Orsu Metals Corporation ("Orsu" or the "Company" or the "Group"), the dual
listed (TSX:OSU)(AIM:OSU) London-based precious and base metals exploration and
development company today reports its unaudited results for the period ended
June 30, 2012. A full Management's Discussion and Analysis of the results for
the period ended June 30, 2012 ("MD&A") and Consolidated Financial Statements
("Financials") will soon be available on the Company's profile on SEDAR
(www.sedar.com) or on the Company's website (www.orsumetals.com). Copies of the
MD&A and Financials can be also be obtained upon request to the Company
Secretary.
The Financials for the period ended June 30, 2012 have been prepared in
accordance with International Financial Reporting Standards ("IFRS") and their
applicable International Accounting Standards (or "IAS").
All amounts are reported in United States Dollars unless otherwise indicated.
Canadian Dollars are referred to herein as CAD$ and British Pounds Sterling are
referred to as GBP.
The following information has been extracted from the MD&A and the Financials.
Reference should be made to the complete text of the MD&A and the Financials.
BUSINESS REVIEW OF THE PERIOD FROM MARCH 31, 2012
Since the end of the second quarter of 2012, the Company focussed on securing
finance for the construction of a mine and processing facility at the Karchinga
Project and achieved two significant milestones towards the achievement of this
objective:
-- The Company completed the sale of its 40% interest in the Talas Project
to a wholly owned subsidiary of Gold Fields Limited ("Gold Fields") for
cash consideration of $10 million (the "Sale") and additionally for the
subscription of 25 million units of the Company (each a "Unit") at a
price of CAD$0.40 per Unit for gross proceeds of CAD$10 million (the
"Subscription"), with each Unit consisting of one common share (a
"Common Share") and one half of one common share purchase warrant (each
whole warrant, a "Warrant"). Completion of the Subscription is
conditional on the Company obtaining formal waiver of the Kazakh
Government's pre-emptive right and requirement for consent for the
issuance of Common Shares pursuant to the Subscription (the "Kazakh
Formal Waiver") which is expected in H2 2012. The Company intends to
apply a substantial proportion of the Sale and Subscription proceeds
towards the construction and development of the mine and related
processing facilities for the Karchiga Project.
-- The Company appointed Barclays Bank plc ("Barclays") and Unicredit Bank
AG ("Unicredit") (collectively the "Mandated Lead Arrangers") to use
commercially reasonable efforts to secure a project debt finance
facility of up to $90 million to finance the Karchiga Project, subject
to commercially acceptable terms for the facility being agreed and the
Mandated Lead Arrangers obtaining all necessary internal approvals. The
Company also announced that it is continuing discussions with a number
of potential debt providers to participate in the debt financing
alongside the Mandated Lead Arrangers.
2012 SECOND QUARTER HIGHLIGHTS
-- May 2012 - the Company announced the appointment of Mr Kevin Denham as
Chief Financial Officer effective May 1, 2012 replacing Mr Petro
Mychalkiw who stepped down to pursue other business interests.
-- May 2012 - the Company announced that in relation to the Talas Project
it had agreed a 6,000 metre drilling programme with Gold Fields.
-- June 2012 - the Company announced the extension of its financial
advisory services agreement with Endeavour Financial Limited with the
aim of securing debt finance for the Karchiga Project.
-- For the three months ended June 30, 2012 the Company reported a net loss
of $1.7 million.
POST QUARTER HIGHLIGHTS
-- July 2012 - As described above, the Company announced that it had agreed
to the Sale of its 40% interest in the Talas Project for a cash
consideration of $10 million and additionally Gold Fields had agreed to
the Subscription of 25 million Units of the Company at a price of
CAD$0.40 per Unit for gross proceeds of CAD$10 million, with each Unit
consisting of a Common Share and one half of one Warrant.
-- July 2012 - the Company announced the completion of the Sale and receipt
of $10 million cash consideration. In addition, the Gold Fields Group
had advanced into escrow the gross proceeds of the Subscription of
CAD$10 million cash. Completion of the Subscription remains conditional
upon the Company obtaining the Kazakh Formal Waiver. The gross proceeds
of the Subscription will remain in escrow pending the satisfaction or
waiver of these conditions. Upon completion of the Subscription, the
Gold Fields Group will own 26,134,919 Common Shares and 12,500,000
Warrants. All shares issued pursuant to the Subscription or any
subsequent exercise of the Warrants within 4 months of the Unit issuance
date will be subject to a hold restriction for four months after the
date the Units are issued.
-- July 2012 - the Company announced that it appointed the Mandated Lead
Arrangers to use commercially reasonable efforts to arrange a project
debt finance facility of up to $90 million to finance the Karchiga
Project, subject to commercially acceptable terms for the facility being
agreed and the Mandated Lead Arrangers obtaining all necessary internal
approvals. The Company also announced that it is continuing discussions
with a number of potential debt providers to participate in the debt
financing alongside the Mandated Lead Arrangers.
OPERATIONAL REVIEW
The Company's principal and most advanced exploration project is the property
comprising a 47.3km2 licence area in eastern Kazakhstan containing the Karchiga
volcanogenic massive sulphide ("VMS") deposit (the "Karchiga Project"), which is
part of the Rudny Altai polymetallic belt. In the first quarter of 2012, the
Company filed the results of the DFS for the Karchiga Project which estimated an
initial capital expenditure requirement of $115 million. Since then the Company
has set out to secure finance, primarily in the form of secured debt but also
from other sources, for the construction of a mine and processing facility at
the Karchiga Project. To assist the Company in arranging finance for such
construction the Company appointed the Mandated Lead Arrangers to use
commercially reasonable efforts to secure debt finance. In order to further
assist with achieving this objective as well as to secure finance for its
corporate and potential future exploration activities the Company decided to
make both of its then remaining Kyrgyz exploration assets available for sale.
Until July 23, 2012 the Company's other principal exploration asset was its 40%
interest in a property in northwest Kyrgyzstan, which is comprised of four
licence areas within the Tien Shan gold belt of north western Kyrgyzstan: the
Taldybulak, Barkol, Korgontash and Kentash licences (collectively, the "Talas
Project"). On July 23, 2012 the Company completed the sale of its 40% interest
to the Gold Fields Group.
The Company's other exploration project is located approximately 100km to the
south west of the Talas Project and is the Akdjol-Tokhtazan licence area
comprising the Akdjol and Tokhtazan licences (the "Akdjol-Tokhtazan Project").
The Company considers its principal mineral property to be the Karchiga Project
and expects to continue to focus its resources and activities during the
remainder of 2012 on the development of this property. As stated above the
Company considers the Akdjol-Tokhtazan Project a non core asset which is
available for sale.
KARCHIGA COPPER PROJECT, KAZAKHSTAN
Karchiga Definitive Feasibility Study
In February 2012, SRK Consulting (UK) Limited ("SRK") completed the Karchiga DFS
and, in connection therewith, completed the Karchiga DFS Report dated March 28,
2012. The complete Karchiga DFS Report entitled "Karchiga Feasibility Study,
National Instrument 43-101 ("NI 43-101") "NI 43-101 Technical Report", dated
March 28, 2012 was prepared by Michael Beare, Dr Michael Armitage and Ms Tracey
Laight of SRK (each of whom is a "qualified person" within the meaning of NI
43-101 and independent of Orsu) can be viewed under the Company's profile on
SEDAR at www.sedar.com.
The Company commenced the Karchiga DFS in September 2010, the study was
completed in February 2012, with a view to potentially starting construction in
the third quarter of 2012. During the process of completing and fulfilling the
requirements of the Karchiga DFS the Company undertook associated exploration
and test work programmes which include:
-- In-fill resource drilling program 2010 (full details can be viewed in
the Company's MD&A);
-- Metallurgical test work April 2011 (full details can be viewed in the
Company's MD&A);
-- SRK May 2011 Pit-Constrained Mineral Resource Estimates (full details
can be viewed in the Company's MD&A);
-- SRK December 2011 Pit-Constrained Mineral Resource Estimates (full
details can be viewed in the Company's MD&A); and
-- Karchiga DFS and the 2012 Mineral Reserve Estimates (as described
below).
Table 1 below shows the results of the 2012 Mineral Reserve Estimates:
Table 1. Probable Mineral Reserves Estimates as of February 18, 2012
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Cu Metal Cu Metal Au Metal
Orebody Ore Type Tonnes (Mt) Cu % Au g/t (kt) (Mlb) (Koz)
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Central HL 1.5 1.43 0.06 21.4 47.2 3.0
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Central FL 3.8 1.78 0.12 68.2 150.2 15.2
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North East FL 4.7 1.64 0.18 77.0 169.8 27.4
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Total 10.0 1.67 0.14 166.6 367.2 45.6
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All figures are on a 100% ownership basis
Pit designs and the final NI 43-101 mineral reserve estimates dated February 18,
2012 were completed using two types of software; Whittle 4X optimisation
software was used to generate optimal pit shells which were designed in detail
using Vulcan software.
Key optimisation parameters are presented in Table 2 below.
Table 2. Whittle Input Parameters
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OVERALL SLOPE ANGLES PARAMETER
CENTRAL PIT
HANGING WALL 49 degrees
FOOTWALL 47 degrees
NORTH-EASTERN PIT
HANGING WALL 51 degrees
FOOTWALL 45 degrees
NORTHERN WALL 47 degrees
MINING & PROCESSING
MINING RECOVERY 95%
MINING DILUTION 5%
FRESH CU PROCESSING RECOVERY 94.0%
OXIDE CU PROCESSING RECOVERY 55.0%
COSTS
MINING COST
ORE 1.80 $/t
OXIDE 1.30 $/t
WASTE 1.60 $/t
FRESH PROCESSING COST 9.00 $/t ore
OXIDE PROCESSING COST 22.57 $/t ore
GENERAL & ADMINISTRATIVE COST 5.00 $/t ore
ROYALTY 5.7% of RoM Metal Value (above 0.7%
Cu head grade)
PRICE
CU SELLING PRICE 6,600 $/t Cu
NSR 83% (For Fresh Rock only)
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Capital Expenditure
The estimated total project capital expenditure ("CAPEX") over the mine life of
$147 million, including the solvent extraction with electro winning ("SXEW")
plant to treat the oxide ores, is made up as follows:
-- $21.5 million for mining equipment
-- $40.1 million for copper in concentrate processing plant and equipment
-- $26.3 million for SXEW plant
-- $21.7 million for mine site facilities and infrastructure
-- $26.3 million for sustaining capital & closure costs
-- $11.3 million for contingency
The estimated initial CAPEX is $115 million, which excludes the SXEW plant,
sustaining capital & closure costs but includes pre-production development
costs.
The initial CAPEX estimate is comparable to the initial capital cost estimate of
$100 million contained in the Karchiga Scoping Study. The Company estimates that
a 12 to 15 month period is sufficient for the construction of the processing
facilities and pre-production development at the Karchiga Project.
Mine Plan
The open pit mining schedule produced by SRK calculated a producing mine life of
11.5 years. The mining schedule envisages the mining of 10 Mt of sulphide and
oxide ore, and 124 Mt of waste with a stripping ratio of 1:12.4 over the mine
life, producing11.8 ktpa of 27.9% Cu concentrate and 2.8 ktpa of Cu cathode. The
average mining rate of the operation is anticipated to be 750kt per annum.
For the first 2.25 years of the mine life, the mining schedule includes open pit
mining of the Central sulphide ore body alone in order to maximise the sulphide
copper grade and hence sulphide copper recovery. The optimised mine schedule has
been developed to minimise the stripping ratio in the initial three years of the
mine life. In addition, the use of stockpiling has enabled the Company to
increase the processed ore grade. From Year 4 until Year 7, sulphide ore will be
mined from both the Central and North East open pits. From Year 8 until the end
of mine life in Year 12, mining will focus on the North East pit.
The average mining cost over the mine life is $1.7 per tonne of material moved.
Processing Plan and Economic Model
The plant is designed to process approximately 750,000 tonnes per annum of
sulphide ore. A conventional processing route was chosen using relatively fine
grinding and selective sulphide flotation to produce a 27.9% Cu bulk
concentrate. As the Company aims to secure finance for the Karchiga Project in
the third quarter of 2012 and the timing for the start of construction thereof
it now estimates that first production to be scheduled for the first quarter of
2014 through to final production in 2025.
Copper from the oxide ore will be extracted using SXEW process. The oxides will
be treated over a period of 4.5 years starting in 2018 at an annual production
rate of 360,000 tonnes and is expected to produce an average of 2.8kt (6.22 Mlb)
of copper cathode per annum over that period. Production of cathode copper will
continue until 2022.
In order to reduce the initial capital expenditure, the SXEW plant construction
has been delayed until after the initial capital expenditure payback period
(which is anticipated to be 2.75 years). The plant has been designed to treat an
average of 30,000 tonnes of leachable oxide ore per month.
The results of the Karchiga DFS demonstrate that economically the best option is
to delay the SXEW construction until 2017, allowing the cost of construction to
be financed from the revenue generated by the sulphide ore treatment.
The project key performance indicators are shown in Table 3 below.
Table 3. Key Performance Indicators
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Key Performance
Parameter Units Indicator
----------------------------------------------------------------------------
Average annual mining rate Tonnes 750,000
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Average mining cost $/t of ore 22.99
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Annual processing rate (FL) Tonnes 750,000
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Mine life (FL) Years 11.5
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Processing cost (FL) $/t of ore 8.91
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Metallurgical recovery (FL) % 93.4
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Average annual copper production, over
11.5 years (FL) '000 tonnes 11.82
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Average annual copper production (FL) Mlb 26.1
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Annual processing rate (HL) Tonnes 360,000
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Mine life (HL) Years 4.5
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Processing cost (HL) $/t of ore 18.7
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Metallurgical recovery (HL) % 61.1
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Average annual copper production, over
4.5 years (HL) '000 tonnes 2.8
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Average annual copper production (HL) Mlb 6.2
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Cash operating cost over the mine life
(pre tax) $/lb Cu 1.47
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The mine is expected to produce a total of 149kt (328 Mlb) of payable copper,
with an average of 12,957t (28.57 Mlb) of copper production per annum.
The Karchiga Project site is located 10 km from the main road and a 110 kV
national power grid and is expected to be connected to the same as part of
construction. An adequate supply of water can be sourced from the River Kalzhir
as well as from aquifers in the immediate vicinity of the designed project
facilities.
The project key economic indicators are shown in Table 4 below.
Table 4. Key Economic Indicators
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Key Economic
Parameter Units Indicator
----------------------------------------------------------------------------
Total project CAPEX $m 147
----------------------------------------------------------------------------
Initial CAPEX $m 115
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Total Net Smelter Revenue $m 971
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Sulphide and Oxide Case @ $3.25/lb Cu:
- Post-Tax NPV7.5 $m 150
- Post-Tax IRR % 30
- Payback period Years 2.75
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Sulphide and Oxide Case @ $3.00/lb Cu:
- Post-Tax NPV7.5 $m 113
- Post-Tax IRR % 25
- Payback period Years 3.0
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All figures are on a 100% ownership basis
The ESIA for the Karchiga Project was successfully completed by WAI on January
31, 2012. The Company expects to receive the necessary construction permitting
approvals from the Kazakh authorities by the end of the second quarter of 2012.
The figures for NPV, IRR and payback in Table 4 assume 100% equity financing for
the Karchiga Project and a discount rate of 7.55% was used to derive the NPV.
The ESIA for the Karchiga Project was successfully completed by WAI on January
31, 2012. In the normal course of applying for the necessary construction
permitting approvals and delays in the timings thereof from of the Kazakh
authorities, the Company now expects to receive the necessary construction
permitting approvals from the Kazakh authorities by the end of the third quarter
of 2012. As at the date of this press release the copper price (as quoted on the
London Metal Exchange) was $3.37/lb, which if used in the above scenarios may be
expected to improve the economic results of the Karchiga Project.
Karchiga DFS Expenditure
The Company originally estimated expenditure on the DFS of $6.6 million, but due
to increased resource drilling work covering the additional oxide and sulphide
drilling programme mentioned above, the Company now expects to incur expenditure
of $9.2 million, which it expects to fund from its available cash. As at June
30, 2012, the Company had incurred cumulative expenditure of $8.6 million
relating to the DFS since August 2010. The work undertaken in the second quarter
of 2012 related to the future construction of the mine expected to commence in
the fourth quarter of 2012.
Other matters
Following the completion of the DFS the Company began the process of identifying
companies and contractors to complete the detailed design work going forward
into the start of construction (expected in the fourth quarter of 2012). In
addition the Company continues to identify potential off-takers for the copper
concentrate in both the People's Republic of China ("China") and Kazakhstan. The
Karchiga Project is favourably located approximately 220 km south east of the
regional centre, Ust-Kamenogorsk, and approximately 40 km from the Chinese
border to the east. The nearest copper mining operation in China at the Ashele
VMS deposit, containing 1 million tonnes of copper, is located approximately 85
km east- southeast from the Karchiga deposit.
TALAS COPPER-GOLD-MOLYBDENUM PROJECT, KYRGYZSTAN
Licence information
Until its sale on July 23, 2012, the Company's material property in Kyrgyzstan
was the Talas Project comprised of the Taldybulak, Kentash, Barkol and
Korgontash licences. The Talas Project is located in the Tien Shan gold belt in
north western Kyrgyzstan. The region includes copper and gold deposits such as
Jerooy, Andash, and Aktash. The Talas Project is accessible year round via the
Bishkek-Talas road (270km from Bishkek). A rail head is located 140km by road
from the deposit and several 10 to 500kV power grid lines pass within 10km of
the deposit.
The licences in the Talas Project are held by Talas Copper Gold LLC ("TCG"),
which became a wholly owned indirect subsidiary of Gold Fields following the
completion of the Sale on July 23, 2012, during the second quarter of 2012 and
the until the Company disposed of its interest therein.
Prior to the completion of the Sale, the company had been conducting exploration
and development activities with respect to the Talas Project through its
interest in the JV Company (as defined below), the direct holder of the TCG.
Joint Venture with Gold Fields
Until the completion of the Sale, the Talas Project was subject to the joint
venture agreement dated December 3, 2008, as amended on August 14, 2009, between
the Company, Gold Fields Group, Lero, Kami Associates Limited (the "JV Company")
and TCG (the "JV Agreement").
Pursuant to the terms of the JV Agreement the Gold Fields Group had earned a 60%
interest in the JV Company in January 2010, with the Company then retaining a
40% interest in the JV Company.
The Sale
On July 23, 2012, the Company completed the Sale to the Gold Fields Group for
$10 million cash. The Company was also refunded its aggregate contributions of
$240,089 to the current Talas Project exploration programme. Following the
completion of the Sale, the Gold Fields Group now owns a 100% interest in the
Talas Project. In addition, the Company's joint venture with Gold Fields in
relation to the Talas Project terminated upon completion of the Sale.
In addition to acquiring Orsu's 40% interest in the Talas Project, the Gold
Fields Group also agreed to the Subscription by subscribing for 25 million Units
at a price of CAD$0.40 per Unit for gross proceeds of CAD$10 million. Each Unit
is to consist of one Common Share and one half of one Warrant. Each Warrant will
be exercisable for a period of three years from the date of issue to acquire one
Common Share at a price of CAD$0.50. The gross proceeds of CAD$10 million cash
are being held in escrow pending the Company's receipt of the Kazakh Formal
Waiver or Gold Fields waiver of such condition which is expected in H2 2012. The
Units will not be issued to the Gold Fields Group until such condition has been
satisfied or waived by the Gold Fields Group. Upon completion of the
Subscription, the Gold Fields Group will own 26,134,919 Common Shares and
12,500,000 Warrants. All shares issued pursuant to the Subscription or any
subsequent exercise of the Warrants (within 4 months of the Unit issuance date)
will be subject to a hold restriction for 4 months after the date the units are
issued.
2012 Exploration Programme
The Company had previously agreed with the Gold Fields Group a 6,000 meter
infill drilling programme in 2012 for the Taldybulak deposit, which had been
postponed from 2011, and its related exploration expenditure for the 6,000 meter
infill drilling programme as being $2.3 million in total. As per the terms of
the JV Agreement the Company was required to fund its 40% pro rata share of
approximately $0.9 million.
As at June 30, 2012 the Company had contributed $528,000 of its 40% share of
expenditure in 2012 ($364,000 for the six months ended June 30, 2011) which
consisted of $287,911 relating to the completion of a 2011 expenditure budget in
connection with environmental, social, metallurgical and resource studies, and
$240,089 is connection to the aforementioned 2012 drilling programme at the
Taldybulak licence. As of June 30, 2012 the JV completed approximately 3,000 m
of the aforementioned infill drilling programme.
As a result of the Sale the Company was refunded $240,089 of the $528,000
contribution made up to June 30, 2012.
FINANCIAL RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 2012
For the three months ended June 30, 2012 the Company reported a net loss of $1.7
million compared to net income of $2.0 million for the three months ended June
30, 2011.
As at June 30, 2012 the Company had net assets of $27.9 million of which $5.8
million was cash and cash equivalents.
The net loss of $1.7 million for the three months ended June 30, 2012 consisted
of administrative costs of $1.1 million, legal and professional costs of $0.2
million and the Company's share of the Talas Joint Venture losses of $0.4
million.
The Company's cash flows, cash and cash equivalents as at June 30, 2012 were
$5.8 million compared to $10.3 million as at December 31, 2011, representing a
decrease of $4.5 million. The decrease was due primarily to corporate and
exploration expenditure of $3.2 million, capital expenditure of $0.7 million,
Orsu's 40% funding of the Talas Joint Venture of $0.5 million and deferred
finance costs of $0.1 million in relation to the Karchiga Project.
In relation to the Karchiga Project, during the quarter ended June 30, 2012, the
Company began the process of seeking to secure financing and incurred associated
costs of $0.1 million and also incurred expenditure in preparation for the
construction of a mining and processing facility of $0.6 million. Both the
finance costs and project expenditure were capitalised in the interim financial
statements as at June 30, 2012 (see section "Karchiga Project Pre-Production and
Deferred Finance Costs" below).
Post the end of the period, in July 2012, the Company received $10 million
following the completion of the Sale to the Gold Fields Group. The Company also
received $240,089, being the Company's aggregate contribution in 2012 to a
previously agreed 2012 exploration programme with the Gold Fields Group. In
addition, the Gold Fields Group agreed to the Subscription for gross proceeds of
CAD$10 million which is currently being held in escrow (see section "Equity
Investment in Talas Joint Venture" below for further details). In the interim
financial statements as at June 30, 2012 the net investment in the Talas Joint
Venture has been re-classified as an "asset held for sale".
FINANCIAL POSITION AS AT JUNE 30, 2012
As at June 30, 2012 the Company's net assets were $27.9 million, compared with
$32.1 million as at December 31, 2011, of which $5.8 million consisted of cash
and cash equivalents ($10.3 million as at December 31, 2011).
The decrease in net assets of $4.2 million was due to corporate and exploration
expenditure of $3.2 million, the Company's 40% funding of the Talas Joint
Venture of $0.5 million, capital expenditure of $0.7 million and deferred
financing costs incurred of $0.1 million. These were partially offset by a
reduction in the carrying value of the Akdjol-Tokhtazan Asset Held For Sale of
$0.3 million.
KARCHIGA PROJECT PRE-PRODUCTION AND DEFERED FINANCE COSTS
a) Karchiga Pre-Production Costs
In March 2012, the Company successfully completed a Karchiga DFS for the
Karchiga Project. At the same time and subsequently the Company incurred costs
related to the construction of a mining and processing facility at the Karchiga
Project. Under IFRS, IAS 16 "Property, Plant and Equipment", costs are
capitalized during the development phase, defined as being from the date that an
economic study is completed and the date the asset is deemed to be available for
use (or the "pre-production costs") and are those that can be directly
attributable to bringing the asset to the condition necessary for it to be
capable of operating in the manner intended by the Company. Under IAS 16, these
pre production costs are capitalized, as they meet the criteria for the
capitalization for a basic asset.
These and future costs will be recorded as "Property Plant and Equipment" until
such time when the asset is "available for use" (defined as when commercial
levels of production are capable of being achieved). As at June 30, 2012 the
Company incurred $658,000 of Pre-Production expenditure which it capitalised.
b) Karchiga Finance Costs
In relation to the Karchiga Project, following the successful completion of the
Karchiga DFS in March 2012 the Company is in the process of seeking to secure
debt financing for the construction of a mining and processing facility. As a
result under IFRS, IAS 39 Financial Instruments: Recognition and Measurement,
these legal and professional fees incurred in the process of securing the debt
finance have been capitalised. These capitalised costs along with future
financing costs capitalised, in relation to the Karchiga Project, will be
amortised over the term of any proposed debt. For the six months ended June 30,
2012 the company incurred $80,000 of advisory fees which are treated as
transaction costs.
ASSETS HELD FOR SALE
a) Akdjol-Tokhtazan Project
The exploration licence area for the Akdjol-Tokhtazan Project is located in the
Jalal-Abad Oblast, western Kyrgyzstan and comprises the Akdjol licence and
Tokhtazan licence. During 2010, the Company identified the Akdjol licence area
as a gold-silver epithermal prospect and the Tokhtazan licence area as a gold
prospect. The Akdjol and Tokhtazan licences expire on December 31, 2012.
The Company considers its principal mineral property to be the Karchiga Project
and expects to continue to focus its resources and activities during 2012 on the
development of this property. As such the Company considers the Akdjol-Tokhtazan
Project a non core asset which is available for sale.
Under IFRS 5, "Non-current assets held for sale and discontinued operations",
the Company classified the assets and liabilities related to the
Akdjol-Tokhtazan Project (the disposal group) as held for sale on the balance
sheet as at June 30, 2012 and as at December 31, 2011 and anticipates that after
negotiations with potential buyers, a disposal of the Akdjol-Tokhtazan Project
will be completed before the expiry of the licences.
The amount of comprehensive loss attributable to non controlling interests in
relation to the losses incurred by the disposal group in the period ended June
30, 2012 and December 31, 2011 is nil.
b) Equity Investment in the Talas Joint Venture
The Talas exploration license area comprises the Taldybulak, Kentash, Barkol and
Korgontash licenses in Kyrgyzstan. The primary exploration property within the
Talas exploration licence area is the Taldybulak gold-copper-molybdenum porphyry
deposit. The Taldybulak licence expires on December 31, 2015 and the Barkol
license expires on December 31, 2013. The Kentash and Korgontash licenses expire
on December 31, 2012.
In December 2008 the Company entered into the JV Agreement to further develop
the Talas licence area with Gold Fields and, under the terms of the JV
Agreement, Gold Fields became the project operator.
In January 2010, the Gold Fields Group earned a 60% interest in the JV Company
and, in doing so, earned the ability to unilaterally control the operational,
financial and investment decisions of the JV Company. For this reason the
Company's 40% minority interest in the Talas Project was accounted for as an
associate under the equity method.
In 2012 the Company undertook to secure finance for the Karchiga Project and as
a result decided to make the Talas Project available for sale. Subsequently in
July 2012, the Company received $10 million following the completion of the Sale
to the Gold Fields Group. The Company also received $240,089 cash, being the
Company's aggregate contribution in 2012 to an exploration programme previously
agreed with the Gold Fields Group. As the Sale resulted in the Gold Fields Group
owning a 100% interest in the Talas Project, the Company's joint venture in
relation to the Talas Project was terminated upon completion of the Sale.
In addition to the above the Gold Fields Group also agreed to the Subscription
by subscribing for 25 million Units at a price of CAD$0.40 per Unit for gross
proceeds of CAD$10 million, with each Unit consisting of a Common Share and one
half of one Warrant. Each Warrant will be exercisable for a period of three
years from the date of issue to acquire one Common Share at a price of CAD$0.50.
The gross proceeds of CAD$10 million cash are being held in escrow pending the
Company obtaining the Formal Kazakh Waiver or Gold Fields waiver of such
condition which is expected in H2 2012. The Units will not be issued to the Gold
Fields Group until such condition has been satisfied or waived by Gold Fields
Group. Upon completion of the Subscription, the Gold Fields Group will own
26,134,919 Common Shares and 12,500,000 Warrants. All shares issued pursuant to
the Subscription or any subsequent exercise of the Warrants (within four months
of the Unit issuance date) will be subject to a hold restriction for four months
after the date the Units are issued.
Under IFRS 5, "Non-current assets held for sale and discontinued operations",
the Company re-classified its net investment in the Talas Project as held for
sale as at June 30, 2012.
As at June 30, 2012 the total consideration for the sale of the Company's 40%
interest in the Talas Joint Venture to Gold Fields exceeds the carrying value
and hence no fair value adjustment was required.
The carrying value of the investment held for sale as at June 30, 2012 and the
equity investment as at December 31, 2011 are shown below:
June 30,
2012
$000
Reclassification of investment in Talas Project as held for
sale 10,111
Funding provided by the Company during the period 528
Less: Company's 40% share of operating losses for the period (596)
----------------
Investment in Talas Project held for sale - end of period 10,043
----------------
----------------
December 31,
2011
$000
Equity investment - brought forward January 1, 2011 10,221
Funding provided by the Company during the period 838
Less: Company's 40% share of operating losses in the period (948)
----------------
Equity investment - carried forward December 31, 2011 10,111
----------------
Re-classification as held for sale (10,111)
----------------
-
----------------
LIQUIDITY AND CAPITAL RESOURCES
As at June 30, 2012 the Company's main source of liquidity was unrestricted cash
and cash equivalents of $5.8 million, compared with $10.3 million as at December
31, 2011.
The Company measures its consolidated working capital as comprising free cash,
accounts receivable, prepayments and other receivables, less accounts payable
and accrued liabilities. As at June 30, 2012, the Company's consolidated working
capital was $6.6 million (compared with a consolidated working capital of $11.5
million as at December 31, 2011).
The Company's working capital needs as at June 30, 2012 included the maintenance
of the Company's interests in, and the further exploration and the development
of, the Company's mineral properties, ongoing work related to the completed
Karchiga DFS and the funding of general corporate, legal and professional
expenses. The Company expects to fund its working capital requirements for 2012,
other than as set out below, and be able to contribute towards the pursuit of
future growth opportunities (which may include acquiring one or more additional
assets), if and when such opportunities arise, from its unrestricted cash of
$5.8 million as at June 30, 2012. In the Company's view, the consolidated
working capital as at June 30, 2012 is sufficient to satisfy its working capital
needs, other than as described below, for at least the next 12 months.
The construction of mining facilities and commencement of mining operations at
the Karchiga Project, if any, will require an estimated initial capital
expenditure of $115 million for which the Company will be required to raise
additional financing in the future. In July 2012, the Company appointed Barclays
and Unicredit as the Mandated Lead Arrangers to use commercially reasonable
efforts to secure project debt financing. If the Company secures the required
debt financing on acceptable commercial terms, and receives the final regulatory
approvals for the Karchiga Project, the Company intends to apply a substantial
proportion of the Sale proceeds and, if released from escrow, Subscription
proceeds towards the construction and development of the mine and related
processing facilities for the Karchiga Project. Whilst the Company has been
successful in raising debt financing in the past, the Company's ability to raise
additional debt financing as well as receiving the Formal Kazakh Waiver for the
Subscription may be affected by numerous factors beyond the Company's control,
including, but not limited to, adverse market conditions and/or commodity price
changes and economic downturn and those other factors that are listed under
"Risks and Uncertainties" section of the Company's MD&A.
Consolidated Statements of Net (loss)/ income, and Comprehensive (loss)/
income (Unaudited)
(Prepared in accordance with IFRS)
----------------------------------------------------------------------------
Three months ended June Six months ended June
30, 30,
2012 2011 2012 2011
$000 $000 $000 $000
Operating expenses
Administration (1,100) (829) (2,164) (1,599)
Legal and professional (184) (327) (461) (618)
Exploration (33) (1,140) (1,003) (1,680)
Stock based compensation (19) (55) (108) (192)
Stock based compensation -
non employees - (13) (7) (35)
Company's share of Talas
Joint Venture losses (438) (133) (596) (443)
Foreign exchange gains 11 38 32 135
------------------------ ------------------------
(1,763) (2,459) (4,307) (4,432)
Deferred consideration
income - 1,908 - 1,908
Derivative gains - 2,572 - 5,916
Finance income 49 14 31 31
------------------------ ------------------------
Net (loss)/ income and
comprehensive (loss)/
income (1,714) 2,035 (4,276) 3,423
------------------------ ------------------------
------------------------ ------------------------
Net (losses)/ income
attributable to:
Shareholders of the Company (1,704) 2,374 (4,202) 3,955
Non-controlling interest (10) (339) (74) (532)
------------------------ ------------------------
(1,714) 2,035 (4,276) 3,423
------------------------ ------------------------
------------------------ ------------------------
(Loss)/ earnings per share
Basic $(0.01) $0.01 $(0.03) $0.02
Diluted $(0.01) $0.01 $(0.03) $0.02
Weighted average number of
common shares (in
thousands) 157,696 157,696 157,696 157,696
Consolidated Balance Sheets (Unaudited)
(Prepared in accordance with IFRS)
----------------------------------------------------------------------------
June 30 December 31
2012 2011
Assets $000 $000
Current assets
Cash and cash equivalents 5,800 10,319
Prepaid and receivables 1,422 1,394
Assets of Akdjol-Tokhtazan Project held for
sale 5,884 6,116
Investment in Talas Joint Venture held for sale 10,043 -
----------------------------
23,149 17,829
Non-current assets
Exploration properties 4,404 4,404
Deferred finance costs 80 -
Property, plant and equipment 963 353
Equity investment in Talas Joint Venture - 10,111
----------------------------
5,447 14,868
----------------------------
Total assets 28,596 32,697
----------------------------
----------------------------
Liabilities
Current liabilities
Accounts payable and accrued liabilities 515 448
Liabilities of Akdjol-Tokhtazan Project held
for sale 59 66
----------------------------
574 514
Non-current liabilities
Other liabilities 120 120
----------------------------
694 634
Equity
Share capital 380,145 380,145
Share purchase warrants - 1,131
Share purchase options 6,090 6,062
Contributed surplus 28,046 26,828
Non-controlling interest (328) (254)
Deficit (386,051) (381,849)
----------------------------
27,902 32,063
----------------------------
Total equity and liabilities 28,596 32,697
----------------------------
----------------------------
Consolidated Statements of Cash Flows (Unaudited)
(Prepared in accordance with IFRS)
----------------------------------------------------------------------------
Six months ended June 30,
2012 2011
$000 $000
Cash flows (used by)/ from operating activities
Net (loss)/ income for the period (4,276) 3,423
Items not affecting cash:
Company share of Talas Joint Venture losses 596 443
Depreciation and amortization 62 63
Deferred consideration - (1,908)
Share-based payments 115 227
Foreign exchange (gains)/ losses (28) 9
Derivative gains - (5,916)
----------------------------
(3,531) (3,659)
Changes in non-cash working capital:
Accounts receivable and other assets 200 (128)
Accounts payable and accrued liabilities 92 (115)
----------------------------
Net cash used by operating activities (3,239) (3,902)
Cash flows (used by)/ from investing activities
Expenditures on property, plant and equipment (672) (46)
Proceeds from net investment in residual oil
and gas interests - 251
Deferred consideration received - 1,500
Funding of investment in Talas Joint Venture (528) (364)
Acquisition of Eildon minority interest - (6,188)
----------------------------
Net cash used for investing activities (1,200) (4,847)
Cash flows used for financing activities
Deferred finance costs (80) -
----------------------------
Net cash used for financing activities (80) -
----------------------------
Net decrease in cash and cash equivalents (4,519) (8,749)
----------------------------
Cash and cash equivalents - Beginning of the
period 10,341 19,596
----------------------------
Cash and cash equivalents - End of the period 5,822 10,847
----------------------------
----------------------------
Cash and cash equivalents per the consolidated
balance sheets 5,800 10,847
Included in the Akdjol-Tokhtazan Project
classified held for sale 22 -
FORWARD-LOOKING INFORMATION
This press release and the Company's MD&A 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,
statements relating to: the continued and future maintenance, exploration and
development, as applicable, of the Company's properties and the timing related
thereto; development and operational plans and objectives, including the
Company's expectations relating to the development of the Karchiga Project; the
Company's ability to satisfy certain future expenditure obligations; mineral
resource and mineral reserve estimates; estimated project economics, cash flow,
costs, expenditures, revenue, capital payback, performance and economic
indicators and sources of funding; the use and sufficiency of the Company's
working capital for the next twelve months; the anticipated arranging of a debt
facility by the Mandated Lead Arrangers and the potential participation by other
subordinated debt providers; the anticipated receipt by the Company of the
proceeds of the Subscription and the Company's expected uses thereof and the
proceeds from the Sale; the estimated mine life, NPV and IRR for, and forecasts
relating to tonnages and amounts to be mined from, and processing and expected
recoveries and grades at, the Karchiga Project as well as the other forecasts,
estimates and expectations relating to the Karchiga DFS Report, the Karchiga
Scoping Study, the SRK May 2011 Pit- Constrained Mineral Resource Estimates and
the SRK December 2011 Pit-Constrained Mineral Resource Estimates; future prices
and trends relating to copper, gold and molybdenum and the expected effect
thereof on the economic results of the Karchiga Project;
the mine design and plan for the Karchiga Project, including the potential start
of construction at, and production from, the Karchiga Project as well as the
expected timing of same and the Company's ability to receive the necessary
permits and approvals in connection therewith; the estimated holdings of the
Gold Fields Group in the Common Shares and Warrants following the completion of
the Subscription; the anticipated sale of the Akdjol-Tokhtazan Project and the
timing with respect thereto; the Company's belief that the results from the
mineralogical study relating to the Akdjol- Tokhtazan Project suggest that gold
should be metallurgically accessible; the future political and legal regimes and
regulatory environments relating to the mining industry in Kyrgyzstan and/or
Kazakhstan; the Company's expectations and beliefs with respect to the waiver of
the State's pre-emptive right with respect to the Karchiga Project and the past
placements of the Common Shares being covered thereby; the Company's application
for, and receipt of, the Formal Kazakh Waiver or the waiver thereof by Gold
Fields as a condition to the completion of the Subscription; the significance of
any individual claims by non-Ontario residents with respect to the Claim; and
the Company's future growth (including new opportunities and acquisitions) and
its ability to raise or secure new funding (including for construction at the
Karchiga Project).
The forward-looking information in this press release and the Company's MD&A
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 and the Company's
MD&A, the Company has made assumptions regarding, among other things, the
Company's ability to generate sufficient funds from capital markets and/or debt
sources to meet its future expected obligations and planned activities
(including the ability of the Mandated Lead Arrangers to secure for a project
debt finance facility on terms acceptable to the Company), the Company's
business (including the continued development of the Karchiga Project and the
timing and methods to be employed with respect to same), the estimation of
mineral resources and mineral reserves (as set out above under "Operational
Review"), the parameters and assumptions employed in the Karchiga DFS Report,
the Karchiga Scoping Study, the SRK May 2011 Pit-Constrained Mineral Resource
Estimates and the SRK December 2011 Pit-Constrained Mineral Resource Estimates,
the economy and the mineral exploration and extraction industry in general, the
political environments and the regulatory frameworks in Kazakhstan and
Kyrgyzstan with respect to, among other things, the mining industry generally,
royalties/MPTs, taxes, environmental matters and the Company's ability to
obtain, maintain, renew and/or extend required permits, licences, authorisations
and/or approvals from the appropriate regulatory authorities, including the
necessary construction and development permits and approvals required to develop
the Karchiga Project as anticipated as well as the Kazakh Formal Waiver, that
the previously waiver granted by the Competent Authority covers any pre-emptive
right that the Competent Authority or State has in respect of any past
placements, future capital, operating and production costs and cash flow
discounts, anticipated mining and processing rates, the Company's ability to
continue to obtain qualified staff and equipment in a timely and cost-efficient
manner, assumptions relating to the Company's critical accounting policies, and
has also assumed that no unusual geological or technical problems occur, and
that equipment works as anticipated, no material adverse change in the price of
copper, gold or molybdenum occurs and no significant events occur outside of the
Company's normal course of business.
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: risks normally incidental to
exploration and development of mineral properties and operating hazards;
uncertainties in the interpretation of results from drilling and metallurgical
test work; the possibility that future exploration, development or mining
results will not be consistent with expectations; uncertainty of mineral
resource and mineral reserve estimates; technical and design factors;
uncertainty of capital and operating costs, production and economic returns;
uncertainties relating to the estimates and assumptions used, and risks in the
methodologies employed, in the Karchiga DFS Report, the Karchiga Scoping Study,
the SRK May 2011 Pit-Constrained Mineral Resource Estimates and the SRK December
2011 Pit-Constrained Mineral Resource Estimates, and that the completion of
additional work on the Karchiga Project could result in changes to the estimates
relating to the Karchiga DFS Report, the Karchiga Scoping Study, the SRK May
2011 Pit-Constrained Mineral Resource Estimates and the SRK December 2011
Pit-Constrained Mineral Resource Estimates, the Company's inability to obtain,
maintain, renew and/or extend required licences, permits, authorizations and/or
approvals from the appropriate regulatory authorities, including (without
limitation) the Company's inability to obtain (or a delay in obtaining) the
necessary construction and development permits and approvals for the Karchiga
Project or the Formal Kazakh Waiver, and other risks relating to the regulatory
frameworks in Kazakhstan and Kyrgyzstan;
adverse changes in the political environments in Kazakhstan and Kyrgyzstan and
the laws governing the Company, its subsidiaries and their respective business
activities; inflation; changes in exchange and interest rates; adverse changes
in commodity prices; the inability of the Company to obtain required financing
on favourable terms or at all (including with respect to the debt financing
expected to be secured by the Mandated Lead Arrangers) or to complete the
Subscription or the disposition of the Akdjol-Tokhtazan Project; adverse general
market conditions; lack of availability at a reasonable cost or at all, of
equipment or labour; the inability to attract and retain key management and
personnel; the possibility of non-resident class members commencing individual
claims in connection with the Claim; the Company's inability to delineate
additional mineral resources and mineral reserves; and future unforeseen
liabilities and other factors including, but not limited to, those listed under
"Risk and Uncertainties" in the Company's MD&A.
Any mineral resource and mineral reserve figures referred to in this press
release and the Company's MD&A 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 mineral resource and mineral reserve estimates in
respect of its properties are well established, by their nature mineral resource
and mineral reserve estimates are imprecise and depend, to a certain extent,
upon statistical inferences which may ultimately prove unreliable. If such
mineral resource and mineral reserve 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.
Mineral resources that are not mineral reserves do not have demonstrated
economic viability. The Karchiga Scoping Study is preliminary in nature, and
includes inferred mineral resources that are considered too speculative
geologically to have the economic considerations applied to them that would
enable them to be categorized as mineral reserves. There is no certainty that
the conclusions of the Karchiga Scoping Study will be realized.
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.
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