Re: filing (part 2)
in response toby
Unlocking One of the World’s Most Prolific Gold Mining Regions
As a result of the Nationalization, the Company's sole recourse is to file a Request for Arbitration under the Additional Facility Rules of the International Centre for Settlement of Investment Disputes ("ICSID") against the government of Venezuela alleging violations of the provisions of the Bilateral Treaty for the Protection of Investments entered between the governments of Canada and Venezuela (the "BIT"). The Request for Arbitration cannot be filed by the Company earlier than June 15, 2012 as the BIT requires the parties to resolve the dispute through amicable negotiations within six months from the date on which one party notifies the other of the dispute under the BIT and requests the other to commence such amicable negotiations, which occurred on December 15, 2011 when the Company delivered its notification to the Venezuelan government. In parallel the Company will continue to seek an amicable resolution with the Venezuelan government to reach an agreement for a fair compensation to the Company. The compensation must be monetary or include a monetary component that is appropriate to the Company and a participation in a Mixed Enterprise to jointly operate with the Venezuelan government mining concessions or projects in terms and conditions that are appropriate to the Company. Once the Request for Arbitration is filed, the Company's objective will be to diligently pursue the Arbitration Claim against the Venezuela government and to reduce the Company's general and administration expenses to a minimum so the Company's cash resources are available to fund the costs of the Arbitration Claim. The Company's additional objective is to secure debt financings in the near future to fund the costs of the Arbitration Claim and the Company's minimized general and administration expenses during the period of time that the Arbitration Claim will last as well as settling some of the outstanding liabilities. Additionally the Company's plan is to refinance the Loan all or in part and to enter into arrangements with its main vendors and creditors to restructure its payables.
The Company's highlights for 2011 were:
On September 16, 2011, the Decree announced the Nationalization and mandated that starting on that date, 100% of the gold produced in Venezuela be sold to the Central Bank of Venezuela ("CBV"), effectively terminating the Company's ability to export.
Gold production of 64,439 ounces of finished gold (dore form) for 2011 (2010: 101,183 ounces) and gold sold of 71,702 ounces (2010: 148,928 ounces).
On June 10, 2011, the Company did not repay its convertible loan for $30 million which remains outstanding as of the date of this news release and accruing interest at the contractual interest rate of 11%.
As at December, 2011, the Company owed 6,643 ounces of finished gold to a third party and as a result of the Nationalization the Company will need to settle in cash, in lieu of gold deliveries, the outstanding 6,643 ounces still owing as of the date of this news release. The amount will be determined based on their fair market value using the international spot price of gold at the time of payment.
The Company's highlights subsequent to 2011 were:
On January 10, 2012, the Company extended the expiration date of 30 million share-purchase warrants with an exercise price of C$0.40 per share, from January 10, 2012, to January 10, 2013. These warrants are held by the lenders of the Company's convertible loan. On March 4, 2012, 9.2 million share-purchase warrants with an exercise price of C$5.25 expired unexercised.
On March 14, 2012, as a result of the Nationalization, all of the Company's Venezuelan mining concessions expired by force of the Decree and reverted to the Venezuelan government. As required by Venezuelan law, all of the Company's assets used in the operations of the mining concessions, such as property plant and equipment, mineral properties and inventories, were disposed on that date as they reverted to the Venezuelan government together with the mining concessions.
On February 27, 2012 the Company completed a positive feasibility study (the "Study") on the expansion of the Choco Mine from 5,000 to 20,000 tonnes per day. For full details please read the Company's news release titled "Positive Feasibility Study on Expansion of Choco Mine to 20,000 Tonnes per Day Completed" dated February 27, 2012 and filed on www.sedar.com. The news release can also be found on the Company's website at www.rusoro.com. The Company believes the Study will be of significant use in an Arbitration Claim with ICSID against the Venezuelan government, in determining the fair value of the Company's recently expropriated Choco Mine and Increible 6 mineral property.
Results for 2011 and Financial Position as at December 31, 2011
Revenue decreased to $107.3 million (71,702 ounces sold) in the 2011 from $143.7 million (148,928 ounces sold) in 2010 due to lower gold production which more than offset the increase in the average realized price of gold to $1,497 in 2011 from $965 in 2010 and the effect of the change in 2010 of the rate used to translate Bolivar Fuerte ("BsF") transactions and balances to US dollars. The reduction in gold sales is substantially due to the sale of a significant amount of finished gold inventory during 2010, which had been stored from the latter portion of 2009. There was no similar buildup of finished gold inventory from the prior year for sale in 2011. The reduction in gold sales is also attributable to lower production as a result of lower average ore grade at the Choco Mine and Isidora Mine.
During 2011, the CBV continued to incur delays in granting export permits to the Company, forcing the Company to sell gold to the CBV, proceeds of which are collectible in Venezuelan currency, BsF, at the official exchange rate of BsF 4.30/$1.00. This resulted in the Company not being able to maximize its export quota, which was paramount for the Company, hence negatively impacting mining operations through decreased ability to fund sustaining capital expenditure, key consumables and services payable in US dollar. The US dollar cash flow constrains generated by reduced exports in turn caused lower production levels, in an iterative cycle.
Mining operating expenses increased and depreciation and depletion decreased to $147.9 million and $13.4 million, respectively, in 2011 from $111.7 million and $19.1 million in 2010. The increase in mining operating expenses is due to a $21.4 million non-cash impairment adjustment to inventories on December 31, 2011 mainly due to their expropriation by the Venezuelan government subsequent to year end on March 14, 2012 and a $10.7 million increase in the allowance for doubtful collection of VAT receivable as a result of the Nationalization. Other reason for the increase in mining operating expenses is the increase in the cash cost per ounce sold during 2011 compared to 2010 as a result of the change in 2010 of the rate used to translate BsF transactions and balances to US Dollars, the impact of the Venezuelan inflation rate, and the lower gold production realized at the Choco Mine and Isidora Mine. The decrease in tonnes mined and milled, which affected gold production, is the result of cash constraints originated by a depressed gold production due to the inability to access US dollars to pay for imported spare-parts and consumables essential to sustain the Company's mining operations. Also as a result of the Company's inability to export gold as prohibited by the Decree, the Company had to sell gold to the CBV in BsF reducing the Company's purchasing power as there is no available means for the Company to exchange BsF to USD at the official exchange rate. The uncertainty created by the Decree about the Company's future operations created a negative impact on the operations as well, as it affected suppliers, on-site contractors and employees.
General and administrative expenses decreased to $6.6 million in 2011 from $9.2 million in 2010 significantly due to cost reductions to preserve cash and termination benefits paid to two senior officers of the Company during 2010.
Interest on the Company's convertible loan decreased to $4.6 million in 2011 from $8.0 million in 2010 due to the partial retirement of the convertible loan during 2010.
Gain on revaluation of derivative financial liabilities increased to $4.1 million in 2011 from a loss of $2.4 million in 2010 due to the issuance and subsequent revaluation of Canadian dollar warrants at lower current market prices. The warrants were issued in June 2010 as part of the convertible loan refinancing transaction.
Loss on revaluation of the gold sale contract increased to $4.2 million in 2011 from a loss of $nil in 2010, due to the reclassification of a gold delivery contract from deferred revenue to a derivative financial liability, and its subsequent revaluation to its fair value using the current international spot price of gold.
Impairment loss on write-down of property, plant and equipment and mineral properties increased to $924.3 million in 2011 from $1.5 million in 2010 as a result of a non-cash write-down adjustment done to these assets on December 31, 2011 due to their expropriation by the Venezuelan government on March 14, 2012.
Deferred tax recovery (non-cash gain) increased to $206.0 million in 2011 from $26.6 million in 2010. The increase was the net effect produced by the reversal of the deferred tax liability and asset in the balance sheet as at December 31, 2011 as a result of the non-cash impairment adjustment mentioned above which eliminated the temporary difference between the tax and accounting value of those assets.
Foreign exchange gain was $0.4 million in 2011 compared to a foreign exchange gain of $5.3 million in 2010, primarily due to the fixing of the exchange rate in Venezuela to the official rate.
Net loss amounted to $780.1 million during 2011 compared to net profit of $20.8 million during 2010.
The Company's assets totaled $27 million as at December 31, 2011 (December 31, 2010: $984 million). Total assets primarily consisted of $3 million in cash (December 31, 2010: $4 million), $6 million in receivables (current and non-current) (December 31, 2010: $27 million), $6 million in inventories (December 31, 2010: $38 million) which are recorded at the lower of cost and net realizable value, $12 million in prepaid expenses, deposits and advances to suppliers (December 31, 2010: $13 million).
A significant amount of the Company's liabilities, including accounts payable and accrued liabilities of $79 million as at December 31, 2011 (December 31, 2010: $54 million) are monetary items and have been translated from BsF to US dollars at the official exchange rate of BsF 4.30/$1.00 at December 31, 2011.
The Company's current assets less current liabilities (working capital) decreased $89 million since December 31, 2010 to a negative working capital as at December 31, 2011 of $119 million (December 31, 2010: $30 million). This is a result of declining operating results during 2011, extending payment terms with vendors in order to conserve cash and the reclassification of the decommissioning and restoration provision and the accruals for termination benefits from non-current to current as a result of the Nationalization.
A convertible loan of $30 million (December 31, 2010: $29 million), which became due on June 10, 2011, represents the balance of the convertible loan's principal owing at December 31, 2011. The Company did not perform the repayment of the convertible loan on the June 10, 2011 maturity date and as at the date of this news release, the original principal and accrued interest of $30 million and $3.80 million, respectively, continue to incur interest. The Company is in discussions with the lenders for the granting of a formal extension to the convertible loan repayment period for a sufficient amount of time to allow the Company to obtain a fair compensation from the Venezuelan government as a result of the Nationalization, either through settlement agreement or arbitration award. The loan is held in US dollars and is secured by share pledges over the Company's subsidiaries which prior to the Nationalization held the mining concessions for the Choco Mine and the San Rafael El Placer and Increible 6 mineral properties, but excluding the Isidora Mine.
As a result of the significant asset write-down mentioned above, as at December 31, 2011 the Company presents a shareholder's deficiency rather than equity on the face of its balance sheet, as the Company's liabilities exceed its assets.
Cautionary non-IFRS measures
Total cash costs per ounce sold is a non-IFRS measure. The Company believes that, in addition to conventional measures, prepared in accordance with IFRS, certain investors use the cash costs per ounce data to evaluate the Company's performance and ability to generate cash flow. Accordingly, it is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS as it does not have any standardized meaning prescribed by IFRS. Data used in the calculation of total cash costs per ounce may not conform to other similarly titled measures provided by other precious metals companies.
ON BEHALF OF THE BOARD
Andre Agapov, President & CEO
Forward-looking statements: This document contains statements about expected or anticipated future events and financial results that are forward-looking in nature and as a result, are subject to certain risks and uncertainties, such as general economic, market and business conditions, the regulatory process and actions, technical issues, new legislation, competitive and general economic factors and conditions, the uncertainties resulting from potential delays or changes in plans, the occurrence of unexpected events, and the Company's capability to execute and implement its future plans. Actual results may differ materially from those projected by management. For such statements, we claim the safe harbour for forward-looking statements within the meaning of the Private Securities Legislation Reform Act of 1995.