Rusoro Mining Ltd. (TSX VENTURE:RML) ("Rusoro" or "the Company") -
Rusoro reports its financial results for the year ended December 31, 2011 and
provides update on the Nationalization of its Mining Assets. The Company's
audited consolidated financial statements and management's discussion and
analysis ("MD&A") for the year ended December 31, 2011 have been filed on SEDAR
(www.sedar.com).
All amounts set out in this news release and the Company's annual audited
consolidated financial statements and MD&A are expressed in United States
dollars, unless otherwise stated.
The following is a synopsis of the year ended December 31, 2011 financial
results and related information. For detailed information regarding Rusoro's
2011 year-end results, please refer to the audited consolidated financial
statements and related MD&A which have been filed on SEDAR at www.sedar.com, and
can be found on the Company's website at www.rusoro.com.
Expropriation of the Company's Mining Assets
On September 16, 2011, the Venezuelan government, through publication in the
Official Gazette of Venezuela, enacted a law-decree ("the Decree") reserving to
the government of Venezuela exclusive rights for the extraction of gold in
Venezuela ("the Nationalization"). The Decree mandated the expiration of all
mining concession held by the Company and their reversal to the Venezuelan
government together with all related assets and operations. The Decree permitted
the Company to reach an agreement with the Venezuelan government to continue
operating jointly, in the form of a mixed-interest enterprise ("the Mixed
Enterprise"), the mining concessions and mining assets affected by the
Nationalization and in which the Company could not own more than a 45% share
participation. The Decree provided for a 90-day period from September 16, 2011
for the government of Venezuela and the Company to negotiate the terms and
conditions of the migration of the Company's mining assets to the Mixed
Enterprise, including the compensation to the Company for the loss of ownership
of its assets as a result of the Nationalization. This 90-day negotiation period
was subsequently extended to March 14, 2012 by the Venezuelan government through
decree No. 8683.
As of March 14, 2012, the Company was unable to reach an agreement with the
Venezuelan government upon the terms and conditions of the migration of its
mining assets to the Mixed Enterprise within the designated time periods.
Therefore, effective March 14, 2012 in accordance with the procedures outlined
in the Decree, all of the Company's mining concessions expired by force of the
Decree and all related assets and operations reverted to the Venezuelan
government who took possession and control in accordance with Venezuelan law
becoming the new operator and employer.
In accordance to Venezuelan Labor Law and the Decree, beginning March 15, 2012
the Venezuelan government became the sole and exclusive employer for the workers
and employees who provide services for the operations of the mining concessions.
The Company is not responsible for the actions or omissions of those workers and
employees, by the damages that they may cause or suffer in the exercise of their
functions or for the payment of their salaries, bonuses, benefits or any other
compensation or benefit generated from the above-mentioned date, as all the
workers, starting March 15, 2012, provide their services and run their work
daily activities under the exclusive direction, supervision and responsibility
of the Venezuelan government.
Also starting March 15, 2012, the Company is relieved of all responsibilities
associated to the mining concessions, assets and operations that were subject to
expropriation, including without limitation, any contractual, mining,
environmental, labor or criminal liability, and for the payment of any tax, fee
or contribution of any kind, including any mining or surface tax related to such
mining concessions and operations.
As a result of the Nationalization, on December 31, 2011 the Company wrote-down
to zero the carrying value of its mineral properties and property plant and
equipment and significantly wrote-down its inventories and value-added tax (VAT)
receivables giving rise to large non-cash losses during 2011. Concurrent with
these adjustments the Company fully reversed to income the total balance of
deferred tax liability as at December 31, 2011. These adjustments are quantified
below under the caption Results for 2011 and Financial Position as at December
31, 2011.
Outlook
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.
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