Q2 2018 Operating Results

26.07.2018

Highland Gold Mining Limited ("Highland Gold" or the "Company", AIM: HGM) today reports its operating results for the three months ended 30 June 2018 ("Q2 2018").

HIGHLIGHTS

  • Production at Mnogovershinnoye (MNV), Novoshirokinskoye (Novo) and Belaya Gora in Q2 2018 totalled 69,610 oz of gold and gold equivalent, an increase of 4.6% from 66,542 oz in Q2 2017 and an increase of 17.4% from 59,311 oz in Q1 2017.
  • Total production in the first half of 2018 ("H1 2018") was 128,921 oz of gold and gold equivalent, down 2.2% from 131,785 in H1 2017 due to lower volumes in the first quarter.
  • Increased output at MNV in Q2 2018 helped make up ground on last year's production level after the processing plant operated at reduced capacity for much of the first quarter.
  • Belaya Gora achieved improved recoveries as it also returned to full operating capacity in Q2 2018, with output stable year-on-year.
  • A general contractor was selected and mobilised for Stage 1 (mine expansion) of the Company's project to boost Novo's mining and processing capacity to 1.3 Mtpa.
  • Infrastructure preparation and construction work continued at Kekura.
  • Average realised gold price during the quarter of US$ 1300 per ounce
  • The Company affirms its forecast for total production of gold and gold equivalent of 265,000-275,000 oz for the full year.

FOR FURTHER INFORMATION PLEASE CONTACT:

Highland Gold Mining Ltd.

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 Joint Broker)

John Prior, James Black, Paul Gillam

+44 (0) 207 260 1000

BMO Capital Markets

(Joint Broker)

Jeffrey Couch, Tom Rider, Pascal Lussier Duquette

+44 (0) 207 236 1010

Peat & Co

(Joint Broker)

Charlie Peat

+44 (0) 207 104 2334

KHABAROVSK REGION, RUSSIA

Mnogovershinnoye (MNV)

  • Processing plant output in Q2 2018 rose 8% year-on-year due to higher grades and recovery.
  • Ore mining declined by 5% year-on-year due to adjustments in production plans resulting from reduced processing volumes in the first quarter. Mining volume was rescheduled to Q4 2018.
  • Waste stripping was reduced by 28% year-on-year in accordance with production plans.

 

MNV

Units

Q2 2017

Q2 2018

H1 2017

H1 2018

Waste stripping

t

1,837,725

1,316,531

3,706,800

2,097,446

Underground development

m

2,827

2,993

5,423

5,923

Open-pit ore mined

t

111,042

103,903

160,900

140,982

Open-pit ore grade

g/t

1.95

2.25

2.00

2.23

Waste dumps ore mined

t

66,737

47,296

181,065

47,296

Waste dumps ore grade

g/t

1.08

1.04

1.10

1.04

Underground ore mined

t

200,295

209,438

388,657

407,903

Underground ore grade

g/t

3.20

3.29

3.10

3.10

Total ore mined

t

378,074

360,637

730,622

596,181

Average grade

g/t

2.46

2.70

2.36

2.73

Ore processed

t

360,326

359,582

720,463

609,226

Average grade

g/t

2.51

2.76

2.43

2.75

Recovery rate

%

91.2

91.9

90.9

92.0

Gold produced

oz

26,564

28,731

50,749

48,090

 

An update of Russian regulatory economic parameters and registered reserves was completed in Q2 2018, and the results submitted to authorities for review in June. A new JORC-compliant reserve audit was also initiated and is expected to be completed in Q3 2018.

Near-mine exploration work at MNV in Q2 2018 included the initiation of trenching within the boundaries of the neighbouring Zamanchivaya licence area. In addition, production exploration continued via surface drilling on the flanks of several ore bodies (Intermediate, Burlivoye and Helicopter) to identify potential new resources.

Belaya Gora

    • Q2 2018 waste stripping increased by 70% and ore mining by 132% year-on-year as Belaya Gora continued full mining operations.
    • Ore processing declined by 7% year-on-year due to planned downtime for SAG mill re-lining.
    • The recovery rate was 76%, up 4% from the same period last year.

 

Belaya Gora

Units

Q2 2017

Q2 2018

H1 2017

H1 2018

Waste stripping

t

728,931

1,241,719

1,389,963

2,462,911

Ore mined

t

241,696

561,797

695,068

1,055,596

Average grade

g/t

0.75

0.81

0.81

0.81

Including:

 

 

 

 

 

-       Ore Au >0.7 g/t

T

97,292

273,442

311,592

507,260

-       Average grade

g/t

1.11

1.18

1.14

1.17

-       Ore Au 0.3-0.7 g/t

t

144,404

288,355

383,476

548,336

-       Average grade

g/t

0.50

0.46

0.53

0.47

Ore from stockpiles*

t

118,515

78,570

633,871

162,900

Average grade

g/t

1.03

0.82

1.01

1.00

Ore processed

t

429,835

398,302

810,549

718,868

Average grade

g/t

1.13

1.09

1.12

1.11

Recovery rate

%

72.8

76.0

71.7

75.4

Gold produced

oz

10,507

10,827

20,034

19,804

 

 

Earlier this year, the Company published details of a pre-feasibility study (PFS) covering planned Belaya Gora processing plant upgrades and the nearby Blagodatnoye deposit. The study included updated reserve figures for Belaya Gora.

In Q2 2018, the Company completed the process of registering the reserves, which were based on the results of 2017 diamond drilling on Belaya Gora's deep horizons and northeastern flank, with regulators.

New exploration drilling in Q2 2018 totalled 3,500 metres and focussed on the Kolchansky and Zayachy prospects on the adjacent Belaya Gora Flanks licence. The work is expected to be completed in Q3 2018.

Blagodatnoye

The Company's first JORC-compliant reserve report for Blagodatnoye was published earlier this year together with the Belaya Gora PFS. In Q2 2018, work continued on interpreting data from previous exploration, preparing a Russian-standard feasibility study for reserve calculation, and registering those reserves with state regulators.

The PFS calls for Blagodatnoye ore to be processed at the Belaya Gora process plant beginning in 2023, thereby extending the life of the combined project until 2032.

ZABAIKALSKY REGION, RUSSIA

Novoshirokinskoye (Novo)

  • Slight year-on-year increase in Q2 2018 production, mainly due to higher grades
  • Average processing grade in Q2 2018 rose by 12% compared to the same period last year and improved slightly from Q1 2018 (5.80 g/t).
  • Recovery rates fell to 79.4% (Q2 2017: 84.9%) due to a shift in the composition of mined ore, with lower lead content and higher gold grade. Processing adjustments are underway to account for the change in ore and improve overall recovery.

Novo

Unit

Q2 2017

Q2 2018

H1 2017

H1 2018

Underground development

m

2,610

3,150

5,720

6,184

Ore mined

t

207,400

216,373

414,863

439,430

Average grade *

g/t

5.21

5.70

5.45

5.60

Ore processed

t

205,589

200,777

404,595

405,509

Average grade *

g/t

5.25

5.86

5.50

5.83

Recovery rate *

%

84.9

79.4

85.2

80.3

Au production (100%)*

Oz.

29,471

30,052

61,002

61,027

* Calculated in Au equivalent at actual prices
(Metal grade of mined ore = Au 3.65 g/t, Ag 50.31 g/t, Pb 1.28 %, Zn 0.41 %).

Work on the Novo 1.3 Mtpa expansion project in Q2 2018 included geotechnical surveys on the site of a planned stormwater treatment facility. Comprehensive examinations of the mine's existing winding engine building, headframe, crusher building, QC and main ventilation fan building were conducted during the period. Additional inspections of the foundations of other existing buildings and structures are in progress, as per requirements determined by the Russian State Expert Board.

Stage 1 of the expansion project (mine upgrades) involves construction of a new main ventilation fan building, new boiler, and water treatment plant; upgrades to the main rock hoisting shaft, including winding engine, headframe, loading boxes, primary crusher; and modification to associated surface buildings. Design documentation is being revised based on recommendations received from the State Expert Board during the quarter.

Also in Q2 2018, a tender was completed and general contractor selected for construction and installation of Stage 1 facilities. Preparation work on the construction sites is underway. Additional tenders were held and delivery contracts signed for key equipment for the main rock hoisting shaft upgrade.

For Stage 2 of the expansion project (process plant and tailings storage improvements), the Company is reviewing the potential for using dense media separation (DMS) or X-ray separation to reduce capital costs. Studies are in progress on the use of these technologies on Novo ore, and a financial evaluation is being conducted together with consultants SGS Bateman.

Novo commenced a new exploration drilling programme from both surface and underground in Q2 2018 to aid in developing a more detailed geological model of the deposit with a view towards optimising mining activities. The work is being supervised by SRK Consulting.

Baley Ore Cluster (Taseevskoye, Sredny Golgotay and ZIF-1)

Project engineering by general contractor Geotekhproekt for an 840 ktpa heap leach operation on the Baley ZIF-1 tailings licence got underway in Q2 2018. The first stage included site surveys and the selection of key technical solutions, which have been completed. Public hearings on an Environmental Impact Assessment of the project have been held. Project engineering documentation has been developed in preparation for submission to the State Environmental Expert Board and mining regulators for approval in Q3 2018.

Micromine Consulting Services was retained to draft initial mineral resource estimates for the Sredny Golgotay deposit, which will be used as the basis for a Scoping Study for the project. Tenders are underway to select contractors for the study as well as for development of an exploration and development programme.

At the Taseevskoye deposit, the Company has retained a contractor to perform experimental methodical geophysical studies to determine the boundaries of the former mine's underground workings. The results would be used to inform future exploration at the site. Work on the study will begin in Q3 2018.

CHUKOTKA AUTONOMOUS DISTRICT, RUSSIA

Kekura

Preparations and construction work on infrastructure and facilities at the Kekura site continued in Q2 2018. Furthermore, a technical audit of existing buildings and structures at Kekura was conducted earlier this year, and repairs carried out where warranted.

Detailed engineering for an assay laboratory was completed in the second quarter, with construction work set to begin this month. Project engineering for technical upgrades to the explosives storage facility also were undertaken and work on the facility is scheduled to begin in September.

Earthwork at the site of the planned fuel and lubricant storage facility was carried out in May and June, including drilling for cast piles installation. Equipment installation is likewise set to start in September of this year.

In June, work on a shovel assembly for future open pit mining was initiated. Also during the month, a road connecting the camp to the site of a planned communications tower was completed, setting the stage for foundation work on the tower and related buildings to begin this summer.

Earthwork, foundations, and grounding installations were completed for Kekura's 110/6 kV power substation over the course of Q2 2018. The step-down substation is designed to receive power from the Bilibino-Kekura-Peschanka-Omsukchan power line currently being constructed by the government. Electrical equipment installation will commence in Q3 2018.

The Company held a tender in May for a contractor to identify groundwater supplies near the Khrebtovaya River to be used for drinking and household water. NIF Rosnedra Ltd was selected and commenced hydrogeological work for the project in June. The Company expects to submit the project for review by the State Geological Expert Board in Q3 2018.

Klen

Earlier this year, state regulators signed off on changes to the mining schedule for the Klen deposit. Their decision formed the basis of an application by the Company to the Chukotka regional resources agency requesting amendments to the terms of the Klen licence agreement so as to delay the start of mining. A decision is expected in Q3 2018.

Also in Q2 2018, the Company selected Giprotsvetmet for project engineering on the mine and process plant and other major technical solutions at Klen. Separately, work began on testing Klen ore properties for preliminary separation by the XRT method and sample collection for testing is set to begin this summer.

VALUNISTY ACQUISITION

On April 26, 2018, the Company announced its intention to acquire three companies with assets in the Russian region of Chukotka, including:

  • Valunisty, an operating gold mine and processing plant with annual production of 31 koz (2017);
  • The Kanchalano-Amguemskaya Square (“KAS”) licence, which covers territory surrounding Valunisty and hosts several satellite deposits including the operating Gorny open pit and the Zhilny deposit; and
  • Kayenmivaam (“Kayen”), an exploration licence with several promising target deposits, located 130 km to the southeast of Kinross Gold’s Kupol mine.

At an Extraordinary General Meeting held on May 24, Highland Gold shareholders were asked to vote on a measure granting the Company’s Board of Directors authority to issue shares to complete the transaction. In addition, because the acquisition is a related-party transaction, shareholders unaffiliated with the sellers were asked to vote on a waiver of the obligation that would otherwise arise under Rule 9 of the Takeover Code to make an offer for those shares in the Company not already held by the sellers. Both measures passed.

The transaction is subject to approval by Russia’s Federal Antimonopoly Service (FAS) and Foreign Investment Advisory Council (FIAC). Completion is expected in Q4 2018.

HEALTH, SAFETY AND ENVIRONMENT

Highland Gold's key health and safety goals include ensuring safe labour conditions, managing operational risks, offering ongoing employee training programmes and encouraging personal accountability for safety at the workplace

The Lost Time Incidents Frequency Rate (LTIFR) in Q2 2018 was 3.61, down from 7.21 in the same period last year. There were a total of five loss-time incidents registered across the group – three at Novo and two at MNV – compared to nine incidents and a fatality in the year prior.

Training sessions carried out in Q2 2018 included a course on Conscious Safety Management for 11 top managers in the Company's Moscow office as well as 17 managers at MNV and 24 people at Kekura. Employees at MNV (12) and Kekura (11) also took part in courses on Internal Accident Investigation. At Novo, work began to prepare seven in-house trainers/coaches to conduct additional workshops on Conscious Safety Management.

In an ongoing effort to improve transportation safety, the Company offered a Defensive Driving course, which was attended by 28 employees at Novo and 17 at MNV.

During the reporting period, the Company drafted and implemented a corporate standard for Contractors' Safety Management. Tools are being introduced in each operating unit in accordance with these standards.

In June, an audit of the work safety management system was conducted at Novo, MNV, and Kekura. Based on the audit results, each subsidiary is developing an action plan on continued implementation of work safety management processes.

Protecting the environment and complying with regulatory requirements likewise remains a priority for Highland Gold. One of the Company's key goals this year is to find ways to decrease the environmental impact of its operations.

Regular internal audits of the Company's environmental management system were conducted at MNV, Belaya Gora and Novo during the second quarter, with a focus on compliance with environmental protection legislation. Each audit is followed by the drafting of measures to minimise the causes of system failures.

Environmental safety training was provided to 1,138 employees during the reporting period, while 360 employees completed training and testing on class I-IV hazard waste management. The Company sent 50 managers and specialists for further career development through training in outside professional environmental programmes.