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AIM: OSU
TSX: OSU
15 June 2009
Sale of Varvarinskoye Project
Orsu Metals Corporation ("Orsu" or the "Company")
(TSX: OSU, AIM: OSU) announces the signing of a definitive sale and
purchase agreement (the "SPA") to sell its Varvarinskoye
Gold-Copper Project in Kazakhstan (the "Varvarinskoye Project")
to OJSC Polymetal ("Polymetal"). The total consideration
for the sale of the Varvarinskoye Project is approximately US$235
million, comprising US$8 million in cash payable on closing plus deferred
consideration of up to a maximum of US$12 million in cash which is
contingent on and calculable by reference to the future price of both
gold and copper plus the assumption or transfer of over US$215 million in
debt and hedging obligations related to the financing of the
Varvarinskoye Project.
The sale is not conditional on financing but is subject to certain
conditions (outlined further below) being satisfied. Assuming the
satisfaction or waiver of such conditions, the Company anticipates
completing the sale during Q3 2009. Upon completion Orsu will have no outstanding
long-term debt and intends to use the proceeds from the sale of the
Varvarinskoye Project to fund the Company's operating costs and to fund
ongoing exploration activities on its existing properties, as well as any
new properties acquired by it.
Commenting on the sale, Dr Sergey V Kurzin, Executive Chairman of Orsu
stated: "Proceeds from this sale will allow Orsu to focus on
developing its exploration and growth assets with renewed vigour with a
substantially stronger balance sheet. After extended negotiations
with the banks to re-finance the Varvarinskoye debt and hedging
facilities, the Board believes that the sale will release the Company
from its current financial and legal burdens, enabling directors and
management to focus on providing Orsu shareholders with the exploration,
growth and development opportunities the Company is capable of
delivering."
Under the terms of the SPA, 100% of the shares in Three K Exploration and
Mining Limited ("ThreeK"), a wholly-owned subsidiary of the
Company, will be sold to Polymetal. ThreeK currently owns (directly
and indirectly) JSC Varvarinskoye and will on completion hold (directly
and indirectly) all debt and hedging obligations relating to the
Varvarinskoye Project.
As set out in the Company's financial statements of 31 March 2009, the
Company had a working capital deficit of US$162 million, accumulated
losses of US$536 million, shareholders' deficiency of US$103 million and
had written down the value of the Varvarinskoye Project by approximately
US$189 million to a book value of approximately US$72 million. A
loss of US$221.5 million was attributable to the Varvarinskoye Project in
2008 and US$25.9 million in Q1 2009. The Company currently has over
US$215 million in debt and hedging obligations relating to the
Varvarinskoye Project. The Company was unable to meet the debt
repayment tranche under the Varvarinskoye facilities of US$16.65 million
originally due on 31 December 2008. In addition, the Company has
been unable to meet its gold forward contract settlement obligations (in
the aggregate amount of US$11.82 million) as they have fallen due between
January and May 2009. On completion of the sale, Orsu will no
longer be responsible for any debt, hedging and guarantee obligations
relating to the Varvarinskoye Project. The Board of Directors of the
Company has determined that the sale of the Varvarinskoye Project is in
the best interests of the Company.
Completion of the sale is subject to various significant conditions,
including: approval by a majority of Orsu shareholders; receipt of
all necessary regulatory consents including from the Kazakhstan
authorities; approval of all lenders and hedge counterparties to the
Varvarinskoye Project (the "Bank Approvals"); and definitive
documentation being entered into in respect of the refinancing
arrangements required between Polymetal and the lenders in connection
with the Bank Approvals. Polymetal and the lenders have agreed to a heads
of terms in respect of the refinancing arrangements.
The annual and special meeting of shareholders of Orsu, at which
shareholders will be asked to consider and approve (among other matters)
the sale of the Varvarinskoye Project, is anticipated to be held at 10am
in Orsu's London offices on 10 July 2009. A shareholder's circular
summarising the material provisions of the SPA and providing further
background and information in relation to the transaction is expected to
be mailed to all Orsu shareholders shortly and will be made available at www.sedar.com
and on the Company's website.
Orsu's financial adviser in relation to this transaction is Endeavour
Financial and its legal advisors are Norton Rose LLP in the UK and
Macleod Dixon LLP in Canada.
ABOUT ORSU
In addition to the Varvarinskoye Project, Orsu's other (exploration and
development) projects include the Karchiga Volcanogenic Massive Sulphide
("VMS") deposit in Kazakhstan and the Talas and Tokhtazan
exploration licence areas in Kyrgyzstan. The business acquisition of Lero
Gold Corp. ("Lero") in 2008 positioned Orsu as a premier growth
company aggressively continuing the exploration and development of its
copper-gold projects in Kyrgyzstan and Kazakhstan and pursuing new
opportunities and acquisitions in countries of the Former Soviet Union.
- Varvarinskoye
Gold-Copper Mine, Kazakhstan - Located
in north west Kazakhstan, Orsu's 100% owned Varvarinskoye Project
commenced production of gold dor� in December 2007 and copper-gold
concentrate in March 2008. During the year ended 31 December 2008,
the Varvarinskoye Project produced a total of 1,263,697 grams
(40,629 troy oz) of gold and 4,494 tonnes of copper recovered to
concentrate. Production during the first quarter of 2009 was
reported as 423,627 grams (13,599 troy oz) of gold and 1,743 tonnes
of copper recovered to concentrate. In January 2009, the Company
completed an updated mine plan, including updated mineral reserve
and mineral resource estimates, for the Varvarinskoye Project.
- Talas
Exploration Licence Area, Kyrgyzstan - The
Taldybulak copper-gold porphyry deposit is the primary exploration
property within the Taldybulak-Talas licence which comprises core
assets of the Company in Kyrgyzstan including the Taldybulak,
Kentash, Barkol and Korgontash licences. In April 2008, the Company
completed a National Instrument 43-101 mineral resource estimate. At
a 0.30g/t gold cut-off, the Indicated resource is 79Mt @ 0.63g/t Au
and 0.17% Cu with the Inferred resources totalling 163Mt @ 0.58g/t
Au and 0.14% Cu. In December 2008, Orsu announced it had
signed a joint venture agreement with Gold Fields for the further
exploration and development of the Talas licence area. The
recently-completed 2008 to 2009 drilling programme was designed to
better delineate the extent and geometry at Taldybulak Central and
assess the additional tonnage potential through the testing of
peripheral targets along strike to the east, north west and south of
the central high grade core.
- Tokhtazan
Exploration Licence Area, Kyrgyzstan - The
Tokhtazan exploration licence area is located in the Jalal-Abad
Oblast, western Kyrgyzstan approximately 100 km south from the
Taldybulak deposit and is covered by two exploration licences,
Akdjol and Tokhtazan. The Tokhtazan prospect of intrusion-related
and shear-zone hosted gold was drilled by Cameco Inc in 1996-1998.
Orsu's work of 2005-2008 confirmed the gold tenor identified by
Cameco using diamond and RC drilling, with a possibility to extend
the mineralization. The 2009 exploration programme is underway
incorporating trenching, reverse circulation and diamond drilling as
well as samples collection and analysis.
- Karchiga
Copper Project, Kazakhstan - The
47.3km2 Karchiga exploration and mining licence contains the
Karchiga VMS deposit. The Karchiga copper-gold deposit is located in
the extreme north east of the Republic of Kazakhstan, within 40km of
the Chinese border and within the Rudny Altai belt which is ranked
in the top four VMS belts in the world. In April 2008, the Company
released a National Instrument 43-101 mineral resource estimate. At
a 0.50% copper cut-off, the Indicated mineral resource is 4.75Mt @
2.46% Cu while the Inferred mineral resources total 2.81Mt @ 1.81%
Cu. The primary scope of the on-going 2008 to 2009 exploration
programme is designed to upgrade the previously reported mineral
resource estimate to Measured and Indicated categories under
National Instrument 43-101.
ENDS
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Qualified Persons and Technical Reports
Mr Matthew Boyes, who is Mineral Resources Manager for Orsu, and a
"qualified person" (as such term is defined in National
Instrument 43-101), has reviewed and approved the technical information
in this press release in respect of Orsu's mineral properties. Mr Boyes
has verified the data disclosed in this press release in respect of
exploration results, including sampling and analytical data underlying
the information.
The mineral resource estimates at Taldybulak referred to in this press
release were prepared under the supervision of Matthew Boyes (Mineral
Resources Manager, Orsu), a 'qualified person' (as defined by National
Instrument 43-101). These results were also reviewed and approved by
Wardell Armstrong International ("WAI"). However, WAI relied
upon the data presented by Lero in formulating its opinion. WAI's
complete technical report respecting the mineral resource estimates at
Taldybulak (entitled "Technical Report on the Exploration Licences held
by Lero Gold Corporation In Kyrgyzstan & Kazakhstan, Central
Asia" and dated May 2008) can be viewed on www.sedar.com.
The mineral resource estimate at Karchiga referred to in this press
release was prepared by Matthew Boyes (Mineral Resources Manager, Orsu),
a "qualified person" (as defined by National Instrument
43-101). The mineral resource estimation methodology was reviewed by WAI.
Assays were conducted at the internationally certified Alex Stewart Lab
in Bishkek, Kyrgyzstan. Orsu operates a stringent QA/QC policy that
includes external certified standard samples and blanks in each
individual batch sent for analysis. WAI's complete technical report
respecting the mineral resource estimates at Karchiga (entitled
"Technical Report on the Exploration Licences held by Lero Gold
Corporation In Kyrgyzstan & Kazakhstan, Central Asia" and dated
May 2008) can be viewed on www.sedar.com.
Forward-looking Information
This press release contains forward-looking information which is not
comprised of historical facts. Forward-looking information involves
risks, uncertainties and other factors that could cause actual events,
results, performance and opportunities to differ materially from those
expressed or implied by such forward-looking information. Forward looking
information in this press release includes, but is not limited to, the
total estimated value of the transaction, the Company's intended use of
proceeds from the sale, the expected effect of the sale on the Company's
ability to continue the exploration and development of its other
(exploration) properties, the expected terms and conditions of the sale,
the anticipated timing for the annual and special meeting of the
shareholders of Orsu, the anticipated timing for completing the sale, the
Company's intentions and expectations to continue discussions with
Polymetal and the banks, its ability to reach a satisfactory arrangement
with respect to the sale of the Varvarinskoye Project and/or the
restructuring of the payments due under the loan facility, including the
hedging payments due under the facility, mineral resource estimates and
statements regarding potential mineral resources. Factors that could
cause actual results to differ materially from those described in such
forward-looking information include, but are not limited to, the parties'
respective ability to satisfy all conditions precedent to the completion
of the sale, including (but not limited to) the parties' respective
ability to obtain all required regulatory approvals , the shareholders of
Orsu approving the sale, adverse general market conditions, adverse
changes in commodity prices, the inability to enter into a definite
arrangement with the banks with respect to the restructuring payments
under the loan facility, including hedging obligations, failure to
establish estimated mineral resources (the mineral resource figures
referred to in this press release are estimates and no assurances can be
given that the indicated levels of minerals will be produced) and those
other risks set out in the Company's public documents filed on SEDAR. If
the sale is not completed for any reason, including as a result of the
Company, Polymetal and the banks failing to reach an arrangement
regarding restructuring of payments under the loan facility and its
hedging obligations, there is a risk that, unless the Company raises
additional financing in order to meet its immediate loan facility and
hedging obligations, or negotiates the terms of repayment with the banks,
the banks may demand immediate payment of the amounts owing and enforce
their security (which may result in the Company losing its interest in
the Varvarinskoye Project). Although the Company believes that the
assumptions and factors used in preparing the forward-looking information
are reasonable, undue reliance should not be placed on such information,
which only applies as of the date of this press release, and no assurance
can be given that such events will occur in the disclosed time frames or
at all. The Company disclaims any intention or obligation to update or
revise any forward-looking information, whether as a result of new
information, future events or otherwise, other than as required by law.
Additional information about the risks and uncertainties of the Company's
business is provided in its disclosure materials, including its Annual
Information Form, dated 24 April 2009 (the "Annual Information
Form") available under the Company's profile on SEDAR at
www.sedar.com.
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For further information please contact:
Dr Sergey Kurzin, Executive Chairman, Orsu Metals Corporation
Tel: +44 (0) 20 7518 3999
Tania Tchedaeva, Company Secretary, Orsu Metals Corporation
Tel: +44 (0) 20 7518 3999
Gavin Dallas, Investor Relations, Orsu Metals Corporation
Tel: +44 (0) 20 7518 3999
Ryan Gaffney, Canaccord Adams Limited
Tel: +44 (0) 20 7050 6500
Keith Schaefer, Vanguard Shareholder Solutions
Tel: +1 604 608 0824
www.orsumetals.com
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