What do the Oxus Plc Preliminary Results mean for the International Arbitration Investors

Oxus Plc Preliminary Results (Investegate) Link May 17 2013

Interesting analysis of the results by Richard Shead Executive Chairman. An update will come after a few meetings, but it's thought provoking? Anyone have any startling concerns or views? 

Updated: May 19th 2013 Items in Italics or blue are amended for ease of viewpoint or to bring attention to the issues with greater significance. 

Of course, there risks are that they don't recover above what the current valuation is post-3rd Party Funding and the amount of SEDA (Standby Equity Agreement) that's issued, albeit I as the assets have been expropriated it's a case of how much rather than losing. It's more realistic to expect near $150m than the claimed total after but only time will tell. 

SEDA's for those that follow, are known to trash the shares, likewise, the company can open short positions on the stock to improve their position in terms of the number of share per cash raised. One bone of contention that, if you look at every company on AIM excluding Xcite Energy to my knowledge has had their share price trashed as a result of a SEDA. 

CHAIRMAN'S STATEMENT

What’s only mentioned in the contingent Assets is the Jero0y Project. In May, Eurogold settled their lawsuit for A$7m in cash and shares, so that particular Damoclean sword no longer hangs over directors.  Additionally, in 2007 the old Jerooy property and a couple of other exploration properties in Turkey and Romania were sold to KazakhGold for $73m in shares, 90% of which it handed over to shareholders as a dividend.  A further amount up to $80m in cash will become due if KazakhGold obtains a mining license for Jerooy.  Arbitration with Kyrgyz Republic suspended pending withdrawal of claim May 6th, 2008

Most of last year was spent by directors and management in progressing the arbitration claim for the misappropriation by the Uzbek Government of both the Company's Khandiza and Amantaytau Goldfields mining assets in Uzbekistan, which resulted in a substantial destruction of shareholder value of your company.

In order to ensure that your company remains adequately funded to pursue its claims through international arbitration, it successfully put in place both a litigation funding agreement, which ensures that the legal costs of the claim will be funded through to its conclusion, and an equity funding agreement to ensure that your company's ongoing operational costs, which have as in the previous year been again reduced wherever possible, will remain funded during this most difficult period in the life of your company. Details of both these funding arrangements have been fully disclosed in various RNSs issued during the past twelve months. [I don’t see the purpose in the SEDA (Standby Equity Agreement) surely those shareholders now invested would support a fund raiser which would then enable the company not to drip feed to market and support the price]

It gives me great confidence that two professional companies well versed in litigation funding and value creation have, after reviewing Oxus' claims, taken the decision to provide the Company with the financial support necessary to progress these claims to what I confidently believe will be a successful conclusion for all stakeholders. [They owned an asset and this was expropriated by the Uzbekistan Government so it’s value rather than win or lose.]

With respect to the abuses suffered by certain of our former employees, I wish I was able to provide more positive news.

Mr Said Ashurov, AGF's former Chief Metallurgist, remains in prison in Uzbekistan on what the company considers to be an unjust and improper conviction for seeking to remove classified information from the country, despite high-level approaches made to the Uzbek authorities through diplomatic and other formal lines of communication. We continue to remain hopeful that Uzbekistan will on humanitarian grounds release Mr Said Ashurov, who I understand is critically ill, into the care of his family. [Rather says why people shouldn’t invest in Uzbekistan]

A number of other former employees have also had arrest warrants issued against them on what we consider are fabricated charges. It is regrettable that the arrest and / or imprisonment of employees is a standard tactic adopted by the Uzbek Government in its various disputes with foreign investors in the expectation that the investor will capitulate and not progress its claim for compensation.

Despite these pressures, your company remains willing to consider offers from the Uzbek Government to settle our claims on a fair and equitable basis taking into account the independent valuations of the assets misappropriated. If no such offer is received, your company will continue with its claims which are currently scheduled to be heard before the arbitral tribunal in early 2014. [Gives a timeframe to work to for investment purposes but remember a Director (incorrect and edited) Mr A F Gibbons has recently purchased 32,241,600 ordinaryshares in Oxus Gold, which represents 7.22% of the issued share capital of theCompany. & Director Richard Shead Share Purchase

                                                                                                                                                                               

In conclusion I would like to thank my fellow director, management, staff and professional advisors for all their hard work and support during the past twelve months, which will hopefully lead to the enhancement of shareholder value in the foreseeable future.    

Richard Shead

Executive Chairman

16 May 2013

FINANCIAL REVIEW

During the year ended 31 December 2012 management has continued to pursue the arbitration proceedings seeking compensation for the Group in respect of the Amantaytau Goldfields ("AGF") and Khandiza mining assets in Uzbekistan. There are no other operating activities currently being undertaken by the Group. The Company's ability to continue with the arbitration process has been significantly strengthened through the further reorganisation of the Group's liabilities through entering into a litigation funding agreement and equity financing agreement.

For the years ended 31 December 2012 and 2011 the Group has accounted for the investment in AGF as an available-for-sale financial asset under IAS 39 Financial Instruments: Recognition and Management, recognising the loss of joint control of the investment. Although the outcome of the arbitration proceedings is uncertain, compensation sought from the proceedings exceeds the book value of the AGF and Khandiza assets. Accordingly no provision is considered necessary against the carrying value of the AGF investment. The carrying value of Khandiza, which was fully provided against in 2008, was reinstated during the year ended 31 December 2011.

In January 2011 the Uzbek shareholders in AGF agreed in principle to acquire the Group's 50% shareholding in AGF. In February 2011 the Group submitted a detailed offer to the Uzbek shareholders of AGF. No response has been received to the offer and instead AGF was subjected to an extensive audit of its financial and economic activities by an audit commission appointed by the Uzbek Government. This resulted in the Group becoming unable to manage the operational affairs of AGF and a declaration of force majeure in March 2011. On 31 August 2011 the Group commenced international UNCITRAL arbitration proceedings against the Uzbek Government in order to seek appropriate compensation. The Group has also included the loss of the Khandiza base metals project in 2006 within the proceedings. The Arbitral Tribunal has held that Oxus has standing under the Bilateral Investment Treaty between the United Kingdom and Uzbekistan to bring its claims for expropriation as a direct and indirect shareholder of the non-UK subsidiaries that have made the investments in Uzbekistan.

On 17 September 2012 the Group submitted its detailed Statement of Claim to the Arbitral Tribunal.

The Statement of Claim is accompanied by an independent quantum report prepared by the international accounting firm, Ernst & Young, and an expert opinion on valuation by international mineral consultants, Wardell Armstrong International, quantifying the losses to Oxus as a result of various breaches of the BIT by the Uzbek Government. The loss in respect of the Khandiza investment is quantified as ranging from $72.1 million to $588.7 million, and in respect of AGF from $480.3 million to $661.8 million.

The Ministry of Finance of the Republic of Uzbekistan brought a claim of $10.8 million against the Company in respect of the AGF Phase 2 Project Development Fund and obtained a judgment in its favour in the Uzbek courts, which it sought to enforce in the English courts. The parties have now agreed that all proceedings in respect of this court action will be stayed until after the Arbitral Tribunal has rendered its final award in the arbitration proceedings, or the arbitration is finally discontinued or disposed of.

Since March 2011 the Group's access to the accounting records, financial information and production data of AGF has been severely restricted. In September 2012 insolvency proceedings were commenced against AGF following a decision by the Navoi Regional Economic Court of Uzbekistan. The Group, despite being AGF's largest creditor, was not appropriately consulted during these insolvency proceedings and in February 2013 AGF was declared bankrupt by the Navoi Regional Economic Court. The declaration of bankruptcy is not expected to negatively impact the arbitration proceedings.