Friday, 17 May 2013

Oxus Gold and the Jerooy Conundrum . Has it a value ? 17/05/13

In today`s account

Contingent asset

In May 2007 the Group disposed of its interests in Kyrgyzstan (the Jerooy project), Turkey and Romania to KazakhGold Group Limited. KazakhGold is contracted to pay additional consideration of up to $80 million conditional upon KazakhGold or a nominee acquiring a licence to mine, or acquiring a Company or entity that has the benefit of a license to mine, the Jerooy deposit and commencing development or production at this site.

No amounts have been recognised in these financial statements for this contingent asset. There have been no changes to this position known to the Company.
Some history
Oxus Gold plc today announced that it has reached agreement to settle its claim in arbitration against the Kyrgyz Republic under the United Kingdom - Kyrgyz Republic Bilateral InvestmentTreaty (the 'Arbitral Claim').The Arbitral Claim has been suspended pending an agreed cash settlement to be made on or before 15 May 2008 (the 'Settlement'). Upon receipt of the Settlement, the Arbitral Claim will be withdrawn.Oxus has been seeking to recover its loss of profits arising from the cancellation of the mining license for the Jerooy gold project in the Kyrgyz Republic, less the amount Oxus has already received in mitigation as a result of the sale in May 2007 of Norox Mining Company Limited and other assets to KazakhGold Group Limited ('KazakhGold') in exchange for shares in KazakhGold valued at approximately $73 million.Oxus has retained its rights to the potential deferred consideration of up to $80 million payable by KazakhGold in the event that KazakhGold or a nominee acquires, or acquires the benefit of, a license to enable it to continue with the development of the Jerooy gold project.Richard WilkinsCEO of Oxus, stated: "I am very satisfied that this matter has now been dealt with. This arbitration represented the last of the various costly litigations that have distracted Oxus in recent years. The transaction with KazakhGold recovered our expenditure on Jerooy, and this settlement generates additional recovery. We avoid the prospect of a long drawn-out claim, and wehave retained the potential upside of the deferred consideration if KazakhGold were to become involved in the development of the Jerooy project. This settlement will further enhance our ability to focus on the development of our underground mine at Amantaytau Goldfields in Uzbekistan, which asset without any doubt represents the future of our Company." 

Exploration and evaluation expenditure also includes the costs incurred in acquiring mineral rights, the entry premiums paid to gain access to areas of interest and amounts payable to third parties to acquire interests in existing projects. Capitalised costs, including general and administrative costs, are only allocated to the extent that those costs can be related directly to operational activities in the relevant area of interest, and where the existence of a commercially viable mineral deposit has been established.

No amortisation charge is recognised in respect of these intangible assets. Mineral rights and exploration and evaluation expenditure are capitalised within intangible assets until such time that the activities have reached a stage which permits a reasonable assessment of the existence of commercially exploitable reserves. Once this has occurred, the respective costs previously held as intangible assets are transferred to mine development costs in property, plant and equipment.

Where the projects have not yet been granted a licence or are determined not to be commercially viable, the related costs are written off to income statement.

Capitalised exploration and evaluation expenditure is assessed for impairment in accordance with the indicators set out in IFRS 6 Exploration for and Evaluation of Mineral Reserves. In circumstances where a property is abandoned, the cumulative costs relating to the property are written off.

Mineral rights acquired through a business combination or an asset acquisition are capitalised separately from goodwill if the asset is separable or arises from contractual or legal rights and the fair value can be measured reliably on initial recognition.
The Board of KazakhGold Group Limited (“KazakhGold”) announces that it has entered into certain binding agreements for the sale of its operating subsidiaries and related matters with AltynGroup Kazakhstan LLP (“AltynGroup”), a limited liability partnership controlled by members of the Assaubayev family, and the conditional settlement of the existing proceedings brought by KazakhGold against members of the Assaubayev family and certain of their affiliates. The transaction is subject to a number of conditions, including approvals from the Government of the Republic of Kazakhstan and the entry into definitive agreements.
In August 2009 OJSC Polyus Gold (“Polyus Gold”), an indirect parent of KazakhGold, completed the acquisition of 50.1 percent of the shares of KazakhGold (the “Partial Offer”) and subsequently increased its interest to 65 percent in July 2010 (the “Placing”).  KazakhGold is part of the Polyus Gold group of companies (the “Polyus Gold group”).
As announced on 29 June 2010, proceedings were subsequently brought by KazakhGold, JSC MMC Kazakhaltyn (“Kazakhaltyn”) and Jenington International Inc., a parent company of KazakhGold (“Jenington”), against members of the Assaubayev family and Gold Lion Holding Limited (“Gold Lion”), a company controlled by trustees of discretionary trusts, the beneficiaries of which comprise members of the Assaubayev family (the “Claims”).
In August 2010 the Government of the Republic of Kazakhstan revoked certain previously issued approvals for transactions involving the shares of KazakhGold, which in turn resulted in the proposed reverse takeover of KazakhGold by the shareholders of Polyus Gold (the “Proposed RTO”) being terminated on 26 October 2010.

As announced on 8 December 2010, KazakhGold and AltynGroup entered into a binding agreement (the “Original Principal Agreement”) for the sale of KazakhGold’s operating subsidiaries in Kazakhstan, Romania and Kyrgyzstan and the withdrawal of the Claims.  The Original Principal Agreement was, as previously announced, terminated by KazakhGold on 14 March 2011.
Following termination of the Original Principal Agreement, the parties have continued with negotiations regarding the sale of the operating subsidiaries to AltynGroup, resolution of the Claims and other disputes between the parties.  These continued negotiations have now resulted in the entry into a Restated and Amended Principal Agreement (the “RAPA”), described in further detail below, and a Settlement Deed in respect of the Claims which provides for a conditional settlement and release of the orders, judgments and claims, whether in litigation, arbitration or otherwise, initiated, inter alia, in the UK, Jersey, the BVI, or elsewhere, between KazakhGold, Jenington and Kazakhaltyn, on the one hand, and the Assaubayev family, on the other hand, and all of their respective subsidiaries and affiliates, howsoever relating to the matters referred to in those proceedings or otherwise arising in respect of the original acquisition of 65 percent of KazakhGold by Jenington, without any admission of liability on either part (the “Settlement Deed”).
Summary of Terms of the Settlement Deed
 The Settlement Deed provides, for the waiver of all claims relating to the ongoing litigation together with warranties and covenants with a view to protecting the parties from any further claims by related parties.  There are express reservations of claims against certain third parties in connection with specified ongoing disputes.
 The effectiveness and implementation of the settlement pursuant to the Settlement Deed is conditional upon certain conditions, including, but not limited to, receipt of certain approvals and waivers from the government of the Republic of Kazakhstan and AltynGroup procuring the issue to KazakhGold of an irrevocable documentary stand-by letter of credit for US$100,000,000 (the “LOC”) (the use of which is described further in First Tranche and Effect of No First Tranche Completion below) and the receipt of the approvals and waivers for the Proposed RTO, most of which are required to be satisfied by 14 May 2011 (the “Settlement Conditions”).
Summary of Terms of the RAPA
Pursuant to the RAPA, AltynGroup will acquire KazakhGold’s operating subsidiaries in Kazakhstan, Romania and Kyrgyzstan in two tranches.  The aggregate transaction price for all the shares is US$509,000,000, as well as the provision of funds required to be repay the Jenington Loan (as described below).
First Tranche
By no later than 12 September 2011 (the “First Tranche Cut-Off Date”), conditionally upon the matters described below, AltynGroup will acquire the following shareholdings in the operating subsidiaries (the “First Tranche Companies”) of KazakhGold listed below:
  • 51 percent of Kazakhaltyn,
  • 51 percent of Romaltyn Mining S.R.L.,
  • 51 percent of Romaltyn Exploration S.R.L.,
  • 51 percent of Norox Mining Company Limited,
  • 34 percent of Talas Gold Mining Company (subject to waiver by the second shareholder of its pre-emptive right to acquire the shares),
(together the “First Tranche Shares”).
The consideration for the First Tranche Shares will be US$259,590,000, payable in cash at completion of the transfer of the First Tranche Shares (“First Tranche Completion”).  Part of the consideration will be satisfied, subject to certain conditions being met, by (i) procuring the discharge of an amount equal to US$31,025,000 (plus interest accrued thereon) against the same amount owed by KazakhGold under its loan agreement with Gold Lion Holdings Limited (the “Gold Lion Loans”); and (ii) as to US$100,000,000 by drawing on the LOC.
Second Tranche
Assuming First Tranche Completion occurs in accordance with the above terms, AltynGroup will, at its election, acquire from KazakhGold no later than 31 December 2012 (the “Second Tranche Cut-Off Date”) either (i) the outstanding issued shares in the First Tranche Companies not acquired at First Tranche Completion (which in the case of Talas Gold Mining Company will be either 32.67 percent or 66.67 percent of its shares depending on whether a 34 percent stake was acquired by AltynGroup with the First Tranche Shares at First Tranche Completion); or (ii) all of the issued shares in the immediate holding companies holding the First Tranche Companies and the shares in Kazakhgold Services Cyprus Limited such elected shares being the “Second Tranche Shares”).
The consideration for the Second Tranche Shares will be US$249,410,000 plus interest accrued at a rate of 9.375% per annum calculated on a daily basis (and compounded annually) from First Tranche Completion up to the date of the acquisition of the Second Tranche Shares.
Completion of the purchase of the Second Tranche Shares may, at the option of AltynGroup, take place in one or more stages (“Second Tranche Partial Completions”).  In any event, completion of the sale and purchase of all Second Tranche Shares must occur on or before the Second Tranche Cut-Off Date.  Prior to or at First Tranche Completion, AltynGroup is required to provide KazakhGold with guarantees satisfactory to KazakhGold of payment for the Second.
Tranche Shares.
Jenington Loan Repayment and Senior Notes
On or before First Tranche Completion AltynGroup will provide funds to KazakhGold in order to repay its shareholder loan from Jenington, a subsidiary of Polyus Gold, in the amount of US$62,044,198.05 plus accrued interest (the “Jenington Loan”).
In addition, with regard to the senior notes issued by KazakhGold in the amount of US$200,000,000 (with a coupon rate of 9.375% per annum) due in 2013 (the “Senior Notes”), on or prior to First Tranche Completion AltynGroup will provide KazakhGold with an irrevocable unconditional guarantee or stand-by letter of credit in respect of 51% of all sums payable under the Senior Notes, provided that such guarantee shall be increased proportionally to the number of shares acquired by AltynGroup or its nominee.
KazakhGold will use all reasonable endeavours to procure, as soon as reasonably possible after the date of execution of the RAPA, that the terms and conditions of the Senior Notes are varied and amended, as necessary for the purpose of the transaction, with the consent of the holders of the Senior Notes (the “Consent Solicitation”).  The costs and fees of the Consent Solicitation will be borne by AltynGroup. 
Conditions Precedent to the First Tranche
The First Tranche Completion shall be subject to certain conditions as specified in the RAPA, including but not limited to the execution of definitive transaction documentation, including a Share Purchase Agreement and Shareholders’ Agreements, satisfaction of the Settlement Conditions and the Settlement Deed becoming fully unconditional and remaining in full force and effect and receipt and effectiveness of all required governmental approvals and consents.
Effect of no First Tranche Completion
 To the extent First Tranche Completion does not occur and the US$100,000,000 is not drawn down under the LOC as part payment for the First Tranche Shares, depending on which conditions to First Tranche Completion are not satisfied, KazakhGold will also be able to draw on the LOC and apply the proceeds as follows: 
  • following 12 September 2011 the issuer of the LOC will release US$100,000,000 to be applied, together with the release of the Gold Lion Loans as described above, towards the acquisition by AltynGroup (or its nominee) of 18,977,653 KazakhGold shares at a price per share of US$6.530; or
  • at any time after 11 November 2011, and subject to no demand having been made by KazakhGold under the LOC in accordance with the above, in the event that the Settlement Conditions have been satisfied and as a result the Settlement Deed came into full force and effect and any one or more of specified conditions to First Tranche Completion were not met, then the issuer of the LOC will release up to the total amount of the LOC as partial consideration for the entry by KazakhGold into the Settlement Deed.
In addition, the RAPA provides for payment of a fee in the amount of US$14,600,000, payable by KazakhGold to AltynGroup, in the event First Tranche Completion does not occur due to the failure by KazakhGold to procure the delivery of the First Tranche Shares.
Conditions Precedent to the Second Tranche
Completion of the purchase of all the Second Tranche Shares, pursuant to any Second Tranche Partial Completions or otherwise, shall take place by no later than 31 December 2012.  AltynGroup will only be permitted to exercise a Second Tranche Partial Completion following First Tranche Completion.  Each Second Tranche Partial Completion shall, to the extent that the same are applicable and relevant, be subject to the same conditions as for the First Tranche.
Termination of the RAPA
 Either party may terminate the RAPA, by notice in writing to the other, in the following circumstances: 
  • the parties failing to achieve the First Tranche Completion by the First Tranche Cut-Off Date; or
  • any of the Settlement Conditions not being satisfied or having otherwise not been carried out or fulfilled by the time and date specified for the satisfaction of each such Settlement Condition in accordance with the Settlement Deed, which for most of such conditions is 14 May 2011; or
  • in the event of a material breach by the other party of the provisions of the RAPA, where the breaching party fails to remedy it within 5 business days of receiving notice from the other of such alleged material breach, and requiring the remedy of the same.
There can be no assurance that the conditions to the transactions contemplated by the RAPA and the conditions to the Settlement Deed will be satisfied, or that the transactions will be completed.
With Russia's leading gold producer, Polyus Gold, completing its reverse takeover of KazakhGold, which will see it get a London listing Business RT spoke with Manoj Ladwa, Senior Trader at ETX Capital about the implications.

    One can thus assume that if Kazakh / Polyus Gold do develop the mine at Jerooy .Things will get interesting . I will have to research this a lot more thoroughly .
      But, why drag this old chestnut back into the accounts ?
      It needs a bit more study .

      After more study ,conclusion reached of no discernible value .

      Although we did get the insurance for the mining equipment back ,well half anyway .

      Still the case against I .Karimov stands as  good one , in my eyes .At 2p ,this share is cracking value .


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