Trans-Siberian Gold - the next Avocet Mining?

Some promised further thoughts:

What precipitated the mini-collapse in the share price was a project update (23rd December) that confirmed the DELAY (only) of the due diligence process which will provide project finance for Asacha.

Many of the financial assumptions behind the original bankable feasibility study of February 2004 were no longer accurate. In particular, according to the 23/12 update:

“Recent increases in the cost of fuel, steel and labour in Russia, and higher international freight costs, combined with the strengthening of the rouble, especially against the US dollar, are expected to lead to a material rise in the capital cost of the project above the estimate of the bankable feasibility study completed in February 2004”.

These are unfortunate developments, of course, and they are what the market reacted badly to. But it is worth stressing that they are completely beyond the control of management – so no blame should be attached in that quarter.

I can also accept Jocelyn Waller’s explanation (see post 337 above) that the timing of the announcement was entirely precipitated by the expiry of the 31 December deadline, and that it was not a cynical attempt to bury bad news in the Christmas period.

But, the bottom line question, of course, is “does all of this now mean that Asacha is no longer viable”?

In my view, the answer is clearly “no”, from what else has been said.

Firstly, as the 23/12 statement itself went on to confirm:

“These increases are to some extent mitigated by the higher gold price.”

But what else do we have that is positive to go on? Well, quite a lot, in fact. And, what I think is so important, because of the Christmas period, and the fact that so many in the City were “watching the cricket or on the beach”, the PRIVATE investor (thanks to OldAsiaHand sharing some key intelligence!) has a first mover advantage over the City.

Here are some of the highlights for me:

TSG has “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”.

AGA have publicly stated that “we remain committed to our investment in TSG”.

While TSG is not “absolutely certain” of the final cost, it has “a pretty good idea”, and is confident “the cost can be contained to a manageable and acceptable number” – an assessment not revealed in the 23/12 statement. So there was perhaps more doubt in the market than there needed to be.

Asacha has made “a lot of progress” (see post 337 above for elaborated detail). “Work is continuing so as not to delay the project schedule”. (Ibid).

The detailed review is “in hand”; final numbers will be known by 31 January. This means that a long period of doubt is not likely to be hanging over the TSG share price. In fact, quite the contrary. It seems most improbable that things will not be resolved satisfactorily. An announcement of the good news can be expected to give a major boost to the share price. We can be confident that this news will be confirmed soon: TSG is likely to have something concrete to say on Asacha in “early February”.

What is also of vital importance (and what the City may not have yet woken up to) is the following:

“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” (My emphasis). TSG would surely not be making such statements, at this stage, unless it was absolutely convinced it will soon be able to provide the numerical confirmation.

Indeed, Waller’s statement goes on to say: “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 think they will also soon do wonders for the share price!

I have not added anything new by the above selective quotations, but the exercise has certainly helped me personally to clarify my own assessment of the situation, and helped me to decide that a great buying opportunity has been presented – especially before the City fully wakes up after the New Year and does its own further reappraisal.

Of course, I may be wrong. Others should make up their own mind and not be influenced by me. However, if this post, as a result of highlighting key pieces of information, is of any assistance in helping anyone to come to their own objective assessment of the situation I shall be very pleased.

It would also be good if it provoked someone to present a more bearish interpretation: Let’s all make further investment decisions taking into consideration as many different perspectives as possible.