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Trans-Siberian Gold INVESTING IN RUSSIAN GOLD Trans-Siberian Gold ANNUAL REPORT AND ACCOUNTS 2006
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Trans-Siberian Gold

Nov 04, 2021

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Page 1: Trans-Siberian Gold

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I N V E S T I N G I N R U S S I A N G O L D

Trans-Siberian GoldANNUAL REPORT AND ACCOUNTS 2006

Trans-Siberian Gold plcChurch BarnOld Farm Business CentreChurch RoadToftCambridgeCB23 2RFT +44 (0)1223 265760F +44 (0)1223 265765E [email protected]

www.trans-siberiangold.com

Page 2: Trans-Siberian Gold

CHINAJAPAN

MONGOLIA

KAZAKHSTAN

RUSSIAN FEDERATIONMoscow

BOGUNAYVEDUGA

Olimpiada

RODNIKOVA

ASACHA

01  Group Mineral Resources02  Chairman’s Statement04  Chief Executive’s Operating Review08  Financial Review10  Board of Directors11  Directors’ Report15  Independent Auditors’ Report16  Consolidated Profit and Loss Account17  Consolidated Balance Sheet18  Company Balance Sheet19  Consolidated Cash Flow Statement20  Notes to the Financial Statementsibc  Directors and Advisers

Trans-Siberian Gold publishes its accounts in US dollars ($) and all figures are $ unless otherwise specified

•   Asacha and Rodnikova mining licences extended

•   Agreement to sell Veduga and Bogunay for $40 million

•   Asacha expected to be in production by end 2008 with reduced  initial capital expenditure

DirectorsPeter Burnell  Non-executive ChairmanOleg Bagirov Chief Executive OfficerSimon Olsen  Finance Director  and Company SecretaryPhilip Bowring  Non-executiveRichard Duffy  Non-executiveBoris Fedorov  Non-executiveFlorian Fenner  Non-executiveBenjamin Guenther  Non-executive

Audit CommitteePeter BurnellPhilip BowringRichard Duffy

Remuneration CommitteePeter BurnellPhilip BowringRichard Duffy

Nominated adviser and broker

Seymour Pierce Limited20 Old BaileyLondon EC4M 7ENUnited KingdomTel:  +44 (0)20 7107 8000

Auditors

PricewaterhouseCoopers LLP1 Embankment PlaceLondon WC2N 6RHUnited KingdomTel:  +44 (0)20 7583 5000

Solicitors

Freshfields Bruckhaus Deringer65 Fleet StreetLondon EC4Y 1HSUnited KingdomTel:  +44 (0)20 7936 4000

Barr Ellison39 ParksideCambridge CB1 1PNUnited KingdomTel:  +44 (0)1223 417200

Public and investor relations

Bankside Consultants Limited1 Frederick’s PlaceLondon EC2R 8AEUnited KingdomTel:  +44 (0)20 7367 8888

Registrars

Capita RegistrarsThe Registry34 Beckenham RoadBeckenhamKent BR3 4TUUnited KingdomTel:  0870 162 3100 (UK)  +44 20 8639 2157

Principal bankers

National Westminster Bank PlcCity of London OfficePO Box 122581 Princes StreetLondon EC2R 8PAUnited Kingdom

Registered office and head office

Trans-Siberian Gold plcChurch BarnOld Farm Business CentreChurch RoadToftCambridge CB23 2RFUnited KingdomTel:  +44 (0)1223 265760Fax:  +44 (0)1233 265765Email: [email protected]:  www.trans-siberiangold.com

Company number1067991

Directors and AdvisersHighlights

Page 3: Trans-Siberian Gold

01Trans-Siberian GoldANNUAL REPORT AND ACCOUNTS 2006

Group Mineral Resources

JORC RESOURCES MINERAL RESOURCE – Asacha Grade Contained oz Au equi- Au Ag valent *Au Category Tonnes Au g Ag g g/t g/t g/t Au Ag equivalent Measured 308,548 5,361,031 12,491,680 17.4 40.5 18.2 172,361 401,617 180,394 Indicated 741,953 12,873,675 32,969,431 17.4 44.4 18.2 413,898 1,059,992 435,098 Sub-total 1,050,501 18,234,706 45,461,111 17.4 43.3 18.2 586,259 1,461,609 615,492 Inferred 233,068 3,575,326 7,748,520 15.3 33.2 16.0 114,949 249,121 119,932 Total 1,283,569 21,810,032 53,209,631 17.0 41.5 17.8 701,208 1,710,730 735,424

4 g/t cut-off.

Trans-Siberian Gold plc (TSG) is a UK-based resources company, established in 2000 with the objective of acquiring and developing a portfolio of quality gold-mining assets in Russia. The Company is listed on the London Stock Exchange’s Alternative Investment Market (AIM).

Following the disposal of Veduga and Bogunay, TSG will have two primary locations, Asacha and Rodnikova, in the Kamchatka peninsula in Far East Russia.

These properties contain approximately 900,000 oz of gold and about 4 million oz of silver in total mineral resources calculated to JORC standards. There is upside potential at both properties.

MINERAL RESOURCE – Rodnikova Grade Contained oz Au equi- Au Ag valent *Au Category Tonnes Au g Ag g g/t g/t g/t Au Ag equivalent Measured – – – – – – – – – Indicated 518,400 4,266,775 45,522,116 8.2 87.8 10.0 137,180 1,463,570 166,450 Sub-total 518,400 4,266,775 45,522,116 8.2 87.8 10.0 137,180 1,463,570 166,450 Inferred 380,500 2,656,237 24,639,241 7.0 64.8 8.3 85,400 792,170 101,240 Total 898,900 6,923,012 70,161,357 7.7 71.5 9.3 222,580 2,255,740 267,690

MINERAL RESOURCE – Veduga Grade Contained oz Au equi- Au Ag valent *Au Category Tonnes Au g Ag g g/t g/t g/t Au Ag equivalent Measured 7,135,406 39,668,800 – 5.6 – 5.6 1,275,383 – 1,275,383 Indicated 4,520,630 24,222,700 – 5.4 – 5.4 778,778 – 778,778 Sub-total 11,656,036 63,891,500 – 5.5 – 5.5 2,054,161 – 2,054,161 Inferred 4,548,016 21,712,000 – 4.8 – 4.8 698,058 – 698,058 Total 16,204,052 85,603,500 – 5.3 – 5.3 2,752,219 – 2,752,219

4 g/t cut-off.

2 g/t cut-off. *50 oz Ag = 1 oz Au equivalent.JORC = Australasian Joint Ore Reserves Committee.

The information in this report relating to Asacha’s Mineral Resources is based on information compiled by Michael O’Brien, and that relating to Veduga’s Mineral Resources by David Stock, both of whom are members of the Australasian Institute of Mining and Metallurgy.

Both Michael O’Brien and David Stock have sufficient experience relevant to the styles of mineralisation and types of deposit under consideration and to the activity which each is undertaking to qualify as a Competent Person as defined in the 2004 edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves. Each of them consents to the inclusion in the report of the matters based on his information in the form and context in which it appears.

Page 4: Trans-Siberian Gold

Trans-Siberian Gold ANNUAL REPORT AND ACCOUNTS 200602

Chairman’sSTATEMENT

In my statement in the last Annual Report I was pleased to report that the major obstacles to proceeding with full scale development of Asacha had apparently been finally surmounted with the extension of the licence production obligation to the end of 2008 and the agreement (with Standard Bank) on outline terms for project financing of up to $50 million. We also had some encouragement regarding the possible availability of grid power for Veduga which will be required, along with an increase in mineable resources, to make that project viable. In addition the acquisition by UFG Asset Management (UFG) of their 29% interest, and their Board representation, provided TSG with a strong Russian partner for the first time. Sadly this optimism was misplaced and events of the past year have been frustrating and mostly disappointing.

The equity raising required to complement the Standard Bank loan and carry TSG through until the Group was cash flow positive, after Asacha’s start-up, was anticipated by Management to be undertaken towards the end of the second quarter of 2006, when the buoyant market conditions prevalent during the first half of the year would no doubt have enabled it to be successfully completed. In the event, this fund raising was unavoidably delayed and could not be undertaken until August when sentiment had changed. In addition, UFG did not wish to increase its investment and AngloGold Ashanti Limited (AGA) was unwilling to underwrite the balance of its pro-rata share of the placing beyond the conversion of the $10 million advance which it had made to permit Asacha project activity to proceed during the previous months. As a consequence, in spite of initially reasonably encouraging responses to the roadshow, the placing failed.

In these circumstances I believe we were fortunate to receive an offer in September from AGA to purchase TSG’s Veduga and Bogunay properties (by acquisition of their holding companies, Amikan and AS APK) for a cash consideration of $40 million, thereby providing cash in substitution of the intended equity placing. As we have

explained to shareholders in detail prior to the recent EGM which approved this transaction, we considered, and continue to believe, as did Seymour Pierce in their fairness opinion and other third party commentators, that this is an excellent price for a project, whose technical complexity is better suited to a larger company. At the same time Oleg Bagirov was appointed CEO, based in Moscow, and a proposal was received from UFG, effectively to merge TSG with Sigma, a Kamchatka based early stage, gold exploration company in which UFG holds a controlling interest. While the principle of such a combination to provide TSG with a broader portfolio of projects in the Russian Far East was appealing, it was not, in practice, possible to agree on mutually acceptable relative values, and this proposal was therefore withdrawn.

After these positive developments our hopes of being able to proceed rapidly with the Asacha project were dashed again when Standard Bank informed us in November that they were unable to proceed with the project financing. Although they had essentially completed all aspects of verification of the feasibility study to their satisfaction, their intended co-lender was unwilling to continue to participate and Standard Bank did not wish to proceed on its own.

Following this, in line with the wishes of both the main shareholders, it was decided to downsize the initial capacity of the plant from 220,000 tonnes per annum (tpa), at full production by the end of year two of operation, to 150,000 tpa and annual gold output from around 110,000 oz to around 70,000 oz. While this is less than optimal in terms of the probable eventual mineable resource of 1 million oz or more, it reduces the initial financing requirement and facilitates achieving production in late 2008. AGA has advanced a further $10 million, as an initial payment of the sale proceeds of the Veduga and Bogunay properties, to avoid further delays in project implementation. Following the fulfilment of the final condition precedent, we expect to complete that sale by the end of June, to allow site preparation activity to proceed unimpeded during the summer

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03Trans-Siberian GoldANNUAL REPORT AND ACCOUNTS 2006

period. We estimate that a further $40 million will be required in excess of the $40 million sale proceeds to cover the balance of Asacha project capital expenditure ($72.5 million in addition to $38.5 million already spent), working capital, corporate expenses and some exploration at Rodnikova, until Asacha achieves positive cash flow and the company becomes self financing. Given the full support of our two majority shareholders to proceeding to complete the Asacha project on this basis, we are confident that the balance of funding required during 2008 will be obtained in due time. AGA has invested $40 million in TSG to date and UFG approximately $20 million, excluding the additional $40 million for which AGA will purchase Amikan and AS APK.

In spite of past delays and disappointment, Asacha remains a robust project with its access road and most of its infrastructure in place. At gold prices in excess of $600/oz, the return on total project expenditure remains reasonable, and on money still to be spent ($72.5 million) it is very acceptable. The sale of Veduga provided probably the only basis to realise value from Asacha without selling all or most of the asset at a distressed price or massive dilution of existing shareholders. It provides the opportunity to complete the project ourselves while retaining the flexibility to consider all alternatives for the balance of our funding requirements without pressure or further delay to the project. All experts who have examined the resource situation are highly confident that an increase of the order of at least 50% is probable. In addition the prospects for Rodnikova, assuming understandable environmental concerns can be satisfied, which we believe is technically not a major obstacle, add a very interesting dimension in the medium term.

The share price has languished at levels which clearly undervalue the Company for at least the past year. In some ways this is not surprising, given very small trading volumes. Liquidity is inevitably low with 59% of our shares held by AGA and UFG and with many of those shareholders wishing to sell having done so in the process of UFG’s stake being built up in the first quarter of

2006. Nevertheless, once the market is satisfied that Asacha is proceeding towards, and will shortly achieve, commercial production, it is to be hoped that the price will once again move to the level which fairly reflects the value of the assets.

Our staff in Russia and the UK have loyally remained with the Company during an extended period of many setbacks and delays and our thanks are due to them all.

Peter BurnellChairman 19 June 2007

Page 6: Trans-Siberian Gold

Trans-Siberian Gold ANNUAL REPORT AND ACCOUNTS 200604

Chief Executive’s OPERATING REVIEW

Kamchatka OblastIn Kamchatka, TSG’s assets are held by its 90.05%-owned subsidiary, ZAO Trevozhnoye Zarevo (TZ). TZ has two mining licences, one covering an area of 24 km2 including the Asacha gold deposit and the other covering an area of 16 km2 including the Rodnikova gold deposit. Both these licences are located in the southern part of the Kamchatka peninsula, Rodnikova approximately 90 km by road from the Oblast’s capital Petropavlovsk-Kamchatsky, Asacha approximately 60 km further south.

Both Asacha and Rodnikova are epithermal gold/silver deposits located on a tertiary volcanic arc typical of ore systems found along the Pacific Rim. The main ore zone at Asacha consists of five steeply dipping veins with two principal veins averaging over 2 m in width. Veins are characterised by low sulphidation quartz-adularia occurring predominately in dacite domes.

A significant milestone in bringing the Asacha deposit into production was the extension of the licences covering both the Asacha and Rodnikova properties that was granted in May 2006. Gold need now only be produced at Asacha by the end of 2008. In the case of Rodnikova, its ore reserve and mineral resource statements must be approved by the State geological authorities by December 2008 with production to commence in 2012.

The current JORC total mineral resource estimate for Asacha is 1.28 million tonnes with an average gold grade of 17.0 g/t and silver grade of 41.5 g/t, for approximately 700,000 oz of gold and 1.71 million oz of silver. This is regarded as the base case for the project.

Asacha’s exploration potential was also reassessed during the year. It is now considered that there is very good upside potential to the north of the main orebody on strike. A drilling programme

to increase the mineral resource in that area has been planned but will only be implemented after 2008 when the Asacha mine is in production. There are also two sub-parallel zones of mineralisation to the south-west and east of the main orebody which were delineated through trenching programmes in 2005-6. Of these two areas, the Surpriz zone is of particular interest and a trenching programme in 2006 confirmed its good prospectivity. Both prospective areas will be followed up with further field-work in 2007-8 and drilling anticipated in 2009. It is expected that the total Asacha mineral resource will be increased to about 1 million oz of gold (the Asacha upside case) through this further exploration.

The general technical programme as well as the bank financing due diligence process were reviewed during the first few months of 2006. The feasibility study was reviewed, re-engineered and updated. As part of this process, the plant design was reviewed and modified to incorporate certain enhancements and practical design requirements. The Russian Institute mine plan was adapted to western mine design and planning standards and allowances were made to cater for mining the upper portions by open pit methods in the future to facilitate more complete mineral resource extraction and to allow for poorer upper level ground conditions. Overall, mine and plant throughput was optimised for 220,000 tpa and a new capital estimate completed.

Following an extensive documentation review, Standard Bank’s due diligence team undertook a formal technical review in Moscow in the second quarter of 2006. Issues identified during the bank’s earlier due diligence in 2005 were resolved. An indicative term sheet for project finance of up to $50 million for Asacha was signed by the Company and Standard Bank in June 2006, however in

Mineral Resources – Russian State Committee for Reserves (GKZ) codeProperty C1 & C2 – oz Grade g/t P1 – oz Grade g/t P2 – oz

Asacha 668,810 21.6 298,560 24.2 466,500Rodnikova 406,077 15.2 864,580 11.3 310,000Total 1,074,887 1,163,140 776,500

Page 7: Trans-Siberian Gold

05Trans-Siberian GoldANNUAL REPORT AND ACCOUNTS 2006

November Standard Bank informed the Company that its intended co-lender had withdrawn and that it was unwilling to proceed as sole lender. Further equity or debt funding will therefore be required in 2008, but the balance of the sale proceeds of the Krasnoyarsk Krai companies, described below, will enable development of Asacha to progress.

In November, the Board decided to change the scope of the Asacha project. This was done in order to counter the increased capital costs because of timing delays and inflation, particularly due to increasing commodity and equipment costs and Russian rouble appreciation.

The revised project will be developed in a phased approach with pre-production mine development expenditure minimised and the plant capacity reduced to 150,000 tpa. This increases the treatment life from approximately six to nine years for the base case and nine to 13 years for the upside case.

The pre-production cost estimate has been revised to $111.0 million, inclusive of $27.1 million of pre-production operating expenditure, $13.1 million recoverable VAT and a contingency of $7.4 million. A total of $38.5 million has been spent up to the end of April 2007 on the project.

Construction work at site continued during the year, although at a reduced pace, due to the shortage of funds. Almost all site roads are now completed and in daily use. During the second half of 2006, the accommodation camp foundations, fire walls, water supply, fire hydrant water supply, sewer and heating piping were completed. The pre-fabricated camp building modules were shipped to Petropavlovsk-Kamchatsky and transported from there by road to Asacha. The camp construction contract was signed in February 2007. The assembly of the camp modules is progressing well and 90% of the modules are now mounted on the already prepared foundations. The camp is scheduled to be completed by 31 August 2007.

The cutting and dressing of the hill at the left hand side of the mine portal and the preparation and levelling of the upper mine terrace have been completed. This terrace in front of the mine allows entrance to the mine workings and will also house all the services required by the mine including the electrical sub station, the compressors and workshops.

The tendering process for the mining trackless fleet and compressors has now been completed and orders are ready to be placed for this equipment and for the power generators and water supply to the mine.

Planning and scheduling of the 220,000 tpa Plan A was completed in mid 2006, based on an updated mineral resource estimate, using mechanised Cut and Fill underground methods. This plan has since been adjusted to accommodate a plant throughput of 150,000 tpa. The Plan B design is being completed by the Russian institute VNIPI, based on the previous lower throughput design of 2003.

The temporary mining change house is completed and will be commissioned just before the initial development miners arrive on site in August 2007.

The ore storage pad has been constructed above the plant terrace to allow storage space for the gold bearing ore before processing takes place. The waste rock site is 30% completed. This work will be completed in the summer of 2007 after the new environmental permits required under new legislation promulgated in January 2007 have been approved.

Six geotechnical holes were drilled during September 2006 at the gold plant terrace site. The results of the geotechnical sampling and testing indicated that the ground was suitable for a rafted foundation. Raft foundations are widely used in Kamchatka and operate well in seismically active zones. Further work commenced in the last quarter of 2006 for the clearing of trees and the removal of poor soil for the gold plant terrace. The filling of the plant terrace area will now be completed in readiness for commencement of work on the gold plant foundations during the summer of 2007.

Irgiredmet is currently designing the gold recovery process for Asacha Plan B based on throughput of 150,000 tpa.

A project management training course was held in Moscow in July 2006 for all project staff in both the Moscow and the Petropavlovsk-Kamchatsky offices. The course was based on best practice project management guidelines, in full compliance with international standards set by the Project Management Institution. This training will enable the team to better manage the construction project going forward.

As part of the transition to an operating mode, safety awareness was increased on site and various drives were initiated to promote safety.

No work was done at Rodnikova during 2006, but a comprehensive programme will commence in the summer of 2007. Under the terms of the licence amendment granted in May 2006, Rodnikova’s ore reserve and mineral resource statements must be approved by the State geological authorities by December 2008 with production to commence in 2012.

TZ currently employs 65 permanent staff.

Krasnoyarsk KraiTSG’s properties in Krasnoyarsk Krai are held through two 100%-owned subsidiaries, OOO GRK Amikan (Amikan) and OOO AS Angarskaya Proizvodstvennaya Kompaniya (AS APK). Amikan holds two licences in the Severo-Yenisei district of the Yenisei gold belt, approximately 500 km north of Krasnoyarsk city. Amikan’s primary licence is a 1.7 km2 mining licence covering the gold deposits at Veduga, valid until January 2022 (the Veduga licence). Additionally, Amikan has an exploration licence covering a 540 km2 block around Veduga (the Veduga GLA). AS APK holds the 47.5 km2 Bogunay exploration and mining licence located 150 km east of Krasnoyarsk city at the southern end of the Yenisei gold belt.

Under the terms of the Veduga licence Amikan was required to complete and permit a feasibility study for the Veduga

Page 8: Trans-Siberian Gold

Trans-Siberian Gold ANNUAL REPORT AND ACCOUNTS 200606

project within one year of State approval of the reserves on 29 September 2004. Following the recommendation submitted by the Krasnoyarsk Territorial Subsoil Management Agency to the Ministry for Natural Resources in 2005 in support of an extension to this deadline, Amikan filed a request with the Federal authorities for an amendment to the Veduga licence. In June 2007, the Federal Agency for Subsoil Use approved an amendment to the Veduga licence whereby Amikan’s development plan for the licence area must be submitted and approved no later than 1 January 2009, with construction of mine infrastructure to begin no later than 1 January 2010. A minimum designated throughput of 250,000 tonnes per annum must be achieved no later than 31 December 2013.

During the first nine months of 2006, work at the Veduga and Bogunay sites was minimised due to funding restrictions. The geological teams were contracted out to cut costs whilst TSG reviewed its strategic options and sought additional funding.

Aker Kvaerner’s pre-feasibility study in 2005 had indicated that, through a combination of high capital costs for the oxidation plant, a relatively small ore resource in relation to the capital costs and the absence of grid power, none of the envisaged oxidation processes for the refractory ore were economically viable at the then current gold price. The process is capital and energy intensive and the current mineral resource is too small to support the necessary large capital infrastructure.

During the first half of 2006, various scoping studies were undertaken to understand how best to improve the economics of the Veduga deposit, using either pressure or biological oxidation processing routes. With the increase in the gold price in particular and the expectation of the availability of grid

power by 2010 (from the second phase of the Boguchanskaya power plant) the economics of Veduga became more encouraging. The scoping studies indicated however that the mineable mineral resource also needed to be increased and the process route optimised to reduce capital expenditure and operating costs.

Part of the proceeds of the equity raising, which the Company intended to undertake during the third quarter of 2006, would have been allocated to further investigation of potential metallurgical improvements and additional exploration at Veduga, following an airborne geophysical survey, in order to increase the size of the resource, with the intention of reaching a decision during the second half of 2007 on the best method of extracting value from the deposit.

Other options including heap leaching (for oxide ores) and a flotation plant to produce a concentrate for toll treatment (for sulphide ores) were also studied.

These studies concluded that the Veduga project appeared to have potential but that a large exploration programme would have to be undertaken to prove up more ounces; there would also still be the requirement to fund and build a complex metallurgical plant relatively quickly. The risks and cash requirements for Veduga are very high and TSG did not have the required financial resources to fulfil the exploration and project development programme needs on time to retain licences. It was thus decided that the overall financial, engineering and metallurgical requirements and risks would be more suited to a larger, better resourced company. This conclusion was a significant factor in the Board’s consideration of AngloGold Ashanti Limited’s offer to acquire the two Krasnoyarsk Krai companies, discussed below.

Chief Executive’s OPERATING REVIEW continued

Mineral Resources – Russian State Committee for Reserves (GKZ) codeProperty C1 & C2 – oz Grade g/t P1 – oz Grade g/t P2 – oz

Veduga 1,270,868 5.0 907,187 5.6 4,291,800Bogunay 307,219 8.5 – – 1,850,000Total 1,578,087 907,187 6,141,800

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07Trans-Siberian GoldANNUAL REPORT AND ACCOUNTS 2006

Further work was conducted at Bogunay in early 2006. This deposit, which includes old mine workings from the Soviet era, benefits from good infrastructure including roads and power. The deposit is located within the Angaro-Kansky region formed by deeply metamorphosed Archaean formations of the Siberian Platform foundation. An 18 hole drilling programme in 2006 was disappointing although geochemical analyses indicated a strong correlation between lead and zinc and gold. Two very promising anomalies were identified in the north and a trenching and stream sediment geochemical analyses programme was undertaken to further explore those areas. The findings were correlated with the results of the airborne geophysical survey undertaken in the third quarter of 2006.

A drilling programme was undertaken based on those results in early 2007, but the results so far have not been that encouraging.

Amikan and AS APK currently employ 106 people.

Sale of the Krasnoyarsk Krai subsidiaries to AngloGold Ashanti LimitedIn September 2006, the Company accepted AngloGold Ashanti Limited’s offer to acquire TSG’s Krasnoyarsk Krai subsidiaries for a cash consideration of $40 million, Seymour Pierce Limited having advised that in its view the transaction was fair and reasonable so far as TSG’s shareholders were concerned. As part of this transaction, AGA advanced $10 million of the sale consideration to the Company prior to completion and undertook to fund the previously planned airborne geophysical survey of the Veduga mining and exploration licence areas and the Bogunay deposit.

Following the approval of the Federal Anti-Monopoly Service of the Russian Federation, the sale, which was approved by the Company’s shareholders at an EGM on 30 March 2007, is expected to be completed by 30 June 2007. In the meantime, following approval of the transaction by the South African Reserve Bank, AGA has made available facilities

totalling $5 million to fund the exploration expenditure of the two companies with effect from 1 November 2006 and their administration costs with effect from 1 December 2006.

In reaching its decision to dispose of TSG’s interests in Veduga and Bogunay, TSG recognised that the need for substantial additional ore reserve discoveries to support the high cost and technical complexity of treating Veduga’s refractory ore economically, with capital requirements estimated at several hundred million dollars, and the probability that production could not commence for several years until grid hydroelectric power became available, made this project more suitable for development by a larger company.

Information in respect of Veduga was provided to several Russian companies which had expressed a potential interest in the property, however this did not elicit any substantive proposals and no enquiries or offers in respect of Amikan or the Veduga property were received, either prior to receiving AGA’s offer to acquire Amikan and AS APK or following the announcement of the proposed AGA Transaction on 21 September 2006.

Most importantly, the major contribution to funding TSG’s Asacha project in Kamchatka provided by the proceeds from the AGA Transaction will also enable TSG to focus efficiently on its existing opportunities in Kamchatka.

ManagementThe Company’s head office is in Toft near Cambridge, where the Finance Director, Simon Olsen, and two staff are based.

OOO Trans-Siberian Gold Management (TSGM), TSG’s 100% owned subsidiary in Moscow provides technical, administrative, financial and procurement services to the Russian operating subsidiaries and currently has 24 employees.

Oleg BagirovChief Executive Officer19 June 2007

Page 10: Trans-Siberian Gold

Trans-Siberian Gold ANNUAL REPORT AND ACCOUNTS 200608

Financial Review

ResultsThe Company is in the exploration and development phase of its gold projects in Russia. It therefore received no operating income from those projects during 2006, however the hiring out to other operators of staff and equipment from two projects during periods of exploration inactivity generated income of $513,000 (2005: $71,000).

The Group recorded an operating loss for the year of $5.4 million (2005 restated: $8.9 million). The first time adoption of FRS 20 Share-based payment with effect from 1 January 2006 resulted in a credit of $168,000 in 2006, as shown in Note 9 to the financial statements, the restated operating loss for 2005 including a charge of $186,000. As explained in Note 29 to the financial statements, this prior year adjustment had no impact on the reported retained losses in the balance sheet at 31 December 2005.

The operating loss is stated after crediting a $1.1 million exchange gain (2005: $1.9 million loss), principally reflecting the impact of the depreciation of the US dollar during 2006 against sterling and the Russian rouble. The Board will continue to review the Group’s exchange rate risks and the possible use of derivative financial instruments to mitigate against them.

Administration expenses amounted to $3.1 million in UK and $3.9 million in Russia (2005 restated: $3.4 million and $3.7 million respectively), in aggregate $7.0 million (2005 restated: $7.1 million). UK expenses included the impact of the first time adoption of FRS 20 described above and $1.1 million financing costs written off (2005: $303,000).

The financing costs write off reflects the decision by Standard Bank plc to withdraw from its mandate to arrange project finance of up to $50 million for the Asacha project. Standard Bank was originally mandated in July 2004, together with the European Bank for Reconstruction and Development, to provide project finance of up to $35 million for Asacha, following which an extensive due diligence process was undertaken by the banks and their technical and legal advisers. In June

2006 an indicative term sheet for project finance of up to $50 million was signed by the Company and Standard Bank.

Final technical due diligence and preparation of legal documentation continued into the fourth quarter of 2006. Although Standard Bank confirmed to the Company in October that it and its consultants were satisfied on all aspects of the Asacha project required prior to submission for Credit Committee approval, Standard Bank was then advised by its intended co-lender that it did not wish to participate and Standard Bank was unwilling to proceed as sole lender to the project. The write off includes $629,000 and $285,000 in respect of the fees of the banks’ technical and legal advisers.

Interest receivable was $294,000 (2005: $644,000), the reduction being due to a reduction in cash deposits during the year. Interest payable was $491,000 (2005: nil) reflecting a $10 million loan from AngloGold Ashanti Limited (AGA) in June 2006.

The tax charge of $197,000 (2005: $11,000) comprises $137,000 (2005: nil) payable by the operating subsidiaries on exchange gains in respect of their dollar denominated inter-company loans and $60,000 (2005: $11,000) payable by TSGM arising from the management services which it provides to the operating subsidiaries.

Balance SheetTotal shareholder funds were $50.5 million at 31 December 2006 compared to $56.5 million at 31 December 2005.

Total fixed assets increased to $53.1 million (2005: $40.8 million). This increase included $5.1 million in capitalised exploration and evaluation expenditure at the Group’s three properties, comprising $2.5 million (2005: $1.7 million) at Asacha and $2.6 million (2005: $5.2 million) at the properties in Krasnoyarsk Krai which are in the process of being sold to AGA as described in the Operating Review. Tangible fixed assets increased from $16.1 million at 31 December 2005 to $23.3 million at 31 December 2006.

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09Trans-Siberian GoldANNUAL REPORT AND ACCOUNTS 2006

Assets under construction increased from $12.8 million to $20.3 million and include $4.4 million in respect of the access road to Asacha, $15.0 million building construction and infrastructure (including a prefabricated camp for Asacha) and $914,000 for plant and equipment.

Recoverable Value Added Tax (VAT) increased by $1.4 million to $6.0 million at 31 December 2006, reflecting the increased construction and exploration activity in Russia. VAT amounting to $1.3 million (2005: $511,000) was recovered in 2006, however generally VAT on construction costs cannot be recovered until construction is complete and production commences. Consequently VAT remains in the Group’s balance sheet as a debtor recoverable after more than one year.

Current liabilities at 31 December 2006 totalled $3.6 million (2005: $2.8 million), the increase principally reflecting the cost of technical services provided by AGA, $783,000 (2005: $187,000), interest due to AGA on its $10 million loan, $491,000 (2005: nil) and short-term facilities provided by AGA to the Krasnoyarsk Krai subsidiaries, $350,000 (2005: nil), offset by a reduction in trade creditors.

Cash and bank balances reduced from $11.9 million at 31 December 2005 to $2.6 million at 31 December 2006 with capital expenditure of $14.2 million and $6.1 million outflow from operating activities partially offset by the $10 million AGA loan. The total cost of the Asacha project prior to commencement of production is now estimated at $111.0 million (inclusive of $27.1 million pre-production operating costs, contingency of $7.4 million and $13.1 million recoverable VAT). This includes $38.5 million actual expenditure up to April 2007. A further $19.9 million of capital expenditure, including contingency of $2.6 million, will be incurred after the commencement of production (principally mine development and the second phase of tailings storage). Funding for the estimated $72.5 million to be spent prior to the commencement of production is

expected to be provided, initially, by the sale proceeds of the two Krasnoyarsk Krai companies together with additional equity, debt finance or equipment supplier credits or a combination of these in respect of which a number of options are being considered.

Simon OlsenFinance Director 19 June 2007

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Trans-Siberian Gold ANNUAL REPORT AND ACCOUNTS 200610

Board of Directors

Executive

Oleg Bagirov (Aged 55)Chief Executive Officer(appointed 21 September 2006)Oleg Bagirov was educated at Moscow State Institute of Foreign Languages and Financial-Economic Institute. He was Chairman of United Investment Bank, Moscow from 1994 to 2002 and previously held a number of senior positions with both Russian and international banks. He is also Chief Executive Officer of OAO Sibirskiy Gorno-Metallurgichesky Alyans (SiGMA), a gold focused exploration company, with assets held in the Kamchatka peninsula in Far East Russia.

Simon Olsen (Aged 54)Finance Director and Company SecretarySimon Olsen qualified as a Chartered Accountant with Thomson McLintock, London, after graduating with a law degree from Oxford University. He served for 13 years with the Danish shipping and industrial group AP Moller in various financial and administrative roles in London, Jakarta and Manila, before moving into the mining sector in 1994, first in Sierra Leone as Financial Controller and then Chief Financial Officer of Sierra Rutile and latterly as Company Secretary of Navan Mining plc.

Non-executive

Peter Burnell (Aged 66)Chairman(elected 31 March 2006)Peter Burnell was educated at Magdalen College, Oxford University. He has spent most of his business career as senior executive and director of Anglo American Corporation of South Africa and Minorco SA. He is currently Chairman of Merrill Lynch Latin American Investment Trust plc.

Philip Bowring (Aged 64)Philip Bowring was educated at St. Catharine’s College, Cambridge University. He has lived in Hong Kong since 1973 where he was regional correspondent of the Financial Times and editor of the Far Eastern Economic Review. Since 1992, he has been an independent consultant on Asian financial and political issues and a columnist for the International Herald Tribune.

Richard Duffy (Aged 43)Richard Duffy has a commerce degree from the University of Witwatersrand and an MBA from Henley Management College. Having worked for the Anglo American Corporation since 1987, including a secondment to Zambia as Director of Operations (Central Africa), he joined AngloGold in 1998 as Managing Secretary to the Board. He is now responsible for new business development globally and is a member of AngloGold Ashanti’s Executive Committee.

Boris Fedorov (Aged 49)(appointed 31 March 2006)Boris Fedorov is a former Minister of Finance and Deputy Prime Minister of the Russian Federation. He was an elected deputy of the State Duma from 1993 to 1998 in which year he was appointed head of the State Tax Service. He has also served at the International Bank for Reconstruction and Development in Washington and the European Bank for Reconstruction and Development. He is Honorary Chairman of United Financial Group as well as a member of the Board of Directors of Gazprom and the Supervisory Board of Sberbank.

Florian Fenner (Aged 36)(appointed 31 March 2006)Florian Fenner, a Chartered Financial Analyst, worked for Schroder Munchmeyer Hengst, a German investment bank before moving to Russia in 1996 as Deputy Head of Research at Brunswick Brokerage, one of Russia’s leading investment banks. He joined Brunswick Capital Management in 1997 and was head of the representative office of Unifund before becoming Managing Partner at UFG Asset Management in 2002.

Benjamin Guenther (Aged 55)Ben Guenther graduated from the Colorado School of Mines as a mining engineer. He held various managerial positions with Hanna Mining and Asamera Minerals in the USA before joining AngloGold in 1994 as General Manager of Jerritt Canyon mine in Nevada. In 2000, he became Head of Mining at AngloGold’s corporate office in Johannesburg and was appointed an executive officer of AngloGold Ashanti in May 2004.

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11Trans-Siberian GoldANNUAL REPORT AND ACCOUNTS 2006

The directors present their report and the Company’s audited financial statements for the year ended 31 December 2006.

Principal activities and review of business developmentsDuring the year the Company continued to develop its properties in the Russian Federation. Details of the Group’s activities are given in the Operating Review on pages 4 to 7.

The Company is a public limited company, incorporated and domiciled in the United Kingdom. The Company’s registered office and principal place of business is Church Barn, Old Farm Business Centre, Church Road, Toft, Cambridge, CB23 2RF, United Kingdom.

The Company’s shares trade on the Alternative Investment Market (AIM) of the London Stock Exchange.

The Group is required to prepare its accounts under International Financial Reporting Standards (IFRS) beginning on 1 January 2007. The Group’s first published IFRS financial information will be included in the interim report for the six months ending 30 June 2007.

Share capitalThe Company’s authorised and issued share capital as at 31 December 2006, together with details of shares issued during the year, is set out in Note 18 to the financial statements.

Major shareholdingsAt 4 June 2007, the following interests of 3% or more in the issued share capital of the Company appeared in the register maintained in accordance with section 808 of the Companies Act 2006: Number % of share of shares capital

AngloGold Ashanti 12,263,170 29.79UFG Asset Management 11,993,000 29.13Firebird Funds 2,731,400 6.63Arnhold and S Bleichroeder Advisers LLC (First Eagle) 1,515,000 3.68

Results and dividendThe Group’s loss for the year of $5,784,256 has been deducted from reserves. Further discussion of the results is set out on pages 8 to 9. The directors do not recommend the payment of a dividend.

Directors and their interestsThe current directors of the Company, together with their brief career details, are shown in the Board of Directors section on page 10.

Jeremy Marshall retired as Chairman and director on 31 March 2006, and Peter Burnell was elected to succeed him. Boris Fedorov and Florian Fenner were both appointed non-executive directors on 31 March 2006. Jonathan Best retired as Managing Director on 30 June 2006 and Oleg Bagirov was appointed Chief Executive Officer on 21 September 2006. Jocelyn Waller resigned as non-executive director on 18 October 2006.

In accordance with the provisions of the Company’s Articles of Association, Philip Bowring, Peter Burnell and Boris Fedorov retire at the forthcoming Annual General Meeting, and, being eligible, offer themselves for re-election.

The beneficial interests of the directors who held office at the end of the year in the ordinary shares of the Company and the interests of directors in share options are shown in Note 8 to the financial statements.

CurrencyThe Company’s functional currency is the US dollar ($) and therefore the financial statements are presented in this currency.

Payments to creditorsThe Company’s policy is to settle the terms of payment with its suppliers when agreeing the terms of each transaction, either by accepting the suppliers’ terms or by making the suppliers aware of alternative terms and abiding by the agreed terms. It does not follow a published code or standard.

Trade creditors of the Group at 31 December 2006 represented 39 days’ purchases (2005: 46).

Related party transactionsDetails of related party transactions are set out in Note 24 to the financial statements. Principal risks and uncertaintiesThe management of the Group’s business and the execution of its strategy are subject to a number of risks. Risks are formally reviewed by the Board and appropriate processes put in place to monitor and mitigate them. If more than one event occurs, the overall impact of such events may compound the possible adverse effects on the Group.

The key financial risks affecting the Group are set out in Note 27 to the financial statements. The key operating risks affecting the Group are set out below and in the following section entitled Going Concern.

Directors’ Report

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Trans-Siberian Gold ANNUAL REPORT AND ACCOUNTS 200612

Directors’ Report continued

The Group’s licencesThe Group’s activities are dependent upon the grant and renewal of appropriate licences, permits and regulatory consents. The licences held by the Group contain a range of obligations, including those described in Note 11 to the financial statements, failure to comply with which could result in penalties being levied or the suspension or revocation of the licence.

Project development risksResource estimates are based upon the interpretation of geological data. Project feasibility studies derive estimates of operating costs based upon anticipated tonnage and grades of ore to be mined and processed, the configuration of the orebody, expected recovery rates and other factors. As a result, actual operating costs and economic returns may differ from those currently estimated.

Reserve and resource estimatesReserve and resource estimates may require revision based on actual production experience. The volume and grade of reserves mined and processed, and recovery rates achieved, may vary from those anticipated, and a decline in the market price of gold may render reserves containing relatively lower grades of gold mineralisation uneconomic.

Environmental issuesThe Group’s operations are subject to environmental regulation, including environmental impact assessments and permitting. Russian environmental legislation comprises numerous federal and regional regulations which are not fully harmonised and may not be consistently interpreted.

Mining and processing risksThe risks inherent in the development and exploitation of mineral deposits, some of which are outside the Group’s control, include geological, geotechnical and seismic factors and production risks (ore grade/quality, tonnages and recovery/yields), industrial and mechanical incidents, processing problems, technical failures, labour disputes and environmental hazards including the discharge of toxic chemicals, fire, flooding and other acts of God. The locations of the Group’s activities mean that climatic conditions may impact on operations especially the delivery of supplies, equipment and fuel.

As with all mining operations, there is uncertainty associated with the Group’s operating parameters and costs. While costs can be budgeted with a reasonable degree of confidence, operating parameters can be difficult to predict and may be affected by factors outside the Group’s control.

Gold price volatilityThe market price of gold is volatile and is affected by numerous factors which are beyond the Company’s control. These factors include world production levels, global and regional economic and political events, international economic trends, inflation, currency exchange fluctuations, industrial and jewellery demand, speculative activity and the political and economic conditions of major gold-producing countries. Additionally, the purchase and sale of gold by central banks or other large holders or dealers and forward sales by producers may also have an impact on the market price.

As a result of the above risks, project expenditure, production volume and operating revenue and costs, among other things, may differ materially from those anticipated. In addition, estimated production dates may be delayed materially. Any such events could materially affect the Group’s business, results and cash flows.

Political and economic risksThe Group’s assets are located in Russia which is still undergoing a substantial transformation from a centrally controlled command economy to a market-driven economy. In addition, in view of the legal and regulatory regime in Russia, legal inconsistencies may arise.

The regulatory environmentThe Group’s activities are subject to extensive federal and regional laws and regulations governing various matters, including licensing, production, taxes, mine safety, labour standards, occupational health and safety and environmental protections. Amendments to current laws and regulations governing operations and activities of mining companies or more stringent implementation or interpretation of these laws and regulations could have a material adverse impact on the Group, cause a reduction in levels of production and delay or prevent the development or expansion of the Group’s properties in Russia.

TaxationRussian tax legislation has been subject to frequent change and some of the laws relating to taxes to which the Group is subject are relatively new. The government’s implementation of such legislation, and the courts’ interpretation thereof, has been often unclear or nonexistent, with few precedents established. Differing opinions regarding legal interpretation may exist both among and within government ministries and organisations and various local inspectorates. The introduction of new tax provisions may affect the Group’s overall tax efficiency and may result in significant additional tax liability.

Russia’s physical infrastructureSome of Russia’s physical infrastructure is in poor condition. This may disrupt the transportation of supplies, add to costs and interrupt operations, with a potentially material adverse effect on the Group’s business.

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13Trans-Siberian GoldANNUAL REPORT AND ACCOUNTS 2006

Going concernAs stated in the Financial Review and in Note 2 to the financial statements, further funds will need to be raised for the development of the Asacha project, further exploration in Kamchatka and ongoing working capital. The $40 million sale consideration in respect of the disposal of two subsidiaries, of which $10 million has already been received with the remaining $30 million due on completion, will be sufficient for the Group’s funding requirements until the first quarter of 2008, by which time significant mine development and plant construction is expected to have been achieved at Asacha. An additional $40 million will be required until the Asacha mine is cash flow positive and is expected to be raised through additional equity, debt finance, equipment supplier credits or a combination of these. The directors believe that the necessary funds to provide adequate financing until the Asacha mine is cash flow positive can be raised at that time. Accordingly they continue to adopt the going concern basis in preparing the financial statements.

Post balance sheet eventsDetails of post balance sheet events are disclosed in the Operating and Financial Reviews and in Note 25 to the financial statements.

AuditorsPricewaterhouseCoopers LLP have expressed their willingness to be reappointed as auditors of the Company. Upon the recommendation of the Audit Committee, a resolution to reappoint them as the Company’s auditors and authorise the directors to determine their remuneration will be proposed at the AGM.

Disclosure of information to auditorsEach of the directors at the time this report was approved, confirm that:

so far as he is aware, there is no relevant audit information (that is, information needed by the Company’s auditors in connection with preparing their report) of which the Company’s auditors are unaware; andhe has taken all the steps that he ought to have taken in his duty as a director in order to make himself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information.

Corporate governanceThe Company seeks, where practicable for a company of its size and nature, to comply with the main provisions of the Principles of Good Governance and Code of Best Practice (the Combined Code) which applies to listed companies, although such compliance is not mandatory for AIM listed companies.

Board of DirectorsThe Company appointed non-executive directors in 2001 to bring an independent view to the Board, which now comprises two executive directors and six non-executive directors, including the chairman. Four non-executive directors are appointed by major shareholders, two by AngloGold Ashanti Limited and two by UFG Private Equity Fund. The other non-executive directors are considered by the Board to be independent of management and free from any business or other relationship that could materially interfere with the exercise of their independent judgement.

The Board ordinarily meets on a bi-monthly basis to determine strategy and to approve budgets and business plans, major capital expenditure, acquisitions and disposals. Additional meetings are held as appropriate to transact other business. Formal agendas, briefing papers and reports are sent to the Board in advance of its meetings. The Board delegates certain of its responsibilities to two Board Committees, which have clearly defined terms of reference as described below.

The directors have access to the advice and services of the Company Secretary, who is also a director. Any director may also take independent professional advice at the Company’s expense in the furtherance of his duties.

In accordance with the Articles of Association, each year one third of the directors (generally those who have held office for the longest time since their election) will retire from office at the AGM. A retiring director may be re-elected if eligible and a director appointed by the Board may also be elected, although in the latter case the director’s period of prior appointment by the Board will not be taken into account for the purposes of rotation.

Audit CommitteeThe Audit Committee chaired by Peter Burnell, the other members being Philip Bowring and Richard Duffy, meets at least twice a year and is responsible for ensuring that the appropriate financial reporting procedures are properly maintained and reported on and for meeting the auditors and reviewing their reports relating to the financial statements and internal control systems. It is also responsible for monitoring the independence of the auditors. Executive directors may attend meetings of the Audit Committee by invitation; however, at least once a year the Committee meets the auditors without executive directors being present.

Remuneration CommitteeThe Remuneration Committee, also consisting of Peter Burnell (Chairman), Philip Bowring and Richard Duffy, is responsible for reviewing the performance of the executive directors and other senior executives and for determining appropriate levels of their remuneration, in consultation with external advisers as appropriate, with due regard to the interests of shareholders. It meets as required. The committee also makes recommendations to the Board in respect of employee incentives, including the granting of share options.

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Trans-Siberian Gold ANNUAL REPORT AND ACCOUNTS 200614

The Company’s remuneration policy is to provide competitive rewards for its executive directors and other senior managers, taking into account the performance of the Company and conditions prevailing in the employment market for executives of equivalent status, both in terms of the level of responsibility of their position and their achievement of recognised job qualifications and skills. Base salaries are reviewed annually.

It is the Company’s policy that executive directors’ service contracts have no fixed term and that the notice period in those service contracts does not exceed one year. Both Oleg Bagirov’s and Simon Olsen’s service contracts provide that either party may terminate their employment by giving six months’ written notice and that the Company may make a payment in lieu of notice. Internal controlThe Board is responsible for ensuring that the Group maintains an adequate system of internal control and risk management. The internal controls are designed to safeguard the Group’s assets and to ensure the reliability of financial information for both internal use by management and external reporting.

The directors are aware that no system can provide absolute assurance against material misstatement or loss. They are satisfied that the current controls and processes to manage significant risks are adequate with regard to the current stage of the Group’s development. However, they recognise the need to enhance and strengthen the system of internal control and risk management as the Group’s projects are developed towards gold production.

ShareholdersThe Board attaches great importance to maintaining good relationships with all its shareholders and ensures that all price sensitive information is released to its shareholders simultaneously in accordance with AIM rules.

The Board believes that the AGM provides an important opportunity for dialogue with private shareholders. At the AGM, the Managing Director presents a review of the Group’s activities. The directors and senior management of the Group are available to answer questions both before and after the meeting.

The Company’s website, www.trans-siberiangold.com, is regularly updated and contains a wide range of information about the Group.

Statement of directors’ responsibilities in respect of the Annual Report and the financial statementsThe directors are responsible for preparing the Directors’ report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). The financial statements are required by law to give a true and fair view of the state of affairs of the Company and Group and of the profit or loss of the Group for that period.

In preparing those financial statements the directors are required to:

select suitable accounting policies and then apply them consistently;make judgements and estimates that are reasonable and prudent;state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; andprepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business in which case there should be supporting assumptions or qualifications as necessary.

The directors confirm that they have complied with the above requirements in preparing the financial statements.

The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies Act 1985. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps to safeguard the assets of the Group and for the prevention and detection of fraud and other irregularities.

By order of the Board

Simon OlsenCompany Secretary19 June 2007

•••

Directors’ Report continued

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15Trans-Siberian GoldANNUAL REPORT AND ACCOUNTS 2006

Independent Auditors’ Reportto the members of Trans-Siberian Gold plc

We have audited the group and parent company financial statements (the financial statements) of Trans-Siberian Gold plc for the year ended 31 December 2006 which comprise the Group Profit and Loss Account, the Group and Company Balance Sheets, the Group Cash Flow Statement and the related notes. These financial statements have been prepared under the accounting policies set out therein.

Respective responsibilities of directors and auditorsThe directors’ responsibilities for preparing the annual report and the financial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) are set out in the statement of directors’ responsibilities.

Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). This report, including the opinion, has been prepared for and only for the company’s members as a body in accordance with Section 235 of the Companies Act 1985 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the Companies Act 1985. We also report to you whether, in our opinion, the Directors’ Report is consistent with the financial statements. The information given in the directors’ report includes that specific information presented in the Chief Executive’s Operating Review and the Financial Review that is cross referred from the directors’ report.

In addition, we report to you if, in our opinion, the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and transactions is not disclosed.

We read the other information contained in the annual report and consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. The other information comprises only the Directors’ Report, the Chairman’s Statement, the Chief Executive’s Operating Review and the Financial Review. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information.

Basis of audit opinionWe conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the group’s and company’s circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations that we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion, we also evaluated the overall adequacy of the presentation of information in the financial statements.

OpinionIn our opinion:

the financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of the group’s and the parent company’s affairs as at 31 December 2006 and of the group’s loss and cash flows for the year then ended;the financial statements have been properly prepared in accordance with the Companies Act 1985; andthe information given in the Directors’ Report is consistent with the financial statements.

Emphasis of matter – going concernIn forming our opinion, which is not qualified, we have considered the adequacy of the disclosures made in Note 2 to the financial statements concerning the disposal of Amikan and AS APK and the group’s requirements for additional financing for the Asacha project, continued exploration and on-going working capital. These conditions indicate the existence of a material uncertainty which may cast significant doubt about the Group’s ability to continue as a going concern. The financial statements do not include the adjustments that would result if the group was not able to continue as a going concern.

PricewaterhouseCoopers LLPChartered Accountants and Registered AuditorsLondon19 June 2007

••

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Trans-Siberian Gold ANNUAL REPORT AND ACCOUNTS 200616

Restated Year Year ended ended 31 December 31 December 2006 2005 Note $ $

Turnover – –Administration expenses (7,002,732) (7,117,146)Operating income 5 512,971 70,637Exchange gain (loss) 5 1,061,607 (1,853,442)

Operating loss (5,428,154) (8,899,951)

Interest receivable and similar income 4 294,451 643,897Interest payable and similar charges 4 (491,498) –

Loss on ordinary activities before taxation 5 (5,625,201) (8,256,054)Tax on loss on ordinary activities 7 (197,334) (10,843)

(5,822,535) (8,266,897)Minority interest – equity 21 38,279 (38,279)

Loss for the year 19 (5,784,256) (8,305,176)

Basic and diluted loss per ordinary share (cents) 6 14.05 21.40

The notes on pages 20 to 39 are an integral part of these consolidated financial statements.

There is no difference between the loss on ordinary activities before taxation and the loss for the year stated above and their historical cost equivalents.

There are no recognised gains or losses other than those stated above.

2005 comparatives are restated as a result of the first time adoption of FRS 20 Share-based payment (see Note 29).

Financial StatementsConsolidated Profit and Loss Account

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17Trans-Siberian GoldANNUAL REPORT AND ACCOUNTS 2006

Consolidated Balance Sheet

As at As at 31 December 31 December 2006 2005 Note $ $

Fixed assetsExploration and evaluation properties 11 29,799,969 24,699,333Tangible assets 12 23,265,007 16,099,665

Total fixed assets 53,064,976 40,798,998

Current assetsDebtors: 14 Amounts falling due within one year 2,722,326 2,187,805Amounts falling due after more than one year 6,001,683 4,608,939

8,724,009 6,796,744Cash at bank 15, 22 2,551,457 11,902,705

11,275,466 18,699,449

Creditors – amounts falling due within one year 16 (3,606,450) (2,817,671)

Net current assets 7,669,016 15,881,778

Total assets less current liabilities 60,733,992 56,680,776

Convertible debt 16 (10,000,000) –Provisions for liabilities and charges 17 (200,489) (156,694)

Net assets 50,533,503 56,524,082

Capital and reservesCalled up share capital 18 6,951,312 6,951,312Share premium account 19 60,821,126 60,821,126Profit and loss account 19 (17,238,935) (11,286,635)

Shareholders’ funds 20 50,533,503 56,485,803Minority Interest 21 – 38,279

Capital employed 50,533,503 56,524,082

The notes on pages 20 to 39 are an integral part of these consolidated financial statements. The financial statements on pages 16 to 39 were approved by the Board of Directors on 19 June 2007 and were signed on its behalf by:

Oleg Bagirov Peter BurnellChief Executive Officer Chairman

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Trans-Siberian Gold ANNUAL REPORT AND ACCOUNTS 200618

Company Balance Sheet

As at As at 31 December 31 December 2006 2005 Note $ $

Fixed assetsTangible assets 12 17,212 51,828Investments 13 76,844,489 54,777,874

Total fixed assets 76,861,701 54,829,702

Current assetsDebtors: amounts falling due within one year 14 2,214,611 2,837,083Cash at bank 15 1,717,137 11,528,184

3,931,748 14,365,267Creditors – amounts falling due within one year 16 (1,844,364) (468,583)

Net current assets 2,087,384 13,896,684

Total assets less current liabilities 78,949,085 68,726,386

Convertible debt 16 (10,000,000) –

Net assets 68,949,085 68,726,386

Capital and reservesCalled up share capital 18 6,951,312 6,951,312Share premium account 19 60,821,126 60,821,126Profit and loss account 19 1,176,647 953,948

Capital employed 68,949,085 68,726,386

The notes on pages 20 to 39 are an integral part of these financial statements.

The financial statements on pages 16 to 39 were approved by the Board of Directors on 19 June 2007 and were signed on its behalf by:

Oleg Bagirov Peter BurnellChief Executive Officer Chairman

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19Trans-Siberian GoldANNUAL REPORT AND ACCOUNTS 2006

Consolidated Cash Flow Statement

Year Year ended ended 31 December 31 December 2006 2005 Note $ $

Net cash outflow from operating activities 23 (6,067,938) (8,313,619)

Returns on investments and servicing of financeInterest received 304,071 653,123

Net cash inflow from returns on investments and servicing of finance 304,071 653,123

Corporation tax paid (262,800) (12,949)

Capital expenditure and financial investmentPurchase of tangible fixed assets (8,794,388) (6,485,043)Receipts from disposal of tangible fixed assets 1,637 –Exploration and evaluation expenditure (5,383,284) (7,255,755)

Net cash outflow from capital expenditure and financial investment (14,176,035) (13,740,798)

AcquisitionsPayments to acquire subsidiary undertakings – (10,542)

Net cash outflow before use of liquid resources and financing (20,202,702) (21,424,785)

Management of liquid resourcesDecrease in bank deposits 10,307,511 6,263,975

FinancingIssue of ordinary shares, net of expenses – 14,485,817Debt due within one year 350,289 –Increase in convertible debt 10,000,000 –

Net cash inflow from financing activities 10,350,289 14,485,817

Increase (decrease) in cash for the year 455,098 (674,993)

Reconciliation of cash balancesCash at start of year 22 390,553 1,066,072Currency exchange differences 195 (526)Increase (decrease) in cash for the year 455,098 (674,993)

Cash at end of year 22 845,846 390,553

The notes on pages 20 to 39 are an integral part of these consolidated financial statements.

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Trans-Siberian Gold ANNUAL REPORT AND ACCOUNTS 200620

Notes to the Financial Statements

1. Principal accounting policiesThe Group’s accounting policies have been consistently applied in all periods presented in these financial statements with the exception, as explained below, of the adoption of FRS 20 Share-based payment.

Basis of preparationThe consolidated financial statements are prepared under the historical cost convention and in accordance with applicable United Kingdom accounting standards and the Companies Act 1985. They are stated in US dollars ($), this being the Group’s presentational currency. The exchange rate on 31 December 2006 was £1:$1.9591 (2005: £1:$1.7208) and $1:RUB26.3311 (2005: $1:RUB28.7825).

Trans-Siberian Gold plc, together with its subsidiaries, form a mineral exploration and development group that is focused on precious metal mining opportunities in the Russian Federation. The recoverability of the amounts shown in the Group balance sheet in relation to deferred exploration expenditure, and also the carrying value of the Company’s investments in its subsidiaries, are dependent upon the discovery of economically recoverable reserves, continuation of the Group’s interests in the underlying mining claims, the political, economic and legislative stability of the regions in which the Group operates, compliance with the terms of the relevant mineral rights licences, the Group’s ability to obtain the necessary financing to fulfil its obligations as they arise and upon future profitable production or proceeds from the disposition of properties.

Basis of consolidationThe consolidated financial statements of the Group include the accounts of Trans-Siberian Gold plc and its subsidiaries. The results of Trans-Siberian Gold plc’s subsidiary undertakings are accounted for from the date on which the Company gains control.

The accounting policies and financial year ends of its subsidiaries are consistent with those applied by the Company.

Foreign currencyTransactions denominated in currencies other than the US dollar are translated into dollars at the average exchange rate ruling during the month in which the transactions occur. Monetary assets and liabilities denominated in foreign currencies are re-translated into dollars at the rates of exchange ruling at the balance sheet date. All exchange gains or losses are taken to the profit and loss account.

Deferred exploration and evaluation expenditureWhen the Group incurs expenditure on mining properties that have not reached the stage of commercial production, the costs of acquiring the rights to such mineral properties and related exploration and evaluation costs, including directly attributable employment costs, are deferred where the expected recovery of costs is considered probable by the successful exploitation or sale of the asset. General overheads are expensed immediately. Depreciation on fixed assets used on exploration and evaluation projects is charged to deferred costs whilst the projects are in progress. Finance costs incurred in respect of exploration and evaluation projects are capitalised in those instances where the other expenditure attributable to those projects is also being capitalised. Finance costs are also only capitalised during periods when exploration and evaluation activities are in progress. Finance costs incurred in respect of the Group’s general borrowings are expensed in the profit and loss account as incurred. Any discount on deferred purchase consideration is added back to reflect the actual cash paid in respect of net assets acquired on acquisition of companies.

Where a feasibility study indicates that the future recovery of costs is not probable, full provision is made in respect of any deferred costs. Where mining properties are abandoned, deferred expenditure is written off in full.

When a review for impairment is conducted, the recoverable amount is assessed by reference to the net present value of expected future cash flows of the relevant income generating unit or disposal value if higher. Individual mining properties are considered to be separate income generating units for this purpose, except where they would be operated together as a single mining business.

The amounts shown as deferred exploration and evaluation expenditure represent costs incurred and do not necessarily reflect present or future values.

Tangible fixed assets and depreciationTangible fixed assets are recorded at historical cost less depreciation. Depreciation of tangible fixed assets is provided on the straight-line basis over their estimated useful lives, being:

Buildings – 16 yearsMotor vehicles – 5 yearsPlant and machinery – 4 yearsOffice furniture and equipment – 3-5 years

Assets under construction are not subject to depreciation until the date on which the Group brings them into use.

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21Trans-Siberian GoldANNUAL REPORT AND ACCOUNTS 2006

LeasesAssets held under finance leases are capitalised as tangible fixed assets at the estimated present value of the underlying lease payments. The corresponding finance lease obligation is included within creditors due within or after more than one year. The interest element is allocated to accounting periods during the lease term to reflect a constant rate of interest on the remaining balance of the obligation for each accounting period.

Rentals paid on operating leases are charged to the profit and loss account on a straight-line basis over the lease term.

InvestmentsInvestments are valued at cost or, where there has been an impairment in value, at their recoverable amount. Investments in subsidiary companies involved in exploration and development are recorded at cost where the expected recovery of costs is considered probable.

StocksStocks of consumables are valued at the lower of cost and net realisable value.

TaxationCurrent tax is the expected tax payable or recoverable on the taxable profit or loss for the year, using rates enacted at the balance sheet date and any adjustments to the tax payable in respect of previous years.

Deferred tax is provided in full in respect of timing differences which have arisen but not reversed at the balance sheet date, except that deferred tax assets are only recognised if it is considered more likely than not that they will be recovered. No deferred tax has been recognised on the revaluation of purchased non-monetary assets at their fair value, in accordance with FRS 19 Deferred Tax.

Financial instrumentsFinancial assets are recognised when the Group has rights or other access to economic benefits. Such assets consist of cash, equity instruments, contractual rights to receive cash or another financial asset, or contractual rights to exchange financial instruments with another entity on potentially favourable terms. Financial liabilities are recognised when there is an obligation to transfer benefits and that obligation is a contractual liability to deliver cash or another financial asset or to exchange financial instruments with another entity on potentially unfavourable terms. When these criteria no longer apply, a financial asset or liability is no longer recognised.

If a legally enforceable right exists to set off recognised amounts of financial assets and liabilities, which are in determinable monetary amounts, and the Group intends to settle on a net basis, the relevant financial assets and liabilities are offset.

Interest costs are charged against income in the year in which they are incurred. Premiums or discounts arising from the difference between the net proceeds of financial instruments purchased or issued and the amounts receivable or payable at maturity are taken to net interest payable over the life of the instrument.

In line with the transitional provisions of FRS 25 Financial instruments: Disclosure and presentation, the Group has adopted the presentation requirements of the standard in these financial statements. This adoption has had no impact on the amounts recognised in the Group’s financial statements.

Share-based payment transactionsThe Group has adopted FRS 20 Share-based payment, with effect from 1 January 2006. Implementation of FRS 20 results in a change in accounting policy and therefore a prior year adjustment is required. The financial implications of the prior year adjustment are explained in Note 29 to the financial statements.

The Company makes equity-settled share-based payments to certain Group employees under the terms of its employee share option scheme. In addition to those granted under the Company’s employee share option scheme, the Company has granted share options to some advisers. The fair value of options granted to employees is recognised as an employee expense and to advisers as professional fees, with a corresponding increase in equity by way of a credit to retained earnings.

The fair value is measured at grant date and expensed on a straight-line basis over the expected vesting period. The fair value of the options granted is measured using a Black-Scholes valuation model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest or are likely to vest except where non-exercise is only due to the Company’s share price not achieving the threshold for vesting.

Non-market based vesting conditions are taken into account in estimating the number of options likely to vest. The estimate of the number of options likely to vest is reviewed at each balance sheet date up to the vesting date, at which point the estimate is adjusted to reflect the actual options exercised. No adjustment is made after the vesting date even if the options are not exercised.

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Trans-Siberian Gold ANNUAL REPORT AND ACCOUNTS 200622

Notes to the Financial Statements continued

1. Principal accounting policies continuedDecommissioning, site restoration and environmental costsGroup companies are generally required to restore mine and processing sites at the end of their producing lives to a condition acceptable to the relevant authorities and consistent with the Group’s environmental policies. The expected cost of any committed decommissioning or restoration programme, discounted to its net present value where the effect of discounting is material, is provided and capitalised at the beginning of each project. The capitalised cost is amortised over the life of the operation and the increase in the net present value of the provision for the expected cost is included with interest and similar charges.

The cost of ongoing programmes to prevent and control pollution and to rehabilitate the environment is charged to the profit and loss account as incurred.

2. Going concernThe Group has significant funding needs in order to finance the completion of the Asacha project, continue exploration at its properties and provide ongoing working capital.

The directors believe that total additional funding of $80 million will be required to provide adequate financing until the Asacha mine is cash flow positive. In the directors’ opinion, the disposal of two subsidiaries to AngloGold Ashanti Limited (the AGA Transaction) as described in Note 25 is expected to be completed by 30 June 2007. $10 million of the total $40 million sale consideration has already been received with the remaining $30 million due on completion. If the sale does not complete, the $10 million becomes repayable or convertible into ordinary shares of the Company, on the basis set out in Note 25. The total sales proceeds of $40 million will be sufficient for the Group’s funding requirements until the first quarter of 2008, by which time significant mine development and plant construction is expected to have been achieved at Asacha. It is currently the intention of the Board to satisfy the remaining forecast funding requirement of $40 million until the Asacha mine is cash flow positive through raising additional equity, debt finance, equipment supplier credits or a combination of these. Management tightly control the level of committed expenditure to ensure that the Group has sufficient resources available to meet its liabilities as they fall due.

Notwithstanding the material uncertainty related to the raising of additional finance which may cast significant doubt on the Group’s ability to continue as a going concern, the directors believe that the necessary funds to provide adequate financing until the Asacha mine is cash flow positive can be raised as required and accordingly they are confident that the Group will continue as a going concern and have prepared the financial statements on that basis. The financial statements do not include the adjustments that would result if the Group were not able to continue as a going concern.

3. Segmental reportingThe Group’s operations are entirely focused on exploration and development opportunities within the Russian Federation. Accordingly, the directors believe that there is only one relevant class of business and geographic segment.

4. Interest receivable and payable Year Year ended ended 31 December 31 December 2006 2005 $ $

Interest receivable from short-term bank deposits 294,451 643,897

Interest payable on long-term convertible debt (491,058) –Interest payable on short-term loans (440) –

(491,498) –

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23Trans-Siberian GoldANNUAL REPORT AND ACCOUNTS 2006

5. Loss on ordinary activities before taxation Restated Year Year ended ended 31 December 31 December 2006 2005 Note $ $

Loss before taxation is stated after charging (crediting):Wages and salaries 2,210,203 2,401,913Social security costs 276,641 289,439Share-based payment transactions 9 (156,980) 171,486

Employee costs a, 8 2,329,864 2,862,838

Operating income b (512,971) (70,637)Exchange (gain) loss c (1,061,607) 1,853,442Depreciation of tangible fixed assets – owned assets 692,903 761,156Depreciation charged to deferred exploration and evaluation costs (538,711) (601,437)Loss on disposal of tangible fixed assets 23,609 8,871Operating lease rentals:– plant and machinery 2,203 2,164– other 332,123 282,084

Services provided by the Group’s auditor and network firms: dFees payable to the Company’s auditor for the audit of parent company and consolidated financial statements 236,551 168,188Fees payable to the Company’s auditor for other services:Other services pursuant to legislation 25,827 13,078Tax services 155,027 90,938Other services 5,947 25,812

a In addition, employee costs of $1,210,743 (2005: $1,855,783) have been capitalised under Fixed Assets – Exploration and Evaluation Properties.

b Operating income relates to the hiring out of staff and drilling equipment from the Veduga project $473,093 (2005: $3,885) and equipment from the Asacha project $39,878 (2005: $66,752) during periods of exploration inactivity.

c Exchange gain in 2006 principally reflects the depreciation of the US dollar during the year on sterling cash deposits.

d In addition to the amounts disclosed above, all of which were paid to PricewaterhouseCoopers, a further $31,295 (2005: $9,653) was paid to other auditors in respect of the statutory audits of the Group’s Russian subsidiaries.

6. Loss per ordinary shareThe calculation of basic loss per 10p ordinary share is based on the retained loss for the year ended 31 December 2006 of $5,784,256 (2005: $8,305,176 as restated) and on 41,163,949 (2005: 38,810,438) ordinary shares, being the weighted average number of ordinary shares in issue and ranking for dividends during the year.

The loss attributable to ordinary shareholders and weighted average number of ordinary shares for the purpose of calculating the diluted loss per ordinary share are identical to those used for basic loss per ordinary share. This is because the exercise of share options and warrants would have the effect of reducing the loss per ordinary share and is therefore not dilutive under the terms of FRS 22 Earnings per share.

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Trans-Siberian Gold ANNUAL REPORT AND ACCOUNTS 200624

Notes to the Financial Statements continued

7. Tax on loss on ordinary activities Restated Year Year ended ended 31 December 31 December 2006 2005 $ $

Current tax – UK Corporation tax – –Current tax – Russian Corporation tax 197,334 10,843

197,334 10,843

Factors affecting tax charge for the year:Group loss on ordinary activities before tax (5,625,201) (8,256,054)Tax credit at UK standard rate of corporation tax (30%) (1,687,560) (2,476,817)Effects of:Difference in Russian tax rate (24%) to UK standard rate 385,214 409,176Expenses not deductible for tax purposes 1,695,545 550,971Capital allowances for the year in excess of depreciation 14,414 4,526Other timing differences 1,646 3,113Utilisation of tax losses (338,122) –Tax losses carried forward for offset against profits of future periods 126,197 1,523,509Adjustment to tax charge in respect of prior years – (3,635)

Current tax charge for the year 197,334 10,843

During the exploration and development stages, the Group will accumulate tax losses which may be carried forward. As at 31 December 2006, the Company had tax losses carried forward with an estimated tax value of $836,447 (2005: $884,871). The subsidiaries in Russia had tax losses carried forward with a tax value, at the standard rate of corporation tax in Russia of 24%, of $1,730,200 (2005: $1,607,536). Tax losses carried forward in the subsidiaries are available for use over a 10-year period and, for the year 2006, could only be offset against 50% of the relevant company’s taxable profit, however the ruling has now changed with an offset of 100% available for periods starting on or after 1 January 2007. Of the total available Russian subsidiaries’ tax credits, $132,727 will be available until 31 December 2016, an additional $1,203,691 until 31 December 2015, $365,792 until 31 December 2014, $13,186 until 31 December 2013 and the remaining $14,804 until 31 December 2012.

The tax losses arising in the current and prior periods will reduce the Group’s tax liability in the future and give rise to deferred tax assets. The directors believe that it would not be prudent to recognise such tax assets before such time as the Group generates taxable income. Hence no tax asset has been recognised.

8. Employees and directorsThe average number of Group employees during the year (including executive directors) was: Year Year ended ended 31 December 31 December 2006 2005

By activityExploration and development* 128 152Administration 87 84

215 236

* Exploration and development employee costs are capitalised under Fixed Assets – Exploration and Evaluation Properties (see Note 5a).

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25Trans-Siberian GoldANNUAL REPORT AND ACCOUNTS 2006

The aggregate emoluments of the directors of the Company were as follows: Restated Year Year ended ended 31 December 31 December 2006 2005 Note $ $

Basic salary 374,849 529,429Fees 114,359 88,366Consultancy fees 17,329 13,965Benefits in kind 12,596 8,564Compensation for loss of office – 244,125

519,133 884,449Share-based payment transactions 9 (121,025) 148,641

398,108 1,033,090

Average number of directors during the year 8 8

The following table shows the directors who served during the year or in the previous year together with an analysis of their remuneration: Year Year ended ended Basic Consultancy Benefits 31 December 31 December salary/fees fees in kind 2006 2005 $ $ $ $ $

Executive directorsOE Bagirov 29,444 – – 29,444 –JG Best 150,000 – – 150,000 33,333SV Olsen 195,404 – 4,841 200,245 186,875JS de W Waller – – – – 483,650RA Watts – – – – 77,378Non-executive directorsPA Bowring 22,299 – – 22,299 21,870PCD Burnell 67,954 – – 67,954 21,614JJS Marshall 6,528 – – 6,528 27,017NK Sethia – – – – 15,576JS de W Waller 17,579 17,329 7,755 42,663 17,136

489,208 17,329 12,596 519,133 884,449

In addition to Mr Best’s remuneration as a director, $22,500 was paid to him for consultancy services following his retirement as a director of the Company.

Emoluments paid to Mr Waller in 2005 include $244,125 as compensation for loss of office in respect of his position as executive director.

For the period to 31 March 2006, fees in relation to the services of Messrs Duffy and Guenther as non-executive directors were payable to AngloGold Ashanti Limited, as were those for Mr Wylie during 2005, and totalled $10,585 (2005: $37,727).

Fees in relation to the services as non-executive directors of Messrs Fedorov and Fenner, and Messrs Duffy and Guenther for the period from 1 April 2006, were waived.

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Trans-Siberian Gold ANNUAL REPORT AND ACCOUNTS 200626

Notes to the Financial Statements continued

8. Employees and directors continued Options Options Options Options Options held at granted exercised expired held at Exercise 1 January during the during the during the 31 December Normal price 2006 year year year 2006 exercise dates

Directors' optionsPA Bowring 45p 150,000 – – – 150,000 01.10.02 – 30.09.07PCD Burnell 45p 150,000 – – – 150,000 01.10.02 – 30.09.07SV Olsen 150p 50,000 – – – 50,000 23.06.05 – 22.12.08SV Olsen 150p 100,000 – – – 100,000 05.08.05 – 04.02.09SV Olsen 94p – 150,000 – – 150,000 20.12.07 – 19.06.11

No other directors have been granted share options in the shares in the Company or other Group entities. All options were granted in respect of qualifying services.

Options granted prior to 1 January 2003 were issued under an employee share option scheme approved by special resolution of the Company on 28 March 2002. Options granted after 1 January 2003 were issued under an employee share scheme approved by special resolution of the Company on 26 September 2003 and will not be exercisable until the later of 18 months from the date of grant of the option or the commencement of gold production by any member of the Group.

9. Employee share option schemes and share-based paymentsEmployee share option schemeThe Group established, by special resolution of the Company on 28 March 2002, a share option scheme (2002 scheme) that entitled key management and senior employees to purchase shares in the Company. There are no performance criteria conditional upon which the options granted under the 2002 scheme are exercisable.

A second share option scheme (2003 scheme) was approved by special resolution of the Company on 26 September 2003, whereby options granted are not exercisable until the later of 18 months from the date of grant or the commencement of gold production by any member of the Group.

None of the terms and conditions of the share options was varied during the year. All share options were issued for nil cash consideration. Options Options Options Options Options held at granted exercised expired held at Exercise 1 January during the during the during the 31 December Normal price 2006 year year year 2006 exercise dates

2002 Scheme 45p 900,000 – – – 900,000 01.10.02 – 30.09.07 100p 160,000 – – (100,000) 60,000 01.10.03 – 30.09.072003 Scheme 150p 540,000 – – (50,000) 490,000 23.06.05 – 22.12.08 150p 100,000 – – – 100,000 05.08.05 – 04.02.09 150p 190,000 – – (150,000) 40,000 27.01.06 – 26.07.09 94p – 230,000 – – 230,000 20.12.07 – 19.06.11

1,890,000 230,000 – (300,000) 1,820,000

The above table includes the interests of directors in share options as shown in Note 8. No options have been granted since the year end.

The market price of the Company’s shares at 31 December 2006 was 39p (2005: 73.5p) and the range of market prices during the year was between 34.6p and 126.7p (2005: 33p and 145p).

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27Trans-Siberian GoldANNUAL REPORT AND ACCOUNTS 2006

Share-based paymentsIn addition to those granted under the Company’s employee share option scheme (see table above), the Company has granted options to advisers, which have been valued on the same basis as those granted to directors and employees, and are shown in Note 18.

The terms and conditions of the options granted, all of which are settled by physical delivery of shares, are as follows:

Number of Contractual Grant date/recipients instruments Vesting conditions life of options

Option grant to directors, employees Six months from the date of grant 5 years and advisers on 2 April 2002 1,750,000 6 monthsOption grant to employees Four and a half months from the 4 years on 15 May 2003 190,000 date of grant 4.5 monthsOption grant to advisers Four months from the date of grant 4 years on 1 June 2003 60,000 4 monthsOption grant to advisers None on 25 November 2003 856,522 3 yearsOption grant to advisers None on 25 November 2003 285,507 2 yearsOption grant to directors and employees 18 months from the date of grant or on 23 December 2003 the commencement of gold production 595,000 by any member of the Group 5 yearsOption grant to an adviser 17 months from the date of grant 4 years on 27 January 2004 25,000 11 monthsOption grant to a director 18 months from the date of grant or on 5 February 2004 the commencement of gold production 100,000 by any member of the Group 5 yearsOption grant to an adviser 14 months from the date of grant 4 years on 3 May 2004 25,000 8 monthsOption grant to directors and employees 18 months from the date of grant or on 27 July 2004 the commencement of gold production 190,000 by any member of the Group 5 yearsOption grant to directors 18 months from the date of grant or on 20 June 2006 the commencement of gold production 230,000 by any member of the Group 5 years

The above table includes share options totalling 475,000 which had been exercised or had lapsed prior to 1 January 2005 and are therefore not included in the following table.

The number and weighted average exercise prices of share options for the year ended 31 December 2006 is as follows:

Weighted Weighted average Number of average Number of exercise price Options exercise price Options 2006 2006 2005 2005

Outstanding at the beginning of the year 110p 3,006,522 109p 3,602,029Granted during the year 94p 230,000 – –Lapsed during the year 128p (360,000) 68p (210,000)Exercised during the year – – 45p (100,000)Expired during the year 150p (856,522) 50p (285,507)

Outstanding at the end of the year 88p 2,020,000 10p 3,006,522

Exercisable at the end of the year 48p 1,110,000 93p 2,126,522

The options outstanding at 31 December 2006 have an exercise price in the range of 45p to 150p and a weighted average contractual life of 5.2 years.

No options were exercised during 2006. For options exercised during 2005, the weighted average share price at the date of exercise was 106p.

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Trans-Siberian Gold ANNUAL REPORT AND ACCOUNTS 200628

Notes to the Financial Statements continued

9. Employee share option schemes and share-based payments continuedThe fair value of services received in return for share options granted are measured by reference to the fair value of share options granted. The estimate of fair value of the services received is measured using a Black-Scholes valuation model, taking into account the terms and conditions upon which the options were granted. The contractual life of the options (typically five years) is used as an input into this model. Expectations of early exercise are incorporated into the Black-Scholes model. The fair value of share options granted during the year, using the Black-Scholes model, and the assumptions made in their calculation are as follows: Year Year Year ended ended ended 31 December 31 December 31 December 2003 2004 2006

Fair value at measurement date 71p 74p 52p

Share price (mid-market) 135p 140p 94pCurrent price 126p 131p 88pExercise price 150p 150p 94pExpected volatility 67% 67% 67%Option life 5 years 5 years 5 yearsExpected dividends 0% 0% 0%Risk-free interest rate 4.83% 4.82% 4.65%

The current price is the price at which the shares can be sold in an arm’s length transaction between knowledgeable, willing parties and is calculated by applying a bid price discount factor of 6.2% to the mid-market price. The expected volatility is based on the historic performance of Trans-Siberian Gold’s shares on the Alternative Investment Market of the London Stock Exchange. The option life represents the period over which the options granted are expected to be outstanding and is equal to the contractual life of the options. The risk-free interest rate used is equal to the yield available on the principal portion of UK government issued Gilt Strips with a life similar to the expected term of the options at the date of measurement.

There are no market conditions associated with the share option grants.

Under the transitional arrangements of FRS 20 the recognition and measurement principles in FRS 20 have not been applied to share option arrangements granted before 7 November 2002, or to those that had vested prior to 1 January 2005, the date of first time adoption of FRS 20.

The total expense (credit) recognised in the profit and loss account arising from equity-settled share-based payment transactions is as follows: Restated Year Year ended ended 31 December 31 December 2006 2005 Note $ $

Share options granted in 2006 to: Directors 5, 8 51,057 –Share options granted in 2004 to: Directors 5, 8 28,878 32,230 Employees 5 (18,105) 12,496 Advisers (11,064) 14,746Share options granted in 2003 to: Directors 5, 8 (200,960) 116,411 Employees 5 (17,850) 10,349

Total (credit) expense for the year 29 (168,044) 186,232

The credit for the year of $168,044 includes the effect of options lapsed or expected to lapse in respect of leavers which had not been considered likely prior to the first time adoption of FRS 20 on 1 January 2006.

10. Pension arrangementsThe Company does not provide a pension scheme for its directors or employees.

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29Trans-Siberian GoldANNUAL REPORT AND ACCOUNTS 2006

11. Exploration and evaluation propertiesa) Movements on deferred exploration and evaluation expenditure, by location of the property, are as follows:

1 January 31 December 2006 Additions 2006 $ $ $

Kamchatka – Asacha 9,491,185 2,518,326 12,009,511Krasnoyarsk – Veduga 14,181,128 1,662,634 15,843,762Krasnoyarsk – Bogunay 1,027,020 919,676 1,946,696

24,699,333 5,100,636 29,799,969

The cumulative amount of interest capitalised in exploration and evaluation properties is $133,800 (2005: $133,800).

The carrying values of exploration and evaluation properties are predicated on the Company’s continued pursuit of its strategy in respect of these properties. The strategy in relation to the Asacha property involves securing substantial financing and successfully developing the property on a commercial basis. In September 2006, the Company announced the sale of the companies owning the Veduga and Bogunay properties to AngloGold Ashanti Limited for a cash consideration of $40 million, comprising $37.8 million in respect of Veduga and $2.2 million in respect of Bogunay. Completion of this transaction is expected by 30 June 2007.

b) Deferred exploration expenditure relates to the following agreements held by the Company’s subsidiaries, ZAO Trevozhnoye Zarevo, OOO GRK Amikan and OOO Artel Stavatelei Angarskaya Proizvodstvennaya Kompaniya:

Asachinskoye (Asacha) mineral rights licence issued by the Kamchatka Department of the Geological Committee of the Russian Ministry for Natural ResourcesOn 8 September 1994, the Kamchatka Department of the Geological Committee of the Russian Ministry for Natural Resources issued a licence, after tender, to ZAO Trevozhnoye Zarevo for the exploration and development of the Asacha minerals deposit on Kamchatka. The licence includes extraction of gold and silver and is valid until 1 September 2014.

Under the licence as revised in 2004, ZAO Trevozhnoye Zarevo was required to produce at least 1,000 kg of gold at the Asacha deposit by 30 June 2006. During 2006, an extension of this condition to 31 December 2008 was granted by the relevant regional and federal authorities at a cost of $1,800,000, including compensation to the local administration for delayed taxes and royalties.

Rodnikovoye (Rodnikova) mineral rights licence issued by the Kamchatka Department of the Geological Committee of the Russian Ministry for Natural ResourcesOn 8 September 1994, the Kamchatka Department of the Geological Committee of the Russian Ministry for Natural Resources issued a licence after tender to ZAO Trevozhnoye Zarevo for the exploration and development of the Rodnikova minerals deposit on Kamchatka. The licence includes extraction of gold and silver and is valid until 1 September 2014.

Under the terms of an amendment to the licence, registered in May 2006, the company is required to complete the exploration programme of the licence area and to submit a geological report containing reserve calculations for approval by the state geological authorities before 31 December 2008 and to prepare and permit a feasibility study for the development of the deposit before 31 March 2010. Veduginskoye (Veduga) mineral rights licences issued by the Russian Ministry for Natural Resources and the Administration of the Krasnoyarsk regionOn 20 September 1999, the Russian Ministry for Natural Resources and the Administration of the Krasnoyarsk region issued a licence for the purpose of geological exploration and mineral extraction to OOO GRK Amikan. The licence is valid until 1 January 2022. OOO GRK Amikan was required to complete and permit a feasibility study for the Veduga project within one year of State approval of the reserves on 29 September 2004. Following the recommendation submitted by the Krasnoyarsk Territorial Subsoil Management Agency (KTSMA) to the Ministry in 2005 in support of an extension to this deadline, OOO GRK Amikan filed a request with the relevant authorities for the licence. In June 2007, the Federal Agency for Subsoil Use approved an amendment to the Veduga licence whereby Amikan’s development plan for the licence area must be submitted and approved no later than 1 January 2009, with construction of mine infrastructure to begin no later than 1 January 2010. A minimum designated throughput of 250,000 tonnes per annum must be achieved no later than 31 December 2013.

On 22 October 2002, the Russian Ministry for Natural Resources and the Administration of the Krasnoyarsk region issued a licence for the purpose of geological study, including exploration and evaluation of mineral fields, to OOO GRK Amikan. The licence is valid until 1 October 2007.

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Trans-Siberian Gold ANNUAL REPORT AND ACCOUNTS 200630

Notes to the Financial Statements continued

11. Exploration and evaluation properties continuedBogunaeskoye (Bogunay) mineral rights licence issued by the Russian Ministry for Natural Resources and the Administration of the Krasnoyarsk regionOn 25 April 2002, the Russian Ministry for Natural Resources and the Administration of the Krasnoyarsk region issued a licence after tender to OOO Artel Stavatelei Angarskaya Proizvodstvennaya Kompaniya for the exploration and development of the Bogunay deposit. The licence is valid until 31 December 2026. As amended in January 2005, the company is required to submit a draft exploration programme to KTSMA by 1 July 2005, to complete the exploration and submit a report thereon to the State expert committee by 31 March 2007 and in the second quarter of 2007 to submit proposals related to the development of the Bogunay deposit and the level of gold production to KTSMA.

12. Tangible fixed assets Office Plant and Motor equipment Assets under Buildings machinery vehicles and furniture construction Total Group $ $ $ $ $ $

CostAt 1 January 2006 981,333 1,817,921 1,145,838 557,965 12,753,915 17,256,972Additions 52,566 274,521 9,460 25,386 7,521,558 7,883,491Disposals (20,898) (15,388) – (28,954) – (65,240)

At 31 December 2006 1,013,001 2,077,054 1,155,298 554,397 20,275,473 25,075,223

Accumulated depreciationAt 1 January 2006 (210,725) (367,239) (299,354) (279,989) – (1,157,307)Charge for year (168,129) (195,646) (199,991) (129,137) – (692,903)Disposals 6,917 6,202 – 26,875 – 39,994

At 31 December 2006 (371,937) (556,683) (499,345) (382,251) – (1,810,216)

Net book valueAt 31 December 2005 770,608 1,450,682 846,484 277,976 12,753,915 16,099,665

At 31 December 2006 641,064 1,520,371 655,953 172,146 20,275,473 23,265,007

Assets under construction comprise $4,379,019 in relation to the construction of an access road to Asacha; and $14,982,329 for building construction and infrastructure, and $914,125 for plant and equipment at Asacha, Veduga and Bogunay. Office equipment and furniture Company $

CostAt 1 January 2006 153,125Additions 7,273Disposals (22,167)

At 31 December 2006 138,231

Accumulated depreciationAt 1 January 2006 (101,297)Charge for year (41,889)Disposals 22,167

At 31 December 2006 (121,019)

Net book valueAt 31 December 2005 51,828

At 31 December 2006 17,212

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31Trans-Siberian GoldANNUAL REPORT AND ACCOUNTS 2006

13. Investments 31 December 31 December 2006 2005 Company $ $

Interests in subsidiary undertakingsAt 1 January 15,178,625 4,868,337Additional capital contributions 5,032,718 10,299,787Adjustment to cost of acquisitions – 10,501Impairment in value of investments (233,356) –

At 31 December 19,977,987 15,178,625

Loans to subsidiary undertakingsAt 1 January 39,599,249 28,262,143Advances to subsidiaries 21,874,369 20,292,878Loans forgiven (4,436,168) (8,955,772)Impairment in value of investments (170,948) –

At 31 December 56,866,502 39,599,249

Total investmentsAt 1 January 54,777,874 33,130,480Additions 22,470,919 21,647,394Impairment in value of investments (404,304) –

At 31 December 76,844,489 54,777,874

Interest deemed to arise from the deferred payment of the purchase consideration for the Company’s subsidiaries has been capitalised in the cost of the relevant investment where such interest qualifies for capitalisation within the Group’s deferred exploration expenditure. The cumulative amount of interest capitalised is $133,800 (2005: $133,800). During 2006, the Company made additional capital contributions to its subsidiaries through the forgiveness of loans of $4,436,168 (2005: $8,955,772) in order to correct negative equity positions in those subsidiaries' local accounts and other expenditure of $596,550 (2005: $1,344,015) incurred on behalf of its subsidiaries.

As described in Note 26, on 22 January 2007, a liquidator was appointed over OOO Kompaniya Svezhiy Veter and as a result the Company has recognised an impairment charge in respect of the entire carrying value of its investment in this subsidiary. The directors do not believe that the value of the Company's investments in its other subsidiaries is impaired.

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Trans-Siberian Gold ANNUAL REPORT AND ACCOUNTS 200632

Notes to the Financial Statements continued

14. Debtors Group Company

31 December 31 December 31 December 31 December 2006 2005 2006 2005 $ $ $ $

Amounts falling due within one year:Prepayments 2,237,755 1,346,843 122,387 156,793Deferred disposal costs 149,516 – 149,516 –VAT recoverable 112,587 84,504 93,858 70,821Corporation tax recoverable 101,723 – – –Other debtors 117,585 67,764 36,524 11,501Unpaid share capital 3,160 3,160 3,160 3,160Deferred financing costs – 685,534 – 685,534Amounts owed by subsidiary companies – – 1,774,609 1,540,286Expenditure rechargeable to subsidiaries – – 34,557 368,988

2,722,326 2,187,805 2,214,611 2,837,083

Amounts falling due after more than one year:Taxes recoverable – value added tax 6,001,683 4,608,939 – –

8,724,009 6,796,744 2,214,611 2,837,083

Deferred disposal costs of $149,516 (2005: nil) comprise fees in relation to the proposed disposal of the Company’s subsidiaries Amikan and AS APK.

The directors anticipate that the value added tax (VAT) debtor of $6,001,683 (2005: $4,608,939) will be recovered when the Group commences production. VAT to the value of $1,295,067 was recovered in 2006 (2005: $510,675); however, if the Group’s exploration projects do not proceed to production, some VAT may be irrecoverable.

The Company has incurred certain exploration costs on behalf of its subsidiaries. It is anticipated that these costs will be recharged to the subsidiaries before the end of 2007.

15. CashThere are no restrictions over the access to, and use of, the Group’s bank and cash balances, other than those that customarily relate to periodic short-term deposits. 16. Creditors Group Company

31 December 31 December 31 December 31 December 2006 2005 2006 2005 $ $ $ $

Amounts falling due within one year:Short-term loans 350,289 – – –Trade creditors 1,182,049 2,110,226 327,694 252,853Taxation and social security 423,516 349,871 24,337 19,571Interest payable 491,513 – 491,058 –Other creditors 884,956 157,574 809,993 75,174Amounts owed to subsidiary companies – – 46,335 5,985Other accruals 274,127 200,000 144,947 115,000

3,606,450 2,817,671 1,844,364 468,583

Amounts falling due after more than one year:Convertible debt 10,000,000 – 10,000,000 –

13,606,450 2,817,671 11,844,364 468,583

Creditors contain amounts, including the $10 million of convertible debt, which are owed to AngloGold Ashanti Limited, a related party by virtue of its 29.79% holding in the shares of the Company. Details are given in Note 24.

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33Trans-Siberian GoldANNUAL REPORT AND ACCOUNTS 2006

17. Provisions for liabilities and charges Environmental/site restoration provision

At 1 January 2006 156,694Charged to exploration and evaluation properties 43,795

At 31 December 2006 200,489

The above provision relates to site restoration at the Asacha project, which will be required following further exploration activity and is expected to be utilised by 2018 based on the current mineable resource. The amount of $200,489 (2005: $156,694) is included in exploration and evaluation properties and is calculated based on regional data from the Monitoring Ecological Centre of Kamchatka.

18. Called-up share capital 31 December 31 December 2006 2005 Number £ Number £

AuthorisedOrdinary shares of 10p each 100,000,000 10,000,000 100,000,000 10,000,000

31 December 31 December 2006 2005 Number $ Number $

Allotted and fully paidAt 1 January 41,163,949 6,951,312 34,932,364 5,815,464Shares issued: Placing for cash – – 6,131,585 1,118,033 Options exercised – – 100,000 17,815

At 31 December 41,163,949 6,951,312 41,163,949 6,951,312

No shares were issued and no options were exercised during the year.

In addition to those granted under the Company’s employee share option schemes, the Company has granted, for nil cash consideration, options entitling the option holders to subscribe for ordinary shares exercisable within an agreed time period as listed in the table below:

Options expired/lapsed Exercise 1 January during the 31 December Options price 2006 year 2006 Exercise dates

45p 150,000 – 150,000 01.10.02 – 30.09.07 100p 60,000 (60,000) – 01.10.03 – 30.09.07 150p 856,522 (856,522) – 25.11.03 – 24.11.06 150p 50,000 – 50,000 23.06.05 – 22.12.08

1,116,522 (916,522) 200,000

Details of options held under employee share option schemes are shown in Note 9.

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Trans-Siberian Gold ANNUAL REPORT AND ACCOUNTS 200634

Notes to the Financial Statements continued

19. Reserves 31 December 31 December 2006 2005 Share premium $ $

At 1 January 60,821,126 47,471,157Shares issued: Placing for cash – gross – 13,416,399

– costs – (128,783)

– 13,287,616Options exercised – 62,353

At 31 December 60,821,126 60,821,126

Group Company

Restated Restated 31 December 31 December 31 December 31 December 2006 2005 2006 2005 Profit and loss account $ $ $ $

At 1 January (11,286,635) (3,167,691) 953,948 2,204,195Share-based payments (credited) charged to profit and loss (168,044) 186,232 (168,044) 186,232(Loss) profit for the year (5,784,256) (8,305,176) 390,743 (1,436,479)

At 31 December (17,238,935) (11,286,635) 1,176,647 953,948

In 2006, as described in Note 29, the Group implemented FRS 20 Share-based payment. The cumulative opening adjustment at 1 January 2005 was a charge of $177,362. In the year ended 31 December 2005, administrative expenses increased by $186,232 (see Note 9). As the corresponding credit in respect of both adjustments is recorded in reserves there is no change in the reported retained losses in the balance sheet at 1 January 2005 or 31 December 2005.

The profit after tax for the year dealt with in the profit and loss account of Trans-Siberian Gold plc amounted to $390,743 (2005: $1,436,479 loss). The directors have not presented an individual profit and loss account for the parent company, as permitted by s230 of the Companies Act 1985.

20. Reconciliation of movements in shareholders’ funds Restated Year ended Year ended 31 December 31 December 2006 2005 $ $

Loss for the financial year (5,784,256) (8,305,176)Share-based payments (credited) charged to profit and loss (168,044) 186,232Issue of shares – 14,485,817

Net (reduction) addition to shareholders’ funds (5,952,300) 6,366,873Opening shareholders’ funds 56,485,803 50,118,930

Closing shareholders’ funds 50,533,503 56,485,803

21. Minority interests Year ended Year ended 31 December 31 December 2006 2005 $ $

At 1 January 38,279 –Minority interest in (loss) profit of subsidiary undertakings (38,279) 38,279

At 31 December – 38,279

All minority interests are equity interests.

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35Trans-Siberian GoldANNUAL REPORT AND ACCOUNTS 2006

22. Reconciliation of movements in cash balances Foreign 1 January exchange 31 December 2006 Cash flow differences 2006 $ $ $ $

Cash at bank: Cash 390,553 455,098 195 845,846 Liquid resources 11,512,152 (10,307,511) 500,970 1,705,611

11,902,705 (9,852,413) 501,165 2,551,457

Liquid resources comprise short-term bank deposits on call for notice periods of one and two weeks.

23. Reconciliation of operating loss to net cash outflow from operating activities Restated Year ended Year ended 31 December 31 December 2006 2005 $ $

Operating loss (5,428,154) (8,899,951)Depreciation 154,192 159,719Loss on disposal of fixed assets 23,609 8,871Increase in provisions for liabilities and charges 43,795 73,517Decrease (increase) in debtors and prepayments 314,903 (189,157)Increase in VAT debtor (1,420,827) (1,405,695)Increase in creditors and accruals 913,753 175,183(Profit) loss on foreign exchange (501,165) 1,577,662Share-based payments (credited) charged to profit and loss (168,044) 186,232

Net cash outflow from operating activities (6,067,938) (8,313,619)

24. Related party transactionsThere are no related party transactions other than those relating to major shareholder AngloGold Ashanti Limited, as detailed below: Purchases during Amount owing/ Purchases during Amount owing/ the year to (owed) at the year to (owed) at 31 December 31 December 31 December 31 December 2006 2006 2005 2005 Related party Nature of transaction $ $ $ $

AngloGold Ashanti Technical services 596,550 783,322 261,842 186,842 Loans 10,350,289 10,350,289 – – Loan interest 491,498 491,513 – – Directors’ fees 10,585 – 37,727 10,325 Other services (26,746) (26,746) – –

11,422,176 11,598,378 299,569 197,167

Trans-Siberian Gold plc became an Associate of AngloGold Ashanti Limited, as defined by FRS 9 Associates and Joint Ventures, on 31 May 2005. For comparative purposes, purchases for 2005 relate to the whole year.

On 9 June 2006, the Company signed an agreement with AngloGold Ashanti Limited (AGA) for a $10 million loan on commercial terms. The loan is secured by a pledge of the Company’s shares in OOO GRK Amikan and is repayable in two equal tranches, 12 and 24 months respectively after the commencement of gold production at Asacha, but was to be convertible into ordinary shares in TSG when the Company raised new equity.

On 12 February 2007, the loan agreement was amended as described in Note 25.

Trans-Siberian Gold plc became an Associate of UFG Asset Management, as defined by FRS 9, on 16 February 2006. There have been no transactions between the Group and UFG Asset Management prior to the year end.

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Trans-Siberian Gold ANNUAL REPORT AND ACCOUNTS 200636

Notes to the Financial Statements continued

25. Post balance sheet eventsOn 12 February 2007, the Company announced that the sale and purchase agreements in respect of the sale of all of its interests in its two wholly owned subsidiaries, OOO GRK Amikan (Amikan) and OOO AS Angarskaya Proizvodstvennaya Kompaniya (AS APK), to AngloGold Ashanti Limited (AGA) for a cash consideration of $40 million (the AGA Transaction) had been signed.

On 12 February 2007, it was also announced that the Company and AGA had agreed that, on or after 30 April 2007, either party may serve notice in respect of the conversion of the $10 million loan provided to TSG in June 2006 (the AGA Loan) into TSG ordinary shares, subject to shareholder approval and the provisions of the City Code on Takeovers and Mergers (the Code) should this lead to AGA’s interest in the Company exceeding 29.9%. The exercise price for such conversion will be TSG’s volume weighted average share price at the close of business on the 20 trading days immediately prior to the date on which such notice is served.

Following approval of the AGA Transaction by the South African Reserve Bank, AGA made advance payments (interest bearing) of the sale consideration totalling $10 million (the Initial Payments) to TSG and also made available facilities, guaranteed by the Company, of up to $4 million and $1 million (the Interim Facilities) to Amikan and AS APK respectively to fund their exploration expenditure with effect from 1 November 2006 and their administration costs with effect from 1 December 2006.

The AGA Transaction was approved by the Company’s shareholders on 30 March 2007 and is expected to be completed by 30 June 2007.

If the sale and purchase agreements relating to the AGA Transaction do not complete as a result of the Company's breach of those agreements, then the Initial Payments become immediately repayable. If those agreements do not complete for any other reason either TSG or AGA may serve notice, on or after 30 April 2007, requiring the conversion of the Initial Payments into TSG ordinary shares, subject to shareholder approval and the provisions of the Code should this lead to AGA’s interest in the Company exceeding 29.9%. The exercise price for such conversion would be calculated in the same manner as detailed above. In the absence of such conversion the Initial Payments remain outstanding as a loan carrying interest at 4% over LIBOR repayable in equal tranches on the third and fourth anniversary of signing.

The Interim Facilities are also convertible on the same basis if the AGA Transaction does not complete, save in circumstances where shareholders subsequently fail to approve the adoption of conversion amendment deeds that will govern the equity conversion of the Interim Facilities by the Company, in which case the Interim Facilities become immediately due and payable.

If the above mentioned approvals related to the provisions of the Code are not obtained, only such shares as may be issued without AGA’s interest in the Company breaching the 29.9% threshold may be issued and the balance of any amounts owing under the AGA Loan, the Initial Payments and the Interim Facilities will remain outstanding on an unchanged basis of interest at 4% over LIBOR and with repayments of any amounts under the AGA Loan repayable on the first and second anniversary of the first gold production at Asacha and repayments of the Initial Payments and the Interim Facilities in equal tranches on the third and fourth anniversary of the signing of the respective agreements.

26. Principal subsidiariesThe Group has interests in the following subsidiaries:

Country of Principal Description and incorporation/ Principal country of proportion of Subsidiary undertaking registration activity operation shares held

OOO Trans-Siberian Gold Management Russia Administration Russia Participating shares 100%ZAO Trevozhnoye Zarevo Russia Exploration and Russia Common development shares 90.05%OOO GRK Amikan Russia Exploration and Russia Participating development shares 100%OOO Kompaniya Svezhiy Veter Russia Exploration and Russia Participating development shares 100%OOO Artel Stavatelei Angarskaya Russia Exploration and Russia ParticipatingProizvodstvennaya Kompaniya development shares 100%

In line with the Group’s strategy to focus its activities in Kamchatka, the Board decided to discontinue its efforts to obtain licences in the Yakutia region and consequently arranged the appointment of a liquidator of OOO Kompaniya Svezhiy Veter, which had been seeking licences in Yakutia, on 22 January 2007.

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37Trans-Siberian GoldANNUAL REPORT AND ACCOUNTS 2006

27. Derivatives and other financial instrumentsThe Board reviews and agrees policies for managing financial risks.

The Group’s principal financial instruments comprise long-term convertible debt, short-term loans, cash and short-term deposits. The main purpose of these financial instruments is to finance the Group’s operations. The Group has other financial instruments, such as debtors and trade creditors, which arise directly from its operations. Surplus cash within the Group is put on deposit, the objective being to maximise returns on such funds whilst ensuring that the short-term cash flow requirements of the Group are met.

The Group has not used derivative financial instruments during 2006. The Board will review the need for the use of derivative financial instruments in the future.

Short-term debtors and creditorsShort-term debtors and creditors have been excluded from all numerical disclosures, other than the currency risk disclosures.

Commodity price riskThe Group has not yet commenced commercial gold mining and does not hold any financial instruments to hedge the commodity price risk on its expected future production. The Board will review this exposure prior to the gold mines becoming operational.

Foreign currency riskThe Group reports in US dollars and a large proportion of its business is conducted in dollars. It also conducts business in Russian roubles and sterling.

The Group’s principal exchange rate risk is an appreciation of the Russian rouble against the US dollar. From 2003 to mid 2006 the majority of the Company’s funds were held in sterling in order to mitigate this risk, since, with the exception of the fourth quarter of 2005, both currencies tended to move in parallel against the US dollar. Lower cash balances in the second half of 2006 led to the suspension of this practice. In the three years to 31 December 2006, the Russian rouble and sterling strengthened by 9.9% and 9.7% respectively against the US dollar.

A sustained continuation of the rouble’s strengthening trend could affect the Group’s future revenue and profitability. The Board will continue to review the Group’s exchange rate risks and the possible use of derivative financial instruments to mitigate against them.

Liquidity/interest rate riskOn 9 June 2006, the Company signed an agreement with AngloGold Ashanti Limited (AGA) for a $10 million loan as described in Note 24.

Repayable Currency Interest Rate $

Convertible loan Two equal tranches, 12 and 24 months respectively after the commencement 3 Mth US$ of gold production at Asacha. US dollars LIBOR + 4% 10,000,000Short-term loan 19 December 2007 1 Mth US$ Russian roubles LIBOR + 4% 350,289

Board approval is required for all new borrowing facilities. The Group has not used any interest rate swaps or other instruments to manage its interest rate profile during 2006.

The weighted average interest rates payable during the year were 9.4% (2005: nil) on floating rate US dollar loans and 9.3% (2005: nil) on Russian rouble loans.

The weighted average interest rates earned during the year were 3.9% (2005: 4.2%) on floating rate sterling cash balances and 4.9% (2005: 2.6%) on floating rate US dollar balances. At the year end, the Group had cash on short-term deposit for periods of one and two weeks. Short-term deposits during the year included overnight, one-week and one-month notice periods.

Market riskExposure to interest rate fluctuations during the year was minimal as, for a substantial part of the year, the Group had a low level of debt compared to cash deposit balances. Interest rates on US dollar borrowing and on sterling and US dollar deposits are relatively stable and the impact of a fluctuation in the interest rate is likely to be minimal.

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Trans-Siberian Gold ANNUAL REPORT AND ACCOUNTS 200638

27. Derivatives and other financial instruments continueda) Interest rate risk profile of the Group’s financial liabilities and assetsThe interest rate risk profile of financial liabilities of the Group at 31 December 2006 is as follows:

31 December 31 December 2006 2005 $ $

LoansUS dollars Floating rate 10,000,000 –Russian roubles Floating rate 350,289 –

10,350,289 –

The interest rate risk profile of financial assets of the Group at 31 December 2006 is as follows:

31 December 31 December 2006 2005 $ $

Cash at bankUS dollars Floating rate 1,985,708 245,375Sterling Non-interest bearing 2,987 2,181Sterling Floating rate 497,611 11,512,152Russian roubles Floating rate 65,151 142,997

2,551,457 11,902,705

b) Currency exposuresThe table below shows the extent to which Group companies have monetary assets and liabilities in currencies other than their functional currency. Foreign exchange differences on retranslation of these assets and liabilities are taken to the profit and loss account. All amounts are shown as US dollar equivalents.

Amounts falling due within one year:

31 December 2006 31 December 2005 RUB GBP Other RUB GBP Other

Debtors 2,316,882 393,923 – 1,170,699 531,684 –Creditors (1,808,423) (1,365,649) – (2,195,442) (282,676) –Cash 65,151 500,598 – 142,997 11,514,333 –

573,610 (471,128) – (881,746) 11,763,341 –

Amounts falling due after more than one year:

31 December 2006 31 December 2005 RUB GBP Other RUB GBP Other

Debtors 6,001,683 – – 4,608,939 – –

Foreign exchange gains totalling $1,061,607 (2005: $1,853,442 losses) have been recognised in the profit and loss account for the year.

Notes to the Financial Statements continued

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39Trans-Siberian GoldANNUAL REPORT AND ACCOUNTS 2006

c) Fair values of the Group’s financial liabilities and assetsThe following is a comparison by category of the carrying amounts and the fair values of the Group’s financial assets and liabilities as at 31 December 2006.

Primary financial instruments Book value Fair value 31 December 31 December 31 December 31 December 2006 2005 2006 2005 $ $ $ $

Long-term borrowing (10,000,000) – (10,000,000) –Short-term borrowings (350,289) – (350,289) –Provisions for liabilities and charges (200,489) (156,694) (200,489) (156,694)Debtors falling due after more than one year 6,001,683 4,608,939 6,001,683 4,608,939Cash 845,846 390,553 845,846 390,553Short-term deposits 1,705,611 11,512,152 1,705,611 11,512,152

(1,997,638) 16,354,950 (1,997,638) 16,354,950

The fair value of long-term borrowing (all of which is US dollar floating rate debt), provisions for liabilities and changes, and debtors falling due after more than one year are shown at their carrying values as any differences are not material. The fair value of short-term borrowings, cash balances and short-term deposits equates to their carrying value because of the short maturity of these instruments.

28. Contingent liabilities and commitmentsUnder the terms of the acquisition of ZAO Trevozhnoye Zarevo, the Company has undertaken to purchase the residual 9.95% shareholding for $1,000,000; however, this is conditional upon the Company’s directors formally deciding to proceed with mine development of the Asacha deposit.

Annual commitments under operating lease are as follows:

Equipment Land and buildings 2006 2005 2006 2005 $ $ $ $

Lease expiring:In one year or less 168,951 – 304,044 246,953Between one and two years – 2,044 – –Between two and five years – – 42,121 36,997

168,951 2,044 346,165 283,950 Future capital expenditure approved by the Board but not provided for in these financial statements is as follows:

2006 2005 $ $

Contracted 745,676 4,224,209Authorised but not contracted 1,300,000 –

2,045,676 4,224,209

29. Prior year adjustmentsThe Group has implemented FRS 20 Share-based payment, which became mandatory for accounting periods beginning on or after 1 January 2006. This resulted in the introduction of an accounting policy for share-based payment transactions, which required a prior year adjustment. The accounting policy changes are explained in Note 1. The implementation of FRS 20 resulted in an increase in administrative expenses and therefore an increase in the loss for 2005 of $186,232 (see Note 9), with the corresponding credit going to retained losses. As a result there is no change in the reported retained losses in the balance sheet at 31 December 2005.

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Trans-Siberian Gold ANNUAL REPORT AND ACCOUNTS 200640

Notes

Page 43: Trans-Siberian Gold

CHINAJAPAN

MONGOLIA

KAZAKHSTAN

RUSSIAN FEDERATIONMoscow

BOGUNAYVEDUGA

Olimpiada

RODNIKOVA

ASACHA

01  Group Mineral Resources02  Chairman’s Statement04  Chief Executive’s Operating Review08  Financial Review10  Board of Directors11  Directors’ Report15  Independent Auditors’ Report16  Consolidated Profit and Loss Account17  Consolidated Balance Sheet18  Company Balance Sheet19  Consolidated Cash Flow Statement20  Notes to the Financial Statementsibc  Directors and Advisers

Trans-Siberian Gold publishes its accounts in US dollars ($) and all figures are $ unless otherwise specified

•   Asacha and Rodnikova mining licences extended

•   Agreement to sell Veduga and Bogunay for $40 million

•   Asacha expected to be in production by end 2008 with reduced  initial capital expenditure

DirectorsPeter Burnell  Non-executive ChairmanOleg Bagirov Chief Executive OfficerSimon Olsen  Finance Director  and Company SecretaryPhilip Bowring  Non-executiveRichard Duffy  Non-executiveBoris Fedorov  Non-executiveFlorian Fenner  Non-executiveBenjamin Guenther  Non-executive

Audit CommitteePeter BurnellPhilip BowringRichard Duffy

Remuneration CommitteePeter BurnellPhilip BowringRichard Duffy

Nominated adviser and broker

Seymour Pierce Limited20 Old BaileyLondon EC4M 7ENUnited KingdomTel:  +44 (0)20 7107 8000

Auditors

PricewaterhouseCoopers LLP1 Embankment PlaceLondon WC2N 6RHUnited KingdomTel:  +44 (0)20 7583 5000

Solicitors

Freshfields Bruckhaus Deringer65 Fleet StreetLondon EC4Y 1HSUnited KingdomTel:  +44 (0)20 7936 4000

Barr Ellison39 ParksideCambridge CB1 1PNUnited KingdomTel:  +44 (0)1223 417200

Public and investor relations

Bankside Consultants Limited1 Frederick’s PlaceLondon EC2R 8AEUnited KingdomTel:  +44 (0)20 7367 8888

Registrars

Capita RegistrarsThe Registry34 Beckenham RoadBeckenhamKent BR3 4TUUnited KingdomTel:  0870 162 3100 (UK)  +44 20 8639 2157

Principal bankers

National Westminster Bank PlcCity of London OfficePO Box 122581 Princes StreetLondon EC2R 8PAUnited Kingdom

Registered office and head office

Trans-Siberian Gold plcChurch BarnOld Farm Business CentreChurch RoadToftCambridge CB23 2RFUnited KingdomTel:  +44 (0)1223 265760Fax:  +44 (0)1233 265765Email: [email protected]:  www.trans-siberiangold.com

Company number1067991

Directors and AdvisersHighlights

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Trans-Siberian GoldANNUAL REPORT AND ACCOUNTS 2006

Trans-Siberian Gold plcChurch BarnOld Farm Business CentreChurch RoadToftCambridgeCB23 2RFT +44 (0)1223 265760F +44 (0)1223 265765E [email protected]

www.trans-siberiangold.com