Orsu Metals Corporation ("Orsu" or the "Company" or the "Group"), the dual
listed (AIM:OSU)(TSX:OSU) London-based base and precious metals exploration and
development company, today reports its unaudited results for the quarter ended
March 31, 2014 ("Q1 2014"). A full Management's Discussion and Analysis of the
results ("MD&A") and Consolidated Financial Statements for Q1 2014 (the
"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 also be obtained upon request from the Company
Secretary.
The Financials have been prepared in accordance with applicable International
Financial Reporting Standards ("IFRS").
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.
FIRST QUARTER 2014 HIGHLIGHTS
January and February 2014 - the Company announced that an exclusivity agreement
with David-Invest LLP (or "David-Invest"), a Kyrgyz registered company, and a
related company, David Way Limited, a Hong Kong registered company, (together
the "Potential Buyers") for the potential sale of the Akdjol-Tokhtazan Project
had expired after a non-refundable deposit of $0.5 million was not received (due
to be paid by the Potential Buyers to the Company by January 31, 2014). This
exclusivity agreement followed the expiry on December 31, 2013 of a previous
exclusivity agreement with David-Invest. Following the expiry of the exclusivity
agreement the Company began discussions with both the Potential Buyers and other
interested parties on a non-exclusive basis for the sale of the Akdjol-Tokhtazan
Project (see "Post Quarter Highlights" below).
March 2014 - the Company announced that it had entered into a new exclusivity
agreement (the "Balkhash Agreement") to continue joint exploration work with
Asem Tas LLC ("Asem Tas"), a privately owned Kazakh registered company, and
holder of a license area in Eastern Kazakhstan, which is host to a 30kmlong
Dzharyk-Taisogan cluster of copper-polymetallic occurrences (the "Balkhash
Project") and had agreed to an initial work programme for 2014 (the "2014 Work
Programme"). Under the terms of the Balkhash Agreement the Company agreed to
fund further exploration work of up to $0.5 million, and in return the Company
has the exclusive right, for a period ending in July 2014 (the "Exclusivity
Period"), and subject to certain conditions and terms, to acquire an effective
55% interest in the Balkhash Project. (see "Operational Review - Balkhash
Project, Kazakhstan" below).
POST QUARTER HIGHLIGHTS
In April 2014 - the Company announced that following the receipt of a $300,000
non-refundable deposit from the Potential Buyers it had entered into a new
exclusivity agreement with the Potential Buyers with a view to the potential
sale of the Company's exploration interests in Kyrgyzstan, consisting of the
Akdjol and Tokhtazan exploration licenses (the "Akdjol-Tokhtazan Project")
located in the Jelal-Abad Oblast, western Kyrgyzstan. Under the terms of such
exclusivity agreement the Potential Buyers were granted the exclusive right to
indirectly acquire the Akdjol-Tokhtazan Project until July 1, 2014 (the
"Akdjol-Tokhtazan Exclusivity Period") (see section entitled "Operational Review
- Akdjol-Tokhtazan Project, Kyrgyzstan" in the Company's MD&A).
OPERATIONAL REVIEW
The Company's principal and most advanced project is the property located within
the Republic of Kazakhstan (or "Kazakhstan"), comprising a license area in
eastern Kazakhstan containing the Karchiga volcanogenic massive sulphide ("VMS")
deposit which is part of the Rudny Altai polymetallic belt (the "Karchiga
Project"). In addition the Company continues to seek to acquire new exploration
license areas within Kazakhstan. The Company also holds exploration licenses
within the Kyrgyz Republic (or "Kyrgyzstan").
During the three months ended March 31, 2014 the Company continued to jointly
explore the Balkhash Project with Asem Tas as well as continuing to seek finance
for and planning the construction of mine and processing facilities for the
Karchiga Project.
The Company has continued to use, and will continue to use, its current working
capital resources to satisfy the Company's expenditure obligations in respect of
its corporate and administrative expenditures, as well as the obligations under
the Balkhash Agreement and the acquisition of any new mineral exploration
properties. However, the current working capital resources are not sufficient to
meet the financing requirements relating to the construction of mine and
processing facilities for the Karchiga Project, for which separate project
financing is required and which is described below.
Karchiga Copper Project, Kazakhstan
During Q1 2014 the Company continued to seek finance for and planning for the
construction of mine and processing facilities for the Karchiga Project.
In 2012 the Company completed a feasibility study for the Karchiga Project, (the
"Karchiga Definitive Feasibility Study") the results of which estimated an
initial capital expenditure requirement of $115 million for the Karchiga
Project. To assist the Company in arranging finance for such expenditures, in
July 2012, the Company appointed Barclays Bank plc ("Barclays") and UniCredit
Bank AG ("UniCredit") (together the "Mandated Lead Arrangers") to use
commercially reasonable efforts to secure debt financing of up to $90 million
(subject to commercially acceptable terms for the facility being agreed and the
Mandated Lead Arrangers obtaining the necessary internal approvals).
As at the date of this press release the Company continues with its efforts to
secure finance for the Karchiga Project. Until such time as it is able to secure
the required financing, the Company will not enter into any contracts to place
advance orders for mining equipment or construction materials and will be unable
to determine the expected timing for the commencement of construction (see the
"Liquidity and capital resources" section below and "Risks and uncertainties"
section of the Company's MD&A).
Balkhash Project, Kazakhstan
In March 2014 the Company announced that it had entered into the Balkhash
Agreement. The Balkhash Agreement replaces the initial exclusivity agreement
which the Company previously announced in November 2012 and the subsequent
successor agreements announced on April 22, 2013 and September 20, 2013 (all
previous agreements together being the "Predecessor Agreements").
The key terms of the Balkhash Agreement with Asem Tas are summarised below:
1. Orsu has been granted the further exclusive right for a period of 120
days ending in July 2014 (the previous agreements expired in April 2013,
September 2013 and March 2014) subject to extension by mutual agreement
of the parties, to explore and participate in the Balkhash Project;
2. During the Exclusivity Period:
a. Orsu and Asem Tas will continue to jointly explore the Balkhash
Project, including geophysical works and verification drilling of
exploration targets;
b. Orsu will initially provide funding for exploration works at the
Balkhash Project in an amount of up to $0.5 million under the 2014
Work Programme, and
c. Subject to the Company exercising its right to participate in the
project (see point 4 below), Asem Tas will apply to transfer the
exploration license for the Balkhash Project to a newly formed
Kazakh legal entity jointly owned by Orsu and Asem Tas (the "Joint
Venture Company"), which will be a subsidiary of Orsu, with Orsu
holding an effective interest of 55%. A transfer of the exploration
license to the Joint Venture Company will be conditional upon
obtaining a formal waiver of the Kazakh Government's pre-emptive
right.
3. The Company has agreed to pay Asem Tas:
a. up to $1.5 million to compensate Asem Tas for historical exploration
costs incurred prior to 2012 (excluding any costs funded by the
Company) on effective transfer of the license,
b. $20 per tonne of economically extractable copper equivalent, up to a
maximum of $10 million, less any amount paid under item 3) a. above,
on or before completion of a positive preliminary economic
assessment study, and
c. $20 per additional tonne of economically extractable copper
equivalent, up to a maximum of $15 million, less any amounts paid
under 3) a. and 3) b. above, on completion of a positive definitive
feasibility study.
4. Orsu may terminate its funding at any point before the earlier of the
effective transfer of the exploration license or the end of the
Exclusivity Period. Where the approval of the relevant authorities for
the transfer of the license is not received due to a breach by Asem Tas,
or the Kazakh Government exercises its pre-emptive right to acquire the
license during the transfer process, Asem Tas is required to refund Orsu
for its expenditure in connection with the Predecessor Agreements;
5. Should Orsu decide to continue its participation in the joint
exploration of the Balkhash Project, the minimum expenditure required
under the 2014 contract work programme is $2.165 million (including the
amounts expended on the 2014 Work Programme);
6. Subject to any early termination, following the effective transfer of
the exploration license, Orsu will finance the works until completion of
the definitive feasibility study and will be responsible for arranging
project finance for any future development of the Balkhash Project; and
7. Under the terms of the Balkhash Agreement, Orsu will have the right to
buy-out all or part of the interest of Asem Tas in the Joint Venture
Company, for cash or shares, at a price determined by an independent
expert.
FINANCIAL RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2014
For Q1 2014 the Company reported a net loss of $1.0 million (Q1 2013: $1.2
million). The net loss of $1.0 million consisted of: administrative costs of
$0.7 million, exploration costs of $0.1 million and a net foreign exchange loss
of $0.2 million.
The Company entered into the Akdjol-Tokhtazan Exclusivity Agreement, dated March
28, 2014, for the potential sale of the Akdjol-Tokhtazan Project and
subsequently received a non-refundable deposit of $0.3 million from the
Potential Buyers under such agreement on April 1, 2014. As at March 31, 2014 the
Company accrued a receivable of $300,000 as well as an accrued liability in
relation to deferred income of $300,000.
The Company capitalised Karchiga Project development expenditures of $41,000 (Q1
2013: $0.4 million) incurred for the prospective construction of a mining and
processing facility as property, plant and machinery. The decrease in
development expenditure was due to a reduction in development work while the
Company continued in its efforts to secure the project finance for the
construction of a mine and processing facility at the Karchiga Project.
As at March 31, 2014 the Company had net assets of $25.7 million ($26.4 million
as at December 31, 2013) of which $10.2 million was cash and cash equivalents
($11.3 million as at December 31, 2013).
The Company's cash and cash equivalents decreased in Q1 2014 by $1.1 million to
$10.2 million compared to a decrease of $2.7 million for Q1 2013. The decrease
was due primarily to corporate and exploration expenditure of $1.1 million, (Q1
2013: $2.3 million) and expenditure on property, plant and equipment of $41,000
(Q1 2013: $0.4 million) due to capitalised development expenditure of the
Karchiga Project.
Liquidity and capital resources
As at March 31, 2014 the Company's main source of liquidity was unrestricted
cash and cash equivalents of $10.2 million, compared with $11.3 million as at
December 31, 2013.
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 March 31, 2014 the Company's consolidated working
capital was $10.6 million (compared with a consolidated working capital of $11.5
million as at December 31, 2013).
The Company's working capital needs as at March 31, 2014 included the funding
for its exploration and development activities, including its expenditure
obligations under the Balkhash Agreement, the acquisition of new mineral
exploration properties, its corporate and administrative expenditures
requirements and potential contributions towards project finance, if and when
arranged, in relation to the Karchiga Project, as deemed appropriate. The
Company expects to fund its working capital requirements for 2014, other than as
set out below for the Karchiga Project, 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 $10.2 million as at March 31, 2014 and potential net proceeds, if any,
from the sale of the Akdjol-Tokhtazan Project.
During Q1 2014, the net cash used by the Company's operating expenditures were
$1.1 million (Q1 2013: $2.7 million). The minimum working capital the Company
estimates for the year is set out below:
Estimated working capital requirements for 2014 $000
-----------------------------------------------------------------
Estimated corporate and administration expenditure (1) 3,500
Estimated exploration expenditure for the Balkhash Project (2) 500
------
Total 4,000
Notes:
(1) Includes office expenditure at the Karchiga Project.
(2) Excludes any obligation under the Balkhash Agreement should the Company
decide to exercise its option to take an effective 55% interest in the
Balkhash Project. Should the Company decide to exercise its option to
take an effective 55% interest in the Balkhash Project, then it will
fund this through either its available working capital at the time and/
or the raising further finance from other external sources.
In the Company's view, the consolidated working capital as at March 31, 2014 is
sufficient to satisfy its working capital needs, other than as described below
in relation to the Karchiga Project, for at least the next twelve months.
In order to achieve the Company's planned construction of mining facilities and
commencement of mining operations at the Karchiga Project, if any, the Company
will require an estimated initial CAPEX of $115 million (see "Operational review
- Karchiga copper project, Kazakhstan") for which the Company will be required
to raise additional financing in the future. If the Company secures the required
debt financing on acceptable commercial terms then it may also apply a
proportion of its available unrestricted cash and if any, from the sale of the
Akdjol-Tokhtazan Project, towards the project financing requirements as the
Company determines necessary. Whilst the Company has been successful in raising
debt and other financing in the past, the Company's ability to raise additional
debt and other financing 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" of the Company's MD&A.
Consolidated statements of net loss and comprehensive loss (Unaudited)
(Prepared in accordance with IFRS)
----------------------------------------------------------------------------
Three months ended
March 31,
2014 2013
$000 $000
Operating expenses
Administration (701) (929)
Legal and professional (26) (216)
Exploration (132) (163)
Stock based compensation - non employees - (3)
Foreign exchange losses (198) (26)
Net gain/ (loss) from disposal group asset held for
sale 23 (20)
----------------------
(1,034) (1,357)
Unrealized gain on share warrant liability 25 -
Gain on derivative receivable - 174
Finance (expense) less finance income (1) 6
----------------------
24 180
----------------------
Net loss and comprehensive loss (1,010) (1,177)
----------------------
----------------------
Net loss attributable to:
Owners of the parent (995) (1,160)
Non-controlling interest (15) (17)
----------------------
(1,010) (1,177)
----------------------
----------------------
Loss per share
Basic $ (0.01) $ (0.01)
Diluted $ (0.01) $ (0.01)
Weighted average number of common shares (in
thousands) 182,696 157,696
Consolidated Balance Sheets (Unaudited)
(Prepared in accordance with IFRS)
----------------------------------------------------------------------------
March 31, December 31,
2014 2013
Assets $000 $000
Current assets
Cash and cash equivalents 10,176 11,342
Prepaid and receivables 1,282 807
Assets of Akdjol-Tokhtazan Project held for sale 4,572 4,578
--------------------------
16,030 16,727
Non-current assets
Deferred finance costs 1,052 1,052
Property, plant and equipment 8,428 8,414
Other assets 1,019 1,212
--------------------------
10,499 10,678
--------------------------
Total assets 26,529 27,405
--------------------------
--------------------------
Liabilities
Current liabilities
Accounts payable and accrued liabilities 812 622
Liabilities of Akdjol-Tokhtazan Project held for
sale 68 99
--------------------------
880 721
Non-current liabilities
Share warrant liability 135 160
Other liabilities 120 120
--------------------------
1,135 1,001
Equity
Share capital 382,576 382,576
Share purchase options 5,687 5,687
Contributed surplus 28,474 28,474
Non-controlling interest (416) (401)
Deficit (390,927) (389,932)
--------------------------
25,394 26,404
--------------------------
Total equity and liabilities 26,529 27,405
--------------------------
--------------------------
Consolidated Statements of Cash Flows (Unaudited)
(Prepared in accordance with IFRS)
----------------------------------------------------------------------------
Three months
ended March 31,
2014 2013
$000 $000
Cash flows used by operating activities
Net loss and comprehensive loss for the period (1,010) (1,177)
Items not affecting cash:
Depreciation 28 34
Unrealized derivative gain on share warrant liability (25) -
Gain on derivative receivable - (174)
Share-based payments - 3
Foreign exchange losses 201 52
------------------
(806) (1,262)
Changes in non-cash working capital:
Increase in accounts receivable and other assets (471) (390)
Increase/ (decrease) in accounts payable and accrued
liabilities 159 (628)
------------------
Net cash used by operating activities (1,118) (2,280)
Cash flows used by investing activities
Expenditures on property, plant and equipment (41) (353)
------------------
Net cash used by investing activities (41) (353)
------------------
Net decrease in cash and cash equivalents in the period (1,159) (2,633)
------------------
Cash and cash equivalents - Beginning of period 11,343 9,771
Exchange losses on cash and cash equivalents during
period (7) (40)
------------------
Cash and cash equivalents - End of period 10,177 7,098
------------------
------------------
Cash and cash equivalents per the consolidated balance
sheets 10,176 7,098
Included in the Akdjol-Tokhtazan Project classified held
for sale 1 -
FORWARD-LOOKING INFORMATION
This press release and the Company's MD&A contain or refer 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: development and operational plans and objectives,
including the Company's expectations relating to the continued and future
maintenance, exploration, development and financing for, as applicable, of the
Karchiga Project and the Balkhash Project and the timing related thereto and its
acquisition and development of new mineral exploration licenses, properties and
projects; 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 debt providers; the potential raising of additional
funding through the disposition of the Company's Kyrgyz assets and the proposed
uses thereof; 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 Definitive Feasibility Study Report;
the mine design and plan for the Karchiga Project, including mining at, and
production from the Karchiga Project; the anticipated sale of the
Akdjol-Tokhtazan Project (including the valuation attributed to the expected
proceeds thereon); the future political and legal regimes and regulatory
environments relating to the mining industry in Kazakhstan and/or Kyrgyzstan;
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 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.
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 debt sources and/or capital
markets to meet its future expected obligations and planned activities
(including, with respect to the debt financing for the Karchiga Project, the
ability of the Company to obtain such financing through the arrangement by the
Mandated Lead Arrangers of a project debt finance facility on terms acceptable
to the Company or otherwise), the Company's business (including the continued
exploration and development of, as applicable, the Karchiga Project and the
Balkhash Project and the timing and methods to be employed with respect to
same), the estimation of mineral resources and mineral reserves, the parameters
and assumptions employed in the Karchiga Definitive Feasibility Study Report,
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, taxes, environmental matters and the Company's ability to obtain,
maintain, renew and/or extend required permits, licenses, authorisations and/or
approvals from the appropriate regulatory authorities, including the previous
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 Definitive Feasibility Study Report;
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 the
disposition of the Akdjol-Tokhtazan Project; the Company's inability to obtain,
maintain, renew and/or extend required licenses, 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 for the Karchiga Project 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 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
"Risks 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.
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.
FOR FURTHER INFORMATION PLEASE CONTACT:
Orsu Metals Corporation
Kevin Denham
Chief Financial Officer and Company Secretary
+44 (0) 20 7518 3999
+44 (0)20 7518 3998 (FAX)
info@orsumetals.com
www.orsumetals.com
Canaccord Genuity Limited
Ryan Gaffney/Neil Elliot
+44 (0) 20 7523 8000
Vanguard Shareholder Solutions
+1 604 608 0824
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