Orsu Metals Corporation ("Orsu", or the "Company") (TSX:OSU)(AIM:OSU), the
London-based base and precious metal mining, development and exploration company
today reports its results for the quarter and six months ended 30 September
2008. All amounts are reported in United States Dollars unless otherwise
indicated. Canadian Dollars are referred to herein as CAD$.
QUARTER OPERATIONAL HIGHLIGHTS
- Orsu settled in advance its September to December 2008 gold forward contract
obligations
- Orsu announced changes to the Board of Directors
- Orsu announced plans to procure a secondary low cost screener and crusher at
the Varvarinskoye plant
- Orsu announced being served with a Statement of Claim
POST QUARTER HIGHLIGHTS
- Orsu announced an update regarding the Statement of Claim
- Orsu announced the reclamation of Rand 40.9 million (US$3.65 million) MDM
contractor advances.
MANAGEMENT'S DISCUSSION AND ANALYSIS
A full Management's Discussion and Analysis of the results for the quarter and
nine months ended 30 September 2008 and year ended 2007 ("MD&A") and Financial
Statements ("Financials") for the Company for the nine months ended 30 September
2008 and year ended 2007 will soon be available on the Company's profile on
SEDAR (www.sedar.com) or on the Company's website (www.orsumetals.com). These
can also be obtained on application to the Company. The following information
has been extracted from the MD&A and the Financials.
FINANCIAL RESULTS FOR THE QUARTER ENDED 30 SEPTEMBER 2008
For the three month period ended 30 September 2008, the Company incurred a net
loss of $4.0 million (compared to a loss of $35.7 million for the same period in
2007) and a nine month loss of $49.4 million (compared to a loss of $44.5
million for the same period in 2007).
The financial results of the operations for the three months ended September 30
2008 from the Varvarinskoye Project have been included into the consolidated
statements of operations.
Commercial production levels (defined by the Company as the earlier of the stage
when mining and milling activities are operating at 65% of design capacity for a
sustained period for not less than 30 days, or 30 June 2008) were achieved
during the third quarter and accordingly the Company commenced recognising
operating revenues and expenses for production activities with effect from 1
July 2008. All pre-commercial production operating expenses, including
applicable stock compensation costs and interest, have been capitalised as
development costs; pre-commercial production metal revenues have been credited
against capitalised costs.
During the quarter the Company recognized revenues of $15.5 million and a net
gain on derivative instruments of $19.1 million. These were offset by
operational costs of $27.7 million, administration costs of $4.9 million,
exploration expenditure of $2.7 million, foreign exchange losses of $1.7 million
and other charges of $1.6 million.
Revenues
For the nine months ended 30 September 2008, the Company invoiced a gross amount
totalling $38.8 million which was revalued using a final settlement price for
copper of $2.25 per lb. This gave rise to a total settlement adjustment to
revenue of negative $5.7 million; $2.4 million relating to the six months ended
30 June 2008 and $3.3 million for the three months to 30 September 2008.
For the three month period to 30 September 2008, the Company invoiced $21.2
million against which the aforementioned settlement adjustment of negative $5.7
million was made resulting in revenues for the period of $15.5 million.
Finally, the Company recognised sales on gold and copper concentrate as revenues
for the three month period 30 September 2008. As a by product of the production
process, a small amount silver was produced which generated sales totalling
$21,000. The Company does not recognise this as income and has been recorded as
part of operating expenses.
Derivative instruments
During the three month ended 30 September 2008 the Company settled gold hedge
contracts in cash at a cost of $9.2 million (Nil for the same period in 2007).
These have been recorded in the income statement as realised derivative losses
for the quarter. Of this, the Company settled future contract hedges for the
period October to December 2008 at a cost of $5.0 million at a forward gold
sales settlement price of $794.75 per ounce.
Following a decrease in the spot market and forward price of gold during the
third quarter (spot price gold 30 September 2008 $884.50), the mark to market
revaluation of the Company's remaining hedge contracts gave rise to unrealised
derivative gains of $28.3 million during the quarter (a loss of $34.8 million
for the same period in 2007).
Operational costs
The operational costs during the quarter of $27.7 million include mining,
processing and site costs totalling $20.6 million; selling and distribution
costs of $2.2 million; depreciation and amortisation charges of $4.6 million and
accretion charges of $0.3 million. Included with these are inventory write offs
of $4.4 million.
Administration charges
Administration costs for the nine month period include termination and
redundancy costs of $4.3 million relating primarily to changes in senior
management in connection with the business combination. Legal and professional
costs relating to the Lero acquisition of $4.9 million are included as part of
the Lero purchase consideration (not included within the Statement of
Operations).
Foreign exchange and interest income
The Company successfully repatriated Rand 28.2 million in contractor advances
(relating to MDM) along with accrued interest of Rand 12.7 million on 22 October
2008 at an exchange rate of Rand to the US($) of 11.21, $3.65 million. The
advances had been previously been recorded by Company at an exchange rate of
Rand to US($) 6.75. As at 30 September 2008 the Company recorded a realised
foreign exchange loss of $1.7 million and accrued interest income of $1.1
million.
LIQUIDITY AND CAPITAL RESOURCES
At 30 September 2008 the Company's main source of liquidity was unrestricted
cash of $17.9 million (2007 US$25.2 million).
At 30 September 2008, the Company's consolidated working capital was a deficit
of $1.7 million (30 September 2007 working capital surplus of $8.2 million; 31
December 2007 working capital deficit of $1.6 million) comprising free cash,
inventory, accounts receivable, prepayments, less accounts payable and current
portion of the principal on long term debt. This represents a decrease of $0.1
million versus 31 December 2007 and a decrease of $8.3 million versus 30
September 2007. The movement during the nine months ended 30 September 2008, in
the Company's consolidated working capital comprised a decrease in unrestricted
cash of $7.4 million, increase in inventories $7.6 million, increase in accounts
receivable and prepayments $5.2 million, less an increase in accounts payable
$7.3 million and decrease in the current portion on the principle long term debt
of $1.8 million.
Going concern
At 30 September 2008 the Company had a working capital deficit of $1.7 million,
(31 December 2007 a working capital deficit of $1.6 million), accumulated losses
of $267 million (31 December 2007 - $218 million) and capital commitments for
the Varvarinskoye Project amounting to $4.7 million. In addition, the Company
was served with a statement of claim in September 2008.
As at 30 September 2008 a total of $61.0 million long-term debt had been drawn
down under the Varvarinskoye limited recourse project finance debt facility with
Investec Bank Limited, Nedbank Limited and Natixis Bank (the "Lenders"), of
which $36.1 million is due within one year, including a first tranche of $16.65
million which is due 31 December 2008. The Company is currently seeking to
negotiate an extension of the first tranche repayment. To date no waiver or
extension of the first tranche repayment of $16.65m due in December 2008 has
been secured.
As a condition of the long-term debt facility, the Company entered into monthly
US dollar flat forward gold sales (the "Varvarinskoye Hedge") over a term of 8
years. The Company has 372,478 ounces of unmargined forward gold sales contracts
remaining at a strike price of $574.25 per ounce as at 30 September 2008. To
date the Company's monthly gold production has been insufficient to meet its
forward contract commitments resulting in cash settlements of maturing contracts
of $20.5 million in the nine month period to 30 September 2008 (2007 - nil).
Further cash payments are expected to be required to settle future commitments
as they fall due.
While these financial statements have been prepared using Canadian GAAP
applicable to going concern, which contemplates the realisation of assets and
liquidation of liabilities during the normal course of operations, the
conditions and events above cast significant doubt on the validity of that
assumption. The ability of the Company to continue as a going concern is
dependent upon achievement and maintenance of profitable levels of commercial
production at Varvarinskoye and the ability of the Company to raise additional
capital and financing to fund the Company's current commitments. The Company is
attempting to secure short-term financing or project re-financing options
acceptable to the Lenders. Whilst management has been successful in the past in
raising new debt and equity financing, and modifying its debt repayment terms,
there can be no assurance that they will be successful in the future.
These financial statements do not reflect adjustments to the carrying value of
assets and liabilities, the reported revenues and expenses and balance sheet
classifications used that would be necessary if the going concern assumption
were not appropriate; such adjustments could be material.
Commitments
The following table summarises the long-term commitments of the Company as 30
September 2008:
Total 2008 2009 2010
$000 $000 $000 $000
Long-term debt 61,000 16,650 40,525 3,825
Capital commitments 4,700 4,700 - -
Under the terms of the Sub Soil Use Contract ("SSUC") with JSCV, the Company has
agreed to repay certain historic costs totalling $2.1 million (2007 - $2.1
million) that the Republic of Kazakhstan incurred for a geological survey of the
licence area.
These costs are repayable in annual instalments after both of the following
events have taken place:
(i) the first discovery of a reserve in the licence area - complete as at 30
June 2007; and
(ii) the completion of the first year (not earlier than the year in which the
discovery of a reserve occurs) during which the licensee has a net profit for
tax purposes. As the Company has yet to complete a year in which a net profit
for tax purposes is recorded, no liability has been recorded at September 30,
2008.
If and when the liability crystallizes, payments under the terms of the SSUC
will be charged to operations as incurred.
Related party transactions
For the nine month period ended 30 September 2008 (and for the nine month period
ended September 30 2007), the Company was party to the following transactions
involving related parties, all of which have been recorded at the exchange
amount:-
Dragon Management International Services Limited ("DIS") charged the Company a
total of $1,699,752 (2007 - $450,576) in respect of the provision of office
facilities, general office overheads and re-charged costs incurred on behalf of
the Company. A. J. Williams, former Chairman and director of the Company,
beneficially owns DIS.
Endeavour Financial Corporation ("EFC") charged the Company a total of
$3,612,391 (2007 - $124,227) in respect of the provision of consulting services
and related expenses of which $3,539,778 has been recognised in the purchase
consideration. A.J. Williams, former Chairman and director of the Company, is a
shareholder of EFC. In addition, on 18 April 2008, EFC made a bridging loan of
$5 million to the Company for working capital purposes, which was then
subsequently repaid to EFC. A total of 254,479 shares were issued to EFC as part
of the fee for providing the bridging loan. EFC were also issued 500,000
purchase warrants, at an exercise price of CAD$1.20, for advisory work on the
Varvarinskoye debt renegotiation.
During the period ended 30 September 2008 Lero was charged $357,000 for rent and
service charges from Oriel PLC a company on which Sergey Kurzin, Executive
Chairman of Orsu, served as a director (resigned 19 September 2008).
CORE ASSETS
VARVARINSKOYE COPPER-GOLD MINE, KAZAKHSTAN
Orsu's current projects include the Varvarinskoye open pit copper-gold mine and
exploration projects at the Karchiga copper project in Kazakhstan and the
Taldybulak-Talas licence area in Kyrgyzstan.
Varvarinskoye Copper-Gold Mine, Kazakhstan - Located in north-western
Kazakhstan, the mine commenced production of gold dore and copper-gold
concentrate during December 2007. During Q3 2008, the Varvarinskoye plant
processed 768,663 tonnes of ore and produced a total of 375,022 grams (12,059
troy oz) of gold. Since production commenced, a total of 847,523 grams (27,231
troy oz) of gold has been produced. See "Review of Operations - Varvarinskoye
Project Update" for further information.
Total metal production revenue to 30 September 2008 is approximately US$ 38.6
million.
Karchiga Copper Project, Kazakhstan - The 47.3km2 exploration licence contains
the Karchiga volcanogenic massive sulphide (VMS) deposit. In April 2008, Orsu
reported a NI 43-101 compliant mineral resource estimate for Karchiga. The
mineral resource incorporates 1,879m of confirmation diamond drilling completed
in Q4 2007 and 86 historical Soviet diamond drill holes and trenches totalling
10,330m. At a 0.50% copper cut-off, the Indicated mineral resource is 4.75Mt @
2.46% Cu while the Inferred mineral resources total 2.81Mt @ 1.81% Cu. The
deposit is situated 40km from the Chinese border, within the world-class Rudny
Altai VMS belt. Management believes significant potential exists for the
discovery of additional mineralisation along the 10km strike of the fertile VMS
horizon contained within the licence perimeter.
Talas Exploration Licence Area, Kyrgyzstan - The Talas mineral exploration
licence area is located on the north slope of the Talas Valley, in the Talas
Oblast, north-western Kyrgyzstan, at elevations of 1,800 to 3,000m. The area is
accessible year round via the main Bishkek-Talas road (270km from Bishkek) and
comprises four exploration licences, namely: Taldybulak-Talas, Korgontash,
Kentash, and Barkol with a combined area of 371km2. In April 2008, Orsu reported
a NI 43-101 compliant mineral resource estimate for Taldybulak-Talas. The
mineral resource estimate incorporates all drilling data obtained for
Taldybulak-Talas from the 2007-2008 drilling programmes. At a 0.30g/t gold
cut-off, the Indicated mineral resource is 79Mt @ 0.63g/t Au and 0.17% Cu and
the Inferred mineral resources of 163Mt @ 0.58g/t Au and 0.14% Cu. Within the
Korgontash licence area, Orsu is also exploring the Tokhtonnisai copper-gold
prospect. The Barkol exploration licence area, located immediately to the west
of the Taldybulak-Talas licence, was granted in March 2007. The Barkol licence
contains numerous occurrences of mineralisation, with one known
copper-gold-molybdenum occurrence within a 2km2 excision from the licence. All
four licenses are subject to ongoing joint venture negotiations with Gold
Fields.
Tokhtazan Exploration Licence Area, Kyrgyzstan - The Tokhtazan exploration
licence area is located in the Jalal-Abad Oblast, western Kyrgyzstan and is
covered by two exploration licences, Akdjol and Tokhtazan. Access to the deposit
is via the main Bishkek-Osh bitumen road for 400 km, then 14km on a gravel road.
The nearest town and railway station, Tash-Kumyr, is located 31km from the
Tokhtazan deposit, whilst the Kurpsai hydro-power station on the Naryn River is
situated approximately 18km by road from the deposit.
VARVARINSKOYE COPPER-GOLD MINE, KAZAKHSTAN
The 100% owned Varvarinskoye copper-gold mine is located 130km southwest of
Kostanai in northern Kazakhstan. The mine produces for sale copper-gold
concentrate and gold dore. Orsu's main focus has been the ramp-up of mining
operations at Varvarinskoye where mining and milling activities are operating at
or around 80% of design capacity.
VARVARINSKOYE PROJECT UPDATE
Production
Varvarinskoye's production plant has seen significant increases in throughput
and has now reached an operation capacity of 80% of design capacity. During Q3,
the plant processed a total of 768,663 tonnes of ore compared to 634,485 tonnes
in Q2 2008. The plant was not in operation during Q3 2007.
During Q3, Varvarinskoye mined a total of 3,930,900 tonnes compared to 2,319,200
tonnes mined in Q2. A total of 902,700 tonnes of ore was mined compared to a
596,400 tonnes in Q2 and approximately 400,000 tonnes in Q3 2007.
A total of 375,022 grams (12,059 troy oz) of gold was produced during Q3
compared to 349,522 grams (11,239 troy oz) in Q2. Gold grade of feed to the
flotation circuit was 1.11g/t compared to 1.64g/t in Q2 and represents the main
reason gold production was not significantly higher than Q2. Copper production
during Q3 was 1,106 tonnes compared to 1,259 tonnes in Q2. Copper feed grade to
the flotation circuit was 0.72% during the quarter compared to 0.99% in Q2. Gold
feed grade to the leach circuit was 0.61g/t in the quarter compared to 0.60 in
Q2.
----------------------------------------------------------------------------
1st Quarter 2nd Quarter 3rd Quarter
--------------------------------------------
Varvarinskoye Production Actual Actual Actual
----------------------------------------------------------------------------
Mining
----------------------------------------------------------------------------
Total mined tonnes 2,738,400 2,319,200 3,930,900
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Processing
----------------------------------------------------------------------------
Flotation
----------------------------------------------------------------------------
Processed tonnes 62,698 184,948 187,603
----------------------------------------------------------------------------
Grade Cu % 0.46% 0.99% 0.72%
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Grade Au g/t 0.66 1.64 1.11
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Recovery Cu to concentrate % 57.6% 68.9% 82.0%
----------------------------------------------------------------------------
Recovery Au to concentrate % 49.9% 51.3% 59.0%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Leach
----------------------------------------------------------------------------
Processed tonnes 173,308 449,537 581,060
----------------------------------------------------------------------------
Grade Au g/t 0.79 0.60 0.61
----------------------------------------------------------------------------
Recovery Au (onto carbon) % 68.6% 66.3% 69.5%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Metal Produced
----------------------------------------------------------------------------
Concentrate tonnes 1,105 6,497 6,036
----------------------------------------------------------------------------
Cu recovered to concentrate tonnes 166 1,259 1,106
----------------------------------------------------------------------------
Total gold produced grams 122,979 349,522 375,022
----------------------------------------------------------------------------
During Q3, the average ore hardness increased as feed from the mine was fresh
un-weathered ore compared to the softer near-surface ore which was fed to the
mill in Q2. The mill operated at an average of 73% of design capacity through
the quarter compared to 60% in Q2.
Within the main pit, mining has reached a high-grade copper-gold zone and
management believes grades of mined ore expected over the next two quarters are
therefore expected to be significantly higher than those of Q3. In addition,
four new Caterpillar 777 haul trucks are due to be delivered to the mine in Q4.
The addition of these four trucks to the mining fleet is expected to increase
Varvarinskoye's mining capacity from the current 1.3Mt/month to the targeted
2.0Mt/month, a planned increase of some 44%.
Low Cost Project Upgrade
The Company is implementing a plan to add a secondary low cost screening and
crushing plant at Varvarinskoye which is expected to significantly increase
throughput in the leach and flotation grinding circuits. Orway Mineral
Consultants Pty Ltd (Australia) ("Orway") has been working with Varvarinskoye
engineers since May 2008 in making improvements to the grinding circuits. With
the assistance of Orway, Orsu has determined that both grinding circuits are
highly dependent on the size distribution of feed ore. Ore originating from the
mine lacks in fineness over the middle fraction and the intention is to screen
the coarse ore from the jaw-crusher into three sizes and further crush the
middle fraction of the screened product.
The additional crushing of the feed to the leach grinding circuit should
increase the throughput to 3.6 million tonnes per annum ("mtpa") or 120% of
design capacity. This would represent a 30% increase over what the grinding
circuit is currently achieving.
Throughput of the flotation grinding circuit should be increased to 1.3mtpa, or
108% of design capacity. This would represent a 50% increase over what the
grinding circuit is currently achieving. Overall capacity of the mill is
expected to increase to 4.9mtpa or an increase of 17% over original design
capacity. The cost of the proposed upgrade will total approximately US$5 million
and is due to be completed during Q2 2009.
This low cost project upgrade is expected to significantly increase throughput
of the grinding circuits and in one step solves the current flotation
grinding-circuit problems, providing the Company with a mill expansion. The
Company does not anticipate having to significantly change the leach or
flotation circuits post-grinding to accommodate the increased throughput and the
mine is expected to meet production based on the sustaining capital costs
already built into the life of mine model. An initial scoping study outlined two
options for mill expansion; installation of an additional grinding circuit or
modification of existing circuits to achieve capacities of 6mtpa and 5mtpa
respectively. Management feels this second option provides an optimum increase.
Additionally, this project upgrade is achievable in significantly less time than
the two years it would likely take to engineer and construct a second grinding
circuit.
Varvarinskoye hedge settlement
As previously announced, on 3 September 2008 the Company settled in advance its
September to December 2008 gold forward contract obligations (a total of 27,340
ozs) at a settlement price of USD$794.75/oz, resulting in a settlement payment
of USD$6,028,000 net of the forward sales price of USD$574.25/oz.
Update on production ramp up
- Leach circuit grinding has been running at over 90% throughput with some days
having achieved 100% throughput. Throughput is highly dependent on feed size
distribution.
- Flotation circuit grinding appears to be limited to 110 tonnes per hour
("tph") compared to designed capacity of 155tph. This is due to the mentioned
feed size distribution and the hardness of ore, along with the mill design which
was marginal for the required design throughput.
To enable mine management to meet forecast operating profit, the grinding
circuits may at times be switched to maximise the throughput in the flotation
circuit which generates higher return per tonne of ore. This would allow higher
concentrate production compared to what would be achieved by simply operating
the regular circuits. The circuits will be switched according to feed available
from the mine.
Varvarinskoye's open pit continues to operate on a normal basis and steps are
being taken to improve overall productivity by optimising truck positioning
around the excavators and maximise the hours worked per day. Mine grades were
lower in Q3 due to a lack of waste mining in the first two quarters of the year
when previous management focused on high-grade ore production and shut down one
of two shifts to conserve cash. This necessitated an increase in waste mining
during Q3 and is expected to expose higher-grade ore for extraction in Q4, 2008.
Over the next few months, the operation is expected to continue with its ramp up by:
- Improving mining practices including productivity increases and improved
grade control
- Mining additional waste and lower-grade ore to access higher-grade
copper ore, thereby catching up on the mine schedule which was delayed
by the Company's decision in Q2 to mine on a single shift
- Continuing to analyse the two grinding circuits with the possible
implementation of additional design modifications
- Increasing ball diameter for semi-autogenous grinding ("SAG") mill
grinding in both flotation and leach circuits
- Increasing the grinding throughput in the flotation circuit by improved
ore blending and stockpile management
- Fine-tuning the leach circuit and lab testing to improve leach kinetics
and recovery
The mineral resource and mineral reserve estimates at Varvarinskoye were
completed by William Kennedy a former director of the Company (EMC's President
and Chief Executive Officer at the time) and a qualified person as defined by
Canada's National Instrument 43-101 ("NI 43-101").
ORSU'S COPPER-GOLD EXPLORATION LICENCES IN KYRGYZSTAN & KAZAKHSTAN
The Company is also exploring and developing several advanced staged gold and
copper deposits in the Tien Shan metallogenic belt in Kyrgyzstan and the Rudny
Altai metallogenic belt in Kazakhstan. The Tien Shan gold belt is host to some
of the world's largest copper-gold porphyries, including a 93 Moz porphyry
cluster at Almalyk in Uzbekistan. These exploration projects are held by Orsu
through Lero.
TALAS EXPLORATION LICENCES, KYRGYZSTAN
The Talas exploration area comprises the core assets of the Company in
Kyrgyzstan including the Taldybulak, Kentash, Barkol and Korgontash licences.
The primary exploration property is the Taldybulak copper-gold porphyry
prospect.
For avoidance of confusion;
1. The Taldybulak copper-gold porphyry prospect within the Taldybulak
exploration licence area is a separate asset from the Taldybulak Levoberezhny
gold deposit previously owned by Central Asia Gold Limited, and
2. The Talas Copper Gold Limited Liability Company, holder of the Taldybulak
licence, is a separate company from Talas Gold Mining Company, which was the
owner of the Jerooy Gold Project.
TALDYBULAK-TALAS PROJECT
(100% owned by Orsu via Talas Copper Gold LLP)
Targeted Mineralisation
Copper-gold porphyry and high sulphidation gold mineralisation is associated
with Late Ordovician dioritic-dacitic stocks, intruding Lower Ordovician
intermediate volcaniclastics. The Taldybulak-Talas copper-gold porphyry deposit
was discovered during the Soviet era, but had been subject to limited
exploration.
3rd Quarter Activity and Proposed Programme for 4th Quarter
Q3 2008 saw Orsu finalise the drilling contracts with Spektra Jeotek, Turkey and
Altyn Jilga, Kyrgyzstan, which has enabled the continuation of drilling with a
total of 17,000m due to be completed in Q1 2009.
Table 1: Proposed drilling within Taldybulak-Talas Exploration Licence
----------------------------------------------------------------------------
Licence Proposed
Area Purpose Target Metres
----------------------------------------------------------------------------
Drill out Taldybulak Central 7,000m
--------------------------------------------------------------------
Taldybu- Taldybulak west extension & Taldybulak Central
lak Exploration deeps 2,000m
-------------------------------------------------------------------
Exploration Taldybulak East 2,000m
----------------------------------------------------------------------------
Barkol Exploration Taldybulak West IP Anomaly 3,000m
----------------------------------------------------------------------------
Taldybulak East extension in to Mag & IP
Exploration Anomaly 800m
-------------------------------------------------------------------
Kentash Lower Kentash (Dzhangiturmish SE extension)
Exploration SW Soils & IP Anomaly 1,000m
-------------------------------------------------------------------
Exploration Kokkiya 400m
----------------------------------------------------------------------------
Korgont- Exploration
ash Tokhtonnisai 800m
----------------------------------------------------------------------------
TOTAL 17,000m
----------------------------------------------------------------------------
Wardell Armstrong International, UK ("WAI") has been commissioned to conduct a
locked cycle test work on sulphide and transitional ores and bottle roll leach
tests on oxide ores of Taldybulak. The test work on sulphide and transitional
ores has returned positive preliminary results with recoveries from sulphide
ores reaching 89-90% of both Au (head grade 0.6g/t) and Cu (head grade 0.18%).
Two main mineral material types were tested: primary sulphide and transitional.
The primary sulphide responded very well to the flotation test, including locked
cycle test. The primary sulphide sample was made up of core obtained from three
separate drill holes in the Eastern, Central, and Western parts of Taldybulak
with a final head grade of 0.17% Cu, 0.01% Mo, and 1.02 g/t Au. It was
demonstrated that a concentrate grading 18.31% Cu, 0.27% Mo, 83.8 g/t Au and
92.64 g/t Ag can be produced with 70% to 90% recovery for Au and Cu. The
transitional ore grading 0.28% Cu, 0.005% Mo, and 0.25 g/t Au reported poorer
results to the floatation test, as expected. However, a concentrate grading
18.17% Cu, 0.16% Mo, and 28.12 g/t Au at recoveries of 50% to 80% was achieved.
No penalty elements such as Cadmium or Arsenic were reported to be contained in
the concentrate.
The Company is continuing test work on the oxide material from the system, which
will involve bottle-roll acid leach test work.
The mineral resource estimates at Taldybulak were completed by Matthew Boyes
(Senior Geologist, Lero), a qualified person as defined by Canada's NI 43-101,
and Julian Woodcock (Chief Geologist, Lero). These results were reviewed and
approved by WAI. However, WAI has relied upon the data presented by Lero in
formulating its opinion. The complete technical report can be viewed on
www.sedar.com.
KENTASH PROJECT
(100% owned by Orsu via Talas Copper Gold LLP)
Targeted Mineralisation
Palaeozoic copper-gold porphyry and associated skarn and quartz vein hosted
mineralisation.
Q3 Activity and Proposed Programme for Q4
Within the Kentash licence 3 PD-IP lines totalling 9.55km were completed over
the SW anomaly. Two lines of DD-IP totalling 9.85km were completed within the
Barkol licence. Year-to-date IP totals over 106km.
Approximately 1,000m in three drill holes IS planned for Q4 2008.
KORGONTASH PROJECT
(100% owned by Orsu via Talas Copper Gold LLP)
Targeted Mineralisation
Palaeozoic copper-gold porphyry and associated skarn and quartz vein hosted
mineralisation.
Q3 Activity and Proposed Programme for Q4
A 15km2 ground magnetic survey over the NW extents of the Korgontash license has
been completed. The presence of magnetic highs to the west of the Aktash
exclusion zone indicates potential for additional skarn type mineralisation as
well as a potential deeper seated magnetic intrusive. Follow up work with
additional IP lines mainly focussed on the area west of the Aktash exclusion
zone is being planned. Location of drill sites for the Q4 programme will be
decided on this basis.
BARKOL EXPLORATION LICENCE, KYRGYZSTAN
(100% owned by Orsu via Talas Copper Gold LLP)
Targeted Mineralisation
Copper-gold porphyry mineralisation.
Q3 Activity and Proposed Programme for Q4
A total of 49.2 line km of DD-IP geophysics was completed on the Barkol licence
during Q3 2007. Approximately half of this volume was used to identify
Ordovician copper-gold mineralisation masked by Devonian volcanics in the east
of the licence with the remainder conducted over the Barkol and Chonur prospects
in western section of the licence.
All results from the geochemical programme completed in Q4 2007 have been
received and outlined several anomalies, which are due to be investigated during
Q4 2008.
An orientation Mobile Metal Ions geochemical sampling programme, aiming to
identify concealed targets, was completed in June 2008. Results are pending.
Core drilling is planned for Q4 2008.
TOKHTAZAN EXPLORATION LICENCE, KYRGYZSTAN
Tokhtazan Project
(100% owned by Orsu via Oriel in Kyrgyzstan LLP)
Q3 Activity and Proposed Programme for Q4
Access road construction was conducted during Q3 2008.A diamond drilling
programme, consisting of approximately 2,500m, commenced during Q3 2008.
Akdzhol Project
(100% owned by Orsu via Oriel in Kyrgyzstan LLP)
Q3 Activity and Proposed Programme for Q4
Access road construction was conducted during Q3 2008. A trenching programme,
consisting of approximately 500m, started on the Kurpsai area within the licence
area during Q3 2008. This will be supplemented by ground DD-IP geophysical
survey.
KARCHIGA EXPLORATION LICENCE, KAZAKHSTAN
Karchiga Project
(70% owned by Orsu via GRK MLD LLP)
Targeted Mineralisation
Copper Volcanogenic Massive Sulphide ("VMS")
Q3 Activity and Proposed Programme for Q4
Drilling works during the period focused on the Main and Northeast lodes of
Karchiga. The primary scope of the 2008 programme is to upgrade the previously
reported mineral resource at the Karchiga project to Measured and Indicated
categories under 43-101. The total drilling programme consists of 11,000m, of
which 9,000m is to be drilled at Karchiga's Central and Northeast lodes, with
additional 2,000m planned to test new exploration targets. By the end of Q3
2008, Orsu completed 8,000m of diamond drilling. All drilling works within the
Main lode of Karchiga have been completed by the end of Q3 2008. Within the Main
lode, data from 46 drill holes completed to date confirms that the general
structure of the lode conforms to that of the Soviet data. At the same time, it
revealed a number of peculiar characteristics, which may be of considerable
importance. The new drilling works demonstrated that the total strike length of
the Northeast lode is continuous for 659m, which was only partly included into
the April resource model.
Trenching work commenced during the period to sample the oxide mineralization in
the Main lode at Karchiga. This work is due to be completed early Q4 2008. Early
results demonstrate that an oxidized zone was locally worked by ancient miners
to a depth of 18 meters.
Sampling has been carried out, with 1,000 core samples due to arrive at the Alex
Stewart's Karabalta lab (Kyrgyzstan), while geochemical samples have been
already been sent to Australia.
Geochemistry has been completed over the entire licence area on soils on 100x20m
grid. Samples have been sent to Ultratrace lab in Australia. An IP and
resistivity survey was completed on 18 profiles during the period, totalling
63.55km. A preliminary interpretation was received in September and was used for
positioning the exploration drill holes in two anomalous zones, similar to
Karchiga, where a non-outcropping area of mineralisation is being targeted. The
identification of these new targets is based on historical work plus recently
acquired geochemical and induced polarization ("IP") geophysical data carried
out by Orsu since obtaining the licence in 2006. The target areas lie
approximately 5km along strike from the Central zone with the area exhibiting
very similar geological terrain and structural characteristics. The Company
started exploration drilling of the new anomalies in Q4 2008.
Metallurgical test work on Karchiga sulphide ores has been completed by the
VNIITvsetMet Institute in Ust-Kamenogorsk with positive results suggesting that
a 15.9% Cu concentrate can be produced from the Karchiga ores at 98% recovery.
This result requires optimization of concentrate grade versus recovery. For the
purposes of the feasibility study, three 400kg metallurgical samples are due to
be collected. These samples will represent the three types of Karchiga ore
(oxidized, primary disseminated and massive). The analysis of primary ores at
Karchiga showed that 18% of ores are massive (1m average) and 82% of ores is
disseminated (4.5 m average). It is also planned to study a variability of these
ore types throughout the deposit. Metallurgical sampling is scheduled for the
latter half of October 2008, with results of metallurgical test-work due
approximately Q2 2009.
In September 2008, Micon International Co Limited was contracted to carry out a
preliminary assessment (scoping study) of the Karchiga massive sulphide copper
project. The scoping study is expected to be completed by mid December 2008 and
is targeted to provide a preliminary estimate of resource/reserve conversion, an
estimate of costs including capital costs, as well as preliminary estimate of
environmental aspects of the project.
The mineral resource estimates at Karchiga have been completed by Matthew Boyes
(Senior Geologist, Lero), a qualified person as defined by Canada's NI 43-101.
These results were reviewed and approved by WAI. However, WAI has relied upon
the data presented by Lero in formulating its opinion. The complete technical
report can be viewed on www.sedar.com.
Orsu Metals Corporation
Consolidated Balance Sheets
For the Period Ended 30 September 2008 (Unaudited) and 2007
--------------------------------------------------------------------------
September 30 December 31
2008 2007
$000 $000
ASSETS
Current assets
Cash and cash equivalents 17,851 25,250
Inventory 26,342 18,738
Accounts receivable and prepaid expenses 6,187 1,032
----------------------
50,380 45,020
Restricted cash 71 127
Property, plant and equipment 384,644 220,476
Net investment in oil and gas residual interests 1,364 1,364
Contractor advances 3,650 4,180
----------------------
440,109 271,167
----------------------
----------------------
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities 21,423 14,140
Current portion of-long term debt 30,654 32,475
Current portion of derivative liabilities 19,443 19,185
----------------------
71,520 65,800
Long-term debt 22,320 17,645
Derivative liabilities 115,727 121,436
Future income tax 53,964 6,705
Asset retirement obligations 12,060 11,388
----------------------
275,591 222,974
----------------------
SHAREHOLDERS' EQUITY
Share capital 361,306 204,553
Share purchase warrants 49,534 46,629
Share purchase options 18,370 13,567
Contributed surplus 1,956 1,399
Translation reserve 754 -
Retained losses (267,402) (217,955)
----------------------
164,518 48,193
----------------------
440,109 271,167
----------------------
----------------------
Orsu Metals Corporation
Consolidated Statements of Operations, Comprehensive Loss and Deficit
For the Period Ended 30 September 2008 and 2007 (Unaudited)
---------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
2008 2007 2008 2007
$000 $000 $000 $000
Sales revenues
Gold 11,955 - 11,955 -
Copper 3,557 - 3,557 -
----------------- -----------------
15,512 - 15,512 -
Cost of sales
Operating expenses (20,603) - (20,603) -
Selling and distribution costs (2,215) - (2,215) -
Depreciation, depletion and
amortization (4,560) - (4,560) -
Accretion (311) - (671) -
----------------- -----------------
(27,689) - (28,049) -
----------------- -----------------
Other (expenses) income
Unrealised derivative gains/ (loss) 28,271 (34,779) 5,451 (38,457)
Realised derivative (losses)/gains (9,219) - (20,512) -
General and administrative (4,885) (1,626) (14,160) (4,740)
Exploration and development (2,770) (74) (3,694) (343)
Stock based compensation (1,580) (417) (1,744) (2,861)
Interest and finance fees (1,094) - (1,531) -
Interest income 1,132 429 1,387 1,123
Foreign exchange (losses)/ gains (1,678) 723 (2,064) 432
----------------- -----------------
8,177 (35,744) (36,867) (44,846)
----------------- -----------------
Net loss before income tax (4,000) (35,744) (49,404) (44,846)
Future income tax (3) - (43) 300
----------------- -----------------
Net loss and comprehensive loss
for the period (4,003) (35,744) (49,447) (44,546)
----------------- -----------------
----------------- -----------------
Retained loss - Beginning of
period (263,399) (79,526) (217,955) (70,724)
Transitional Adjustment - (69,641) - (69,641)
----------------- -----------------
Retained loss - End of period (267,402) (184,911) (267,402) (184,911)
----------------- -----------------
----------------- -----------------
Loss per share
per common share $(0.01) $(0.13) $(0.16) $(0.16)
Weighted average number
of common shares (000's) - Basic
& diluted 310,152 279,764 310,152 279,717
Orsu Metals Corporation
Consolidated Statements for Cash Flows
For the Period Ended 30 September 2008 and 2007 (Unaudited)
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
2008 2007 2008 2007
Cash flows from operating
activities $000 $000 $000 $000
Net loss for the period (4,003) (35,744) (49,447) (44,546)
Items not affecting cash:-
Depreciation , amortisation and
deferred finance charges 7,030 - 7,030 -
Unrealized derivative loss/
(gain) (28,271) 34,779 (5,451) 38,457
Stock-based compensation 1,580 418 1,744 2,862
Unrealised foreign exchange loss 1,097 (291) 1,661 -
Inventory write offs 4,439 - 4,439 -
Future income tax recovery - - - (300)
Warrants issued to agents - - 185 -
Accrued interest income (1,130) - (1,130) -
---------------------------------------
(19,258) (838) (40,969) (3,527)
Change in non cash working
capital:
(Increase) decrease in
contractor advances,
accounts receivable and
prepaid expenses (2,965) (242) (1,425) 1
Increase (decrease) in
accounts payable and
accrued liabilities 7,302 (889) 4,529 (847)
---------------------------------------
Cash used for operating
activities (14,921) (1,969) (37,865) (4,373)
---------------------------------------
Investing activities
Expenditures on Varvarinskoye
property, plant and equipment (12) (20,935) (23,763) (56,323)
Restricted cash - 3,651 56 8,201
Acquisition of Lero, net of cash
acquired - - 29,753 -
---------------------------------------
Cash provided by / (used for)
investing activities (12) (17,284) 6,046 (48,122)
---------------------------------------
Financing activities
Common shares issued - 5,338 - 6,249
Proceeds from exercise of stock
options 102 - 1,324 -
Proceeds from debt - - 5,000 -
Proceeds from long term debt - 13,836 786 44,732
Lero cash advances to EMC pre
acquisition - - 25,000 -
Repayment of debt - - (5,000) -
Deferred financing costs (1,625) - (2,690) -
---------------------------------------
Cash provided by/ (used for)
financing activities (1,523) 19,174 24,420 50,981
---------------------------------------
---------------------------------------
Decrease in cash and cash
equivalents (16,456) (79) (7,399) (1,514)
---------------------------------------
Cash and cash equivalents -
Beginning of period 34,307 18,119 25,250 19,554
Cash and cash equivalents - End
of period 17,851 18,040 17,851 18,040
---------------------------------------
FORWARD LOOKING INFORMATION
This press release contains or refers to forward-looking information. All
information, other than information regarding historical fact that addresses
activities, events or developments that the Company believes, expects or
anticipates will or may occur in the future is forward-looking information. Such
forward-looking information includes, without limitation, the Company's
anticipated rates of production and revenue there from; including expected
levels of operating profits; the Company's planned implementation of a second
low cost screener and crusher at Varvarinskoye and the expected increase in
throughput expected; the estimated costs associated with the proposed upgrade to
the screener and crusher; Management's expectations of increased grades of mined
ore at Varvarinskoye over the next two financial quarters; the estimated value
of gold-copper concentrate produced from Varvarinskoye; the expected levels of
ore that will be treated at the Varvarinskoye mine; Management's beliefs with
respect to the extent of potential which exists for the discovery of the
additional mineralisation at the Karchiga copper project; the Company's
expectations with respect to its planned operations over the next few months at
Varvarinskoye and its other projects; the anticipated timing for completion of
the Taldybulak-Talas drilling programme underway; completion of the follow-up
work at Korgontash being planned; the expected timing of the commencement of
investigations of the anomalies identified at Barkol and the Barkol core
drilling programme; at Tokhtazan the diamond drilling programme; and at Akdzhol:
undertaking of geophysical survey and completion of trenching programme; the
expected timing of the completion of the scoping study at Karchiga and
anticipated results; development and operational plans and objectives; the
Company's expectation of reaching a satisfactory joint venture agreement
ensuring Gold Fields' participation and financial support with respect to the
Barkol, Kentash, Taldybulak and Korgontash licences; estimates of mineral
resources and reserves; the proposed work programs for the Company's exploration
properties and their respective costs and timing and the Company's expectations
concerning the outcome of the pending litigation.
The forward-looking information in this press release reflects the current
expectations, assumptions or beliefs of the Company based on information
currently available to the Company. With respect to forward looking information
contained in this press release, the Company has made assumptions regarding,
among other things, the Company's ability to generate sufficient cash flow from
operations and capital markets to meet its future obligations, the regulatory
framework in Kazakhstan and Kyrgyzstan with respect to, among other things,
permits, licences, authorisations, royalties, taxes and environmental matters,
the ability of management to establish a commercial mining operation at
Varvarinskoye, and the Company's ability to continue to obtain qualified staff
and equipment in a timely and cost-efficient manner to meet the Company's
demand.
Forward-looking information is subject to a number of risks and uncertainties
that may cause the actual results of the Company to differ materially from those
discussed in the forward-looking information, and even if such actual results
are realised or substantially realised, there can be no assurance that they will
have the expected consequences to, or effects on, the Company.
Factors that could cause actual results or events to differ materially from
current expectations include, but are not limited to: the grade and recovery of
ore which is mined varying from estimates; capital and operating costs varying
significantly from estimates; inflation; changes in exchange rates; fluctuations
in commodity prices; delays in the development of, and the commencement of
operations at, Varvarinskoye caused by unavailability of equipment, labour or
supplies, climatic conditions, delays in the delivery and installation of plant
and equipment or otherwise; termination or suspension of the Company's debt
facility; uncertainty of the outcome of any litigation; inability to delineate
additional mineral resources or reserves; and other factors including, but not
limited to, those listed under "Risk and Uncertainties" in this press release.
Any forward-looking information speaks only as of the date on which it is made
and, except as may be required by applicable securities laws, the Company
disclaims any intent or obligation to update any forward-looking information,
whether as a result of new information, future events or results or otherwise.
Although the Company believes that the assumptions inherent in the
forward-looking information are reasonable, forward-looking information is not a
guarantee of future performance and accordingly undue reliance should not be put
on such information due to the inherent uncertainty therein.
Any mineral resource and mineral reserve figures referred to in this press
release are estimates and no assurances can be given that the indicated levels
of minerals will be produced. Such estimates are expressions of judgment based
on knowledge, mining experience, analysis of drilling results and industry
practices. Valid estimates made at a given time may significantly change when
new information becomes available. While the Company believes that the resource
and reserve estimates referred to in this press release are well established, by
their nature resource and reserve estimates are imprecise and depend, to a
certain extent, upon statistical inferences which may ultimately prove
unreliable. If such estimates are inaccurate or are reduced in the future, this
could have a material adverse impact on the Company. Due to the uncertainty that
may be attached to inferred mineral resources, it cannot be assumed that all or
any part of an inferred mineral resource will be upgraded to an indicated or
measured mineral resource as a result of continued exploration.
Additional information about the risks and uncertainties of the Company's
business is provided in its disclosure materials, including its Annual
Information Form, available under the Company's profile on SEDAR at
www.sedar.com.
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