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Trans-Siberian Gold looks to next level as cash flows in

Trans-Siberian had its rising status underlined by admittance to the prestigious Union of Gold Producers of Russia.

TRG will start drilling at Rodnikova next year

What’s the opposite of a perfect storm – a perfect calm perhaps or a virtuous circle.

Whatever it is, Russia-focused Trans-Siberian Gold PLC (LON:TSG) is going through the mining equivalent at present.

In rouble terms, gold is at an all-time high, as is production at the Asacha mine in Kamchatka, Far East Russia, while selling in dollars and paying costs in a depreciating local currency is giving an additional profits tailwind.

WATCH: Trans-Siberian Gold a 'high yield stock' with ambitions to become mid-tier producer

Revenues in 2018 jumped 38% to US$59.8mln, while earnings climbed 72% to US$17mln.

Trans-Siberian had its rising status underlined by admittance to the prestigious Union of Gold Producers of Russia.

UGPR members account for approximately 70% of gold mined within the country and being a member is already opening doors on additional opportunities says chief executive Alexander Dorogov.

Trans-Siberian, though, already has plenty to keep it busy, he adds.

Impressive grades at Asacha

At Asacha, the emphasis now is on optimising output.

The underground mine is already one of the world’s highest-grade operations but now it is close to plant capacity the emphasis is to increase grades even more.

Production at Asacha in 2018 rose to just over 46,000oz with the grade 12% higher at 7.4 g/t, while ounces of gold sold jumped 36%.

At present, there are 290,000 gold ounces in the measured and indicated resource category, which is enough to mine for the next seven years at current levels.

Inferred resources add a further 263,000 gold ounces while there are substantial silver credits in both categories.

Mining is currently at around the 200m level but Dorogov believes operations might go deeper by the same amount again.

Going deeper

In-fill and exploration drilling is underway to understand better how the epithermal orebody is set up.

Benefits of this activity are starting to show with gold grades in the first quarter of this year up to 8.8 g/t, while recoveries also picked up.

Dorogov sees potential to lift grades consistently over 9 g/t eventually.

Production in the current year is forecast currently at between 40-44,000oz per year.

As cash costs are expected to be around US$520 per oz, Asacha is set to remain a very good earner for Trans-Siberian especially with the gold price at US$1,397 an oz.

The company, though, has unfinished business at another deposit in Kamatchka, Rodnikova, and it is this prospect that gives the scope for a step-up to the next level of production.

Rodnikova takes TSG to next level

Re-acquired by the company for US$3mln just a couple of months ago, Rodnikova is 50km away from Asacha but has the potential to be considerably larger.

The orebody is a similar epithermal-type deposit but the seams are much wider, which in theory means it should be easier and cheaper to mine.

Potential resources are also larger than Asacha with the current resource estimated at one million ounces at 5.3 g/t plus a sizeable silver credit.

Trans-Siberian will start serious drilling at Rodnikova next year to build up its understanding of the geology.

The fact that the company owned the licence until 2014 will help.

A lack of funds then meant the licence expired but that is not a problem now and Trans-Siberian has dusted off its plans to develop the site.

A feasibility study will help determine whether the mine is developed as a satellite to Asacha or has its own processing facilities.

That has capital cost implications – a simple ore shipping operation will cost US$50mln but that rises to at least US$100mln for a 500-600,000 tonnes per year on-site plant.

Strong cash generation

Cash generation is strong, however, and Trans-Siberian’s management is proud of the fact that it is one of the few dividend payers among AIM’s junior mining fraternity, something it is committed to maintain.

Since it started payments at the end of 2016, some US$19.5mln has been paid out not including a US$9.5mln share buyback.

In 2018, the dividend was raised to 3c, which means a yield of 2.9%.

UFG is the largest shareholder and the specialist Russian hedge fund manager still has a majority holding but a buyback and share sale in May has increased the free float to more than 24%.

All-time high for shares

The dividend payouts, trading performance and rising gold price have seen the shares hit an all-time high of 82.5p valuing the company at £88mln but Dogorov believes there is a lot more to go for.

Russia has become much more investor-friendly he says in spite of political sabre rattling.

Permitting has become easier, while mining is increasing in importance in Kamatchka, an area where the company is well-known and respected by the regional authorities.

House broker Arden has pencilled in after-tax profits of US$11.3mln this year with operational cash flow of US$24mln.

Trans-Siberian does not hedge either against the gold price or currencies.

"That’s not what we are about," he says.

"We concentrate on mining as best we can."

The aim is to become a premier mid-tier gold producer, he adds, an ambition it seems well on the way to achieving.

Quick facts: Trans-Siberian Gold

Price: 85 GBX

Market: AIM
Market Cap: £74.08 m

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