:::

Trans Siberian Gold an undiscovered value play William R. Thomson 12 December 2003 If ever there was evidence that underwriters make a difference in how a company is viewed in the markets, then Trans Siberian Gold (TSG.L) is perfect evidence. TSG is a British company that has been active prospecting for gold in three areas of Russia and has found significant quantities. It listed on London's Alternative Investment Market on 25 November at GBP 1.50 (approximately USD 2.50) a share. The company sold 10.7 million shares to raise GBP 16 million (USD 27 million) and now has 28.8 million shares outstanding (approximately 30 million fully diluted). Since listing Trans Siberian Gold has sunk back to GBP 1.23 where it represents, in our opinion, very significant value on both an absolute basis and by comparison with its competitors. At these prices, its total market capitalization is a mere GBP 41 million or $70 million. Why has it fallen? The company was originally going to raise GBP 10 million but saw the chance to raise more and provide itself with certainty about financing its future projects. That made sense for the company but probably exhausted demand for the shares in the short term. Coupled with that the underwriters were neophytes in the mining game in promoting the shares. The firm's public relations company finally made a very positive announcement on 8 December and it is important that analysts and newsletter writers follow the shares. In the interim, a very real opportunity exists. Asacha Trans Siberian Gold has identified over 3 million ounces of high grade gold in two important sites: the first at Kamchatka in eastern Siberia and the second at Verduga in central Siberia. The company believes there can be a significant expansion of these reserves announced in the coming months. The first mine to come on stream is the shallow Asacha mine in Kamchatka where 100,000 ounces a year should start to be mined starting 2004. With gold at $400 and ounce and total costs estimated at $250 an ounce that would equate to USD 15 million before tax, say USD 0.40 after tax. At present the Asacha mine only has a six years life but that should be extended as development proceeds. Asacha alone more than justifies the present price of the shares. Verduga The more significant mine is Verduga where over 2.5 million ounces have been identified already, to western geologist standards. Verduga should come on stream by 2005 and produce upwards of 180,000 ounces annually. The company estimates that the total costs to extract Verduga's gold will about USD 250 an ounce. Verduga could therefore be adding USD 0.60 a share to TSG's bottom line by 2006 for a total earnings of $1 per share. What is a 40 cents of earning in a year's time and a dollar in a little over two year's time worth? In today's market we would argue a lot more than the current market price of GBP 1.30 or $ 2.20. At present prices the company is selling at one times 2005 revenues and 0.33 times possible 2006 revenues. We can we take Peter Hambro Mining (POG.L) as a comparison. Peter Hambro Mining, which is also a British company with Russian gold interests, has about 50 million shares outstanding at a price of GBP 4.20 for a total market capitalization of about GBP 210 million more than 5 times TSG's. But it will only produce about 100,000 ounces this year. So POG.L is 1-2 years ahead of TSG but is directly comparable. It is selling for 6 times 2003 revenues. It would seem that TSG should have the capability to appreciate about 5 times as Asacha comes onstream. That could then act as the base for a further lift as Verduga comes on stream. The potential is therefore there for a 5-10 bagger, albeit with Russian political risk, and the normal development risks intrinsic to gold mining. It is instructive to see how POG has performed since its IPO in May 2002. It came at GBP 1.40 and fell over the next 6 months to GBP 0.80 before appreciating 5 fold as production came onstream and gold appreciated. At current prices, we feel strongly that TSG is a buy. We believe that the newly-listed company will become more sensitive to the need to keep the investing world abreast of developments in this interesting play. Others seem to agree with this assessment. Well known shareholders include Jean-Marie Evillard's Soc Gen Gold Fund and the Zulauf Fund, managed by Felix Zulauf of Zurich. Trans Siberian Gold [TSG.L, as noted] is listed on London AIM market, and can be bought through any US or UK broker. Website: Trans Siberian Gold William R. Thomson wrthomson@btconnect.com December 2003 Disclaimer: Mr. Thomson is not a registered investment adviser and has not been paid for this article. He has taken this information from sources he believes reliable but no guarantees are given or implied. He owns shares in the company. ______________ 321gold Inc Miami USA