Trans-Siberian Gold comes out of obscurity

Its modest presence in London can be linked to UFG Asset Management’s historic 86 per cent holding, as the Moscow-based fund kept Trans-Siberian afloat by turning debt into equity, having provided the cash needed to get its Asacha mine up and running in 2011.

But the company has acted to improve the shareholder structure with a debt-funded 33p share buyback earlier this year to take UFG's stake down to 77 per cent. The company says it’s comfortable with net debt levels following the buyback. The price of the buyback, after a substantial recent run, took place at a noteworthy discount to the market price. 

Given the shares' recent performance, it might look as though the horse has bolted, but this move started before the gold price rose to over $1,400/oz and the company’s production looks as though it will continue creeping up at lower average costs. And for gold bulls, an important factor is that high but falling costs at Trans-Siberian's Asacha mine means profits are highly sensitive to further gold price increases.

In the 2018 results, Trans-Siberian published its all in sustaining cost (AISC) for the first time. Asacha was pricey in 2017, with an AISC of $1,341/oz, compared with an average realised gold price of $1,260/oz. TSG still made a pre-tax profit of $3m that year and handed out a final dividend of 2.1¢ per share. The overall cost figure fell to $1,049/oz in 2018, despite $18m of sustaining capital, largely going to a new pumping station to keep water out of the underground mine. 

Chief executive Alexander Dorogov told us AISC would fall further in 2019 thanks to a new energy rebate from the regional government, which hands the company back 70-80 per cent of its fuel costs. A weak rouble should help, too.

Additionally, there is an expansion option in the Rodnikova deposit 50km down the road that could see gold production increase to 100,000 oz a year. Funding requirements from any expansion should be kept down because the proximity of the project to Asacha means expensive new plant is not needed for it to go into production. Trans-Siberian previously owned the project but handed it back to the state five years ago because it couldn’t afford exploration.