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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Highland Gold Mining Ld | LSE:HGM | London | Ordinary Share | GB0032360173 | ORD 0.1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 299.60 | 299.80 | 300.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMHGM
RNS Number : 6805Z
Highland Gold Mining Limited
04 September 2018
HIGHLAND GOLD MINING LIMITED
Interim Results Announcement for H1 2018
04 September 2018
View the full results announcement
http://www.rns-pdf.londonstockexchange.com/rns/6805Z_1-2018-9-4.pdf
Highland Gold Mining Limited ("Highland Gold" or the "Company" or "Group", AIM: HGM) today reports its unaudited financial results and production figures for the half year ended 30 June 2018 ("H1 2018").
FINANCIAL SUMMARY
IFRS, US$000 (unless otherwise stated) H1 2018 H1 2017 Gold sold (gold and gold eq. oz) 121,174 128,503 ----------------------------------------- -------- --------- Total Group cash costs (US$/oz)* 536 509 ----------------------------------------- Group all-in sustaining costs (US$/oz)* 697 674 ----------------------------------------- -------- --------- Revenue 146,897 147,176 ----------------------------------------- -------- --------- Operating profit 50,666 43,415 ----------------------------------------- -------- --------- Net profit 28,639 25,932 ----------------------------------------- -------- --------- EBITDA* 71,424 73,248 ----------------------------------------- -------- --------- EBITDA margin (%)* 49% 50% ----------------------------------------- -------- --------- Earnings per share (US$) 0.088 0.079 ----------------------------------------- -------- --------- Net cash inflow from operations 65,700 63,211** ----------------------------------------- -------- --------- Capital expenditure 26,534 27,437 ----------------------------------------- -------- --------- Net debt position* 189,071 203,538
* Definitions for non-IFRS terms are provided in the footnotes to the Chief Financial Officer's Report below.
** Withholding tax payment was transferred from operating to financing activities in cash flow statement for H1 2017.
The interim condensed consolidated financial statements of Highland Gold for the six months ended 30 June 2018 are set out below.
H1 2018 HIGHLIGHTS
Financial
-- Total first half revenue was flat year-on-year at US$146.9 million despite lower metal sales.
-- H1 2018 EBITDA was US$71.4 million, a decrease of 2.5% from H1 2017, chiefly due to increased administrative expenses. EBITDA margin for the period was 49% versus 50% for H1 2017.
-- All-in sustaining costs (AISC) per ounce rose to US$697 from US$674 in H1 2017 due to increased administrative expenses and higher maintenance capital expenditure.
-- The net debt to EBITDA ratio was stable at 1.23x as of 30 June 2018 versus 1.28x as of 31 December 2017, when net debt was US$198.3 million.
Operations
-- Total production at Mnogovershinnoye (MNV), Novoshirokinskoye (Novo) and Belaya Gora for 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 the second quarter ("Q2") of 2018 helped make up ground on last year's first-half production level after the processing plant operated at reduced capacity for much of the first quarter ("Q1") of 2018.
-- Belaya Gora achieved improved recoveries as it also returned to full operating capacity in Q2, with first-half 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.
-- A definitive feasibility study was completed for Kekura, where infrastructure preparation and construction work are now in progress.
-- A pre-feasibility study was completed for planned upgrades to the Belaya Gora mill and mining of the nearby Blagodatnoye deposit, including the first JORC-compliant reserve report for Blagodatnoye.
POST HALF YEAR EVENTS
-- Interim Dividend of GBP0.06 per share approved by the Board of Directors
-- The Company affirms its forecast for total production of gold and gold equivalent of 265,000-275,000 oz for the full year.
CONFERENCE CALL DETAILS
The Company will hold a simultaneous webcast and conference call to discuss the results, hosted by CEO Denis Alexandrov, on Tuesday, 04 September 2018 at 09:00 UK time (11:00 Moscow).
This event will be streamed live online. To listen and view the slide presentation in real time, it is recommended to access it via computer. The link for online registration is: https://digital.vevent.com/rt/highlandgoldmining/index.jsp?seid=26
To register to participate by telephone and to receive local dial-in numbers, please follow this link: http://emea.directeventreg.com/registration/8788599
FOR FURTHER INFORMATION PLEASE CONTACT:
Hot Features
Premium
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 John Prior, James Black, Paul Gillam
(Nominated Adviser and Joint Broker) +44 (0) 207 260 1000
BMO Capital Markets Limited Jeffrey Couch, Thomas Rider, Pascal Lussier Duquette
(Joint Broker) +44 (0) 207 236 1010
Peat & Co Charlie Peat
(Joint Broker) +44 (0) 207 104 2334
MESSAGE FROM THE CEO
For Highland Gold, 2018 is a year in which we expect to make incremental progress in our strategy of optimising our existing mines while advancing projects in our growth pipeline. Our performance in the first half of the year supports those objectives, and we succeeded in meeting our production targets despite operating challenges at each of our mines.
During the half, we continued efforts to identify and study new resources in and around existing operations at MNV, which are expected to culminate in a new reserve report due this autumn and an extension of life of mine. Stage One of the Novo capacity expansion is underway. Additionally, we published a pre-feasibility study for Belaya Gora and Blagodatnoye which shows the way forward for that project, and a definitive feasibility study for our premier development project Kekura, where initial infrastructure construction is in progress.
Our expanded focus on improving health and safety is taking root in each of our subsidiaries, as lost-time incidents were down during the half. Nevertheless, we understand that there is still work to do and safe driving has been highlighted as one area in need of particular focus alongside general work on improving the culture of safety.
Likewise, we understand there is work ahead in controlling costs, as demonstrated by a slight uptick in total cash costs (TCC) during the first half. Our management team has developed a series of initiatives which we expect to roll out this autumn to improve efficiency; review and standardise technical and business processes; build a more cohesive corporate culture; encourage continuous improvement and employee initiative; and expand internal and external communications, all with a view toward improving returns to shareholders. We look forward to sharing those efforts with our stakeholders in the coming months.
Denis Alexandrov
Chief Executive Officer
OPERATIONAL REVIEW
KHABAROVSK REGION, RUSSIA
Mnogovershinnoye (MNV)
-- Processing volume in H1 2018 was 15% lower year-on-year due to one of two SAG mill lines being out of operation following the discovery of a damaged feed trunnion. The trunnion was replaced in March 2018 and the plant is operating at full capacity.
-- Increases in grade and recovery rates helped reduce the impact of lower processing volume, with H1 2018 gold production only 5% lower year-on-year.
-- Ore mining fell 18% year-on-year as ore from stockpiles was used and as production plans were adjusted to shift volume to later in the year due to reduced processing capacity in Q1.
MNV Units H1 2017 H2 2017 H1 2018
------- ----------
Waste stripping t 3,706,800 2,808,059, 2,097,446
------- ---------- ----------- ----------
Underground development m 5,423 5,934 5,923
------- ---------- ----------- ----------
Open-pit ore mined t 160,900 119,106 140,982
------- ---------- ----------- ----------
Open-pit ore grade g/t 2.00 2.11 2.23
------- ---------- ----------- ----------
Waste dumps ore mined t 181,065 146,293 47,296
------- ---------- ----------- ----------
Waste dumps ore grade g/t 1.10 1.15 1.04
------- ---------- ----------- ----------
Underground ore mined t 388,657 404,083 407,903
------- ---------- ----------- ----------
Underground ore grade g/t 3.10 3.20 3.10
------- ---------- ----------- ----------
Total ore mined t 730,622 669,482 596,181
------- ---------- ----------- ----------
Average grade g/t 2.36 2.56 2.73
------- ---------- ----------- ----------
Ore processed t 720,463 652,667 609,226
------- ---------- ----------- ----------
Average grade g/t 2.43 2.67 2.75
------- ---------- ----------- ----------
Recovery rate % 90.9 91.8 92.0
------- ---------- ----------- ----------
Gold produced oz 50,749 51,753 48,090
------- ---------- ----------- ----------
Near-mine exploration work at MNV in H1 2018 included the identification of new ore zones at the Intermediate and Deer ore bodies as a result of drilling up from the existing underground mine. Surface drilling was also conducted on the flanks of several ore bodies (Intermediate, Burlivoye and Helicopter) to identify potential new resources.
An update of Russian regulatory economic parameters and registered reserves for MNV was completed in H1 2018, and the results submitted to authorities for review in June. A new JORC-compliant reserve audit, taking into account available data from the ongoing drilling programme, is in progress and is expected to be completed in Q3 2018.
Geochemical prospecting was completed on the greenfield Kulibinskaya and Zamanchivaya licences, located to the southwest and northeast of MNV, in H1 2018. Assay test results showed gold anomalies and were used to develop an exploration programme for the remainder of the year. Trenching began on the Zamanchivaya licence during Q2.
PRODUCTION COSTS
Total cash costs amounted to US$707 per oz (H1 2017: US$595 per oz) while all-in sustaining costs were US$851 per oz (H1 2017: US$737 per oz).
CAPITAL COSTS
A total of US$7.4 million was invested at MNV in H1 2018. This included capitalised expenditures and construction (US$0.5 million), purchase of equipment (US$6.0 million) and exploration (US$0.9 million).
Belaya Gora
-- Waste stripping rose 77% and ore mining rose 52% year-on-year in H1 2018 as mining operations moved from stockpiles to the open pit.
-- Water supply issues in early Q1 and SAG mill re-lining in Q2 resulted in an 11% drop in processing volume over the six-month period.
-- The processing plant recorded improved recovery rates in H1 2018 of 75.4%, compared to 71.7% in H1 2017.
Belaya Gora Units H1 2017 H2 2017 H1 2018
Waste stripping t 1,389,963 1,545,570 2,462,911
------- --------- --------- ---------
Ore mined t 695,068 384,725 1,055,596
------- --------- --------- ---------
Average grade g/t 0.81 0.70 0.81
------- --------- --------- ---------
Including:
------- --------- --------- ---------
* Ore Au >0.7 g/t t 311,592 149,816 507,260
------- --------- --------- ---------
* Average grade g/t 1.14 1.09 1.17
------- --------- --------- ---------
* Ore Au 0.3-0.7 g/t t 383,476 234,909 548,336
------- --------- --------- ---------
* Average grade g/t 0.53 0.45 0.47
------- --------- --------- ---------
Ore from stockpiles t 633,871 691,478 162,900
------- --------- --------- ---------
Average grade g/t 1.01 1.11 1.00
------- --------- --------- ---------
Ore processed t 810,549 886,261 718,868
------- --------- --------- ---------
Average grade g/t 1.12 1.10 1.11
------- --------- --------- ---------
Recovery rate % 71.7 73.3 75.4
------- --------- --------- ---------
Gold produced oz 20,033 23,132 19,804
------- --------- --------- ---------
The Company published details of a pre-feasibility study (PFS) covering planned Belaya Gora processing plant upgrades and the nearby Blagodatnoye deposit in February of this year. The study included updated reserve figures for Belaya Gora.
The process of registering Belaya Gora's updated reserves with regulators, based on the results of 2017 diamond drilling on Belaya Gora's deep horizons and northeastern flank, was completed in the second quarter of the year.
The Company selected Kazgipertsvetmet and SGS Bateman to prepare technical design documentation for the Belaya Gora processing plant upgrade, which will include the addition of a carbon-in-pulp (CIP) circuit in order to improve recoveries.
New exploration drilling over the course of H1 2018 totalled over 7,500 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.
PRODUCTION COSTS
Total cash costs amounted to US$795 per oz (H1 2017: US$880 per oz) while all-in sustaining costs were US$849 per oz (H1 2017: US$1,114 per oz).
CAPITAL COSTS
A total of US$1.5 million was invested at Belaya Gora in H1 2018. This included capitalised expenditures and construction (US$0.8 million) and exploration (US$0.7 million).
Blagodatnoye
The Company's first JORC-compliant reserve report for Blagodatnoye was published earlier this year together with the Belaya Gora PFS. Work on the project in H1 2018 focused 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)
-- Total Au equivalent production in H1 2018 was flat year-on-year.
-- Higher processed grades for H1 2018 were offset by a drop in recovery rates due to a shift in the composition of mined ore, with lower lead content and higher gold grade. Processing adjustments to account for the change in ore are being reviewed.
Novo Units H1 2017 H2 2017 H1 2018
-------
Underground development M 5,720 5,659 6,184
------- -------- -------- --------
Ore mined T 414,863 443,243 439,430
------- -------- -------- --------
Average grade * g/t 5.45 5.58 5.60
------- -------- -------- --------
Ore processed T 404,595 421,224 405,509
------- -------- -------- --------
Average grade * g/t 5.50 5.72 5.83
------- -------- -------- --------
Recovery rate * % 85.24 84.7 80.3
------- -------- -------- --------
Gold produced * oz 61,002 65,604 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 H1 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; and inspections of the foundations of other existing buildings and structures, 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 currently being revised based on recommendations received from the State Expert Board earlier in the year.
The Company completed a tender to select a general contractor for construction and installation of Stage 1 facilities in H1 2018. 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 late in the first half with the aim of developing a more detailed geological model of the deposit and optimising mining activities. The work is being supervised by SRK Consulting.
PRODUCTION COSTS
Total cash costs amounted to US$299 per oz (H1 2017: US$305 per oz) while all-in sustaining costs were US$366 per oz (H1 2017: US$344 per oz).
CAPITAL COSTS
A total of US$6.7 million was invested at Novo in H1 2018. This included capitalised expenditures and construction (US$4.9 million) and purchase of equipment (US$1.8 million).
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 H1 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
In early H1 2018, the Company published details of a definitive feasibility study (DFS) for Kekura, including an updated JORC-compliant reserve report for the deposit. Preparations and construction work on key infrastructure and facilities at the Kekura site got underway during the reporting period. 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 Q2, with construction work beginning this summer. 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.
Exploration drilling in the first half totalled 6,500 metres and focused on the Granat prospect within the broader Kekura licence area. Granat is being targeted to potentially add more open pit reserves to the Kekura operation.
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.
Additionally, 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.
KYRGYZSTAN
Unkurtash
Last year, the Company published a scoping study for Unkurtash envisioning mining at two open pits and an 18-year life of mine, with annual production of 133k oz of gold at an average operating cost of US$ 616/oz. Total capital expenditure to start production is estimated at US$322 million.
In H1 2018, the Company continued to develop and review various alternatives for proceeding with the project, including partnering with another strategic investor to co-develop Unkurtash. While this review is in progress, activity at the site is focused solely on meeting any legal licence obligations.
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 H1 2018 was 5.04, down from 6.84 in the same period last year. There were a total of 14 loss-time incidents registered across the Group during the period - eight at Novo, five at MNV and one at the Moscow office. That compares to a total of 18 incidents and one fatality in the first half of 2017.
The Company drafted and implemented a corporate standard for Contractors' Safety Management in H1 2018. Tools are being introduced in each operating unit in accordance with these standards.
Another area of focus was transportation safety, with the Company offering a Defensive Driving course attended by 54 employees at Novo, 17 at MNV and eight from Moscow.
Senior staff from the Moscow office (19), MNV (17), Novo (12), and Kekura (24) attended a course on Conscious Safety Management during the reporting period. Employees at Novo (10), MNV (12) and Kekura (11) also took part in courses on Internal Accident Investigation. Another 16 people at Novo attended courses entitled "Safety Management System Audit". In addition, work began to prepare seven in-house trainers/coaches at Novo to conduct additional workshops on Conscious Safety Management.
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 new 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 in both Q1 and Q2, with a focus on compliance with environmental protection legislation. Each audit is followed by the drafting of measures to minimise potential causes of system failures.
Environmental safety training was provided to over 1500 employees during the reporting period, while over 500 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.
FINANCIAL REVIEW
CHIEF FINANCIAL OFFICER'S REPORT
Highland Gold's financial performance in H1 2018 was supported by a variety of macroeconomic factors, such as the weaker rouble and stronger prices for precious and base metals. Simultaneously, it was under pressure from rising prices for oil and increasing interbank lending rates (LIBOR). Management concentrated on increasing operating cash flow in order to meet its goals of maintaining a strong cash position and paying dividends to shareholders.
Over the reporting period, the Company sold 121,174 ounces of gold and gold equivalent, compared to 128,503 ounces in H1 2017. Overall revenue was broadly level year-on-year at US$146.9 million.
Revenue from gold sales amounted to US$87.1 million (H1 2017: US$86.4 million) during the half. MNV decreased its sales volume by 3.4% from 48,779 in H1 2017 to 47,144 ounces in H1 2018. Belaya Gora saw its sales volume slip to 19,224 ounces (H1 2017: 21,005 oz), a decrease of 8.5%. The Company continued to employ a "no hedge" policy. The average price of gold realised by MNV and Belaya Gora (net of commission) was US$1,313 per oz, in line with the average market price (average H1 2018 LBMA price was US$1,319 per oz) demonstrating an increase of 6.0% year-on-year.
Concentrate revenue of US$58.8 million was stable y-o-y. Novo's sales slightly decreased to 54,806 eq. oz (down 6.7% y-o-y), reflecting the increased volume of concentrates in transit for which control had not passed to the buyer and a higher volume of concentrates in stock as we prepare a lot for a new purchaser. The average price of gold equivalent realised by Novo increased 5.9% to US$1,073 per eq. oz in H1 2018 from US$1,013 per eq. oz in H1 2017. The average price at Novo is based on the spot prices for metals contained in the concentrates (gold, lead, zinc, silver and copper), net of fixed processing and refining costs at third-party plants. Final adjustments are made within a maximum of 4 months after the date of shipment.
Gold and Gold Equivalent Sold by Mine, oz
H1 2018 H1 2017
------------- --------------- ---------------
Novo 54,806 (45.2%) 58,718 (45.7%)
MNV 47,144 (38.9%) 48,779 (38.0%)
Belaya Gora 19,224 (15.9%) 21,005 (16.3%)
------------- --------------- ---------------
Total 121,174 128,503
------------- --------------- ---------------
Lower production volume at MNV and Belaya Gora, the pressure of increasing prices for oil and coal, as well as overall inflation (about 2.5% in H1 2018) were partially offset by the depreciation of the local currency (with the average rouble/dollar exchange rate increasing by 3.0% y-o-y). Cost of sales net of depreciation decreased by 1.2% to US$66.0 million in H1 2018 (H1 2017: US$66.8 million).
Depreciation was US$20.7 million, down 20.6% y-o-y, mainly, as a result of the extension of life of mine at operating assets (the MNV LOM model was extended from 2022 to 2032 and Belaya Gora from 2026 to 2032, both reflecting the inclusion of Blagodatnoye, while Novo was extended from 2029 to 2033).
The Company registered 5.1% growth in labour costs in H1 2018 (reflecting annual selective salary increases) and additional costs for third-party services as we move to outsource some functions, such as mill and plant maintenance, operational drilling, and lining.
Cash Operating Costs
Total Cash costs breakdown
H1 2018 H1 2017 y-o-y
US$'000 US$'000 Change,
%
--------- --------- --------
Cost of sales 86,763 92,957 (6.7%)
- depreciation, depletion and amortisation (20,746) (26,138) (20.6%)
Cost of sales, net of depreciation, depletion
and amortisation 66,017 66,819 (1.2%)
Breakdown per item:
Labour 24,524 23,334 5.1%
Consumables and spares 19,987 19,924 0.3%
Power 5,677 5,810 (2.3%)
Movement in ore stockpiles, finished goods
and stripping assets (4,336) (1,629) 166.2%
Maintenance, repairs and third parties services 11,919 11,034 8.0%
Taxes other than income tax 8,246 8,346 (1.2%)
Total cash costs* per ounce (TCC) went up by 5.3% to US$536 per oz, still well below the industry median. Breaking it down by business unit, total cash costs at Novo were US$299 per eq. oz (H1 2017: US$305 per eq. oz), declining by 2.2% y-o-y and reflecting the depreciation of the rouble. MNV had total cash costs of US$707 per oz (H1 2017: US$595 per oz) as a result of the lower volume of ore mined and processed, as capacity was reduced in Q1 due to a damaged feed trunnion at the mill. At Belaya Gora, improved recovery rates, the weaker local currency, and feeding the plant with cheaper current ore (in H1 2017 78% of the processed ore represented older stock) all contributed to a reduction in total cash costs to US$795 per oz from US$880 a year earlier.
* Total cash costs include mine site operating costs such as mining, processing, administration, royalties and production taxes, but are exclusive of depreciation, depletion and amortisation, capital and exploration costs. Total cash costs are then divided by ounces sold to arrive at the total cash costs per ounce. This data provides additional information and is a non-GAAP measure.
TCC and AISC calculation
H1 2018 H1 2017 y-o-y
US$'000 US$'000 change,
%
--------- --------- ---------
Cost of sales, net of depreciation, depletion
and amortisation 66,017 66,819 (1.2%)
- cost of other sales (1,039) (1,393) (25.7%)
Total cash costs (TCC) 64,978 65,421 (0.7%)
+ administrative expenses 7,920 7,005 13.1%
+ accretion and amortisation on site restoration
provision 828 706 17.3%
+ movement in ore stockpiles obsolescence
provision - 3,185 100.0%
+ sustaining capital expenditure 10,721 10,264 4.5%
--------- --------- ---------
Total all-in sustaining costs (AISC) 84,447 86,581 (2.5%)
Gold sold (gold and gold eq. oz) 121,174 128,503 (5.7%)
TCC (US$/oz) 536 509 5.3%
AISC (US$/oz) 697 674 3.4%
All-in sustaining costs (AISC) increased by 3.4% to US$697 per oz in H1 2018 from US$674 per oz in H1 2017, mainly due to the lower volume of sales. In H1 2018, there were no write-downs of Belaya Gora low-grade ore in stockpiles (H1 2017: negative effect of US$3.2 million), while sustaining capital expenditure increased by 4.5% to US$10.7 million.
During H1 2018, the Company demonstrated stable revenue and flat cash costs. EBITDA slightly decreased by 2.5% to US$71.4 million, reflecting higher administrative expenses following higher legal costs related to the proposed Valunisty transaction. The EBITDA margin (EBITDA margin is defined as EBITDA divided by total revenue) decreased from 49.8% to 48.6%, which remains within range of the most efficient gold miners. Broken down by business unit, EBITDA margin was 67.8% at Novo (H1 2017: 65.1%), 39.2% at MNV (H1 2017: 45.5%), and 38.8% at Belaya Gora (H1 2017: 28.9%).
EBITDA Reconciliation to Operating Profit
H1' 2018 H1' 2017
US$'000 US$'000
-------------------------------------------------------- --------- ---------
Operating profit 50,666 43,415
depreciation and amortisation 20,746 26,138
individual impairment losses (including reversal) - 193
movement in ore stockpiles obsolescence provision - 3,185
movement in raw materials and consumables obsolescence
provision 12 317
--------- ---------
EBITDA 71,424 73,248
--------- ---------
HGML EBITDA Bridge, USD M
H1 2017 73.3 ------------------- ------ + Metal Prices 8.7 - Volume of Sales (9.0) - Costs (1.5) ------------------- ------ H1 2018 71.4 ------------------- ------
The Company analysed internal and external indicators of impairment or reversal of previously recognised impairment losses and discovered no such indicators.
In H1 2018, the Company recognised a net finance cost of US$0.8 million compared to US$1.4 million in H1 2017. The principal components were interest expense on bank loans and leasing for US$0.1 million in H1 2018 (H1 2017: US$0.7 million) and accretion expense on site restoration liability amounting to US$0.8 million (H1 2017: US$0.8 million). The main amount of interest expense was capitalised into the cost of qualified assets at Kekura.
A foreign exchange gain of US$0.3 million (H1 2017: US$1.5 million) resulted from the settlement of foreign currency transactions and the transfer of monetary assets and liabilities denominated in currencies such as Russian roubles into US dollars.
Income tax charges equalled US$21.5 million in H1 2018 compared with US$17.6 million in H1 2017. The growth resulted from a substantial US$8.3 million increase in deferred tax expense, largely because of future tax revaluation following the rouble's depreciation at the end of the period. Withholding tax expense was recorded at US$4.6 million (H1 2017: US$3.9 million).
Current tax expenses totalled US$10.1 million (Novo: US$6.7 million and MNV: US$3.4 million), which was US$4.8 million lower than in H1 2017.
Net profit for the first half of 2018 totalled US$28.6 million compared to a profit of US$25.9 million in H1 2017, mainly reflecting lower depreciation charges and no impairment loss for Belaya Gora ore, partially offset by higher tax expenses. Earnings per share amounted to US$0.088 (H1 2017: US$0.079).
The Company's cash inflow from operating activities was US$65.7 million (H1 2017: US$63.2 million).
Capital expenditures for the reporting period totalled US$26.5 million versus US$27.4 million in H1 2017. This largely reflected higher development CAPEX at MNV for near-mine exploration designed to replace reserves; expenses for the Novo 1.3 mtpa expansion project; and the development of Kekura. Capital expenditures included US$7.4 million at MNV, US$6.7 million at Novo, US$1.5 million at Belaya Gora, US$7.9 million at Kekura, US$1.2 million at Taseevskoye, US$0.8 million at Klen and US$1.0 million related to other exploration and development assets. Capital expenditures were entirely funded by operating cash flow.
The Company's debt is denominated in US dollars. Gross debt was reduced by 4.9% to US$197.3 million as of 30 June 2018 (31 December 2017: US$207.4 million) over the reporting period. The effective interest rate was 3.6% vs 3.4% at the end of 2017.
At the end of the reporting period, cash and cash equivalents amounted to US$10.9 million, compared to US$12.4 million as of 31 December 2017. The Company's net debt position including lease liabilities was US$189.1 million (Net debt is defined as cash at bank, deposits and bonds, decreased by any bank borrowing and lease obligations).
Gross and Net Debt Comparison
31 Dec 2017 30 Jun 2018
US$'000 US$'000
----------------- ------------ ------------
Gross debt 207,368 197,302
Net debt 198,320 189,071
Interest rate 3.40% 3.60%
LIBOR 1.56% 2.09%
Net debt/EBITDA 1.28x 1.23x
The ratio of net debt to EBITDA decreased from 1.28 on 31 December 2017 to 1.23 on 30 June 2018, which is well within the Board of Directors' debt policy.
Cash Position Bridge, USD M
-
Cash & Cash equivalents (1 Jan 2018) 12 ----------------------------------------- ----- Net cash flow from operating activities +66 Cash capital expenditure (27) Interest paid Incl. capitalised (4) Debt repayment (8) Dividends paid (24) Withholding tax expense (5) Other payments and leasing +1 ----------------------------------------- ----- Cash & Cash equivalents (30 Jun 2018) 11 ----------------------------------------- -----
EVENTS AFTER THE REPORTING PERIOD
There were no significant events after the reporting period, except for dividends declared.
PAYMENT OF DIVIDS
The Board of Directors has approved an interim dividend of GBP0.06 per share, to be paid to shareholders on 05 October 2018. The ex-dividend date is 13 September 2018 and the record date is 14 September 2018.
The Company offers an option for shareholders to elect to receive their dividends in US dollars. Payments for dividends in US dollars are fixed at an exchange rate of 1.2878 GBP/US$, or US$ 0.077 per share. To receive payment in US dollars, shareholders should complete and file the Currency Election Form no later than the record date (Election Deadline), 14 September 2018. The form and instructions for filing it are available on the Shares & Dividends page of the Highland Gold website (www.highlandgold.com).
At the AGM earlier this year, shareholders approved the Company's proposed scrip dividend scheme, which would have additionally offered the option to receive dividends as new shares. However, the Board of Directors has decided not to offer a scrip dividend at this time.
Alla Baranovskaya
Chief Financial Officer
Rounding of figures may result in computational discrepancies
Interim consolidated statement of comprehensive income
for the six months ended 30 June
2018 2017
unaudited unaudited
Notes US$000 US$000
--------- ---------
Revenue 3 146,897 147,176
Cost of sales 3 (86,763) (92,957)
--------- ---------
Gross profit 60,134 54,219
Administrative expenses (7,920) (7,005)
Other operating income 293 1,240
Other operating expenses (1,841) (5,039)
--------- ---------
Operating profit 50,666 43,415
Foreign exchange gain 255 1,522
Finance income 4.1 144 100
Finance costs 4.2 (901) (1,520)
--------- ---------
Profit before income tax 50,164 43,517
Current income tax expense 5 (10,092) (14,939)
Withholding tax 5 (4,401) (3,904)
Deferred income tax (expense)/ release 5 (7,032) 1,258
--------- ---------
Total income tax expense 5 (21,525) (17,585)
Profit for the period 28,639 25,932
Total comprehensive income for the period 28,639 25,932
========= =========
Attributable to:
Equity holders of the parent 28,557 25,687
Non-controlling interests 82 245
Earnings per share (US$ per share)
-- Basic, for the profit for the period attributable
to ordinary equity holders of the parent 14 0.088 0.079
-- Diluted, for the profit for the period attributable
to ordinary equity holders of the parent 14 0.088 0.079
The Group does not have any items of other comprehensive income or any discontinued operations.
Interim consolidated statement of financial position
as at 30 June 2018
30 June 31 December 30 June
2018 2017 2017
unaudited audited unaudited
Notes
US$000 US$000 US$000
----------- ------------ -----------
Assets
------------------------------- ------ ----------- ------------ -----------
Non-current assets
Exploration and evaluation
assets 6 90,407 88,926 87,129
Mine properties 6 593,014 588,035 575,645
Property, plant and equipment 6 291,812 289,162 292,714
Intangible assets 3 57,802 57,802 57,802
Inventories 9 2,015 624 1,877
Other non-current assets 9,529 10,858 10,041
Deferred income tax asset - 129 23
Total non-current assets 1,044,579 1,035,536 1,025,231
----------- ------------ -----------
Current assets
Inventories 9 56,563 58,620 58,943
Trade and other receivables 24,414 27,687 27,886
Income tax prepaid 1,718 1,494 3,019
Prepayments 2,364 4,026 4,057
Cash and cash equivalents 10 10,906 12,388 4,268
Other current assets 1,879 2,401 1,055
----------- ------------ -----------
Total current assets 97,844 106,616 99,228
------------ -----------
Total assets 1,142,423 1,142,152 1,124,459
=========== ============ ===========
Equity and liabilities
------------------------------- ------ ----------- ------------ -----------
Equity attributable to
equity holders of the parent
Issued capital 12 585 585 585
Share premium 718,419 718,419 718,419
Assets revaluation reserve 832 832 832
Retained earnings 59,765 55,371 37,098
------------ -----------
Total equity attributable
to equity holders of the
parent 779,601 775,207 756,934
----------- ------------ -----------
Non-controlling interests 2,395 2,309 1,974
------------ -----------
Total equity 781,996 777,516 758,908
----------- ------------ -----------
Non-current liabilities
Interest-bearing loans
and borrowings 7,11 169,550 192,351 180,438
Liability under finance
lease 7 1,827 2,260 2,357
Long-term accounts payable 347 331 219
Provisions 20,175 20,830 19,444
Deferred income tax liability 114,517 107,614 112,810
----------- ------------ -----------
Total non-current liabilities 306,416 323,386 315,268
----------- ------------ -----------
Current liabilities
Trade and other payables 25,404 23,454 24,730
Interest-bearing loans
and borrowings 7,11 27,752 15,017 23,850
Income tax payable 7 1,699 542
Liability under finance
lease 7 848 1,080 1,161
-----------
Total current liabilities 54,011 41,250 50,283
----------- ------------ -----------
Total liabilities 360,427 364,636 365,551
------------ -----------
Total equity and liabilities 1,142,423 1,142,152 1,124,459
=========== ============ ===========
The financial statements were approved by the Board of Directors on 03 September 2018 and signed on its behalf by: John Mann and Olga Pokrovskaya.
Interim consolidated statement of changes in equity
for the six months ended 30 June 2018
Attributable to equity holders
of the parent
----------------------------------------------------------
Issued Share Asset Retained Total Non-controlling Total
capital premium revaluation earnings interest equity
reserve
US$000 US$000 US$000 US$000 US$000 US$000 US$000
--------- --------- ------------- ---------- --------- ---------------- ---------
At 31 December
2017 585 718,419 832 55,371 775,207 2,309 777,516
Total comprehensive
income for
the period - - - 28,557 28,557 82 28,639
Novo share
redemption 13 - - - (4) (4) 4 -
Dividends paid
to equity holders
of the parent - - - (24,159) (24,159) - (24,159)
At 30 June
2018 (unaudited) 585 718,419 832 59,765 779,601 2,395 781,996
========= ========= ============= ========== ========= ================ =========
for the six months ended 30 June 2017
Attributable to equity holders of the
parent
----------------------------------------------------------------------------
Issued Share Asset Retained Total Non-controlling Total
capital premium revaluation earnings interest equity
reserve
US$000 US$000 US$000 US$000 US$000 US$000 US$000
--------- --------- ------------- ---------- --------- ---------------- ---------
At 31 December
2016 585 718,419 832 33,947 753,783 1,859 755,642
Total comprehensive
income for
the period - - - 25,687 25,687 245 25,932
Novo shares
purchase 13 - - - 80 80 (130) (50)
Dividends paid
to equity holders
of the parent - - - (22,616) (22,616) - (22,616)
--------- --------- ------------- ---------- --------- ---------------- ---------
At 30 June
2017 (unaudited) 585 718,419 832 37,098 756,934 1,974 758,908
========= ========= ============= ========== ========= ================ =========
Interim consolidated cash flow statement
for the six months ended 30 June
2018 2017
unaudited unaudited
Notes US$000 US$000
---------- ----------
Operating activities
----------------------------------------------- ------ ---------- ----------
Profit before income tax 50,164 43,517
Adjustments to reconcile profit before
income tax to net cash flows from operating
activities:
Depreciation of mine properties and property,
plant and equipment 6 20,746 26,138
Movement in ore stockpiles obsolescence
provision 9 - 3,185
Movement in raw materials and consumables
obsolescence provision 9 12 317
Write-off of mine properties and property,
plant and equipment 6 254 161
Individual impairment of property, plant
and equipment and mine assets 6 - 193
Gain on disposal of property, plant and
equipment (85) (424)
Bank interest receivable 4.1 (143) (99)
Interest expense on bank loans 4.2 11 608
Accretion expense on site restoration
provision 4.2 758 780
Net foreign exchange loss/(gain) (255) (1,522)
Other non-cash (income)/expenses 387 323
Working capital adjustments:
Increase in trade and other receivables
and prepayments 6,691 2,350
Increase in inventories 1,015 1,202
Increase/ (decrease) in trade and other
payables (1,667) 4,458
Income tax paid (12,188) (17,976)
---------- ----------
Net cash flows from operating activities 65,700 63,211
Investing activities
----------------------------------------------- ------ ---------- ----------
Proceeds from sale of property, plant
and equipment 380 772
Purchase of property, plant and equipment 3 (26,534) (27,437)
3, 6,
Capitalised interest paid 7 (3,522) (3,892)
Increase in stripping activity assets 6 (738) (1,833)
Interest received from deposits 143 99
Novo shares purchase - (50)
Net cash flows (used in)/from investing
activities (30,271) (32,341)
Financing activities
----------------------------------------------- ------ ---------- ----------
Proceeds from borrowings 7 31,344 155,680
Repayment of borrowings 7 (38,900) (163,054)
Dividends paid to equity holders of the
parent (24,159) (22,616)
Withholding tax paid (4,648) (3,895)
Payment under finance lease, including
interest 7 (746) (800)
Interest paid - (631)
----------
Net cash flows (used in)/ from financing
activities (37,109) (35,316)
Net (decrease)/increase in cash and cash
equivalents (1,680) (4,446)
Effects of exchange rate changes 198 (34)
Cash and cash equivalents at 1 January 12,388 8,748
Cash and cash equivalents at 30 June 10,906 4,268
========== ==========
1. Corporate information
These interim condensed consolidated financial statements of Highland Gold Mining Limited for the six months ended 30 June 2018 were authorised for issue in accordance with a resolution of the Directors on 03 September 2018.
Highland Gold Mining Limited is a public company incorporated and domiciled in Jersey. The registered office is located at 26 New Street, St Helier, Jersey JE2 3RA. Its ordinary shares are traded on the Alternative Investment Market (AIM).
The principal activity is building a portfolio of gold mining operations within the Russian Federation and Kyrgyzstan.
2. Basis of preparation and accounting policies
Basis of preparation
The interim condensed consolidated financial statements for the six months ended 30 June 2018 have been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union. The annual financial statements of the Group for the year ended 31 December 2017 were prepared in accordance with International Financial Reporting Standards as adopted by the European Union and Companies (Jersey) Law 1991.
The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements as at 31 December 2017.
Having made relevant enquiries, the Directors believe that it is appropriate to adopt the going concern basis in the preparation of the interim condensed consolidated financial statements in view of the fact that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future.
The impact of seasonality or cyclicality on operations is not considered significant to the interim condensed consolidated financial statements.
Changes in accounting policies and presentation rules
The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those applied in the preparation of the consolidated financial statements for the year ended 31 December 2017, except for the adoption of new standards and interpretations effective as of 1 January 2018. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.
Effective 1 January 2018, the Group applies, for the first time, IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments.
The nature and the impact of each amendment is described below:
New Standards and Interpretations adopted by the Group
IFRS 15 Revenue from Contracts with Customers
IFRS 15 was issued in May 2014, and amended in April 2016, and establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.
The Group adopted IFRS 15 "Revenue from Contracts with Customers" using a modified retrospective method of adoption on the required effective date:
-- The comparative information for each of the primary financial statements is presented based on the requirements of IAS 18 and related Interpretations.
-- As a result of the assessment of the impact of IFRS 15 on prior periods, the Group did not identify any material impact of the new accounting requirements and therefore no catch-up adjustments have been recognised in the statement of changes in equity.
For further information please refer to the 2017 consolidated financial statements for more details on the Company's impact assessment and the related judgements.
IFRS 9 Financial Instruments
IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition and Measurement for annual periods beginning on 1 January 2018, bringing together two important aspects of the accounting for financial instruments project: classification and measurement, and impairment.
The Group adopted the new standard on the required effective date using a modified retrospective method of adoption and did not restate comparative information, which follows the classification, measurement and disclosure requirements of IAS 39. The effect of the modified loans as at 1 January 2018 is recognised in the cost of the mining assets at Kekura due to the modified loans have been withdrawn in order to develop qualified assets at this project.
The effect on the Group of adopting IFRS 9 is, as follows:
-- Loan modification
IFRS 9 changes accounting for loan modifications, which the Group may experience from time to time. According to the new requirements:
-- The Company should recalculate the amortised cost of the bank loans when the terms are modified. The estimated future cash flows under new terms (inflated at the new interest rate) should be discounted at the original effective interest rate. As a result, IFRS bank loan liabilities will differ from the liabilities under the bank loan agreements.
-- The effect of the loans recalculation should be recognised in the statement of comprehensive income or in the cost of the qualified assets.
-- A change in index (e.g. LIBOR) of the floating-rate loans does not represent a modification.
-- New tranches of the revolving agreements are treated as new loans under IFRS 9 and modifications are not required.
Impact of the loan modification on the statement of financial position at the recognition date is the following:
Balance Loan modification Balance
at 31.12.2017 under IFRS at 01.01.2018
published 9
US$000 US$000 US$000
--------------- ------------------ ---------------
Mining assets 588,035 (3,417) 584,618
Interest-bearing loans and
borrowings 207,368 (3,417) 203,951
-- Embedded derivatives
Under IFRS 9, embedded derivatives are no longer separated from a host financial asset. Instead, financial assets are classified based on their contractual terms and the Group's business model. Embedded derivatives attached to Novo's concentrate sales will be shown within trade receivables.
The accounting for derivatives embedded in financial liabilities and in non-financial host contracts has not changed from that required by IAS 39.
-- Impairment
The standard also introduces expected credit losses (ECL) impairment model, which means that anticipated as opposed to incurred credit losses will be recognised resulting in earlier recognition of impairment. The adoption of the ECL requirements of IFRS 9 revealed no additional material impairment of the Group's financial assets.
For further information, please refer to the 2017 consolidated financial statements for more details on the Company's impact assessment and the related judgements.
New Standards and Interpretations that will be adopted in future periods
IFRS 16 Leases
IFRS 16 was issued in January 2016 and it replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17.
In 2017, the Group assembled a project team to begin the process of assessing the impact of the lease standard. We analysed the main contracts, segregated them by types, defined our initial approach.
The Group expect that IFRS 16 will result in an increase in assets and liabilities as fewer leases will be expensed as payments are made. Also we expect an increase in depreciation and accretion expenses and also an increase in cash flow from operating activities as lease payments will be reclassified as a financing outflow in our cash flow statements.
In 2018, the Group continues to assess the potential effect of IFRS 16 on its consolidated financial statements and to quantify the adjustments that will be required upon implementation of the new standard in 2019.
3. Segment information
For management purposes, the Group is organised into business units based on the nature of their activities, and has four reportable segments as follows:
-- Gold production; -- Polymetallic concentrate production; -- Development and exploration; and -- Other.
The gold production reportable segment comprises two operating segments, namely Mnogovershinnoye (MNV) and Belaya Gora (BG) at which level management monitors its results for the purpose of making decisions about resource allocation and evaluating the effectiveness of its activity. MNV and BG have been aggregated into one reportable segment as they exhibit similar long-term financial performance and have similar economic characteristics: nature of products (gold and silver), nature of the production processes, type of customer for their products (banks), methods used to distribute their products and nature of the environment (both are located in the Khabarovsk region).
The polymetallic concentrate production segment, namely Novoshirokinskoye (Novo), is analysed by management separately due to the fact that the nature of its activities differs from the gold production process.
The development and exploration segment contains entities which hold licenses in the development and exploration stages: Kekura, Klen, Taseevskoye, Unkurtash, Lubov, and related service entities: Zabaykalzolotoproyekt (ZZP) and BSC.
The 'other' segment includes head office, management company and other non-operating companies which have been aggregated to form the reportable segment.
Segment performance is evaluated based on EBITDA (defined as operating profit excluding depreciation and amortisation, impairment losses, movement in ore stockpiles obsolescence provision, movement in raw materials and consumables obsolescence provision and gain on settlement of contingent consideration). The development and exploration segment is evaluated based on the life of mine models in connection with the capital expenditure spent during the reporting period.
The following tables present revenue, EBITDA and assets information for the Group's reportable segments. The segment information is reconciled to the Group's profit after tax for the period.
The finance costs, finance income, income taxes, foreign exchange gains are managed on a group basis and are not allocated to operating segments.
Transfer prices between operating segments are on an arm's length basis in a manner similar to transactions with third parties.
The accounting policies used by the Group in reporting segments internally are the same as those contained in Note 2 of the interim condensed consolidated financial statements.
Revenue from several customers was greater than 10% of total revenues.
In the first half of 2018 the gold and silver revenue reported in the gold production segment was received from sales to Gazprombank (US$87.9 million) in the territory of the Russian Federation.
In the first half of 2017 the gold and silver revenue reported in the gold production segment was received from sales to Gazprombank (US$87.6 million) in the territory of the Russian Federation.
In the first half of 2018 the concentrate revenue reported in the polymetallic concentrate production segment in the amount of US$58.8 million was received from sales to Kazzinc in the territory of the Republic of Kazakhstan (H1 2018: US$27.8 million; H1 2017: US$35.2 million), to Hyosung and Trafigura corporation in the territory of the People's Republic of China (H1 2018: US$29.1 million; H1 2017: US$24.3 million and H1 2018: US$1.9 million; H1 2017: US$Nil respectively).
Other third-party revenues in both H1 2018 and H1 2017 were received in the territory of the Russian Federation.
Inter-segment revenues mostly represent management services.
Period ended 30 June Polymetallic
2018 Gold concentrate Development
production production &
segment segment exploration Other Eliminations Total
US$000 US$000 US$000 US$000 US$000 US$000
------------- ------------- ------------- -------- ------------- ----------
Revenue
Gold revenue 87,122 - - - - 87,122
Silver revenue 759 - - - - 759
Concentrate revenue* - 58,815 - - - 58,815
Other third-party 32 118 51 - - 201
Inter-segment 36 - - 6,739 (6,775) -
Total revenue 87,949 58,933 51 6,739 (6,775) 146,897
============= ============= ============= ======== ============= ==========
Cost of sales 62,241 24,236 254 32 - 86,763
EBITDA 34,373 39,949 (585) (2,313) - 71,424
Other segment
information
Depreciation (12,843) (7,868) (3) (32) - (20,746)
Movement in ore - - - - - -
stockpiles
obsolescence provision
Movement in raw
materials
and consumables
obsolescence
provision 6 (18) - - - (12)
Individual impairment -
Finance income 144
Finance costs (901)
Foreign exchange
gain 255
Profit before income
tax 50,164
------------- ------------- ------------- -------- ------------- ----------
Income tax (21,525)
Profit for the period 28,639
------------- ------------- ------------- -------- ------------- ----------
Segment assets at
30 June 2018
Non-current assets
Capital
expenditure** 174,418 158,443 641,439 933 - 975,233
Goodwill 9,690 5,134 42,978 - - 57,802
Other
non-current
assets 4,714 2,791 3,660 379 - 11,544
Current assets*** 70,972 33,796 4,551 4,368 (15,843) 97,844
Total assets 1,142,423
==========
Capital expenditure
- addition during
the first half of
2018****, including: 12,304 6,741 11,970 733 - 31,748
------------- ------------- ------------- -------- ------------- ----------
Stripping
activity
assets 738 - - - - 738
Capitalised
interest - - 1,017 - - 1,017
Unpaid/
(settled)
accounts
payable 2,658 37 574 190 - 3,459
Cash capital
expenditure 8,908 6,704 10,379 543 - 26,534
*Concentrate revenue contains US$61.8 million of IFRS 15 revenue, based on initial invoices, and a negative provisional price adjustment of US$3.0 million which represents changes in the fair value of embedded derivatives.
**Capital expenditure is the sum of exploration and evaluation assets, mine properties and property, plant and equipment.
***Current assets at 30 June 2018 include corporate cash and cash equivalents of US$10.9 million, inventories of US$56.6 million, trade and other receivables of US$26.1 million and other assets of US$4.2 million. Eliminations relate to intercompany accounts receivable.
**** Capital expenditure for the first half of 2018 includes additions to property, plant and equipment of US$31.7 million (Note 6), capitalised interest of US$0.9 million (Note 6) and capitalised upfront commission US$0.1 million (Note 6) and prepayments previously made for property, plant and equipment of US$(1.0) million.
Non-current assets at 30 June 2018 are located in the Russian Federation (US$999.2 million) and in the Kyrgyz Republic (US$45.4 million). Current assets at 30 June 2018 are located in the Russian Federation.
Period ended 30 Polymetallic
June 2017 Gold concentrate
production production Development
segment segment & exploration Other Eliminations Total
US$000 US$000 US$000 US$000 US$000 US$000
------------- ------------- -------------- ------- ------------- ----------
Revenue
Gold revenue 86,415 - - - - 86,415
Silver revenue 1,169 - - - - 1,169
Concentrate revenue - 59,460 - - - 59,460
Other third-party 40 84 8 - - 132
Inter-segment 31 - - 6,726 (6,757) -
Total revenue 87,655 59,544 8 6,726 (6,757) 147,176
============= ============= ============== ======= ============= ==========
Cost of sales 66,303 26,421 198 35 - 92,957
EBITDA 35,548 38,756 (636) (420) - 73,248
------------- ------------- -------------- ------- ------------- ----------
Other segment
information
Depreciation (17,607) (8,487) (10) (34) - (26,138)
Movement in ore
stockpiles
obsolescence
provision (3,185) - - - - (3,185)
Movement in raw
materials and
consumables
obsolescence provision (206) (111) - - - (317)
Individual impairment (193)
Finance income 100
Finance costs (1,520)
Foreign exchange
gain 1,522
Profit before income
tax 43,517
------------- ------------- -------------- ------- ------------- ----------
Income tax (17,585)
Profit for the period 25,932
------------- ------------- -------------- ------- ------------- ----------
Segment assets at
30 June 2017
Non-current assets
Capital
expenditure* 177,933 163,998 613,432 125 - 955,488
Goodwill 9,690 5,134 42,978 - - 57,802
Other
non-current
assets 3,204 470 7,958 309 - 11,941
Current assets** 63,228 30,331 6,402 4,407 (5,140) 99,228
Total assets 1,124,459
==========
Capital expenditure
- addition during
the first half of
2017***, including: 11,260 6,057 20,678 6 - 38,001
------------- ------------- -------------- ------- ------------- ----------
Stripping
activity
assets 1,833 - - - - 1,833
Capitalised
interest - - 3,967 - - 3,967
Unpaid/
(settled)
accounts
payable 2,710 1,751 380 (77) - 4,764
Cash capital
expenditure 6,717 4,306 16,331 83 - 27,437
*Capital expenditure is the sum of exploration and evaluation assets, mine properties and property, plant and equipment.
** Current assets at 30 June 2017 include corporate cash and cash equivalents of US$4.3 million, inventories of US$58.9 million, trade and other receivables of US$30.9 million and other assets of US$5.1 million. Eliminations relate to intercompany accounts receivable.
*** Capital expenditure for the first half of 2017 includes additions to property, plant and equipment of US$29.0 million (Note 6) and capitalised interest of US$3.9 million (Note 6), capitalised upfront commission US$0.1 million (Note 6) and prepayments previously made for property, plant and equipment of US$5.0 million.
Non-current assets at 30 June 2017 are located in the Russian Federation (US$981.3 million) and in the Kyrgyz Republic (US$43.9 million). Current assets at 30 June 2017 are located in the Russian Federation.
4. Finance income and costs
4.1 Finance income
For the six months
ended
30 June
---------------------
2018 2017
US$000 US$000
---------- ---------
Bank interest 143 99
Other finance income 1 1
Total finance income 144 100
========== =========
4.2 Finance costs
For the six months
ended
30 June
---------------------
2018 2017
US$000 US$000
---------- ---------
Accretion expense on site restoration provision 758 780
Interest expense on bank loans* 11 608
Interest expense on finance lease 132 132
Total finance costs 901 1,520
========== =========
*During the first half of 2018, the Company incurred borrowing costs in the amount of US$4.4 million (including the modification effect (Note 6)). The full amount, with the exception for U$11 thousand related to acquisition of trucks, was capitalised at Kekura mining assets.
5. Income tax
The major components of income tax expense in the interim consolidated statement of comprehensive income are:
For the six months
ended
30 June
---------------------
2018 2017
US$000 US$000
--------- ----------
Current income tax
Current income tax charge 10,092 14,939
Withholding tax on dividends 4,648 3,895
Adjustments in respect of prior year current
tax (247) 9
Deferred income tax
Relating to origination and reversal of
temporary differences 7,032 (1,258)
Income tax expense 21,525 17,585
========= ==========
There are no tax amounts recognised directly in equity during the first half of 2018 (H1 2017: Nil).
The majority of the Group entities are Russian tax residents. Income tax for the six months ended 30 June 2018 is charged at 33.6% (H1 2017: 31.5%), representing the best estimate of the average annual effective income tax rate expected for the full year, applied to the pre-tax income of the six months period. The effective income tax rate in the first half of 2018 is higher than the statutory rate of 20% for the Russian Federation mainly due to non-deductible expenses and the lower tax rates on overseas losses.
The actual tax expense differs from the amount which would have been determined by applying the statutory rate of 20% for the Russian Federation to profit before income tax as a result of the application of relevant jurisdictional tax regulations, which disallow certain deductions which are included in the determination of accounting profit.
Withholding tax related to dividends paid by MNV to Stanmix Holding Limited.
6. Mine properties, exploration and evaluation assets, and property, plant and equipment
Reconciliation of fixed assets for the period ending 30 June 2018
Exploration Mining Stripping Freehold Plant Construction Total
and assets activity building and in progress
evaluation assets equipment
assets
US$000 US$000 US$000 US$000 US$000 US$000 US$000
------------ -------- ---------- ---------- ------------ ------------- ----------
Cost
At 31 December
2017 88,926 768,181 19,724 218,474 237,103 76,852 1,409,260
------------ -------- ---------- ---------- ------------ ------------- ----------
Additions 2,139 7,490 738 14 79 21,218 31,678
Transfers (258) 4,968 - (583) 8,239 (12,366) -
Write-off* - - - (176) (1,560) - (1,736)
Disposals - - - (174) (433) (264) (871)
Capitalised
depreciation 131 2,477 - - - 612 3,220
Capitalised
interest** - 1,017 - - - - 1,017
Change in
estimation
- site
restoration
asset*** - (1,403) - - - - (1,403)
Other movement - - - - (111) (66) (177)
At 30 June
2018 90,938 782,730 20,462 217,555 243,317 85,986 1,440,988
------------ -------- ---------- ---------- ------------ ------------- ----------
Depreciation
and
impairment
At 31 December
2017 - 191,223 8,647 96,375 145,302 1,590 443,137
------------ -------- ---------- ---------- ------------ ------------- ----------
Provided
during
the year - 7,974 2,202 2,940 7,630 - 20,746
Transfers - - - - - - -
Write-off* - - - (50) (1,432) - (1,482)
Disposals - - - (155) (421) - (576)
Capitalised
depreciation - 130 - 1,561 1,529 - 3,220
Capitalised
to inventory - 2 - 193 (16) - 179
Impairment 531 - - - - - 531
At 30 June
2018 531 199,329 10,849 100,864 152,592 1,590 465,755
------------ -------- ---------- ---------- ------------ ------------- ----------
Net book
value:
At 31 December
2017 88,926 576,958 11,077 122,099 91,801 75,262 966,123
At 30 June
2018 90,407 583,401 9,613 116,691 90,725 84,396 975,233
* Write-off for the first half of 2018 in the amount of US$0.3 million relates to retirement of old inefficient equipment.
** Borrowing costs capitalised at Kekura mining assets for the first half of 2018 include US$0.9 million of interest expense (containing US$3.5 million of interest as per agreement increased by US$0.8 million of the modification effect during H1 2018 decreased by US$3.4 million of the modification effect as at 01 January 2018) and capitalised upfront commission of US$0.1 million. The modified effective interest rates were between 3.0% and 6.2% (actual effective interest rates as per agreements: 3.0% and 4.7%).
*** During the first half of 2018 there was a change in the rehabilitation estimate associated with the change in volumes of expected site restoration activities, discount and inflation rates. The net present value of the decrease in the cost estimate is US$1.4 million (decrease of US$1.3 million at MNV, decrease of US$0.4 million at Novo, increase of US$ 0.3 million at BG and decrease of US$ 0.04 million at Kekura) which was booked as an decrease to mining assets and non-current provisions.
No plant and equipment has been pledged as security for bank loans in the first half of 2018.
Mine properties in the interim consolidated statement of financial position comprise mine assets and stripping activity assets.
Property, plant and equipment in the interim consolidated statement of financial position comprise freehold building, plant and equipment and construction in progress.
Reconciliation of fixed assets for the period ending 30 June 2017
Exploration Mine Stripping Freehold Plant Construction Total
and assets activity building and equipment in progress
evaluation assets
assets
US$000 US$000 US$000 US$000 US$000 US$000 US$000
------------ -------- ---------- ------------- -------------- ------------- ----------
Cost
At 31 December
2016 85,459 737,342 21,638 214,538 229,190 63,997 1,352,164
------------ -------- ---------- ------------- -------------- ------------- ----------
Additions 1,658 8,175 1,833 - 226 17,156 29,048
Transfers (125) 1,453 - (152) 5,955 (7,609) (478)
Write-off* - (22) - (80) (1,468) - (1,570)
Disposals - (205) - - (193) (319) (717)
Capitalised
depreciation 137 3,165 - - - 289 3,591
Capitalised
interest** - 3,967 - - - - 3,967
Change in
estimation
- site
restoration
asset*** - 1,034 - 443 - - 1,477
-------- ----------
At 30 June
2017 87,129 754,909 23,471 214,749 233,710 73,514 1,387,482
------------ -------- ---------- ------------- -------------- ------------- ----------
Depreciation
and
impairment
At 31 December
2016 - 180,465 10,753 84,223 126,860 1,623 403,924
------------ -------- ---------- ------------- -------------- ------------- ----------
Provided
during
the period - 9,237 2,356 4,618 9,927 - 26,138
Transfers - - - (171) (307) - (478)
Write-off* - (21) - (54) (1,334) - (1,409)
Disposals - (202) - - (167) - (369)
Capitalised
depreciation - 133 - 1,556 1,902 - 3,591
Capitalised
to inventory - 14 - 189 201 - 404
Impairment - - - - - 193 193
------------ -------- ---------- ------------- -------------- ------------- ----------
At 30 June
2017 - 189,626 13,109 90,361 137,082 1,816 431,994
------------ -------- ---------- ------------- -------------- ------------- ----------
Net book
value:
------------ -------- ---------- ------------- -------------- ------------- ----------
At 31 December
2016 85,459 556,877 10,885 130,315 102,330 62,374 948,240
------------ -------- ---------- ------------- -------------- ------------- ----------
At 30 June
2017 87,129 565,283 10,362 124,388 96,628 71,698 955,488
============ ======== ========== ============= ============== ============= ==========
* Write-off for the first half of 2017 in the amount of US$0.2 million relates to retirement of old inefficient equipment.
** Capitalised interest for the first half of 2017 includes US$3.9 million of borrowing costs capitalised at Kekura at interest rates between 2.3% and 5.2% and capitalised upfront commission of US$0.1 million.
*** During the first half of 2017 there was a change in the rehabilitation estimate associated with the change in volumes of expected site restoration activities, discount and inflation rates. The net present value of the increase in the cost estimate is US$1.5 million (increase of US$0.4 million at MNV, increase of US$0.6 million at Novo, increase of US$ 0.3 million at BG and increase of US$ 0.2 million at Kekura) which was booked as an increase to mining assets and non-current provisions.
No plant and equipment has been pledged as security for bank loans in the first half of 2017.
Mine properties in the interim consolidated statement of financial position comprise mine assets and stripping activity assets.
Property, plant and equipment in the interim consolidated statement of financial position comprise freehold building, plant and equipment and construction in progress.
7. Financial assets and liabilities
Fair value hierarchy
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.
The carrying amounts of financial instruments, such as cash, accounts receivable and payable, loans payable, approximate their fair value.
The Group held the following financial instruments measured at fair value:
30 June Level 1 Level 2
2018
US$000 US$000 US$000
-------- -------- --------
Trade receivables, incl. embedded
derivative 12,222 - 12,222
30 June Level Level
2017 1 2
US$000 US$000 US$000
-------- ------- -------
Trade receivables (embedded derivative
only) 275 - 275
In H1 2017, trade receivables included a US$0.3 million positive fair value balance relating to an embedded derivative relating to the price adjustment at Novo. Following adoption of IFRS 9, an embedded derivative is no longer separated from the host receivables, which are carried at fair value and amounted to US$12,222 at 30 June 2018.
Changes in liabilities arising from financing activities
1 Cash Accrued Adjustment Foreign IFRS Other 31 June
January flow interest on accrued exchange 9 2018
2018 as interest movement adjustment
per as per - effect
agreements IFRS on
9 opening
balance
US$000 US$000 US$000 US$000 US$000 US$000 US$000 US$000
-------- --------- ----------- ----------- --------- ----------- ------- --------
Interest
bearing
loans and
borrowings
(excluding
items listed
below) 207,368 (11,078) 3,532 836 (4) (3,417) 65 197,302
Obligations
under
finance
leases and
hire
purchase
contracts 3,340 (746) 132 (51) - (0) 2,675
Total
liabilities
from
financing
activities 210,708 (11,824) 3,664 836 (55) (3,417) 65 199,977
======== ========= =========== =========== ========= =========== ======= ========
8. Commitments and contingencies
Capital commitments
At 30 June 2018, the Group had commitments of US$24.2 million (at 31 December 2017: US$14.2 million, at 30 June 2017: US$9.3 million) principally relating to development assets and US$2.6 million (at 31 December 2017: US$3.0 million, at 30 June 2017: US$8.7 million) for the acquisition of new machinery.
Contingent liabilities
Management has identified possible tax claims within the various jurisdictions in which the Group operates totalling US$0.4 million at 30 June 2018 (at 31 December 2017: US$2.2 million, at 30 June 2017: US$2.1 million).
9. Inventories
30 June 31 December 30 June
2018 2017 2017
unaudited audited unaudited
Non-current* US$000 US$000 US$000
---------- ------------ ----------
Ore stockpiles 19,708 16,256 15,901
Ore stockpile obsolescence provision** (17,693) (15,632) (14,024)
---------- ------------ ----------
Total non-current inventories 2,015 624 1,877
========== ============ ==========
30 June 31 December 30 June
2018 2017 2017
unaudited audited unaudited
Current US$000 US$000 US$000
---------- ------------ ----------
Raw materials and consumables 46,659 51,108 50,449
Ore stockpiles 13,507 15,709 17,144
Gold in progress 6,081 5,004 6,325
Finished goods 2,630 1,156 891
---------- ------------ ----------
68,877 72,977 74,809
Raw materials and consumables obsolescence
provision*** (12,223) (12,205) (12,106)
Ore stockpile obsolescence provision** (91) (2,152) (3,760)
Total inventories 56,563 58,620 58,943
========== ============ ==========
* The portion of the ore stockpiles that is to be processed in more than 12 months from the reporting date is classified as non-current inventory.
** Stockpiled low-grade ore at BG is tested for impairment semi-annually. Movement in ore stockpile obsolescence provision amounted to US$Nil in H1 2018 (H1 2017: US$3.2 million).
*** Movement in raw materials and consumables obsolescence provision amounted to US$0.02 million in the first half of 2018 (H1 2017: US$0.3 million). No inventory has been pledged as security.
10. Cash and cash equivalents
Cash at bank earns interest at fixed rates based on daily bank deposit rates. The fair value of cash and cash equivalents is equal to the carrying value.
For the purpose of the interim consolidated cash flow statement, cash and cash equivalents comprise the following:
30 June 31 December 30 June
2018 2017 2017
unaudited audited unaudited
US$000 US$000 US$000
---------- ------------ ----------
Cash at bank and in hand 8,683 10,565 4,268
Short term deposits 2,223 1,823 -
---------- ------------ ----------
10,906 12,388 4,268
========== ============ ==========
11. Interest-bearing loans and borrowings
Effective 31
interest Effective 30 June December 30 June
rate as per interest 2018 2017 2017
agreement rate under unaudited audited unaudited
% IFRS 9 % Modification Maturity US$000 US$000 US$000
----------------------------- ------------------------ -------------- --------- ---------- --------- ----------
Current
Raiffaizen 4.2 (2017: 5.6 (2017: November
loan (6) 3.7) 3.7) Modified 2019 11,000 11,000 7,333
UniCredit 3.6 (2017: 3.8 (2017: October
loan (7) 3.6) 3.6) Modified 2020 16,517 4,017 16,517
Sberbank
loan
(9) 8.8 8.8 Non-modified May 2022 235 - -
27,752 15,017 23,850
========== ========= ==========
Non-current
Gazprombank March
loan (1) 3.1 3.1 Non-modified 2020 40,630 43,630 26,340
Sberbank
loan August
(2) 3.4 3.4 Non-modified 2021 20,000 20,000 -
Gazprombank December
loan (3) 4.7 4.7 Non-modified 2018 - - 14,285
UniCredit 4.1 (2017: 6.2 (2017: June
loan (4) 3.6) 3.6) Modified 2020 47,836 50,000 50,000
Alfa-bank December
loan (5) 4.3 4.3 Non-modified 2018 - - 42,000
Raiffaizen 4.2 (2017: 5.6 (2017: November
loan (6) 3.7) 3.7) Modified 2019 5,207 11,000 14,667
UniCredit 3.6 (2017: 3.8 (2017: October
loan (7) 3.6) 3.6) Modified 2020 33,172 45,721 33,146
Alfa-bank December
loan (8) 3.0 3.0 Non-modified 2019 22,000 22,000 -
Sberbank
loan
(9) 8.8 8.8 Non-modified May 2022 705 - -
169,550 192,351 180,438
========== ========= ==========
Total 197,302 207,368 204,288
========== ========= ==========
(1) In March 2017, the Group secured a revolving facility with Gazprombank with the draw period set until 1 March 2020. The interest rate is set for every instalment separately. The loan is repayable in instalments between March 2017 and March 2020. The drawn down payable balance obtained under the agreement at 30 June 2018 is US$40.6 million (31 December 2017: US$43.6 million; 30 June 2017: US$26.3). The outstanding bank debt is subject to the following covenants: the ratio of total debt to EBITDA should be equal to or lower than 4.0; the ratio of EBITDA to interest expense should be equal to or higher than 4.0.
(2) In August 2017, the Group secured a revolving facility with Sberbank with the draw period set until 14 August 2021. The interest rate is set for every instalment separately. The loan is repayable in instalments between August 2017 and August 2021. The drawn down payable balance obtained under the agreement at 30 June 2018 is US$20.0 million (31 December 2017: US$20.0 million; 30 June 2017: Nil). The outstanding bank debt is subject to the following covenants: the ratio of net debt to EBITDA should be equal to or lower than 3.5.
(3) The loan was repaid in September 2017.
(4) In December 2015, the Group raised financing with UniCredit bank. In November 2017, the interest rate per agreement decreased to LIBOR USD 1M + 2.05% from LIBOR USD 1M + 2.8% in June 2017 (2016: LIBOR USD 1M + 4.0%) with the draw period set until 17 January 2016. Due to implementation of new requirement of IFRS 9 effective rate is LIBOR 1M at the date of modification + 5%. The loan is repayable in instalments between July 2019 and June 2020 (2016: between July 2017 and December 2018). The drawn down payable balance obtained under the agreement at 30 June 2018 is US$50.0 million (31 December 2017: US$50.0 million; 30 June 2017: US$50.0 million). Due to implementation of new requirement of IFRS 9 book value of the loan was modified and at 30 June 2018 is US$47.8 million (31 December 2017: US$50.0 million; 30 June 2017: US$50.0 million). For more information about transition adjustment, please see Note 2.
The outstanding bank debt is subject to the following covenants: the ratio of net debt to EBITDA should be equal to or lower than 3.5 and the Group EBITDA to interest expense ratio should be equal to or higher than 4.0.
(5) The loan was repaid in September 2017.
(6) In August 2016, the Group raised financing with Raiffeisenbank at a LIBOR USD 1M + 2.1% (till May 2017 LIBOR USD 1M + 4.4%; till November LIBOR USD 1M + 2.75%) interest rate with the draw period set until 23 September 2016. Due to implementation of new requirement of IFRS 9 effective rate is LIBOR 1M at the date of modification + 4.4%. The loan is repayable in November 2019. The drawn down payable balance obtained under the agreement at 30 June 2018 is US$16.5 million (31 December 2017: US$22.0 million; 30 June 2017: US$22.0 million). Due to implementation of new requirement of IFRS 9 book value of the loan was modified and at 30 June 2018 is US$16.2 million (31 December 2017: US$22.0 million; 30 June 2017: US$22.0 million). For more information about transition adjustment, please see Note 2. The outstanding bank debt is subject to the following covenants: the ratio of total net debt to EBITDA should be equal to or lower than 4.0; the ratio of EBITDA to interest expense should be equal to or higher than 4.0; the ratio of total net debt to Equity should be lower than 0.6.
(7) In October 2016, the Group raised financing with UniCredit bank adjusted for an upfront fee amounting to 0.9% with the draw period set until 20 November 2016. In November 2017, the interest rate decreased to 3.4% from 3.55% in 2016. Due to implementation of new requirement of IFRS 9 effective rate is 3.8%. The loan is repayable October 2020 (2016: October 2019). The drawn down payable balance obtained under the agreement at 30 June 2018 is US$49.8 million (31 December 2017: US$49.7 million; 30 June 2017: US$49.7 million). Due to implementation of new requirement of IFRS 9 book value of the loan was modified and at 30 June 2018 is US$49.7 million (31 December 2017: US$49.7 million; 30 June 2017: US$49.7 million). For more information about transition adjustment, please see Note 2. The outstanding bank debt is subject to the following covenants: the ratio of net debt to EBITDA should be equal to or lower than 3.5; the ratio of EBITDA to interest expenses should be equal to or higher than 4.0.
(8) In August 2016, the Group secured a revolving facility with Alfabank with the draw period set until 31 December 2019. The interest rate is set for every instalment separately. The loan is repayable in instalments between August 2016 and December 2019. The drawn down payable balance obtained under the agreement at 30 June 2018 is US$22.0 million (31 December 2017: US$22.0 million; 30 June 2017: Nil). The outstanding bank debt is subject to the following covenants: the ratio of total net debt to EBITDA should be equal to or lower than 4.0.
(9) In May 2018, the Group secured a facility with Sberbank with the draw period set until 31 August 2018. The interest rate is 8.75%. The loan is repayable in instalments between September 2018 and May 2022. The drawn down payable balance obtained under the agreement at 30 June 2018 is US$0.9 million (31 December 2017: Nil; 30 June 2017: Nil). The outstanding bank debt is subject to the following covenants: the ratio of net debt to EBITDA should be equal to or lower than 3.5.
The total outstanding bank debt of the Group at 30 June 2018 is US$197.3 million. There were no covenant breaches as at 30 June 2018.
12. Share Capital
The total amount of the authorised ordinary shares of GBP0.001 each remained unchanged and equalled 750,000,000. Ordinary shares issued and fully paid amounted to 325,222,098 shares, representing US$585 thousand.
13. Related party transactions
During the first half of 2018 OJSC Novo-Shirokinsky Rudnik performed a partial redemption of its shares acquired in prior periods. As a result, the share of non-controlling interest increased by US$4 thousand.
14. Earnings per share
Basic earnings per share amounts are calculated by dividing profit for the period attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period.
Diluted earnings per share amounts are calculated by dividing the profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period plus the weighted average number of ordinary shares that would be issued on the exercise of share options into ordinary shares.
The following reflects the income and share data used in the basic and diluted earnings per share computations:
For the six months ended
30 June
---------------------------
2018 2017
US$000 US$000
Net profit attributable to ordinary equity
holders of the parent 28,557 25,687
Thousands Thousands
Weighted average number of ordinary shares
for basic earnings per share 325,222 325,222
------------- ------------
Weighted average number of ordinary shares
adjusted for the effect of dilution 325,222 325,222
============= ============
There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of these financial statements.
The share capital comprises only one class of ordinary shares, which carry a voting right and the right to a dividend. There are no restrictions on the distribution of dividends and the repayment of capital.
15. Impairment of goodwill and non-current assets
In accordance with the Group's accounting policy, goodwill is tested for impairment annually and when circumstances indicate the carrying value may be impaired.
When there is an indicator of impairment of non-current assets within a cash-generating unit (CGU) or a group of CGUs containing goodwill, non-current assets are tested for impairment first at each CGU and any impairment loss on the non-current assets is recognised before testing the groups of CGUs for potential goodwill impairment. Impairment is recognised when the carrying amount exceeds the recoverable amount.
Non-current assets are tested for impairment when events or changes in circumstances suggest that the carrying amount may not be recoverable. The assessment is done at the CGU level, which is the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets.
In the first half of 2018 there was no indicator of impairment of non-current assets, including goodwill.
16. Events after the reporting period
There were no significant events after the reporting period, except for dividends declared.
The Board of Directors has approved an interim dividend of GBP0.06 per share, to be paid to shareholders on 5 October 2018. The ex-dividend date is 13 September 2018 and the record date is 14 September 2018.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
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