Highland Gold Mining Limited Q4 2018 Operating Results (6087N)

TIDMHGM

RNS Number : 6087N

Highland Gold Mining Limited

21 January 2019

HIGHLAND GOLD MINING LIMITED

21 January 2019

Q4 2018 Operating Results

Highland Gold Mining Limited ("Highland Gold" or the "Company", AIM: HGM) today reports its operating results for the three months ended December 31, 2018 ("Q4 2018") and for the full year of 2018.

HIGHLIGHTS

-- Highland Gold produced a total of 269,500 oz of gold and gold equivalent in 2018, a slight decrease of 1% from 272,274 oz in 2017 and within the guidance range of 265-275k oz.

-- Q4 2018 production at the Company's Mnogovershinnoye (MNV), Novoshirokinskoye (Novo) and Belaya Gora mines totalled 65,753 oz of gold and gold equivalent, as compared to 68,722 in Q4 2017.

-- The average realised gold price was 1,230 USD/oz in Q4 2018 and 1,255 USD/oz for the full year.

-- A new MNV JORC-compliant reserve audit, completed in Q4 2018 and published earlier this month, extended the project's life of mine to 2029 from the previous estimate of 2022.

-- The Company completed the acquisition of the Valunisty mine and related assets at the end of Q4 2018, which adds over 30 koz of gold and gold equivalent to Highland Gold's expected production for 2019.

-- Total production of gold and gold equivalent in 2019 is expected to be in the range of 290,000-300,000 oz.

-- Highland Gold regrets to report that, on 29 December 2018, two mine rescue team contractors died while responding to an avalanche at MNV. One Company employee received non-life-threatening injuries in the incident. Highland Gold offers sincerest condolences to the families of the deceased and is providing them with material assistance. A thorough investigation of the circumstances leading up to the incident is underway.

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               John Prior, James Black, Paul Gillam 
 (Nominated Adviser and Joint Broker)   [phone] 
BMO Capital Markets Limited            Jeffrey Couch, Tom Rider, Pascal Lussier Duquette 
 (Joint Broker)                         [phone] 
 
Peat & Co                              Charlie Peat 
 (Joint Broker)                         [phone] 
 

***

KHABAROVSK REGION, RUSSIA

Mnogovershinnoye (MNV)

   --     Q4 2018 ore mining increased by 11% year-on-year and gold production rose by 34%. 

-- Grades from open pit mining during the quarter were 35% higher y-o-y as grade-control drilling exposed new higher-grade blocks at the Central ore body.

-- Ore processing increased by 18% y-o-y during the last quarter, reflecting reduced capacity in late 2017 and early 2018.

-- For the full year, ore processing was down only 4.6% despite operating at half capacity during much of the first quarter.

   --     Production for the full year increased by 9.9% due to higher grades and recoveries. 
 
 MNV                        Units    Q4 2017   Q4 2018     2017        2018 
                           ------- 
 Waste stripping              t      899,144   997,069   6,514,860   4,255,199 
                           -------  --------  --------  ----------  ---------- 
 Underground development      m        2,941     2,917      11,357      11,783 
                           -------  --------  --------  ----------  ---------- 
 Waste dumps ore mined        t       75,181     1,207     327,358      69,469 
                           -------  --------  --------  ----------  ---------- 
 Waste dumps ore grade       g/t        1.13      0.99        1.12        1.04 
                           -------  --------  --------  ----------  ---------- 
 Open-pit ore mined           t       36,204   141,913     280,006     426,986 
                           -------  --------  --------  ----------  ---------- 
 Open-pit ore grade          g/t        1.88      2.54        2.05        2.42 
                           -------  --------  --------  ----------  ---------- 
 Underground ore mined        t      194,620   197,524     792,740     810,806 
                           -------  --------  --------  ----------  ---------- 
 Underground ore grade       g/t        3.33      3.59        3.15        3.31 
                           -------  --------  --------  ----------  ---------- 
 Total ore mined              t      306,005   340,644   1,400,104   1,307,261 
                           -------  --------  --------  ----------  ---------- 
 Average grade               g/t        2.62      3.14        2.46        2.90 
                           -------  --------  --------  ----------  ---------- 
 Ore processed                t      288,594   340,153   1,373,130   1,310,393 
                           -------  --------  --------  ----------  ---------- 
 Average grade               g/t        2.79      3.19        2.55        2.92 
                           -------  --------  --------  ----------  ---------- 
 Recovery rate                %        91.34      92.6       91.36        92.3 
                           -------  --------  --------  ----------  ---------- 
 Gold produced                oz      24,377    32,576     102,502     112,607 
                           -------  --------  --------  ----------  ---------- 
 

The avalanche at MNV in December occurred above Adit #1 of the underground mine, thereby blocking access to the mine via that entrance. In order to meet production targets without disruption, mining operations were shifted to areas accessed via other adits as well as to the open pit.

An independent resource and reserve audit for MNV was carried out over the second half of last year and completed in Q4 2018. The results, which were finalised and announced to the market earlier this month, extended the project's life of mine by 7 years to 2029. The audit, which counted reserves as of 01 January 2018, was based on the results of exploration drilling in 2017.

The Company continued to conduct near-mine exploration over the course of 2018, as well as continuing to evaluate MNV's historic rock waste dumps.

In Q4 2018, the Company identified 48.7k tonnes of ore within the waste dumps, containing an estimated 1,331 oz Au. Since the programme began in 2016, a total of 1.12M tonnes of ore has been identified and 675k tonnes processed at an average grade of 1.09 g/t. The appraisal programme will continue in 2019.

Stage 1 of the broad grade-control drilling programme at MNV was completed in 2018. Exploration was carried out using a combined method - drilling from the surface to confirm the location of mineralization zones, and also from the underground workings below those zones. Based on these drilling results, revised Russian-standard reserve estimates were developed, submitted to regulators GKZ, and approved in December 2018.

Diamond exploration drilling in 2018 was performed at the Deep, Quiet, Intermediate, Northern and Deer ore bodies. Drilling amounted to 15,355 m, spread over 230 holes. The Company expects to update MNV's JORC-compliant reserves later this year.

Geochemical prospecting work was completed during the year on two of the Company's greenfield licences adjacent to MNV, Kulibinskaya and Zamanchivaya, in 2018. The results formed the basis of an exploration programme that began during the year and will continue in 2019.

At Kulibinskaya, 56,245 m3 of trenching and 1,054 m of diamond drilling were completed during the year. Sample testing and logging are in progress.

At Zamanchivaya, trenching during the year covered 15,324 m3. Diamond drilling totalling 2,223 m was carried out in areas with elevated gold grades as identified by trench sampling.

Priority exploration targets for 2019 include the Deer, Central, Intermediate, and Deep ore bodies, the Burlivaya zone, the Kulibinskaya and Zamanchivaya licences, and a third adjacent greenfield site - Vilkinskaya.

Belaya Gora

-- Ore mining increased by 65% in Q4 2018 and 94% for the full year 2018, reflecting the focus in 2017 on processing ore from Belaya Gora's stockpiles.

-- Processing volume in Q4 2018 declined by 4.7% y-o-y as part of efforts to improve the recovery rate, which rose to 74.8% during the quarter.

 
 Belaya Gora                     Units    Q4 2017   Q4 2018     2017        2018 
                                -------                                  ---------- 
 Waste stripping                   t      657,540   536,746   2,935,533   2,325,419 
                                -------  --------  --------  ----------  ---------- 
 Ore mined                         t      276,249   456,494   1,079,793   2,095,329 
                                -------  --------  --------  ----------  ---------- 
 Average grade                    g/t        0.70      0.85        0.77        0.83 
                                -------  --------  --------  ----------  ---------- 
 including: 
                                -------  --------  --------  ----------  ---------- 
 
      *    Ore Au >0.7 g/t         t       90,993   296,201     461,408   1,175,674 
                                -------  --------  --------  ----------  ---------- 
 
      *    Average grade          g/t        1.22      1.06        1.13        1.13 
                                -------  --------  --------  ----------  ---------- 
 
      *    Ore Au 0.3-0.7 g/t      t      185,256   160,293     618,385     919,655 
                                -------  --------  --------  ----------  ---------- 
 
      *    Average grade          g/t        0.45      0.45        0.50        0.46 
                                -------  --------  --------  ----------  ---------- 
 Ore processed                     t      423,127   403,052   1,696,810   1,578,890 
                                -------  --------  --------  ----------  ---------- 

 Average grade                    g/t        1.12      1.17        1.11        1.13 
                                -------  --------  --------  ----------  ---------- 
 Recovery rate                     %        73.59     74.80       72.52       74.78 
                                -------  --------  --------  ----------  ---------- 
 Gold produced                     oz      10,852    11,604      43,166      44,085 
                                -------  --------  --------  ----------  ---------- 
 

An exploration programme was completed on the Belaya Gora flanks licence in 2018 with 105 holes and 8,268 m drilled on the promising Kolchansky and Zayachy prospects. In addition, another six holes totalling 600 m were drilled in Q4 2018 to study the hydrogeological environment in the area, with a range of hydrogeological and geophysical tests performed. A final report with estimation of reserves is expected in Q2 2019.

Blagodatnoye

As per the pre-feasibility study published by Highland Gold last year, the Blagodatnoye deposit is being targeted to supply additional ore to the Belaya Gora processing plant later in the life of the project.

In order to satisfy regulatory requirements, the Company submitted a Russian-standard feasibility study covering exploration parameters and a reserve estimate for Blagodatnoye to regulators in Q3 2018. The review process is ongoing and is expected to be completed in the first quarter of 2019.

ZABAIKALSKY REGION, RUSSIA

Novoshirokinskoye (Novo)

   --     Ore mining in Q4 2018 dipped slightly, down 4.35% from the same period in 2017. 
   --     Ore processing was stable y-o-y both during the quarter and the full year. 

-- Lower grades and recoveries resulted in a 35% drop in gold equivalent output in Q4 2018 and an 11% decrease for the year.

 
 Novo                       Units    Q4 2017   Q4 2018     2017       2018 
                           ------- 
 Underground development      m      2,825.5   2,588.5   11,378.5   11,441.5 
                           -------  --------  --------  ---------  --------- 
 Ore mined                    t      222,488   212,799    858,106    865,762 
                           -------  --------  --------  ---------  --------- 
 Average grade*              g/t        5.80      4.00       5.52       5.13 
                           -------  --------  --------  ---------  --------- 
 Ore processed                t      207,652   211,443    825,819    833,223 
                           -------  --------  --------  ---------  --------- 
 Average grade*              g/t        5.97      4.07       5.61       5.26 
                           -------  --------  --------  ---------  --------- 
 Recovery rate*               %         84.0      78.0       85.0       80.1 
                           -------  --------  --------  ---------  --------- 
 Gold produced (100%)*        oz      33,493    21,573    126,606    112,808 
-------------------------  -------  --------  --------  ---------  --------- 
 
   *    In gold equivalent at actual prices 

(Metal grade of mined ore = Au 3.12 g/t, Ag 48.20 g/t, Pb 1.24 %, Zn 0.48 %).

Over the course of 2018, Novo saw lower mined ore grades, particularly in terms of lead content, as mining moved to lower horizons and expected reserve grades were not confirmed in certain blocks. The lower lead content, as well as an increase in the proportion of gold associated with pyrite, had a negative effect on recovery rates.

To address these issues in the future, in-fill underground production drilling has been intensified alongside the completion of a reserve confirmation drilling programme projecting out five years. To improve recoveries, research is being carried out on two fronts: 1) spiral flow separation, which would reduce the load on the gravity section and therefore increase recoveries, has been included in Novo's investment programme for 2019; and 2) ore sorting using X-ray transmission (XRT) and/or dense media separation (DMS), which is being considered as part of the design of Stage 2 of the Novo 1.3 Mtpa expansion project.

In Q4 2018, work continued on Stage 1 of the Novo 1.3 Mtpa project, which involves upgrades to the underground mine. Highlights included:

   --     The construction of foundation frames for the main fan unit building was completed. 

-- Underground development was carried out in preparation for reconstruction of the skip hoist (loading boxes).

-- Detailed design was completed for a water pumping station at the +637 m level. Construction and assembly work are now in progress.

-- Underground development was completed for the construction of mud settling ponds at the +637 m level.

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

The Company is progressing with a project to design a heap leach facility with an annual processing capacity of 840k tonnes at its Baley ZIF-1 tailings licence. Public hearings were conducted in May 2018 as a part of an environmental impact study and attendees approved the project unanimously. Since then, a wide range of geological, environmental, archaeological, and other studies was conducted.

Design documentation was developed and then approved by Zabaikalsky region supervisory authorities in September 2018. State environmental experts signed off on the project design in November. Documentation was subsequently prepared for submission to the main State Expert Board for review.

At Taseevskoye, geophysical surveys were carried out in Q3 2018 with the aim of delineating the outlines of the old underground workings present under the site. The work is intended to contribute to better-quality geological exploration planning in the future. Interpretation of the results carried out in Q4 2018 showed that additional study of polarization parameters is necessary to complete tomographic work. The Company decided to amend the stage-one mine development plan for Taseevskoye, including relocation of the processing water pond.

In October 2018, Wardell Armstrong (WAI-RU) was contracted to draft a trade-off study (Scoping Study level) to aid in considering options for developing the Sredny Golgotay deposit. A preliminary report was received at year-end and is currently under internal review.

Concurrently, contractor Vostokgeologia LLC developed a geological exploration programme for Sredny Golgotay in Q4 2018. The programme is now being reviewed by state geological experts.

CHUKOTKA AUTONOMOUS DISTRICT, RUSSIA

In December 2018, a commission of the Ministry for Development of the Russian Far East approved a proposal to expand the Beringovsky Advanced Special Economic Zone (ASEZ), which previously covered only the south-eastern part of Chukotka, to include other parts of the region where Highland Gold's Kekura and Klen licences are located. The Chukotka ASEZ, as it will now be known, was approved by the Russian prime minister on January 10, 2019.

The Company plans to apply to register Kekura and Klen as residents of the ASEZ, which could provide certain tax breaks and other incentives for the projects.

Kekura

As throughout the year, operations at Kekura in Q4 2018 covered a broad variety of preparations for construction and mining at the deposit. Highlights include:

-- The Kekura mine design, developed by GeoSolutions LLC, was approved by the development commission of regulators Rosnedra in December.

   --     Repair and maintenance was performed on the pilot processing plant located on site. 

-- General design contractor SPb-Giproshakht drafted key packages of detailed designs for construction of the main Kekura processing plant on the basis of the existing pilot plant.

-- Specifications for construction materials and technical and processing equipment for construction of Kekura's mining and processing facilities were developed.

-- Research company EngGeo LLC completed the first stage of field studies needed for construction of mining and processing facilities. Desktop studies are currently in progress.

-- Equipment testing was completed for the 110/6 kV Kekura substation, which is designed to receive electricity from a new power line being built to the site by the government.

-- Rostekhnadzor inspected the explosives storage facility and issued a certificate on registration of a hazardous industrial facility, which is required for it to operate.

   --     Assembly of a BS-1 communications tower was completed in November 2018. 

Construction of a winter road from Kekura to the town of Bilibino was completed in December 2018, allowing for delivery in the coming months of materials and equipment that were stored at the ports of Zeleny Mys and Pevek during the summer sea navigation period. On site, the road between the stockpile and processing plant locations was expanded.

On the exploration front, 19 holes totalling 2,255 m were drilled at the Zapadny prospect in the broader Kekura licence area in Q4 2018. The drilling facilitated the outlining of a steeply-dipping vein and veinlet disseminated zone. Drilling on this prospect will continue in March 2019.

Klen

Regulators signed and registered amendments to the licence agreement for Klen in Q4 2018, extending the period for development of the deposit.

The Company held a tender during the quarter to select a contractor to study X-ray transmission (XRT) ore pre-concentration as an option for processing Klen's ore. A contract was signed for the first stage of laboratory studies and the work is in progress. Results are expected in Q1 2019.

The development of design documentation for Klen was delayed until Q2 2019 in order to wait for a decision on residency in the Chukotka ASEZ and for completion of the ore pre-concentration tests.

Construction of a winter road to Klen began in Q4 2018 with the aim of transporting a drilling rig and camp equipment to the site. The supplies are required for exploration drilling planned in 2019 on the flanks of the Klen deposit and within the boundaries of surrounding Verkhne-Krichalskaya license area.

Valunisty

Highland Gold completed the acquisition of Valunisty mine and related assets in Chukotka from Aristus Holdings Limited at the end of December 2018. The assets purchased include:

-- Valunisty, an operating gold mine and a processing plant with an annual capacity of 250k tonnes of ore;

-- 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.

A tender is currently underway to select a design contractor for the planned expansion of the Valunisty mine, including upgrading the processing plant to annual throughput of 350k tonnes, as well as underground development.

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.

One of the highlights of the Company's health & safety team's work in 2018 was the development and introduction of new corporate standards covering PPE quality and use; contractors' safety management; audits and rating of labour safety; emergency medical response, leader inspections, and labour safety risk assessment. Tools for ensuring compliance with these standards were rolled out at MNV, Belaya Gora, Novo and Kekura. A new employee health management programme was also introduced at the Company's operations.

The management HSE Committee met last October to review the Company's updated labour safety strategy. That was followed by a review at the Board of Directors' HSE Committee meeting in November.

In Q4 2018, the Lost Time Incident Frequency Rate (LTIFR), calculated as the number of incidents for every 1,000,000 man-hours, was 1.96 compared to 2.61 in Q4 2017. Three lost-time incidents were registered during the period - one at Novo and two at MNV - versus four the previous year (three at Novo and one at Belaya Gora).

LTIFR for the full year 2018 was 4.02, down from 4.88 for the year 2017. There was a total of 22 incidents registered during the 12 months - 12 at Novo, eight at MNV, one at Belaya Gora and one in the Moscow office - compared to 26 incidents in 2017.

Training sessions conducted in Q4 2018 included a "Conscious Safety Management: Behavioural Safety Audit" course for 10 people in the Moscow office, 13 at Novo, and 6 at MNV. That brought the total number of people trained in the course during the year to over 200 at Moscow, Novo, MNV, Belaya Gora, and Kekura, plus another 40 offered the same course at Valunisty. In addition, a course on "Conscious Safety Attitude" was attended by 47 people at Novo and 85 people at MNV in December 2018.

Labour safety management system audits were performed in November-December 2018 at Novo and MNV. The audit results enabled a full assessment of labour safety practices across the Company during the year.

The Company contracts external auxiliary mine rescue teams to be kept on alert near each of its operations to ensure preparedness to react to emergency situations. The recent incident at MNV mentioned above highlights the importance and the danger of their work.

On 29 December 2018, a team of mine rescue contractors responded to an avalanche outside Adit #1 of the MNV underground mine, which resulted in non-life-threatening injuries to a Highland Gold employee. After arriving on site, two of the rescuers were killed by a second avalanche that fell in the same location. An investigation is underway with a view toward preventing any recurrence of this unfortunate event.

Environment

Highland Gold continues to adhere to its stated policy of protecting the environment and operating in accordance with all relevant regulatory requirements. An environmental monitoring system is in place at each of the Company's operations. All aspects of operational activity that do or could impact the environment are identified and analysed in order to outline the most significant associated risks and to develop programmes to minimize them.

The Company updated standards for its corporate environmental management systems in 2018 to keep them in line with the latest revision of ISO 14001:2015.

Quality assurance and risk management company DNV GL carried out an independent audit of environmental management systems at the Moscow office, Belaya Gora and Novo to ensure compliance with ISO 14001-2015. A new certificate valid until March 01, 2022 was issued based on the audit results, which confirm the systems in place are functioning properly.

Over the course of the year, 2,068 employees underwent environmental safety training and 436 employees had training and tests on handling class I-IV hazard waste via the OlympOKS system. The Company sent 52 managers and specialists for skills improvement training in dedicated centres where they attended professional environmental courses.

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 [e-mail] or visit www.rns.com.

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January 21, 2019 02:00 ET (07:00 GMT)