• On March 2, 2009 the merger between Central Asia Gold AB and Russian NMC
companies was completed. Thereby CAG took over said companies by issuing in
total 3 billion CAG shares and 500 million warrants each entitling to a new CAG
share to the two sellers of the NMC assets.
• The accounting treatment of the CAG-NMC merger is according to the rules
relating to reversed take overs. This implies that NMC companies are considered
to acquire CAG AB for accounting purposes. The figures for the comparative
periods last year therefore relate to the NMC companies ONLY. At that time NMC
was privately held.
• The 2009 gold production target for the new combined company is 800 kg -
1,000 kg and total approved gold reserves C1/C2 are expected to reach 30 - 35
tons around year end 2009. As per the report date they amount to approximately
24 tons.
As CAG AB will in 2009 almost exclusively produce gold from its alluvial
subsidiaries, the bulk of the gold production will as usual take place during
the third quarter of the year. Gold production was thus 0 kg (38 kg) during the
first quarter of 2009. During the second quarter of 2009 it will amount to 150
- 200 kg.
• CAG AB is, provided the gold production target gets fulfilled and current
gold prices and exchange rates are stable, expected to generate a positive
operating cashflow for financial year 2009.
• Consolidated revenues for the quarter January - March 2009 amounted to TSEK
204,775 (TSEK 22,040). A one-off negative goodwill dissolution item amounting
to TSEK 201,261 TSEK is included in the revenues for the report period (0).
• The net result after tax and minority part for the report period was TSEK
181,922 (TSEK -3,605).
• EPS was SEK 0.057 for the report period (SEK -0.001). Excluding the negative
goodwill effect EPS was negative for the report period.
Comments by the Managing Director
The first quarter of 2009 saw the completion of the CAG-NMC merger that was
initially announced in early November 2008. Thereafter a new Board of Directors
and company management were appointed. The early months of 2009 have therefore
been focused on creating and integrating a new organization on subsidiary as
well as on group level. Also, a lot of time has been devoted to securing
satisfactory financing for the production activities planned this year. The
financial crisis still influences negatively on the banking system, which has
resulted in a credit crunch in Russia. This, for the first time in many years,
made it difficult to find reasonable working capital credits for our alluvial
units. The challenge was overcome by securing a 2.5 MUSD credit line in the
West, and now therefore CAG is on track for meeting the 2009 production target.
We have also responded to the credit crunch by sharply reducing all significant
capital expenditure this year, and aim for financing all capital requirements
in 2009 by internal cash flow and possibly by some additional credit
facilities. In the base case, provided no major disturbances occur, CAG AB
plans to close the year 2009 with a positive operating cashflow.
Sergey Gorbachev, Managing Director
Background
Central Asia Gold AB (CAG AB) is a Swedish mining company with operations in
Eastern Siberia, Russia. CAG AB has in March 2009 completed the merger with
Russian gold mining group New Mining Company ("NMC") by way of an issue in
kind. As a result of the acquisition, CAG AB became parent company of an
enlarged group of Russian gold mining subsidiaries. The merger also resulted in
the previous shareholders of NMC, primarily the American entrepreneur Preston
Haskell, becoming main owner of CAG AB. Before completing the merger, CAG AB on
December 30, 2008 dividended out all the shares in its subsidiary Kopylovskoye
AB pro rata to the CAG AB shareholders.
The group structure as per end of the first quarter 2009 (after completed
merger with NMC companies) consists of the Swedish joint stock parent company,
which controls eight wholly-owned subsidiaries in Russia. One of them is
dormant. The Russian subsidiaries are of the limited liability type ("OOO").
The subsidiaries also own three sub-subsidiaries. The operations involve
exploration and production of gold, primarily in the Tyva, Tchita and Irkutsk
regions in Russia. Proforma gold production by the Russian subsidiaries (as if
the merger would have been completed in early 2008) was approximately 1,100 kg
in 2008.
The group's main assets comprise a large number of mineral licences held by the
various subsidiaries. The licences, as at the end of the first quarter 2009,
are estimated to contain almost 800,000 troy ounces (oz) (1 oz = 31.1 g) of
gold reserves according to the Russian C1+C2 categories (equalling some 24
tons).
CAG AB was publicly listed on the Swedish NGM Nordic Growth Market stock
exchange on March 29, 2005. The number of shareholders was some 4,700 as at May
2009.
Results - the Group
On March 2, 2009 Central Asia Gold AB completed the merger with the companies
forming the Russian NMC group (New Mining Company). These consist of five
different Russian limited liability companies located in Tchita region, namely
GRE-324, Solcocon, Borservice, Rudtechnology and Zolotaya Borzya. Through the
merger, Central Asia Gold AB expanded its Russian gold exploration and
production operations and thereby added significant additional Russian gold
assets. Central Asia Gold AB was stand alone (prior to merger with NMC) Russian
gold producer number 26 in 2008 (out of a total of more than 400 gold
producers). In 2009 new CAG AB group expects to increase its relative share of
the Russian gold production. In the merger, NMC's two owners contributed the
entire share capital of the 5 NMC companies as well as an equity injection into
said companies in connection with the merger of approximately MSEK 70 in
exchange for 3,000,000,000 ordinary shares issued by CAG. In addition, CAG
issued warrants to subscribe for 500,000,000 ordinary shares at an exercise
price of SEK 0.20 per share as part of the merger agreement. From the second of
March 2009, NMC companies' operations are consolidated in CAG AB's financial
statements using the accounting model for "reversed acquisitions". This
accounting treatment requires NMC companies to be treated as the accounting
acquirer and CAG AB being presented as the acquiree. CAG AB will, as the legal
parent, continue to be presented as parent company in future financial reports.
Thus, "old" CAG AB's group operations for the first two months of the first
quarter 2009 are not consolidated in the group's consolidated financial
statements for the three months ended March 31, 2009. All comparative
information refers to NMC companies´ financial statements for the quarter and
twelve month period ended March 31 and December 31, respectively, 2008.
For the three month period ended March 31, 2009 the group reports a net result
after tax and minority interest of TSEK 181,945 (TSEK -3,605) which corresponds
to SEK 0.057 per share (-0.001). It should be emphasized that the reverse
acquisition principle implies that a one-off revenue item (dissolution of
negative goodwill) arose in the first quarter 2009 amounting to TSEK +201,261.
Without this effect the net result would have been negative.
Consolidated gold sales revenues were TSEK 320 (TSEK 6,687) during the
financial period.
In addition, a revenue component of TSEK 233 (TSEK 8,448) is included in the
consolidated P/L account relating primarily to drilling services performed by
the subsidiary company Boreservice, providing drilling services, partly to
external clients. Also, as from late 2008 subsidiary OOO Tardan Gold has began
to extend certain services to third parties in respect of drilling and
construction work. Only the part of services rendered to external clients is
included in the group accounts. Boreservice has due to the financial crisis had
limited external drill assignments during the first quarter of 2009.
The change in stock of finished and semi-finished goods amounted to TSEK 1,680
(TSEK 6,905).
During the quarter January - March 2009 total exploration costs of TSEK 1,281
were capitalized at subsidiary level (0).
Total operating costs in the group during the report period amounted to TSEK
-12,035 (TSEK -21,397).
Net financial items were TSEK -15,186 for the report period (TSEK -4,194). It
should be noted that Mr. Preston Haskell was almost exclusively financing the
NMC companies in 2008 via short term credits. As a part of the merger
agreement, credits amounting to the equivalent of some MSEK 70 were converted
to equity in NMC-companies. Also, at the same date short term interest bearing
credits from Mr. Haskell to NMC amounting to the equivalent of some MSEK 70
were converted to long term loans at low interest rate. As a result, the
interest expense of the former NMC companies will everything else equal reduce
in 2009.
The tax income for the report period was TSEK 4,368 (TSEK -54). It relates
predominantly to a change in deferred tax on subsidiary level. The minority
share of the net result was TSEK -23 (TSEK 0).
Mining operations
Tardan project in the Tyva region
General overview
A considerable exploration programme involving core drilling, trenching and
construction of underground drifts and shafts was carried out in the Soviet
period and has been supplemented by new data gathering in 2004 - 2008. The
first license applies to a 3.3 square kilometre area, which is located 80 km to
the east of the region's capital Kyzyl.
Another exploration and production license with a term of 25 years was won in a
public auction in summer 2007. This license area comprises some 520 km2 and
surrounds the first license area. This new license is called the "Tardan mining
district". A large number of gold occurrences were identified at this license
block during the Soviet era, and Central Asia Gold has already commenced with
reviewing them.
Reserve status
The Tardan deposit was in late autumn 2008 subject to a new reserve examination
by the Russian State Mineral Reserve Committee via its local branch (TKZ) in
Krasnoyarsk. A quantity of 8.4 tons (272,000 oz) of C1+C2 gold reserves was
approved. The average gold grade in the reserves is slightly more than 4 g/t.
Within the framework of a pilot production program, almost 400 kg of gold was
produced at Tardan during 2007 - 2008.
The time plan for constructing a future Tardan leaching plant will be decided
by the Board of Directors. The Board of Directors is in 2009 making a strategic
review of the now bigger CAG AB gold project portfolio, and will thereafter set
the priorities. Certain smaller amounts of mine gold may still be produced by
Tardan Gold in 2009.
Kara-Beldyr in Tyva region
This gold project in autumn 2008 became subject to an earn in agreement (joint
venture agreement) with Canadian gold company Centerra Gold ("Centerra").
According to the agreement Centerra has the right but not the obligation to
earn up to a 70% interest by investing up to 6.5 million USD in to the project
over a number of years. Centerra is operator during the earn in period. During
the second half of 2008 a geochemical and geophysical survey was conducted at
Kara-Beldyr. This was in the first and second quarters of 2009 followed by a
limited shallow depth drilling program. Results are so far on expectation, and
preparations are now being made for commencing a diamond drilling program
during the summer months of 2009 with the aim of trying to evaluate the
property also at depth.
Bogomolovskoye and Kozlovskoye projects in Tchita region
These two mining projects are located on the Staroverinskaya license block
belonging to CAG's Tchita region based subsidiary GRE-324. The license
comprises the rights to perform exploration and production of gold during the
license period, which extends to 2029. The two deposits are located closely to
each other. Bogomolovskoye deposit in December 2008 underwent the compulsory
Russian reserve approval procedures. As a result, 8.1 tons of C1/C2 reserves
were approved. The ores at Bogmolovskoye are both oxidized and non-oxidized. A
large part of the shallow ores (oxidized ores) was produced in 2004 - 2008 in
the nearby heap leaching plant belonging to CAG AB now via the subsidiary
Solcocon. In 2008 the pure gold produced in the heap leaching plant amounted to
some 130 kg.
Kozlovskoye deposit was explored in the 1960ies by the Soviet geologic
authorities. At that time some 10 tons of gold reserves were established
according to the then prevailing standards. The average gold grade was at that
time established to be more than 10 g/t. A new reserve approval procedure is
scheduled for late 2009 as regards this deposit.
A number of additional gold occurrences have been detected at the license
block. However, in 2009, considering the credit crunch and associated high cost
of capital, CAG has decided to put as much as possible of the capital
expenditure in terms of the Staroverinskaya license block on hold.
Alluvial gold production
The gold placer producers OOO Artelj Tyva (Tyva region), OOO Artelj Lena
(Irkutsk region) and OOO Zolotaya Borzya (Tchita region)
The production season in the alluvial subsidiaries normally begins in the end
of May and extends to early October, that is during the warm part of the year.
The two subsidiaries belonging to "old Central Asia Gold group" are Artelj Tyva
and Artelj Lena. Both of them have decades of production history and are
therefore on decline when it comes to their gold production. Also, the
production sites of both these subsidiaries are located far away from their
respective administrative centres implying challenging logistics in view of the
seasonal patterns.
Subsidiary OOO Zolotaya Borzya used to belong to the so called NMC group and is
located in Tchita region on the so called Staroverinskaya license block.
Zolotaya Borzya will in 2009 enter its second real production season. Total
registered remaining gold reserves of the three subsidiaries as at end of March
2009 amount to slightly more than 8 tons.
In 2009 it has been decided to give priority to profitability rather than to
maximum producible gold volume. As a result the production target of the three
alluvial units has been determined to be 800 kg - 1,000 kg. The preparations
for the season were carried out in time and working capital demands were
secured by suppliers' credits and via the above mentioned Western credit
facility amounting to 2.5 MUSD. The by end of May 2009 relatively high gold
price and the at the same time prevailing exchange rate USD/RUR of some 32
imply relatively favourable prerequisites for producing alluvial gold in Russia
this year.
Investments, liquidity and financing
Investments in material and immaterial fixed assets during the first three
months of 2009 amounted to TSEK 2,574 (TSEK 10,640).
Cash in group accounts was TSEK 8,608 at the end of March 2009 (TSEK 939).
The parent company
The Swedish parent company is a holding company without significant operations.
It supports the subsidiary companies with financing, investor relation services
and strategy reviews etc. It thus has no income other than interest on loans
extended to the subsidiaries from time to time or in respect of bank deposits.
Also, the exchange rate effect on assets and liabilities denominated in foreign
currency impacts on the result. The net result for the quarter January - March
2009 was TSEK +6,069 (TSEK
-5,574). Positive exchange rate gains amounting to TSEK 6,133 are included in
the result for the first quarter 2009.
Cash in the parent company was TSEK 5,996 as at end of March 2009 (TSEK 47,743).
Employees
The group had on average 1,310 employees during the first quarter of 2009
(388). As per end of March 2009 the number of employees in the group was 901.
Issued shares
During first quarter of 2009 the issue in kind to finance the acquisition of
the NMC companies was carried out. Thereby 3,000,000,000 new shares and
500,000,000 warrants were issued to the two sellers of the NMC companies. This
issue was finally registered by Swedish registration authority Bolagsverket by
the end of March 2009. As a result, the number of outstanding shares as at the
date of this report amounts to 3,530,625,000. Said warrants entitle to
subscription of one new share per warrant at a strike price of SEK 0.20 per
share. The term of the warrants is January 2012.
In addition to this, an options programme directed at leading personnel in the
group was approved by the 2007 Annual General Meeting in Stockholm. In total
14,500,000 options were issued in accordance with this programme. The term of
the options is to the end of July 2009 and the strike price was initially SEK
2.25 per option corresponding to one underlying share. The preferential rights
issue in June 2008 resulted in a recalculation of the strike price to SEK 2.00
per option corresponding to one share. The December 2008 Kopylovskoye AB
spin-off further reduced the strike price of the warrants to SEK 1.76. The
number of shares underlying one option has also been recalculated to 1.28. The
options can only be exercised towards the end of the period. The market price
of the CAG share is however significantly lower than the strike price of the
options as at the end of the report period.
Major events after the end of the report period
Opening of credit line
CAG AB in May 2009 received an open short term credit facility from private
equity fund GKL Capital in Stockholm, and from Mr. Preston Haskell. The
facility amounts to 2.5 MUSD and has a term of three months from draw down. The
annual interest rate is 30% on the utilized part and to this is added an
arrangement fee of 1% of the facility's amount. GKL Capital's part is 1.5 MUSD
and Mr. Haskell's part is 1 MUSD.
Next report due
The next financial report due is the interim report for the quarter January -
June 2009. It will be released on August 27, 2009. Thereafter next report date
in 2009 is November 27, when the nine month report gets published.
Company information
The parent company's full name is Central Asia Gold AB (publ). It is a public
limited liability company with head offices in Stockholm and the corporate
identification number is 556659-4833. The address of the parent company is
Brovägen 9, 182 76 Stocksund.
For more information, please contact:
MD Sergey Gorbachev, tel: +7 985 765 00 84, fax: +46 (0)8 624 37 20, e-mail:
sergey.gorbachev@centralasiagold.se, website: www.centralasiagold.se, Postal
and visiting address: Brovägen 9, SE-182 76 Stocksund
Vice Chairman Lars Guldstrand, cell phone +46 705 28 81 81, email:
lars.guldstrand@centralasiagold.se
(For full report see attached file.)
