30 Apr 2010 07:00
30 April 2010 - Highland Gold Mining Limited ("Highland Gold" or the "Company") announces its final results for the full year ended 31 December 2009.
FINANCIAL HIGHLIGHTS
| IFRS, US$000 (unless stated) | 2009 | 2008 (restated) |
| Production (oz) | 163,208 | 158,885 |
| Total cash costs (US$/oz) | 486 | 522 |
| Turnover | 164,747 | 149,147 |
| Gross profit | 63,504 | 44,642 |
| Profit (loss) for the year | 78,843 | (232,423) |
| Earnings (loss) per share (US$) | 0.242 | (0.720) |
| Net cash inflow from operations | 44,558 | 24,411 |
| Capital expenditure | 31,468 | 147,138 |
| Net cash flow (outflow) | 23,633 | (38,213) |
2009 Key Events
·; Gross profit of US$63.5 million, a 42.3% increase on 2008
·; Profit after tax of US$78.8 million (loss of US$232.4 million in 2008)
·; Mnogovershinnoye (MNV) produced 163,208 oz of gold exceeding 2008 by 2.7% with total cash costs of US$486 per ounce, a 6.9% decrease from 2008
·; Cash, short term deposits and bonds of US$243 million at 31 December 2009
·; Novoshirokinskoye (Novo) polymetallic mine commissioned on 1 October 2009
·; Sale of the Mayskoye development project for US$105 million
·; Belaya Gora exploration project moved to development stage after State approval of C1+C2 reserves (820,000 oz)
·; Taseevskoye project definition and feasibility study work advanced
·; Good progress achieved at three exploration sites - Unkurtash, Lyubov and MNV
Post Year End
·; Novo mine produced and shipped first concentrates in Q1 2010
·; Belaya Gora synergies with nearby MNV mine reviewed, providing the potential for fast-tracking open pit production in Q3 2010
·; Blagodatnoye exploration prospect acquired, increases resource potential of the Belaya Gora project
2010 Goals
·; Production in 2010 (from MNV, Novo and Belaya Gora) is forecast in the range of 200,000 - 210,000 oz of gold and gold equivalents
·; Continue to develop Taseevskoye feasibility study
·; Expanding resource potential at exploration properties with increased funding commitments
·; Acquisition opportunities continue to be reviewed.
Commenting on today's announcement, Duncan Baxter, Non-Executive Chairman said: "The achievements of 2009 underline the Company's focus on increasing the productivity of our existing producing mines and on pushing forward our development and exploration projects. We are pursuing the same strategy in 2010 and are well positioned to continue to improve the Company's performance on all fronts as well as to continue to review opportunities to acquire producing or near producing assets in Russia and the CIS. "
The Company will hold a conference call on Friday, 30 April 2010 hosted by Valery Oif, CEO to discuss the final results. The conference call will take place at 10.00 UK time (13.00 Moscow).
| UK Local Call 0844 493 3800 |
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| UK National Call 0871 700 0345 |
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| UK Standard International + 44(0) 14 52 55 55 66 |
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| Conference ID 7201 96 76 |
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| A replay of the presentation will be accessible shortly afterwards by dialing one of the following numbers: | |
| International Dial in: +44 (0) 14 52 55 00 00 | |
| UK Free Call Dial In: 08 00 953 15 33 | |
| UK Local Dial In: 08 45 245 52 05 | |
| USA Free Call Dial In: 1 866 247 42 22 Encore Replay Access Number: 72 01 96 76# | |
| For further information please contact: Highland Gold Duncan Baxter, Chairman - + 44 (0) 1534 814202 Dmitry Yakushkin, Head of Communications - +7 495 4249521 Fin International Alex Glover - +44 (0) 207 608 2280 Smith's - Investor Relations Dominic Palmer-Tomkinson - +44 (0) 207 239 0140 J.P. Morgan Cazenove (Nominated Adviser) Michael Wentworth-Stanley, Managing Director - + 44 (0) 207 588 28 28 www.highlandgold.com The Annual General meeting will be held on 17 June 2010. | |
CHAIRMAN'S REPORT
A More Focused and Profitable Business
It is with great pleasure that I can report that the Company is in a favourable position going forward into 2010. This is the result of the efficiencies introduced by the management team and our current portfolio of producing, development and exploration projects. A great deal of hard work was accomplished and key decisions were made by the management team to bring about significant changes that better position the Company to move ahead. I believe that the Company is now in a position to take advantage of the opportunities that exist for growth in the market.
One may argue that with the gold price at or around all time highs it should not be difficult for gold mining companies to announce profits. However, there is much more than just the gold price behind the Highland story this year. In 2009 the Moscow based team put into action, with great effect, a reorganisation plan following a comprehensive review of the business. This has positioned us to announce a very strong set of results including progress at our major producing mine, Mnogovershinnoye (MNV), the commissioning of our second producing asset, Novoshirokinskoye (Novo), as well as productive results from our development and exploration projects. The sale of Mayskoye in the early part of the year was also a major strategic decision that proved beneficial to our balance sheet and costs.
Production and Results
In 2009 our production rose to 163,208 ounces - which was within the forecast range and exceeded the 2008 production figure by 2.7%. We achieved a 42.3% increase in gross profit to US$63.5m, due to higher gold prices and tight cost management. Total cash costs for the year were US$486 per oz against US$522 per oz in 2008.
Strategic Priorities
With our current projects, we are aiming to increase production to between 200,000 and 210,000 oz in 2010. Highland Gold is also determined to continue the search for acquisition opportunities of other producing or near producing assets to boost production further with the pre-requisite that such acquisitions are compatible with the Company and will provide further synergies. Therefore an acquisition will be done recognising the strengths and opportunities that our current resources offer.
Mining and Development Projects
At the MNV mine a record level of throughput was achieved. Process plant recoveries improved slightly during the year as technological upgrades in the plant continued to reap rewards. Mined ore tonnage and grades remained consistent during 2009 from both open pit and underground sources.
The decision in 2008 to delay the commissioning of the Novo mine turned out to be a wise one. With our partner Kazzinc we spent most of 2009 managing the mine on a care and maintenance basis. With the improvement in metal prices it became more economically viable to commence operations and the mine was commissioned in October 2009 in accordance with the current licence terms. We expect Highland's equity share of the 2010 production to be in the region of 30,000 ozs of gold equivalents.
At Belaya Gora, Taseevskoye and our exploration projects we saw good progress. If there is an opportunity to fast track any of such projects without unduly increasing risks, this will be implemented.
Health and Safety
As always the Group places safety at our operations, protection of the environment, and the wellbeing of the communities in which the Group operates as a high priority. We remain committed to conducting business in an accountable and transparent way reflecting the interests of all stakeholders. The Group has made progress in ensuring that the human rights, customs and values of its employees and those affected by its activities are respected, that information about Group activities is properly communicated, and that environmental matters are properly considered.
Looking forward
We maintain a positive outlook for the gold price and we are confident that our continued efforts to reduce costs and maximise efficiencies will benefit the Company going forward. There has been more efforts deployed towards communicating Highland's vision. Our Investor Relation group also pays a lot of attention to the feedback provided which does assist us in better shaping the Company.
Against a back drop of continued uncertainty the Board will continue to take prudent steps to preserve the balance sheet and create value for our shareholders. As we have stated before, we continue to review opportunities to acquire producing or near producing assets in Russia and the former CIS. The Board influence from our major shareholders Millhouse and Barrick combines a mix of mining expertise and management skills which strongly position the Company to pursue growth opportunities.
Board Changes
Alex Davidson retired from Barrick with effect from the end of August to pursue other interests. Alex was a Barrick nominated director to Highland and he has been invaluable to us since his appointment in 2005. We take the opportunity to wish Alex well in his future endeavours and thank him for his assistance and support over the last four years.
Mr Jacques McMullen joined the Board as a Non-Executive Director in December 2009. Mr. McMullen currently holds the position of Senior Vice President, Special Projects at Barrick and is based at Barrick's head office in Toronto. Jacques replaced Alex Davidson as Barrick's appointee.
I thank the management and all employees for an excellent result and also our shareholders for their continued support. Finally, I have confidence in our ability to achieve our targets in the year ahead.
Chief Executive Officer's Report
2009: Stronger and More Efficient
2009 has been a year in which we have made good progress in implementing the operational objectives resulting from the Company review, which began in late 2008. Against a backdrop of recovering global financial markets and a strong upward trend in the gold price our decision to achieve maximum capacity at our producing mine at MNV and to examine the most appropriate ways in which to move our development and exploration projects forward proved to be successful. As an example, after optimising the consumption process and rates for fuel, lubricants, grinding balls and reagents, the management decreased the materials costs at MNV by 4.3%. In addition the reduction of labor costs at MNV by 19.5% positively affected the Group's EBITDA.
In our review we took a careful look at all aspects of the business and examined efficiency at every level on each project. This resulted in new planning and modeling schemes for each. We also completed reviews of procurement, expenditures, processing facilities, equipment and personnel in line with continuous improvement throughout the Company. At the same time we took steps to increase our confidence in converting our resource ounces into production.
We emerge from 2009 having achieved the objectives we set out for ourselves and with a promising outlook for all of the projects in our portfolio. With two producing mines and with a revised portfolio of development and exploration projects - both in terms of financial and operational capabilities - Highland Gold is well positioned to take advantage of the growth opportunities that exist in its chosen markets.
Corporate & Social Responsibility
In the course of 2009 we continued our work on establishing and maintaining partnership relations with local communities in the regions where we operate. Most of our activities are carried out under Social Partnership Agreements with regional and local authorities. In 2009 we signed an agreement with the Nikolaevsk district authorities of the Khabarovsk region, and pursuant to this we provided assistance with local road repairs, fuel purchase, construction and renovation work for educational and medical facilities, and the general improvement of public spaces.
Similar assistance on a smaller scale has been provided by the Company to the local communities at our exploration projects, in particular at the Lyubov ore field in the Zabaikalsky region of Russia and at the Unkurtash project in Kyrgyzstan.
Health, Safety & Environment
As at 31 December, 2009 the Highland Gold Group employed 2,435 employees compared to 3,030 at the end of 2008. This decrease came about as a result of a staff optimisation programme implemented in Q1 and Q2 2009 and the sale of the Mayskoye project.
The workforce at Mnogovershinnoye remained relatively unchanged while the headcount at the Novoshirokinskoye project increased as mining and processing operations continued ramping up into production. At the end of Q1 2010 a total of 2,547 people were employed throughout the Group, a level which is still well below what it was at the end of 2008 despite the addition of a new producing asset, this while improving production.
In accordance with international health and safety regulations the Company has systematically improved the working environment providing necessary training, implementing new technologies, and providing new equipment with the goal of improving health and safety conditions for our entire workforce.
As a result of these efforts the lost time injury rate (LTI rate is the number of lost time injuries for every 200,000 man hours worked) decreased to 0.55 in 2009, a 8.3% improvement in comparison to the LTI rate in 2008 (0.60).
In January, April and November 2009 no LTIs were registered at any of the Group's sites. 1,150 employees attended HSE training courses during the year, while 170 employees were certified in Industrial Safety.
There were no reportable incidents with regards to environmental compliance at any mine or project site across the Group in 2009. Additional measures were introduced at specific locations to further ensure environmental compliance at all Company sites in the future.
At MNV the waste water treatment and recirculating water supply facilities were constructed for the Central ore body, with a flood and mine water treatment facility being built for adits 11, 11B and 35. The water treatment facility built for the road transport shop was also commissioned. As a result the recirculation water use increased by 12. 5% compared to 2008 figures.
At the Novoshirokinskoye project, the assaying lab has been equipped with modern monitoring devices and officially accredited for environmental monitoring accuracy.
In 2009 we carried out 84 internal environmental audits and 85 of our managers and specialists took training courses in environmental protection and safety.
OPERATIONS
MNOGOVERSHINNOYE (MNV), Khabarovsk region
In 2009 open-pit operations remained focused on the Upper ore body with the introduction of mining at the Flank ore body. In our underground operations improved ore production and stable development continued. A total of 526,876 tonnes of open pit ore was produced from the Upper and Flank pits with 482,508 tonnes of ore mined from underground operations. The year on year stronger underground ore production was the result of accelerated development in previous years and continued in 2009. This provided adequate underground ore block mining during the year. The main underground ventilation system construction works which commenced late in 2008 were completed during 2009. This is expected to provide the necessary ventilation volumes for ongoing underground development and production via the #35 portal.
MNV Operations Summary
| MNV | H2 2009 | H1 2009 | 2009 | 2008 |
| Open Pit Stripping (M³) | 900,568 | 1,338,069 | 2,238,637 | 2,349,795 |
| U/G Development (Metres) | 4,396 | 4,289 | 8,685 | 9,359 |
| Total Ore Mined (Tonnes) | 544,435 | 464,949 | 1,009,384 | 1,036,851 |
| Average Grade (g/t) | 5.2 | 5.7 | 5.4 | 5.3 |
| Ore Processed (Tonnes) | 541,278 | 540,327 | 1,081,605 | 1,039,977 |
| Average Grade (g/t) | 5.2 | 5.3 | 5.2 | 5.4 |
| Recovery Rate (%) | 88.4 | 88.6 | 88.3 | 88.1 |
| Gold Produced (Ounces) | 84,787 | 78,421 | 163,208 | 158,885 |
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As a result of the previous recalculation of reserves (2008) additional off-balance ore was targeted during the year and delivered to the process plant as a strategic stockpile. This helped operations to maintain smooth process throughput rates during times of inclement weather interruptions. In all, a record 1,081,605 tonnes of ore (+4% 2009 vs. 2008) grading 5.2 g/t were processed at an average recovery of 88.3%. Several process upgrade initiatives continued in the process plant which helped to mitigate some technical inefficiencies and to improve gold recoveries even though head grade was slightly lower and throughput volumes higher.
Production Costs
Cash operating costs in 2009 were US$425 per ounce (2008 restated: US$464), total cash costs were US$486 per ounce (2008 restated: US$522 per ounce), total production costs were US$578 per ounce (2008 restated: US$603).
Capital Costs
During 2009 the Company invested US$13.5 million at MNV. This included: capital construction (US$9.2 million), purchase of equipment (US$3.1 million), exploration (US$1.2 million).
Outlook
Ongoing improvements to the process plant in the gravity and recovery sections will continue during the year with expectations that recovery levels should increase by the second half of 2010. Several capital equipment replacements in both open pit and underground operations will help to maintain stable production levels in addition to keeping mining costs stable.
Gold production is expected to remain in the 155,000 - 165,000 oz range during 2010.
NOVOSHIROKINSKOYE (NOVO), Zabaikalsky region
As a result of improving long range fundamentals for base metal prices the Company in conjunction with its JV partner Kazzinc agreed in July 2009 to commission the mine in compliance with license terms by October 2009. The mine has since been ramping up both mining and processing operations and had processed 30,000 tonnes of stockpiled ore by the end of 2009. Since commissioning in October, the main skip shaft was commissioned, the plant laboratory was certified and mobilisation of necessary manpower remained on schedule. Initial concentrates were shipped during February 2010 and continue to increase in tonnage in line with ramped up production levels. During February 2010 1,200 tonnes of concentrate were delivered, which increased to 1,800 tonnes for the month of March 2010.
Capital Costs
In 2009 US$7.6 million was invested at Novo representing our 48.3% share.
Outlook
The mine will continue to ramp up mining and processing operations during the year and is expected to produce ca. 300,000 tonnes of ore in 2010 with a production guidance of 30,000 gold equivalent ounces for the Company. Technical studies are currently underway investigating the potential for productivity improvements mine wide.
DEVELOPMENT PROJECTS
BELAYA GORA, Khabarovsk region
During H1 2009, the Belaya Gora property advanced from its exploration project phase into the development project stage. Previous successful exploration works, metallurgical testing and preliminary pit designs resulted in 820,000 oz of C1+C2 reserves of gold contained in 7.3 million tonnes @3.5g/t being registered on the State balance in accordance with the State Committee on Reserves (GKZ).
Ongoing project feasibility and test work continued in order to identify the optimal mining and processing methodologies to adopt, as well as to test the potential for related synergies with the nearby (66kms) MNV mine. As a result of the feasibility work concluded during the year it is now anticipated that Belaya Gora could initially fast track selective ore mining and truck high grade oxides to the MNV process plant commencing in H2 2010. We expect to produce 15,000 ounces of gold at the project in 2010. Oxide ore mining and hauling to MNV is expected to continue through to 2012 by which time we plan to construct an independent processing facility adjacent to the Belaya Gora pit which will process all mined production through the life of mine.
TASEEVSKOYE, Zabaikalsky region
The Company invested US$3.4 million in the project in 2009. During H1 2009, it was confirmed that the Taseevskoye project doubled its GKZ approved reserves to 3.39 million oz of C1+C2 category gold contained in 20 million tonnes @ 5.2g/t. A local contractor was employed to mine a 360 tonnes bulk ore sample to facilitate metallurgical testing to define and compare the economics of pressure oxidation, bio-oxidation and ultra fine grinding and cyanidation. The outcome of these activities are expected during Q2 2010. A semi-industrial pilot test employing the most economic gold recovery process will then follow. At the same time off-site toll refining of concentrates will also be investigated as another alternative which would have the advantage of reducing the initial capital costs associated with plant construction.
EXPLORATION
Promising progress was made in 2009 with all of our exploration projects, each of them moving forward towards the development stage. With the successful registration of a substantial gold reserve on the State balance the Belaya Gora project had already entered the development stage and our exploration efforts are now focused on Lyubov and Unkurtash in Kyrgyzstan as our most advanced projects. While we temporarily suspended field work at our grass root project Iska near Belaya Gora we seized the opportunity at the beginning of 2010 to acquire the nearby Blagodatnoye property with a clear strategy in mind that synergies from both properties should contribute significantly to the future Belaya Gora operation.
US$4.7 million were spent on exploration in 2009 including US$1.2 million on near-mine exploration at MNV.
LYUBOV, Zabaikalsky region.
Apart from additional analytical work, reporting to regulatory authorities represented a major component of the exploration program for the Lyubov project in 2009. In compliance with the licence agreement a summary report compiling previous external, and our own exploration results to date, including a resource calculation has been submitted and approved by the regulatory authorities. Accordingly at a cut-off grade of 0.75 g/t the Evgraf target was reported using the GKZ methodology to contain C2+P1 resources of 52.08 tonnes of gold at an average grade of 1.78 g/t. Preliminary metallurgical test work performed on a 320 kg composite sample investigating amenability to heap leach returned positive results yielding a gold recovery to solution of 68.4% for the 5 mm size fraction during a 45 day leach cycle.
A new project outlining exploration works until 2012 has received regulatory approval.
In 2010 a 6,000 metres drilling programme will be implemented to convert part of the P resources into the C1+C2 category which is expected to increase the resource base at Evgraf. The programme will also include drill testing for continuity of the known gold mineralisation towards the west from Evgraf potentially opening up additional resources. Metallurgical test work will continue on a 1,200 kg composite sample for which a full flow sheet of processing options for the Lyubov ore is to be determined and which will be received in H2 2010.
UNKURTASH, Kyrgyzstan.
In 2009 the Company completed RC and diamond drilling programmes for a total of 5,683 metres at two of three targets (Unkurtash, Karatube) and continued to receive encouraging drilling results. At the main target Unkurtash with stockwork-type gold mineralisation RC drilling returned several intersects tens of metres wide with average grades ranging from 1 to 6 g/t. Drilling results obtained to date are very encouraging and support the plan to continue exploration at the property which has the potential to be a large open-pit mineable resource with an average grade in the range of 1.4 - 1.7 g/t. Engineering studies have been initiated to investigate potential project development and metallurgical testwork on 4 composite samples totaling 2.9 tonnes has been started.
In 2010 we will step up our exploration programs substantially and have allocated for resource definition 15,000 metres of RC and 2,000 metres of core drilling at three targets (Unkurtash, Sarytube and Karatube). In addition a planned target of 3,200 metres of underground exploration development below the previous drilling horizon at Unkurtash is expected to extend the resource potential significantly.
In light of the recent political events in Kyrgyzstan our operations in the country have been unaffected and continue to operate normally. While the Company is monitoring the situation we remain confident that the current political situation will be resolved and that the country will return to a stable investment climate.
MNOGOVERSHINNOYE, Khabarovsk region.
In 2009 we continued with our near-mine exploration programme aimed at discovering additional resources for underground and open-pit operations. At the Pebble prospect we completed nearly 4,500 metres of drilling in 66 drill holes many of which intercepted substantial ore-grade gold mineralisation, confirming good potential for additional open pit reserves. Assay results concur with the reserve model for this prospect now estimated at 190,000 ounces of gold contained in shallow, open-pit mineable ore grading between 3.0-5.0 g/t. These results are more than double the originally defined gold reserves at Pebble and are expected to contribute considerably to MNV's open-pit operations in the near future.
Our near-mine exploration programme at MNV is planned to continue in 2010 and beyond and is aimed at maximising the mine life. At the Pebble prospect we have allocated 6,000 metres of resource definition drilling including testing of 1.5 kilometres of undrilled sections along the entire length of the Pebble zone. In addition, two other drill testing targets near the current open pit have been evaluated and could be drilled in 2010.
ISKA - Khabarovsk Region, Russia.
Field work at the Iska prospect close to Belaya Gora was suspended in 2009 in line with the Company's adjustment to the global economic situation and prioritising of its projects. Iska features strong geological similarities with Belaya Gora and several occurrences of previously known gold prospects underline the good potential of this grass root exploration property. The property is host to an alunite deposit which is known to potentially host major gold deposits similar to several prospects in South America. The alunite deposit at Iska has been drilled previously but remains untested for gold.
In 2010 exploration work is planned to resume at Iska and will include reconnaissance and reconciliation work with selected core assaying of the previously drilled alunite deposit on the property.
BLAGODATNOYE - Khabarovsk Region, Russia.
In early 2010 the Company acquired in open auction the license for exploration and mining rights for the Blagodatnoye prospect located just 30 kilometres southwest of Belaya Gora. Blagodatnoye hosts a reported prognostic resource of 5 tonnes (161,000 oz) featuring stockwork-type gold mineralisation with average gold grades in the range of 1.5 g/t - 2.0 g/t.
Our preliminary evaluation of data from previous exploration work revealed that the property has good potential to increase the reported mineral resource substantially.
The acquisition of the Blagodatnoye property underlines the Company's strategy of growing its asset portfolio in the vicinity of its existing operations by adding quality exploration properties with potential for future gold production.
A multi-disciplinary exploration program will be designed which will include trenching and drilling programs to verify and expand the known mineralised zones. Upon approval of the exploration project by regulatory authorities exploration work could commence by H2 2010.
Exploration Outlook
We have significantly increased our exploration budget for 2010 and we will continue to focus on the advanced exploration projects which we perceive as future value and growth drivers for the Company. As in the preceding years, a major component will be spent on the Unkurtash project, currently our most promising exploration asset in terms of size and potential and for which we have committed funding for more than 17,000 metres of drilling and 3,200 metres of underground exploration work.
Mr. Werner Klemens, Head of Exploration at Highland Gold has reviewed and verified the information contained in this release with respect to reserve and resource matters. Mr. Klemens holds a Ph.D. in Geology from the University of Toronto. He has 12 years of experience in mineral exploration and is a fellow of the Geological Association of Canada. A rigorous quality assurance programme complying with international standards is in effect at all exploration projects and includes duplicate sampling, insertion of standards and check assaying at external laboratories.
CONCLUSION
As the Chairman pointed out in his report Highland Gold has undergone a transformation in the last year. One where the business has become more efficient in its working methods, from planning and modeling for our producing and development assets through to our responsibility to our staff and the communities in which we operate. We have also added more clarity and focus to our actions to divest ourselves of assets that do not fit in to our plan and to accelerate projects that clearly form part of our future.
This new confidence is reflected in the results we have achieved in 2009 and that we believe will also be carried forward in to 2010 and beyond.
I would like to take this opportunity to thank the Board, the management team and all our employees for their dedication and hard work in a very challenging yet rewarding year.
Chief Financial Officer's Report
Highland Gold has positioned itself to take full advantage of the favorable market conditions for gold and other base metals. The launch of Novo, together with continued efforts at MNV, has increased production with the consequent benefit to our financial performance.
The Company posted a profit from continuing operations of US$80.4 million in 2009 compared to a loss of US$113.6 million in the prior year. The main reasons for this were strong operating activity resulting in a gross profit of US$63.5 million compared to US$44.6 million in 2008, the reversal of an impairment loss at the Novoshirokinskoye project amounting to US$22.7 million (2008: impairment loss of US$79.5 million) and a foreign exchange gain of US$20.4 million (2008: loss of US$73.1 million) predominately associated with a stronger Pound Sterling against the US dollar.
Turnover for the Group in 2009 was US$164.7 million compared to US$149.1 million in the prior year. The increase was due to our "no hedge" policy which allowed the Group to be fully leveraged to stronger gold prices, and also relates to the increase in production at MNV as a result of various mine initiatives implemented in 2009. The average price per ounce of gold sold was US$964 which represents a 10.8% increase compared to 2008.
The Group's costs of sales decreased by 3.1%, or US$3.3 million compared to the prior year.
A revised method of calculating cash costs was adopted in 2009. After analysing the norms of the costs per ounce calculation which are common within the global gold industry, the management of the Company decided not to include into them the costs which are not directly attributable to gold production, notably corporate management services. Accordingly cash operating costs per ounce at MNV were reduced by 8.5% to US$425 in 2009 (2008-restated: US$464 per ounce). Decreased unit costs were predominantly associated with reduced employee benefit expenses and the depreciation of the Rouble against the US dollar by 27.7% in 2009 compared to 2008. These costs were affected by higher royalties due to the stronger gold price in 2009. As a result, our total cash costs decreased to US$486 per ounce (2008-restated: US$522 per ounce). Total production costs were US$578 per ounce compared to US$603 per ounce (restated) in 2008.
The Group's EBITDA in 2009 increased by 24.9% to US$57.1 million compared to US$45.7 million in 2008. The increase was a result of a higher amount of gold and silver sold (increase by 11.9%) together with the operating cost reduction.
In 2009 the Group performed a reassessment of the economic model for the Novoshorokinskoye joint venture project (HGML share 48.3%). As a result of the model improvement and in line with the agreement between the Group and its JV partner Kazzinc, the Novoshorokinskoye mine was commissioned on 1 October 2009.
The reversal of the impairment charge amounting to US$22.7 million (2008: charge of US$79.5 million) was stated in 2009 to reflect the Board's revised valuation of the Novoshirokinskoye mine. The main triggers for this were stronger world metal prices (gold, silver, lead and zinc), optimisation of mining, processing and overhead costs. The reversal of the impairment charge reflected the increase of the book value of the property, plant and equipment of the Novoshirokinskoye mine for the same amount.
On 28 April 2009 the Group completed the sale of the issued share capital of its subsidiary Zolotrudnaya Kompaniya Mayskoye. The loss from discontinued operation at Mayskoye was US$1.6 million which comprises total cash proceeds of US$105.0 million from sale, cost of disposed net asset of US$105.0 million and a loss of US$1.6 million from the operation for the period.
The total amount of the foreign exchange gain for the year ended 31 December was US$20.4 million (2008: loss of US$73.1 million) resulting from the settlement of foreign currency transactions and from the translation of monetary assets and liabilities denominated in foreign currencies such as Russian Roubles and Pounds Sterling into our functional currency (US$). The foreign exchange gain was affected by a slight devaluation of Russian Roubles by 2.94% in 2009 (2008: 19.7%) and the strengthening of Pound Sterling by 9.12% (2008: devaluation of 37.9%). US$20.2 million of the total foreign exchange gain (2008: loss of US$64.5 million) was attributable to the movement and translation of pound denominated deposits and translation of cash balances denominated in foreign currencies.
Finance income decreased by 56.9% to US$7.8 million as a result of lower average deposits balance and lower interest rates.
Finance costs of US$4.0 million were higher in 2009 compared to US$1.0 million in 2008 mainly due to the negative fair value movement of bonds acquired by the Group in November 2009. All borrowing costs related to the bank loans were capitalised in 2009 as well as in 2008 as the Group used almost all borrowed facilities to finance works on its development projects.
The income tax charge was US$7.1 million in 2009 compared to US$2.9 million the prior year. The tax charge consists of US$10.8 million of current tax expenses (US$10.1 million at MNV and US$0.7 million at Stanmix Investment), current tax expenses in respect of the prior year (US$0.2 at Stanmix Investment) and of US$4.0 million as a deferred tax credit.
The Group projects at the development or exploration stages suffered a tax loss during the period. These tax losses are not able to be recognised until such time as there is sufficient evidence of future taxable profits in those entities, against which the losses can be utilised. The application of this policy may lead to previously unrecognised deferred tax assets being recognised in the future, as projects are determined to be economically viable, resulting in a credit to income taxes. In 2009 US$1.4 million of previously unrecognised losses were recognised due to the improvement of the Novoshirokinskoye mine economic model. In 2008 US$1.7 million of tax losses which arose during the period were not recognised.
The Group's cash inflow from operating activities in 2009 was US$44.6 million compared to US$24.4 million in 2008. The cash flow contribution was a result of higher revenues from gold sales.
Highland Gold invested US$31.5 million in capital expenditures (2008: US$147.1 million) comprising US$13.5 million at MNV, US$7.6 million at Novoshirokinskoye and US$3.4 million at Taseevskoye, US$3.5 million in advancing the Company's exploration projects and other Group entities. US$3.5 million were spent on Mayskoye before the sale of the project in April 2009.
The net financing cash outflows were US$61.6 million in 2009 (2008: inflow of US$148.5 million). The main inflows were the drawdown of bank loans with UniCreditBank for US$25 million, Gazprombank for US$25 million, bank overdrafts for US$3.3 million and the receipt from Kazzinc of US$6.1 million as Highland Gold's share of 48.3% in the Novoshirokinskoye project. Financing cash outflows represented US$107.3 million of bank loans repayments, interest and lease payments respectively of US$12.1 million and US$1.6 million.
Cash, short term deposits and bonds at 31 December, 2009 were US$243.0 million versus US$173.1 million at 31 December, 2008 while the net cash position of the Group totaled US$173.2 million versus US$49.0 million at 31 December, 2008. The net cash of the Group includes cash at bank, deposits and bonds decreased by bank borrowings, 48.3% of the Novoshirokinskoye receipt from Kazzinc offset by 51.7% in loans given by the Group to Novoshirokinskoye, and finance lease liabilities. The positive change of US$124.2 million in the net cash position was mainly as a result of the receipt of proceeds from the sale of Mayskoye.
After the year end, in March 2010 the Group made an early repayment of US$20 million to UnicreditBank and US$8.3 million to MDM bank. These repayments of bank facilities reduce Highland Gold's cost of debt.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2009
|
|
|
|
|
|
|
|
2009 US$000
|
2008 (restated) US$000
|
|
|
|
|
|
| Continuing operations |
|
|
|
|
|
|
|
|
| Revenue |
| 164,747 | 149,147 |
| Cost of sales |
| (101,243) | (104,505) |
| Gross profit |
| 63,504 | 44,642 |
|
|
|
|
|
| Administrative expenses |
| (16,866) | (11,624) |
| Other operating income |
| 2,462 | 1,035 |
| Other operating expenses |
| (8,462) | (9,307) |
| Reversal of the impairment / (Impairment charge) |
| 22,655 | (79,470) |
| Operating profit/(loss) |
| 63,293 | (54,724) |
|
|
|
|
|
| Foreign exchange gain/(loss) |
| 20,374 | (73,056) |
| Finance income |
| 7,792 | 18,079 |
| Finance costs |
| (4,014) | (1,018) |
| Profit/(loss) before income tax |
| 87,445 | (110,719) |
|
|
|
|
|
| Income tax expense |
| (7,050) | (2,882) |
| Profit/(loss) for the period from continuing operations |
| 80,395 | (113,601) |
| Discontinued operation |
|
|
|
| Loss after tax for the period from a discontinued operation |
| (1,552) | (118,822) |
| Profit/(loss) for the year |
| 78,843 | (232,423) |
|
|
|
|
|
| Total comprehensive income for the year |
| 78,843 | (232,423) |
| Attributable to: |
| ||
|
|
|
|
|
| Equity holders of the parent
|
| 78,843 | (232,423) |
| Earnings/(loss) per share (US$ per share) |
|
|
|
| Basic, for the/profit for the year attributable to ordinary equity holders of the parent |
| 0.242 | (0.720) |
| Diluted, for the profit for the year attributable to ordinary equity holders of the parent |
| 0.241 | (0.720) |
| Earnings /(loss) per share for continuing operations (US$ per share) |
|
|
|
| Basic, for the profit from continuing operations attributable to ordinary equity holders of the parent |
| 0.247 | (0.352) |
| Diluted, for the profit from continuing operations attributable to ordinary equity holders of the parent |
| 0.246 | (0.352) |
| Loss per share for discontinued operations (US$ per share) |
|
|
|
| Basic, for the profit from discontinued operations attributable to ordinary equity holders of the parent |
| (0.005) | (0.368) |
| Diluted, for the profit from discontinued operations attributable to ordinary equity holders of the parent |
| (0.005) | (0.368) |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 31 December 2009
|
|
|
2009 US$000
|
2008 (restated) US$000 |
As at 1 January 2008 US$000
|
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|
|
|
|
|
|
|
| |
|
|
|
|
|
|
| Non-current assets |
|
|
|
|
| Exploration and evaluation assets |
| 30,991 | 27,806 | 23,077 |
| Mine properties |
| 124,898 | 109,364 | 206,063 |
| Property, plant and equipment |
| 58,794 | 124,950 | 78,487 |
| Intangible assets |
| 65,231 | 65,231 | 65,231 |
| Financial assets |
| 40,424 | 33,749 | 11,010 |
| Other non-current assets |
| 15 | 1,852 | 4,579 |
| Deferred income tax asset |
| 2,837 | - | - |
| Total non-current assets |
| 323,190 | 362,952 | 388,447 |
|
|
|
|
|
|
| Current assets |
|
|
|
|
| Inventories |
| 42,857 | 61,466 | 52,706 |
| Trade and other receivables |
| 20,825 | 36,174 | 35,034 |
| Income tax prepaid |
| 2,719 | 889 | 421 |
| Prepayments |
| 2,335 | 3,108 | 5,391 |
| Other financial assets |
| 2,973 | - | - |
| Investments |
| 46,274 | - | - |
| Cash and cash equivalents |
| 196,695 | 173,062 | 211,275 |
| Total current assets |
| 314,678 | 274,699 | 304,827 |
| Total assets |
| 637,868 | 637,651 | 693,274 |
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
| Equity attributable to equity holders of the parent |
|
|
|
|
| Issued capital |
| 585 | 585 | 458 |
| Share premium |
| 718,370 | 718,370 | 525,465 |
| Shares to be issued |
| - | - | 510 |
| Assets revaluation reserve |
| 832 | 832 | 790 |
| Accumulated losses |
| (227,152) | (305,912) | (72,612) |
| Total equity |
| 492,635 | 413,875 | 454,611 |
|
|
|
|
|
|
| Non-current liabilities |
|
|
|
|
| Long-term interest payable |
| 5,031 | 3,216 | - |
| Interest-bearing loans and borrowings |
| 52,120 | 104,493 | 104,454 |
| Provisions |
| 9,492 | 9,278 | 7,437 |
| Deferred income tax liability |
| 11,257 | 12,405 | 20,557 |
| Total non-current liabilities |
| 77,900 | 129,392 | 132,448 |
|
|
|
|
|
|
| Current liabilities |
|
|
|
|
| Trade and other payables |
| 13,698 | 41,955 | 25,741 |
| Interest-bearing loans and borrowings |
| 52,842 | 49,698 | 71,968 |
| Income tax payable |
| 734 | 624 | 6,334 |
| Provisions |
| 59 | 2,107 | 2,172 |
| Total current liabilities |
| 67,333 | 94,384 | 106,215 |
| Total liabilities |
| 145,233 | 223,776 | 238,663 |
| Total equity and liabilities |
| 637,868 | 637,651 | 693,274 |
The financial statements were approved by the Board of Directors on 29 April 2010.
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 31 December 2009
|
| 2009 US$000
| 2008 (restated) US$000 |
|
|
|
|
| Operating activities Profit/ (loss) before tax from continuing operations | 87,445 | (110,719) |
| Loss before tax from discontinued operations | (1,552) | (126,713) |
|
| 85,893 | (237,432) |
|
|
|
|
| Adjustments to reconcile (loss)/profit before tax to net cash flows from operating activities: |
|
|
| Depreciation of property, plant and equipment | 15,817 | 13,930 |
| (Impairment reversal)/Impairment of assets | (22,655) | 193,535 |
| Inventory write-down | 646 | 1,662 |
| Loss on disposal and write-off of property, plant and equipment | 2,057 | 18 |
| Exploration costs write-off | 1,584 | 5,314 |
| Deferred stripping costs write-off | - | 2,201 |
| Share-based payments (credit) | (83) | (1,030) |
| Interest income | (7,797) | (18,116) |
| Fair value movement | 3,173 | - |
| Interest expense | 892 | 1,018 |
| Net foreign exchange loss | (19,014) | 74,863 |
| Movement in provisions | (1,017) | 6,181 |
| Accounts payable write-off | - | (890) |
|
|
|
|
| Working capital adjustments: |
|
|
| Decrease/(increase) in trade and other receivables and prepayments | 5,601 | (18,711) |
| Decrease/(increase) in inventories | 13,554 | (10,991) |
| (Decrease )/Increase in trade and other payables | (23,413) | 23,075 |
| Income tax paid | (10,680) | (10,216) |
| Net cash flows from operating activities | 44,558 | 24,411 |
|
|
|
|
| Investing activities |
|
|
| Proceeds from sale of property, plant and equipment | 121 | 122 |
| Proceeds received from Mayskoye disposal, net of cash disposed | 104,719 | - |
| Purchase of property, plant and equipment | (31,468) | (147,138) |
| Proceeds received from Darasun disposal | - | 5,000 |
| (Increase) /decrease in deferred stripping costs | (1,737) | - |
| Loans given to jointly controlled entity | (4,860) | (19,296) |
| Interest received | 3,481 | 14,699 |
| Purchase of investments | (49,805) | - |
| Net cash flows from/(used) in investing activities | 20,451 | (146,613) |
|
|
|
|
| Financing activities |
|
|
| Issue of ordinary shares | - | 192,522 |
| Share issue costs | - | (9,386) |
| Proceeds from borrowings | 53,326 | 44,193 |
| Repayment of borrowings | (107,318) | (79,492) |
| Interest paid | (12,146) | (11,492) |
| Receipts from Kazzinc to finance joint venture | 6,133 | 14,227 |
| Lease payments | (1,577) | (2,075) |
| Net cash flows (used in)/from financing activities | (61,582) | 148,497 |
|
|
|
|
| Net increase in cash and cash equivalents | 3,427 | 26,295 |
| Effects of exchange rate changes | 20,206 | (64,508) |
| Cash and cash equivalents at 1 January | 173,062 | 211,275 |
|
|
|
|
| Cash and cash equivalents at 31 December | 196,695 | 173,062 |
|
|
|
|
Selected Accounting Policies and Notes to the Financial Statements.
Basis of preparation
The financial information for the year ended 31 December 2009 has been extracted from the audited 31 December 2009 consolidated financial statements. The consolidated financial statements have been prepared on a historical cost basis except for financial instruments that have been measured at fair value. The consolidated financial statements are presented in United States dollars and all values are rounded to the nearest thousand (US$000) except when otherwise indicated.
Statement of compliance
The consolidated financial statements of Highland Gold Mining Limited and all its subsidiaries (the "Group") have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union and Companies (Jersey) Law 1991.
Basis of consolidation
The consolidated financial statements comprise the financial statements of Highland Gold Mining Limited and all its subsidiaries as at 31 December each year.
Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases.
The financial statements of the subsidiaries are prepared for the same reporting year as the parent company, using consistent accounting policies.
All intra-group balances, transactions, income and expenses and profits and losses resulting from intra-group transactions that are recognised in assets, are eliminated in full.
Comparative financial information
The comparative financial information presented, which has been extracted from the audited 31 December 2009 financial statements differs to those figures presented in the 31 December 2008 financial statements due to the correction of the prior year error n respect of understatement of Mayskoye impairment charge by US$6.2 million and overstatement of the balance of property, plant and equipment and retained earnings by the same amount.
Novo reversal of impairment
In 2009 the Group performed a reassessment of the economic model for the Novoshorokinskoye joint venture project (HGML share 48.3%). As a result of the model improvement and in line with the agreement between the Group and its JV partner Kazzinc, the Novoshorokinskoye mine was commissioned on 1 October 2009.
The reversal of the impairment charge amounting to US$22.7 million (2008: charge of US$79.5 million) was stated in 2009 to reflect the Board's revised valuation of the Novoshirokinskoye mine. The main triggers for this were stronger world metal prices (gold, silver, lead and zinc), optimisation of mining, processing and overhead costs. The reversal of the impairment charge reflected the increase of the book value of the property, plant and equipment of the Novoshirokinskoye mine for the same amount.
In assessing whether a reversal of the impairment is required to the carrying value of an asset, its carrying value is compared with its recoverable amount. The recoverable amount is the higher of the asset's fair value less costs to sell and value in use. The recoverable amount used in assessing the impairment charges or reversal is fair value. The Group generally estimates fair value using a discounted cash flow model. The calculation of fair value is most sensitive to the following assumptions:
·; Production volumes;
·; Discount rates;
·; Metal prices; and
·; Operating costs.
Estimated production volumes are based on detailed life of mine plans and take into account development plans for the mines agreed by management as part of the long-term planning process.
The future cash flows of the Novoshirokinskoye mine were discounted using a pre-tax discount rate of 12.73% (2008: 10.75%). The discount rate is derived from the Group's weighted average cost of capital adjusted for 3% of risk specific to Novo.
Foreign exchange gains and losses
The total amount of foreign exchange gain for the year ended 31 December 2009 was US$20.4 million (2008: loss of US$73.1 million) resulting from the settlement of foreign currency transactions and from the translation of monetary assets and liabilities denominated in foreign currencies such as Russian Roubles and pounds into the functional currency. The foreign exchange gain was affected by a slight devaluation of Russian Rouble for 2.94% in 2009 (2008: 19.7%) and strengthening of pound for 9.12% (2008: devaluation for 37.9%). US$20.2 million of the total foreign exchange gain (2008: loss of US$64.5 million) was attributable to the movement and translation of pound-denominated deposits and translation of cash balances denominated in foreign currencies.
| Income Tax
A reconciliation between the actual tax expense and the expected tax expense based on the accounting profit multiplied by Russian statutory tax rate of 20% for the year ended 31 December 2009 and 24% in 2008 is as follows: | ||
|
|
|
|
|
| 2009 | 2008 (restated) |
|
|
|
|
| Accounting profit /(loss) before tax from continuing operations | 87,445 | (110,719) |
| Loss before tax from a discontinued operation | (1,552) | (126,720) |
| Accounting (loss)/profit before income tax | 85,893 | (237,439) |
|
|
|
|
| At Russian statutory income tax rate of 20% (2008:24%) | 17,179 | (56,985) |
| Change in tax rate | - | (2,233) |
| Non-deductible expenses | 1,595 | 7,521 |
| (Gain on impairment reversal)/losses arising from Novo impairment | (4,531) | 19,072 |
| Losses arising from the Mayskoye impairment | - | 19,231 |
| Lower tax rates on overseas earnings and disposals | (5,580) | 9,917 |
| (Recognised losses)/unrecognised losses | (1,373) | 1,700 |
| Movements in other unrecognised temporary differences | (467) | 509 |
| Adjustments in respect of prior year current tax | 227 | (3,741) |
| Income tax (benefit)/expense | 7,050 | (5,009) |
| Income tax (benefit)/expense reported in the consolidated statement of comprehensive income | 7,050 | 2,882 |
| Income tax attributable to a discontinued operation | - | (7,891) |
| Income tax charge/(benefit) in the statement of comprehensive income | 7,050 | (5,009) |
Events after the reporting period
After the year end, in March 2010 the Group early repaid US$20 million UnicreditBank and US$8.3 million to MDM bank. The early repayment of bank facilities reduces Highland Gold's cost of debt.
Group has acquired a license for exploration and mining rights for the Blagodatnoye prospect in the Khabarovsk Region. Blagodatnoye has a reported prognostic resource of 5 tonnes (161,000 oz) of gold. The acquisition was made in an open auction on 19 February 2010 in Khabarovsk for a bid price of 3.25 million roubles (US$107,794). Preliminary evaluation of data from previous exploration work revealed that the property has good potential to increase the mineral resource.