HGM.L Regulatory News (HGM)

8 Feb 2006 07:01

Highland Gold Mining Limited08 February 2006 SECOND HALF 2005 TRADING UPDATE Moscow, 8 February 2006 - Highland Gold Mining Limited ("Highland Gold", or the"Company") produced 101,737 ounces of gold in the second half of 2005, in-linewith the same period of 2004 and a 59% increase over the first half of 2005.This result reflects the good progress made since 30 June 2005 and places theCompany in a better position to continue its growth. +-------------+------+-------------------+-------------------+-------------------+|SUMMARY | Unit | 6 months ended | 6 months ended | 12 months ended || | +-------------------+-------------------+-------------------+| | | 30 June | 31 December | 31 December |+-------------+------+---------+---------+---------+---------+---------+---------+|Group | | 2005 | 2004 | 2005 | 2004 | 2005 | 2004 |+-------------+------+---------+---------+---------+---------+---------+---------+|Gold |Ounces| 63,749 | 96,986 |101,737 |102,910 |165,486 |199,896 ||recovered | | | | | | | |+-------------+------+---------+---------+---------+---------+---------+---------+|Gold sold |Ounces| 63,333 | 94,055 | 98,846 |103,251 |162,179 |197,306 |+-------------+------+---------+---------+---------+---------+---------+---------+|Gold sales |US$m | 27.0 | 37.1 | 46.1 | 43.0 | 73.1 | 80.1 |+-------------+------+---------+---------+---------+---------+---------+---------+|Gold price | | | | | | | ||received |US$/oz| 427 | 395 | 467 | 416 | 451 | 406 |+-------------+------+---------+---------+---------+---------+---------+---------+|MNV | | | | | | | |+-------------+------+---------+---------+---------+---------+---------+---------+|Ore processed|Tonnes|371,403 |466,262 |503,958 |461,107 |875,361 |927,369 |+-------------+------+---------+---------+---------+---------+---------+---------+|Average grade| g/ | 4.81 | 7.04 | 6.03 | 7.14 | 5.51 | 7.09 || |tonne | | | | | | |+-------------+------+---------+---------+---------+---------+---------+---------+|Gold |Ounces| 51,979 | 96,986 | 88,059 | 98,040 |140,038 |195,026 ||recovered | | | | | | | |+-------------+------+---------+---------+---------+---------+---------+---------+|Gold sold |Ounces| 55,426 | 94,055 | 88,945 |101,258 |144,371 |195,313 |+-------------+------+---------+---------+---------+---------+---------+---------+|Darasun | | | | | | | |+-------------+------+---------+---------+---------+---------+---------+---------+|Ore processed|Tonnes| 86,700 | - |119,835 | 31,909 |206,535 | 31,909 |+-------------+------+---------+---------+---------+---------+---------+---------+|Gold |Ounces| 11,770 | - | 13,678 | 4,870 | 25,448 | 4,870 ||recovered | | | | | | | |+-------------+------+---------+---------+---------+---------+---------+---------+|Gold sold |Ounces| 7,907 | - | 9,901 | 1,993 | 17,808 | 1,993 |+-------------+------+---------+---------+---------+---------+---------+---------+ SECOND HALF HIGHLIGHTS - MNV. Recovered from the operating setbacks experienced in the first halfof 2005 with second half gold production of 88,059 ounces, a 69% increase incomparison with the first half of 2005. - Darasun. Completed commissioning of the Darasun mill and strengthenedthe on-site management team, which we believe will relieve in the medium termthe production problems experienced in 2005. Currently, the mill and undergroundmine are operating and the open pit operation has now been re-started after a6-week shutdown for modifications to existing mine plans. - Taseevskoye. Continued work on a scoping study and acquired anadditional 485,000 ounce resource at the ZIF-1 tailings. Planning for 2006 hasresulted in an approved US$21 million budget, including significant drilling,pit de-watering activities, and the preparation of a pre-feasibility study. - Mayskoye. Revised the project's first phase to approximately 500,000tonnes per year and continued to progress the feasibility study with furtherunderground sampling and the initiation of a twinning and in-fill drill program.The final $11.5 million acquisition instalment was paid. - Novoshirokinskoye. Continued to progress external technical projectreviews and pursued optimisation alternatives, including the direct export oflead and zinc concentrate. Acquired the license for the Vozdvizhinskoye project,a formerly producing lead-zinc-silver mine. - Exploration. Acquired the Belaya Gora, Malo Fedorovskoye and Sovinoyeprojects. - Financial Position. At 31 December, held $33 million of cash and $81million of debt. Commenting on today's announcement Dmitry Korobov, Managing Director, said: "Coming off a difficult first half of 2005, I am proud of the character our teamdemonstrated as it delivered improved second half operating results, progress onour development projects and additional high-quality asset acquisitions. Thisteam is being continually strengthened to further improve our existingoperations and to ensure our projects under development are planned to highstandards and advanced in a timely manner. We are now moving into 2006 in abetter position to capitalise on the current gold market and to create value forour shareholders." OPERATING REVIEW Gold recovered for the second half of 2005 was 101,737 ounces compared with102,910 ounces in the second half of 2004. The slight decrease was a result ofcontinuing operating issues at MNV that carried over into the beginning of thesecond half of the current year, offset by a slightly better contribution fromDarasun. Detailed production statistics for the period are presented on page 3. MNOGOVERSHINOYE MINE (MNV) - Khabarovsk Region, Russia In the second half of 2005, Highland Gold was focused on re-establishing MNV asa stable producer with sufficient advanced development to support futureproduction plans. This focus included an acceleration of our stripping in theUpper open pit. During the second half of 2005 the stripping operation moved823,541 cubic meters of waste, a 28% increase in stripping against the sameperiod of 2004. The additional stripping and a low availability of blast holedrills and haul trucks led to open pit ore mining of 217,772 tonnes during thesecond half of 2005, a reduction of 9.1% in comparison with the same period of2004. Open pit grades deteriorated by 9.6% to 5.94 g/t in the second half of2005 in comparison with same period of 2004, but these grades have improved by26% when compared with the first half of 2005. It is also important to note thatopen pit grades have strengthened continuously through the year, with averagegrades in December exceeding 7.0 g/t. The underground operation at MNV performed well during the second half of 2005with mined ore volumes reaching 215,711 tonnes or 22.8% higher than in thesecond half of 2004 and 19.4% higher than in the first half of 2005. Undergroundore grades have also improved during the year, averaging 7.24 g/t in the secondhalf of 2005 - a 34.9% increase from the first half of 2005 but still 17.0%below grades achieved in the second half of 2004. As in the open pit, it isimportant to note that underground grades have strengthened continuously duringthe year, with average grades in December reaching 7.6 g/t. With our undergroundoperators now trained on a new "Stopemaster" drill that was delivered to siteduring the second half of 2005, we see potential for further improvements in theunderground operation. During the second half of 2005 gold sold from MNV was 88,945 ounces adeterioration from the same period in 2004 when sales reached 101,258 ounces.This decrease resulted from lower mill feed grades and recovery rates, and waspartly offset by a record mill throughput of 503,958 tonnes. Despite adverse weather conditions resembling those of last year, Januaryproduction has exceeded our expectations due to commendable efforts by ouroperating team at MNV. The 2006 outlook for MNV production is in the range of150,000 to 160,000 ounces of gold. DARASUN MINE - Chita Region, Russia During the second half of 2005, Highland Gold completed commissioning of theDarasun mill and focused on strengthening overall mine supervision, particularlyin the underground and open pit operations where poor adherence to miningstandards and controls resulted in excessive unreported dilution and very poormill reconciliations. For this reason, representations on grades and recoveryrates at Darasun will be limited until the mill reconciliations improve. Toimprove these reconciliations, more effective sampling procedures have beenintroduced and are being strictly enforced by new mine management inco-operation with external consultants. At the open pit mine, excessive dilutionand low equipment availability led to a decision at the end of November tosuspend open pit mining pending an improved mine plan. Again, new management hasbeen working with external consultants to optimise the open pit based on a newlydeveloped block model and taking higher gold prices into account. Stripping andmining works at the open pit were re-started in January. Mill throughput during the second half of 2005 totalled 119,835 tonnes of oreand was affected by shut downs throughout the period while new equipment wasinstalled and other process improvements were made. The mill has run stablysince January 2006. Based on positive results witnessed in January, management expects that thistrend will continue through the year and that production at Darasun will reach arange of 50,000 to 55,000 ounces of gold. HIGHLAND GOLD - PRODUCTION STATISTICS MNV+-------------+------+-------------------+-------------------+-------------------+| | | 6 months ended | 6 months ended | 12 months ended |+-------------+------+-------------------+-------------------+-------------------+| | | 30 June | 31 December | 31 December |+-------------+------+---------+---------+---------+---------+---------+---------+| | Unit| 2005 | 2004 | 2005 | 2004 | 2005 | 2004 |+-------------+------+---------+---------+---------+---------+---------+---------+|Mine | | | | | | | ||development | | | | | | | |+-------------+------+---------+---------+---------+---------+---------+---------+|Waste |000 M3| 641 | 856 | 823 | 653 | 1,464 | 1,509 ||stripping | | | | | | | |+-------------+------+---------+---------+---------+---------+---------+---------+|Underground |Meters| 4,363 | 4,095 | 4,098 | 4,282 | 8,461 | 8,377 |+-------------+------+---------+---------+---------+---------+---------+---------+|Mining | | | | | | | |+-------------+------+---------+---------+---------+---------+---------+---------+|Open pit |Tonnes|156,615 |173,961 |217,772 |239,582 |374,387 |413,543 |+-------------+------+---------+---------+---------+---------+---------+---------+| | g/| 4.70 | 6.24 | 5.94 | 6.57 | 5.42 | 6.43 || | tonne| | | | | | |+-------------+------+---------+---------+---------+---------+---------+---------+|Underground |Tonnes|180,619 |213,880 |215,711 |175,626 |396,330 |389,506 |+-------------+------+---------+---------+---------+---------+---------+---------+| | g/| 5.37 | 8.33 | 7.24 | 8.72 | 6.39 | 8.51 || | tonne| | | | | | |+-------------+------+---------+---------+---------+---------+---------+---------+|Total ore |Tonnes|337,234 |387,841 |433,483 |415,208 |770,717 |803,049 ||mined | | | | | | | |+-------------+------+---------+---------+---------+---------+---------+---------+| | g/| 5.06 | 7.39 | 6.59 | 7.48 | 5.92 | 7.44 || | tonne| | | | | | |+-------------+------+---------+---------+---------+---------+---------+---------+|Ore processed|Tonnes|371,403 |466,262 |503,958 |461,107 |875,361 |927,369 |+-------------+------+---------+---------+---------+---------+---------+---------+| | g/| 4.81 | 7.04 | 6.03 | 7.14 | 5.51 | 7.09 || | tonne| | | | | | |+-------------+------+---------+---------+---------+---------+---------+---------+|Incl. from | | | | | | | ||stockpile |Tonnes| 34,169 | 78,421 | 70,475 | 45,899 |104,644 |124,320 |+-------------+------+---------+---------+---------+---------+---------+---------+| | g/| 2.33 | 5.29 | 2.57 | 4.04 | 2.49 | 4.83 || | tonne| | | | | | |+-------------+------+---------+---------+---------+---------+---------+---------+|Recovery rate| % | 90.5 | 91.9 | 90.2 | 92.6 | 90.3 | 92.2 |+-------------+------+---------+---------+---------+---------+---------+---------+|Gold |Ounces| 51,979 | 96,986 | 88,059 | 98,040 |140,038 |195,026 ||recovered | | | | | | | |+-------------+------+---------+---------+---------+---------+---------+---------+|Gold sold |Ounces| 55,426 | 94,055 | 88,945 |101,258 |144,371 |195,313 |+-------------+------+---------+---------+---------+---------+---------+---------+|Gold price | | | | | | | ||received |US$/oz| $425 | $395 | $466 | $416 | $450 | $406 |+-------------+------+---------+---------+---------+---------+---------+---------+ DARASUN+---------------+------+-----------------+------------------+------------------+| | | 6 months ended | 6 months ended | 12 months ended |+---------------+------+-----------------+------------------+------------------+| | | 30 June | 31 December | 31 December |+---------------+------+--------+--------+---------+--------+---------+--------+| | Unit| 2005 | 2004 | 2005 | 2004 | 2005 | 2004 |+---------------+------+--------+--------+---------+--------+---------+--------+|Mine | | | | | | | ||development | | | | | | | |+---------------+------+--------+--------+---------+--------+---------+--------+|Waste stripping|000 M3| 730 | - | 816 | 304 | 1,546 | 304 |+---------------+------+--------+--------+---------+--------+---------+--------+|Underground |Meters| 2,125 | 2,753 | 1,797 | 2,417 | 3,922 | 5,170 |+---------------+------+--------+--------+---------+--------+---------+--------+|Mining | | | | | | | |+---------------+------+--------+--------+---------+--------+---------+--------+|Open pit |Tonnes|17,425 | - | 29,861 | - | 47,286 | - |+---------------+------+--------+--------+---------+--------+---------+--------+|Underground |Tonnes|55,084 |39,875 | 71,987 |56,441 |127,071 |96,316 |+---------------+------+--------+--------+---------+--------+---------+--------+|Total ore mined|Tonnes|72,509 |39,875 |101,848 |56,441 |174,357 |96,316 |+---------------+------+--------+--------+---------+--------+---------+--------+|Ore processed |Tonnes|86,700 | - |119,835 |31,909 |206,535 |31,909 |+---------------+------+--------+--------+---------+--------+---------+--------+|Gold recovered |Ounces|11,770 | - | 13,678 | 4,870 | 25,448 | 4,870 |+---------------+------+--------+--------+---------+--------+---------+--------+|Gold sold |Ounces| 7,907 | - | 9,901 | 1,993 | 17,808 | 1,993 |+---------------+------+--------+--------+---------+--------+---------+--------+|Gold price | | | | | | | ||received |US$/oz| $437 | - | $474 | $440 | $457 | $440 |+---------------+------+--------+--------+---------+--------+---------+--------+ DEVELOPMENT PROJECTS Highland Gold has three projects at the feasibility study stage and a growingportfolio of exploration projects, which together are expected to drive theCompany's future growth. TASEEVSKOYE - Chita Region, Russia (HGM - 50%; Barrick - 50%) During the second half of 2005, Highland Gold formally transferred theTaseevskoye license to OOO Taseevskoye, a company that will be jointly ownedwith Barrick. The Joint Venture also established an office in the town of Baleyto manage community relations and project activities on a day to day basis. The key project related events during the period involved scoping work andplanning for 2006. The Joint Venture has completed an internal scoping study,the results of which have been sent to Aker Kvaerner for further definition.Specifically, Aker Kvaerner has been instructed to provide a more detailed levelof scope based on throughputs ranging from 2.1 - 4.2 million tonnes of ore peryear using a process flow sheet based on either a direct leach or pressureoxidation. A budget for 2006 of $21 million has been approved by the JointVenture partners. This budget includes funding for an exploration program, theinitiation of pit de-watering, as well as the completion of a pre-feasibilitystudy. In addition to the Sredne Golgotayskoye acquisition made in the first half of2005, Highland Gold acquired the rights to develop and re-process tailings thatwere initially accumulated from the Baley ZIF-1 processing plant. Fifty percentof this acquisition is being offered to Barrick and the rights are expected tobe incorporated into the Tassevskoye Joint Venture. These tailings arephysically located approximately 2 kilometres from the Taseevskoye pit andcontain an estimated gold resource of 485,000 ounces at a grade of 1.02 g/t, andcan potentially support early production at the Taseevskoye project. MAYSKOYE - Chukotka Region, Russia During the second half of 2005, Highland Gold and its consultants continued toadvance work on the Mayskoye feasibility study. This work included the deliveryby Micon International of a JORC resource of 2.6 million ounces in the measuredand indicated categories and a further 4.8 million ounces in the inferredcategory. As this resource breakdown differs from recent Russian estimates thatformed the basis of a one million tonne per year mining operation, the Companyis evaluating the option of developing the project in two phases, with aninitial production phase of approximately 500,000 tonnes per year. Highland Goldhas also initiated a systematic drilling program that is twinning severalexisting drill holes and providing in-fill drilling to upgrade a portion of thenear surface inferred resource. The drilling works are being performed byHighland Gold drill crews with two new drill rigs. In addition, a channelsampling program has collected samples from accessible ore bodies in theexisting underground development at Mayskoye. All assays will be provided toAker Kvaerner of Toronto, who has recently been appointed to manage themetallurgical components of the feasibility study. In addition, Highland Gold has been actively pursuing alternatives to improvethe project through optimisation of the June 2005 Russian feasibility study.This work includes an investigation of the benefits of locating the energyintensive bio-leaching plant in the town of Komsomolsk to take advantage ofaccess to the existing power grid. We are also conducting tests on the use ofX-Ray separation to limit the amount of waste introduced to the mill and testson the use of dry tailings that can substantially reduce the expenses requiredfor tailings dam construction. Finally, during the second half of 2005, Highland Gold made the final instalmentpayment of $11.5 million relating to the 2003 acquisition of the Mayskoyeproject. NOVOSHIROKINSKOYE - Chita Region, Russia During the second half of 2005, Highland Gold has been actively pursuingalternatives to improve the Novoshirokinskoye project through internaloptimisation and external review of the June 2005 Russian feasibility study. Thekey directions of the internal optimisation work have been oriented towardsinvestigating the export potential for both lead and zinc concentrates. Byexporting concentrates for the initial years of operation, the Company can begingenerating cash flows while deferring significant capital expenditures relatingto the Kivcet smelter. The external review of the project is being conducted bySNC Lavalin from Canada and Forni Engineering from Italy. Finally, Highland Gold acquired the rights to develop and mine theVozdvizhinskoye lead-zinc-silver deposit, a formerly operating underground mineand milling operation located 60 kilometres from Novoshirokinskoye. The minebegan operation in 1958 and was closed in 1995, although the mine's resourceshad not been fully depleted. Remaining C1 Russian resources are 850,000 tonnesof ore grading 5.0% lead, 4.6% zinc, 100 g/t silver and 0.4 g/t gold. EXPLORATION During the second half of 2005, Highland Gold announced a series of explorationacquisitions representing its first concrete steps towards the creation of adiversified group of quality exploration projects that also provide the Companywith an opportunity to leverage its existing presence in the Chita, Khabarovskand Chukotka regions. In each of these acquisitions, Barrick will be offeredparticipation rights of up to 50% pursuant to our 2004 Participation Agreement.In the meantime, we are planning our next steps for these projects and lookforward to the 2006 exploration season. Belaya Gora (Khabarovsk region) Highland Gold has acquired the exploration and mining rights for the Belaya Goragold deposit, located 55 kilometres north of the town of Nikolaevsk-na-Amur and66 kilometres to the south of our MNV operation. The deposit also lies within 5kilometres of an existing high voltage power line and is accessible all yeararound by a well maintained road that connects MNV to the town ofNikolaevsk-na-Amur and its port and airport facilities. The project has a longhistory of exploration and was explored during the 1970s and early 1980s withgeophysics, trenching, a large amount of drilling and underground development on3 horizons. Our preliminary target for Belaya Gora is to develop a near surface,bulk tonnage resource that is amenable to heap leaching. Lubov (Chita region) Highland Gold has acquired the exploration and mining rights for the MaloFedorovskoye deposit and has conditionally accepted an offer from Barrick tojoint venture the contiguous Lubavinskoye deposit. These two deposits form theLubov project, located in the Chita region, 400 kilometres to the southwest ofthe city of Chita and 25 kilometres north of the Mongolian border. The projectis accessible by road and links to the state electrical power grid. Historicexploration and mining activities had always been oriented on high-grade veins,though in the late 1990s the exploration focus on the property was shiftedtowards developing a near surface, bulk tonnage resource that would be amenableto heap leaching. This work was conducted on a 350 metre portion of a 10kilometre strike length and resulted in Russian C2+P1 resources to a depth of120 metres of 230,000 ounces of gold at a grade of 2.1 g/t Au. Sovinoye (Chukotka region) Highland Gold has acquired the exploration and mining rights for the Sovinoyedeposit in the Chukotka region, 100 kilometres west of the village of ShmidtCape (Population: 570) and 350 kilometres to the east of Pevek. The project hasa long history of exploration and was extensively explored for high grade veinsfrom the 1970s through to the mid 1980s with trenching, 25,000 metres (96 holes)of drilling and 2,700 metres of underground development. Following a review ofthe historic data on Sovinoye, Highland Gold has re-interpreted the geologicalmodel away from the high-grade vein system into a bulk tonnage, open pittablemodel. IN MEMORY - A. I. MIHAYLUK (1948 - 2006) On 25 January 2006, Alexander I. Mihayluk passed away after a brave fightagainst a terrible illness. As chief geologist at MNV, Mr. Mihayluk played a keyrole in the revival and successful development of the MNV mine and the formationof Highland Gold. More recently as the General Director of Vostokgeoldobicha,our exploration arm in the Khabarovsk region, Mr. Mihayluk's geologicalexperience and intuition were devoted towards inspiring and advancing ourexploration initiatives. All of us at Highland Gold mourn this loss of a truefriend and colleague and express our deepest sympathies to his family. CONFERENCE CALL Highland Gold will hold a conference call hosted by Ivan Koulakov, DeputyChairman, Scott Yelland, Chief Operating Officer and Denis Alexandrov, FinanceDirector to discuss these latest operating and financial results and progress atthe Company's development projects. The call will take place at 1:00 pm UK time(8:00 am EST; 4:00 pm Moscow) on Wednesday, 8 February 2006. Participants mayaccess the call toll free from the UK on 0800 953 1444 or from the USA on 1(866) 220 14521. International callers may use +44 (0) 1452 542 300. A replay ofthe conference will be available for one week at +44 1452 55 00 00 by using theaccess code 5270895#. For further information please contact: Enquiries: London: +44 (0) 207 851 6400 Moscow: +7 (495) 777 5529 E-mail: info@highlandgold.com Dmitry Korobov, Managing Director Dmitry Yakushkin, Director of Communications Grant Sinitsin, Director of Investor Relations This information is provided by RNS The company news service from the London Stock Exchange