Shares digital

Last month’s A$7.95 million cash settlement with Eurogold (EUG:AIM) over an aborted asset transaction (Shares, 21 Feb ‘08) was a turning point for Oxus Gold (OXS:AIM). It has spent the past four years fighting over a mining licence in Kyrgyzstan, battling alleged tax breaches while at the same trying to develop a large gold and silver mine in Uzbekistan. One issue still hangs over its head, arbitration against the Kyrgyz state relating to investment in the Jerooy mine. Chief executive Richard Wilkins insists this is not a distraction but rather a waiting game as it has already prepared its legal case.

Since January 2004, Oxus has produced around 460,000 ounces of gold in Uzbekistan at the Amantaytau AGF project, a 50:50 joint venture with the Uzbek State. The open pit operation helped Oxus set up operations in the country but it has taken four years to reach its ultimate goal – mining underground sulphides at AGF. The project currently has reserves of 2.8 million ounces of gold and 6.7 million ounces of silver. Oxus believes the entire project has a resource of 27 million ounces of gold and 492 million ounces of silver. Much of this estimate comes from Soviet resource calculations that aren’t to Western standard. Consultancy Wardell Armstrong is updating the feasibility study, which should be done next month.

In December 2007, Oxus received government approval to start underground sulphide mining. While it progresses with this development, there’s around 15 years mining left on the oxides, with annual production set at 70,000 ounces. The ultimate goal is to more than triple production by 2010 to 300,000 ounces and reduce operation costs.

The rebirth of Oxus looks enticing for investors, but there are still a few issues to address. The sulphide development will cost $150 million. This will be raised mostly through debt to avoid diluting shareholders’ investment. Former chief executive Bill Trew, who left in January, has been selling down shares but still holds nearly 4% through his TNS Investments vehicle. Oxus has entered into discussions to resolve this stock overhang. Interim results, to be published in the coming days, will include the final bits of tidying up the company.

While these items may restrain the share price in the short term, shareholders should take comfort from Oxus’ two largest investors. Hedge fund RAB Capital at 27% is interested in exposure to Uzbekistan’s mining industry and doesn’t plan to sell off shares in the same way it has recently done for other Aim resource groups, claims Wilkins. Swiss industrial group Zeromax, the largest private sector employer in Uzbekistan, holds 17% and is expected to increase its stake further.

‘We’d like to be the vehicle for bringing Uzbekistan on to the international capital markets,’ says Wilkins, who has his eye on picking up additional state mining projects. Given that its progress with AGF has so far been positive to the country, creating jobs and income for the State, Oxus stands a good chance of finally becoming the successful mining house it has always longed to be.