LONDON, UNITED KINGDOM--(Marketwire - March 27, 2013) - Orsu Metals Corporation ("Orsu" or the "Company") the dual listed (OSU.TO)(OSU.L) London-based base and precious metals exploration and development company today reports its audited annual results for the year ended December 31, 2012.
The Company's principal and most advanced project is the property, 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").
A full Management's Discussion and Analysis of the results for the year ended December 31, 2012 ("MD&A") and the audited 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 year ended December 31, 2012 have been prepared in accordance with 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.
EXECUTIVE CHAIRMAN'S STATEMENT
From the start of 2012 the primary objective that I and the management team of Orsu, with the full support of the Board of Directors, have worked towards has been the planning of and the securing of project finance for, the construction of a mine and processing facilities at Orsu's most advanced project, the Karchiga Project. Despite the continued uncertainty in the global economy during 2012, with external elements continuing to challenge the Company's ability to raise funds through equity on the capital markets as well as through debt from banks, the Company was nevertheless able to make significant progress towards securing project finance for the Karchiga Project. In 2012 the Company took a number of steps to divest of its Kyrgyz exploration interests with a view to raising additional funding for its exploration and development activities, including its expenditure obligations under the Balkhash Agreement (defined below), 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 should the Company determine necessary. Finally, as part of the Company's continuing objective to potentially acquire new exploration mineral properties, in November 2012, Orsu entered into the Balkhash Agreement to jointly explore the East Balkhash 2 license area (defined below) in Kazakhstan.
A key milestone in the development of Orsu was the filing in March 2012 of the NI 43-101 compliant Karchiga DFS Report (defined below) which reported a total probable mineral reserve estimate of 10 million tonnes of sulphide and oxide ore containing a total of 166.6Kt copper at an overall average grade of 1.67% copper, of which 145.2Kt is amenable to flotation and 21.4Kt is amenable to heap leaching. The key economic indicators of the Karchiga Project show an initial capital expenditure requirement of $115 million, with a post tax net present value ("NPV") of $150 million, an internal rate of return ("IRR") of 30%, payback of less than 3 years and a mine life of 11.5 years, based on 100% equity financing and a copper price of $3.25/lb. The filing of the Karchiga DFS Report validated the technical and economic viability of the Karchiga Project from which the Company initiated a number of key steps towards securing finance for the construction of mine and processing facilities at the Karchiga Project. The first of these was the appointment of Barclays and UniCredit (both defined below) in July 2012 (collectively referred to as the "Mandated Lead Arrangers"), to use commercially reasonable efforts to secure a project debt finance facility of up to $90 million, subject to commercially acceptable terms for the facility being agreed with Orsu and the Mandated Lead Arrangers obtaining all of their necessary internal approvals. In relation to the planning for the construction of the mine and processing facilities at the Karchiga Project, in August 2012 the Company received the Approval from the MINT (defined below) for the Karchiga Technical Project (defined below) which along with receipt of the remaining local regulatory approvals, estimated to be received during the second quarter of 2013, will permit the Company to commence construction of mine and processing facilities at the Karchiga Project.
In July 2012 the Company completed the Sale to Gold Fields (defined below) of its 40% interest in the Talas Project its principal exploration asset in Kyrgyzstan for a cash consideration of $10 million. In addition as a separate agreement, Gold Fields agreed to the Subscription (defined below) of 25 million Common Shares and 12.5 million Warrants for total gross proceeds of CAD$10 million to be received by the Company which is currently held in escrow until such time as the Company is able to complete the Kazakh Formal Waiver (defined below).
In relation to the Company's other exploration interests in Kyrgyzstan, the Akdjol-Tokhtazan Project, following the Company's decision in the fourth quarter of 2011 that the Akdjol-Tokhtazan Project would no longer be a core asset and as such was made available for sale, during 2012 the Akdjol-Tokhtazan Project continued to be made available for sale and in November 2012 the Company announced that it had entered into the Akdjol-Tokhtazan Exclusivity Agreement with David-Invest (defined below) for the potential acquisition of the Akdjol-Tokhtazan Project for a consideration of $4.5 million. Under the terms of the Akdjol-Tokhtazan Exclusivity Agreement David-Invest agreed to fund exploration work during an Exclusivity Period up to September 1, 2013 in return for which David-Invest was granted the exclusive right to acquire the Akdjol-Tokhtazan Project for $4.5 million. As a requirement of the Akdjol-Tokhtazan Exclusivity Agreement in December 2012 the Company successfully extended the exploration licenses for the Akdjol-Tokhtazan Project for a further three years to December 31, 2015. In the event of any sale of the Akdjol-Tokhtazan Project the Company will have divested its remaining exploration interests in Kyrgyzstan.
Finally, in November 2012 as part the Company's continued commitment to acquire new exploration mineral properties it entered into the Balkhash Agreement to jointly explore the East Balkhash 2 licence area of approximately 6,000km2, in eastern Kazakhstan, which is host to a 30km long Dzharyk-Taisogan cluster of copper-polymetallic occurrences. Under the terms of the Balkhash Agreement, the Company agreed to fund exploration work for 175 days ending in April 2013 (subject to extension by mutual agreement) for an approximate total of $0.9 million which the Company achieved during the first quarter of 2013.
In relation to the financial results for the year ended December 31, 2012 the Company reported a net loss of $2.4 million and net assets of $29.8 million of which $9.8 million comprised of cash.
The Board of Directors and I believe that in 2012 Orsu made significant progress on work in relation to new exploration opportunities in Kazakhstan with the potential to develop into major projects as well continuing to develop the Karchiga Project. I would like to thank the Orsu staff, management, consultants and advisors for their hard work, dedication and drive in a challenging economic environment, and believe Orsu is now well positioned to fully develop new exploration projects which will realise their full potential and drive future growth of the Company.
|Dr Sergey V Kurzin|
|March 27, 2013|
- February 2012 - the Company announced the positive results of a definitive feasibility study for the Karchiga Project (the "Karchiga DFS") for the Karchiga Project completed by SRK Consulting (UK) Limited ("SRK"), which reported for the Karchiga Project a total production of 149kt (328 Mlb) of copper over a mine life of 11.5 years, and post tax NPV of $150 million and IRR of 30% based on 100% equity financing and a copper price of $3.25/lb Cu. In addition, the Company announced a probable mineral reserve estimate of 8.5 million tonnes of sulphide ore in the central and north east pits containing 145,227t (320 Mlb) of copper at an average grade of 1.71% Cu to be amenable to flotation ("FL") and additional 1.5 million tonnes of ore in the central pit containing 21,399t (47.2 Mlb) of copper at an average grade of 1.43% Cu to be amenable to heap leaching ("HL") (the "2012 Mineral Reserve Estimates"). Please see "Operational Review - Karchiga Copper Project, Kazakhstan" for further information.
- March 2012 - in relation to the Karchiga DFS the Company announced the filing of the NI 43-101 compliant Karchiga Definitive Feasibility Study Report (the "Karchiga DFS Report") on www.sedar.com.
- 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 the expiry of 62.7 million share purchase warrants (originally issued in April 2010).
- May 2012 - the Company announced that in relation to the Talas Project it had agreed a 6,000 meter drilling programme with Gold Fields.
- June 2012 - the Company announced the extension of its financial advisory services agreement with Endeavour Financial Limited ("Endeavour") with the aim of securing debt finance for the Karchiga Project.
- July 2012 - the Company announced that it had agreed to sell its 40% interest in the Talas Project to Gold Fields Limited ("Gold Fields" or collectively with certain of its subsidiaries, the "Gold Fields Group") for cash consideration of $10 million (the "Sale") and that the Gold Fields Group had also agreed to subscribe for 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 of the Company (a "Common Share") and one half of one common share purchase warrant (each whole warrant, a "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. Completion of the Subscription is conditional on the Company obtaining a 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"), the application for which was submitted in September 2012. In addition, the Company announced that it was in advanced negotiations with major banks to provide project finance for the Karchiga Project, principally in the form of secured debt.
- July 2012 - the Company announced the completion of the Sale and receipt of $10 million cash consideration. In addition, the Gold Fields Group 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 and the gross proceeds of the Subscription will remain in escrow pending the Company's receipt of the Kazakh Formal Waiver or Gold Fields waiver of such 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 4 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 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 was continuing discussions with a number of potential debt providers to participate in the debt financing alongside the Mandated Lead Arrangers.
- August 2012 - the Company announced that it had received from the relevant Kazakh authorities an approval (the "Approval") for the Karchiga technical project ("Karchiga Technical Project") relating to the development of a mining and processing complex at the Karchiga Project. The Approval was granted by the Central Commission for Exploration and Mining of Mineral Resources at the MINT and is the principal document which confirms the compliance of the Karchiga Technical Project with technical, economic and environmental standards of Kazakhstan. The grant of the Approval allows for an amendment to the Karchiga Project Contract (as defined below) to permit the Company to commence construction and mining at the Karchiga Project.
- November 2012 - the Company announced that it had entered into an exclusivity agreement with David-Invest with a view to the potential sale of the Company's interest in the Akdjol-Tokhtazan Project (the "Akdjol-Tokhtazan Exclusivity Agreement"). Pursuant to the Akdjol-Tokhtazan Exclusivity Agreement, David-Invest was granted the exclusive right until September 1, 2013 (the "Exclusivity Period") to acquire, subject to the renewal of the relevant exploration licenses expiring on December 31, 2012 (which have been renewed to December 31, 2015), the Akdjol-Tokhtazan Project for consideration of $4.5 million through the acquisition of Orsu's wholly-owned subsidiary, Tournon Finance Limited ("Tournon"), which indirectly owns the gold exploration licenses for the Akdjol-Tokhtazan Project through its 100% ownership interest in Oriel in Kyrgyzstan LLC ("OiK LLC"). In return for being granted such exclusivity right, David-Invest agreed to fund exploration work on a non-refundable basis for the remainder of 2012 and, following the renewal of the licenses, for the remainder of the Exclusivity Period. (See "Operational Review - Akdjol-Tokhtazan Project, Kyrgyzstan").
- November 2012 - the Company announced that it had entered into an exclusivity agreement (the "Balkhash Agreement") with Asem Tas to jointly explore the East Balkhash 2 license area at the Balkhash Project. Asem Tas is a privately owned Kazakh registered company and the owner of the subsoil use contract for the Balkhash Project. Under the terms of the Balkhash Agreement, the Company will fund exploration work for the Balkhash Project for 175 days ending in April 2013 (subject to extension by mutual agreement) totalling approximately $0.9 million (the "Initial Working Programme"). In return, the Company has been granted the exclusive right to participate in the Balkhash Project during such time. The Balkhash Agreement provides that, subject to the completion of satisfactory due diligence by Orsu, Asem Tas will apply to transfer the license for the East Balkhash 2 license area to a newly formed Kazakh legal entity jointly owned by Orsu and Asem Tas (the "Balkhash Joint Venture Company"), with Orsu holding an effective 55% interest. A transfer of the exploration license to the Balkhash Joint Venture Company will be conditional upon obtaining a formal waiver of the Kazakhstan Government's pre-emptive right. Where the approval of the relevant authorities for the transfer of the exploration 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 expenditures in connection with the Initial Working Programme. Further to the terms of the Balkhash Agreement, upon the successful transfer of the license for the East Balkhash 2 license area to the Balkhash Joint Venture Company, Orsu will pay up to $1.5 million to Asem Tas to compensate Asem Tas for historical exploration costs incurred prior to 2012 (excluding any costs funded by Orsu). In addition, Orsu has agreed to pay: (a) $20 per tonne of economically extractable copper equivalent, up to a maximum of $10 million (less any amount paid by Orsu to Asem Tas to compensate Asem Tas for historical exploration costs), on completion of a positive preliminary economic assessment study; and (b) $20 per additional tonne of economically extractable copper equivalent, up to a maximum of $15 million (less any amounts paid by Orsu to Asem Tas to compensate Asem Tas for historical exploration costs and/or pursuant to (a) above) on completion of a positive definitive feasibility study. In addition, under the terms of the Balkhash Agreement, Orsu will be responsible for funding all exploration work for the Balkhash Project up to and including the successful completion of a positive feasibility study. 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 Balkhash Joint Venture Company, for cash or shares, at a price determined by an independent expert.
- November 2012 - the Company announced that it signed a non-binding term sheet with RK Mine Finance (Master) Fund II LP ("RK Mine Finance"), a part of the Red Kite Group. The principal terms of which include, subject to certain conditions, the provision of sub-ordinated secured debt finance facilities of up to $25 million for the Karchiga Project comprising a $15 million sub-ordinated loan and a sub-ordinated standby facility of up to $10 million, as well as an off-take agreement for 100% of any future annual production of copper concentrate at the Karchiga Project, for the life of the mine. However, in the first quarter of 2013, the Company and RK Mine Finance by mutual agreement decided not to progress this non-binding term sheet for the sub-ordinated debt loan and sub-ordinated standby facility and off take agreement.
During the year ended December 31, 2012, the Company continued to work primarily on planning as well as obtaining the necessary approvals for the construction of a mine and processing facility for the Karchiga Project, its most advanced project.
The Company's other exploration interests in Kyrgyzstan consist of the Akdjol and Tokhtazan exploration licenses (or the "Akdjol-Tokhtazan Project") located approximately 100km to the south west of the Talas Project.
KARCHIGA COPPER PROJECT, KAZAKHSTAN
In September 2010, the Company commenced the Karchiga DFS. During the process of completing and fulfilling the requirements of the Karchiga DFS the Company undertook associated exploration and test work programmes, the highlights of which include:
- In-fill resource drilling program 2010 (see the Company's press release dated December 7, 2010 available on the Company's website at www.orsumetals.com or on SEDAR at www.sedar.com);
- Metallurgical test work April 2011 (see the Company's press release dated April 28, 2011 available on the Company's website at www.orsumetals.com or on SEDAR at www.sedar.com);
- Pit constrained mineral resource estimates announced in May 2011 and the December 2011 Pit-Constrained Mineral Resource Estimates (see the Company's press releases dated May 11, 2011 and December 8, 2011 available on the Company's website at www.orsumetals.com or SEDAR at www.sedar.com); and
- Karchiga DFS and the 2012 Mineral Reserve Estimates.
In February 2012, SRK completed the Karchiga DFS, using only the indicated mineral resource estimates forming part of the December 2011 Pit-Constrained Mineral Resource Estimates, the Karchiga DFS Report reported the 2012 Mineral Reserve Estimates, being a probable mineral reserve estimate of 8.5 million tonnes of sulphide ore in the central and north east pits containing 145,227t (320 Mlb) of copper at an average grade of 1.71% Cu to be amenable to FL and additional 1.5 million tonnes of ore in the central pit containing 21,399t (47.2 Mlb) of copper at an average grade of 1.43% Cu to be amenable to HL.
Table 2. Probable Mineral Reserves Estimates as of February 18, 2012
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 3 below.
Table 3. Whittle Input Parameters
|OVERALL SLOPE ANGLES||PARAMETER|
|MINING & PROCESSING|
|FRESH CU PROCESSING RECOVERY||94.0%|
|OXIDE CU PROCESSING RECOVERY||55.0%|
|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)|
|CU SELLING PRICE||6,600 $/t Cu|
|NSR||83% (For Fresh Rock only)|
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 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.
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. The average mining rate of the operation is 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, all mining will continue in the North East pit.
The average mining cost over the mine life is $1.7 per tonne of material moved.
Processing Plan and Economic Model
The plant is designed to process approximately 750,000 tonnes per annum of sulphide ore. A conventional processing route was chosen using relatively fine grinding and selective sulphide flotation to produce a 27.9% bulk concentrate. The Company is currently seeking to secure finance for the Karchiga Project, and the timing for the start of construction is dependent thereon.
Copper from the oxide ore will be extracted using SXEW process. The oxides will be treated over a period of 4.5 years starting in 2020 at an annual production rate of 360,000 tonnes and is expected to produce an average of 2.8kt (6.22Mlb) of copper cathode per annum over that period. Production of cathode copper will continue until 2024.
In order to reduce the initial capital expenditure, the SXEW plant construction has been delayed until after the initial capital expenditure payback period (which is anticipated to be 2.75 years). The plant has been designed to treat an average of 30,000 tonnes of leachable oxide ore per month.
The results of the Karchiga DFS demonstrate that economically the best option is to delay the SXEW construction until after the initial capital expenditure payback period of 2.75 years, allowing the cost of construction to be financed from the revenue generated by the sulphide ore treatment.
The project key performance indicators are shown in Table 4 below.
Table 4. Key Performance Indicators
|Average annual mining rate||Tonnes||750,000|
|Average mining cost||$/t of ore||22.99|
|Annual processing rate (FL)||Tonnes||750,000|
|Mine life (FL)||Years||11.5|
|Processing cost (FL)||$/t of ore||8.91|
|Metallurgical recovery (FL)||%||93.4|
|Average annual copper production, over 11.5 years (FL)||'000 tonnes||11.82|
|Average annual copper production (FL)||Mlb||26.1|
|Annual processing rate (HL)||Tonnes||360,000|
|Mine life (HL)||Years||4.5|
|Processing cost (HL)||$/t of ore||18.7|
|Metallurgical recovery (HL)||%||61.1|
|Average annual copper production, over 4.5 years (HL)||'000 tonnes||2.8|
|Average annual copper production (HL)||Mlb||6.2|
|Cash operating cost over the mine life (pre tax)||$/lb Cu||1.47|
The mine is expected to produce a total of 149kt (328 Mlb) of payable copper, with an average of 12,957t (28.57 Mlb) of copper production per annum.
The Karchiga Project site is located 10 km from the main road and a 110 kV national power grid and is expected to be connected to the same as part of construction. An adequate supply of water can be sourced from the River Kalzhir as well as from aquifers in the immediate vicinity of the designed project facilities.
The project key economic indicators are shown in Table 5 below.
Table 5. Key Economic Indicators
|Total project CAPEX||$m||147|
|Total Net Smelter Revenue||$m||971|
|Sulphide and Oxide Case @ $3.25/lb Cu:|
|- Post-Tax NPV7.5||$m||150|
|- Post-Tax IRR||%||30|
|- Payback period||Years||2.75|
|Sulphide and Oxide Case @ $3.00/lb Cu:|
|- Post-Tax NPV7.5||$m||113|
|- Post-Tax IRR||%||25|
|- Payback period||Years||3.0|
All figures are on a 100% ownership basis
The figures for NPV, IRR and payback in Table 5 assume 100% equity financing for the Karchiga Project and a discount rate of 7.55% was used to derive the NPV. The Environmental and Social Impact Assessment study 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 the Kazakh authorities, the Company now expects to receive the remaining necessary construction permitting approvals from the local Kazakh authorities during the second quarter of 2013 having obtained the Approval from the MINT in the third quarter of 2012. As at March 26, 2013 the copper price (as quoted on the London Metal Exchange) was $3.45/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 Karchiga DFS of $6.6 million, but due to increased resource drilling work covering an additional oxide and sulphide drilling programme, the Company now expects to incur expenditure of $9.2 million, which it expects to fund from its available cash. As at March 31, 2012, the Company had incurred cumulative expenditure of $8.6 million relating to the Karchiga DFS since August 2010. The work undertaken since April 2012 to date relates to the future construction of the mine at the Karchiga Project.
Following the completion of the Karchiga DFS the Company began the process of identifying companies and contractors to complete the detailed design work going forward into the start of construction. In addition the Company continues to identify potential off-takers for the copper concentrate internationally, including amongst others, 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 Project.
TALAS COPPER-GOLD-MOLYBDENUM PROJECT, KYRGYZSTAN
Until its sale on July 23, 2012, the Company's material property in Kyrgyzstan was the Talas Project.
The licences in the Talas Project were 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.
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 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, the 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.
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 2012 Talas Project exploration programme. Following the completion of the Sale, the Gold Fields Group now owns a 100% interest in the Talas Project and the Company's joint venture with Gold Fields in relation to the Talas Project was terminated.
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. 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 Common 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.
AKDJOL-TOKHTAZAN PROJECT, KYRGYZSTAN
The Akdjol-Tokhtazan Project contains the Akdjol (108km2) and Tokhtazan (4km2) exploration licences, both of which are held by OiK LLC, in which the Company holds an indirect 100% interest through its wholly owned subsidiary, Tournon.
In December 2012, the Akdjol and Tokhtazan licences were extended until December 31, 2015 by the Agency for Geology and Mineral Resources of the Kyrgyz Republic (which replaced the former Ministry of Natural Resources between the fourth quarter of 2011 and the first quarter of 2012).
The exploration licences can be further extended by agreement of a work program with the Agency for Geology and Mineral Resources of the Kyrgyz Republic.
The expenditure obligations on the Tokhtazan and Akdjol licences are shown below:
Table 15: Tokhtazan and Akdjol licence obligations (2013-2015)
Potential disposal of the Akdjol-Tokhtazan Project
In November 2012, the Company announced that it had entered into the Akdjol-Tokhtazan Exclusivity Agreement with David-Invest, which was subject to the Company renewing the exploration licenses and which was successfully achieved in December 2012. The key terms of the Akdjol-Tokhtazan Exclusivity Agreement are that:
- During the term of the Exclusivity Period, David-Invest has been granted the exclusive right to purchase the Company's interest in the Akdjol-Tokhtazan Project for consideration of $4.5 million, and
- In return for being granted exclusivity, David-Invest will fund the exploration programme for the Akdjol and Tokhtazan licences on a non-refundable basis during the Exclusivity Period.
FINANCIAL RESULTS FOR THE YEAR ENDED DECEMBER 31, 2012
For the year ended December 31, 2012 the Company reported a net loss on continuing operations of $2.4 million.
As at December 31, 2012 the Company had net assets of $29.8 million of which $9.8 million were cash and cash equivalents and a $7.3 million receivable asset representing the fair value of the CAD$10 million Subscription entered into by Gold Fields which is subject to the Company obtaining the Kazakh Formal Waiver.
The net loss for 2012 of $2.4 million consisted of: administrative costs of $4.2 million, legal and professional costs of $1.4 million, exploration costs of $1.6 million, a stock-based compensation charge of $0.1 million, the Company's share of the Talas Project losses of $0.8 million, a net loss from the disposal group asset held for sale of $1.7 million and a derivative loss of $0.4 million in relation the fair value of the Subscription. The 2012 losses were partially offset by a net after tax gain on the Sale of $7.6 million, $0.1 million net foreign exchange gains and interest income of $0.1 million.
The Company's cash and cash equivalents as at December 31, 2012 were $9.8 million compared to $10.3 million as at December 31, 2011, representing a decrease of $0.5 million. The decrease was due primarily to corporate and exploration expenditure of $6.7 million, the expenditure on property, plant and equipment of $2.4 million, deferred finance costs of $0.9 million and Orsu's 40% funding of the Talas Project of $0.3 million. This was partially offset by net proceeds, after the legal and professional fees, from the Sale of $9.8 million.
After the completion of the Karchiga DFS in March 2012 the Company considered both the technical feasibility and economic viability of the Karchiga Project to be validated. As a result expenditure incurred from April 2012 onwards, in relation to the construction of a mining and processing facility for the Karchiga Project, was considered by the Company to be development expenditure, or pre-production expenditure, and recorded as property, plant and machinery. In the period from April to December 31, 2012 the Company incurred $2.3 million of development expenditure. In addition, the Company began the process of seeking to secure project financing for the Karchiga Project and incurred financial advisory costs of $0.9 million in the period up to December 31, 2012, which the Company considers to be borrowing costs directly related to the raising of debt finance for the Karchiga Project and have been capitalised as deferred finance costs in the audited consolidated financial statements as at December 31, 2012.
In July 2012, the Company completed the Sale of the Talas Project to the Gold Fields Group for total consideration of $10 million. In addition, the Gold Fields Group also entered into an agreement for the Subscription for gross proceeds of CAD$10 million which have been advanced into escrow until completion which is subject to the Company obtaining the Kazakh Formal Waiver. Until completion of the Subscription the Company considers the Subscription to be a derivative instrument and has recorded a derivative receivable after measuring an initial fair value of $7.6 million, being the excess of the expected gross proceeds from the Subscription, CAD$10 million, over the fair value of the Common Shares and Warrants. In total as at December 31, 2012 including the consideration from the Sale of $10 million and an initial fair value of the Subscription of $7.6 million the Company recorded a net gain on Sale of $7.7 million after deducting the cost of equity investment in the Talas Project, tax and legal and professional fees in relation to the Sale (see section "Sale of equity investment in Talas Project" below). In relation to the Subscription the Company subsequently re-measured the fair value of the Subscription as at December 31, 2012 resulting in a derivative loss of $0.4 million for the year.
In November 2012 the Company entered into the Akdjol-Tokhtazan Exclusivity Agreement with David-Invest. As at December 31, 2012 the Company considers that this asset continues to meet the criteria to be classified as "held for sale" and as a result of re-measuring the fair value less costs to sell of the disposal group, recognized an impairment loss of $1.3 million for the year ended December 31, 2012.
Also in November 2012, the Company announced that, as part of its ongoing objective to seek to acquire new exploration licenses in Kazakhstan, it had entered into the Balkhash Agreement ending in April 2013 (subject to extension) to jointly explore the Balkhash Project. As a result, in the fourth quarter of 2012 the Company funded exploration work totalling $0.8 million which has been recorded as exploration expenditure for the year ended December 31, 2012.
SALE OF EQUITY INVESTMENT IN THE TALAS PROJECT
The net gain on the Sale of the Talas Project as at December 31, 2012 is shown below:
|Cash proceeds received||10,000|
|Fair value of Subscription proceeds held in escrow||7,638|
|Total sale consideration||17,638|
|Equity investment in Talas Project as at January 1, 2012||10,111|
|Funding provided by the Company during the period, net of recovery of $240,089||288|
|Less: Company's 40% share of operating losses to date of disposal||(783||)|
|Equity investment in Talas Project disposed of||(9,616||)|
|Legal and professional fees||(202||)|
|Gain before tax on disposal of Talas Project as at July 13, 2012||7,820|
|Capital gains taxable payable on disposal of Talas Project||(195||)|
|Net gain on disposal of Talas Project as at July 13, 2012||7,625|
LIQUIDITY AND CAPITAL RESOURCES
As at December 31, 2012 the Company's main source of liquidity was unrestricted cash and cash equivalents of $9.8 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 December 31, 2012, the Company's consolidated working capital was $9.3 million (compared with a consolidated working capital of $10.6 million as at December 31, 2011).
The Company's working capital needs as at December 31, 2012 included the maintenance of 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 2013, 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 $9.8 million as at December 31, 2012 and potential net proceeds, if any, from the sale of the Akdjol-Tokhtazan Project. In the Company's view, the consolidated working capital as at December 31, 2012 is sufficient to satisfy its working capital needs, other than as described below, for at least the next twelve 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 (see "Operational review - Karchiga copper project, Kazakhstan") 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 local regulatory approvals for the Karchiga Project, then it may apply also apply a proportion of the Sale proceeds and, if released from escrow, Subscription proceeds 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 as well as receiving the Kazakh Formal 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" in the Company's MD&A.
|Consolidated statement of net loss and comprehensive loss|
|For the years ended December 31, 2012 and December 31, 2011|
|(Prepared in accordance with IFRS)|
|Legal and professional||(1,411||)||(1,328||)|
|Stock based compensation||(127||)||(701||)|
|Stock based compensation - non employees||(7||)||(36||)|
|Company's share of Talas Project losses||(783||)||(948||)|
|Foreign exchange gains||102||49|
|Gain on sale of Talas Project||7,820||-|
|Loss on derivative receivable||(368||)||-|
|Net loss from disposal group asset held for sale||(1,733||)||-|
|Impairment loss for asset held for sale||-||(331||)|
|Derivative gains share purchase warrants||-||6,245|
|Deferred consideration income||-||1,908|
|Net gain on settlement of oil interests||-||2,028|
|Net loss for the year before income tax||(2,249||)||(1,788||)|
|Tax charge for the year||(195||)||-|
|Net loss and total comprehensive loss||(2,444||)||(1,788||)|
|Net (loss)/income attributable to:|
|Owners of the parent||(2,350||)||(2,458||)|
|Losses per share|
|Weighted average number of common shares (in thousands)||157,696||157,696|
|Consolidated balance sheet|
|As at December 31, 2012 and December 31, 2011|
|(Prepared in accordance with IFRS)|
|Cash and cash equivalents||9,771||10,319|
|Prepaid and receivables||870||737|
|Assets of Akdjol-Tokhtazan Project held for sale||4,508||6,116|
|Deferred finance costs||939||-|
|Property, plant and equipment||7,076||353|
|Equity investment in Talas Project||-||10,111|
|Accounts payable and accrued liabilities||1,360||448|
|Liabilities of Akdjol-Tokhtazan Project held for sale||80||66|
|Share purchase warrants||-||1,131|
|Share purchase options||5,887||6,062|
|Total equity and liabilities||31,313||32,697|
|Consolidated Statements of Cash Flows|
|For the years ended December 31, 2012 and December 31, 2011|
|(Prepared in accordance with IFRS)|
|Cash flows used by operating activities|
|Net loss and comprehensive loss for the year||(2,444||)||(1,788||)|
|Items not affecting cash:|
|Company share of Talas Project losses||783||948|
|Gain on sale of investment in Talas Project||(7,820||)||-|
|Tax charge on sale of Talas Project||195||-|
|Depreciation and amortization||103||123|
|Impairment of asset held for sale||1,331||331|
|Loss on derivative receivable||368||-|
|Foreign exchange losses||12||23|
|Gain on settlement of oil interests||-||(2,028||)|
|Derivative gains share purchase warrants||-||(6,246||)|
|Changes in non-cash working capital:|
|Accounts receivable and other assets||(75||)||(758||)|
|Accounts payable and accrued liabilities||722||(171||)|
|Net cash used by operating activities||(6,691||)||(10,737||)|
|Cash flows from/(used by) investing activities|
|Expenditures on property, plant and equipment||(2,421||)||(74||)|
|Funding of investment in Talas Project||(288||)||(838||)|
|Cash proceeds from sale of Talas Project, net of legal and professional fees||9,798||-|
|Deferred consideration received||-||7,000|
|Proceeds from net investment in residual oil and gas interests||-||2,668|
|Acquisition of Eildon minority interest||-||(6,188||)|
|Net cash from investing activities||7,089||2,568|
|Cash flows used for financing activities|
|Deferred finance costs||(939||)||-|
|Distribution to non-controlling interest||-||(1,086||)|
|Net cash used for financing activities||(939||)||(1,086||)|
|Net decrease in cash and cash equivalents in the year||(541||)||(9,255||)|
|Cash and cash equivalents - Beginning of the year||10,341||19,596|
|Cash and cash equivalents - End of the year||9,800||10,341|
|Cash and cash equivalents per the consolidated balance sheets||9,771||10,319|
|Included in the Akdjol-Tokhtazan Project classified held for sale||29||22|
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: the continued and future maintenance, exploration and development, as applicable, of the Karchiga Project and the Balkhash Project and the timing related thereto; development and operational plans and objectives, including the Company's expectations relating to the development of the Karchiga Project 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 anticipated receipt by the Company of the proceeds of the Subscription and the value attributed thereto and the Company's expected uses thereof and the proceeds from the Sale;
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 DFS Report; the expected effect of copper prices on the economic results of the Karchiga Project; the mine design and plan for the Karchiga Project, including mining at, and production from, the Karchiga Project, as well as the expected timing and the Company's ability to receive the remaining local approvals in connection therewith related thereto; 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 (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; receipt of the Kazakh Formal 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.
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 the ability of the Mandated Lead Arrangers to secure a project debt finance facility on terms acceptable to the Company), 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 DFS 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 local regulatory authorities, including the receipt of the necessary construction and development permits and local regulatory approvals required to develop the Karchiga Project as anticipated as well as the Kazakh Formal Waiver and that 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 DFS 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 to complete the Subscription 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 and local regulatory approvals for the Karchiga Project or the Kazakh Formal 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 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.
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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