Trans-Siberian Gold - the next Avocet Mining?

Jocelyn Waller has circulated the attached note to shareholders:

Dear all,

You are all important shareholders of TSG so I would like to explain the circumstances that led us to put out the announcement we did on 23 December last, that had such an immediate adverse effect on the share price (which we had been painstakingly building over the past few months). It was an unfortunate outcome, to say the least.

It was not, as the Minesite article on 24 December suggested, an attempt to lose bad news in the Christmas/New Year holiday break. In normal circumstances this would definitely not have been a chosen time to make any announcement. Unfortunately our circumstances were dictated by the subscription agreement with AngloGold Ashanti that had a deadline for AGA's second subscription of 31 December 2004. In order to preserve that deal, wanted by both them and us, we needed to extend the deadline. This necessitated negotiating the terms of the extension with them, carefully, at a time when many of those concerned on their side were watching the cricket or on the beach. In the event we negotiated the extension in a manner that is quite favourable for TSG, particularly as the second subscription is not now tied to the completion of financing for the Asacha project. This process dictated the timing.

Interlinked with this was of course the situation with the Asacha project, and in the circumstances we needed to say something about it. In practice I think what we said, whilst factually correct, gave a more negative impression than the reality. From the outset of our dealings with AGA we made no secret of the fact that successfully developing the Asacha project was the key to TSG's overall success in Russia, and everyone associated with the company is focusing on that. We have actually made a lot of progress - a 60 bed fully functioning camp is built, the access road is largely completed, the engineering studies are well advanced, the permitting situation is in hand (particularly the environmental sign-off) and the procurement of the key components (process plant equipment, diesel generators etc) just needs the project's final green light to be given. In putting final definition to the project we are seeing the effects of cost escalation in Russia and it is apparent that the cost will be higher than the $54 million in the BFS. At this point we are not certain as to what the final cost will be, although we have a pretty good idea. To be absolutely certain a detailed review of this is in hand and we have set ourselves the task of having the final numbers and schedule available by the end of January 2005, with these numbers having been independently audited by the Banks' technical consultants, Hatch, and AGA. We did not mention in the announcement that this was the timing we had set in order not to set a rod for our own backs; however we intend to adhere strictly to that timetable. We are also confident that with careful management of the process the cost can be contained to a manageable and acceptable number. Again this was unclear in the announcement for similar reasons.

Our attitude to Asacha is also conditioned by the belief that the resource will in the end be considerably bigger. This is a view shared by AGA who did their TSG evaluation on the basis of a mining reserve of twice that in the BFS. We are finally drilling at Asacha (notwithstanding the Kamchatka winter) and although no assays are yet to hand the visual results so far give grounds for belief that we are right to be optimistic about this. More reserves and a better gold price do wonders for the project's economics.

I hope that the damage done by the announcement can be quickly reversed, although we are unlikely to have anything concrete to say on Asacha until early February. It was unfortunate to have had to say something about the cost position without being specific as this does lead to speculative uncertainty. The underlying position is still very positive in terms of resources; the Veduga project is moving ahead according to plan; AngloGold Ashanti remain committed and there has been considerable cross fertilisation with them over the past 6 months that will bear fruit in the future. So I hope this is just a blip and nothing more.