Q4 2017 Operating Results

18.01.2018

Highland Gold Mining Limited (“Highland Gold” or the “Company”) today reports its operating results for the three months ended December 31, 2017 and for the full year of 2017.

HIGHLIGHTS

  • Q4 2017 production was steady year-on-year, totalling 68,722 oz of gold and gold equivalent as compared to 68,829 oz in Q4 2016.
  • Highland Gold produced a total of 272,274 oz of gold and gold equivalent in 2017, an increase of 4.3% from 261,159 oz in 2016.
  • Average realised gold price was 1,277 USD/oz in Q4 2017 and 1,260 USD/oz for the year.
  • Near-mine exploration and re-evaluation of historic rock dumps at MNV continue to add new potential resources for extension of life of mine.
  • The bulk of work was completed on a pre-feasibility study (PFS) for Belaya Gora/Blagodatnoye and a definitive feasibility study (DFS) for Kekura, with reports now being finalised for publication in Q1 2018.
  • At its December meeting, the Company's Board of Directors adopted a new dividend policy.
  • Total production of gold and gold equivalent in 2018 is expected to be in the range of 265,000-275,000 oz.

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, Neil Haycock, Pascal Lussier Duquette

+44 (0) 207 236 1010

Peat & Co

(Joint Broker)

Charlie Peat

+44 (0) 207 104 2334

KHABAROVSK REGION, RUSSIA

Mnogovershinnoye (MNV)

  • Mining at the Deer ore body open pit was suspended in Q4 2017 to allow for additional exploration of reserves at the site, contributing to an 18% year-on-year decline in total ore mined.
  • A higher proportion of ore from underground resulted in a 9.6% y-o-y increase in mined grades during the quarter.
  • Processing volumes in Q4 2017 declined by 19.1% y-o-y due to a damaged feed trunnion which necessitated reduced operations on one line of the mill. A replacement unit is scheduled for delivery in March 2018.

MNV

Units

Q4 2016

Q4 2017

2016

2017

Waste stripping

t

1,465,871

899,144

4,669,624

6,514,860

Underground development

m

2,642

2,941

11,381

11,357

Open-pit ore mined

t

181,573

36,204

405,493

280,006

Open-pit ore grade

g/t

1.96

1.88

1.95

2.05

Waste dumps ore mined

t

-

75,181

279,113

327,358

Waste dumps ore grade

g/t

-

1.13

1.06

1.12

Underground ore mined

t

193,209

194,620

739,912

792,740

Underground ore grade

g/t

2.79

3.33

3.05

3.15

Total ore mined

t

374,782

306,005

1,424,518

1,400,104

Average grade

g/t

2.39

2.62

2.35

2.46

Ore processed

t

360,162

288,594

1,380,963

1,373,130

Average grade

g/t

2.46

2.79

2.36

2.55

Recovery rate

%

91.7

91.34

91.5

91.36

Gold produced

oz

26,433

24,377

96,188

102,502

The re-evaluation of MNV’s historic rock dumps continued in Q4 2017, with another 334k tonnes of ore identified, containing an estimated 10,391 oz (334.1 kg) of gold. Since this programme began in 2016, the company has added a total of 1.07 million tonnes of ore for MNV. The appraisal of these waste stockpiles will continue in 2018.

Near-mine exploration at MNV also continued apace in Q4 2017. Stage 1 of a production exploration programme on the Intermediate ore body was completed using a combined method – a mineralisation zone above existing mining levels was confirmed with surface drilling, followed by drilling from underground. The ore zone was outlined based on the drilling results and a report with reserve estimation will be provided to Russian regulatory authorities (GKZ) in Q1 2018.

Contractor Sosnovgeo carried out 876.5 metres of drilling on the lower horizons of the Quiet and Intermediate ore bodies, and the drafting of a report with reserve estimates is in progress. Another 2,137 metres was drilled over 35 bore holes at the Deep and Deer ore bodies, with new reserve estimates also due in Q1 2018.

Geochemical prospecting work was completed on the Company’s two newest licences – the Kulibinskaya and Zamanchivaya areas adjacent to MNV. An exploration programme for 2018 is being developed based on these results.

The Company expects to complete a comprehensive updated JORC-compliant reserve estimate for MNV in Q2 2018. Meanwhile, exploration work will continue on priority areas in and around the Intermediate and Deep ore bodies, the Burlivy zone, and at Kulibinskaya and Zamanchivaya.

Belaya Gora

  • Ore production in Q4 2017 was reduced by 11.5% versus the same period of last year, in line with production plans for the year, as the Company processed ore from stockpiles.
  • The recovery rate for the quarter was 73.59%, a notable improvement over the 71.4% recovery rate during same period of last year.

Belaya Gora

Units

Q4 2016

Q4 2017

2016

2017

Waste stripping

t

2,452,569

657,540

12,336,292

2,935,533

Ore mined

t

312,273

276,249

1,560,734

1,079,793

Average grade

g/t

1.28

0.70

1.23

0.77

Including:

         

-       Ore Au >0.7 g/t

t

312,273

90,993

1,560,734

461,408

-       Average grade

g/t

1.28

1.22

1.23

1.13

-       Ore Au 0.3-0.7 g/t

t

-

185,256

-

618,385

-       Average grade

g/t

-

0.45

-

0.50

Ore from stockpiles

t

189,677

346,910

481,345

1,325,268

Average grade

g/t

0.97

1.11

1.02

1.06

Ore processed

t

409,325

423,127

1,643,146

1,696,810

Average grade

g/t

1.17

1.12

1.21

1.11

Recovery rate

%

71.4

73.59

71.4

72.52

Gold produced

oz

10,891

10,852

45,909

43,166

An exploration drilling programme for the deep horizons of the north-western flank of the Belaya Gora licence area was completed in Q4 2017. Over the course of 2017, 111 diamond holes totalling 12,686 metres were drilled. The tabulation of results and an estimation of added reserves are in progress.

In addition, stage 1 exploration drilling was completed on the Kolchansky area within the broader Belaya Gora Flanks licence during the reporting period. To date, the programme included 702 metres over 14 holes. Drilling will continue in Q1 2018.

Blagodatnoye

The Blagodatnoye deposit is being targeted to augment the mineral resource base for the Belaya Gora operation. Over the course of 2017, results from previous exploration work were processed and an additional drilling programme totalling 2,400 metres was completed.

The interpretation of exploration results and booking of explored reserves are in progress

ZABAIKALSKY REGION, RUSSIA

Novoshirokinskoye (Novo)

  • Ore mining in Q4 2017 totalled 222,488 tonnes, a 13% increase over the same period last year.
  • Ore processing continued to gain pace in Q4 2017, with process optimisation efforts helping to boost tonnage by 8% versus the same period of 2016.

Novo

Units

Q4 2016

Q4 2017

2016

2017

Underground development

m

2,795

2,838

11,251

11,379

Ore mined

t

196,810

222,488

761,114

858,106

Average grade*

g/t

5.98

5.80

5.61

5.52

Ore processed**

t

191,717

207,652

757,971

825,819

Average grade*

g/t

6.00

5.97

5.62

5.61

Recovery rate*

%

85.2

84.00

85.9

84.95

Gold produced*

Oz

31,505

33,493

117,577

126,606

* Calculated in Au equivalent at actual prices
** 2016 figures exclude Sredny Golgotay ore processed
Metal grade of mined ore = Au 3.57 g/t, Ag 59.04 g/t, Pb 1.71 %, Zn 0.59 %

Work on the expansion of Novo's ore mining and processing capacity to 1.3 mtpa continued in Q4 2017. The Company completed geotechnical work at a run-off water treatment station site. A comprehensive survey of the hoist building, headframe building, crusher building and existing main fan unit building was completed.

Design documentation for the project has been split into two stages:

  • Stage 1 – Main fan unit building, reconstruction of the skip shaft and dosing complex, and run-off water treatment facilities. A tender is in progress to select a contractor for construction and installation work for Stage 1 facilities.
  • Stage 2 – Facilities for a new line at the processing plant and for the tailings dam. A tender is in progress to select contractors to perform engineering and design work for Stage 2 facilities.

The Company is also reviewing the potential for using dense media separation (DMS) or X-ray separation to reduce capital costs for Stage 2 mill expansion.

Stage 1 design documentation has already been filed with the Russian State Expert Board for approval. Novo is now expected to achieve its full, increased production capacity in the year 2020.

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

The Company initiated a programme last year to de-water the existing Taseevskoye open pit with a view towards drilling the deposit to verify reserves. Pumping is currently on hold as the receiving pond is full.

In November, Giprotsvetmet research and design institute (Moscow) issued a trade-off study on various options for additional storage and/or treatment of water pumped from the pit. The most viable options are currently under consideration.

Last August, the Company's Board of Directors approved funding for design work on a heap leach operation at the ZIF-1 Tailings licence. A technological flowsheet drafted by Irgiredmet anticipates annual throughput of up to 840 kt of ore. The Company has selected Geotechproekt LLC (Ekaterinburg) as contractor to perform the whole range of design work for the project. Engineering studies were initiated in October and basic technical solutions are being developed.

CHUKOTKA AUTONOMOUS DISTRICT, RUSSIA

Kekura

Work concluded on the remaining sections of the Kekura DFS during Q4 2017, including mine design, technical solutions, a financial model, and estimates for capital and operating expenditures. An updated JORC-compliant reserve estimation, including data from the 2016-2017 drilling programme, will be published together with the DFS. The various sections of the report are currently being finalised with publication expected in Q1 2018.

The government project for construction of the Bilibino-Kekura-Peschanka-Omsukchan power line, which will bring the regional electricity grid to Kekura, also advanced during Q4 2017. The Company received state expert approval for its planned 110/6 kV Kekura substation, and initiated the process of obtaining construction permits.

Equipment for the substation was delivered to the Chukotka port of Pevek by Rostek JSC under a supply and installation contract. The equipment will be transported to the Kekura site in March 2018 as the condition of winter roads becomes suitable. Construction work is scheduled to begin in May of this year.

In Q4 2017, work was completed on design documentation for Kekura's fuel storage facilities in preparation for construction in 2018. An in-house review is underway and will be followed by the submission of an application to the State Expert Board for approval in February 2018.

Klen

Additional R&D studies, performed by SGS Vostok and designed to confirm engineering parameters and mitigate project risks, continued in Q4 2017 for incorporation into the PFS currently under development for Klen. The studies yielded positive results, confirming the possibility to improve Au recovery to 90.82% while reducing operating expenses and class V hazard for tailings. The full PFS report is expected to be completed in Q1 2018.

A tender was held to select a contractor to carry out an additional exploration programme at Klen in 2018. Equipment mobilization and start of work are scheduled for February 2018.

HEALTH, SAFETY AND ENVIRONMENT

Highland Gold’s key health and safety goals include ensuring safe labour conditions, managing risks in operations, offering ongoing training to employees and encouraging personal accountability for safety at the workplace.

To those ends, senior staff from the Company’s Moscow office management office (42 managers), Novo (212 managers) and MNV (394 managers) attended courses entitled “Conscious Safety Management” during Q4 2017. At Novo (100 people) and MNV (254 people), employees also attended a training course on “Internal Accident Investigation”, and eight staff from Moscow participated in a “Defensive Driving” training course.

In 2017, the health & safety team developed and introduced several updated corporate standards (“Labour Safety Management System”, “Internal Accidents Investigation”, “Behavioural Safety Audits”, “Labour Safety Committee”, “Cardinal Rules of Safe Behaviour”, “Best Practices”, etc.). Tools compliant with these standards were introduced at each of the operating mines.

Labour safety management system audits were conducted at each operating subsidiary in November 2017. Results obtained from the audits will be used to set targets for 2018.

Also in November, the Company introduced a new Transportation Safety programme and carried out transport audits to inform the drafting of improved transportation safety policies.

In Q4 2017, the lost time incidents frequency rate (LTIFR), calculated as the number of incidents for every 1,000,000 man-hours, was 2.61. There were five incidents recording during the quarter, including three at Novo, one at Belaya Gora and one at MNV. Both totals are identical to those recorded in Q4 2016.

The LTIFR for the full year of 2017 was 4.88 versus 2.30 in 2016. There was a total of 26 incidents across the group over the course of the year – 13 minor incidents and one fatality at Novo, five incidents at Belaya Gora, and seven at MNV. By comparison, there were 13 minor incidents and 1 fatality over the course of 2016. The increase is due, in part, to more stringent reporting requirements for minor incidents.

Overall, in 2017, safety induction and fire & electrical safety induction (one-day) courses were attended by 1,582 employees, while 235 managers and specialists went through self-training and testing safety courses using OlimpOKS software and were certified on industrial safety (7–30 day programmes).

As in past years, auxiliary mine rescue teams have been kept ready at each mine site to handle emergency containment and response.

The Company continues to diligently observe environmental and regulatory requirements and has an ongoing program to identify and analyse any risks from operations that might impact the environment. The most significant risks were highlighted and plans for mitigating them have been developed.

Quality assurance and risk management company DNV performed an environmental management system certification audit at the Moscow office and at MNV, confirming compliance with the requirements of the new ISO 14001-2015 standard. No significant discrepancies were identified, which is evidence of the efficiency of the environmental management systems in place.

About 1,800 employees went through environmental training programmes and 418 employees had class I-IV hazard waste treatment training with subsequent testing using the OlimpOKS system. Another 75 managers and specialists attended a 2-day course on the details of the new ISO 1401-2015 standard for environmental management system.

CORPORATE NEWS

At its December meeting, Highland Gold’s Board of Directors adopted a dividend policy designed to reflect the Company's cash generation, profitability, balance sheet strength, and capital investment requirements. The Company anticipates total dividend payout for each financial year will be 20% of Net Cash Flow from Operating Activities. The Board may recommend the distribution of additional cash on the balance sheet through increased or special dividends should those funds not be required for capital expenditure or debt repayment.

The Company also made two key personnel appointments during Q4 2017.

Anton Kim joined the company as First Deputy CEO and Chief Operating Officer. Mr Kim's previous employment includes several senior management positions at Norilsk Nickel and Kazakhmys Corporation, where oversaw the implementation of a series of major exploration and capital projects. He holds an honours degree in Geology and a graduate diploma in Engineering Science from Lomonosov Moscow State University, as well as an Executive MBA from the Skolkovo Moscow School of Management.

In addition, Igor Pashkov was appointed Chief Geologist, making permanent a role he had filled in an acting capacity since February 2017. Mr Pashkov has more than 30 years of experience as a geologist in the industry, including senior management positions at several Russian gold mining companies. He is a graduate of the North Caucasus Mining and Metallurgy Institute with an MSc in Geology and a concentration in Exploration Geology.