New research report out today.

Trans-Siberian Gold

We have today published a 16 page research note on Trans-Siberian Gold plc.

TSG has made significant progress since its AIM flotation late last year. Its resource base has increased by over 30%, the grades of these resources have been maintained and in the case of Veduga improved and a new property has been secured. At the same time, the gold price has moved to a 16 year high, trading at close to $440 per ounce.

Progress continues to be made with both projects- Asacha is in line to start producing in 2006, and given its grade, promises to be a highly cash generative, albeit a small project initially. Veduga, which is a much larger project, is scheduled to start producing in 2007. By 2008, TSG will be a major producer with output of close to 275,000 oz per annum. TSG is scheduled to start producing (and generating cash) in 2006. We continue to expect positive drilling results in both Asacha and Veduga over the coming months. Initial exploration at Veduga has already yielded resources of 2.8m ounces, and the sites geology is remarkably similar to that of nearby Olimpiada, Russias premier gold mine owned by Norilsk Nickel with 25m ounces of resources.

AngloGold Ashanti, the worlds second largest gold producer, has subscribed for a 17.6% stake in TSG to be increased to 29.9% by the year-end. This brings huge benefits, most notably 17.6m in total of funding which will see the Groups first project at Asacha to fruition, technical and geological assistance and serious credibility. In due course, given AngloGolds extensive due diligence and confidence in the underlying assets, we would not be surprised if AngloGold made a full bid for TSG at a premium which more reflected the Groups underlying worth than the current share price does.

TSG is a differentiated play on the Russian Gold sector. It has bought its assets early and is not bound to pay-up for assets in a buoyant market which its peer group are doing. It has avoided outside minority ownership, is employing Western management to oversee its development and has continually emphasised the importance of reporting resources to Western standards.

We believe that TSG is significantly undervalued in the context of the valuation attributed to other Russian plays. It is also worth noting that TSG produces its reserve statements based on Western standards, rather than by less conservative estimates used by some of the peer group. TSG would see a substantial uplift from its current reserves of 3.7m ounces if it were to follow this approach, with over an additional million ounces from the smallest of its three licenses alone.

Taking a mid-range discount rate of 10% and a $400 gold price, TSGs NPV of US$172.4m is some 59% higher than the current share price and if the shares were to trade at NPV this would give a valuation of 239p per share. At a $425 per ounce level, the valuation discrepancy increases more markedly, with an NPV of US$203.1m, reflecting an uplift of 88% compared to the current share price, giving a value per share of 282p. This is on a current resource base of 3.7m ounces. Our bull case resource base, some 5m ounces, is achievable and gives an NPV of almost twice these levels. At the same time, we would anticipate that a producing gold miner would trade at a meaningful premium to its NAV. Thus, in due course with the successful delivery of projects we believe that these shares could well prove to be an investment that multiplies in value.





aldwickk - 21 Nov'04 - 10:51 - 42 of 42 edit



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