2011 and paid the second instalment due in March 2012 in December 2011. In 2010 TZ agreed a further four year loan facility of $18 million for the Asacha project with Sberbank at an annual interest rate of 10.5%. Repayments are scheduled to commence in September 2012. On 26 October 2010 and 8 April 2011 UFG Asset Management (UFG), a related party by virtue of its then 53.6% holding in the shares of the Company, provided TSG with two loan facilities, each of $2 million, on commercial terms. On 18 April 2011 AngloGold Ashanti Limited (AGA), also a related party by virtue of its then 30.7% holding in the shares of the Company, agreed to provide TSG with a loan facility of $2.3 million on commercial terms. Each of the three loan facilities provided by UFG and AGA in 2010 and 2011 was repayable in two equal tranches, respectively on the fourth and fifth anniversaries of the commencement of gold production at Asacha and each facility agreement included an option for the lender, subject to the requisite approval of TSG's shareholders, to convert any part of the outstanding loan into TSG shares at a price equivalent to the volume weighted average price of TSG's shares for the period of 60 business days prior to notice of such conversion. On 8 November 2011, as discussed in Note 15, 4,541,313 ordinary shares were issued to UFG and AGA in consideration of the conversion of the outstanding amounts of the above three loan facilities, in aggregate $6,802,279 including accrued interest. In September 2011 UFG provided TSG with short term loan facilities amounting to $5 million on commercial terms, each with the same conversion option as their previous loans, exercisable prior to scheduled repayment 180 days after drawdown, comprising loans of $1 million on 1 September 2011, $2 million on 14 September 2011, $1 million on 15 September 2011 and $1 million on 19 September 2011. On 23 September 2011 AGA agreed to provide a short term loan facility of $3 million on commercial terms, with the same conversion option as the UFG loans, exercisable prior to scheduled repayment 180 days after drawdown. In February 2012, as discussed in Note 15, three of the short term loan facilities provided by UFG and part of the short term facility provided by AGA, in aggregate $6,445,099 including accrued interest, were converted into TSG ordinary shares. The fourth UFG facility and the remaining part of the AGA facility were repaid in March 2012 and April 2012 respectively. In June 2012 UFG and AGA agreed to provide additional short term facilities, in aggregate $781,000 million, on commercial terms. The terms of these facilities were extended to 1 March 2013 as discussed in Note 15, the revised agreements also including the same lender's conversion option as the facilities provided in 2010 and 2011. In consideration of an earlier loan facility provided by UFG in 2009, the Company also agreed, subject to obtaining the necessary shareholder approvals, to issue warrants to subscribe for additional TSG shares to UFG on terms to be agreed and considered as fair and reasonable by the Company's Board (excluding those directors connected to UFG) after consultation with TSG's Nominated Adviser. No warrants were issued in 2010, 2011 or 2012 or after the reporting date. 11. Provisions 6 months ended 6 months ended Year ended 30 June 2012 30 June 2011 31 December 2011 $000 $000 $000 At beginning of period 644 331 331 Additions - - 313 Charges - - - At end of period 644 331 644 The above provision relates entirely to site restoration at the Asacha mine, which is expected to be utilised by 2018 based on the current mineable resource. The amount of $643,595 (31 December 2011: $643,595) is included in Mining Properties and is calculated based on regional data from the Monitoring Ecological Centre of Kamchatka. 12. Revenue 6 months ended 6 months ended Year ended 30 June 2012 30 June 2011 31 December 2011 $000 $000 $000 Gold 20,985 - 11,707 Silver 456 - 223 Total revenue 21,441 - 11,930 13. Cost of sales 6 months ended 6 months ended Year ended 30 June 2012 30 June 2011 31 December 2011 $000 $000 $000 Wages and salaries 3,752 - 2,996 Energy and materials 2,212 - 2,840 Depreciation and depletion 11,700 - 623 Other costs 3,925 - 1,690 Total cost of sales 21,589 - 8,149 14. Earnings per share The calculation of basic and diluted loss per share has been based on the loss for the period of $3,925,387(2011 first half: $1,049,153) and the weighted average number of shares being 109,322,774 ordinary shares issued for the period ended 30 June 2012 (2011 first half: 99,669,370). 15. Share capital and premium Number of Number of Share Share shares shares allotted capital premium Total authorised and fully paid $000 $000 $000 At 1 January 150,000,000 99,669,370 17,323 77,938 95,261 2011 At 30 June 2011 150,000,000 99,669,370 17,323 77,938 95,261 Shares issued Placing for cash - 4,541,313 727 6,075 6,802 At 31 December 150,000,000 104,210,683 18,050 84,013 102,063 2011 Number of Number of shares shares allotted Share capital Share premium Total authorised and fully paid $000 $000 $000 At 1 January 150,000,000 104,210,683 18,050 84,013 102,063 2012 Shares issued Placing for - 5,842,390 938 5,507 6,445 cash At 30 June 150,000,000 110,053,073 18,988 89,520 108,508 2012 All shares are ordinary shares with a par value of 10 pence. On 8 November 2011, 4,541,313 ordinary shares were issued to UFG Asset Management (UFG) and AngloGold Ashanti Limited (AGA) in settlement of the Company's indebtedness, in aggregate $6,802,279 including accrued interest. 2,938,890 ordinary shares were issued to UFG, at 93.4 pence per share, and 1,602,423 ordinary shares were issued to AGA, at 93.6 pence per share, in consideration of the conversion of the outstanding amounts of three loan facilities as discussed in Note 10. In February 2012, 5,842,390 ordinary shares were issued to UFG and AGA in settlement of the Company's indebtedness, in aggregate $6,445,099 including accrued interest. 3,738,665 ordinary shares were issued to UFG, 2,808,151 ordinary shares on 1 February 2012 at 69.94 pence per share and 930,514 ordinary shares on 3 February 2012 at 69.98 pence per share, and 2,103,725 ordinary shares to AGA, 1,578,620 ordinary shares on 1 February 2012 at 69.98 pence per share and 525,105 ordinary shares on 3 February 2012 at 69.75 pence per share, in consideration of the conversion of the outstanding amounts of four loan facilities as discussed in Note 10. Retained earnings represents the cumulative net gains and losses recognised in the statement of comprehensive income less any amounts reflected directly in other reserves. The share premium account represents the amounts received by the Company on the issue of its shares which were in excess of the nominal value of the shares. 16. Related party transactions There are no related party transactions other than those relating to major shareholders AngloGold Ashanti Limited (AGA) and UFG Asset Management (UFG) as detailed below: Purchases during the 6 Amount owing at months 30 June 2011 to 30 June 2011 $000 Related party Nature of transaction $000 AGA Loan 2,330 2,330 Loan interest 7 7 2,337 2,337 UFG Loan 2,000 4,000 Loan interest 186 235 2,186 4,235 Total 4,523 6,572 Purchases during the 6 Amount owing at months 31 December 2011 to 31 December 2011 $000 Related party Nature of transaction $000 AGA Loan 3,000 3,000 Loan interest 128 61 3,128 3,061 UFG Loan 5,000 5,000 Loan interest 289 126 5,289 5,126 Total 8,417 8,187 Purchases during the 6 Amount owing at months 30 June 2012 to 30 June 2012 $000 Related party Nature of transaction $000 AGA Loan 281 281 Loan interest 24 - 305 281 UFG Loan 500 500 Loan interest 47 3 547 503 Total 852 784 Loan facilities provided by UFG and AGA and the conversion of several of those loan facilities are discussed in Notes 10 and 15 respectively. The directors of the Company consider that there are no key management personnel, as defined by IAS 24, Related party transactions, other than the directors themselves. 17. Events after the reporting date In September 2012 UFG Asset Management (UFG) and AngloGold Ashanti Limited (AGA) agreed to extend the term of their two 90 day loan facilities, in aggregate $781,000, provided to TSG in June 2012, to 1 March 2013. The revised facility agreements include an option for the lender, subject to the requisite approval of TSG's shareholders, to convert any part of the outstanding loans into TSG shares at a price equivalent to the volume weighted average price of TSG's shares for the period of 60 business days prior to notice of such conversion. This information is provided by RNS The company news service from the London Stock Exchange END IR ZMGZLNVGGZZM -0- Sep/27/2012 06:01 GMT
Trans-Siberian Gold TSG Half Yearly Report
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