Q1 2017 Operating Results

27.04.2017

Highland Gold Mining Limited (“Highland Gold” or the “Company”) today reports its operating results for the three months ended March 31, 2017 ('Q1').

HIGHLIGHTS

  • Total production at Mnogovershinnoye (MNV), Novoshirokinskoye (Novo) and Belaya Gora in Q1 2017 of 65,243 oz of gold and gold equivalent, up 14.7% from 56,889 oz in Q1 2016.
  • Average realized gold price of 1,222 USD/oz.
  • MNV and Novo improved on 2016 gold and gold equivalent production by 27.5% and 15.7%, respectively.
  • At Belaya Gora, continued focus on processing low-grade ore stockpiles pending the completion of an ongoing project review.
  • Exploration programme at MNV continued with a view towards further extension of life of mine.
  • Scoping study for Unkurtash completed and published, and consultants retained to identify potential partners for developing the project.
  • The Company affirms its forecast for total production of gold and gold equivalents of 255,000-265,000 oz for the full year.

FOR FURTHER INFORMATION PLEASE CONTACT:

Highland Gold John Mann, Head of Communications
+ 7 495 424 95 21
Duncan Baxter, Non-Executive Director
+ 44 (0) 1534 814 202
Numis Securities Limited
(Nominated Adviser and Broker)
John Prior, James Black
Paul Gillam
+44 (0) 207 260 1000
Peat & Co (Joint Broker) Charlie Peat
+44 (0) 207 104 2334

KHABAROVSK REGION, RUSSIA

Mnogovershinnoye (MNV)

  • Q1 2017 production up 27.5% year-on-year due to higher grades and a 20.6% increase in ore processed.
  • Total ore mining rose 11.5% YoY to 352,548 tonnes.



MNV

Units

Q1 2016

Q1 2017

Waste stripping

t

-

1,869,075

Underground development

m

2,939

2,596

Open-pit ore mined

t

-

49,858

Open-pit ore grade

g/t

-

2.10

Waste dumps ore mined

t

150,976

114,328

Waste dumps ore grade

g/t

1.10

1.11

Underground ore mined

t

165,320

188,362

Underground ore grade

g/t

3.13

3.01

Total ore mined

t

316,296

352,548

Average grade

g/t

2.16

2.26

Ore processed

t

298,725

360,137

Average grade

g/t

2.22

2.36

Recovery rate

%

90.7

90.6

Gold produced

oz

18,970

24,185

 

In Q1, the Company continued its programme, begun last year, of re-evaluating resources for each of MNV’s ore bodies. Work was completed for the Deer, Intermediate I & II, Silent and Deep ore bodies during the quarter, based on a revised cut-off grade and increased mineable resources. The resulting findings have been submitted to authorities in Khabarovsk for state expert review.

Additionally, the Company produced a report for regulators based on the results of 2016 grade control drilling at the Central, Quiet, and Southern ore bodies and the mine’s historic rock waste dumps. The report added a total of over 1.6 million tonnes of ore containing 3.83 tonnes (123k oz) at a grade of 2.4 g/t to MNV’s Russian-standard (GKZ) reserves.

An updated JORC-compliant reserve estimation for MNV, prepared by Micon, is due to be published shortly.

The Company continues to implement a broad exploration programme at MNV with the aim of adding more reserves and further prolonging the life of mine beyond the extended 2022 end-date announced earlier this year. The main targets in Q1 were the lower horizons of existing ore bodies and the mine’s historic rock dumps. Exploration drilling totalling 4,865 metres was conducted at the Deep, Intermediate and Central ore bodies. Samples are currently being processed and analysed.

Belaya Gora

  • Ore mining in Q1 2017 amounted to 453,372 tonnes, 24% higher YoY.
  • Lower grades at the mill resulted in a 13% drop in gold production.



Belaya Gora

Units

Q1 2016

Q1 2017

Waste stripping

t

3,654,199

661,031

Ore mined

t

364,462

453,372

Average grade

g/t

1.18

0.84

Ore processed

t

383,231

380,714

Average grade

g/t

1.26

1.11

Recovery rate

%

69.7

70.4

Gold produced

oz

10,698

9,527

 

The lower average grade at the Belaya Gora processing plant was the result of the continued use of ore from low-grade stockpiles, in line with a management policy initiated last year as the Company prepares plans for improving recovery rates at the mill by adding cyanidation. Of the ore processed at Belaya Gora in Q1, about 218k tonnes at a grade of 0.92 g/t were taken from stockpiles, while 163k tonnes at 1.31 g/t came from the open pit.

The remaining 290k tonnes of ore mined at the open pit were sent to stockpiles. The lower grade of this ore was due to a change in cut-off grade to 0.3 g/t from 0.6 g/t, as per the mining plan registered with regulators (GKZ), thereby resulting in the higher volume.

An exploration programme covering 8,515 metres of drilling has commenced on the north-eastern flank of the Belaya Gora deposit. The aim of the programme is to confirm reserves due to be included in an updated JORC-compliant reserve estimate for Belaya Gora, as well as to better delineate the mine’s ore bodies and obtain the material for process mapping. About a third of the programme was completed in Q1, totalling 2,885 metres over 22 drill holes.

Work continues on a pre-feasibility study including an updated JORC reserve estimation, upgrades to the Belaya Gora mill, and a joint mining schedule for Belaya Gora and the nearby Blagodatnoye mine. The report is expected in Q3 of this year.

Blagodatnoye

The Blagodatnoye deposit is being targeted to augment the mineral resource base for the Company’s Belaya Gora operation. During Q1, results were collated from an extensive exploration programme carried out at the site in 2016, which included 18,000 metres of exploration drilling.

A full reserve report and mining plan will be included in the pre-feasibility study currently being drafted on the joint development of Belaya Gora and Blagodatnoye.

ZABAIKALSKY REGION, RUSSIA

Novoshirokinskoye (Novo)

  • Gold equivalent production rose 15.7% for the quarter, aided by higher grades and a 10.0% increase in ore processed.
  • Ore mining totalled 207,463 tonnes in Q1, an increase of 5.5% YoY.



Novo

Unit

Q1 2016

Q1 2017

Underground development

m

2,809

3,110

Ore mined

t

196,696

207,463

Average grade *

g/t

5.29

5.69

Ore processed

t

180,853

199,006

Average grade *

g/t

5.43

5.76

Recovery rate *

%

86.35

85.50

Au production (100%)*

Oz.

27,246

31,531

 

* calculated in Au equivalent in actual prices (metals contained in mined out ore = Au 3.05 g/t, Ag 62.62 g/t, Pb 1.99%, Zn 0.79%)

Preparations continue for the expansion of Novo’s ore processing capacity to 1.3 mtpa. Mills for the expanded processing plant have been manufactured and are currently undergoing quality checks before being shipped to site later this year. The mine is expected to achieve its new target production capacity in late 2018.

CHUKOTKA AUTONOMOUS DISTRICT, RUSSIA

Kekura

In Q1 2017, work continued on drafting a definitive feasibility study for the Kekura project. Contractor Fluor Canada has completed the majority of work on the report, including sections on processing and mill design. Fluor has received quotations on 9 packages equipment for the processing plant (crushers, mills, gravity separators, pressure filters, thickeners, refinery package, conveyors, agitators, diesel generators). The data obtained will be incorporated into the final financial model for the project.

SRK is drafting the mining section of the report, including an updated JORC-compliant reserve estimation taking into account drilling conducted at the site in 2016 as well as additional drilling planned for this year. Concurrently, data is being processed for geotechnical studies to be used in design for the underground portion of the mine.

The exploration programme at Kekura for 2017 is designed to confirm top-cut sample parameters and the boundaries of ore bodies targeted for underground mining. This includes 11,000 metres of RC-drilling and 4,750 m of core drilling for reserve confirmation.

Additionally, 1,600 m of core and 2,750 m of RC drilling has been scheduled in order to confirm sterile ground at the planned locations of the stripping waste dumps and infrastructure facilities.

Fluor is expected to deliver the consolidated DFS report, including the work by SRK, by the end of Q3 of this year.

In line with an agreement signed by the Company and Chukotka regional administration last year, the government is moving ahead with a project to build the Bilibino-Kekura-Peschanka-Omsukchan main power line, which has the potential to improve Kekura’s economics versus previous plans for local power generation.

Preparation of design documentation for the Kekura 110/6kV substation was ongoing during Q1, and a second revision of the design is now in progress. The work is expected to be completed and design documentation submitted to for state expert review by the end of May 2017.

Based on principal technical solutions incorporated in the substation design, the Company carried out a tender to select a contractor for turnkey substation construction. The facility is currently scheduled to be completed by the end of 2018.

Also in Q1, the Company transported to the Kekura site by winter road some 1,567 tonnes of materials and commodities that had been delivered to the port Pevek during the 2016 sea navigation window. The cargo has been accepted for storage and stockpiled in warehouses for use during the remainder of the year.

Klen

Preparation of an updated pre-feasibility study, assembled by Hatch, continued in Q1 2017. SGS Vostok Chita was enlisted to conduct additional test work in order to confirm certain parameters in the report. This additional R&D is expected to be completed, together with the corresponding report, by Q3 of this year.

KYRGYZSTAN

Unkurtash

A scoping study indicating positive economics for the Unkurtash project was completed by SRK in Q1. The report envisions mining two open pits and an 18-year life of mine, with annual production of 133k oz at an average operating cost of US$ 616/oz. Total capital expenditure to start production is estimated at $322 million.

An executive summary of the report was published on the Company’s website.

The Company is considering various alternatives for proceeding with the project, including partnering with another strategic investor to co-develop Unkurtash.

HEALTH, SAFETY, AND ENVIRONMENT

Company management is saddened to report that, after the reporting period, on April 13, an accident in the underground mine at Novo resulted in a fatality. The Company has made arrangements for the family of the deceased and initiated a broad and thorough review of the circumstances behind the incident.

In Q1 2017, there were 9 workplace incidents registered across the group, all of which were minor. They include 4 incidents at MNV and 5 at Novo. Lost Time Incidents or “LTI” (defined as the number of lost time incidents for every 1, 000,000 man hours) for Q1 2017 were 6.31, up from 2.02 in Q1 2016.

The fatality and Q1 2017 LTIs add new urgency to the programmes being implemented by the new, expanded Health & Safety team assembled in late 2016. Their remit is to implement best safety practices across all of the Company’s operations and to build an occupational safety management system with a strong emphasis on improving employees’ attitudes towards safety.

New corporate standards on internal incident investigation, behavioural safety audit methodology, and occupational safety committees are being rolled out across the Company’s operating units. The new corporate Safety Committee carried out an inspection at MNV on March 22, and local safety committees held their first meetings at Novo and MNV during that month.

At the Company’s Moscow office and at MNV and Novo, 268 managers and specialists took part in training seminars on effective safety management methods with elements of behavioural safety audits (PAB) (12 hr seminar) and 92 employees were trained on internal incident investigation (8 hr seminar). Some managers also participated in “Order Standard 5C”, “Leader Inspection” and “Suggestions on A3 Format Improvements” training sessions.

A total of 225 employees participated in safety induction sessions (1 day), 24 took part in blasting operations management training, and 92 others received specialised industrial training.

In addition, a mentoring programme for line mangers envisions systematic work with each of the Company’s operating unit’s directors, their deputies and production division managers during site visits by the HSE team. In Q1, this involved 25 managers at MNV and 11 at NOVO.

Over the course of Q1, the Company conducted a response check of its auxiliary mine rescue teams at each site to test preparations for localising and mitigating accidents. It also worked to draft and implement new fencing standards, and new rules designed to improve the visibility of small-sized transport on the roads.

On the environmental front, the Company is working to maintain and improve its focus on protecting the environment, minimising the impact of its operations, and adhering to all relevant regulatory requirements.

Internal audits of environmental management systems were carried out in March at MNV and Belaya Gora to ensure the observance of environment legislation. Based on the results of these audits, measures were developed to mitigate environmental impact and remedy any systematic violations.

Over the course of the quarter, 344 employees took part in introductory environmental safety training classes, while 138 managers and specialists passed training courses and testing using OlimpOKS software regarding hazardous waste handling.

As part of a broad environmental monitoring plan for 2017, a leader check programme was implemented whereby managing directors of the Company’s operating units carry out regular checks of production facilities. These inspections involve evaluations for five major activities and visual presentations of their results in order to get employees more involved in creating a safe work environment.

* * *

Russian Standard
Gosstandart of Russia (GOST), the national Russian standard on mining and minerals as published by the National Certification Body of the Russian Federation.

JORC
Widely accepted standard for reporting mineral resources and ore reserves established by the Australasian Joint Ore Reserves Committee.

Cut-Off Grade
A grade level below which the material is considered to be uneconomical to mine and process. The minimum grade of ore used to establish reserves.

Note: Waste stripping reported in tonnes as per standard industry practice. In previous years, the Company reported waste stripping in volume (m 3).