HGM.L Regulatory News (HGM)

28 Apr 2008 07:00

Highland Gold Mining Limited28 April 2008 HIGHLAND GOLD MINING LIMITED ANNOUNCES FINAL RESULTS FOR THE YEAR TO 31 DECEMBER2007 London, 28 April 2008 - Highland Gold Mining Limited "Highland Gold" or the"Company"announces its final results for the full year ended 31 December 2007. FINANCIAL HIGHLIGHTS+----------------------------------------+----------------+----------------+|IFRS, US$000 (unless stated) | 2007 | 2006 |+----------------------------------------+----------------+----------------+|Production (oz) | 156,474 | 151,146 |+----------------------------------------+----------------+----------------+|Total cash costs | 480 | 402 |+----------------------------------------+----------------+----------------+|Turnover | 112,100 | 91,980 |+----------------------------------------+----------------+----------------+|Profit/(loss) before tax | 17,417 | 25,141 |+----------------------------------------+----------------+----------------+|Profit from continuing operations | 12,216 | 13,629 |+----------------------------------------+----------------+----------------+|Profit/(loss) from a discontinued | 5,883 | (108,518) ||operation | | |+----------------------------------------+----------------+----------------+|Profit/(loss) for the year | 18,099 | (94,889) |+----------------------------------------+----------------+----------------+|Earnings/(loss) per share | 0.091 | (0.587) |+----------------------------------------+----------------+----------------+|Net cash outflow from operations | (30,198) | (2,321) |+----------------------------------------+----------------+----------------+|Capital expenditure | 68,603 | 38,911 |+----------------------------------------+----------------+----------------+|Net cash flow (outflow) | 179,699 | (1,994) |+----------------------------------------+----------------+----------------+ 2007 Key Events • Mnogovershinnoye (MNV) produced 156,474 ounces of gold in 2007, an 3.5% increase from 2006 • Millhouse LLC becomes a new major shareholder owning 40% • Taseevskoye pre-feasibility study completed • Successful debt refinancing - US$120 million new low cost credit facilities • Operational and advanced engineering audits completed at MNV and Novoshirokinskoye (Novo) • Novo and Mayskoye licences successfully extended • Darasun divestment completed • Encouraging exploration results at Belaya Gora Post Year End • Mayskoye feasibility study completed and awaiting Board review and approval 2008 Goals • Commissioning of Novoshirokinskoye in Q4 2008 • Continued investment in the optimisation of production at MNV • Taseevskoye feasibility study to commence in H1 2008 • Advanced drilling programme at Belaya Gora, Lyubov and Unkurtash Commenting on today's announcement, James Cross, Chairman of Highland GoldMining said, "Highland Gold has the financial resources, the technical,operational and managerial expertise to maximise production from its producingmine and to realise the potential of its development and exploration assets.Through its strong partnerships with Millhouse LLC, Barrick Gold and Kazzinc,the company is now able to achieve its long held ambition to become asignificant gold mining company focusing on Russia and Central Asia - and toachieve this safely whilst respecting the environment and the communities inwhich it operates." The Company will hold a conference call on Monday, 28 April 2008 hosted by OlgaPokrovskaya, Director, Henry Horne, Managing Director, John McDonough, COO, andNina Leonova, Head of Corporate Finance, to discuss the final results. Theconference call will take place at 10:00 UK time (13:00 Moscow). To participatein the conference call please dial one of the following numbers: UK Local Call 0845 144 0014 UK Standard International +44 (0) 1452 567 626 Conference ID 44307715 A recording of the presentation will be accessibleon the company website www.highlandgold.comshortly after, as well as by dialing one of thefollowing numbers: International Dial in: +44 (0) 1452 55 00 00UK Free Call Dial In: 0800 953 1533UK Local Dial In: 0845 245 5205USA Free Call Dial In: 1866 247 4222Encore Replay Access Number: 44307715# For further information please contact:Dmitry Yakushkin, Director ofCommunications Moscow: + 7 (495) 777 31 55WMC Communications,Alex Glover: +44 20 7930 9030 JPMorgan Cazenove (Nominated Adviser)Michael Wentworth-Stanley, Managing DirectorSam Critchlow - +44 (0) 207 588 2828 The Annual General Meeting will be held on 12 June 2008. CHAIRMAN'S REPORT At the outset of 2007 the Board set the management team a number of objectives,which, amongst others, included: • Restructuring and expanding the Company's banking lines of credit • Optimising operations at our producing property Mnogovershinnoye • Further developing Novoshirokinskoye, Mayskoye and Taseevskoye • Accelerating our exploration activities utilising the highly experienced staff acquired by Highland following the increased participation of Barrick We achieved these goals through hard work and outstanding contributions from theHighland Gold staff and Barrick Gold secondees. Strong Partners In December 2007 we concluded a deal whereby Millhouse LLC subscribed in cashfor a total of 130,100,000 Ordinary Shares amounting to 40% of the increasedcapital of the Company and with proceeds amounting to approximately US$400million. Millhouse LLC is a Moscow-based asset management company overseeing investmentsin a variety of industries including mining and metallurgy, real estate,consumer products and media.Assets under management include a significant stakein the steel and mining major, Evraz Group, and a majority interest in theDvoinoe gold project. Millhouse LLC is a management company with a proven trackrecord of developing large industrial companies. This transaction gives theCompany sufficient capital in the medium term for the development of Mayskoyeand Taseevskoye and to meet its 50% contribution towards its joint venture withKazzinc at Novoshirokinskoye. Through our strategic alliances with Millhouse LLC and Barrick Gold, HighlandGold is now well positioned to achieve its long term objectives. Barrick Goldhas been a significant partner in Highland Gold since 2004. In December 2006 weextended our collaboration with them to take advantage of their strengths as aworld-leader in building and operating mines. Combining their technicalexpertise with our own world-class assets and experience in the Russiangold-mining sector has allowed us to increase the efficiency of our currentoperations and accelerate our development projects. Furthermore, our alliancewith Kazzinc at Novoshirokinskoye, who have extensive experience withpolymetalic plant operations, enables Highland Gold to maximise the potential ofthis mine. Mining Environment in Russia During 2007 Russia experienced yet another year of sustained economic growth.Although inflation increased, the macro-economic environment in Russia continuedto improve. Russia continues to benefit from high oil and gas prices and initialindications are that the new political leadership favours a more open andefficient economy. Highland Gold was successful in extending two of its mining licences during 2007- those of Novoshirokinskoye and Mayskoye. On behalf of the Board and ManagementI wish to extend our thanks to the Federal and Regional Government officials forsupporting and processing our applications in a timely and efficient manner.Highland Gold continues to strive to develop projects in remote locations inRussia thereby creating new job opportunities and improving the socialinfrastructure. The Russian Government requires strict compliance with extensiveregulations covering such areas as legal, technological, environmental, labourand safety aspects of mining. Our Company is making every effort to ensure fullcompliance with both the spirit and the letter of these regulations. Results Profit from continuing operations was US$12.2 million. Profit from thediscontinued operation at Darasun in 2007 was US$5.9 million. During 2007 wedisposed of OOO Darasunsky Rudnik, the owner of the Darasun, Teremky and Talatuimines in the Chita Region of Russia, which was sold for total cash proceeds ofUS$15 million. US$10 million was received in 2007, while the second tranche ofUS$5 million was received by the Group in the first quarter of 2008. In 2007 we are reporting a higher turnover of US$112.1 million as compared withUS$92.0 million in 2006 - a reflection of our 'no hedge' policy which allowedthe Group to fully participate in stronger gold prices. In 2007, the Group sold 150,427 ounces of gold at an average price of US$708 per ounce. Highland Gold continued to advance its development project pipeline, investingUS$68.6 million in capital expenditures (US$38.9 million in 2006) comprisingUS$15.5 million at Mayskoye, US$18.3 million at Novoshirokinskoye (representing our 50% share) and US$7.0 million at Taseevskoye. In addition to our developmentproject pipeline, the Group invested expenditures of US$19.2 million at MNV andUS$8.6 million in advancing the Company's exploration assets and other entitiesin the Group. As at 31 December 2007 cash and short term deposits were US$211.3 million whilethe net debt position of the Group was positive at US$34.9 million. During theyear Highland Gold completed significant debt restructuring whereby US$120 million in new financing facilities were raised through two large Russian bankscomprising a US$60 million facility with MDM Bank and two facilities withGazpromBank of US$30 million each. In the first quarter of 2007 the Group utilised US$30.7 million of these new funds to complete the early repayment ofthe Commerzbank Syndicated Loan Facility. After the year end, the Group made an early repayment of the US$15 million shortterm loan received from Gazprombank in 2006, and fully repaid the Roublecorporate bond in the amount of US$31 million. This restructuring has extendedthe effective maturity profile of all of Highland Gold's corporate bankingfacilities to late 2010 and 2011. Production We have had a successful year at our main production site, Mnogovershinnoye(MNV), where total gold production for 2007 was 156,474oz Au. This was withinthe forecast range for the year and includes a strong fourth-quarter performancewith 67,143oz of gold recovered. In 2007 we spent $19.2 million on capital expenditure at MNV in addition totransferring much of the mobile production equipment from Darasun to the mine.We look forward to this investment continuing to bear fruit through the comingyears. Darasun In August 2007 we completed the sale of the Darasun mine to the UzhuralzolotoGroup of Companies for a total consideration amounting to US$15 million. The fire at Darasun was the most tragic event in Highland's history and acharitable trust has been created which will benefit the children of thedeceased employees of the Company. We have received substantial contributions tothe charity and I wish to thank all the donors concerned. Project Development We made good progress during the year at our three key development sites: • Novoshirokinskoye - we are on track to commission the mine during the fourth quarter of 2008. With our joint venture partner, Kazzinc, detailed engineering for the process plant and the rest of the project has been completed. Once Novoshirokinskoye is in operation, we estimate that production will be in the order of two tonnes per annum of gold equivalent. With by-product credits we expect production costs to be competitive. • Mayskoye - the feasibility study has been completed and will be submitted for review by the Board. The study is centred on an underground operation that will feed an 850,000 tonne per year flotation plant and a Biomin Biox leach plant. During 2007 the mining licence for Mayskoye was successfully extended and now stipulates operational start-up by 31 December, 2010. • Taseevskoye - A pre-feasibility study was completed and work on the feasibility study will start in 2008. Work is continuing with the Chita Regional Government and the local community on resettlement plans which are required to enable the development of the mine. In total some US$41 million was invested in these three projects during 2007. Exploration As part of the alliance with Barrick Gold, Highland Gold acquired an experiencedexploration team that had been operating in Russia for many years. Ourexploration efforts were appreciably increased as a result and, at our mostadvanced exploration projects, we completed some 22,000 metres of drilling. Theoverall result corroborated the strong development potential of these projects.In July 2007 we were able to publish promising results from the diamond drillingprogramme at Belaya Gora ("White Mountain"). This prospect is close in proximityto MNV which greatly enhances its development potential. Full details of the exploration programmes at our various sites are containedfurther on in this report and we intend to significantly increase the budgetedcapital expenditure on exploration during 2008. Health and Safety Environment Safety in our operations, and protecting the environment and the well-being ofthe communities in which the Group operates, continue to be a priority. TheGroup is committed to conducting business in an accountable and transparent way,reflecting the interests of all stakeholders who may be affected by ouractivities. In so doing, it demands honesty, integrity and responsibility fromthose who carry out its affairs. It seeks to ensure that the human rights,customs and values of its employees and those affected by its activities arerespected, that information about Group activities is properly communicated andthat environmental matters are properly considered. I can confirm that we havemade real progress in achieving our goals in these areas during 2007 and laterin this report we comment more fully on our activities in this regard. Changes to the Board Following the conclusion of the successful transaction with Millhouse LLC, whonow has an interest of 40% in the Company, and in accordance with the terms ofthe agreements with them and with Barrick Gold Corporation who, following thetransaction, still has a 20% interest, it was decided that the Board shouldcomprise nine directors, all of whom are non-executive. At present it is agreedby the Board that we have ten members, three Millhouse LLC appointed directors,two from Barrick and five independent directors. Any further changes to theBoard will be advised to the market as they occur. Millhouse LLC nominated Eugene Shvidler, Eugene Tenenbaum and Olga Pokrovskayaas directors and we were pleased to welcome them to the Board as non-executivedirectors with effect from 28 January, 2008. With the tragic death of David Fishin December 2007, it was important to consider the replacement for Chairman ofthe Audit Committee. I am pleased to advise that Terry Robinson, who hasextensive experience in resource businesses, has agreed to become anon-executive director and Chairman of the Audit Committee with effect from 25April, 2008. Ivan Koulakov has stepped down from his role as Executive DeputyChairman, but continues as a non-executive director. We have set ourselves a priority to utilise the management expertise ofMillhouse LLC in examining and restructuring the head office and regional officefunctions of the Company. This exercise will form part of a critical examinationof our general and administrative expenses in order to ensure that the overalllevel of these expenditures is competitive within the industry. Henry Horne, Managing Director, and Scott Perry, Finance Director, stepped downfrom the Board on 28 January, 2008, on which date Scott Perry also left theCompany. In addition Duncan Baxter, Corporate Affairs Director, steps down on29 April, 2008 following agreement that the Board should comprise onlynon-executive directors. Rene Marion who was Chief Operating Officer from 1January, 2007 resigned from the Company on 25 October, 2007. Both Henry Horneand Duncan Baxter remain part of the executive. I would like to take this opportunity to thank the past and present Boardmembers for their contribution to the success of the Company in 2007 and I lookforward to working with the new Board in developing our strategy going forward. Lastly, we wish to record the sad passing of our director David Fish, inDecember last year. David made an outstanding contribution to the Board of theCompany by ensuring that our Audit Committee conformed to the highest possibleprofessional standards. He will be sorely missed by us all. Summary Highland Gold has the financial resources as well as the technical, operationaland managerial expertise to maximise production from its MNV mine and to takesignificant steps towards realising the potential of its development andexploration assets. Through its strong partnerships with Millhouse LLC, Barrick Gold and Kazzinc,the Company is now able to achieve its long held ambition to become asignificant gold mining company focusing on Russia and Central Asia - and toachieve this safely whilst respecting the environment and the communities inwhich it operates. Lastly, I would like to thank our Managing Director and all of our employees fortheir continued dedication and contribution as well as take this opportunity tothank all of our shareholders for the loyalty shown to us during this veryimportant year for our Company. MANAGING DIRECTOR'S REPORT Our operational priorities during 2007 were to ensure that our producing minewas working to its maximum capacity, to harness the potential of our developmentprojects and to ensure that we have a strong pipeline of potential sites fordevelopment going forward. All of these objectives require technical skills andstrong management to achieve, so I would like to start by talking about ourpeople. Our people The benefits of our closer collaboration with Barrick Gold in Russia wererealised in full in 2007. Since Barrick Gold first began to work with us in2004, adding their valuable technical expertise and experience to our ownestablished team, we have worked together jointly to achieve the goals set bythe Board of Directors. Of particular importance were the contributions made byour joint operational and financial managerial teams. Subsequently new key appointments have taken place: John McDonough joined the Company as Chief Operating Officer on 3 December,2007. He graduated from the Colorado School of Mines with a PE in GeologicalEngineering. John started his professional life in 1973 as a tunnel geologist atthe Henderson Mine in Colorado. Since 1985 John has been with Barrick Goldworking as General Manager of the Goldstrike Mine in Nevada for 8 years. In 1994he was promoted to the position of Corporate Vice President, Environment, whichhe held for 10 years until in 2004 when he was appointed Regional Vice Presidentfor the Chile/Argentina Business Unit of Barrick Gold based in Santiago. Hismost recent position was Corporate Vice President, Engineering/EIT(Engineer-In-Training) in Barrick's Corporate Office in Toronto. Bella Panina was appointed Director of Internal Audit and Risk Management of theCompany on 29 January, 2008. She graduated from the Moscow Management Instituteand has been working in accounting and internal and external audits since 1993.Her career has been associated with such companies as Deloitte & Touche,Yunikon, Sibneft and Millhouse. In 2003 Bella was elected Member of the StateDuma of the Russian Federation where she dealt with tax and financiallegislation issues. Eugene Kolos was appointed Managing Director of RDM Logistics on 1 February,2008. He graduated from the Kazan High Military School and has been working inwarehousing, logistics and supply chain management since 1999. Prior to joiningthe Highland Group, Eugene headed the Russian-American supply chain managementcompany Wilson Eurasia. Before that he held a number of senior positions inlogistics in Russian oil companies Slavneft and Sibneft. Tatyana Breeva joined the Company as Chief Financial Officer on 1 April, 2008.She obtained her degree in accounting from the Plekhanov Academy in Moscow.During 1990-1996, she worked in the Moscow office of Deloitte & Touche and afterthat as Deputy Chief Accountant for the Sovmortrans shipping company. In 1997Tatyana joined the Russian oil major Sibneft as Director of Internal Audit, thenin 1999 she was appointed Chief Accountant. From 2001 to 2007 Tatyana held theposition of Vice President Finance and member of the Board of Directors ofSibneft/Gazpromneft. We are grateful to Nina Leonova, Head of Corporate Finance, who acted as CFOpending Ms.Breeva's appointment. As at 31 December, 2007 the Highland Gold Group employed a total of 2890employees compared to 3019 at the end of 2006. Corporate & Social Responsibility Our main contribution to the regions where we operate comes in the form of taxeswhich we pay to local, regional and federal authorities. Since we conduct ourbusiness in remote and predominantly underdeveloped areas of Russia's Far Eastand Eastern Siberia, these payments represent an important influx of capital forthe local governments and, in the long run, affect positively the quality oflocal life. This involvement lays the foundation for good and constructiverelations with the authorities on all levels and provides stability in ourbusiness planning. Beyond this contribution, we also undertake additional social developmentprogrammes to maximise the net benefit to local residents. Although we divested our Darasun mine in October 2007, we continued to implementthe Darasun community development programme which includes such initiatives aslocal heating infrastructure repairs, purchase of modern equipment for the localhospital, playground construction and others. A competition for grants organisedby the Company allowed for more than twenty local initiative groups to securefinancing for projects aimed at addressing the most pressing community issuessuch as road safety, juvenile delinquency, and lack of recreation opportunities. At our Taseevskoye project site in the Chita region, we continued to expand ourcommunity development programme aimed at mobilising the local community'scapacity to tackle various social and economic issues. We implemented thisprogramme in cooperation with the United States Agency for InternationalDevelopment. At the Novoshirokinskoye site, we repaired the local kindergarten which allowedit to double its capacity and assist families where both parents work.Significant contributions were also made to the improvement of local healthservices. Our activity in the Chita region brought the Company recognition from the ChitaRegional Social Forum, where all significant local non-governmentalorganisations, charities and civic groups were represented. In October 2007 theForum gave an award to Highland Gold for work in the social sphere. Strong financial and operating performance enables us to increase ourparticipation in the development of the communities where we conduct ouroperations. In the Nikolaevsk district of the Khabarovsk region, where ourproducing mine Mnogovershinnoye is located, we contributed to road repairs,purchase of road equipment and a number of other initiatives. We were also ableto support initiatives at the regional level in addition to pursuing localactivities. Another important dimension is the personal involvement of our employees in thedelivery of community programmes. In 2007 Highland Gold employees privatelycontributed to a number of community and charitable initiatives in Darasun,Baley, Novoshirokinskoye, Mnogovershinnoye and Moscow. Health, Safety & Environment We were able to further improve on our safety awareness campaign which had avery positive impact throughout the Group during 2007. The lost time incident(LTI) frequency rate (the LTI frequency rate is calculated as a number of LTI'sfor every 200,000 man hours worked) was 0.46 representing a 29% improvement overthe annual target of 0.65. The achieved rate was also significantly better thanour performance in 2006. For three consecutive months during 2007, all sites ofthe Group had zero LTI's. Two sites of the Group - Mayskoye and Taseevskoyeachieved zero LTI's during the entire course of 2007. Despite these positive achievements, it is with deep regret that we announcethree fatalities which occurred in 2007 and 2008. On 8 August, 2007 there was afatal underground accident at Mnogovershinnoye involving a load-haul-dumpmachine operator. On 9 January, 2008 at the Novoshirokinskoye mine a raise minerwas fatally injured while carrying out his working duties. On 5 April, 2008,also at Novoshirokinskoye, a repairman suffered a fatal wound when struck byequipment. Investigations into the root causes behind these three accidents werecarried out with the participation of the state regulatory authorities. Actionsare being implemented to prevent such accidents in the future at all mine sitesof the Group. As planned, we bolstered the strength of our site personnel in the Health &Safety Departments by adding two specialists at Novoshirokinskoye, one atMnogovershinnoye and one at Mayskoye. The Company's Safety Award Programme has been put into action to recogniseoutstanding safety performance by sites and individuals. Our approach to safety is an ongoing commitment to excellence. We will continueto place an emphasis on the safety training of site personnel in the form of ourField Level Risk Assessment Programme, fire training and drills, safe drivertraining and basic first aid training courses. Another priority for the Company is to protect the environment and minimise ourimpact on it. At Mnogovershinnoye an environment management system is in place to protect thequality of air, surface and ground water and soil. There were no environmentalrelated reportable incidents at the mine in 2007. Waste water recirculationreached 90.4%. Data obtained by the certified MNV Analytical Laboratory shows nonegative impact on the environment of cyanide-containing reagents used at theplant. This is confirmed by systematic inspections of the regulatingauthorities. Various other environmental protection initiatives were developedand implemented. Among them was the strengthening of the tailings dam; start ofthe construction of the Central ore body shaft water treatment facilites as wellas treatment facilities for mine flood waters at adit 11 and in the area wherethe transport shops are located. During the year, the surface area disturbed bythe Southern ore body open pit was successfully reclaimed. At Novoshirokinskoye, permits covering the period of mine construction wereobtained for emissions of polluting agents and disposal of production wastes.Work on the commissioning and certification of the environmental controllaboratory is underway. At Mayskoye, an environmental monitoring programme was developed and approved bythe federal authorities. An Environmental Impact Assessment which is beingconducted to international standards is in progress and is due to be completedin the second quarter of 2008. At Taseevskoye, the first public hearings took place to discuss the terms of theEnvironmental Impact Assessment for the mining project and the villageresettlement plan. A baseline survey to determine the potential impact of theTaseevskoye development project on the environment is underway. In 2007 we accomplished 130 internal environmental inspections compared to 115in 2006. 120 managers and specialists of the Company attended variousEnvironmental Protection and Safety Training courses. MNOGOVERSHINNOYE (MNV), Khabarovsk region At our MNV mine, 2007 was a year when we successfully implemented a whole seriesof short and long term initiatives to improve efficiency and reduce costs. MNV Mine Development These initiatives were identified early in the year as part of a detailedoperational review and optimisation audit (ORT). Their successful implementationcontributed to a significant increase in production quarter-on-quarterthroughout the year. These initiatives included: • the recapitalisation and optimal mining sequencing of the mines; • an upgrade of the processing facility in order to increase the grinding circuit capacity by splitting it into two trains and increasing the mine's processing throughput by 25%. • modifications to the resin regeneration facility which reduced the time for resin regeneration from 200 hours to less than 50 hours. • installation and commissioning of a gravity circuit (Knelson concentrators and flotation cells) which allowed the coarse gold to be recovered prior to the RIL circuit. Results thus far have shown the circuit to be effective in capturing as much as 30% of the total contained gold, which in turn allows greater residence time of the remaining fine gold in the RIL circuit leading to higher overall recoveries. • an upgrade of the open-pit and underground mobile production fleets • commissioning of a centralised warehouse and mobile equipment maintenance shop. MNV total gold production for 2007 was 156,474 oz, which was within the forecastrange, and which constitutes an improvement on the 2006 production figure of151,146 oz. +----------------------------+------------------------------------------------+|MNV OPERATIONS SUMMARY | |+----------------------------+------------+-------------------+---------------+| | Unit | 2007 | 2006 |+----------------------------+------------+-------------------+---------------+|Mine development | | | |+----------------------------+------------+-------------------+---------------+|Open pit/waste stripping | 000 M3 | 1,986 | 1,468 |+----------------------------+------------+-------------------+---------------+|Underground | Metres | 9,799 | 8,338 |+----------------------------+------------+-------------------+---------------+|Ore mined | | | |+----------------------------+------------+-------------------+---------------+|Open pit | Tonnes | 485,147 | 389,036 || +------------+-------------------+---------------+| | g/tonne | 6.81 | 6.24 |+----------------------------+------------+-------------------+---------------+|Underground | Tonnes | 600,439 | 407,836 || +------------+-------------------+---------------+| | g/tonne | 4.16 | 5.57 |+----------------------------+------------+-------------------+---------------+|Total ore mined | Tonnes | 1,085,586 | 796,872 || +------------+-------------------+---------------+| | g/tonne | 5.35 | 5.90 |+----------------------------+------------+-------------------+---------------+|Ore processed | Tonnes | 977,139 | 933,569 || +------------+-------------------+---------------+| | g/tonne | 5.54 | 5.52 |+----------------------------+------------+-------------------+---------------+|Incl. from stockpile | Tonnes | 144,328 | 136,697 || +------------+-------------------+---------------+| | g/tonne | 3.09 | 3.30 |+----------------------------+------------+-------------------+---------------+|Recovery rate | % | 89.84 | 91.18 |+----------------------------+------------+-------------------+---------------+|Gold produced | Ounces | 156,474 | 151,146 |+----------------------------+------------+-------------------+---------------+ Production Costs Operating costs at the MNV operation were US$432 per ounce, which is a 19,6%increase compared to 2006 of US$361 per ounce. This increase was attributable tohigher maintenance expenses, as well as increased unit costs, which werepredominantly associated with higher energy, material and manpower costs. Thesecost pressures, along with higher royalties due to the stronger gold price,raised our total cash costs to US$480 per ounce, as compared to US$402 per ouncein 2006. Total production costs were US$533 per ounce, as compared to US$458 perounce in 2006. Capital Costs During 2007, the Company invested US$19.2 million at Mnogovershinnoye. Thisincluded US$14.7 million for the purchase of additional production equipment, inparticular equipment for the open pit (US$5.1 million for loaders, dozers,trucks), underground (US$3.3 million for loaders, drill rigs, multipurposevehicles) and processing (US$1.1 million for Knelson concentrators and crushingand grinding equipment). US$4.5 million was spent on construction works at thesite. Outlook In 2008, we will continue work to maximise the production potential at MNV byimplementing additional upgrades to the processing facility. This will includethe installation of a third thickener to increase gold recovery and reducereagent consumption, and further improvements to the absorption and regenerationcircuits. Our production target for the mine in 2008 is in the range of 155,000-165,000oz. DEVELOPMENT PROJECTS NOVOSHIROKINSKOYE, Chita region The Company is on track to commission Novoshirokinskoye by the end of 2008. We continue to work with our joint venture partner Kazzinc to optimiseproduction and sales opportunities at the site. Detailed engineering for theprocess plant and all other parts of the project has been completed. Allequipment for the plant has been ordered and installation is proceeding asequipment arrives at the site. The main contractor has a full work force on site and has completed work on anumber of infrastructure facilities, including buried services, powerdistribution, explosives magazine, phase one permanent accommodation, temporaryconstruction camp, mine rescue complex, standby power generation, potable watersupply, and heating plant. A total of 22,594 metres of surface diamond drilling and 8,265 metres ofunderground core drilling were completed in 2007. An updated block model will becompleted in the second quarter of 2008 after all assays have been received andthe geologic model has been made. The site began underground re-development work in July 2007 on three productionlevels. As planned, 3,630 metres of level development and 250 metres of raisedevelopment were completed in 2007. Development work began in January 2008 onthe production adit. Capital Costs We invested US$18.3 million at Novoshirokinskoe in 2007 (representing our 50%share). This comprises US$4.6 million of development operating costs (salaries,electricity, fuel, safety and overheads), US$4.3 million for exploration andsurvey, design and engineering, as well as US$9.4 million spent on constructionand on the purchase of production equipment. Outlook Besides the work currently underway and mentioned above, earth work on thetailings and water storage dams is also underway, and the tailings pipe line,collector lines, and water return lines are currently being installed. Oreprocessing is scheduled to commence during the fourth quarter of 2008. The focus underground in the first half of 2008 will be upon the refurbishmentof the skip shaft and the ore handling systems. In the meantime the cage shaftis being used to hoist development waste. The mine currently has 300 employeesworking underground and stoping is expected to begin in the second quarter of2008. Underground definition drilling will continue during 2008 with threedrills in operation. MAYSKOYE, Chukotka region Feasibility study for Mayskoye was completed in late March. The study is centred on an underground operation that will feed an 850,000tonnes per year flotation plant and a Biomin Biox leach plant. Basic engineeringhas been completed and contractor Aker Kvaerner has commenced detailedengineering on the process plant. GOT (Magadan) has commenced detailedengineering on the infrastructure. Subject to Board approval of the study, construction is scheduled to commenceafter the opening of the ice-free navigation season in the second half of 2008. During 2007 the mining licence for Mayskoye was successfully extended and nowallows for operational start-up to be scheduled for December 2010. Infill drilling continued throughout the year with a total of 21,855 metres ofdiamond drilling completed with three rigs active. Assays are currently beingcarried out at Alex Stewart Laboratories in Moscow, and an update to theresource model will be completed during the first half of 2008. Rehabilitationof the existing underground facilities commenced in the second half of 2007,with approximately 180 metres of adit re-commissioned during the year. Capital Costs We invested US$15.5 million in 2007 at Mayskoye. The major items includedUS$10.5 million of development costs (salaries, electricity, fuel, mineinfrastructure and overheads), US$0.6 million spent on design and engineering,and US$4.4 million related to the drilling programme and samples preparation,construction work at the site and the purchase of equipment. Outlook Final surface capping of the all-season access road is expected to be completedin May 2008, after which the earthmoving equipment will be mobilised for thesite preparation works. Plant and infrastructure foundation work is expected tobegin in the second half of 2008. The first set of mining equipment (LHD and twin-boom jumbo) has been ordered andunderground development will commence in July 2008 upon their delivery.Additional mining equipment has been ordered for delivery late in the year.Orders have also been placed for other long lead- time items (SAG mill, dieselpower generators). TASEEVSKOYE, Chita region The pre-feasibility study was completed and work on the feasibility study willstart in 2008. The 9,053 metre drilling programme for 2007 at the Taseevskoye deposit,including 1,568 metres drilled from the frozen pit lake, was completed. The resource block model was updated during the fourth quarter of 2007 and wasused as the basis for an internal pre-feasibility study that was completed bythe end of the year. Findings from this study will be used as the basis for afeasibility study to commence in the third quarter of 2008. Additionalmetallurgical testwork focusing on Leach Oxidation is being undertaken at SGSLakefield Laboratories in Chita. The baseline environmental study programme has started and the first publichearings regarding the Resettlement Action Plan (RAP) were held. Capital Costs We invested US$7.0 million at Taseevskoye in 2007. The bulk of these expenseswere the US$2.4 million which covered development operating costs (salaries,electricity, fuel and overheads). In addition, US$3.3 million was spent on thedrilling programme, assaying, geotechnical and hydrological studies andenvironmental monitoring. The remainder of US$1.3 million includes design andengineering, construction works at the site and purchase of equipment. Outlook A cutoff study will be submitted to GKZ in the first quarter of 2008, followedby the technical design by the end of the year. The focus will also be oncompleting the Environmental Impact Assessment and Resettlement Action Plan, aswell as metallurgical and hydrological studies. The project work on thefeasibility study will commence in the third quarter of 2008 and is expected tobe completed in the second quarter of 2009. Exploration With a substantially increased budget of US$7.5 million allocated to explorationin 2007 we stepped up our commitment to exploration projects, underscoring ourintent for growth through exploration. At our most advanced exploration projectswe completed a total of 22,000 metres of drilling as planned and receivedoverall positive results corroborating the strong development potentials ofthese projects. Through the acquisition of the Iska licence in mid-2007 we addeda new high-potential, grass-root property to our growing exploration portfoliowhich remains focussed on bulk-mineable gold deposits for low-cost open-pitoperations in the vicinity of our existing operations. For 2008 we willaccelerate our exploration efforts further. This will include a total drillingprogramme of 30,000 metres including resource-definition drilling at our threeadvanced exploration properties and drill testing at our Mnogovershinnoye mine. BELAYA GORA, Khabarovsk region The success of the 2007 exploration programme at Belaya Gora made it our mostadvanced exploration project and it is now nearing the development stage. Duringthe year, we completed a 13,000 metres drilling programme at the two targetsPologaya and Stockwork. Positive assay results confirmed the geological modelsof a flat-lying resource at Pologaya and a steeply-dipping vein-veinlet systemat Stockwork and corroborated the property's potential currently estimatedwithin the (C1+C2) Russian reserve category at 22 million tonnes grading 1.68 g/t of gold. These ore deposits are expected to be mineable as open pit operation.Metallurgical test work on two 300 kg samples was also initiated and preliminaryresults point to high recovery rates by gravitation alone. A cut-off grade studywith a preliminary reserve calculation was started in the second half of theyear and will be submitted for state approval by year-end 2008 as set out in thelicence agreement. Including sampling, assaying and cut-off grade study, wespent a total of US$4.5 million on the 2007 exploration programme at BelayaGora. Outlook For 2008 we have scheduled an additional 7,500 metres of resource definitiondrilling due for completion by the end of the second quarter. A pre-feasibilityreport which will include a report on preliminary reserves and a cut-off gradestudy will be compiled and submitted for state approval (GKZ) by year-end 2008as set out in the licence agreement. While this will mark a major milestonetowards development of Belaya Gora, we will continue exploration drilling inorder to fully exploit the mineral potential of the property. Additionalmetallurgical test work will be carried out during the year. LYUBOV, Chita region The 2007 exploration programme at Lyubov amounted to an expenditure of US$1.2million and focused on two targets, the Lyubov gold trend in the south and theKhaverga ore field in the north of the licence area. Along the Lyubov goldtrend, we completed a 3,500 metres drill testing programme at several prospectswhich we had pinpointed in 2006 as most promising. At the Evgraf prospect, wesuccessfully identified a wide zone of stockwork-type gold mineralisation whichhosts a potential resource of (C1+C2)+P2 category of 28 million tonnes grading1.5 g/t of gold, based on drilling results from previous explorers and our ownresults to date. At the Khaverga ore field, our 2007 geochemical soil-sampling survey revealed a4 km long and 1.5 km wide zone of distinct gold anomalies with gold grades of0.03-8.0 g/t occurring within unconsolidated sediments. The geochemicalanomalies spatially coincide with a favourable geological setting in a regionalfracture zone which is also evident in our geophysical survey work in the area.The promising results at Khaverga warrant follow-up work and indicate a goldmineralisation potential comparable to that of the Lyubov trend. In 2007, we also initiated the return of the Malo-Fedorovsky licence, a smallsublicence within the Lyubov property. As reported previously, our 2006exploration results did not conform to the officially quoted resource parametersand did not warrant further exploration on this licence. Outlook For 2008, an additional 9,500 metres of diamond drilling is planned on theEvgraf zone and its western extension in order to delineate the zone's overallpotential for hosting a multi-million ounce resource of gold mineralisation. Atthe Khaverga area, a trenching and sampling programme is planned for 2008 todelineate targets for follow-up drilling. UNKURTASH, Kyrgyzstan In 2007 we completed 3,500 metres of large-diameter reverse circulation drillingwhich concluded the preliminary stage of geological exploration at the Unkurtashdeposit and the adjoining Sarytube and Karytube prospects. Based on theseresults the overall mineral potential has been estimated and the type and volumeof future exploration works formulated in a new "Exploration Project" in linewith State requirements. Accordingly, widespread gold mineralisation occurs inparallel zones of steeply dipping stockworks which form an elongated belt 4,000metres long and 250-500 metres wide with a vertical extent of at least 350metres which is revealed in drilling and underground data. Extrapolating fromthe most explored areas, the results of our own, and previous, works indicate amulti-million ounce potential grading 1.5 g/t of gold. A total of US$0.74million was spent in 2007 for the Unkurtash drilling programme. Outlook The 2008 exploration programme allocates a total of 12,000 metres of reversecirculation and core drilling for potentially delineating resources of 60 tonnesof gold of C1+C2 category and 120 tonnes of P1 category. MNOGOVERSHINNOYE, Khabarovsk region In 2007 we initiated a programme for near-mine exploration at Mnogovershinnoyewith the objective of both replacing and adding reserves in order tosubstantially extend the mine life. We re-evaluated local geology and previousexploration results and identified high potential for discovery of additionalzones of continuous gold mineralisation mostly in between the underexploredareas of already known ore zones. Outlook A multidisciplinary exploration programme is planned along three explorationprofiles, while in 2008 will include geophysical surveys and 4,000 metres ofdrill testing at selected areas. ISKA, Khabarovsk region In the course of an open auction, we acquired for US$75,000 the 920 km Iskalicence located only 20 km to the south of our Belaya Gora property. Iskafeatures strong geological similarities with Belaya Gora and several occurrencesof known gold prospects underline the good potential of this property. Inaddition, the presence of an alunite deposit with gold showings and specificalteration style indicates a good potential for hosting a high-sulfidation typegold deposit. Archive work with digital compilation and analysis of previousdata has been started and per regulatory requirement a new "Exploration Project"is being formulated. Outlook For 2008 we have planned a multidisciplinary exploration programme, includinggeophysical and geochemical surveys and selected trenching of promisingprospects on the property in order to delineate drilling targets. SOVINOYE, Chukotka region We concluded the Phase-I 2,800 metres drilling programme during the year whichtested a 1.2 sq km gold-mineralised zone with a reported vertical extent of morethan 300 metres within the hinge region of a large fold at central Sovinoye.Samples were prepared at our facilities at Mayskoye and to date 80% of sampleshave been analysed. The results indicate stockwork-type gold mineralisation inthe 1 g/t range down to a depth of 250 metres. We expended US$0.7 million in2007 on the drilling programme at Sovinoye. Outlook Final assay results and evaluation of results are expected by the end of Q12008. If warranted, a 3,000 metres Phase-II drilling programme aimed at testinggrade and continuity of the main mineralised zone to the north and to the southcould commence later in 2008. MAYA & INIKAN, Khabarovsk region In 2007 we received 2,200 fire assays from our 2006 grass root explorationprogramme which included a stream-sediment geochemical survey over the entirelicence area. The programme successfully yielded new exploration targets with awell defined geochemical gold anomaly covering a 60 sq km area including onearea of 15 sq km. These results highlight the potential for a genuine newdiscovery on a geologically highly prospective property. Outlook The main anomaly of 15 sq km is to be explored by 1:25,000 scale geochemicalsoil-sampling and geophysical surveys and geological mapping while the wideranomaly covering 60 km sq is to be mapped and sampled on the 1:50,000 scale. SARASA, Altay region As announced previously, the Sarasa licence, a 400 sq km grass root propertyoriginally acquired through Barrick, does not support further exploration andtherefore the licence was returned to the state in 2007. Conclusion We are proud of the enormous progress made in 2007 and view it as a significantyear in proving that the strategy we put in place a few years back wasappropriate and was one that has increased the strength of the Company. Theimproved production profile at MNV, the increasing pace of preparatory work forthe commissioning of our development projects and the considerably expandedexploration activities are all proof of this. The key to long-term sustainable value creation for Highland Gold lies in theCompany's ability to bring its development projects into profitable productionas soon as possible. With Novo's commissioning by year end, we will have taken apositive step in this direction and we look forward to commissioning Mayskoye,Taseevskoye and also Belaya Gora within the near future. The solid base for our future development remains our people. We have strongconfidence in our employees and their ability to develop the Company further. Webelieve in their talent, professional skills and devotion to the Company. Oursuccess in 2007 would not have been possible without the unified efforts of eachand every member of our highly motivated team. I would like to thank the Board,my Management team and all employees for their continued contribution andunified support through a very challenging but rewarding year in the developmentof the Company. CHIEF FINANCIAL OFFICER'S REPORT The Group's financial statements for the year ended 31 December, 2007 have beenprepared in accordance with IFRS as adopted by the European Union. As the Grouppublishes comparative information in its financial statements, the date fortransition to IFRS was 1 January, 2006, this being the start of the earliestperiod of comparative information presented. The group previously reported underUK GAAP and the Group' financial statements have now been restated from UK GAAPto comply with IFRS. The most significant elements contributing to the change in financialinformation for 2006 are: • the write-off of the negative goodwill on transition to IFRS to the retained earnings; • recognition of deferred tax liabilities on the fair value adjustments arising in the prior business combination and recognition of deferred tax liabilities arising on the retranslation of fixed assets arising in groups' Russian subsidiaries whose functional currency is different from their tax currency; • recognition of additional gain arising on the disposal of group's 50% share in Novoshirokinskoye ("Novo") as a result of the decrease in the net assets of Novo on conversion to IFRS; • change in the treatment of derivative financial instruments; and • change in the treatment of the joint venture. The financial information for the full year ended 31 December 2006 is based onthe statutory accounts for the year ended 31 December 2006, restated for theeffects of adoption of IFRS. Those statutory accounts, upon which the auditorsissued an unqualified opinion, have been delivered to the Registrar ofCompanies. Turnover for the Group in 2007 was US$112.1 million compared with US$92.0million in 2006. The increase was due to our 'no hedge' policy which allowed theGroup to fully participate in stronger gold prices resulting in our realizedgold price appreciating by 15.7 % which was the key reason for the increase inturnover by US$20.1 million. In 2007, the Group sold 150,427 ounces of gold at an average price of US$708 per ounce compared with 161,018 ounces of gold sold in 2006 at an average price of US$612 per ounce. In 2007 profit for the year was US$18.1 million where profit from continuingoperations was US$12.2 million. Profit from the discontinued operation atDarasun was US$5.9 million. Our 100% share in OOO Darasunsky Rudnik, owner ofthe Darasun, Teremky and Talatui mines in the Chita Region, Russia, was sold fortotal cash proceeds of US$15.0 million, US$10.0 million of which was received in2007 while the second tranche of US$5.0 million was received by the Group in thefirst quarter of 2008. The Group's cost of sales increased by 13.9%, or US$9.2 million, over the prioryear. Cash operating costs per ounce at MNV rose by 19.6% to US$432 in 2007. Thecost increase was attributable to increased unit cost pressures and higherrepair and maintenance expenditures. Increased unit costs were predominantlyassociated with higher energy, material and manpower costs while higher repairand maintenance costs were necessary for commissioning items of mining equipmenttransferred to MNV from the Darasun operation prior to its sale. These cost pressures were also affected by higher royalties due to the strongergold price, all this increased our total cash costs to US$480 per ounce comparedto US$402 per ounce in the prior period. Total production costs were US$533 perounce compared to US$458 in 2006. Administrative costs decreased by US$5.3 million from US$21.7 million to US$16.4 due to the decreased provisions for VAT receivables. In 2007 the Company has acquired a licence for exploration and mining rights forthe Iska ore field in the Khabarovsk Region. The acquisition was made in anopen auction on August 24 in Khabarovsk for a bid price of 1.87 million Roubles (US$75 200). Despite the continued strengthening of the Russian Rouble the Company recognizeda foreign exchange translation loss of US$0.78 million. The loss is mainlycaused by the exchange rate movement associated with the corporate bonds denominated in Roubles and deposits in GBP. The income tax expense of US$5.2 million was lower compared to the prior year ofUS$11.5 million. The charge consists of US$6.8 million current tax expenses(US$5.5 million current income tax charge at MNV and US$1.3 million at otheroperations), a US$1.8 million credit arising as a result of the successfulresolution of certain tax claims and US$0,2 million of deferred tax charge. Most of the entities within the Group, with the exception of MNV, are eitherdevelopment projects or exploration projects and have suffered a tax loss duringthe period. These tax losses are not able to be recognised until such time asthere is sufficient evidence of future taxable profits in those entities,against which the losses can be attributed. In total, US$7.1 million of taxlosses arose during the period, which were not recognized. The application ofthis policy may lead to previously unrecognized deferred tax assets beingrecognised in the future, as projects are determined to be economically viable,resulting in a credit to income taxes. Profit from the Darasun disposal and current Darasun's losses for the year areshown as a result of discontinued operations in the Group's Income Statement.Costs at Darasun significantly decreased in the first half of 2007 following thecessation of mining activities, after which the asset was placed on care andmaintenance, and then sold in October 2007. The Group's cash flow used in operating activities was US$30.2 million. This isUS$27.9 million more than in the previous year due to increases in the group'scapital, which are mainly due to increases in inventories, trade receivables,other receivables and prepayments. Highland Gold continues to advance its development project pipeline havinginvested US$68,6 million in capital expenditures (US$38.9 million in 2006)comprising US$15.5 million at Mayskoye, US$18.3 million at Novoshirokinskoye,being our 50% share and US$ 7.0 million at Taseevskoye. In addition to ourdevelopment project pipeline, the Group invested expenditures of US$19.2 millionat MNV and US$8.6 million in advancing the Company's exploration assets andother entities of the Group. In December 2007, Highland Gold signed a subscription agreement with MillhouseLLC whereby Millhouse LLC subscribed in cash for 65,050,000 new ordinary sharesin Highland Gold at a price of 151 pence per new ordinary share (the "FirstSubscription") and a further 65,050,000 new ordinary shares at the same price,following the passing of the requisite shareholder resolutions in January 2008(the "Second Subscription"). Completion of the First Subscription, which has been made pursuant shareholderauthorities, took place on 11 December, 2007 and the aggregate proceeds of theFirst Subscription amounted to US$200 million. Completion of the SecondSubscription took place in January 2008 and the aggregate proceeds of the SecondSubscription amounted to US$200 million. Following completion of the FirstSubscription, Millhouse LLC's shareholding became 25.0% of the then increasedissued share capital and in January 2008 became 40.0% of the enlarged issuedshare capital following completion of the Second Subscription. The aggregateproceeds of these subscriptions amounted to approximately US$400 million. These proceeds have formed an essential component of Highland Gold's funding,allowing it to proceed with its development programme and reduce the Company'sreliance on debt financing. The net cash flows from financing activities of US$278.2 million comprise interalia of the receipt of US$200.2 million following completion of the FirstSubscription with Millhouse LLC, the drawdown of two US$30 million bank loanswith Gazprombank amounting in US$60 million, US$60 million bank loan from MDMbank and receipts from Kazzinc to finance the Novoshirokinskoye Joint Venture. Cash and short term deposits at 31 December, 2007 were US$211.3 million versusUS$31.6 million at 31 December, 2006 while the net debt position of the Groupwas positive at US$34.9 million versus a net debt position of negative $48.5 million at 31 December, 2006. The net debt of the Group includes Cash at Bank,Bank Borrowings, Outstanding Corporate Bonds and Long-term finance leasepayables. The positive change of US$83.4 million in net debt was caused by the increased change in cash balance of US$179.7 million and a US$1.7 milliondecrease in the capital element of the finance leases opposed to an increase inloan principals of US$96.0 million and in other net debt items of US$2.1 million due to exchange rate movements. In 2007 the Group received financeincome US$0.9 million as deposit interest. In the first quarter of 2007 Highland Gold completed the first of twosignificant debt restructurings whereby US$90 million in new financingfacilities was raised through two large Russian banks comprising a US$60 millionfacility with MDM Bank and a US$30 million facility with GazpromBank. Followingthe completion of these transactions, the Group immediately utilised US$30.7million of these new funds to complete the early repayment of the CommerzbankSyndicated Loan Facility. Bank loans received in 2007 were utilized to financeour development projects. The Group has significantly reduced interest expensesby capitalizing that interest. In October 2007 the Group completed a second debt restructuring with Gazprombankby establishing an additional new five year term US$45 million corporate debtfacility with US$30 million of these funds being drawn down to fund the futuredevelopment of the Highland Gold Group. This debt restructuring was a key element of Highland Gold's capital managementplan and aligns the company's debt maturities with its business plan. These newfacilities reduce the cost of debt and provide greater flexibility which isbetter suited to a growth focused company like Highland Gold. Additionally, thiswill allow the Company to reclassify these debt facilities as long termborrowings in future regulatory accounting filings. After the year end, the Group has repaid the US$15 million short term loanreceived from Gazprombank in 2006 before the maturity date and also fully repaidthe Rouble corporate bond in the amount of US$31 million. The early refinancingof the Gazprombank facility and repayment of the corporate bond will see theeffective maturity profile of all of Highland Gold's remaining loan facilitiesextend to late 2010 and 2011. CONSOLIDATED INCOME STATEMENTfor the year ended 31 December 2007 2007 (Restated) US$000 2006 US$000 ________________________Continuing operationsRevenue 112,100 91,980Cost of sales (75,396) (66,187) ________________________Gross profit 36,704 25,793 Administrative expenses (16,391) (21,705)Other income 275 473Other expenses (1,526) (329)Gain on creation of joint venture - 15,414 ________________________Operating profit 19,062 19,646 ________________________Foreign exchange (loss)/gain (778) 9,318Finance revenue 1,350 730Finance costs (2,217) (4,553) ________________________Profit before income tax 17,417 25,141Income tax expense (5,201) (11,512) ________________________Profit for the year from continuing 12,216 13,629operations ________________________Discontinued operationProfit /(loss) after tax for the year 5,883 (108,518)from a discontinued operation ________________________PROFIT /(LOSS) FOR THE YEAR 18,099 (94,889) ========================Attributable to:Equity holders of the parent 18,099 (96,656)Minority interests - 1,767 ________________________ 18,099 (94,889) ========================Earnings/(loss) per share (US$ per share) • Basic, for the profit/(loss) for the 0.091 (0.587) year attributable to ordinary equity holders of the parent • Diluted, for the profit/(loss) for the 0.089 (0.573) year attributable to ordinary equity holders of the parent Earnings per share for continuing operations (US$per share) • Basic, for the profit from continuing 0.061 0.084 operations attributable to ordinary equity holders of the parent • Diluted, for the profit from continuing 0.060 0.082 operations attributable to ordinary equity holders of the parent Earnings/(loss) per share for discontinued operation (US$ share) • Basic, for the profit/(loss) from 0.030 (0.672) discontinued operation attributable to ordinary equity holders of the parent • Diluted, for the profit/(loss) from 0.029 (0.656) discontinued operation attributable to ordinary equity holders of the parent CONSOLIDATED BALANCE SHEETas at 31 December 2007 2007 (Restated) US$000 2006 US$000 ________________________ Non-current assetsProperty, plant and equipment 311,583 244,212Intangible assets 65,231 65,231Financial assets 11,010 259Other non-current assets 3,812 3,644 ________________________Total non-current assets 391,636 313,346 ________________________ Current assetsInventories 54,452 34,122Trade and other receivables 35,383 16,735Prepayments 6,158 4,015Cash and cash equivalents 211,275 31,576 ________________________Total current assets 307,268 86,448 ________________________Total assets 698,904 399,794 ======================== Equity attributable to equity holdersof the parentIssued capital 458 325Share premium 525,465 334,800Shares to be issued 510 510Assets revaluation reserve 790 790Accumulated losses (68,555) (87,969) ________________________Total equity 458,668 248,456 ________________________Non-current liabilitiesInterest-bearing loans and borrowings 104,454 46,754Provisions 7,437 13,840Deferred income tax liability 22,130 21,895 ________________________Total non-current liabilities 134,021 82,489 ________________________ Current liabilitiesTrade and other payables 25,741 20,968Interest-bearing loans and borrowings 71,968 33,318Income tax payable 6,334 6,504Provisions 2,172 8,059 ________________________Total current liabilities 106,215 68,849 ________________________Total liabilities 240,236 151,338 ________________________Total equity and liabilities 698,904 399,794 ======================== The financial statements were approved by the Board of Directors on 25 April2008. CONSOLIDATED CASH FLOW STATEMENTfor the year ended 31 December 2007 2007 (Restated) US$000 2006 US$000 ________________________Operating activities Profit before tax from continuing 17,417 25,141operationsProfit/(loss) before tax from 5,883 (108,518)discontinued operations ________________________ 23,300 (83,377)Adjustments to reconcile profit/(loss)before tax to net cash flows fromoperating activities:Depreciation of property, plant and 8,305 8,283equipmentImpairment of assets - 79,274Loss on disposal of property, plant and 343 -equipmentExploration costs write-off 812 329Share-based payments expense 1,135 2,064Interest income (1,350) (730)Interest expense 2,217 4,553Net foreign exchange loss/(gain) 778 (9,318)Movement in provisions (6,732) 5,823Gain on disposal of Darasun (16,258) -Gain on disposal of part interest in Novo - (15,414)Non-cash items from discontinued - 12,425operations Working capital adjustments:Increase in trade and other receivables (20,303) (1,119)and prepaymentsIncrease in inventories (23,147) (2,483)(Decrease)/increase in trade and other 4,368 9,954payablesIncrease in deferred stripping costs (393) (2,221)Income tax paid (3,273) (10,364) ________________________Net cash flows used in operating (30,198) (2,321)activities ________________________ Investing activitiesPurchase of property, plant and equipment (68,603) (38,911)Proceeds from disposal of part interest - 36,000in NovoNet proceeds received from Darasun 9,868 -disposalLoans given to jointly controlled entity (10,464) (259)Interest received 924 736 ________________________Net cash flows used in investing (68,275) (2,434)activities ________________________ Financing activitiesIssue of ordinary shares 200,184 4,416Share issue costs (3,204) (313)Proceeds from borrowings 136,809 15,000Repayment of borrowings (52,859) (20,475)Interest paid (12,337) (6,592)Receipts from Kazzinc to finance joint 12,418 -ventureAdvances received from Barrick Gold for - 7,922Taseevskoye and certain explorationlicences Receipt from sale and leaseback - 5,897transactionsLease payments (2,839) (3,094) ________________________Net cash flows from financing activities 278,172 2,761 ________________________ Net increase/(decrease) in cash and cash 179,699 (1,994)equivalentsCash and cash equivalents at 1 January 31,576 33,570 ________________________Cash and cash equivalents at 31 December 211,275 31,576 ======================== Selected Accounting Policies and Notes to the Financial Statements. Basis of preparation The consolidated financial statements have been prepared on a historical costbasis except for financial instruments that have been measured at fair value.The consolidated financial statements are presented in United States dollars andall values are rounded to the nearest thousand (US$000) except when otherwiseindicated. Statement of compliance The consolidated financial statements of Highland Gold Mining Limited and allits subsidiaries (the "Group") have been prepared in accordance withInternational Financial Reporting Standards ("IFRS") as adopted by the EuropeanUnion and Companies (Jersey) Law 1991 as applicable to the year ended 31December 2007. The accounting policies are consistent with those set out in theGroup's interim report for the 6 months ended 30 June 2007. Basis of consolidation The consolidated financial statements comprise the financial statements ofHighland Gold Mining Limited and all its subsidiaries as at 31 December eachyear. The financial statements of the subsidiaries are prepared for the samereporting year as the parent company, using consistent accounting policies. All intra-group balances, transactions, income and expenses and profits andlosses resulting from intra-group transactions that are recognised in assets,are eliminated in full. Subsidiaries are fully consolidated from the date of acquisition, being the dateon which the Group obtains control, and continue to be consolidated until thedate that such control ceases. Minority interests represent the portion of profit and loss and net assets notheld by the Group and are presented separately in the income statement andwithin equity in the consolidated balance sheet, separately from parentshareholders' equity. Acquisitions of minority interests are accounted for usingthe parent entity extension method whereby, the difference between theconsideration and the book value of the share of the net assets acquired isrecognised as goodwill. Taxation A reconciliation between the actual tax expense and the expected tax expensebased on the accounting profit multiplied by Russian statutory tax rate (24%)for the years ended 31 December 2007 and 2006 is as follows: At Russian statutory income tax rate of 24% 5,592 (20,010)Non-deductible expenses 2,406 7,196Provision for current tax exposures - 4,102Losses arose from Darasun impairment - 19,026Lower tax rates on overseas earnings and (8,578) (8,632)disposalsUnrecognised losses 7,064 6,442Movements in other unrecognised temporary 511 336differencesOther - 1,322Adjustments in respect of prior year (1,794) 1,730current taxIncome tax expense on continuing operations 5,201 11,512Income tax expense reported in the 5,201 11,512consolidated income statementIncome tax attributable to a discontinued - -operationIncome tax charge in the income statement 5,201 11,512 Acquisitions On 18 December 2006, Highland Gold announced that Barrick Gold Corporation("Barrick") had increased its shareholding in Highland Gold to approximately34%. In exchange Highland received: • Barrick's 50% share in Taseevskoye Netherlands B.V., and Barrick's rights and interests in the Taseevskoye licence; • Barrick's 50% share in HB Ventures Netherlands B.V., and Barrick's rights and interests in Sovinoye, Belaya Gora and Malo Fedorov licences; • A 100% of the share in Barrick Resources LLC, the holder of the Lyubov, Maya-Inikan, and Sarasa licences; • A 100% of the shares in Barrick Gold Kyrgyzstan LLP, the holder of the Unkurtash and Kassan licences in Kyrgyzstan. The consideration for the acquisition of these share interests was satisfied bythe issue to Barrick entities of 34,492,305 ordinary shares in Highland. Thefirst tranche of 34,312,657 new ordinary shares were issued at a price of 145pence per share and was admitted to AIM of the London Stock Exchange and startedtrading on 18 December 2006. A second tranche of 179,648 new ordinary shares wasissued in 2008 at an issue price of 145 pence per share, representing totalconsideration of US$98.0 million. In acquiring the remaining 50% interest of Taseevskoye, a business combinationwas deemed to have taken place. Accordingly, 100% of the fair value ofTaseevskoye was included in the Group accounts and the existing 50% ofTaseevskoye that was already accounted for in Highland's accounts wassubsequently revalued to fair value resulting in a valuation increment to theAsset Revaluation Reserve. This acquisition had the following impact on the consolidated balance sheet ofHighland Gold. US$'000 ________Fair value of 50% of net assets of Taseevskoye 20,313Fair value of the joint Barrick/Highland 8,750exploration depositsFair value of the 100% owned exploration deposits 6,000Cash received from Barrick not spent as at 31 1,493December 2006Goodwill arising on acquisition 65,231Deferred tax associated with the asset revaluation 249reserveDeferred tax liabilities (4,038) ________Total fair value of the net assets acquired 97,998 ========Disposals • On 24 October 2007, Highland Gold Mining Limited completed the sale of its 100% share in OOO "Darasunsky Rudnik", owner of the Darasun, Teremky and Talatui mines in the Chita Region, Russia, for total cash proceeds of US$15.0 million to the Open Joint Stock Company "Uzhuralzoloto Group of Companies". The total profit from the Darasun disposal was US$16,258, while the net resultfrom the discontinued operation at Darasun was US$5,883 of profit for 2007. • On 1 December 2006 the Group signed a joint venture agreement with Kazzinc with the purpose of further developing the Novoshirokinskoye polimetallic deposit. According to the agreement a 48.3% interest in OAO Novoshirokinskoye ("Novo")was sold for a consideration of US$36 million in cash. This interest soldrepresented 50% of the Group's 96.6% interest. The disposal resulted in a gainof US$15.4 million. Events After the Balance Sheet Date On 16 January 2008, Millhouse LLC completed the second subscription for65,050,000 new ordinary shares in Highland Gold Mining Limited at a price of 151pence per share. After completing the subscription Millhouse LLC has a 40%interest in the issued share capital of Highland Gold Mining Limited. On 1 April 2008, Highland Gold repaid the corporate bonds in the amount of RUR750 million. This information is provided by RNS The company news service from the London Stock Exchange