Company Announcements

8 June 2021

Trans-Siberian Gold plc

("TSG", the "Company", or the "Group")

Final Audited Results

 

Trans-Siberian Gold plc (TSG.LN), a low cost, high grade gold producer in Kamchatka, Russia, is pleased to announce its audited financial results for the year ended 31 December 2020.

 

Financial Highlights:

 

·    Record-breaking revenues of $81.0 million, up 28.3% (2019: $63.1 million)

·    EBITDA of $42.7 million, up 61.7% (2019: $26.4 million)

·    Profit Before Tax of $28.0 million up 122.6% (2019: $12.6 million)   

·    Total dividend pay-out for the year of $9 million (2019: $8.5 million)

 

Operational Highlights:

 

·    Record annual production of gold in dore at 45,066 oz. a 3.7% increase YoY (2019: 43,479 oz.)

·    Total cash cost per oz. gold sold of $536 (2019: $513)

·    All-in Sustaining Costs per oz. gold $863 (2019: $941)

·    Cost of sales per oz. of gold at $876 (2019: $878)

 

A copy of the Company's Annual Report and Financial Statements is available on the Company's website: www.trans-siberiangold.com 

 

ENDS

 

Contacts:
TSG Stewart Dickson	+44 (0) 7799 694195
Canaccord Genuity Limited (Nominated Adviser & Joint Corporate Broker) Henry Fitzgerald-O'Connor / James Asensio	+44 (0) 20 7523 8000
Panmure Gordon (UK) Limited (Joint Corporate Broker) John Prior / Hugh Rich / Ailsa MacMaster	+44 (0) 20 7886 2500
Hudson Sandler (Financial Public Relations) Charlie Jack / Katerina Parker / Elfie Kent	+44 (0) 207 796 4133

 

 

 

About TSG

TSG is focused on low cost, high grade mining operations and stable gold production from its 100% owned Asacha Gold Mine in Far East Russia. The Group also holds the licence for the development and exploration of the Rodnikova deposit, one of the largest gold fields in South Kamchatka.

Additional information is available from the Company's website:  www.trans-siberiangold.com

Market Abuse Regulations

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ('MAR'). Upon the publication of this announcement via Regulatory Information Service ('RIS'), this inside information is now considered to be in the public domain.

Disclaimer

This announcement contains "forward-looking statements" - that is, statements related to future, not past, events. In this context, forward-looking statements often address our expected future business and financial performance, and often contain words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "should" or "will." Forward-looking statements by their nature address matters that are, to different degrees, uncertain. For us, uncertainties arise from the behaviour of financial and metals markets, fluctuations in interest and/or exchange rates and metal prices; and from numerous other matters of national, regional and global scale, including those of a political, economic, business, competitive or regulatory nature. These uncertainties may cause our actual future results to be materially different that those expressed in our forward-looking statements.

 

 

 

 

Trans-Siberian Gold

 

Annual Report & Financial Statements 2020

Low cost, high grade gold producer

 

 

Low cost, high grade mining operations and stable gold production from the Asacha Gold Mine in Far East Russia.

 

 

 

Financial Highlights

$28.0m

+122.6%

(2019: $12.6m)

 

$81.0m

+28.3%

(2019: $63.1m)

 

$42.7m

+61.7%

(2019: $26.4m)

 

45,066oz

+3.7%

(2019: 43,479oz)

 

•  Total dividend payout during FY20 of $9.0 million (2019: $8.5 million).

Operating Highlights

Record year of gold production

 

•  Gold in doré 45,066 oz. (2019: 43,479 oz.), silver in doré 78,875 oz. (2019: 111,557 oz.).

•  Cost of sales per oz. of gold, net of silver credits, $876 (2019: $878).

•  Total Cash Cost per oz. gold sold $536 (2019: $513)*.

•  AISC per oz. gold sold $863 (2019: $941)*.

*    Refer to note 36 Non-GAAP Measures.

 

 

 

 

Introduction

 

At a Glance

Trans-Siberian Gold plc ('TSG', the 'Company' or the 'Group') is a UK-based resources company, established in 2000 and listed on the AIM market of the London Stock Exchange.

TSG's 100%-owned subsidiary, JSC TSG Asacha ('TSG Asacha) (having changed its name from AO Trevozhnoye Zarevo on 21 April 2021) holds a 24 square kilometre licence in the southern part of the Kamchatka peninsula, and is the operator of the Asacha Gold Mine. In April 2019, AO Trevozhnoye Zarevo was issued a licence for the development and exploration of the Rodnikova deposit, one of the largest gold fields in South Kamchatka, for a tenure of 20 years.

 

Key Strengths:

 

Strong Institutional Shareholders

Low Cost Gold Producer

Attractive Dividend

Financial Robustness

Growth Opportunities

Experienced Board

Favourable Mining Jurisdiction

 

Asacha Gold Mine

An epithermal gold/silver deposit located on a tertiary volcanic arc typical of ore systems found along the Pacific Rim. The main ore zone at Asacha consists of five steeply dipping veins with two principal veins averaging over two metres in width. Veins are characterised by low sulphidation quartz-adularia occurring predominately in dacite domes.

Established gold mine in Far East Russia

High grade underground operation

Gold in doré production: 45,066oz. for FY20

Low Cash Cost operation: $536/oz.

 

 

 

Chairman's Statement

I am pleased to present the Group's Annual Report and Financial Statements for the year ended 31 December 2020, a significant year for Trans-Siberian Gold.

45,066oz

+3.7%

(2019: 43,479oz)

 

$42.7m

+61.7%

(2019: $26.4m)

 

Providing sustainable return to shareholders

"A record year of production and financial performance"

 

I am very proud of the achievements delivered by the Company this year.

Executing our strategy

2020 was a year of significant achievement for Trans-Siberian Gold as we continued to enhance and realise value from our operations in the Far East of Russia.

We continued to improve our operational performance and, in spite of unprecedented challenges presented by COVID-19, delivered significant shareholder returns.

COVID-19

Throughout the ongoing COVID-19 pandemic, the Company's first priority at all times naturally remained the safety and wellbeing of its employees.

From the outset, we focused on implementing strict measures to ensure the safety of our employees and our contractors, and proactive measures remain in place today.

Whilst there was no material impact to TSG's production from the COVID-19 virus during the period, we introduced thorough risk mitigation structures, and closely followed all government advice. TSG remains vigilant to the risks that the pandemic poses and continues to implement strict measures to ensure the safety of our employees and contractors and to maintain strong preparedness for potential further outbreaks of infection.

Operations and Financial Performance

In the ninth full year of our operations at the Asacha mine we achieved our highest ever revenue of $81.0 million, building on our successes from 2019 (revenue: $63.1 million). This was assisted by a very supportive gold price environment as the average realised price of gold sold in 2020 was $1,808/oz, a 29.2% increase from $1,399 oz in 2019.

In 2020, Trans-Siberian Gold continued to return capital to shareholders by paying an interim dividend of $7 million. Due to the takeover offer described below, the Board is unable to recommend a final dividend for FY 2020.

At our flagship Asacha Gold Mine, 2020 saw a continuation of the favourable grades mined in 2019. Consistent good grade performance, coupled with sustained high recoveries throughout the year, resulted in 45,066 oz of gold dore produced in 2020, beating our expectations and exceeding market guidance. Improved gold production was supported by a very favourable gold price throughout 2020 and as a result I am pleased to report a significant increase in profitability.

2020 saw a transition from the Main Zone to the East Zone of the Asacha Gold Mine, as we commenced mining activities at the high-grade Vein 25. Vein 25 presented increasingly promising grades over the year, as demonstrated by the highest quarterly gold grade of 10.3 g/t achieved during Q4 2020.

The Group continued with exploration drilling near-mine and proximal step-out targets in the vicinity of the Asacha Gold Mine. Additionally, an aeromagnetic survey was completed over the Asacha licence area with the objective of identifying new exploration targets.

In February 2020 we confirmed the quality of the Rodnikova gold deposit in South Kamchatka with the issuance of a JORC-compliant mineral resource estimate, and initiated the Scoping Study for the project, which we were pleased to publish in February 2021, reporting a resource of 6.3Mt at an average grade of 5.0 g/t, for a total of 1Moz contained gold. The Company believes that Rodnikova continues to have additional upside potential which merits exploration and studies.

On 6 January 2021, the Company regretfully reported a tragic accident due to a rock fall at Asacha's Vein 25, resulting in two fatalities. Following the incident, we continue to support the families affected by the accident, and worked closely with Rostekhnadzor (the Federal Service for the Supervision of Environment, Technology and Nuclear Management) in its investigations, following which we allocated substantial resources to enhancing ground support both at Vein 25 and at the Main Zone.

Gold industry trends

Gold was one of the best performing major asset classes of 2020.

Increasing by 25% year on year, the gold price reached an all-time high of $2,067.15/oz. in early August 2020. Sustained growth in global gold-backed ETF holdings, which grew by 877.1t over the year, was largely as a result of market uncertainty over the COVID-19 pandemic and fiscal reactions and responses from authorities worldwide.

Takeover Offer

After the 2020 financial year-end, on 18 March 2021, the Company announced an agreement with Horvik Limited ("Horvik") on the terms of a recommended pre-conditional mandatory cash offer ("Offer") to be made by Horvik for the Company's ordinary shares not already held or agreed to be acquired by Horvik (the Announcement). The Announcement included the rationale for the Company's Independent Directors' recommendation of the Offer which, for ease of reference, I outline below.

•  The Selling Shareholders, which comprise the Company's former Chairman, Charles Ryan and a former non-executive director, Florian Fenner, together with connected entities and various funds managed by UFG Asset Management Limited ("UFG"), who collectively owned over 50 per cent. of the share capital of TSG (excluding any shares held in treasury) had agreed to the sale of their entire shareholdings in TSG at £1.18 per share (the "Offer Price").

•  UFG has been a long-term and supportive shareholder of TSG with certain persons or entities within the group of Selling Shareholders having been TSG Shareholders since 2006.

•  Whilst UFG has reduced its shareholding over recent years, which has aided liquidity in the trading of TSG shares, the TSG Independent Directors understand that the Selling Shareholders have been looking at opportunities to monetise the value of their entire holding in TSG for a period of time and have concluded that the Offer represents the most appealing way of realising value at an attractive price.

•  The TSG Independent Directors recognise this desire and that the Selling Shareholders may have moved from the investing stage to the realisation stage of their investment life-cycle. Alternative methods of the Selling Shareholders seeking to realise value from their TSG shareholdings in the near term would likely have a detrimental impact on the market price of TSG Shares pending and, in particular, during such monetisation.

•  The TSG Independent Directors believe that, given the Company has a single production asset and all its operations are based in the Kamchatka region in Far East Russia, there is a relatively limited number of potential alternative buyers for the Company that could provide similar opportunities for a full cash monetisation for TSG shareholders in the near term. The Offer represents a liquidity opportunity for all TSG shareholders to realise their investment in TSG in full, in cash, and on the same terms as the Selling Shareholders.

•  The outlook for gold is uncertain, with market consensus on the long-term price of gold being materially below that of the current spot price. The TSG Independent Directors believe that the Offer Price represents fair value on the basis of their commercial assessments of TSG.

•  The TSG Independent Directors believe the long term prospects of the Asacha Gold mine remain attractive. However, delivery of TSG's strategy to grow production has execution risk, including customary permitting requirements, and would require further material capital expenditures.

•  In this context, the TSG Independent Directors believe that the Offer Price recognises the prospects and execution risks of TSG, whilst providing certainty, in cash, to TSG shareholders now.

In addition, the Announcement also noted that:

•  There can be no guarantee that similar future liquidity events will materialise;

•  TSG's share price has only traded higher than the Offer Price for 32 trading days in the last 15 years, reaching its 15 year peak in September 2019;

•  Mining operations are inherently risky and susceptible to interruption as evidenced by the recent and regrettable incident at TSG's Asacha Gold Mine; and

•  TSG's development asset, Rodnikova, is not due for development for some time and it is currently estimated that it would require approximately $130 million of capital expenditure. Accordingly, TSG would likely have to raise a combination of further debt and equity if it were to develop this asset. The TSG Independent Directors acknowledge that there is no certainty that UFG would participate in further investment in TSG.

•  The Offer Price represents a premium of approximately:

-  18 per cent. to the closing price per TSG share of £1.00 on 17 March 2021 (being the last practicable date prior to the date of the Announcement);

-  34 per cent. to the closing price per TSG share of £0.88 on 4 March 2021 (being the last business day prior to the date on which Horvik first approached the TSG Independent Directors); and

-  26 per cent. to the volume weighted average closing price per TSG share of £0.94 for the one month period ended on 17 March 2021 (being the last practicable date prior to the date of the Announcement).

•  As the Selling Shareholders' holdings represent greater than 50 per cent. of the share capital of TSG (excluding any shares held in treasury), if the FAS Pre-Condition is satisfied, control of TSG will have passed from the Selling Shareholders to Horvik.

•  If, through acceptances of the Offer, Horvik acquires interests which, together with the TSG Shares it acquires pursuant to the SPA, amount to at least 75 per cent. of the share capital of TSG, Horvik will seek to cancel the admission of the TSG Shares to trading on AIM, which, if such cancellation occurs, will mean there is no liquid market in which to trade TSG shares.

•  If Horvik fails to acquire interests in at least 75 per cent. of the share capital of TSG, Horvik intends to retain the Company's listing on AIM. Pursuant to the Relationship Agreement described in the Announcement, Horvik will be entitled to appoint three directors and therefore, subject to the provisions of the Relationship Agreement, will have significant influence over the strategic direction and priorities of the Company, including any future dividend payments and may have a different perspective on these matters to other shareholders.

On 19 May 2021, Horvik announced that the Russian Federal Antimonopoly Service ("FAS") had granted regulatory clearance in connection with the Offer. Accordingly, the pre-condition to the Offer has been satisfied and an offer document containing the terms of the Offer will be posted to TSG Shareholders as soon as practicable and in any event within 28 days of that announcement.

I would like to take this opportunity to express my heartfelt thanks to all our employees. In a very uncertain year, throughout the prolonged risk of COVID-19, ensuring the health and wellbeing of our people remained our first priority. Amid a global pandemic, our excellent financial and operational performance is a direct consequence of their skills and dedication; it is much appreciated.

 

Lou Naumovski

Interim Chairman and Senior Independent Non-Executive Director

 

"Providing sustainable return to shareholders"

 

 

 

Strategic report

 

Strategy

The Directors present the Strategic Report for the year ended 31 December 2020.

Strategy

The Group seeks to provide investors with access to a company capable of generating industry-leading shareholder returns, while maintaining a commitment to operational excellence and its social and environmental responsibilities. The Group's current corporate strategy is based on the following three pillars:

01.

Enhance existing operations

02.

Utilise stable platform for future growth opportunities

03.

Pursue selective accretive M&A opportunities

 

Proven track record of gold production

 

Principal activities    

Trans-Siberian Gold plc is a UK-based resources company, whose Asacha Gold Mine in the Far East of the Russian Federation has been in production since September 2011.

The Company is a public limited company, operating under the laws of England and Wales (the principal legislation being the Companies Act 2006), incorporated and registered in England and Wales with registered number 1067991 and domiciled in the United Kingdom.

TSG is committed to creating value for all stakeholders on a sustainable basis. For shareholders, value is derived from capital appreciation in the Company's share price and distributions in the form of dividends and share buybacks. Value is created by supporting Russia's Far East economy through taxes paid, employment and investment in communities.

How we deliver our strategy & create value

The Group makes use of various inputs and assets in our business activities to create shareholder value. Our business is focused on low-cost gold production and enabling investments. The outputs represent the delivery of our business strategy.

 

 

Operating and Financial Review

Continuous improvement in operational performance

 

In 2020, the ninth full year of its operations, Asacha produced 45,066oz of gold doré.

TSG is focused on low cost, high-grade mining operations and stable gold production from its 100% owned Asacha Gold Mine in Kamchatka, Far East Russia. The Group also holds the licence for the development and exploration of the Rodnikova Gold Deposit, estimated to be one of the largest goldfields in Kamchatka.

Asacha Gold Mine

Production

In 2020, the ninth full year of its operations, Asacha achieved an all-time record annual production of 45,066oz. of gold in doré (2019: 43,479 oz.) and 78,875 oz. of silver in doré (2019: 111,557 oz).

The average processed ore gold grade in 2020 was 7.7 g/t, in line with the 2019 average 7.8 g/t. The grade of gold has improved during the year, resulting in the highest quarterly grade of 10.32 g/t in Q4 2020. The quality and consistency of ore from Vein 25 made a significant contribution to delivering these operational achievements.

As indicated for some time, 2020 was a year of transition from the Main Zone to the East Zone of the Asacha Gold Mine, which contains significantly higher grade ore.

Mine production in Q1 2020 was relatively low as mineralisation in the Main Zone becomes lower in grade and more erratic at depth. This vertical zonation is typical of epithermal systems. Lower grade stoping ore was required to be blended with existing stockpiled ore, which resulted in a lower average mill feed grade.

The second quarter of 2020 saw a return to substantially higher average gold grades as the Company began to process high-grade ore extracted from Vein 25 in the East Zone, with considerable progress in mine development works at Vein 25. This continued into Q3 and Q4 2020, with average mill-feed gold grades supported in part by test ore extracted from Vein 25, and leading the group to upgrade initial production guidance.

Mining operations at Vein 25 were suspended for a short period following a rock fall accident on 6 January 2021, and resumed on 5 March 2021, once full permitting approvals were granted.

Ore processing at the Asacha plant involves:

•  two-stage grinding with semi-autogenous grinding at the first stage, ball milling at the second stage, pulp classification in hydrocyclones by 0.75mm size and hydrocyclones' slurry thickening in a high-capacity thickener;

•  cyanidation and carbon-in-leach process;

•  electric elution of loaded carbon by basic solutions under pressure using IPS technology, acid treatment and thermal regeneration of carbon;

•  melting of cathode deposits into doré alloy; and

•  cyanide destruction of slurry tailings by chlorination and storing of neutralised tailings as diluted slurry.

 

Mining and production at Asacha in 2020 is shown in the following table:

		2020	2019	YoY
Mine development	metres	4,547	7,239		-37.2%
Ore extracted	tonnes ('000)	170	142		+19.5%
Ore processed	tonnes ('000)	196	179		+9.4%
Average feed gold grade	g/t	7.7	7.8		-1.5%
Average feed silver grade	g/t	16.2	23.4		-30.8%
Gold recovery rate	%	94.2	95.3		-1.1%
Silver recovery rate	%	78.4	81.5		-3.8%
Gold in doré	oz.	45,066	43,479		+3.6%
Silver in doré	oz.	78,875	111,557		-29.3%
Gold refined	oz.	43,837	43,733		+0.2%
Silver refined	oz.	80,673	109,851		-26.6%

 

Employees and safety

At 31 December 2020 TSG's subsidiary TSG Asacha employed 579 staff, including personnel working in two shifts at the site (2019: 604 people).

The Group reported one non-operational fatality and 7 light injuries in 2020 (2019: 7 light injuries, zero fatalities). Efforts to improve the health and safety at Asacha continue as the Group continues to invest in employee training and development, such as labour and fire safety, accident response and emergency management, safety and the safety of hydro-technical facilities. After the period end, on 6 January 2021, the Company regretfully reported a tragic accident due to a rock fall at Asacha's Vein 25, resulting in two fatalities. A full investigation was commenced and operations were immediately suspended following this event. On 5 March 2021, the Company announced it had been granted full permitting approvals to resume mining operations at Vein 25 in the East Zone of the Asacha Gold Mine.

COVID-19

The Group focused on implementing measures to ensure the safety of our employees and contractors, the integrity of our operational facilities and to prepare the business to face emerging challenges. Consequently, operations saw limited direct interruption from the COVID-19 pandemic.

We are proud to be a significant employer in the Kamchatka region of the Far East of Russia. The health and wellbeing of all our employees remains our utmost priority, and we are closely monitoring the development of this global health crisis and its potential impact on our people and operations. We have risk mitigation policies in place aimed at communicating the best precautionary measures to our staff to prevent the spread of the virus. All personnel go through 14-day quarantine before entering the mine site. We follow the latest government advice in all our jurisdictions with regard to the current running of our operations.

Reserves and Resources

As at 31 December 2020, the total mineral resource estimate for Asacha (Measured, Indicated and Inferred), as reported on 16 March 2021, in accordance with the JORC Code (2012) was 645,000 oz of contained gold.

The Mineral Resource Estimate ('MRE') for the Asacha Gold Mine was updated by SRK Consulting Russia Ltd ('SRK') with an effective date of 31 December 2020 and is available on the Company's website. The resource estimate was updated to incorporate new data available from exploration drilling and mining development, and to account for mining depletion.

The results of 99 drillholes for 30,524m and 1,338 channel samples over 3,034m were added to the database since the previous resource estimation. The modelling approach and parameters used by SRK for the new MRE model were generally similar to the approach and parameters used for preparing the previous MRE.

The resource at Asacha occurs in two zones: Main and East zone (both of which are currently being mined).

The Main zone hosts six defined veins, with the majority of the resource contained in two of these, QV1 and QV2. Three veins have been defined in the separate East zone of which QV25 is most significant. The Main zone has a strike length of approximately 1500m, whilst the V25 South and V25 North in the East zone, which have resources defined over a total of approximately 800m.

Infill and extension drilling of Vein 25 North has also defined two minor domains (V25 North B and D), approximately parallel and to the east of the main mineralisation.

Asacha JORC mineral resource - 31 December 2020

Classification	Zone	Tonnes	Au g/t	Ag g/t	Au (koz)	Ag (koz)	Au (kg)	Ag (kg)
Measured	Main	136,000	13	44	58	194	1,800	6,000
Measured	V25S	14,000	41	49	19	22	600	700
Measured	Total	150,000	16	45	76	216	2,400	6,700
Indicated	Main	100,000	11	44	35	142	1,100	4,400
Indicated	North	54,000	11	19	20	32	600	1,000
Indicated	V25N	486,000	19	107	291	1,672	9,100	52,000
Indicated	V25S	27,000	31	44	27	38	800	1,200
Indicated	V7 V8	38,000	25	58	30	70	900	2,200
Indicated	Total	704,000	18	86	403	1,955	12,500	60,800
Measured and Indicated	Total	862,000	17	79	479	2,171	14,900	67,500
Inferred	Main	21,000	8	36	6	25	200	800
Inferred	V25N	122,000	14	119	54	468	1,700	14,600
Inferred	V25S	88,000	14	53	41	149	1,300	4,600
Inferred	V7 V8	101,000	20	37	66	120	2,000	3,700
Inferred	Total	333,000	16	71	166	762	5,200	23,700

 

•   Resources are reported above 4m*g/t Au cut-off grade

•   Resources are reported after mining depletion

•   Tonnage and grades have been rounded to reflect an appropriate level of precision

•   Rounding may mean that columns do not sum exactly

•   Mineral Resources are classified according to the definitions of the JORC Code

•   The updated Mineral Resource Estimate was prepared by Mr Robin Simpson, a full-time employee of SRK Consulting (Russia) Ltd, as a Principal Consultant (Resource Geology).

•   Mr Simpson is a Member of the Australian Institute of Geoscientists (AIG), and has sufficient experience relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined by the 2012 edition of the "Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves" (JORC Code). Accordingly, Mr. Simpson is a Competent Person as defined by the AIM Guidance Note on Mining and Oil & Gas Companies dated June 2009.

 

Sources of change between 2019 and 2020 resource estimates

Main Zone

The previous Mineral Resource Estimate for the Main Zone had a total of 89,000 oz in Measured and Inferred. Although mining depletion in the last eight months of 2020 is estimated to have removed 25,000 t of in situ mineralisation, at 11 g/t for 9,000 oz Au, after this depletion the Main Zone Measured and Indicated in the new estimate now contains 93,000 oz of Au. The increase has occurred because the new channel samples included in the update are, on average, higher grade than the block estimates in the corresponding areas of the previous model.

Reconciliation information from 2020 provides confidence that the grades of the channel samples can be relied on for Mineral Resource estimation.

None of the new core drilling information affects the Mineral Resource estimate for the Main Zone.

East Zone Vein 25 North

From this estimation update, the major increase to the Asacha Mineral Resources comes from the extension of the main Vein 25 North domain up to 100m down dip, and up to 200m along strike to the north.

The wireframe interpretation of this domain omits some intersections that were included in the interpretation Vein 25 North for the previous estimate. Although these intersections have been interpreted as the continuation of the same Vein 25 North mineralised vein, the omitted intersections occur at the edge of the structure, and as clusters with average Au grades consistently less than the nominal 4 g/t modelling threshold. In the new model, SRK trimmed these low grade edges from the estimation domain.

The new drilling shows a 150m gap in the Vein 25 North mineralisation, from approximately 55570N to 55720N. North of this gap, SRK modelled a mineralised domain (V25 North E) based on four holes from TSG's two northernmost lines of dri‑lling. Therefore, potential remains for Vein 25 to continue northward along strike.

The infill and extension drilling of Vein 25 North has also defined two minor domains (V25 North B and D), approximately parallel and to the east of the main mineralisation. These secondary domains were not modelled as part of the previous Mineral Resource estimate.

Exploration

In 2020, the Group continued to conduct exploration drilling. Vein 25 remains open at depth and to the north, while its southern extension has not yet been drilled.

TSG has identified new potential exploration targets at and near the Asacha deposit based on the geophysical anomalies identified in the course of an aeromagnetic survey completed in Q4 2020.

The low sulfidation epithermal style of mineralisation found at the Asacha Gold Mine is favourable for high-grade deposits. The Asacha licence area and more widely, the regional district, remain under-explored which the Company believes presents an opportunity to increase gold resources. As such, the Company has reinvested in its exploration activities.

Rodnikova

On 23 April 2019, the Russian Federal Agency for Subsoil Use ("Rosnedra") issued a 20-year licence to AO Trevozhnoye Zarevo for the development and exploration of Rodnikova. The acquisition cost of the deposit was $3 million. Taking into consideration the fact that the Asacha and Rodnikova deposits are believed to have similar geology and mineralogy, the Company will determine the suitability of utilising the existing processing techniques and plant at Asacha for the ore at Rodnikova.

Mineral Resource Estimate for Rodnikova

On 10 February 2020, TSG published a JORC compliant MRE for the Rodnikova Gold Deposit produced by SRK Consulting (Russia) Ltd for the Company's wholly owned subsidiary, AO Trevozhnoye Zarevo. The MRE was developed in accordance with the recommendations and guidelines of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves as published by the Joint Ore Reserves Committee of the Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and Minerals Council of Australia (the JORC Code, 2012 Edition).

The MRE confirmed Total Indicated & Inferred Resources of 6.3Mt at a grade of 5g/t of gold, for total contained +1Moz of gold, of which Indicated Mineral Resources of 3.1Mt at a grade of 5.3g/t gold, for contained 519,000oz gold and Inferred Mineral Resources of 3.2Mt at a grade of 4.8g/t gold, for contained 491,100oz gold. In addition, the MRE confirmed Total Indicated & Inferred Resources of 6.3Mt at a grade of 36.79 g/t of silver, for total contained 7.4Moz of silver. SRK's full report is available on the Company's website at: www.trans-siberiangold.com

Scoping Study

In February 2021, TSG announced the results of an independent Scoping Study for the 100% owned Rodnikova Project in Kamchatka, Far East Russia prepared by SRK Consulting (Russia) Ltd ("SRK"), based on Indicated & Inferred Mineral Resources, reported in accordance with the JORC Code (2012), of 6.3 Mt at an average grade of 5.0 g/t gold, for a total of 1Moz contained gold.

The Scoping Study has identified economically viable development options which justifies the advancement of the project. The Company believes that the project continues to have additional upside potential which it had planned to evaluate through additional exploration and studies.

Location

The Rodnikova Gold Deposit is located in the south-eastern part of the Kamchatka Peninsula, in the South Kamchatka ore region, in the Yelizovo administrative district of the Kamchatka Region. There is a 120km road from Petropavlovsk-Kamchatsky to the Rodnikova Gold Deposit, including 65km of asphalt road. The Rodnikova Gold Deposit is approximately 61 km from the Company's operating Asacha Gold Mine.

Previous Exploration

The main exploration works on the Rodnikova Gold Deposit and its flanks included reconnaissance exploration, diamond drilling (223 drill-holes for 47,377m), core sampling, development of two adit levels totalling 822m, with a collection of channel and chip samples, excavation of trenches to trace vein continuity along the strike and channel sampling. The main exploration stages on the deposit were completed in the 1980-1990s. Additional drilling within the Rodnikovy mineralised zone and at its flanks was undertaken as part of the 2005-2007 exploration program.

The main exploration reports, drawings and primary field documentation for the Rodnikova Gold Deposit are kept in the regional archives of the Ministry of Natural Resources. SRK is of the opinion that exploration works were generally performed at the level to meet the state standards of the Soviet Union and Russia, and these standards are appropriate for collecting information to be used for Mineral Resource estimation.

The database used to construct the resource model contains information on 223 drill-holes, 332 trenches, 440 clearings and 83 cross-cuts, 15,027 core samples and 12,060 channel samples.

 

Rodnikova Gold Deposit JORC mineral resource - 10 February 2020

Classification	Tonnes (Mt)	Au (g/t)	Au (t)	Au ('000oz)	Ag (g/t)	Ag (t)	Ag (Moz)
Rodnikovy
Indicated	3.1	5.3	16.1	519	43.9	134.9	4.3
Inferred	1.7	4.3	7.4	238	32.3	55.7	1.8
Vilyuchinsky
Inferred	1.5	5.3	7.9	253	27.1	39.9	1.3
Total Indicated	3.1	5.3	16.1	519	43.9	134.9	4.3
Total Inferred	3.2	4.8	15.3	491	29.9	95.7	3.1

 

Notes:

•   Mineral Resources are reported in accordance with guidelines and provisions of the JORC Code.

•   Mineral Resources were estimated at a cut-off grade of 3.0 g/t within underground mining outlines.

•   The Competent Person for this report of Mineral Resources is Mr Robin Simpson, an employee of SRK Consulting (Russia) Ltd. Mr Simpson is a Member of the Australian Institute of Geoscientists (AIG), and has sufficient experience relevant to the style of mineralisation and type of deposit under consideration and to the activity undertaken to qualify as a Competent Person.

 

Scoping Study Highlights

 

Production Potential

•  Life of mine ("LOM") 14 years

•  LOM is based on a Mineral Resource Estimate, reported in accordance with the JORC Code (2012), of 6.3 Mt at an average grade of 5.0 g/t gold

•  LOM gold production of 517,000 oz. at an average grade of 4.03 g/t

•  LOM silver production of 3,062,000 oz. at an average grade of 28.9 g/t

•  Sub-level stoping and underground mining methods assessed to be optimal for the Project

•  Conventional CIL processing plant with processing capacity of 500 kt per annum

•  Gold recovery 94%

•  Cut-off grade of 3.5 g/t, calculated based on $1,250/oz gold price assumption

•  Production schedule does not include any potential future exploration success and Mineral Resource growth

Project Costs & Economics1

•  LOM Revenue of $715m

•  LOM Free Cash Flow of $126m

•  LOM CAPEX $133m of which $82m is initial/construction CAPEX in year 1

•  Economics at LOM gold price of $1,600/oz (Management sensitivity)

-  Including application of TOR2:

-  Post Tax NPV10% of $177.6m

-  Post Tax Internal Rate of Return of 59.2%

-  Excluding application of TOR

-  Post Tax NPV10% of $117.6m

-  Post Tax Internal Rate of Return of 40%

•  Economics at LOM gold price of $1,300/oz (SRK base case)

-  Including application of TOR:

-  Post Tax NPV10% of $92.4m

-  Post Tax Internal Rate of Return of 35.3%

-  Excluding application of TOR

-  Post Tax NPV10% of $45.8m

-  Post Tax Internal Rate of Return of 22%

•  Discounted Payback period of 4 years applying TOR, or maximum of 6 years excluding TOR

•  It is anticipated that, should the project advance, as a major employer in the Kamchatka region the project would create approximately 800 employment opportunities and generate significant tax remittances to regional and federal governments.

 

1. Scoping Study Project economics were prepared by SRK using an LOM gold price of $1,300/oz. Sensitivities to gold price were calculated by management to evaluate different Project economics.

2. Advanced Special Economic Zones ("ASEZ") have been created in the Far East of Russia under a "Territory of Advanced Development" (also known as "TOR"), a special regime of treatment of foreign investors who inject funds and capabilities to Russia's Far East, whereby those foreign investors are provided with certain incentives and benefits. In particular, there are reductions to corporate profits tax, value added tax, land tax, mineral extraction tax and social insurance payments. On 19 December 2019, the Company confirmed that its operating subsidiary had been confirmed as resident of ASEZ Kamchatka. The Company will apply for the Project to be treated under the TOR regime in due course.

 

Rodnikovy

Gold mineralisation at the Rodnikova deposit is mainly associated with hydrothermal-metasomatic formations.

The Rodnikovy vein zone is localised in a N-S trending disjunctive fault. The fault thickness is 50-120m, the estimated length is 3km. The fault zone hosts veins: 42, 43, 44, 52 and 53 which are accompanied by apophyses and numerous quartz veinlets. The main plane of the ore-controlling fault is occupied by Vein 44 which is adjoined at various angles from the side of the hanging wall by the remaining veins that form the main branching structure of tensile fracturing.

The main veins are Veins 43 and 44 which contain 80% of the mineralisation of the Rodnikovy vein zone. The maximum thickness of the ore body is 23m and is observed on the 220m level. Gold grade ranges from tenths of a gram per ton to 90-130g/t, with most samples showing grades within a 4-70g/t range.

Mineralisation at the Rodnikova deposit is a typical quartz low-sulphidation gold and silver. Gold and associated silver are the only valuable ore components of significance. The main vein minerals are: quartz (42.5-75%), adularia (9.5-16%) and carbonate (5-28.6%). Diagnostic leach data shows that most of the gold in analysed ore (88.7%) is amenable to cyanidation (in the presence of a sorbent). Associated silver is mostly present in a cyanide-amenable form (82.2%).

Vilyuchinsky

The Vilyuchinsky site is located in the north-western part of the ore field, 4 km from the Rodnikovy site, on the watershed of the Bystraya-Paratunka and Vilyucha rivers.

Two systems of ore-controlling faults (sub-meridional and north-eastern) were identified within the site. Of major importance is the system of the N-E trending disjunctive faults that form the Vilyuchinsky ore-bearing vein zone of 400-500m wide traced over some 3km. Productive mineralisation is mainly confined to shallow veins that form tensile fractures (Vein 9). Vein 9 has an average thickness of 2.9m, a strike length of 450m and a dip length of 90m. The average gold grade is 9.82g/t, silver grade is 67.83g/t. 80% of mineralisation at Vilyuchinsky is concentrated within Veins 9, Regina, 6 and 13. Cost of sale decreased to $40.1 million (2019: $40.3 million).

Financial Review

The Group generated all-time record revenue during 2020.

Revenue from the sale of 43,884 oz. gold (2019: 43,782 oz.) was $79.3 million (2019: $61.3 million), and of 80,330 oz. of silver (2019: 115,801 oz.) was $1.6 million (2019: $1.9 million).

Average realised prices were $1,808 per oz. gold and $20.4 per oz. silver (2019: $1,399 per oz. gold and $16.0 per oz. silver). All sales were made on spot basis.

Cost of sales decreased to $40.1 million (2019: $40.3 million).

Cash cost per oz. gold, was $536 (2019: $513). All-In Sustaining Costs ('AISC') per oz. gold were $863 (2019: $941), as discussed in note 36 in the financial statements.

The Group recorded an operating profit for the year of $27.5 million (2019: $14.4 million).

Administrative expenses amounted to $10.2 million (2019: $8.8 million).

Finance income was $0.03 million (2019: $0.07 million). Finance costs were $1.8 million (2019: $1.6 million).

Financial Position

Total equity was $91.1 million at 31 December 2020 compared to $78.2 million at 31 December 2019. The increase was mainly due to a significant increase in retained earnings.

Non-current assets decreased from $88.5 million to $83.4 million.

Current assets increased from $28.8 million to $43.6 million, the most significant item of which was cash and cash equivalents increasing from $8.7 million to $22.4 million.

Loans and borrowings reduced substantially from $25.1 million at 31 December 2019 to $15.1 million at 31 December 2020, comprising $13.2 million of bank loans (2019: $22.9 million) and $2.0 million of equipment loans (2019: $2.2 million) described in note 23 to the financial statements.

Current liabilities at 31 December 2020 totalled $15.7 million (2019: $15.8 million).

As discussed in note 25 to the financial statements, the Group's gearing ratio at 31 December 2020 was (8.65%) (2019: 17.34%).

Management

OOO Trans-Siberian Gold Management, TSG's 100%-owned subsidiary in Moscow, provides managerial, technical, financial and procurement services to TSG Asacha and currently has 21 staff, including 2 technical managers based at Asacha and TSG Asacha's Managing Director. TSG's Chief Executive Officer and Chief Operating Officer are based in Moscow.

Going concern

The Group's operations are cash generative and management tightly control the level of committed expenditure to ensure that the Group has sufficient resources available to meet its liabilities as they fall due. Regular cash forecasts are reviewed to assess the potential impact of factors such as changes in commodity prices, production rates and the timing of capital expenditure. The Group has reported an operating profit for the year of $27.5 million, an operating cash inflow of $41.2 million and net increase in cash of $13.7 million. The Directors have reviewed the Group's cash flow forecast for the period to 31 December 2022 and carried out multiple scenario analysis of potential downsides including future lockdowns of various length; production, workforce and supply chain disruptions together with reasonably possible changes in commodity prices; and scheduled repayments of loan facilities. The Directors further stress tested combinations of various scenarios identifying no significant cash concerns. Based on these analyses, the Directors believe that the Group has sufficient resources to continue in operational existence for the foreseeable future. Furthermore, the Directors have considered the impact of Horvik's acquisition discussed in note 35 on the going concern of the Group. In forming their opinion the Directors have relied upon the public statements made by Horvik about its future intentions for the Group, which outline its commercial and financial rationale for the acquisition. While the Directors are unable to provide surety that such intentions will be enacted, they are not aware of any planned actions which may cast doubt over the Group's future operational existence. The Directors have also considered the change of control clause within the Company's credit facilities with VTB and are comfortable that this does not have an impact on the going concern status of the Group in light of the Group's cash position and the outstanding loan balance at 31 December 2020 and for the reasons outlined in note 23 and note 35. Therefore the Directors believe that the Group will continue as a going concern and have prepared the financial statements on that basis.

Events after the reporting date Takeover Offer

After the year-end, on 18 March 2021, the Company reached an agreement with Horvik Limited on the terms of a recommended pre-conditional mandatory cash offer to be made by Horvik for the TSG ordinary shares not already held or agreed to be acquired by Horvik.

Further information on Horvik and all documents relating to the Offer are available at: https://horviklimited.com

Alexander Dorogov

Chief Executive Officer

8 June 2021

 

 

 

Key Performance Indicators

The following charts set out the key performance indicators monitored by TSG's Board of Directors:

 

KPI's are how we measure our progress of delivering our strategy.

43,884oz

+0.2%

(2019: 43,782oz)

 

$1,808

+29.2%

(2019: $1,399)

 

$876

-0.2%

(2019: $878)

 

48%

+37.1%

(2019: 35%)

 

7.7 g/t

-1.5%

(2019: 7.8 g/t)

 

94.2%

-1.1%

(2019: 95.3%)

 

$7.3m

+156%

(2019: -$16.4m)

 

$42.7m

+61.7%

(2019: $26.4m)

 

$536

+4.5%

(2019: $513)

 

170 tonnes ('000)

+19.5%

(2019: 142 tonnes ('000))

 

196 tonnes ('000)

+9.45%

(2019: 179 tonnes ('000))

 

608

-13%

(2019: 699)

 

$863

-8.3%

(2019: $941)

 

7

+/-0%

(2019: 7)

 

*    Net of silver credits

**   Net cash is calculated as cash and cash equivalents less total borrowings

 

A Responsible Corporate Citizen

Trans-Siberian Gold is committed to a sustainable approach to responsible business and reiterates the ongoing commitment to be a good corporate citizen and a supportive and reliable partner for local communities.

We strive to contribute to the sustainable development of the remote region in which we operate and to create long-lasting contributions to the economic, as well as the social prosperity of local residents.

Stakeholders around the world are increasingly looking to businesses to help address global development challenges. The United Nations (UN) Sustainable Development Goals (SDGs) set out a framework which helps businesses and their stakeholders better understand and address those challenges. In 2015 the UN member states adopted 17 SDGs for tackling poverty, protecting our planet and working towards sustained peace and prosperity.

Our business activity touches directly and indirectly on many of the UN SDGs and we continue to look for opportunities to do more to support the SDGs.

Through our operations we are aligned to and directly contribute to the development of SDGs 1, 3 and 8, which are supporting global efforts to reach no poverty, ensuring good health and wellbeing of our people and decent work and economic growth. Additionally, we have also outlined SDGs of which we can support the delivery and on which we can have a positive impact as a smaller business; this includes goals 4, 6, 7, 9, 10, 12, 14, 15, 16.

How we contribute to the advancement of goals 1, 3 and 8:

Our operations are located in the remote, ecologically sensitive and under-developed region of Kamchatka, where Trans-Siberian Gold provides significant contribution to the achievement of the UN SDGs by promoting regional development through creating opportunities for local residents. We are a significant local employer and taxpayer, employing 579 people in Petropavlovsk-Kamchatskiy and we are a valued member of the Advanced Special Economic Zone (ASEZ) providing important economic support to the region.

People are at the heart of our business, and through our social activities we are committed to creating excellent working and living conditions for our employees, their families and the community in which we operate, thereby improving the living standards and well-being of our people. Through our work in the region and by taking a proactive approach, we focus on making positive, sustainable contributions to the economic, as well as the social prosperity of the residents of South Kamchatka.

 

Goal 1: No Poverty

•  We invest in our people and in the regions in which we operate, providing attractive and inclusive employment opportunities and training.

•  We pay taxes and royalties on our earnings and publicly disclose all payments to governments.

 

Goal 3: Good Health and Well-being

•  We maintain a rigorous health and safety protocol and reporting practices. At our operations, we test for traces of substance misuse and screen for symptoms of COVID-19 related illness.

•  We take serious steps to prevent toxic emissions that could negatively impact the health of our employees and local communities.

•  We encourage a healthy lifestyle among our employees and promote personal well-being.

 

Goal 8: Decent Work and Economic Growth

•  We provide skilled work and communicate employment opportunities locally, and contribute positively to the regional economy of Kamchatka.

•  Our focus on local procurement, by ensuring we integrate local suppliers into our supply chains where possible, ensures the economic development of the region.

 

How we support goals:

Through our operations, we want to contribute to the development of local communities, deliver long term value to our employees, invest in local infrastructure, spur innovation and invest in environmental protection. We seek to ensure that our activities do not harm our employees, local communities or the environment. These SDGs include areas where we can have a positive impact in the region of presence as well as areas where we strive to mitigate any potential negative impacts.

Empowering our community

Goal 4: Quality Education

Goal 9: Industry, Innovation and Infrastructure

Goal 10: Reduced Inequalities

Goal 16: Peace, Justice and Strong Institutions

•  Trans-Siberian Gold is an equal opportunities employer and we provide attractive wages. We provide equitable access to employment opportunities in our region.

•  We provide training to all our employees to refresh and upgrade their skills; we are committed to developing our workforce and providing employees with opportunity to progress within our Company. In addition to this, we pride ourselves as a local employer and provide skilled work in our region, contributing to the economic growth of Petropavlovsk-Kamchatskiy.

•  We maintain an open and transparent approach to communicating with authorities on a local, federal and national level and strive to prevent all forms of conflict by ensuring clear channels of stakeholder engagement.

 

Goal 6: Clean Water and Sanitation          

Goal 7: Affordable and Clean Energy

Goal 12: Responsible Consumption and Production

Goal 14: Life Below Water

Goal 15: Life on Land

•  We take our responsibility with regard to environmental stewardship very seriously. We carry out baseline and follow-up environmental impact assessments to preserve the biodiversity in the existing ecosystems surrounding our areas of operations, both above land and below water, and regularly provide monitoring data to the authorities.

•  In addition, we make concerted efforts to conserve our water use, and ensure that waste is disposed of safely. Water life is included in our corporate impact assessments. We monitor water quality and provide monitoring data to the authorities.

•  To minimise our waste production, we blend lower grade ore into our processing plant, and ensure that we dispose of our waste carefully and responsibly.

•  Our tailings storage facilities (TSFs) are maintained to high levels of safety and we provide disclosure on our TSF management (refer to RNS announcement on 20 August 2019).

•  We monitor our fuel consumption closely and examine opportunities to reduce our energy consumption and thereby contribute to a potential reduction in emissions.

 

 

 

SECR Statement

Streamlined Energy and Carbon Reporting (SECR)

 

This report summarises, in accordance with the UK Government requirements for SECR, the Group's estimated greenhouse gas emissions & energy use and the implementation of energy efficiency measures.

Greenhouse gas emission (See note 1)

In 2020 our total Global greenhouse gas (GHG) emissions including Scope 1&2 were 19,4 kilotonnes carbon dioxide equivalent (ktCO2e).

This represents a 2% increase compared with 2019 and is due to an increase in metal (gold and silver) production volumes. But at the same time, the Intensity Ratio of emission per ton of processed ore decreased by 7%.

 

Emission (See note 2)	Unit	2020	2019
Emission from activities for which the Group owns or controls including of fuel and operation of facilities. (Direct GHG emission - Scope 1)	tn CO2e	10,393	10,206
Emission from the purchase of electricity (Indirect GHG Emission - Scope 2)	tn CO2e	8,959	8,050
Total GHG Emission (Scope 1 + Scope 2)	tn CO2e	19,352	18,257

 

Intensity Ratio	Unit	2020	2019
Ore processed	tn	196,226	179,373
GHG emission per tn ore processed	kg/tn	99	102

 

Fuel and Energy consumption used to calculate above emission	Unit	2020	2019
Fuel consumption used to calculate above emissions
Diesel	tn	3,204	3,163
Petrol	tn	38	20
Electricity consumption	MWh	38,427	34,530

 

Energy efficiency measures

The company strives for the careful use of natural resources. To reduce energy consumption, in 2020 a new Heat Recovery Unit was installed to recover heat from diesel generators. This measure is estimated to enable a saving of 5.7 MWh electricity per year, that equals 1.3 ktn CO2e emission reduction.

Notes

1) All emissions and energy consumption figures are attributed to The Group's wholly owned operational subsidiary TSG-Asacha. With the exception of TSG-Asacha, the Company and other subsidiaries of the Group had zero emissions in 2020.

2) In the absence of established factors to calculate GHG emissions for Russia, TSG used physical indicators for our consumption of various types of fuel, as well as the amount of electricity consumed from an external supplier and converted them into a volume of carbon dioxide emissions according to the UK Government Conversion Factors for greenhouse gas (GHG) reporting, provided by Department for Business Energy & Industry Strategy separately for 2020 and 2019 years (https://www.gov.uk/government/collections/government-conversion-factors-for-company-reporting).

 

"Estimated saving of 5.7 MWh electricity per year"

 

 

 

Risk Review

A proactive and practical approach to managing risk

 

The risk management philosophy and tolerance levels of the Group is set and overseen by the Board. Risk tolerance levels are aligned with Board-approved strategic objectives and adjusted according to changing internal and external scenarios.

Risks are formally reviewed by the Board and appropriate processes put in place to monitor and mitigate them. If more than one event occurs, the overall impact of such events may compound the possible adverse effects on the Group.

Further details of how we engage with our stakeholders as a key part of managing risk and fostering positive relationships are set out in the Directors' Report.

 

Principal Risk	Nature of Risk	Movement in Risk	How we manage the risk	Link to Strategy
Regulatory environment	•   The Group's activities are subject to extensive Russian federal and regional laws and regulations. •   Legal inconsistencies may arise in view of the legal and regulatory regime in Russia. •   Amendments to current laws and regulations, or more stringent implementation or interpretation of laws and regulations, could have a material adverse impact on the Group.	flat	•   Russia based management team have extensive experience. •   Monitoring changing legislation to ensure compliance. •   Outsourced legal, taxation and other functions to ensure subject matter excellence. •   Cultivating good working relationships with regulators and with representatives of the national or local government.	•   Enhance existing operations •   Utilise stable platform for future growth opportunities •   Selectively pursue accretive M&A opportunities
Mining legislation & licensing	•   The Group is dependent upon the grant and renewal of appropriate licences, permits and regulatory consents. •   Failure to comply with these could result in additional costs, penalties being levied or the suspension or revocation of the licence.	flat	•   Monitoring changing legislation to ensure compliance. •   Discussions are held with the appropriate authorities. •   Policies, standards and procedures in place to ensure compliance. •   Regular compliance review by advisers. •   Register of all mining titles. •   Asacha mining licence renewed in June 2018 for period of 6 years. •   Rodnikova exploration licence awarded in April 2019 for period of 20 years.	•   Enhance existing operations •   Utilise stable platform for future growth opportunities
Reserve and resource estimates	•   Estimates may require revision based on actual production experience. •   Volume and grade of reserves mined and processed and recovery rates achieved may vary from those anticipated. •   Gold price may render reserves containing relatively lower grades of gold mineralisation uneconomic.	down	•   The Group estimates its mineral resources based on information compiled by Competent Persons in accordance with JORC. •   Conduct detailed geological modelling and ensure that all analyses of exploration samples are undertaken by accredited laboratories. •   Through re-appraisal of mineral resources and audit of assumptions in Mineral Resource Estimate conducted in conjunction with competent persons during the year.	•   Enhance existing operations •   Utilise stable platform for future growth opportunities
Environmental legislation & compliance	•   Use of various chemicals and contaminants including cyanide, are subject to extensive environmental and health and safety laws and regulations. •   Changes in regulations, or the interpretation of regulations, may result in additional costs.	flat	•   The Group monitors compliance with the relevant legislation and regulations and seeks to ensure that the Russian environmental authorities are satisfied with the Group's compliance with applicable environmental laws and regulations. •   Compliance with water-use licence guidelines. •   Pollution control and water catchment dams. •   Control of toxic materials in contained storage areas. •   Continuous engagement with and reviews by regulators on compliance.	•   Enhance existing operations
Health & Safety	•   Subject to various environmental, health and safety regulations stipulated by the relevant regulatory agencies. •   The Group's operations require various licences/permissions with regard to the operation of flammable, explosive and chemically aggressive production facilities and the use of hazardous structures. •   Stricter regulations could cause the Group to incur additional costs in order to comply with the new directives.	flat	•   Management promote comprehensive safe working practices. •   The Group also organises safety training for employees. •   Legal compliance, standards and procedures in place, and regular audits conducted. •   Ongoing examination of workplace conditions. •   Senior and experienced safety managers at operations. •   Independent oversight by regulators.	•   Enhance existing operations
Mining and processing	•   Exploration risks include geological and geotechnical factors. •   Production risks include ore grade/quality, tonnages and recovery/yields. •   Processing risks include industrial and mechanical incidents, technical failures, labour disputes, fire, flooding and other acts of God. •   Significant seismic activity in Kamchatka. •   Climatic conditions may impact the delivery of supplies, equipment and fuel.	up	•   Technical and operational management have extensive experience from other Russian mining projects. •   Operational audits are undertaken by external experts. •   All buildings and installations at the Asacha mine have been designed and constructed to withstand seismic activity. •   Logistical arrangements allow for weather disruption. •   Ore grades mined from the Main Zone did decrease in Q4 2019 and Q1 2020 as the ore body gets more erratic at depth. This is expected to be mitigated by higher grade ore from the East Zone.	•   Enhance existing operations
Property and Business interruption insurance	•   Unable to arrange comprehensive property and business interruption insurance for the Asacha mine at an acceptable cost. •   No guarantee that operations at Asacha will not be disrupted by property damage or other interruption.	flat	•   All buildings and installations at the Asacha mine have been designed and constructed to withstand seismic activity and significant water ingress arising from melting snow. •   Logistical arrangements allow for weather disruption. •   Risk has been discussed with the Company's major shareholders. •   Underground water pumping station has been commissioned.	•   Enhance existing operations
Gold price volatility	•   Gold price is affected by numerous factors which are beyond the Group's control. •   Influencing factors include world production levels, global and regional economic and political events, inflation, currency exchange fluctuations, industrial and jewellery demand, speculative activity and the political and economic conditions of major gold-producing countries.	flat	•   Focus on production costs to maximise margins and remain a low-cost producer. •   The Group assesses the economic viability of its projects at gold prices based on long term trends and forecasts. •   The Group tests its financial models for sensitivity to the gold price. •   The Group does not currently hold any financial instruments to hedge the gold price on its expected future production and keeps this under review.	•   Enhance existing operations •   Utilise stable platform for future growth opportunities
Taxation	•   Tax legislation has been subject to change. •   The government's implementation of such legislation, and the courts' interpretation thereof, has been sometimes unclear, with few precedents established. •   Differing legal interpretations may exist both among and within government ministries and organisations and local inspectorates. •   The introduction of new tax provisions may affect the Group's overall tax efficiency and may result in significant additional tax liability.	flat	•   The Russia based management team have extensive experience to ensure full compliance with the Tax Code and timely implementation of legislative changes. •   Outsourced taxation function to ensure subject matter excellence.	•   Enhance existing operations •   Utilise stable platform for future growth opportunities •   Selectively pursue accretive M&A opportunities
COVID-19	•   Global health pandemic. •   Safety of our employees and contractors. •   Potential impacts are currently unknown but could include production disruption due to government restrictions, impacts on our workforce and supply chain disruption. Situation is continually changing.	flat	•   Introduced precautionary measures to protect our staff to prevent the spread of the virus. •   We continue to follow the latest government advice with regard to the current running of our operations. •   Operational staff are quarantined and tested prior to shift changes and travel to mine-site •   Office-based staff are working from home.	•   Enhance existing operations •   Utilise stable platform for future growth opportunities

 

 

 

Governance

 

Board of Directors

A highly experienced leadership team with significant expertise in Russia.

Executive

Alexander Dorogov (aged 51)

Chief Executive Officer

Alexander Dorogov graduated from the State Finance Academy in Moscow with a degree in financial management. Prior to joining Trans-Siberian Gold Management LLC in November 2008, he was Chief Financial Officer of the Alumina division of UC Rusal from 2005 to 2008. From 2009 till 2014 he also held the positions of deputy CEO and CFO of the Ferroalloys division of Mechel. Between 2001 and 2005 he held various senior positions with a private investment fund, supervising the acquisition of gold mines in Siberia and Far East Russia, and previously spent five years with United Financial Group.

Eugene Antonov (aged 46)

Chief Operating Officer

Eugene Antonov has more than 20 years of experience in the mining industry, mainly in managerial positions with responsibility for mine site operations and finance. Most recently he was an integral part of the leadership team at the Kupol Mine in Far East Russia which generated the largest annual cash flow and achieved the lowest operating cost across Kinross Gold Corporation.

Between 1999 and 2007, he was employed at Bema Gold Corporation in Canada in various executive finance roles, including Director of Finance, until its acquisition by Kinross. His previous experience also includes managerial positions at Teck in Canada.

Mr. Antonov, is a graduate of Pace University in New York and holds a MBA awarded by the Rotman School of Management in Toronto. Mr Antonov is also a member of the Chartered Professional Accountants in Canada.

Non-Executive

Lou Naumovski (aged 64)

Lou Naumovski has more than three decades of experience working in Russia, most recently as Vice President and General Director of the Moscow office for Kinross Gold Corporation, the largest Canadian investor in Russia. He also developed the business of Visa International, serving as Senior Vice President and General Manager Visa International Service Organisation (VISA), CEMEA region. Additionally, he served as Senior Banker and Head of Mission for the Russian Team of the European Bank of Reconstruction and Development in Moscow, and he represented the Bank when the Russian Prime Minister's Foreign Investment Advisory Council was first founded. Mr. Naumovski has a BA (Honours) in Economics and Political Science from the University of Toronto and an MA in International Relations (specialised in Russian/Soviet affairs) from the Norman Patterson School of International Affairs at Carleton University in Ottawa.

Stewart Dickson (aged 43)

Stewart Dickson has significant corporate and commercial experience across the natural resources and financial services sectors. He currently also serves as Chief Executive Officer of ASX listed Variscan Mines Limited and consults to the leadership teams of a number of companies globally. His prior appointment was as Managing Director and Head of Metals & Mining at Cantor Fitzgerald Europe in London, with responsibility for client coverage of public and private mining companies across precious metals and base metals, bulks, fertilizers and specialty metals. He has a broad range of experience advising small and mid-sized quoted companies at Board level on financial advisory, corporate strategy, equity capital markets, financings, M&A, corporate governance and regulatory compliance. Prior to investment banking, Mr. Dickson served in the British Army. He is a graduate of University College London and holds a MBA from Henley Business School.

Directors who served during FY2020 and resigned on 26 May pursuant to the Takeover Offer

Charles Ryan (aged 54)

Charles Ryan is a graduate of Harvard University. He was an Associate and Principal Banker with the European Bank for Reconstruction and Development in London, before becoming a founder director of UFG. After UFG sold its investment banking business to Deutsche Bank in 2006, he spent two years as Chief Country Officer and Chief Executive Officer of Deutsche Bank in Russia, stepping down in October 2008 to become Chairman of UFG Asset Management. He is also a general partner with Almaz Capital and a director of PGI Group plc, Yandex N.V., Limitless Mobile Limited, Preferred Sands, Acumatica and serves on the Harvard Global Advisory Council and Capital International Inc. Advisory Board.

Robert Sasson (aged 56)

Robert Sasson graduated from Exeter University with a degree in Russian Studies and International Government. He worked for Phibro Salomon before serving as the head of the St Petersburg office of the European Bank for Reconstruction and Development from 1993. Prior to joining UFG Asset Management in 2009, he spent three years with a leading US hedge fund on private equity transactions in Russia and Ukraine.

Florian Fenner (aged 50)

Florian Fenner joined UFG Asset Management as Managing Partner in July 2002. In addition to his role as Managing Partner, Mr. Fenner is also responsible for the overall management of UFG's public markets funds business. Prior to joining UFG, from 2000 to 2002 he was the Head of Unifund's Moscow office with responsibility for its Russia portfolio. From 1996, Mr. Fenner served as the Deputy Head of Research at Brunswick Brokerage, one of Russia's leading investment banks and in 1997 he became the Russian Equity Portfolio Manager for Brunswick Capital Management. Before joining Brunswick Brokerage, he worked as an investment banker for Schroder Munchmeyer Hengst Co. in Frankfurt. Mr. Fenner is a CFA charterholder and holds a degree in banking from Industrie- und Handelskammer in Frankfurt-am-Main.

 

 

 

Corporate Governance Review

Continuous improvement and transparency in the practical development of fit-for-purpose corporate governance structures.

 

Chairman's Statement

TSG is committed to transparency and high standards of corporate governance and recognises that it contributes to the success of the Company.

The Board applies the Quoted Companies Alliance Corporate Governance Code (the 'QCA Code'). The Quoted Companies Alliance ('QCA') is the membership organisation which represents the interests of small and mid-size quoted companies. Further information about the QCA and copies of the QCA Code are available at: www.theqca.com. The QCA Code is constructed around ten broad principles. We are pleased to provide an explanation as to how the Group meets and applies the principles in practice.

Due to the Takeover offer and pursuant to the SPA, changes to the Board have occurred, which is customary in such circumstances and for a transaction of this nature. Further details are set out below.

How our governance supports the delivery of our strategy

All Directors are collectively responsible for the success of the Group.

As the Chairman of the Company, I am responsible for the leadership of the Board. The Chairman acts in an advisory capacity to the Chief Executive Officer ('CEO') and to other Directors on all matters concerning the interests and management of the Company and, in coordination with the CEO, may play a role in the Company's external relationships.

The Non-Executive Directors exercise judgment in respect of Board decisions, and provide constructive challenge to executive management and scrutinise the delivery of the Group's strategy, which continues to provide shareholders with attractive returns.

The Board is responsible for setting strategy and policies, overseeing risk and corporate governance, and monitoring progress towards meeting our objectives and annual plans. It is accountable to shareholders for the proper conduct of the business and our long-term success, and represents the interests of all stakeholders. The Board conducts an annual review of the Group's strategy.

The Senior Executive Team ('SET') takes the lead in developing the strategy which is then reviewed, constructively challenged and approved by the Board.

We are always mindful of the trust shareholders place in us as your elected Directors and of our wider responsibilities to all of TSG's stakeholders.

 

Lou Naumovski

Interim Chairman & Senior Independent Non-Executive Director

8 June 2021

 

Strategy

Our strategic priorities

The Group seeks to provide investors with access to a company capable of generating industry-leading shareholder returns, while maintaining a commitment to operational excellence and its social and environmental responsibilities.

The Group's current corporate strategy is set out in the Strategic Report, together with an explanation of how we deliver strategy (our business model) and how we measure our progress (our Key Performance Indicators).

Risks

The management of the Group's business and the execution of its strategy are subject to a number of risks. Risks are formally reviewed by the Board and appropriate processes put in place to monitor and mitigate them. This enables us to meet the expectations of our shareholders and stakeholders.

The key operating risks affecting the Group, most of which are those typically faced by other companies in the gold mining sector, are set out in the Strategic Report.

 

 

Board Composition

As at the date of this statement, the Board comprised an Interim Non-Executive Chairman, two Executive Directors and another Non-Executive Director. Two additional Non-Executive Directors are expected to join the Board having been nominated by Horvik Limited which has announced a recommended mandatory offer for the Company.

Leadership and Operation of the Board

Leadership & Responsibilities

In line with best practice, the roles of CEO and Chairman have been, and will continue to be separated with a clear division of responsibilities between them.

Lou Naumovski, is the Interim Chairman following the Board changes pursuant to the offer. He is currently responsible for leadership of the Board and ensuring its effectiveness and ensuring that the Board operates in the interests of the shareholders and other stakeholders.

Our CEO, Alexander Dorogov, leads the SET and has executive responsibility for running our business.

The composition of the Board has changed recently to reflect the Offer and may be subject to further changes.

Non-Executive Directors have a responsibility to uphold high standards of integrity and probity and are required to have a strong command of the issues relevant to the business in order to make a positive contribution to the Board. Non-Executive Directors support the Chairman and the Executive Directors in instilling the appropriate culture and values.

Chairman

•  Leader of the Board

•  Responsible for effective communication flow between Directors

•  Facilitates effective contribution from all Directors

•  Responsible for effective Board governance

•  Ensures effective communication with shareholders

 

Executive Directors

•  Lead and motivate the management team

•  Implement strategy and objectives as directed by the Board

•  Develop Group policies and proposals for approval by the Board and ensure effective implementation

 

Non-Executive Directors

•  Supply challenge and support to management

•  Bring independent mind-set and differing backgrounds and experience to Board debates

•  Provide leadership and challenge on the Board Committees

•  Scrutinise the leadership of the Chairman

 

Company Secretary

•  Secretary to the Board and its Committees

•  Informs the Board on all matters reserved to it and ensures papers are provided in sufficient detail and on time

•  Available to Directors in respect of Board procedures and provides support and advice

•  Ensures the Board is kept informed on governance matters

 

The Board discharges its responsibilities through a programme of meetings that includes regular reviews of financial performance and business critical issues. All Non-Executive Directors are required to ensure that there is sufficient consideration of business issues prior to, and informed debate and challenge at, Board meetings. In making decisions, they take into account the views of shareholders and other stakeholders, given that such views may provide different perspectives on the Company and its performance.

The Board also aims to ensure that a good dialogue with our shareholders is maintained and that their issues and concerns are understood and considered. Until recently, the Company's largest shareholder, UFG Asset Management ('UFG'), was represented on the Board by Charles Ryan, Robert Sasson and Florian Fenner (together the 'UFG Representative Directors').

In accordance with the Company's adoption of the QCA Corporate Governance Code, the Board has considered and adopted the recommendation to put in place a relationship agreement with its major shareholders. On 28 November 2019, a Relationship Agreement was signed between the Company and certain entities of UFG. The Relationship Agreement with UFG was terminated on 26 May 2021, in connection with the Offer and in accordance with the Share Purchase Agreement between Horvik and the Selling Shareholders as described in an announcement made on 18 March 2021.

On 18 March 2021, Horvik and TSG entered into a relationship agreement to ensure, among other things, that TSG carries on its business independently of Horvik (the "Horvik Relationship Agreement").

Reserved matters

There is a schedule of matters that the Board has specifically reserved for its decision. This schedule is reviewed during each financial year and includes matters such as setting the Group's strategic aims and objectives, appointment and termination of any Director, approving significant contractual commitments, approving changes to the Group's share capital and corporate structure, approving financial reports and ensuring the maintenance of a sound system of internal control and risk management.

The matters that have not been expressly reserved to the Board are delegated by the Board to its Committees or the CEO.

Operation of the Board

The Board held 17 meetings in FY 2020. In addition, the Board's Audit Committee and Remuneration Committee each held 2 meetings.

Board Meeting Attendance for the FY20

Director	Board Meetings	Audit Committee Meetings	Remuneration Committee Meetings
Charles Ryan*	17(17)	1(2)	2(2)
Alexander Dorogov	17(17)	-	-
Eugene Antonov	17(17)	-	-
Robert Sasson*	17(17)	2(2)	2(2)
Florian Fenner*	17(17)	-	-
Lou Naumovski	17(17)	-	2(2)
Stewart Dickson	16(16)	2(2)	-

 

Notes:

Number in brackets denotes number of meetings during the period that Board members were entitled to attend.

* resigned with effect from 26 May 2021

 

Formal agenda, briefing papers and reports are sent to the Board in advance of its meetings. As part of the business of each board meeting, the CEO typically submits a progress report, giving details of business performance and progress against the objectives the Board has approved. To ensure that the Board has good visibility of the key operating decisions of the business, members of the SET may be invited to participate in Board meetings and meet with Board members throughout the year. The Board also receives management information and presentations on industry and regulatory developments from internal and external subject matter experts.

Principal matters considered by the Board in FY20

Area of focus

 

Strategic matters

•  The Group's overall strategy, including its long-range plan and budgets

•  The Group's capital structure, financing and strategy

•  Corporate development opportunities

•  Dividend declarations

Operational matters

•  Executive management reports, including business performance

•  Quarterly production information and announcements

•  Health & Safety (notably increased as a result of the fatalities in January 2021)

 

Stakeholders

•  Environment & Sustainability

•  Communities

 

Governance & Risk management

•  Reports from Board Committees

•  Succession planning for SET and Board-level roles

•  Financial and regulatory reporting

 

Board Committees for FY20

The Board delegates certain of its responsibilities to two Board Committees, which have clearly defined terms of reference as described below.

Audit Committee

The Audit Committee currently comprising Stewart Dickson (chairman) and Lou Naumovski (until 26 May 2021 chaired by Charles Ryan, the other members being Robert Sasson and Stewart Dickson), meets at least twice a year and is responsible for ensuring that the appropriate financial reporting procedures are properly maintained and reported on and for meeting the auditors and reviewing their reports relating to the financial statements and internal control systems. It is also responsible for monitoring the independence of the auditors. Executive Directors may attend meetings of the Audit Committee by invitation; however, at least once a year the Committee meets the auditors without Executive Directors being present.

 

Principal matters considered by the Audit Committee in FY20

•  Financial and regulatory reporting

•  Objectivity and independence of the Company's auditor

Remuneration Committee

The Remuneration Committee currently comprising Lou Naumovski (chairman) and Stewart Dickson (until 26 May 2021, chaired by Charles Ryan, the other members being Robert Sasson and Lou Naumovski), is responsible for reviewing the performance of the Executive Directors and other Senior Executives and for determining appropriate levels of their remuneration, in consultation with external advisers as appropriate, with due regard to the interests of shareholders. It meets as required. The committee also makes recommendations to the Board in respect of employee incentives, including the granting of share options.

The Company's remuneration policy is to provide competitive rewards for its Executive Directors and other senior managers, taking into account the performance of the Company and conditions prevailing in the employment market for executives of equivalent status, both in terms of the level of responsibility of their position and their achievement of recognised job qualifications and skills. Base salaries are reviewed annually. Details of Directors' remuneration are disclosed in note 8 to the financial statements.

It is the Company's policy that Executive Directors' service contracts have no fixed term and that the notice period in those service contracts does not exceed one year. Alexander Dorogov's and Eugene Antonov's service contracts provide that either party may terminate their employment by giving six months' written notice and that the Company may make a payment in lieu of notice.

Principal matters considered by the Remuneration Committee in FY20

•  Determination and review of levels of remuneration

•  Setting annual bonus targets

•  Board appointments

•  Termination arrangements for leavers

Further details relating to the remuneration of the Board is set out in note 9 of the Financial Statements.

Board Committees Post Period End

A committee of TSG directors, all of whom are independent for the purposes of the Offer from Horvik Limited, was formed to consider and manage the conduct of the Offer. The committee comprises Lou Naumovski (chairman), Stewart Dickson, Alexander Dorogov and Eugene Antonov.

Due to Offer resulting in the resignation of the UFG Representative Directors, Board committees have been re-configured as described above.

Board effectiveness

Appointments to the Board and succession planning

Due to the size and scale of its operations, the Company currently does not have a separate Nomination Committee. This decision is kept under review. The Chairman and, where appropriate, the full Board regularly review the composition of the Board and the status of succession to both senior executive management and Board-level positions. The skills and experience of current Board members are compared with the skills and experience the Board believes are appropriate to the Company's overall business and strategic needs, both now and in the future. Any decision relating to the appointment of Directors is made by the entire Board based on the merits of the candidates and the relevance of their background and experience.

The Board aims to maintain a balance in terms of the range of experience and skills of individual Board members, which includes relevant experience of international business, mining industry and finance. The majority of the Board are fluent in Russian. Biographies of the Board of Directors are set out earlier and available at: http://www.trans-siberiangold.com/about-us/ leadership-team/

Board of Directors

Director	Nationality	Age	Tenure
Charles Ryan?	USA	54	11 years
Alexander Dorogov	RUSSIA	51	4 years
Eugene Antonov	RUSSIA/CANADA	46	2 years
Robert Sasson?	UK	56	7 years
Florian Fenner*?	GERMANY	50	3 years
Lou Naumovski	CANADA	64	3 years
Stewart Dickson	UK	43	3 years

 

Notes:

* Previously a Non-Executive Director of the Company between 2006 and 2013.

† resigned as Director with effect from 26 May 2021.

 

The Board is very cognisant of the discussion in respect of greater diversity in senior management and the boards of quoted companies. While we support the aims of diversity, we do not believe that a pre-determined quota system is appropriate for TSG given its size and the scale of its operations. The Board ensures that suitable candidates irrespective of age, gender, ethnicity or nationality are considered objectively and fairly.

Independence of the Non-Executive Directors

The Board considers the independence of each Non-Executive Director for the purpose of the QCA Code. The Board considers that the current Non-Executive Directors are independent. Having consulted with the Company's Nominated Adviser, Mr. Dickson was considered no longer to be independent for the purposes of the QCA Code. Messrs Ryan, Sasson and Fenner, all of whom resigned on 26 May 2021, are connected with UFG an established multi-asset investment manager and long-term majority shareholder of TSG. TSG has published the interests of UFG, its connected entities and individuals in the Company's issued share capital, having received such notification from UFG.

The Board believes that the Shareholder Directors (defined below) have brought considerable business experience and made a valuable contribution to the work of the Board. Given their experience of investing in Russia, skills and familiarity with the operating environment in which the Company's assets are located, the Board believes their appointments to have been in the best interests of the Company. The Board believes the representation of UFG on the Board was proportional to its aggregated economic interest and was beneficial to all shareholders. Further it provided an effective conduit for understanding and meeting the needs and expectations of shareholders holding approximately 55% of TSG's issued shares in aggregate prior to the Takeover Offer discussed in the Chairman's Statement.

A separate committee of TSG directors, all of whom were independent for the purposes of the Offer from Horvik Limited, was formed to consider and manage the conduct of the Offer.

Relationship Agreement with UFG

In accordance with the Company's adoption of the QCA Corporate Governance Code, the Board has considered and adopted the recommendation to put in place a relationship agreement with its major shareholders. On 28 November 2019, a Relationship Agreement was signed between the Company and certain entities of UFG. A summary of the key terms of the Agreement is as follows:

 

1.
UFG has agreed, amongst other things, that: UFG shall (and shall procure that each of their Associates shall) at all times exercise their Voting Rights so as to procure, insofar as it is able to do so by the exercise of those rights that: (i) all transactions, agreements or arrangements entered into between a member of TSG and a member and/or Associate of UFG will be conducted at arm's length and on normal commercial terms; (ii) at all times the Independent Directors constitute a majority of the Board of Directors of TSG so as to enable decisions as to the implementation and enforcement of this Agreement to be taken independently of UFG and/or their Associates; (iii) where an Independent Director ceases to be either an Independent Director or a Director of the Company, one or more new Independent Directors may be appointed to the Board; and (iv) any dealings or disputes (including any conflicts of interest) between any member and/or Associate of UFG and any member of the Company shall be passed to and dealt with on behalf of the Group by a committee comprising only the Independent Directors.

2.
UFG will (i) not undertake any activity in conflict with those of TSG which may render the Company incapable of carrying on its business independently or lead to transactions and relationships between the Company and any member and/or Associate of UFG which are not at arm's length or on normal commercial terms or which would constitute a Related Party Transaction (as defined under the AIM Rules for Companies); or (ii) not propose or vote in favour of any resolution which has the effect of waiving the pre-emption rights in respect of issues of shares to the Controlling Shareholders unless such resolution is supported by a majority of the Independent Directors.

3.
TSG has granted UFG the right to nominate Directors to the Board ('Shareholder Directors'), commensurate with the aggregate holdings of UFG as follows: (i) appoint up to a maximum of three Directors if and for so long as UFG holds more than 50 per cent of the total number of Ordinary Shares in issue; (ii) appoint up to a maximum of two Directors if and for so long as UFG holds more than 40 per cent of the total number of Ordinary Shares in issue; or (iii) appoint up to a maximum of one Director if and for so long as UFG holds more than 20 per cent of the total number of Ordinary Shares in issue. Currently, Alexander Dorogov, Chief Executive Officer, Eugene Antonov, Chief Operating Officer and Stewart Dickson and Lou Naumovski, Non-Executive Directors, are independent of UFG. Charles Ryan, Non-Executive Chairman, and Robert Sasson and Florian Fenner, Non-Executive Directors, are not independent of UFG.

4.
In addition, the parties acknowledge and agree that UFG (or one or more of their Associated Bodies Corporate) shall be retained to provide certain advisory and support services to the Company on a non-exclusive basis, which shall include, but not be limited to (i) financing support; (ii) developing M&A strategy; (iii) operational support; (iv) strategy development; and (v) deal origination. In consideration for the provision of such services, the Company shall pay UFG a fixed fee of $150,000 per annum, increased to $200,000 per annum with effect from 1 July 2020 (inclusive of any VAT or equivalent).

A full copy of the Relationship Agreement which terminated on 26 May 2021 can be found on the Company's website.

Relationship Agreement with Horvik

On 18 March 2021, Horvik and TSG entered into a relationship agreement to ensure, among other things, that TSG carries on its business independently of Horvik (the "Relationship Agreement"). Under the Relationship Agreement, Horvik is entitled, subject to it satisfying the FAS Pre-Condition and it having a certain level of shareholding in TSG, to appoint up to three non-executive directors to the TSG Board. Prior to satisfying the FAS Pre-Condition, Horvik is also entitled to appoint an observer to the TSG Board, subject to certain conditions set out in the Relationship Agreement.

In addition, Horvik agrees to certain undertakings in connection with TSG carrying on its business independently of Horvik.

The Relationship Agreement will terminate (save for accrued rights) if Horvik holds less than 20 per cent. of the issued share capital of TSG (excluding any shares held in treasury) and Horvik has a right to give written notice to TSG to terminate the Relationship Agreement if Horvik holds 75 per cent. or more of the entire issued share capital of TSG (excluding any shares held in treasury).

A full copy of the Relationship Agreement can be found on the Horvik's website: https://horviklimited.com

Time Commitment

The Company's expectation is that Non-Executive Directors should be prepared to commit 15 days a year, as an absolute minimum, to the Group's business.

In practice, Board members' time commitment exceeds this minimum expectation when all the work that they undertake for the Group is considered. As well as their work in relation to formal Board and Board Committee meetings, the Non-Executive Directors also commit time throughout the year to meetings, telephone calls and site visits.

On those occasions when a Director is unavoidably absent from a Board or Board Committee meeting they still receive and review the papers for the meeting and typically provide verbal or written input ahead of the meeting, so that their views are made known and considered at the meeting. Should Directors have concerns of any nature which cannot be resolved within the Board meeting, they have the right to ensure that their view is recorded in the minutes.

Information & Support

The Company Secretary is responsible to the Chairman for ensuring that all Board and Board Committee meetings are properly conducted, that the Directors receive appropriate information prior to meetings to enable them to make an effective contribution, and that governance requirements are considered and implemented.

The Company maintains Directors' and Officers' Liability insurance cover. Any Director may also take independent advice at the Company's expense in the furtherance of his duties.

Re-election of Directors

In accordance with the Articles of Association, each year one third of the Directors (generally those who have held office for the longest time since their election) will retire from office at the AGM. A retiring Director may be re-elected if eligible and a Director appointed by the Board since the previous AGM may also be elected, although in the latter case the Director's period of prior appointment by the Board will not be taken into account for the purposes of rotation.

A copy of the Company's Articles of Association is available on its website at: http://www.trans-siberiangold.com/media/1253/tsg-mem-arts.pdf

All shareholders and stakeholders are eligible to subscribe to our email alerts. http://www.trans-siberiangold.com/investor-relations/email-alerts-sign-up/

 

Board performance evaluation

The Company has not conducted an external evaluation of the Board. The Board does conduct informal self-evaluation to consider the efficacy of the Board as a whole, maintain effective governance and ensure it is fit for purpose to deliver the Group's strategy, which continues to provide all shareholders with attractive returns.

Directors training and development

Directors' training needs are met by a combination of internal presentations and external speaker presentations as part of Board and Board Committee meetings. All Directors continue to have free access to visit our mining operations outside scheduled Board arrangements. Board training and development needs are reviewed on an on-going basis. The Board views external directorships as being an important source of industry knowledge and corporate governance best practices. Directors may take independent professional advice, as necessary, at the Company's expense in the furtherance of their duties.

Relations with shareholders

TSG is committed to promoting effective and open communication with all shareholders, ensuring consistency and clarity of disclosure at all times. We strive to be accessible to both institutional and private investors.

The Company has invested substantially in making information more accessible to shareholders and stakeholders. This includes a new corporate website, new corporate presentation and re-design of our financial reports.

TSG has a designated Director who is the primary point of contact with the investment community and is responsible for maintaining TSG's on-going relations with investors and shareholders.

In addition to its annual and half-year financial reports, TSG publishes quarterly reports to the market, which provide further information on production and operational performance. We aim to present a balanced and understandable assessment of our strategy, financial position and prospects.

We make information about the Group available to shareholders through a range of media, including our corporate website, http://www.trans-siberiangold.com, which contains a wide range of data of interest to institutional and private investors. We consider our website to be an important means of communication with our shareholders. Additionally, we utilise a number of alternative channels to engage with shareholders and stakeholders.

Institutional Investors

A structured engagement programme is in place to ensure regular and proactive communication with shareholders and prospective investors.

We aim to balance investor engagement throughout the year, providing the opportunity for frequent interaction with all investors through a variety of forums including meetings, mining conferences and management presentations. We aim to periodically hold investor days to update investors on our business and strategy.

Private shareholders

We communicate with shareholders throughout the year through our electronic notification of regulatory announcements, which include notifications of dividends, the Annual General Meeting and other initiatives which we feel may be of benefit to them.

Annual General Meeting

We encourage all shareholders to participate at our Annual General Meeting ('AGM'). At the AGM a presentation of the Group's activities is provided. All shareholders, including private investors, have an opportunity at the AGM to put questions to members of the Board about our operations and performance. Due to the uncertainty presented by the COVID-19 global health pandemic, the Board had to make alternative arrangements to conduct the 2020 AGM. To comply with best practice health advice and social distancing measures, TSG will conduct the 2021 AGM on the basis of a closed meeting with the minimum two persons present. The Company encourages shareholders to submit proxy votes in connection with the resolutions set out in the Notice of AGM. A separate shareholder engagement meeting will be held after health restrictions have been lifted and it is safe and practicable to do so.

Stakeholder Engagement

We need constructive relationships with our stakeholders to optimise our business. We listen to, and work with others, to explore the challenges we face as a business.

We engage with all stakeholder groups to build meaningful relationships and understand their expectations and aspirations. This minimises any potential negative societal impact, optimises the value we bring to local communities and maintains our licence to operate.

We hold regular face-to-face meetings, conference calls and participate in multi-stakeholder discussions. Further information on how and why we engage with stakeholders is set out in 'Section 172' later in the report.

People & Culture

We value our people and encourage the development of talented and motivated employees to support the continued performance of our mining operations. We strive to build a sense of purpose and achievement among all our people in the work we do.

Our culture is based on ethical values and behaviours which are set out on the Company's website at: http://www.trans-siberiangold.com/sustainability/our-people. We believe that our culture and expected standards are consistent with industry best-practice and our strategy.

The Group's policy is to consult and discuss with employees, through unions, staff councils and at meetings, matters likely to affect employees' interests.

The Board ensures that the policy is enacted and our values and behaviours are recognised and respected by first hand employee dialogue and observation on site visits ('walking the floor') and management reports from the SET.

How to communicate with us

Email enquiries@trans-siberiangold.com

Telephone +44 (0) 1480 811871

Website http://www.trans-siberiangold.com

LinkedIn https://www.linkedin.com/company/trans-siberian-gold-plc/

Instagram https://www.instagram.com/transsiberiangoldplc/

Post Trans-Siberian Gold plc, P.O. Box 278, St. Neots, PE19 9EA. United Kingdom   

 

Assessing our performance against the QCA Code - A summary

Principle	Key points of how we deliver
DELIVER GROWTH
Establish a strategy and business model which promote long-term value for shareholders.	•   Clearly stated & communicated on the Company's website and in our corporate materials (annual reports, investor presentations). •   How we deliver our strategy and measure progress (KPIs) are set out in our Annual Report. •   Risks to our strategy and our actions to mitigate them are set out in our Annual Report.
Seek to understand and meet shareholder needs and expectations.	•   Clearly structured engagement programme in place for both institutional and private investors. •   Investor roadshow feedback shared and discussed at Board meetings. •   Invested in more comprehensive and appealing corporate materials and website. •   Established multiple communication channels (online and offline).
Take into account wider stakeholder and social responsibilities and their implications for long-term success.	•   Key stakeholders are identified and their needs are understood. •   Website disclosures of regional and local memberships and activities. •   Transparency of Companies House filings of Payments to Governments. •   Clear policy on Modern Slavery and Supply-Chain management available on the Company's website.
Embed effective risk management, considering both opportunities and threats throughout the organisation.	•   Risks to our strategy and our actions to mitigate them are set out in our annual report.
MAINTAIN A DYNAMIC MANAGEMENT FRAMEWORK
Maintain the board as a well-functioning, balanced team led by the Chair.	•   Roles and responsibilities are set out online and in the Company's Annual Report. •   Details about the operation of the Board are included in this document. •   Composition of the Board and its effectiveness is discussed in our Annual Report. •   The Company has a minimum of two independent Non-Executive Directors. •   Non-independent Directors are identified, the reasons why and their contribution are explained. •   Board committees are set out on the Company's website and in our Annual Report. •   Details of time commitments and meeting attendance are set out in this document.
Ensure that between them the Directors have the necessary up-to-date experience, skills and capabilities.	•   Biographies of Directors are available on the Company's website and in our annual report. •   Directors have a blend of mining sector, finance and capital markets experience. •   Diversity considered but quota system assessed to be inappropriate.
Evaluate board performance based on clear and relevant objectives, seeking continuous improvement.	•   An internal board evaluation was intended to be conducted for FY20, but was postponed as impracticable during COVID-19 restrictions.
Promote a corporate culture that is based on ethical values and behaviours.	•   Ethical values and behaviours are set out online. •   Values and behaviours are recognised and respected by first hand employee dialogue and observation on site visits ('walking the floor') and management reports from the SET.
Maintain governance structures and processes that are fit for purpose and support good decision-making by the Board.	•   Governance structures and processes kept under review. •   This statement explains how we apply the QCA Code. •   Roles and responsibilities are set out on the Company's website and in our Annual Report.
BUILD TRUST
Communicate how the Company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders.	•   Significantly increased our engagement with shareholders and stakeholders. •   Multi-channel communication channels to facilitate dialogue and feedback - see online and this document. •   Governance information and documents freely available.

 

As a UK company with a listing on the AIM Market of the London Stock Exchange, TSG is required to make certain statements regarding the way it is governed. Accordingly, this statement in its entirety explains how TSG applies the Ten Principles of the Corporate Governance Code as set out in the QCA Code.

 

 

 

Directors' Report

The Directors present their annual report and audited consolidated financial statements for the year ended 31 December 2020

 

Principal activities

Trans-Siberian Gold plc is a UK-based resources company, whose Asacha Gold Mine in the Far East of the Russian Federation has been in production since September 2011.

Results and dividends

The financial results for the year are set out in the Financial Statements and show a net profit of $20.3 million for the year ended 31 December 2020 (2019: $9.0 million).

During the financial year, the Company paid an interim dividend of $0.08 per ordinary share, equivalent to approximately $7.0 million.

The Company has a track record of making regular, sustainable, dividend payments however due to the Takeover offer, the Board is unable to recommend a final dividend for FY20.

Share capital

The Company's issued share capital as at 31 December 2020 was 87,158,508 ordinary shares (2019: 110,053,073).

On 12 July 2019 the Company completed a share buy back from two of its major shareholders within UFG Asset Management ('UFG') amounting to 22,894,565 ordinary shares which were held in treasury. On 26 May 2021, 4,787,816 ordinary shares were issued from treasury in consideration of awards under the Company's Long Term Incentive Plans which had vested as a result of the completion of the acquisition of the shares of the Selling Shareholders by Horvik Limited as described in the Company's announcement dated 18 March 2021.

Post period further shares were repurchased on-market wherefore as at the date of this document the Company's issued share capital comprises 91,739,867 ordinary shares together with 18,313,206 shares held in treasury.

Significant Shareholdings

At the date of this document, the following interests of 3% or more in the issued share capital of the Company appeared in the register maintained in accordance with section 808 of the Companies Act 2006:

Shareholder	% of issued share capital
Horvik Limited	48.6%
UFG Capital Investment Management	6.1%
BHF Asset Management	4.7%
Lord Michael Spencer	3.3%
Hanover Nominees	3.3%

 

The ultimate control of the Company is discussed in note 34 to the financial statements.

Directors interests

At the date of this document, the Directors have the following direct beneficial interests in the share of the Company:

Director	No. of Ordinary Shares
Lou Naumovski	Nil
Alexander Dorogov	2,527,555
Eugene Antonov	1,380,249
Stewart Dickson	503,389
FELDI Limited*	29,999

 

*  Stewart Dickson is a Director and significant shareholder of FELDI Limited.

 

These beneficial interests include ordinary shares transferred from treasury on 26 May 2021 in satisfaction of LTIP Awards which had vested as discussed below.

Long Term Incentive Plans

As announced on 8 June 2020 and 28 August 2020, the Company established two Long Term Incentive Plans (the "LTIPs") under which awards were made to the executive directors and certain non-executive directors (the "LTIP Awards").

As a consequence of the increase in Horvik's interest in TSG Shares, the LTIPs have vested under the change of control provisions in the LTIP rules.

The LTIP Awards comprised a total of 4,347,988 conditional share Awards and options in respect of 550,000 TSG Shares (the "Options"). As reported on 29 April 2021 the Company had received notice to exercise the Options (conditional upon the Second Completion) and, where applicable, each LTIP Award holder had elected for cashless settlement, whereby the Award Price is netted off (at the Acquisition Price of £1.18 per TSG Share) against the number of TSG Shares to be transferred to them in satisfaction of their LTIP Award.

The Directors have irrevocably agreed, subject to the terms set out in the announcement by Horvik on 18 March 2021, to accept the cash offer to be made by Horvik in respect of their TSG Shares including the Award Shares.

No equity incentives or options were granted or were in existence during the year ended 31 December 2019.

Following the Second Completion, the Company transferred TSG Shares to the Award Holders out of treasury (the "Award Shares") as shown in the following table:

Award Holder	Awards	Aggregate Award Price (£)	Award Value (£) at £1.18/share	Award Value (£) net	Award Shares
Alexander Dorogov	2,297,988	Nil			2,297,988
Eugene Antonov	1,300,000	Nil			1,300,000
Charles Ryan	250,000	25,000	295,000	270,000	228,813
Florian Fenner	250,000	25,000	295,000	270,000	228,813
Robert Sasson	250,000	25,000	295,000	270,000	228,813
Stewart Dickson	550,000	55,000	649,000	594,000	503,389
Total	4,897,988				4,787,816

 

Political and charitable donations

During the financial year ended 31 December 2020 the Group made no political donations (2019: $nil). In 2020 the Group has made a charitable donation of approximately RUB 5million in connection with the COVID-19 global health pandemic in Kamchatka.

Financial instruments

Details of the Group's financial instruments and its key financial risks are set out in note 25 to the financial statements which forms part of this Directors' Report.

Subsequent events

These events are discussed in the Operating and Financial Review and in note 35 to the financial statements.

Going concern

The Group's operations are cash generative and management tightly control the level of committed expenditure to ensure that the Group has sufficient resources available to meet its liabilities as they fall due. Regular cash forecasts are reviewed to assess the potential impact of factors such as changes in commodity prices, production rates and the timing of capital expenditure. The Group has reported an operating profit for the year of $27.5 million, an operating cash inflow of $41.2 million and net increase in cash of $13.7 million. The Directors have reviewed the Group's cash flow forecast for the period to 31 December 2022 and carried out multiple scenario analysis of potential downsides including future lockdowns of various length; production, workforce and supply chain disruptions together with reasonably possible changes in commodity prices; and scheduled repayments of loan facilities. The Directors further stress tested combinations of various scenarios identifying no significant cash concerns. Based on these analyses, the Directors believe that the Group has sufficient resources to continue in operational existence for the foreseeable future. Furthermore, the Directors have considered the impact of Horvik's acquisition discussed in note 35 on the going concern of the Group. In forming their opinion the Directors have relied upon the public statements made by Horvik about its future intentions for the Group, which outline its commercial and financial rationale for the acquisition. While the Directors are unable to provide surety that such intentions will be enacted, they are not aware of any planned actions which may cast doubt over the Group's future operational existence.

The Directors have also considered the change of control clause within the Company's credit facilities with VTB and are comfortable that this does not have an impact on the going concern status of the Group in light of the Group's cash position and the outstanding loan balance at 31 December 2020 and for the reasons outlined in note 23 and note 35. Therefore the Directors believe that the Group will continue as a going concern and have prepared the financial statements on that basis.

Disabled persons

Applications for employment by disabled persons are always fully considered, bearing in mind the aptitudes of the applicant concerned. In the event of members of staff becoming disabled, every effort is made to ensure that their employment within the Group continues and that the appropriate training is arranged. It is the policy of the Group that the training, career development and promotion of disabled persons should, as far as possible, be identical to that of other employees.

Employee involvement

The Group's policy is to consult and discuss with employees, through unions, staff councils and at meetings, matters likely to affect employees' interests.

Information about matters of concern to employees is given through information bulletins and reports which seek to achieve a common awareness on the part of all employees of the financial and economic factors affecting the Group's performance.

Further information about our people and culture is set out in the Corporate Governance Review.

Directors

The Directors who held office during the year and up to the date of signature of the financial statements were as follows:

Board of Directors

Director	Notes
Charles Ryan	Resigned pursuant to the Takeover offer on 26 May 2021
Alexander Dorogov
Eugene Antonov
Robert Sasson	Resigned pursuant to the Takeover offer on 26 May 2021
Florian Fenner	Resigned pursuant to the Takeover offer on 26 May 2021
Lou Naumovski
Stewart Dickson

 

In accordance with the provisions of the Company's Articles of Association, Mr. Dickson will retire by rotation at the forthcoming Annual General Meeting and, being eligible, offers himself for re-election.

Board of Directors

The Company's board currently comprises two Executive Directors and two Non-Executive Directors, including the Interim Chairman. The Non-Executive Directors are considered by the board to be independent of management and free from any business or other relationship that could materially interfere with the exercise of their independent judgement.

Under the Relationship Agreement with Horvik, it is entitled, subject to it satisfying the FAS Pre-Condition and it having a certain level of shareholding in TSG, to appoint three non-executive directors to the TSG Board.

The Board ordinarily meets on a bi-monthly basis to determine strategy and to approve budgets and business plans, major capital expenditure, acquisitions and disposals. Additional meetings are held as appropriate to transact other business. Formal agendas, briefing papers and reports are sent to the Board in advance of its meetings. The Board delegates certain of its responsibilities to two Board Committees, which have clearly defined terms of reference as described below.

The Directors have access to the advice and services of the Company Secretary. Any Director may also take independent professional advice at the Company's expense in the furtherance of his duties. In accordance with the Articles of Association, each year one third of the Directors (generally those who have held office for the longest time since their election) will retire from office at the AGM. A retiring Director may be re-elected if eligible and a Director appointed by the Board may also be elected, although in the latter case the Director's period of prior appointment by the Board will not be taken into account for the purposes of rotation.

Audit Committee

Refer to Corporate Governance Review

Remuneration Committee

Refer to Corporate Governance Review

Offer Committee

Refer to Corporate Governance Review

Qualifying third party indemnity provisions

The Company has made qualifying third-party indemnity provisions, as defined in section 234 of the Companies Act 2006, for the benefit of the Directors in respect of liabilities incurred as a result of their office to the extent permitted by law. These provisions remain in force at the reporting date. The Company also maintained a Directors' and Officers' liability insurance policy throughout the financial year.

Internal control

The Board is responsible for ensuring that the Group maintains an adequate system of internal control and risk management. The internal controls are designed to safeguard the Group's assets and to ensure the reliability of financial information both for internal use by management and for external reporting.

The Directors are aware that no system can provide absolute assurance against material misstatement or loss but are satisfied that the current controls and processes to manage significant risks are adequate with regard to the current stage of the Group's development.

Shareholders

The Board attaches great importance to maintaining good relationships with all its shareholders and ensures that all price sensitive information is released to its shareholders simultaneously in accordance with the AIM Rules for Companies and Market Abuse Regulations.

The Board believes that the AGM provides an important opportunity for dialogue with private shareholders. Due to COVID-19 restrictions the AGM will be a closed meeting. A separate shareholder engagement meeting will be held after health restrictions have lifted and it is safe and practical to do so.

The Company's website, www.trans-siberiangold.com, is regularly updated and contains a wide range of information about the Group.

Further information about how the Group manages its relationship with shareholders is set out in the Corporate Governance Review.

Stakeholders

s172 Companies Act 2006

The Directors are well aware of their duty under s.172 of the Companies Act 2006 to act in the way which they consider, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole and, in doing so, to have regard (amongst other matters) to:

•  the likely consequences of any decision in the long term;

•  the interests of the Company's employees;

•  the need to foster the Company's business;

•  relationships with suppliers, customers and others;

•  the impact of the Company's operations on the community and the environment;

•  the desirability of the Company maintaining a reputation for high standards of business conduct; and

•  the need to act fairly as between members of the Company.

As a Board we have always been mindful of the long term when taking decisions, and collectively and individually our aim is always to uphold the highest standards of conduct. Similarly, we understand that our business can only grow and prosper over the long term if we understand and respect the views and needs of our customers, colleagues and the communities in which we operate, as well as our suppliers, the environment and the shareholders to whom we are accountable. 

We set out in the adjacent table our key stakeholder groups, their material issues and how we engage with them. Each stakeholder group requires a tailored engagement approach to foster effective and mutually beneficial relationships. By understanding our stakeholders, we can factor into Boardroom discussions the potential impact of our decisions on each stakeholder group and consider their needs and concerns, in accordance with s172 of the Companies Act 2006.

This in turn ensures we continue to provide quality gold to our customers, work effectively with our colleagues and contractors, make a positive contribution to local communities and achieve long-term sustainable returns for our investors. Acting in a fair and responsible manner is a core element of our business practice.

 

 

Ongoing engagement with our stakeholders

Our stakeholders	Why they matter to TSG	What matters to our stakeholders	How we engaged	Link to Mitigating our Principal Risks
Customers	They are the suppliers of refined precious metals who rely on us and other gold miners to help them deliver a great service to their clients	We know our customers seek a reliable and high quality source of precious metals	•   Sales of products •   Laboratory analysis •   Correspondence	•   Reserve & Resource estimation •   Mining & Processing •   Gold price volatility
Employees	They are a key resource of the Group, all dedicated to extracting and processing gold safely, responsibly and profitably	Our colleagues are concerned with opportunities for personal development and career progression; a culture of inclusion and safety; compensation and benefits; and the ability to make a difference within TSG	•   Internal communications •   HR initiatives •   'Walking the floor'	•   Mining & Processing •   Health & Safety •   COVID-19
Communities	Whilst we operate in a remote location, the communities in Kamchatka are important as they can be directly or indirectly affected by our operations. We are proud that we are a significant employer of local people and where practicable, source supplies from local providers	Our communities want TSG to make a positive contribution to local society and make a positive difference by acting responsibly and sustainably	•   Supported the prestigious annual dog racing competition in Kamchatka •   Made a RUB5m donation to the fight against COVID-19 in Kamchatka	•   Mining & Processing •   Environmental legislation & compliance •   Health & Safety •   COVID-19
Suppliers	Our suppliers provide us with inputs to enable and enhance our operations	Our supply chain stretches over regional and national borders. Our challenge is to ensure that their operation is aligned where practicable, with our policies and responsible practices	•   Searching for local suppliers where possible •   Terms of trade •   Process and procurement monitoring	•   Mining & Processing •   Environmental legislation & compliance •   Health & Safety •   COVID-19
Government & regulators	The gold mining industry is subject to government policy which is implemented through legislation and regulation	The regulatory and legislative authorities expect compliance with wide-ranging industry requirements	•   Formal enquiries •   Meetings •   Trade Associations e.g. Union of Gold Producers of Russia	•   Regulatory environment •   Mining legislation & licensing •   Environmental legislation & compliance •   Taxation •   COVID-19
Investors	They are our providers of capital without whom we could not grow and invest for future success	Investors scrutinise our activity on a range of measures beyond financial performance to ensure that investment risks are limited and returns are sustainable	•   Regular meetings (holder & non-holder) •   Communications such as quarterly operational results, annual reports and notices of general meetings •   Stock Exchange announcements and press releases •   Investor conferences •   Detailed information about TSG and matters of interest to investors on our website	•   Reserve & resource estimates •   Mining & Processing •   Property & business interruption insurance •   Gold price volatility •   Taxation •   COVID-19
Industry	We often face similar opportunities and challenges as our peers in the gold mining industry. By sharing knowledge and best practices we can address them	We know the positive impact working collaboratively as an industry can have	•   Meetings •   Industry Conferences •   Trade Associations e.g. Union of Gold Producers of Russia	•   Regulatory environment •   Mining legislation & licensing •   Environmental legislation & compliance •   Gold price volatility •   Taxation •   COVID-19

 

Factoring our stakeholders into our decisions

By thoroughly understanding our key stakeholder groups, we can factor their needs and concerns into Boardroom discussions.

The Board requires of itself an assessment and discussion of potential impacts in connection with material decisions requiring its approval that could impact on one or more of our stakeholder groups.

This assessment and discussion assists the Directors in performing their duties under s172 of the Companies Act 2006 and provides the Board with assurance that the potential impacts on our stakeholders are being carefully considered by management when developing plans for Board approval.

The stakeholder assessment and discussion identifies:

•  potential benefits and areas of concern for each stakeholder group;

•  the procedures and plans being implemented to mitigate against any areas of concern; and

•  who is responsible for ensuring the mitigation plans are being effectively implemented.

Independent Auditors

PricewaterhouseCoopers LLP have expressed their willingness to continue in office and a Resolution to re-appoint them will be proposed at the Annual General Meeting.

Statement of Directors' responsibilities in respect of the financial statements

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group and the Company financial statements in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006.

The Group have also prepared financial statements in accordance with and international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.

Under company law, Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group for that period. In preparing the financial statements, the Directors are required to:

•  select suitable accounting policies and then apply them consistently;

•  state whether applicable international accounting standards in conformity with the requirements of the Companies Act 2006 and international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union have been followed, subject to any material departures disclosed and explained in the financial statements;

•  make judgements and accounting estimates that are reasonable and prudent; and

•  prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business.

The Directors are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's and Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the financial statements comply with the Companies Act 2006.

The Directors are responsible for the maintenance and integrity of the company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Directors' confirmations

In the case of each Director in office at the date the Directors' report is approved:

•  so far as the Director is aware, there is no relevant audit information of which the Group's and Company's auditors are unaware; and

•  they have taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Group's and Company's auditors are aware of that information.

Website publication

The Directors are responsible for ensuring the annual report and the financial statements are made available on a website. Financial statements are published on the Company's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company's website is the responsibility of the Directors. The Directors' responsibility also extends to the on-going integrity of the financial statements contained therein.

On behalf of the Board

 

Alexander Dorogov

Chief Executive Officer

8 June 2021

 

 

 

Financial Statements

 

Independent Auditors' Report to the members of Trans-Siberian Gold plc

 

Report on the audit of the financial statements

Opinion

In our opinion, Trans-Siberian Gold plc's Group financial statements and Company financial statements (the "financial statements"):

•  give a true and fair view of the state of the Group's and of the Company's affairs as at 31 December 2020 and of the Group's profit and the Group's and Company's cash flows for the year then ended;

•  have been properly prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006; and

•  have been prepared in accordance with the requirements of the Companies Act 2006.

We have audited the financial statements, included within the Annual Report and Financial Statements (the "Annual Report"), which comprise: the Consolidated and Company Statements of Financial Position as at 31 December 2020; the Consolidated Statement of Comprehensive Income, the Consolidated and Company Statements of Cash Flows and the Consolidated and Company Statements of Changes in Equity for the year then ended; and the notes to the financial statements, which include a description of the significant accounting policies.

Separate opinion in relation to international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union

As explained in note 1.2 to the financial statements, the Group, in addition to applying international accounting standards in conformity with the requirements of the Companies Act 2006, has also applied international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.

In our opinion, the Group financial statements have been properly prepared in accordance with international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors' responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC's Ethical Standard, as applicable to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.

Our audit approach

Overview

Audit scope •  We conducted full scope audits of two significant components out of the Group's three separate reporting entities which were selected due to their size and risk characteristics. •  Specific audit procedures were performed on certain balances and transactions at a further one reporting unit. •  This enabled us to obtain 100% coverage of consolidated revenue, 99% coverage of consolidated profit before tax and 99% coverage of total assets for the Group. •  To ensure sufficient oversight, direction and responsibility of the audit work performed by our component audit team in Russia, the Group team performed a number of procedures throughout the audit which included directing the audit approach and procedures, conducting remote file reviews and conducting remote face to face meetings with local management and the component team.

Key audit matters •  Valuation of ore stocks (Group). •  Consideration of the impact of COVID-19 (Group and Parent). •  Impairment of investments in subsidiaries (Parent).

Materiality •  Overall Group materiality: $894,000 (2019: $509,000) based on 5% of three-year average profit before tax. •  Overall Company materiality: $376,000 (2019: $407,000) based on 0.5% of total assets. •  Performance materiality: $670,000 (Group) and $282,000 (Company).

 

The scope of our audit

As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements.

Key audit matters

Key audit matters are those matters that, in the auditors' professional judgement, were of most significance in the audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

This is not a complete list of all risks identified by our audit.

Impairment of investments in subsidiaries is a new key audit matter this year. Impairment of property, plant and equipment, which was a key audit matter last year, is no longer included because there have been no impairment trigger events as at 31 December 2020 that could imply a risk of impairment in property, plant and equipment. Otherwise, the key audit matters below are consistent with last year.

Key audit matter	How our audit addressed the key audit matter
Valuation of ore stocks (Group)
Refer to note 20, Inventories. The Group's ore stocks are valued at the lower of cost and net realisable value. At 31 December 2020 the ore stocks are valued at $8.1m (2019: $6.3m). Historically management recognised a provision against the low grade ore stocks but this provision was released in 2018 following management's decision to start blending the low grade ore stocks with the higher grade mined ore. This blending increased the net realisable value of the low grade ore stocks. In the financial year, mining commenced in the East Zone of the Asacha Gold Mine, which contains significantly higher-grade ore, increasing the blending and utilisation of the ore stocks. The valuation and the current/non-current classification of ore stocks is impacted by the grade, future ore blending ratios, ore processing and refining costs and the price of gold. The recoverability and valuation is dependent on the ability of the Group to continue to blend low grade and high grade ore. Management expects to have fully processed all of the low grade stocks by the end of 2021. We focused on this area due to the material nature of the balance and the judgement involved in the valuation and the current/non-current classification of ore stocks.	We examined management's calculation of the valuation of the ore stocks and undertook the following procedures: •  Understood management's decision and ability to blend low grade ore stocks with higher grade mined ore in the future; •  Compared the gold prices used in the calculation to available market data; •  Tested management's cost assumptions and agreed them to actual costs incurred in 2020; •  Tested management's calculation of the overall ore stocks volume and grade. This included sampling a number of ore batches and comparing the gold grade measured by the Group's internal specialists to the results of the independent re-measurement performed by a third-party; •  Considered the grade of future mined ore through validating the volume and grade assumed in the life of mine plan to the independent, third party reserves report; •  Assessed the competency, independence and objectivity of the third-party engaged by management to value the ore stocks; and •  Recalculated management's blending ratio which is based on the size and grade of the ore stocks and expected future mined ore. In line with the life of mine plans, during 2020 ore mined was of a higher grade than the ore held in the stockpiles but the Group continued to utilise the lower grade ore stocks by blending these with the higher grades mined when feeding the processing plant. This supports the recoverability of the ore stocks. Based on these enquiries and procedures, we are satisfied with management's judgement that a provision against the carrying value of the ore stocks is not required. Finally, we considered the adequacy of management's disclosure of the key judgement in relation to the valuation of the ore stocks, and their classification, and consider it to be reasonable.
Consideration of the impact of COVID-19 (Group and Parent)
Refer to the Strategic Report, the Directors' Report and note 1.4, Going concern. COVID-19 was declared a pandemic by the World Health Organisation on 11 March 2020 and the ongoing response is having an unprecedented impact on the global economy. Management have set out in the Annual Report the impact that COVID-19 has had on the Group and the Company and the actions that they have taken, and continue to take, to address the pandemic and its effect on the operations. The Directors considered the impact of the pandemic on the Group's operations, cash flows, day to day operations, and the carrying amount of long-term assets and receivables, as well as a need to recognise additional liabilities. As part of this assessment, the Directors modelled various downside scenarios to their base case budgets taking into account the possible effects of COVID-19 on the operations. Having taken into account these scenarios and a robust assessment of planned and possible mitigating actions, the Directors concluded that the Group remains a going concern, that there is no material uncertainty in respect of this conclusion and that there is no impact on the carrying values of assets and liabilities. We determined the Directors' consideration of the impact of COVID-19 to be a key audit matter.	We obtained and considered management's assessment of the impact of COVID-19 on the Group's operations, the recoverability of its long-term assets, the carrying value of its assets and liabilities and its ability to continue as a going concern. We undertook the following procedures: We considered the potential impact on the balance sheet, specifically around property, plant and equipment and trade receivables and do not consider there to be any indicators of material impairment as at the balance sheet date or subsequently (for disclosure only) and no provisions or additional liabilities were recorded. We reviewed the disclosures relating to the impact in the year and the potential impact of COVID-19 and found them to be consistent with the analysis performed. The procedures we performed to evaluate the Directors' going concern assessment and our conclusions, are set out in the "Conclusions relating to going concern" section below. Overall, we consider the assessment by management in relation to COVID-19, and the associated disclosures in the Annual report, to be appropriate.
Impairment of investments in subsidiaries (Parent)
Refer to note 18, Investments in subsidiaries, and note 19, Subsidiaries. Impairment assessments require significant judgement and there is a risk that the valuation of the assets may be incorrect, and any potential impairment charge or reversal miscalculated. As such, this was a key area of focus for our audit due to the size of the balance. As disclosed in note 18, the Company has investments of $74m in subsidiaries. The Directors have considered the recoverability of the investments in subsidiaries at 31 December 2020 and determined that there were no triggers for impairment, having considered factors such as long-term gold prices, resource estimates and expected production profiles. Accordingly, they determined that the carrying values of the investments in subsidiaries are supportable.	We challenged the assessment of any impairment indicators and considered it to be consistent with the approach taken for the Group impairment assessment and therefore reasonable. Based on our analysis of the assessment of the recoverable amount of each investment, we concur that the carrying values of the investments in subsidiaries are supportable and note that no impairment triggers were identified. We consider the Directors' conclusions and the associated disclosures to be appropriate.

 

How we tailored the audit scope

We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the Group and the Company, the accounting processes and controls, and the industry in which they operate.

Trans-Siberian Gold plc is listed on AIM. The Group's principal operation is the Asacha Gold Mine in Far East Russia. In establishing the overall approach to the Group audit, we determined the type of work that needed to be performed by us, as the Group audit team, or by our PwC network component team in Russia.

Our Group audit scope focused primarily on the Asacha gold mine in Russia, which was subject to a full-scope audit by our component team in Russia. A full scope audit was also performed over the parent company by the Group team. Specific audit procedures on certain balances and transactions were performed at a further one reporting unit. The above gave us coverage of 100% of consolidated revenue, 99% coverage of consolidated profit before tax and 99% coverage of total assets for the Group.

As COVID-19 prevented travel to Russia, we were unable to make a site visit as planned; we instead conducted our oversight of our component audit team through regular dialogue via conference calls, video conferencing and other forms of communication as considered necessary as well as remote working paper reviews to satisfy ourselves as to the appropriateness of audit work performed by our component audit team. We also attended key meetings virtually with local management and our component audit team. We reviewed the audit work of our component audit team, which included file reviews, participation in key audit discussions with local management and participation in the audit clearance meeting.

The Group engagement team directly performed the audit of the consolidation. This, together with additional procedures performed at the Group level, gave us the evidence we needed for our opinion on the Group financial statements as a whole.

Materiality

The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

	Financial statements - group	Financial statements - company
Overall materiality	$894,000 (2019: $509,000).	$376,000 (2019: $407,000).
How we determined it	5% of three year average profit before tax	0.5% of total assets
Rationale for benchmark applied	Profit is the key indicator of the Group's performance and the most appropriate benchmark for materiality. Due to volatility in commodity prices which has impacted profitability, we have used a three-year average profit before tax as the benchmark.	We have assessed that the most appropriate benchmark for the Company, which is primarily a holding company, is total assets.

 

For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The range of materiality allocated across components was between $376,000 and $890,000. Certain components were audited to a local statutory audit materiality that was also less than our overall group materiality.

We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the nature and extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes. Our performance materiality was 75% of overall materiality, amounting to $670,000 for the Group financial statements and $282,000 for the Company financial statements.

In determining the performance materiality, we considered a number of factors - the history of misstatements, risk assessment and aggregation risk and the effectiveness of controls - and concluded that an amount at the upper end of our normal range was appropriate.

We agreed with those charged with governance that we would report to them misstatements identified during our audit above $89,000 (Group audit) (2019: $50,000) and $89,000 (Company audit) (2019: $50,000) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons.

Conclusions relating to going concern

Our evaluation of the Directors' assessment of the Group's and the Company's ability to continue to adopt the going concern basis of accounting included:

•  Obtaining and reviewing the Group's cash flow forecasts for the going concern period, challenging the Directors' assumptions used and verifying that these were consistent with our existing knowledge and understanding of the business, as well as with the Board-approved budget;

•  Reviewing the Group's cash flow forecasts under various downside scenarios, including a severe but plausible downside scenario, evaluating the assumptions used, and verifying that the Group is able to maintain liquidity within the going concern period under these scenarios;

•  Testing the model for mathematical accuracy;

•  Understanding the Directors' assessment of the implications of the Offer to acquire the Group made by Horvik for their going concern assessment, which included reviewing the public announcements made by Horvik outlining the commercial and financial rationale for the Transaction and about its future intentions for the Group; and considering the implications of the change in control clause in the current financing arrangements. We note that these public announcements confirmed Horvik's intention to continue the operations of the Group as part of their strategy of establishing an operational footprint in the Kamchatka region in Russia.

•  Assessing the adequacy of the disclosure provided in note 1 of the financial statements.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group's and the Company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.

In auditing the financial statements, we have concluded that the Directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.

However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the Group's and the Company's ability to continue as a going concern.

Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report.

Reporting on other information

The other information comprises all of the information in the Annual Report other than the financial statements and our auditors' report thereon. The Directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities.

With respect to the Strategic Report and Directors' Report, we also considered whether the disclosures required by the UK Companies Act 2006 have been included.

Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions and matters as described below.

Strategic Report and Directors' Report

In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors' Report for the year ended 31 December 2020 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements.

In light of the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit, we did not identify any material misstatements in the Strategic Report and Directors' Report.

Responsibilities for the financial statements and the audit

Responsibilities of the directors for the financial statements

As explained more fully in the Statement of Directors' responsibilities in respect of the financial statements, the Directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The Directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the Directors are responsible for assessing the Group's and the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so.

Auditors' responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below.

Based on our understanding of the Group and industry, we identified that the principal risks of non-compliance with laws and regulations related to compliance with UK and Russian tax legislation and employment law, state and federal laws and regulations and environmental legislation, and we considered the extent to which non-compliance might have a material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the financial statements such as the Companies Act 2006. We evaluated management's incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were related to posting inappropriate journal entries to manipulate results and management bias in key accounting estimates. The Group engagement team shared this risk assessment with the component audit team so that they could include appropriate audit procedures in response to such risks in their work. Audit procedures performed by the Group engagement team and/or component audit team included:

•  Enquiries of the Directors, management and the Group's legal counsel, including consideration of known or suspected instances of non-compliance with laws and regulations and fraud;

•  Inspection of supporting documentation, where appropriate;

•  Evaluation of management's controls designed to prevent and detect irregularities;

•  Review of minutes of meetings of the Board of Directors;

•  Challenging assumptions and judgements made by management in relation to their significant accounting judgements and estimates;

•  Identifying and testing journal entries, in particular any journal entries posted with unusual account combinations; and

•  Review of related work performed by the component audit team, including their responses to risks related to management override of controls and to the risk of fraud in revenue recognition.

There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-compliance with laws and regulations that are not closely related to events and transactions reflected in the financial statements. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion.

Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing techniques. However, it typically involves selecting a limited number of items for testing, rather than testing complete populations. We will often seek to target particular items for testing based on their size or risk characteristics. In other cases, we will use audit sampling to enable us to draw a conclusion about the population from which the sample is selected.

A further description of our responsibilities for the audit of the financial statements is located on the FRC's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors' report.

Use of this report

This report, including the opinions, has been prepared for and only for the Company's members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Other required reporting

Companies Act 2006 exception reporting

Under the Companies Act 2006 we are required to report to you if, in our opinion:

•  we have not obtained all the information and explanations we require for our audit; or

•  adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us; or

•  certain disclosures of Directors' remuneration specified by law are not made; or

•  the Company financial statements are not in agreement with the accounting records and returns.

We have no exceptions to report arising from this responsibility.

 

Timothy McAllister (Senior Statutory Auditor)

for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London

8 June 2021

 

 

 

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2020

 

	Notes	2020 $'000	2019 $'000
Revenue	4	80,975	63,108
Cost of sales		(40,070)	(40,300)
Gross profit		40,905	22,808
Administrative expenses		(10,243)	(8,755)
Exceptional expenses	5	(1,987)	-
Other operating income		811	68
Foreign exchange on operating activities		(2,007)	287
Operating profit	6	27,479	14,408
Finance income	11	30	70
Finance expenses	12	(1,784)	(1,642)
Foreign exchange on financing activities		2,317	(241)
Profit before taxation		28,042	12,595
Income tax on profit	14	(7,781)	(3,589)
Profit for the financial year		20,261	9,006
Total comprehensive income for the year		20,261	9,006
Total comprehensive income for the year is attributable to:
- Owners of the parent company		20,261	9,006
Profit per share attributable to the owners of the parent company (expressed in cents)
- Basic	13	23.25	9.17
- Diluted	13	22.60	9.17

 

The consolidated statement of comprehensive income has been prepared on the basis that all operations are continuing operations.

The accompanying notes form an integral part of these financial statements.

 

 

 

Consolidated Statement of Financial Position

as at 31 December 2020

 

	Notes	2020		2019
		$'000	$'000	$'000	$'000
Non-current assets
Intangible assets	16		6,381		3,868
Property, plant and equipment	17		76,314		83,242
Right of use assets	24		729		-
Inventories	20		-		1,370
			83,424		88,480
Current assets
Inventories	20	16,158		15,357
Trade and other receivables	21	5,063		3,287
Current income tax receivable		-		1,497
Cash and cash equivalents		22,400		8,697
		43,621		28,838
Total assets			127,045		117,318
Current liabilities
Trade and other payables	22	(5,920)		(5,981)
Current income tax payable		(1,459)		-
Borrowings	23	(8,180)		(9,781)
Leases	24	(117)		-
		(15,676)		(15,762)
Non-current liabilities
Borrowings	23	(6,969)		(15,332)
Leases	24	(534)		-
Provisions	26	(6,628)		(1,264)
Deferred tax liability	27	(6,154)		(6,720)
		(20,285)		(23,316)
Total liabilities			(35,961)		(39,078)
Net assets			91,084		78,240
Capital and reserves attributable to owners of the Company
Share capital	28		18,988		18,988
Treasury shares	28		(9,442)		(9,442)
Share-based payments reserve	28		1,560		-
Retained earnings	28		79,978		68,694
Total equity			91,084		78,240

 

The accompanying notes form an integral part of these financial statements.

The financial statements were approved by the Board of Directors and authorised for issue on 8 June 2021 and are signed on its behalf by:

 

Alexander Dorogov

Chief Executive Officer

 

 

 

Company Statement of Financial Position

as at 31 December 2020

 

	Notes	2020		2019
		$'000	$'000	$'000	$'000
Non-current assets
Investments in subsidiaries	18		73,976		82,950
Current assets
Trade and other receivables	21	1,010		2,750
Cash and cash equivalents		117		400
		1,127		3,150
Total assets			75,103		86,100
Current liabilities
Trade and other payables	22	(872)		(275)
Total liabilities			(872)		(275)
Net assets			74,231		85,825
Capital and reserves attributable to owners of the Company
Share capital	28		18,988		18,988
Treasury shares	28		(9,442)		(9,442)
Share-based payments reserve	28		1,560		-
Retained earnings	28		63,125		76,279
Total equity			74,231		85,825

 

The accompanying notes form an integral part of these financial statements.

As permitted by s408 Companies Act 2006, the Company has not presented its own income statement and related notes. The Company's loss for the year was $4,177,000 (2019: $1,348,000).

The financial statements were approved by the Board of Directors and authorised for issue on 8 June 2021 and are signed on its behalf by:

 

Alexander Dorogov

Chief Executive Officer

 

 

 

Consolidated Statement of Changes in Equity

for the year ended 31 December 2020

 

	Notes	Share capital $'000	Treasury shares $'000	Share-based payments reserve $'000	Retained earnings $'000	Total equity $'000
Balance at 1 January 2019		18,988	-	-	68,199	87,187
Year ended 31 December 2019:
Profit and total comprehensive income for the year		-	-	-	9,006	9,006
Dividends	15	-	-	-	(8,511)	(8,511)
Share buyback	28	-	(9,442)	-	-	(9,442)
Balance at 31 December 2019		18,988	(9,442)	-	68,694	78,240
Year ended 31 December 2020:
Profit and total comprehensive income for the year		-	-	-	20,261	20,261
Dividends	15	-	-	-	(8,977)	(8,977)
Share-based payments		-	-	1,560	-	1,560
Balance at 31 December 2020		18,988	(9,442)	1,560	79,978	91,084

 

The accompanying notes form an integral part of these financial statements.

 

 

 

Company Statement of Changes in Equity

for the year ended 31 December 2020

 

	Notes	Share capital $'000	Treasury shares $'000	Share-based payments reserve $'000	Retained earnings $'000	Total equity $'000
Balance at 1 January 2019		18,988	-	-	86,138	105,126
Year ended 31 December 2019:
Loss and total comprehensive income for the year		-	-	-	(1,348)	(1,348)
Dividends	15	-	-	-	(8,511)	(8,511)
Share buyback	28	-	(9,442)	-	-	(9,442)
Balance at 31 December 2019		18,988	(9,442)	-	76,279	85,825
Year ended 31 December 2020:
Loss and total comprehensive income for the year		-	-	-	(4,177)	(4,177)
Dividends	15	-	-	-	(8,977)	(8,977)
Share-based payments		-	-	1,560	-	1,560
Balance at 31 December 2020		18,988	(9,442)	1,560	63,125	74,231

 

The accompanying notes form an integral part of these financial statements.

 

 

 

Consolidated Statement of Cash Flows

for the year ended 31 December 2020

 

	Notes	2020		2019
		$'000	$'000	$'000	$'000
Cash flows from operating activities
Cash generated from operations	31		43,023		26,096
Interest paid			(1,811)		(1,592)
Income taxes paid			(61)		(5,562)
Net cash generated from operating activities			41,151		18,942
Investing activities
Purchase of intangible assets		(2,513)		(3,868)
Purchase of property, plant and equipment		(7,905)		(6,084)
Proceeds on disposal of property, plant and equipment		12		13
Interest received		30		70
Net cash used in investing activities			(10,376)		(9,869)
Financing activities
Proceeds from borrowings		12,316		16,317
Repayment of borrowings		(20,250)		(8,538)
Repayment of leases		(146)		-
Dividends paid		(8,977)		(8,511)
Share buyback		-		(9,442)
Net cash used in financing activities			(17,057)		(10,174)
Net increase/(decrease) in cash and cash equivalents			13,718		(1,101)
Cash and cash equivalents at beginning of year			8,697		9,725
Exchange differences on cash and cash equivalents			(15)		73
Cash and cash equivalents at end of year			22,400		8,697

 

The accompanying notes form an integral part of these financial statements.

 

 

 

Company Statement of Cash Flows

for the year ended 31 December 2020

 

	Notes	2020		2019
		$'000	$'000	$'000	$'000
Cash flows from operating activities
Cash used in operations	32		(402)		(2,130)
Investing activities
Repayment of loans by subsidiary companies		8,974		14,085
Interest received		120		12
Net cash generated from investing activities			9,094		14,097
Financing activities
Share buyback		-		(9,442)
Dividends paid		(8,977)		(8,511)
Net cash used in financing activities			(8,977)		(17,953)
Net decrease in cash and cash equivalents			(285)		(5,986)
Cash and cash equivalents at beginning of year			400		6,365
Exchange differences on cash and cash equivalents			2		21
Cash and cash equivalents at end of year			117		400

 

The accompanying notes form an integral part of these financial statements.

 

 

 

Notes to the Financial Statements

for the year ended 31 December 2020

 

1 Accounting policies

1.1 General information

Trans-Siberian Gold plc ("the Company") is a UK-based resources company, with the objective of acquiring and developing a portfolio of quality gold-mining assets in Russia. The Company is a public limited company, incorporated and domiciled in England and Wales and has three subsidiaries based in the Russian Federation (together, "the Group"), one of which holds the licences for the Asacha (where gold production commenced in 2011) and Rodnikova deposits. The Company's registered office is 39 Parkside Cambridge CB1 1PN United Kingdom.

The registered number of the Company is 01067991. The Company's shares are traded on the AIM Market of the London Stock Exchange.

1.2 Basis of preparation

The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated.

These financial statements have been prepared in accordance with International Accounting Standards (IAS) in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards (IFRS) adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.

The consolidated financial statements are prepared in US dollars ($), rounded to the nearest thousand.

The preparation of financial statements in accordance with IAS and in conformity with the requirements of the Companies Act 2006, requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The areas involving a higher degree of judgement or complexity, or where assumptions and estimates are significant to the consolidated financial statements, are disclosed in note 2.

The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision only affects that period or in the period of revision and future periods if the revision affects both current and future periods.

Standards, amendments and interpretations effective in 2020

A number of new and amended standards and interpretations issued by the IASB and endorsed by European Union have become effective for the first time for financial periods beginning on (or after) 1 January 2020 and have been applied by the Group in these financial statements. None of these new and amended standards and interpretations had a significant effect on the Group because they are either not relevant to the Group's activities or require accounting which is consistent with the Group's current accounting policies.

Standards, amendments and interpretations that are not yet effective and have not been early adopted

There are a number of standards, amendments to standards, and interpretations which have been issued by the IASB and endorsed by European Union that are effective in future accounting periods and which have not been adopted early. None of these are expected to have a significant effect on the Group.

1.3 Basis of consolidation

The consolidated financial statements of the Group include the financial statements of Trans-Siberian Gold plc and its subsidiaries. Where the Company has control over an investee, it is classified as a subsidiary. The Company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date on which control ceases. Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated but considered an impairment indicator of the asset transferred. The accounting policies and financial year ends of its subsidiaries are consistent with those applied by the Company.

Business combinations

The consolidated financial statements incorporate the results of the business combinations using the acquisition method of accounting. In the consolidated statement of financial position, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated statement of comprehensive income from the date on which control is obtained.

1.4 Going concern

The Group's operations are cash generative and management tightly control the level of committed expenditure to ensure that the Group has sufficient resources available to meet its liabilities as they fall due. Regular cash forecasts are reviewed to assess the potential impact of factors such as changes in commodity prices, production rates and the timing of capital expenditure. The Group has reported an operating profit for the year of $27.5 million, an operating cash inflow of $41.2 million and net increase in cash of $13.7 million. The Directors have reviewed the Group's cash flow forecast for the period to 31 December 2022 and carried out multiple scenario analysis of potential downsides including future lockdowns of various length; production, workforce and supply chain disruptions together with reasonably possible changes in commodity prices; and scheduled repayments of loan facilities. The Directors further stress tested combinations of various scenarios identifying no significant cash concerns. Based on these analyses, the Directors believe that the Group has sufficient resources to continue in operational existence for the foreseeable future. Furthermore, the Directors have considered the impact of Horvik's acquisition discussed in note 35 on the going concern of the Group. In forming their opinion the Directors have relied upon the public statements made by Horvik about its future intentions for the Group, which outline its commercial and financial rationale for the acquisition. While the Directors are unable to provide surety that such intentions will be enacted, they are not aware of any planned actions which may cast doubt over the Group's future operational existence. The Directors have also considered the change of control clause within the Company's credit facilities with VTB and are comfortable that this does not have an impact on the going concern status of the Group in light of the Group's cash position and the outstanding loan balance at 31 December 2020 and for the reasons outlined in note 23 and note 35. Therefore the Directors believe that the Group will continue as a going concern and have prepared the financial statements on that basis.

1.5 Revenue

The Company's subsidiary TSG Asacha has entered into contracts for the sale of refined gold and silver, whereby 100% of its refined production is sold to Russian bank VTB. Revenue arising from sales under these contracts is recognised when the price is determinable and the refined gold and silver have been transferred from the TSG Asacha's metal account to VTB in accordance with the terms of the contract at which point the performance obligation is met.

Revenue is measured based on the consideration to which the Group expects to be entitled under the terms of a contract with a customer. In most cases the consideration is determined by reference to the gold market price at the point of transfer from the metal account. Consideration typically falls due upon delivery.

1.6 Intangible assets

Intangible assets relate to the Group's deferred exploration and evaluation expenditure. When the Group incurs expenditure after it has obtained legal rights to explore a specific area but before the technical feasibility and commercial viability of extracting a mineral resource are demonstrated, the costs of acquiring the rights to such mining properties and subsequent exploration and evaluation costs, including attributable employment costs, are deferred until the expected recovery of costs is considered probable by the successful exploitation or sale of the asset. General overheads are expensed immediately. Depreciation on property, plant and equipment used on exploration and evaluation projects is charged to deferred costs whilst the projects are in progress.

Exploration and evaluation costs are not amortised.

Where a feasibility study indicates that the future recovery of costs is not probable, full provision is made in respect of any deferred costs. Where mining properties are abandoned, deferred expenditure is written off in full.

Exploration expenditure incurred prior to the Group obtaining licencing rights is expensed as incurred.

1.7 Property, plant and equipment

Property, plant and equipment are recorded at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Depreciation of property, plant and equipment is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, being:

Buildings                                                3 to 20 years

Plant and machinery             2 to 12 years

Office equipment                   3 to 5 years

Motor vehicles                       4 to 7 years

Assets in the course of construction are not depreciated.

The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying value of the asset, and is recognised in the income statement.

Mining properties

Once the technical feasibility and commercial viability of the project are demonstrated, the capitalised exploration and evaluation expenditure, other than that on buildings, machinery and equipment, related to that project is transferred to tangible assets as mining properties.

Mining properties are depleted on 'unit of production basis' calculated based on the ratio of gold mined during a period to the total volume of gold to be mined based on the estimated commercial resources.

Commercial resources are mineral resources that are considered probable of economic extraction and include measured, indicated and inferred resources. While inferred resources have a lower degree of geological certainty, they are included in the depletion calculation due to the geology of the ore body which can be characterised as vein structures - due to the uniform nature of the veins, their presence can be inferred without high concentration of drilling. The effectiveness of this approach has been justified over time, with a high conversion of inferred resource having been extracted already without major deviations from forecast.

Changes in commercial resources affecting unit of production calculations are dealt with prospectively over the revised remaining resources.

1.8 Determination of mineral resources

The Group estimates its mineral resources based on information compiled by Competent Persons as defined in accordance with the 2012 edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (the JORC code).

1.9 Non-current investments

In its separate financial statements, the Company recognises investments in subsidiary companies involved in mining operations, exploration and development at cost less any provision for impairment.

1.10 Impairment of non-current assets

The carrying amount of the Group's non-current assets is compared to the recoverable amount of the assets whenever events or changes in circumstances indicate that the net book value may not be recoverable. The recoverable amount is the higher of value in use and the fair value less costs to sell.

Value in use is estimated by reference to the net present value of expected future cash flows of the relevant cash generating unit. Individual mining properties are considered to be separate income generating units for this purpose, except where they would be operated together as a single mining business.

If the recoverable amount is less than the carrying amount of an asset, an impairment loss is recognised. The revised carrying amounts are amortised in line with the Group's accounting policy.

A previously recognised impairment loss is reversed if the recoverable amount increases as a result of a reversal of the conditions that originally resulted in the impairment. The reversal is recognised in the income statement and is limited to the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised in the prior reporting periods.

1.11 Inventories

Raw materials and consumables, which consist of fuel and materials used in mining operations, spare parts and tools for development activities are initially recognised at cost, and subsequently valued at the lower of cost and net realisable value.

Stockpiles comprise ore containing gold and are valued at the lower of weighted average cost (including direct labour costs and related overheads, allocated on a value/gold content) and net realisable value (using assay data to estimate the amount of gold contained in the stockpiles, adjusted for expected gold recovery rates). Ore extracted is allocated to stockpiles based on estimated grade, with grades below defined cut-off levels treated as waste and expensed. While held in physically separate stockpiles, the group blends the ore from each stockpile when feeding the processing plant to achieve the resultant gold content. Ore stockpiles which are blended together or with future ore mined when fed to the plant are assessed as an input to the gold production process to ensure the combined stockpiles are carried at the lower of cost and net realisable value. Ore stockpiles which are not blended in production are assessed separately to ensure they are carried at the lower of cost and net realisable value.

The processing of ore in stockpiles occurs in accordance with the Life of Mine ("LoM") processing plan that has been optimised based on the known mineral resources, current plant capacity and mine design. Ore tonnes contained in the stockpile which exceed the annual tonnes to be milled as per the mine plan in the following year, are classified as non-current inventory in the statement of financial position.

Finished goods (comprising refined gold and silver) and work in progress (including gold in circuit and gold dore) are stated at the lower of weighted average cost and net realisable value. Cost includes direct materials, direct labour costs and production overheads, including depreciation and depletion of relevant property, plant and equipment and mining properties. Net realisable value represents the estimated selling price less all expected costs to completion and costs to be incurred in selling and distribution.

1.12 Cash and cash equivalents

Cash and cash equivalents include cash in hand, deposits held at call with banks, other short term highly liquid investments with original maturities of three months or less.

1.13 Financial instruments

Financial assets and financial liabilities are recognised in the Group statement of financial position when the Group becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are only offset and the net amount reported in the consolidated statement of financial position and statement of comprehensive income when there is a currently enforceable legal right to offset the recognised amounts and the Group intends to settle on a net basis or realise the asset and liability simultaneously.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.

Financial assets

All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace.

All recognised financial assets are measured subsequently in their entirety at either amortised cost or fair value, depending on the classification of the financial assets.

 

Classification of financial assets

Financial assets that meet the following conditions are measured subsequently at amortised cost using the effective interest rate method:

•  The financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and,

•  The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

The Group does not hold any financial assets that meet conditions for subsequent recognition at fair value through profit or loss ("FVTPL") or at fair value through other comprehensive income ("FVTOCI").

Impairment of financial assets

The Group recognises a loss allowance for expected credit losses ("ECL") on financial assets that are measured at amortised cost which comprise mainly trade receivables. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition of the respective financial instrument. The Group always recognises lifetime ECL on trade receivables. The expected credit losses on these financial assets are estimated using a provision matrix based on the Group's historical credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current as well as the forecast direction of conditions at the reporting date, including time value of money where appropriate.

Derecognition of financial assets

The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.

Financial liabilities

The classification of financial liabilities at initial recognition depends on the purpose for which the financial liability was issued and its characteristics. All purchases of financial liabilities are recorded on trade date, being the date on which the Group becomes party to the contractual requirements of the financial liability. Unless otherwise indicated the carrying amounts of the Group's financial liabilities approximate to their fair values. The Group's financial liabilities consist only of financial liabilities measured at amortised cost.

Financial liabilities measured subsequently at amortised cost

Financial liabilities that are not (i) contingent consideration of an acquirer in a business combination, (ii) held‑for‑trading, or (iii) designated as at FVTPL, are measured subsequently at amortised cost using the effective interest method. The Group's financial liabilities measured at amortised cost comprise trade and other payables, and loans and borrowings. The effective interest method is a method of calculating the amortised cost of a financial asset/liability and of allocating interest income/expense over the relevant period. The effective interest rate is the rate that discounts estimated future cash receipts/payments through the expected life of the financial asset/liability or, where appropriate, a shorter period.

Derecognition of financial liabilities

A financial liability (in whole or in part) is derecognised when the Group has extinguished its contractual obligations, it expires or is cancelled. Any gain or loss on derecognition is taken to the statement of comprehensive income.

1.14 Equity instruments

Financial instruments issued by the Group are classified as equity only to the extent that they do not meet the definition of a financial liability or financial asset.

The Group's ordinary shares are classified as equity instruments.

Where the Company purchases its own equity shares (treasury shares), the consideration paid, including any directly attributable incremental costs is deducted from equity attributable to the Company's equity holders until the shares are cancelled or re-issued. Where such ordinary shares are subsequently re-issued, any consideration received, net of any directly attributable incremental transaction costs, is included in equity attributable to the Company's equity holders.

1.15 Taxation

The tax expense represents the sum of the tax currently payable and deferred tax.

Current tax

Current tax is the expected tax payable or recoverable on the taxable profit or loss for the year, using rates enacted at the reporting date and any adjustments to the tax payable in respect of previous years.

Deferred tax

Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the reporting date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

Uncertain tax positions

The Group's uncertain tax positions are reassessed by management at the end of each reporting period. Liabilities are recorded for income tax positions that are open to significant judgement and interpretation of tax laws that have been enacted or substantively enacted by the end of the reporting period and which are likely to result in additional taxes being levied if the positions were to be challenged by the tax authorities. Adjustments for uncertain tax positions, other than interest and fines, are recorded within the income tax charge. Adjustments for uncertain tax positions in respect of interest and fines are recorded within finance expenses and administrative expenses respectively.

1.16 Provisions

Provisions for decommissioning, environmental restoration and legal claims are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Provisions are not recognised for future operating losses.

Group companies are generally required to restore mine and processing sites at the end of their producing lives to a condition acceptable to the relevant authorities and consistent with the Group's environmental policies. The expected cost of any committed decommissioning or restoration programme, discounted to its net present value where the effect of discounting is material, is provided and capitalised at the beginning of each project. The capitalised cost is amortised over the life of the operation and the increase in the net present value of the provision for the expected cost is included with interest and similar charges.

The costs of on-going programmes to prevent and control pollution and to rehabilitate the environment are charged to profit or loss as incurred.

1.17 Share-based payments

The Company makes equity-settled share-based payments to certain Group employees under the terms of its LTIP scheme (note 30). The fair value of options granted, measured by reference to the grant date fair value, is recognised as an expense over a vesting period, with a corresponding increase in equity.

The total amount to be expensed is determined by reference to the fair value of the options granted:

•  including any market performance conditions such as the Company's share price;

•  excluding the impact of any service and non-market performance vesting conditions such as profitability, growth targets and remaining an employee of the Group for a specified time period; and

•  including the impact of any non-vesting conditions.

At the end of each reporting period, the Group revises its estimate of the number of options that are expected to vest based on the non-market vesting conditions and service conditions. It recognises the impact of the revision to original estimates, if any, in the statement of comprehensive income, with a corresponding adjustment to equity.

When the options are exercised, the Company issues new shares or utilises existing treasury shares. The proceeds received net of any directly attributable transaction costs are credited to equity.

1.18 Leases

The Group accounts for a contract, or a portion of a contract, as a lease when it conveys the right to use an asset for a period of time in exchange for consideration. Leases are those contracts that satisfy the following criteria:

•  There is an identified asset;

•  The Group obtains substantially all the economic benefits from use of the asset; and,

•  The company has the right to direct use of the asset.

The Group considers whether the supplier has substantive substitution rights. If the supplier does have those rights, the contract is not identified as giving rise to a lease. In determining whether the Group obtains substantially all the economic benefits from use of the asset, the Group considers only the economic benefits that arise from use of the asset. In determining whether the Group has the right to direct use of the asset, the Group considers whether it directs how and for what purpose the asset is used throughout the period of use. If the contract or portion of a contract does not satisfy these criteria, the Group applies other applicable IFRSs rather than IFRS 16.

Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with the discount rate determined by reference to the rate inherent in the lease unless this is not readily determinable, in which case the Group's incremental borrowing rate on commencement of the lease is used. Variable lease payments are only included in the measurement of the lease liability if they depend on an index or rate. In such cases, the initial measurement of the lease liability assumes the variable element will remain unchanged throughout the lease term. Other variable lease payments are expensed in the period to which they relate.

On initial recognition, the carrying value of the lease liability also includes:

•  Amounts expected to be payable under any residual value guarantee;

•  The exercise price of any purchase option granted in favour of the Group if it is reasonably certain to assess that option; and,

•  Any penalties payable for terminating the lease, if the term of the lease has been estimated based on the termination option being exercised.

Right of use assets are initially measured at the amount of the lease liability, reduced for any lease incentives received, and increased for:

•  Lease payments made at or before commencement of the lease;

•  Initial direct costs incurred; and,

•  The amount of any provision recognised where the group is contractually required to dismantle, remove or restore the leased asset.

Subsequent to initial measurement lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding and are reduced for lease payments made. Right-of-use assets are amortised on a straight-line basis over the remaining term of the lease.

When the Group revises its estimate of the term of any lease (because, for example, it re-assesses the probability of a lessee extension or termination option being exercised), it adjusts the carrying amount of the lease liability to reflect the payments to make over the revised term, which are discounted using a revised discount rate. The carrying value of lease liabilities is similarly revised when the variable element of future lease payments dependent on a rate or index is revised, except the discount rate remains unchanged. In both cases an equivalent adjustment is made to the carrying value of the right-of-use asset, with the revised carrying amount being amortised over the remaining (revised) lease term. If the carrying amount of the right-of-use asset is adjusted to zero, any further reduction is recognised in profit or loss.

Short-term leases

Rentals payable under short-term (less than 12 months) low value leases, including any lease incentives received, are charged to profit or loss on a straight line basis over the term of the relevant lease except where another more systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

1.19 Foreign exchange

Functional and presentation currency

Items included in the financial information of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The consolidated financial information is presented in US dollars ($), which is the functional and presentation currency of the Company and the functional currency of its subsidiaries. The exchange rates on 31 December 2020 were £1:$1.3649 (2019: £1:$1.3210) and $1:RUB73.8757 (2019: $1:RUB61.9057). The average rates applied to transactions during the year were £1:$1.2837 (2019: £1:$1.2765) and $1:RUB72.3230 (2019: $1:RUB64.6184).

Transactions and balances

Foreign currency transactions are translated into the functional currency at the average exchange rate ruling during the month in which the transactions occur. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. Foreign exchange gains and losses resulting from the translation of cash, cash equivalents and borrowings denominated in foreign currencies are shown as financing activities; all other foreign exchange gains and losses are shown as operating activities.

1.20 Borrowing costs

The Group capitalises borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (one that takes a substantial period of time to get ready for use or sale) as part of the cost of that asset. Finance costs incurred in respect of the Group's general borrowings are expensed in profit or loss as incurred.

1.21 Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker has been identified as the Chief Executive Officer.

The Group has one operating segment in Russia which has production, exploration and development activities. Its operating results are regularly reviewed by the Group's chief operating decision maker in order to make decisions about the allocation of resources and to assess its performance. The Group's activities in the United Kingdom are of an administrative and corporate nature and do not form part of the operating segment.

2 Judgements and key sources of estimation uncertainty

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Key sources of estimation uncertainty

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results.

The more significant areas requiring the use of management estimates and assumptions relate to mineral resources that are the basis of future cash flow estimates and unit-of-production depreciation, depletion and amortisation calculations; decommissioning, site restoration, environmental costs and closure obligations; estimates of recoverable gold and other materials; and asset impairments.

The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below:

Mining properties and property plant and equipment

The recoverability of the amounts shown in the Group statement of financial position in relation to mining properties and property, plant and equipment (and also the carrying value of the Company's investments in its subsidiaries) are dependent upon compliance with the terms of the relevant mineral rights licences, extensions of the terms of those licences beyond their current expiry dates, the political, economic and legislative stability of the regions in which the Group operates, the Group's ability to maintain the necessary financing to fulfil its obligations as they arise, the successful extraction of the defined mineral resources and the future profitable production or proceeds from the disposal of properties.

Mineral resource estimates

Mineral resource estimates are estimates of the amount of gold that can be economically and legally extracted from the Group's mining properties. Such resource estimates and their changes may impact the Group's reported financial position and results, in the following way:

•  The carrying value of exploration and evaluation assets, mining properties and property, plant and equipment may be affected due to changes in estimated future cash flows;

•  Depreciation and amortisation charges in the statement of comprehensive income may change where such charges are determined using the unit of production method;

•  Provisions for rehabilitation and environmental provisions may change where resource estimate changes affect expectations about when such activities will occur and the associated cost of these activities.

The Group estimates mineral resources based on information compiled by appropriately qualified Competent Persons relating to the geological and technical data on the size, depth, shape and grade of the ore body and suitable production techniques and recovery rates. Such an analysis requires complex geological judgements to interpret the data. The estimation of recoverable resources is based upon factors such as estimates of foreign exchange rates, commodity prices, future capital requirements and production costs, along with geological assumptions and judgements made in estimating the size and grade of the ore body.

The Group's minerals resources include measured, indicated and inferred resources. While inferred resources have a lower degree of geological certainty, they are included due to the geology of the ore body which can be characterised as vein structures - due to the uniform nature of the veins, their presence can be inferred without high concentration of drilling. The effectiveness of this approach has been justified over time, with a high conversion of inferred resource having been extracted already without major deviations from forecast.

The Group reviews its mineral resource estimates on an annual basis. Similar to previous years, the Group obtains a JORC (Joint Ore Reserves Committee) compliant mineral resource (not a mineral reserve) statement from a third party. The difference between resources and reserves is the level of confidence of the presence of economically viable minerals. As defined by JORC, resources meet a threshold of having 'reasonable prospects of eventual economic extraction'. As the economic assumptions used may change and as additional geological information is produced during the operation of the mine, the estimates of mineral resource may change.

Ore stocks

Stock is valued at the lower of cost or net realisable value. Costs that are incurred in or benefit the production process are accumulated as ore stockpiles, gold in process and gold bullion. Although the quantities of recoverable metal are reconciled by comparing the grades of ore to the quantities of gold and silver actually recovered (metallurgical balancing), the nature of the process inherently limits the ability to precisely monitor recoverability levels. Net realisable value tests are performed at least annually and represent the estimated future sales price of the product based on contained gold and metals prices, less estimated costs to complete production and bring the product to sale. These net realisable tests take into account management's estimate of the maximum values to be realised from ore stockpiles, in some instances through blending of different ore stockpile grades, prior to these being added to future processing plant feeds. Judgement is required in assessing whether stockpiles of different grades should be tested individually, or tested as inputs to the gold production process, as detailed in the Group's accounting policy.

Decommissioning, site restoration and environmental costs

The Group's mining and exploration activities are subject to various laws and regulations governing the protection of the environment. The Group recognises management's best estimate for asset retirement obligations in the period in which they are incurred. Actual costs incurred in future periods could differ materially from the estimates. Additionally, future changes to environmental laws and regulations, life of mine estimates and discount rates could affect the carrying amount of this provision. Such changes could similarly impact the useful lives of assets depreciated on a straight-line-basis, where those lives are limited to the life of mine. This is discussed further in note 26.

Critical judgements

The following judgements (apart from those involving estimates) have had the most significant effect on amounts recognised in the financial statements.

Deferred tax

The Group has incurred trading losses in previous periods which give rise to potential deferred tax assets. The recognition of the deferred tax asset is dependent upon the Group making sufficient taxable profits in future periods to utilise those losses. This is discussed further in note 27.

Uncertain tax positions

The Group's uncertain tax positions are reassessed by management at the end of each reporting period. Liabilities are recorded for income tax positions that are open to significant judgement and interpretation of tax laws that have been enacted or substantively enacted by the end of the reporting period and which are likely to result in additional taxes being levied if the positions were to be challenged by the tax authorities. During the year a provision of $5,329,000 has been made in respect of the ambiguity relating to certain tax deductions claimed by the Group in Russia. While management are of the opinion, based on their interpretation of the relevant tax legislation, that the tax deductions have been lawfully claimed, it is probable that certain tax positions taken by the Group could be challenged by the Russian tax authorities. Accordingly, the Group has created a provision for the associated taxes. This is discussed further in note 26.

Determination of functional currency

The Group has determined the US dollar as the functional currency of its Russian operating subsidiary TSG Asacha on the basis that it is the currency that influences its sale prices (first primary indicator) and in which funds from financing activities are generated and retained (secondary indicators).

Significant judgement has been exercised in determining the functional currency of TSG Asacha, since the secondary primary indicator related to the currency influencing TSG Asacha's labour, materials and other costs of providing goods or services is the Russian rouble.

3 Segment information

The Group's operations are entirely focused on gold production and exploration and development activities within the Russian Federation, with its corporate head office in the UK.

The operating segment has been identified on the basis of internal reports about the components of the Group.

The Group has one reportable segment, being operations in Russia, whose accounting policies are in line with those set out in note 1. The operating results of this segment are regularly reviewed by the Group's chief operating decision maker in order to make decisions about the allocation of resources and to assess their performance.

With the exception of UK administrative costs amounting to $4,298,000 (2019: $2,117,000), the numbers in the primary statements reflect the results of the sole operating segment. All revenue arises from the production of gold with silver as a by-product which is sold to one customer in Russia. All non-current assets are located in Russia.

4 Revenue

	2020 $'000	2019 $'000
Revenue analysed by product
Gold	79,336	61,257
Silver	1,639	1,851
	80,975	63,108

 

5 Exceptional expenses

The exceptional expenses relate entirely to the settlement of the Federal Service for Supervision of Use of Natural Resources, RosPrirodNadzor's ('RPN') claim over the rates applied by the TSG Asacha in its calculations of payments due for disposal of waste materials. The claim was disputed by management and was brought before the first instance court who decided in TSG Asacha's favour on 4 October 2019. Subsequently, RPN appealed the decision and claim settlement in the amount of $1,987,000 was agreed in August 2020.

6 Operating profit

	2020 $'000	2019 $'000
Operating profit for the year is stated after charging:
Exploration expenditure incurred prior to obtaining licencing rights	117	507
Depreciation/depletion of owned property, plant and equipment	12,883	11,999
Depreciation of right of use assets	131	-
Loss on disposal of property, plant and equipment	194	285
Share-based payments	1,560	-
Short-term lease charges	124	272

 

7 Auditors' remuneration

Fees payable to the Company's auditors and associates:

	2020 $'000	2019 $'000
For audit services
Audit of the financial statements of the Group and Company	113	66
Audit of the financial statements of the Company's subsidiaries	122	121
	235	187
For other services
Taxation compliance services	10	-
All other non-audit services	130	-
	140	-

 

8 Employees

The average monthly number of persons (including directors) employed by the Group and Company during the year was:

	Group		Company
	2020 Number	2019 Number	2020 Number	2019 Number
Operations	537	564	-	-
Administration	71	135	8	7
	608	699	8	7

 

Their aggregate remuneration comprised:

	Group		Company
	2020 $'000	2019 $'000	2020 $'000	2019 $'000
Wages and salaries	13,772	13,789	1,556	1,177
Social security costs	3,032	3,189	-	-
Share-based payments	1,560	-	1,560	-
	18,364	16,978	3,116	1,177

 

•  $540,000 (2019: $nil) of employee costs have been capitalised within intangible assets and $757,000 (2019: $643,000) within property, plant and equipment.

•  $533,000 (2019: $837,000) of employee costs were charged to inventories.

•  Employee benefit expense charged to the statement of comprehensive income amounted to $16,534,000 (2019: $15,498,000).

9 Directors' remuneration

	2020 $'000	2019 $'000
Remuneration for qualifying services	3,130	1,033

 

Remuneration disclosed above includes the following amounts paid to the highest paid director:

	2020 $'000	2019 $'000
Remuneration for qualifying services	1,730	568

 

The following table shows the directors who served during the year or in the previous year together with an analysis of their remuneration:

	Salary $'000	Fees $'000	Bonus $'000	Share-based payments $'000	Total 2020 $'000	Total 2019 $'000
Executive directors
Alexander Dorogov	336	-	473	921	1,730	568
Eugene Antonov	250	-	234	377	861	272
Non-executive directors
Charles Ryan	-	58	-	50	108	37
Robert Sasson	-	58	-	50	108	37
Stewart Dickson	-	13	-	112	125	11
Lou Naumovski	-	90	-	-	90	71
Florian Fenner	-	58	-	50	108	37
	586	277	707	1,560	3,130	1,033

 

During the year, management consultancy services have been acquired on an arms length basis from FELDI Limited, of which Stewart Dickson is a director and a shareholder, for $206,000 (2019: $186,000).

At the reporting date, the Directors serving during the year had the following beneficial interests in the shares of the Company:

	Alexander Dorogov Number	Eugene Antonov Number	Charles Ryan Number	Florian Fenner Number	Robert Sasson Number	Stewart Dickson Number
Shares
At 1 January 2019	-	-	6,076,306	5,145,792	709,279	-
Additions	229,567	80,249	1,147,841	-	399,999	29,999
Disposals	-	-	-	(1,715,264)	-	-
At 31 December 2019	229,567	80,249	7,224,147	3,430,528	1,109,278	29,999
Additions	-	-	-	-	-	-
Disposals	-	-	-	-	-	-
At 31 December 2020	229,567	80,249	7,224,147	3,430,528	1,109,278	29,999
	Alexander Dorogov	Eugene Antonov	Charles Ryan	Florian Fenner	Robert Sasson	Stewart Dickson
Percentage of total voting rights
At 31 December 2020	0.26%	0.09%	8.29%	3.94%	1.27%	0.03%

 

10 Pension arrangements

The Group does not provide a pension scheme for its directors or employees (2019: none).

 

11 Finance income

	2020 $'000	2019 $'000
Interest income on short-term bank deposits	30	70

 

12 Finance expenses

	2020 $'000	2019 $'000
Interest payable on borrowings	1,703	1,548
Accretion of decommissioning provision	81	94
	1,784	1,642

 

13 Earnings per share

The basic earnings per share for the year amounted to 23.25 cents per share (2019: 9.17 cents per share). The diluted earnings per share for the year amounted to 22.60 cents per share (2019: 9.17 cents per share).

The calculation of basic earnings per 10p ordinary share is based on the retained profit for the year of $20,261,000 (2019: $9,006,000) and on 87,158,508 (2019: 98,291,305) ordinary shares, being the weighted average number of ordinary shares in issue (excluding treasury shares) and ranking for dividends during the year.

Diluted earnings per ordinary share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. On 5 June 2020 and 27 August 2020 the Company awarded 4,897,988 of options and contingently issuable shares under two new Long Term Incentive Plans ('LTIP') which comprise performance based equity and time restricted equity (note 30). Prior to this, the Company did not have any dilutive potential ordinary shares. The number of contingently issuable shares included in the diluted earnings per share calculation is based on the number of shares that would be issuable if the end of the reporting period was the end of the contingency period.

The calculation of diluted earnings per 10p ordinary share is based on the retained profit for the year of $20,261,000 and on 89,663,931 ordinary shares, being the weighted average number of ordinary shares in issue (excluding treasury shares) of 87,158,508 adjusted for 2,505.423 of contingently issuable shares.

 

14 Income tax on profit

	2020 $'000	2019 $'000
Current tax
Current tax - UK Corporation tax	-	-
Current tax - Russian Corporation tax	8,347	4,164
Adjustments to Russian Corporation tax in respect of prior years	-	(933)
Total current tax	8,347	3,231
Total current tax	8,347	3,231
Deferred tax
Origination and reversal of temporary differences	(566)	(427)
Adjustments in respect of prior years	-	785
Total deferred tax	(566)	358
Total tax charge for the year	7,781	3,589

 

Factors affecting corporation tax for the year

The tax on the Group's profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the consolidated entities as follows:

	2020 $'000	2019 $'000
Profit before taxation	28,042	12,595
Expected tax charge based on the UK corporation tax rate of 19.00% (2019: 19.00%)	5,328	2,393
Tax effect of expenses that are not deductible in determining taxable profit	883	220
Effect of overseas tax rates	82	139
Over provided in prior years	-	(933)
Deferred tax adjustments in respect of prior years	-	785
Foreign exchange differences	1,005	730
Unrecognised taxable losses carried forward	483	255
Taxation charge for the year	7,781	3,589

 

Factors affecting future tax charge

The main rate of UK corporation tax in the year was 19%. During the year, legislation was enacted to maintain the corporation tax rate at 19% from 1 April 2021, instead of reducing to 17% as previously announced. On 10 March 2021, the UK government announced that the corporation tax rate would increase from 19% to 25% from 1 April 2023. As the legislation was not substantively enacted at the reporting date, deferred tax balances continue to be recognised at 19%.

 

15 Dividends

	2020 $'000	2019 $'000
Final dividend for 2018 of $0.009 per ordinary share	-	784
Interim dividend for 2018 of $0.052 per ordinary share	-	5,722
Interim dividend for 2019 of $0.023 per ordinary share	-	2,005
Final dividend for 2019 of $0.023 per ordinary share	2,005	-
Interim dividend for 2020 of $0.08 per ordinary share	6,972	-
	8,977	8,511

 

16 Intangible assets

Group	Deferred exploration and evaluation costs $'000
Cost
At 1 January 2019	-
Additions	3,868
At 31 December 2019	3,868
Additions	2,513
At 31 December 2020	6,381
Amortisation
At 1 January 2020 and 31 December 2020	-
Carrying amount
At 31 December 2020	6,381
At 31 December 2019	3,868
At 1 January 2019	-

 

The Company had no intangible assets at 31 December 2020 or 31 December 2019.

Additions in the year relate to the evaluation of the Rodnikova gold deposit and exploration of Vein 25 North ("V25N").

Rodnikova is a high-grade gold and silver epithermal deposit located in close proximity to the Company's operating Asacha Gold Mine. It is estimated to contain 1Moz of gold with an average grade of 5.3g/t. In April 2019 the Federal Agency for Subsoil Use ("Rosnedra") issued a licence to the Company's wholly owned subsidiary TSG Asacha for the development and exploration of the Rodnikova deposit for a tenure of 20 years.

V25N was discovered in September 2019 following a successful drilling campaign. It is located approximately 400 metres north of Vein 25 within the East Zone of the Company's operating Asacha Gold Mine.

 

17 Property, plant and equipment

Group	Mining properties $'000	Buildings $'000	Plant and machinery $'000	Office equipment $'000	Motor vehicles $'000	Assets under construction $'000	Total $'000
Cost
At 1 January 2019	88,833	84,415	21,906	419	5,691	1,373	202,637
Additions	2,024	735	307	21	1,895	1,451	6,433
Disposals	-	(10)	(1,184)	(47)	(26)	-	(1,267)
Transfers	-	389	667	-	-	(1,056)	-
At 31 December 2019	90,857	85,529	21,696	393	7,560	1,768	207,803
Additions	5,579	-	628	26	1,254	173	7,660
Disposals	(260)	(152)	(2,076)	(25)	(336)	-	(2,849)
Transfers	-	-	1,733	-	(666)	(1,067)	-
At 31 December 2020	96,176	85,377	21,981	394	7,812	874	212,614
Depreciation
At 1 January 2019	41,403	54,633	11,920	399	2,977	183	111,515
Depreciation charge	5,434	5,255	2,289	16	1,021	-	14,015
Disposals	-	(10)	(899)	(47)	(13)	-	(969)
At 31 December 2019	46,837	59,878	13,310	368	3,985	183	124,561
Depreciation charge	5,380	5,038	2,471	15	1,379	-	14,283
Disposals	(137)	(37)	(2,022)	(20)	(328)	-	(2,544)
Transfers	-	-	111	-	(111)	-	-
At 31 December 2020	52,080	64,879	13,870	363	4,925	183	136,300
Carrying amount
At 31 December 2020	44,096	20,498	8,111	31	2,887	691	76,314
At 31 December 2019	44,020	25,651	8,386	25	3,575	1,585	83,242
At 1 January 2019	47,430	29,782	9,986	20	2,714	1,190	91,122

 

The Company had no property, plant and equipment at 31 December 2020 or 31 December 2019.

Bank borrowings are secured over certain property, plant and equipment with the net book value of $13,315,000 as at 31 December 2020 (2019: $16,078,874.39) (note 23).

Capitalisation of depreciation and interest

•  $417,000 (2019: $198,000) of the depreciation charge is included in additions to mining properties.

•  $nil (2019: $66,000) of the depreciation charge is included in additions to assets under construction.

•  $984,000 (2019: $1,752,000) of the depreciation and mining properties' depletion charges are included in inventory.

•  $86,000 (2019: $nil) and $1,000 (2019: $43,000) of interest expense is included within additions to mining properties and assets under construction respectively.

Mining properties

Mining properties assets relate to the Asachinskoye (Asacha) mining licence held by the Company's subsidiary TSG Asacha.

On 8 September 1994, the Kamchatka Department of the Geological Committee of the Russian Ministry for Natural Resources issued a licence, after tender, to TSG Asacha for the exploration and development of the Asacha minerals deposit in Kamchatka. The licence includes the right to extract gold and silver and, pursuant to the decision of the Federal Agency on Subsoil Use on 12 September 2013, its term was extended for five years until 1 September 2018. On 26 June 2018 the Group received a further six-year extension to the licence term until 31 December 2024.

Impairment review

During the year there were no impairment triggers requiring an impairment review under IAS 36 "Impairment of assets".

18 Investments in subsidiaries

		Group		Company
	Notes	2020 $'000	2019 $'000	2020 $'000	2019 $'000
Investments in subsidiaries	19	-	-	73,976	73,976
Loans to subsidiaries		-	-	-	8,974
		-	-	73,976	82,950

 

The loans to subsidiaries were unsecured, bore interest between 6% and 8% and were fully repaid during the year.

Movements in investments in subsidiaries

	Investments in subsidiaries $'000	Loans to subsidiaries $'000	Total $'000
Cost
At 1 January 2019	73,976	22,302	96,278
Additions (interest accrued)	-	757	757
Repayments	-	(14,085)	(14,085)
At 31 December 2019	73,976	8,974	82,950
Additions (interest accrued)	-	113	113
Repayments	-	(9,087)	(9,087)
At 31 December 2020	73,976	-	73,976
Carrying amount
At 31 December 2020	73,976	-	73,976
At 31 December 2019	73,976	8,974	82,950
At 1 January 2019	73,976	22,302	96,278

 

19 Subsidiaries

Details of the Company's subsidiaries at 31 December 2020 are as follows:

Name of undertaking	Registered office	Nature of business	Class of shares held	% Held Direct
OOO Trans-Siberian Gold Management	Office 1, 45 floor, 12 Vostok tower, Presnenskaya nab, 123112 Moscow, Russian Federation	Administration	Participating shares	100
JSC TSG Asacha	Office 7, 17 Murmanskaya St, 684000 Yelizovo, Kamchatka Region, Russian Federation	Mining	Common shares	100

 

On 21 April 2021, the Company's wholly owned subsidiary AO Trevozhnoye Zarevo ("TZ") changed its name to Joint-Stock Company TSG Asacha ("JSC TSG Asacha" or "TSG Asacha").

On 2 February 2021, the Company incorporated a new subsidiary company in Russia, OOO Rodnikovoe, of which it owns 100% of the participating interest. Rodnikovoe's primary activity is to develop and mine Rodnikova gold deposit (note 16).

 

20 Inventories

	Group		Company
	2020 $'000	2019 $'000	2020 $'000	2019 $'000
Non-current:
Ore stocks	-	1,370	-	-
	-	1,370	-	-
Current:
Gold in progress	1,786	1,666	-	-
Silver in progress	199	76	-	-
Ore stocks	8,062	4,926	-	-
Raw materials and consumables	6,111	8,689	-	-
	16,158	15,357	-	-
	16,158	16,727	-	-

 

Finished silver, gold in progress, silver in progress and ore stocks include mining properties depletion $984,000 (2019: $1,752,000).

 

21 Trade and other receivables

	Group		Company
	2020 $'000	2019 $'000	2020 $'000	2019 $'000
Trade receivables	-	163	-	-
Receivables from subsidiary companies	-	-	651	2,681
Other receivables	1,774	1,149	61	13
Prepayments	3,289	1,975	298	56
	5,063	3,287	1,010	2,750

 

Amounts receivable from subsidiary companies in the prior year included a short-term loan of $1,361,000. This loan was unsecured, bore no interest and was fully repaid during the year. The remaining amounts receivable from subsidiary companies represent trading balances, are interest free, unsecured and repayable on demand.

 

22 Trade and other payables

	Group		Company
	2020 $'000	2019 $'000	2020 $'000	2019 $'000
Trade payables	2,360	2,716	595	135
Amounts due to subsidiary companies	-	-	35	42
Social security and other taxes	944	21	-	-
Other payables	2,374	3,146	-	-
Accruals	242	98	242	98
	5,920	5,981	872	275

 

Amounts due to subsidiary companies are unsecured, interest free and repayable on demand.

 

23 Borrowings

	Group		Company
	2020 $'000	2019 $'000	2020 $'000	2019 $'000
Current:
Bank borrowings	7,765	9,502	-	-
Equipment loans	415	279	-	-
	8,180	9,781	-	-
Non-current:
Bank borrowings	5,410	13,432	-	-
Equipment loans	1,559	1,900	-	-
	6,969	15,332	-	-
	15,149	25,113	-	-

 

Movement in borrowings is analysed as follows:

	Group		Company
	2020 $'000	2019 $'000	2020 $'000	2019 $'000
At 1 January	25,113	17,093	-	-
Proceeds from bank borrowings	11,806	13,683	-	-
Repayment of bank borrowings and accrued interest	(19,968)	(8,027)	-	-
Proceeds from equipment loans	510	2,634	-	-
Repayment of equipment loans and accrued interest	(312)	(511)	-	-
Foreign exchange on financing activity	(2,000)	241	-	-
At 31 December	15,149	25,113	-	-

 

Bank borrowings

On 29 May 2020, the Group's wholly owned subsidiary TSG Asacha entered into an agreement with VTB Bank for a $10 million revolving credit line for a period of 3 years. The new facility replaced the existing $5 million credit line which expired on 20 June 2020 and will provide additional working capital and short-term liquidity for the Group.

The interest rate on the new facility has been reduced from 6.2% to 5.2% per annum. The credit agreement retains customary representations and warranties from TSG Asacha to VTB and is secured against the equity and fixed assets of TSG Asacha. Certain amounts drawn down under the credit line must be repaid within one year. TSG Asacha also retains its obligation to sell gold exclusively to VTB Bank.

Furthermore, the Credit Committee of VTB agreed to lower the current interest rate on a separate existing Russian rouble-denominated credit line, which was provided to TSG Asacha in 2019 for a 4-year term at an annual interest rate of 10.7%. A floating interest rate is now set on this existing facility, calculated as 2.2% over the lending rate of the Russian Central Bank. At 31 December 2020 the outstanding balance on this facility amounted to RUB458 million (approximately $6.2 million). The facility is secured against mining properties and buildings of TSG Asacha.

The credit facilities with VTB bank contain a protective clause permitting the lender to require early repayment of the loan if, as a result of a change in the Company's controlling beneficiary owners, circumstances exist which may imply that the credit facility may not be repaid. On the basis that the Group is in a net cash position, it can repay the loan at any time should it be called upon. Early repayment has not been requested by VTB. This coupled with the fact that VTB bank is also the financial adviser to Horvik and intends to finance the cash consideration payable by Horvik to TSG's shareholders (note 35) using debt to be provided under a facilities agreement between VTB bank and Horvik, the Directors are of the opinion that VTB bank will not request early repayment following Horvik's acquisition.

Equipment loans

TSG Asacha entered into 8 separate equipment loans with AO VTB Leasing for the total amount of RUB 206 million ($3.1 million) to finance the acquisition of certain heavy machinery and equipment. The loans are for a period from 3 to 5 years, secured over the respective acquired assets and bear average annual effective interest rate of 14%.

The effective interest rate is determined by discounting future payments through the life of the loan. The future payments include interest as well as arrangement fees and asset insurance.

 

24 Leases

Group	Office lease $'000
Right of use assets
At 1 January 2020	-
Additions in the year	860
Amortisation	(131)
At 31 December 2020	729
Group	Total $'000
Lease liabilities
At 1 January 2020	-
Additions in the year	(860)
Lease payments made	146
Unwinding of a discount	(44)
Foreign exchange	107
At 31 December 2020	(651)
Current	(117)
Non-current	(534)
	(651)

 

Leases relate entirely to the 5-year office rent agreement entered into in February 2020.

 

25 Financial instruments

The Group is exposed through its operations to the following financial risks: liquidity risk, credit risk, cash flow interest rate risk, commodity price risk and foreign exchange risk. The Board seeks to minimise the Group's exposure to those risks by reviewing and agreeing policies for managing each financial risk and monitoring them on a regular basis. No formal policies have been put in place in order to hedge the Group's activities to the exposure to interest risk, commodity price risk or currency risk, however these may be considered in future. No derivatives or hedges were entered into during the year.

There have been no substantive changes in the Group's exposure to financial instrument risks, its policies and processes for managing those risks or the methods used to measure them unless otherwise stated in this note.

Principal financial instruments

The Group's principal financial instruments, from which financial instrument risk arises, comprise long and short-term loans, cash and short-term deposits as well as trade and other receivables and trade and other payables which arise directly from its operations.

The table below shows the carrying value of the Group's financial assets and financial liabilities.

	Group		Company
	2020 $'000	2019 $'000	2020 $'000	2019 $'000
Carrying amount of financial assets
Trade and other receivable	304	277	654	11,658
Cash and cash equivalents	22,400	8,697	117	400
Carrying amount of financial liabilities
Measured at amortised cost	18,402	28,107	872	275

 

Liquidity risk

The Group's policy is to ensure that it has sufficient cash to allow it to meet its liabilities when they become due. Cash forecasts identifying the Group's funding and liquidity requirements are reviewed regularly by the Board.

The contractual maturities of the Group's financial liabilities (which are all carried at amortised cost) are shown in the table below:

Group 2020	Carrying amount $'000	Contractual cash flows $'000	6 months or less $'000	6 to 12 months $'000	12 to 60 months $'000
Current financial liabilities:
Trade and other payables	2,602	2,602	2,602	-	-
Loans and borrowings	8,167	8,167	4,619	3,548	-
Interest	13	636	364	272	-
Leases	117	117	59	58	-
Non-current financial liabilities:
Loans and borrowings	6,969	6,969	-	-	6,969
Interest	-	466	-	-	466
Leases	534	534	-	-	534
	18,402	19,491	7,644	3,878	7,969
Company 2020	Carrying amount $'000	Contractual cash flows $'000	6 months or less $'000	6 to 12 months $'000	12 to 60 months $'000
Current financial liabilities:
Trade and other payables	872	872	872	-	-
Group 2019	Carrying amount $'000	Contractual cash flows $'000	6 months or less $'000	6 to 12 months $'000	12 to 60 months $'000
Current financial liabilities:
Trade and other payables	2,994	2,994	2,994	-	-
Loans and borrowings	9,683	9,683	5,121	4,562	-
Interest	98	750	424	326	-
Non-current financial liabilities:
Loans and borrowings	15,332	15,332	-	-	15,332
Interest	-	2,909	566	566	1,777
	28,107	31,668	9,105	5,454	17,109
Company 2019	Carrying amount $'000	Contractual cash flows $'000	6 months or less $'000	6 to 12 months $'000	12 to 60 months $'000
Current financial liabilities:
Trade and other payables	275	275	275	-	-

 

Credit risk

The credit risk on liquid funds is limited because the counterparties are banks with credit ratings assigned by international credit rating agencies. The Company has made investments in and loans to one of its subsidiaries, recovery of which is dependent on the future income generation of that subsidiary.

The Group and Company's maximum exposure to credit risk by class of individual financial instrument is shown in the table below:

Group	2020		2019
	Carrying value $'000	Maximum exposure $'000	Carrying value $'000	Maximum exposure $'000
Current financial assets:
Trade and other receivables	304	304	277	277
Cash and cash equivalents	22,400	22,400	8,697	8,697
	22,704	22,704	8,974	8,974
Company	2020		2019
	Carrying value $'000	Maximum exposure $'000	Carrying value $'000	Maximum exposure $'000
Current financial assets:
Trade and other receivables	-	-	3	3
Loans to subsidiaries	654	654	2,681	2,681
Cash and cash equivalents	117	117	400	400
Non - current financial assets:
Loans to subsidiaries	-	-	8,974	8,974
	771	771	12,058	12,058

 

Cash flow interest rate risk

The Group is exposed to cash flow interest rate risk from its deposits of cash and cash equivalents with banks. The cash balances maintained by the Group are managed in order to ensure that the maximum level of interest is received for the available funds but without affecting working capital flexibility.

With the exception of the RUB458 million (approximately $6.2 million) Russian rouble loan facility, all of the other Group's borrowings are issued at fixed rates and do not expose the Group to cash flow interest rate risk.

The RUB458 million Russian rouble loan facility bears a floating interest rate calculated as 2.2% over the lending rate of the Russian Central Bank which was 4.25% at the reporting date. A 1% increase/decrease in the Russian Central Bank's rate will decrease/increase the Group's profit by $59,000.

The interest rate profile of the Group and Company's financial assets and liabilities at the reporting date was as follows:

Cash		Group		Company
		2020 $'000	2019 $'000	2020 $'000	2019 $'000
US dollars	Fixed rate	286	8,100	-	-
US dollars	Non-interest bearing	20,667	114	112	-
Sterling	Non-interest bearing	4	338	4	338
Russian roubles	Fixed rate	1,029	49	-	-
Russian roubles	Non-interest bearing	414	96	1	62
		22,400	8,697	117	400
Loans		Group		Company
		2020 $'000	2019 $'000	2020 $'000	2019 $'000
Russian roubles	Floating rate - 6.45% (2019: Fixed rate - 10.70%)	6,819	9,710	-	-
Russian roubles	Fixed rate - 14% (2019: Fixed rate - 15.72%)	1,974	2,179	-	-
US dollars	Fixed rate - 5.2% (2019: Fixed rate - 6.2%)	6,343	13,126	-	-
		15,136	25,015	-	-

 

The weighted average interest rate payable during the year was 5.2% (2019: 6.2%) on US dollar loans and 8.1% (2019: 11.62%) on Russian rouble loans.

The weighted average interest rates earned during the year were 0.0% (2019: 0.0%) on floating rate sterling cash balances, 0.10% (2019: 0.10%) on floating rate US dollar balances and 5.5% (2019: 5.5%) on floating rate Russian rouble balances.

At the year end, the Group had cash on overnight deposit. Short-term deposits during the year included overnight, one-week and one-month notice periods.

Commodity price risk

By the nature of its activities the Group is exposed to fluctuations in commodity prices and, in particular, the price of gold as these could affect its ability to raise further finance in the future, its future revenue levels and the viability of its projects. The Group does not currently hold any financial instruments to hedge the commodity price risk on its expected future production. The Board will keep this exposure under review, taking account of the extent to which the commodity price risk can be hedged and other factors including production risks and the costs of the hedge programme.

Foreign currency risk

The Group reports in US dollars and conducts most of its business in dollars and Russian roubles. It also conducts business in sterling.

The table below shows the extent to which Group companies have monetary assets and liabilities in currencies other than their functional currency.

	31 December 2020		31 December 2019
	RUB $'000	GBP $'000	RUB $'000	GBP $'000
Trade and other receivables	304	-	274	3
Trade and other payables	(1,765)	(837)	(2,761)	(233)
Cash	1,442	4	66	-
	(19)	(833)	(2,421)	(230)

 

Effect on profit of changes in exchange rates

Net foreign exchange gains totalling $310,000 (2019: $46,000) have been recognised in the statement of comprehensive income for the year. The exchange gains principally reflect the impact of the depreciation of the Russian rouble on the Group's Russian rouble denominated monetary items.

The table below shows the impact of changes in exchange rates on the result and financial position of the Group:

	31 December 2020		31 December 2019
	RUB $'000	GBP $'000	RUB $'000	GBP $'000
10% increase in exchange rate	2	76	220	21
10% decrease in exchange rate	(2)	(93)	(269)	(25)

 

Fair values of the Group's and Company's financial liabilities and assets

The fair value of the Group's long-term borrowing (which is US dollar fixed rate debt) and provisions are shown at their carrying values as any differences are not material. The fair value of the Group's and the Company's short-term borrowing, cash and cash equivalents equates to their carrying value because of the short maturity of these instruments. The fair values of the Group's and the Company's trade and other payables and trade and other receivables are not significantly different from their carrying values. The fair values have been calculated by discounting expected cash flows at prevailing interest rates and by applying year end exchange rates.

Capital risk management

The Company is not required to comply with any externally imposed capital requirements. The Company's Russian subsidiaries are required to maintain net asset values equal to or above their share capital. In previous years the Company has made additional capital contributions to its subsidiaries through the forgiveness of loans in order to correct negative equity positions in those subsidiaries' local accounts.

The Group's primary objective when managing capital is to ensure that there is sufficient capital available to support the Group's funding requirements, including capital expenditure, in a way that optimises the cost of capital, maximises shareholders' returns and ensures the Group's ability to continue as a going concern. There were no changes to the Group's capital management approach during the year.

The Group may make adjustments to the capital structure as opportunities arise, as and when borrowings mature or as and when funding is required. This may take the form of raising equity, debt finance, equipment supplier credits or a combination thereof.

The Group monitors capital on the basis of the gearing ratio, which is defined as net debt divided by total capital. Net debt is calculated as total borrowings (including current and non-current borrowings as shown in the consolidated statement of financial position) less cash and cash equivalents.

Total capital is calculated as equity as shown in the consolidated statement of financial position plus net debt. While the Group does not set absolute limits on the ratio, the Group believes that optimally it should remain below 25%. The Company's policy in respect of capital risk management is the same as that of the Group.

The gearing ratios at 31 December 2020 and 2019 were as follows:

	Group		Company
	2020 $'000	2019 $'000	2020 $'000	2019 $'000
Total borrowings	15,149	25,113	-	-
Less: cash and cash equivalents	(22,400)	(8,697)	(117)	(400)
Net debt	(7,251)	16,416	(117)	(400)
Total equity	91,084	78,240	74,231	85,825
Total capital	83,833	94,656	74,114	85,425
Gearing ratio	(8.65)%	17.34%	(0.16)%	(0.47)%

 

26 Provisions

	Group		Company
	2020 $'000	2019 $'000	2020 $'000	2019 $'000
Environmental/site restoration provision	1,299	1,264	-	-
Uncertain tax provisions	5,329	-	-	-
	6,628	1,264	-	-

 

Movements in provisions

	Group		Company
	2020 $'000	2019 $'000	2020 $'000	2019 $'000
At 1 January	1,264	1,008	-	-
Additional provisions in the year	5,329	-	-	-
Liability adjustment	163	34	-	-
Unwinding of discount	81	94	-	-
Exchange difference	(209)	128	-	-
At 31 December	6,628	1,264	-	-

 

During the year a provision of $5,329,000 has been made in respect of the ambiguity relating to certain tax deductions claimed by the Group in Russia. While management are of the opinion, based on their interpretation of the relevant tax legislation, that the tax deductions have been lawfully claimed, it is probable that certain tax positions taken by the Group could be challenged by the Russian tax authorities. Accordingly, the Group has created a provision for the associated taxes. The balance at 31 December 2020 is expected to be either fully utilised or released when the inspection rights of the tax authorities with respect to the relevant tax returns expire.

The environmental/site restoration provision relates to the site restoration at the Asacha mine, which is expected to commence in 2027. The provision is estimated based on the regional data from the Monitoring Ecological Centre of Kamchatka.

 

27 Deferred taxation

The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon:

Group	2020 $'000	2019 $'000
Liability: Accelerated capital allowances	6,505	6,889
Asset: Tax losses	(39)	(43)
Asset: Other provisions	(312)	(126)
Net deferred tax liabilities	6,154	6,720
Net deferred tax liabilities to be recovered after more than 12 months	6,489	6,720
Net deferred tax assets to be recovered within 12 months	(335)	-
	6,154	6,720

 

The Company has no deferred tax assets or liabilities.

	Group	Group	Company	Company
	2020 $'000	2019 $'000	2020 $'000	2019 $'000
Movements in the year:
Net liability at 1 January	6,720	6,362	-	-
(Credited)/charged to statement of comprehensive income	(566)	358	-	-
Net liability at 31 December	6,154	6,720	-	-

 

Deferred tax assets are recognised for tax losses carried forward to the extent that the realisation of the relevant tax benefit through future taxable profits is probable.

As at 31 December 2020, the Company had unrecognised tax losses carried forward with a tax value, at the standard rate of corporation tax in the UK of 19%, of $2,837,000 (2019: $2,400,000).

The subsidiaries in Russia had recognised tax losses carried forward with a tax value, at the standard rate of corporation tax in Russia of 20%, of $39,000 (2019: $43,000).

 

28 Share capital and reserves

	Group and Company
	2020 Number	2019 Number
Authorised
Ordinary shares of 10p each	150,000,000	150,000,000
	Group and Company
	2020 $'000	2019 $'000
Issued and fully paid
87,158,508 (2019: 87,158,508) ordinary shares of 10p each	18,988	18,988

 

On 12 July 2019 the Company completed a share buy back from two of its major shareholders within UFG Asset Management ("UFG") and bought back 22,894,565 of its existing ordinary shares by means of an off-market share buyback transaction at a price of 33 pence per share, representing a discount of 42% to the closing middle market price of a TSG ordinary share on 1 May 2019, for an aggregate purchase price of £7.56 million ($9.44 million) (the "Buyback").

The Buyback was funded out of the Company's existing distributable profits, facilitated by the repayment of intra-group indebtedness by the Company's wholly owned subsidiary, TSG Asacha, utilising a loan facility obtained by TSG Asacha from VTB Bank (note 23).

At the reporting date the Company had 87,158,508 ordinary shares in issue and held 22,894,565 ordinary shares in treasury.

Subsequently to the year end, in February 2021 the Company announced a further share buyback and in March 2021 a recommended pre-conditional mandatory cash offer for the Company, refer to note 35.

Reserves definition

Share capital

Share capital represents amounts subscribed for share capital at nominal value.

Treasury shares

Weighted average cost of own shares held in treasury.

Share-based payments reserve

Share-based payments reserve relates to the fair value of the share options that have been charged to the statement of comprehensive income in line with IFRS 2 'Share-based payment' requirements.

Retained earnings

Retained earnings represents the cumulative net gains and losses recognised in the statement of comprehensive income less any amounts reflected directly in other reserves.

 

29 Commitments

Short-term lease commitments

The Group leases various property, plant and machinery under short-term cancellable lease agreements. The lease expenditure charged to profit or loss during the year is disclosed in note 6.

At the reporting end date the Group had outstanding commitments for future minimum lease payments under non-cancellable leases, which fall due as follows:

	Group		Company
	2020 $'000	2019 $'000	2020 $'000	2019 $'000
Within one year	86	161	-	-
	86	161	-	-

 

Lease payments are effected by equal monthly instalments. Leased equipment may only be used at the Asacha mine. Leased land and buildings includes property in Moscow and Kamchatka.

Capital commitments

At the reporting date the Group had $4,624,000 of non-cancellable capital commitments related to the Asacha mine (2019: $2,825,000).

30 Share-based payment transactions

On 8 June and 28 August 2020 the Company announced two Long Term Incentive Plans (the "LTIP" or the "Scheme") whose objective is the sustained alignment of interests between directors and shareholders to deliver long-term growth in shareholder value. Prior to this, there were no options or warrants in existence. On 5 June 2020, the Company granted 3,597,988 of contingently issuable shares to its executive directors under the LTIP which comprise performance based equity and time restricted equity.

On 27 August 2020 a further 1,300,000 of contingently issuable share options were granted to four non-executive directors with an exercise price of 10 pence per share and comprise performance based equity and time restricted equity.

Group and company	Number of share options		Weighted average exercise price
	2020 Number	2019 Number	2020 £	2019 £
Outstanding at 1 January	-	-	-	-
Granted on 5 June 2020	3,597,988	-	-	-
Granted 27 August 2020	1,300,000	-	0.10	-
Expired	-	-	-	-
Outstanding at 31 December	4,897,988	-	0.03	-
Exercisable at 31 December	-	-	-	-

 

The options outstanding at 31 December 2020 had an exercise price ranging from £nil to 10 pence per share, and a remaining contractual life between 6 months and 30 months.

As a result of completion of Horvik acquisition on 26 May 2021 (note 35), all awards granted under the Company's Long Term Incentive Plans vested under the change of control provisions in the LTIP's rules. The awards were settled by the Company transferring 4,787,816 of its shares out of treasury.

 

 

Group and company

The fair value of the options granted in the year was determined using a Monte Carlo simulation model and ranged between $0.77 per option and $1.40 per option. The significant inputs in the model were as follows:

			2020	2019
Weighted average share price ($)			0.86	-
Weighted average exercise price ($)			-	-
Expected volatility (%)			52.00	-
Number of simulations			10,000.00	-
Expected dividends yields (%)			1.97	-
	Group		Company
	2020 $'000	2019 $'000	2020 $'000	2019 $'000
Expense recognised in the year
Arising from equity settled share based payment transactions	1,560	-	1,560	-

 

31 Cash generated from Group's operations

	2020 $'000	2019 $'000
Profit for the year after tax	20,261	9,006
Adjustments for:
Taxation charged	7,781	3,589
Finance expenses	1,784	1,642
Finance income	(30)	(70)
Loss on disposal of property, plant and equipment	194	285
Unrealised foreign exchange differences	(2,266)	290
Depreciation of property, plant and equipment	12,883	11,999
Depreciation of right of use assets	131	-
Share-based payments	1,560	-
Movements in working capital:
Decrease/(increase) in inventories	1,552	(402)
Increase in trade and other receivables	(766)	(1,057)
(Decrease)/increase in trade and other payables	(61)	814
Cash generated from operations	43,023	26,096

 

 

 

 

32 Cash used in Company's operations

	2020 $'000	2019 $'000
Loss for the year after tax	(4,177)	(1,348)
Adjustments for:
Finance income	(120)	(769)
Unrealised foreign exchange differences	(9)	(16)
Equity settled share based payment expense	1,560	-
Movements in working capital:
Decrease/(increase) in trade and other receivables	1,740	(107)
Increase in trade and other payables	604	110
Cash used in operations	(402)	(2,130)

 

33 Related party transactions

The directors of the Company consider that there are no key management personnel, as defined by IAS 24, Related party transactions, other than the directors themselves.

Directors' emoluments and their beneficial interests in the ordinary shares of the Company are detailed in note 9.

Transactions between the Company and its subsidiaries and between those subsidiaries include technical, management and other services and loans as detailed below:

	Purchases (Sales) 2020 $'000	Balance at 31 December 2020 $'000	Purchases (Sales) 2019 $'000	Balance at 31 December 2019 $'000
Nature of transaction
Trans-Siberian Gold Plc
Technical services	-	651	-	1,317
Other services	-	(35)	-	(42)
Loan interest	(113)	-	(757)	5,864
Loans	-	-	-	4,473
	(113)	616	(757)	11,612
OOO Trans-Siberian Gold Management
Management services	(1,964)	119	(1,806)	106
Other services	-	35	-	42
	(1,964)	154	(1,806)	148
JSC TSG Asacha
Technical services	-	(651)	-	(1,317)
Management services	1,964	(119)	1,806	(106)
Loan interest	113	-	757	(5,864)
Loans	-	-	-	(4,473)
	2,077	(770)	2,563	(11,760)
Total	-	-	-	-

 

During the year, management consultancy services have been acquired from FELDI Limited, of which Stewart Dickson is director and shareholder, for $206,000 (2019: $186,000). At the reporting date $nil was owed to FELDI Limited (2019: $12,000). These services have been provided at arm's length basis.

During the year, $175,000 (2019: $150,000) was paid to UFG Asset Management under the terms of the shareholders' relationship agreement entered into on 28 November 2019 between the Company and certain entities of UFG Asset Management.

There were no other related party transactions.

 

34 Ultimate controlling party

At the reporting date the ultimate control of the Company was with the individual investors in certain funds of UFG Asset Management. No one investor was considered to be the ultimate controlling party.

Following Horvik's acquisition discussed in note 35, as at the date of this document, Horvik Limited is beneficially interested in approximately 48.6% of the issued share capital of TSG (excluding shares held in treasury). Horvik is required under Rule 9 of the City Code on Takeovers and Mergers to make an offer for the TSG Shares not already held or agreed to be acquired by Horvik. The offer document containing the terms of the Offer will be posted to TSG Shareholders as soon as practicable and in any event by 16 June 2021.

 

35 Events after the reporting date

On 18 March 2021, the Company announced a recommended pre-conditional mandatory cash offer to be made by Horvik Limited ("Horvik") for the Company and that Horvik had agreed to acquire 44,558,918 of the Company's ordinary shares, representing approximately 51.2 per cent. of the Company's issued share capital (excluding any shares held in treasury), from a group of the Company's shareholders (the "selling shareholders") (the "acquisition").

In the first stage of the acquisition Horvik acquired 21,437,000 of the Company's ordinary shares, representing 24.7 per cent. of the Company's issued share capital (excluding any shares held in treasury) pro rata from each of the selling shareholders. The acquisition of the remaining 23,121,918 Company's ordinary shares from the selling shareholders was conditional upon Horvik receiving clearance from the Russian Federal Antimonopoly Service which was granted to Horvik on 19 May 2021 resulting in the pre-condition to the offer being satisfied.

On 26 May 2021, Horvik completed the acquisition of the remaining 23,121,918 Company's shares, representing approximately 26.6 per cent. of the issued share capital of the Company (excluding any shares held in treasury). As a result, Horvik held 44,558,918 of the Company's shares, representing approximately 51.2 per cent. of the issued share capital of the Company (excluding any shares held in treasury).

As a result of completion of the acquisition, the awards granted under the Company's Long Term Incentive Plan (note 30) to executive and non-executive directors vested under the change of control provisions in the LTIP's rules. The awards were settled by the Company transferring 4,787,816 of its shares out of treasury. Following the LTIP's settlement, Horvik's shareholding in the Company was diluted from approximately 51.2% of the Company's issued share capital (excluding shares held in treasury) to approximately 48.6% of the Company's issued share capital (excluding shares held in treasury).

Under the terms of the offer, the Company's shareholders will receive £1.18 in cash for each ordinary share of the Company, which values the Company's entire issued and to be issued share capital at approximately £108,253,043.

The terms of the offer represent a premium of approximately:

•  18 per cent. to the closing price per Company's ordinary share of £1.00 on 17 March 2021 (being the last practicable date prior to the date of the offer announcement);

•  34 per cent. premium to the closing price per Company's ordinary share of £0.88 on 4 March 2021 (being the last Business Day prior to the date on which Horvik first approached the Company's Independent Directors); and

•  26 per cent. to the volume weighted average closing price per Company's ordinary share of £0.94 for the one month period ended on 17 March 2021 (being the last practicable date prior to the date of the offer announcement).

The credit facilities with VTB bank (note 23) contain a protective clause permitting the lender to require early repayment of the loan if, as a result of a change in the Company's controlling beneficiary owners, circumstances exist which may imply that the credit facility may not be repaid. On the basis that the Group is in a net cash position, it can repay the loan at any time should it be called upon. Early repayment has not been requested by VTB. This coupled with the fact that VTB bank is also the financial adviser to Horvik and intends to finance the cash consideration payable by Horvik to TSG's shareholders using debt to be provided under a facilities agreement between VTB bank and Horvik, the Directors are of the opinion that VTB bank will not request early repayment following Horvik's acquisition.

On 21 April 2021, the Company's wholly owned subsidiary AO Trevozhnoye Zarevo ("TZ") changed its name to Joint-Stock Company TSG Asacha ("JSC TSG Asacha" or "TSG Asacha").

On 26 February 2021, the Company initiated a share buyback programme to purchase the Company's ordinary shares for an aggregate amount of £1 million ("buyback amount"). The programme, which was to be undertaken until the earlier of the buyback amount being reached and the Company's Annual General Meeting in 2021, resulted in the repurchase of 206,457 ordinary shares, now held in treasury.

On 2 February 2021, the Company incorporated a new subsidiary company in Russia, OOO Rodnikovoe, of which it owns 100% of the participating interest. Rodnikovoe's primary activity is to develop and mine Rodnikova gold deposit.

On 6 January 2021, the Group reported two fatalities at its Asacha Gold mine which resulted in immediate suspension of all mining operations at Vein 25 for a period of 2 months until a full investigation by the Company and local authorities was completed. In March 2021 the full permission was granted by the Federal Service for Environmental, Technological and Nuclear Supervision ("Rostekhnadzor") for the Group to recommence mining operations at Vein 25. Mining operations at the Main Zone and the processing unit continued uninterrupted during the investigation period.

 

36 Non-GAAP Measures

The Group uses certain measures in this report that are not defined under IFRS. Non-GAAP financial measures are provided as additional information to investors to assist them with their assessment of the Group's financial position and its operating results. These measures are not in accordance with, or a substitute for, IFRS, and may be different from or inconsistent with non-GAAP financial measures used by other companies. These measures are explained further below:

Cash costs

Cash costs are calculated on a consolidated basis and include all costs absorbed into cost of sales, excluding mining tax, depreciation, amortisation and depletion, net of by-product revenue (silver). Cash costs per ounce of gold sold is calculated by dividing the aggregate of these costs by total ounces sold.

	2020 $'000	2019 $'000
Cost of sales	40,070	40,300
Adjustments for:
By-product revenue (silver)	(1,639)	(1,851)
Mining tax	(2,330)	(4,330)
Depreciation/depletion of property, plant and equipment included within cost of sales	(12,559)	(11,677)
Cash Cost	23,542	22,442
Gold sold (oz.)	43,884	43,782
Cash Cost ($) per oz. gold	536	513

 

Total Cash Costs

Total cash costs are calculated on a consolidated basis as cash costs plus mining tax and administrative expenses. Total cash costs per ounce of gold sold is calculated by dividing the aggregate of these costs by total ounces sold.

	2020 $'000	2019 $'000
Cash costs	23,542	22,442
Adjustments for:
Mining tax	2,330	4,330
Administrative expenses excluding exceptional expenses	10,243	8,755
Depreciation of property, plant and equipment and right of use assets included within administrative expenses	(455)	(322)
Loss on disposal of property, plant and equipment included within administrative expenses	(194)	(285)
Total Cash Costs	35,466	34,920
Gold sold (oz.)	43,884	43,782
Total Cash Cost ($) per oz. gold	808	798

 

Earnings Before Interest, Tax, Depreciation and Amortisation ("EBITDA")

EBITDA is calculated on a consolidated basis as net profit/(loss) for the period excluding income tax expense, finance expense, finance income, foreign exchange movements, depreciation, amortisation and depletion, and impairment charges.

	2020 $'000	2019 $'000
Revenue	80,975	63,108
Adjustments for:
Cost of sales	(40,070)	(40,300)
Administrative expenses including exceptional expenses	(12,230)	(8,755)
Other operating income	811	68
Total depreciation/depletion of property, plant and equipment and right of use assets charged to income statement	13,014	11,999
Loss on disposal of property, plant and equipment	194	285
EBITDA	42,694	26,405

 

Adjusted Earnings Before Interest, Tax Depreciation and Amortisation ('Adjusted EBITDA')

Adjusted EBITDA is calculated on a consolidated basis as EBITDA less exceptional expenses and other non-cash items.

	2020 $'000	2019 $'000
EBITDA	42,694	26,405
Adjustments for:
Exceptional expenses	1,987	-
Share-based payments	1,560	-
Adjusted EBITDA	46,241	26,405

 

All-In Sustaining Costs ("AISC")

AISC reflect the full costs of keeping the mine in business and include adjusted operating expenditure, sustaining corporate and administrative expenditure, and sustaining capital and exploration expenditure. It excludes non-sustaining costs related to new operations and costs that are not related to current operations, as well as taxes, finance costs and working capital adjustments.

	2020 $'000	2019 $'000
Cash costs	23,542	22,442
Adjustments for:
Mining tax	2,330	4,330
Administrative expenses excluding exceptional expenses	10,243	8,755
Depreciation of property, plant and equipment and right of use assets included within administrative expenses	(455)	(322)
Loss on disposal of property, plant and equipment included within administrative expenses	(194)	(285)
Purchase of property, plant and equipment	2,450	6,713
Non-sustaining exploration expenditure	(117)	(507)
Accretion of restoration costs	81	94
AISC	37,880	41,220
Gold sold (oz.)	43,884	43,782
AISC ($) per oz. gold	863	941

 

 

 

Company Information

 

Directors	Alexander Dorogov Eugene Antonov Lou Naumovski Stewart Dickson	Chief Executive Officer Chief Operating Officer Non-executive Director Non-executive Director
Secretary	Simon Olsen
Company number	01067991
Registered office	39 Parkside Cambridge United Kingdom CB1 1PN
Business address	P.O. Box 278 St. Neots PE19 9EA
Independent Auditors	PricewaterhouseCoopers LLP 1 Embankment Place London WC2N 6RH	Telephone: +44 (0)20 7583 5000
Nominated Adviser & Corporate Broker	Canaccord Genuity Limited 88 Wood Street London EC2V 7QR	Telephone: +44 (0)20 7523 8000
Joint Corporate Broker	Panmure Gordon (UK) Limited One New Change London EC4M 9AF	Telephone: +44 (0)20 7886 2500
Bankers	National Westminster Bank PLC City of London Office PO Box 12258 1 Princes Street London EC2R 8PA
Solicitors	Locke Lord (UK) LLP 201 Bishopsgate London EC2M 3AB Akin Gump Strauss Hauer & Feld LLP 10 Bishops Square Eighth Floor London E1 6EG	Telephone: +44 (0)20 7861 9000   Telephone: +44 (0)20 7012 9600
Registrar	Link Asset Services Northern House Woodsome Park Fenay Bridge, Huddersfield West Yorkshire HD8 0GA	Telephone: 0871 664 0300 International: +44 (0)20 8639 3399
Public Relations	Hudson Sandler LLP 25 Charterhouse Square London EC1M 6AE	Telephone: +44 (0)20 7796 4133

 

 

 

UK - Registered office

39 Parkside, Cambridge, CB1 1PN, United Kingdom

UK - Head office

Trans-Siberian Gold plc, P.O. Box 278, St. Neots, PE19 9EA, United Kingdom

Russia - Moscow office

Trans-Siberian Gold Management, LLC (TSGM), Office 1, 45th Floor, Federation's East Tower (Vostok), Presnenskaya Naberezhnaya, 12, 123112 Moscow, Russia