HGM.L Regulatory News (HGM)

22 Sep 2009 07:00



HIGHLAND GOLD MINING LIMITED

INTERIM RESULTS FOR THE FIRST HALF OF 2009

22 September 2009 - Highland Gold Mining Limited ("Highland Gold", or the "Company") announces its production and financial results for the half year ended 30 June 2009. 

FINANCIAL SUMMARY
Financial (US$ millions)	H1 2009	H1 2008 restated
Turnover	78.8	76.5
Cash inflow from operating activities	18.3	11.0
Group Operating profit	19.4	14.0
Net profit from Continuing operations	39.6	22.4
Profit for the period	38.1	22.4
Diluted earnings per share from continuing operations (US$/share)	0.121	0.069
Capital expenditure	15.7	43.7
Operating
MNV - Gold recovered (ounces)	78,421	68,813
MNV - Gold sold (ounces)	83,860	81,036
MNV - Cash operating cost (US$/ounce sold)	457	517
MNV - Total cash cost (US$/ounce sold)	514	574

  FIRST HALF HIGHLIGHTS

Group profit after tax of US$38.1 million, a 70% increase compared to H1 2008 (US$22.4 million) 

Cash and short term deposits of US$294.8 million at 30 June 2009

Mnogovershinnoye produced 78,421 oz of gold, a 14% increase compared to H1 2008

Novoshirokinskoye on schedule for commissioning by 1 October 2009 

Taseevskoye development project doubles C1+C2 reserves and Belaya Gora exploration project moves to the development stage after State Reserves Committee (GKZ) approves reserves at both properties 

Unkurtash exploration project calculated at 2 million oz of C1+C2 reserves with potential upside estimated at 5 million oz of gold

Commenting on today's announcement Duncan Baxter, Non-Executive Chairman said: "The investments made at MNV continue to bear fruit as reflected in the strong performance from the mine in the first half of the year. Our joint venture project Novoshirokinskoye is on track to become our second producing mine and will be commissioned by 1st October. We are making good progress with the Taseevskoye development project and our Belaya Gora exploration project, while Unkurtash with its multi-million ounces holds strong potential to increase our resource base substantially. Highland's strategy of concentrating its efforts on maximising output from producing assets, the development of its near term production projects and on seeking out new acquisitions continues."

Conference call

Highland Gold will hold a conference call hosted by Valeryi Oif, CEO. The conference call will take place at 10.00 am London time on 22 September 2009. To participate in the conference call, please dial one of the following toll-free numbers:

UK Free Call 0800 694 0257

UK Standard International +44 (0) 1452 555 566 

USA Free Call 1 866 966 9439

Russian Free Call 8 10 800 2 097 20 44

Conference ID 31 831 483

A recording of the presentation will be accessible on the company website www.highlandgold.com shortly after, as well as by dialing one of the following numbers:

International Dial in: + 44 (0) 1452 55 00 00 

UK Free Call Dial In: 0800 953 15 33

UK Local Dial In: 0845 245 5205

USA Free Call Dial In: 1866 247 42 22

Encore Replay Access Number: 31 831 483 #

Encore Replay will be available until 28 September 2009

The Interim Report to 30 June 2009 will be available on our website.

INTERIM BUSINESS REVIEW

Production

We are pleased with the excellent results which our new managing teams both in Moscow and on-site have accomplished at our core producing asset Mnogovershinnoye (MNV). The higher production figures resulted from plans put in place at the beginning of the year to stabilise ore feed to the process plant and to improve existing processing technology. The extension of pit-life at MNV as well as the increase of its ore reserves continued to be the objective of our operations which included the Upper Ore Body open pit re-optimisation and exploration drilling at the Pebble Deposit.

MNV Operating Statistics:

MNV		6 months ended 30 June
	units	2008	2009
Mine development
Stripping	m3	1,293,831	1,338,069
Underground development	metres	4,752	4,289
Mining
Total ore mined	tonnes	492,079	464,949
Average grade	g/t	5.0	5.7
Ore processing
Ore processed	tonnes	484,092	540,327
Average grade	g/t	5.0	5.3
Recovery rate	%	88.1	88.6
Gold produced	ounces	68,813	78,421

In August and during the first half of September 2009 the Company continued to be on target with the main production goals at MNV. Ongoing retrofitting of process technologies continues within the plant and we anticipate improvements to pulp cyanidation time and resin regeneration thereby contributing to cost control and improved recoveries. The Company remains well on track to produce between 155,000 - 165,000 oz of gold for 2009. 

1 October 2009 is set as the date for starting operations at the Company's project with our joint venture partner, Kazzinc - Novoshirokinskoye. This will involve a gradual start-up programme with full scale ore processing to begin by January 2010. Production over the life of mine (through 2023) is expected to be 1.5 million ounces in gold and gold equivalents. 

Development Projects

At Taseevskoye our reserve base has doubled after the State Committee for Reserves (GKZ) approved new C1+C2 reserves which at a cut-off grade of 1.8 g/t now amounts to 3.39 million oz of gold contained in 20.24 million tonnes with an average gold grade of 5.22 g/t. By the end of 2009 the Company plans to complete a bulk sampling programme and develop optimal processing flow sheets for ores from both the Taseevskoye deposit and the ZIF-1 tailings. 

At Belaya Gora the recent reserve approval by GKZ marks a major milestone for this project and underlines the successful efforts made by our exploration team over the past two and a half years which included more than 23,000 metres of drilling on the property. GKZ has approved C1+C2 reserves amounting to 820,000 oz of gold contained in 7,286,000 tonnes of ore with an average gold grade of 3.5 g/t. The project is with our development team which has started a feasibility study for investigating various options for development of Belaya Gora. These include using existing facilities at MNV which will contribute to extending the mine life of MNV.

Following the sale of our interest in the Mayskoye development project earlier in the year our cash position remains very strong at US$294.8 million. This positions us well to continue our acquisition strategy to identify and purchase close to production assets of considerable size (not less than 3 million oz of gold) in Russia and Central Asian states.

Exploration

Good progress has been made at our exploration projects which has resulted in initial resource models for two of our projects indicating that we are expected to add substantial value to the Company in the near future. 

At Unkurtash, now our most advanced exploration project, a preliminary in-house resource calculation combining previous and our own exploration results to date corroborates the multi-million ounce potential of the project. Accordingly, at a cut-off grade of 0.5 g/t and an average gold grade of 1.4 g/t Unkurtash holds a potential gold resource of 5.0 million ounces to a depth between 200 and 400 metres of which 2.0 million ounces have been calculated as C1+C2 category reserves to a depth of 200 metres. We continue to receive excellent drilling results from RC and diamond drilling programmes underway at three prospects (Unkurtash, Sarytube and Karatube) where we intend that a total volume of 8,000 metres of drilling will be completed by the end of the year. 

At our Lyubov project a Summary Report compiling exploration results to date is nearing completion. For the Evgraf target an in-house resource estimate combining previous and our own drilling results currently define a resource potential of 1.6 million ounces of gold at an average grade of 1.7 g/t and a cut-off grade of 0.75 g/t of which 0.6 million ounces have been calculated as C1+C2 category reserves extending to a depth between 200 to 250 metres from surface. Resource definition drilling at the Evgraf target is planned to be continued following submission and approval of the Report and a new "Project" expected in Q1 2010.

Both the Unkurtash and Lyubov deposits are planned to be mined by open pit and feature favourable metallurgy suitable for low-cost gravitational processing. 

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 11 years experience in mineral exploration and is a fellow of the Geological Association of Canada. A rigorous quality assurance programme complying to international standards is in effect at all exploration projects and includes duplicate sampling, insertion of standards and check assaying at external laboratories.

Health and Safety

The provision of safe labour conditions for employees remains a high priority for the Company. We provide various forms of industrial safety training and education for our staff designed to prevent personnel accidents and equipment incidents during production, to register and investigate all production-related incidents and to comply with legislative requirements in licenses and permits. The lost time incidents ratio (the LTI ratio equals to the number of LTI incidents occurred during every 200,000 man-hours) totaled 0.69 YTD (0.6 in 2008).

Board Matters 

In August 2009 following his retirement from Barrick Gold, Alex Davidson who was a member of the Board of Directors for the last four years, resigned from his post. We are currently in discussions with Barrick Gold on the nomination of a new Director representing their interest in the Company. Meanwhile we thank Alex for his valuable input and wish him success in his new activities.

FINANCIAL REVIEW

Highland Gold posted a profit from continuing operations of US$39.6 million in the first half of 2009 versus US$22.4 million for the corresponding period in 2008.

Turnover for the Group in the first half of 2009 was US$78.8 million compared to US$76.5 million in H1 2008. The increase was mainly due to stronger production at MNV and a slight increase in prices received. The Group sold 83,860 ounces of gold at an average price of US$910 per ounce compared to 81,036 ounces of gold in H1 2008 at an average price of US$909 per ounce.

Gold production at MNV reached 78,421 ounces - this exceeded H1 2008 results by 14%. The higher production figures were a result of stabilised ore feed to the process plant and improvements to the existing processing technology.

The Group's EBITDA in the first half of 2009 increased by 33% to US$27.3 million compared to US$20.6 million in the corresponding period in 2008. The increase was caused by the higher amount of gold sold (increase by 3%) together with the operating cost reduction.

The Group's cost of sales decreased by 3% to US$50.1 million compared to US$51.9 million in the previous reporting period. Operating costs at the MNV operation decreased by 9% to US$35.3 million in H1 2009 while the total cash cost per ounce was US$514 compared to US$574 per ounce in the prior period. The cost decrease was attributable to cost saving initiatives which started in the second half of 2008 to avoid the affects of the economic turmoil and the devaluation of the Russian Rouble by 39% as compared with an average exchange rate for the six months of 2008. This affected the rouble denominated part of operating costs offsetting the increase in tariffs, raw materials and fuel prices.

Other operating expenses of the Group were US$3 million in the first half of 2009 compared to US$4.7 million in H1 2008. The current period amount is primarily comprised of a write off of unsuccessful exploratory drilling costs at MNV.

During the previous year, following the collapse in world metal prices, we impaired our investment in the Novoshirokinskoye mine by US$79.5 million. We are pleased to report that, as planned, we will commission the project to meet licence requirements, and reflecting our belief in the fundamentals of this project. We will continue to monitor commodity prices, and the operating costs of the mine once commissioned, to determine whether any reversal of the prior year impairment is warranted in the future.

Finance income decreased by 56% to US$4.0 million as a result of lower average deposits balance and lower interest rates.

Finance costs of US$0.8 million include finance lease interest expense and accretion costs. They decreased by 15% due to the reduction of lease agreements. The Group used almost all borrowed facilities to finance works on its development projects, therefore, all borrowing costs were capitalized in H1 2009. 

The Group recognized foreign exchange gains of US$21.1 million (H1 2008: US$5.0 million) mainly due to the movement and translation of sterling denominated deposits as the pound sterling strengthened by 12% from the beginning of 2009.

The income tax expense of US$4.1 million was lower compared to the prior period tax expense of US$4.9 million. The charge consists of US$4.5 million current tax expenses at MNV and US$0.4 million of deferred tax credit. 

The entities of the Group at the development or exploration stage have suffered a tax loss during the period. These tax losses have not been recognised until such time as there is sufficient evidence of future taxable profits in those entities, against which the losses can be utilised. In total, US$0.6 million of tax losses have not been recognised at the end of June 2009. 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. 

On 28 of April the Group completed the transaction of selling the issued share capital of its subsidiary Zolotorudnaya Kompaniya Mayskoye. Loss from discontinued operation at Mayskoye was US$1.6 million which comprises total cash proceeds of US$105.0 from sale, cost of disposed net asset of US$105.0 million and loss of US$1.6 million from the operation for the period.

The Group's cash inflow from operating activities was US$18.3 million compared to a cash inflow of US$11.0 million in the first half of the prior year. The stronger cash flow from operating activities was attributable to a good EBITDA achievement in H1 2009. 

In the first six months to 30 June 2009 the Group invested US$15.7 million in capital expenditures compared to US$43.7 million in the first six months to 30 June 2008. The considerable decrease in capital expenditures was due to the disposal of Mayskoye, postponing of the Novoshirokinskoye mine commissioning and reassessment of other projects. H1 2009 capital expenditure comprised Mnogovershinnoye mine development costs, purchase and upgrades of mining equipment (US$6.9 million excluding VAT), development project maintenance expenditures (US$7.9 million) and exploration works at Belaya Gora, Lyubov and Unkurtash (US$0.9 million).

The Group repaid US$17.5 million of loans, paid US$6.2 million of interest and US$1.0 million of finance lease. Additionally, the Group invested US$1.9 million in the Novoshirokinskoye project which was proportionally consolidated in the amount of US$1.0 million.

The investing and financing outflows totaling US$41.4 million were financed out of operating cash inflows, the receipt of US$10.0 million of a long-term bank loan and US$2.4 million of bank overdrafts and receipts of US$2.9 million (HGML portion of 48.3% in Novoshirokinskoye) from Kazzinc to finance the Novoshirokinskoye joint venture. The Group also received finance income of US$2.0 million as deposit interest.

Cash and short term deposits at 30 June 2009 were US$294.8 million versus US$308.7 million (including US$1.2 of cash attributable to a discontinued operation) at 30 June 2008 while the net cash position of the Group was US$143.6 million versus a net cash position of US$179.0 million at 30 June 2008. The net cash of the Group comprises Cash at Bank, less Bank Borrowings, and finance lease payables. 

The Group arranged a new long-term loan with UniCredit bank in the amount of US$15 million which was drawn down on 28 July 2009 and with GazPromBank in the amount of US$25 million drawn down on 4 September 2009. This new financing facility will be used for financing the capital expenditure programme. 

Duncan Baxter

Non-Executive Chairman

Interim consolidated statement of comprehensive income
for the six months ended 30 June 2009
			2009		2008
					Restated
			Unaudited
		Notes	US$000		US$000
Continuing operations
Revenue			78,766		76,457
Cost of sales			(50,067)		(51,877)
Gross profit			28,699		24,580
Administrative expenses			(6,575)		(5,821)
Other operating income			333		-
Other operating expenses			(3,017)		(4,769)
Operating profit			19,440		13,990
Foreign exchange gain			21,051		5,015
Finance income			4,042		9,256
Finance costs			(810)		(948)
Profit before tax			43,723		27,313
Income tax expense		5	(4,100)		(4,942)
Profit for the period from continuing operations			39,623		22,371
Discontinued operation
(Loss)/gain after tax for the period from a discontinued operation		4	(1,552)		8
Profit for the period			38,071		22,379
Total comprehensive income for the period			38,071		22,379
Attributable to:
Equity holders of the parent			38,071		22,379
Earnings per share
●	Basic, for the profit for the period attributable to ordinary equity holders of the parent		US$0.117		US$0.070
●	Diluted, for the profit for the period attributable to ordinary equity holders of the parent		US$0.116		US$0.069
Earnings per share from continuing operations
●	Basic, for the profit from continuing operations attributable to ordinary equity holders of the parent		US$0.122		US$0.070
●	Diluted, for the profit from continuing operations attributable to ordinary equity holders of the parent		US$0.121		US$0.069

______________________________________________________________________________________

Interim consolidated statement of financial position
At 30 June 2009
		30 June		31 December		30 June
		2009		2008		2008
		unaudited		audited		unaudited
				restated		restated
	Notes	US$000		US$000		US$000
Assets
Non-current assets
Exploration and evaluation assets	6	27,201		27,806		24,958
Mine properties	6	97,206		109,364		239,641
Property, plant and equipment	6	52,280		123,812		85,329
Goodwill		65,231		65,231		65,231
Financial assets		37,005		33,749		24,812
Other non-current assets		761		1,852		4,643
		279,684		361,814		444,614
Current assets
Inventories		44,396		61,466		56,785
Trade and other receivables		21,282		35,969		35,585
Income tax prepaid		406		889		3,429
Prepayments		5,991		4,451		7,256
Cash and cash equivalents	8	294,787		173,062		308,650
		366,862		275,837		411,705
Total assets		646,546		637,651		856,319
Equity and liabilities
Equity attributable to equity holders of the parent
Issued capital	10	585		585		585
Share premium		718,370		718,370		718,370
Assets revaluation reserve		832		832		790
Accumulated losses		(267,956)		(305,912)		(50,057)
Total equity		451,831		413,875		669,688
Non-current liabilities
Interest-bearing loans and borrowings		88,690		104,493		98,510
Long-term interest payable		5,397		3,216		1,285
Provisions		9,837		9,278		9,280
Deferred income tax liability		11,973		12,405		17,907
		115,897		129,392		126,982
Current liabilities
Trade and other payables		12,110		41,955		21,322
Interest-bearing loans and borrowings		62,235		49,698		31,125
Income tax payable		2,353		624		4,781
Provisions		2,120		2,107		2,421
		78,818		94,384		59,649
Total liabilities		194,715		223,776		186,631
Total equity and liabilities		646,546		637,651		856,319

  

Interim consolidated statement of changes in equity
for the six months ended 30 June 2009
				Attributable to equity holders of the parent
				Issued capital						Share premium					Shares to be issued								Asset revaluation reserve							Accumulated losses							Total equity
				US$000						US$000					US$000								US$000							US$000							US$000
At 1 January 2009 as previosly reported				585						718,370					-								832							(299,743)							420,044
Restatement				-						-					-								-							(6,169)							(6,169)
At 1 January 2009 (restated)				585						718,370					-								832							(305,912)							413,875
Total comprehensive income for the period				-						-					-								-							38,071							38,071
Share-based payment				-						-					-								-							(115)							(115)
At 30 June 2009 (unaudited)				585						718,370					-								832							(267,956)							451,831
for the six months ended 30 June 2008 (Restated)
					Attributable to equity holders of the parent
					Issued capital						Share premium					Shares to be issued							Asset revaluation reserve							Accumulated losses							Total equity
					US$000						US$000					US$000							US$000							US$000							US$000
At 1 January 2008 as previosly reported					458						525,465					510							790							(68,555)							458,668
Restatement					-						-					-							-							(4,057)							(4,057)
At 1 January 2008 (restated)					458						525,465					510							790							(72,612)							454,611
Total comprehensive income for the period (restated)					-						-					-							-							22,379							22,379
Issue of share capital					127						192,905					(510)							-							-							192,522
Share-based payment					-						-					-							-							176							176
At 30 June 2008 (unaudited) (restated)					585						718,370					-							790							(50,057)							669,688

  

Interim consolidated cash flow statement
for the six months ended 30 June 2009
		For the six months ended 30 June
		2009		2008
				Restated
		Unaudited
	Notes	US$000		US$000
Operating activities
Profit before tax from continuing operations		43,723		27,313
Loss before tax from discontinued operations	4	(1,552)		(720)
		42,171		26,593
Adjustments to reconcile profit/(loss) before tax to net cash flows
Non cash:
Depreciation of property, plant and equipment	6	7,822		6,609
Loss on disposal of property, plant and equipment	6	1,780		3,468
Novoshirokinskoye WIP write-down		484		-
Share-based payments (credit)/ expense		(115)		82
Finance income		(4,046)		(9,262)
Finance cost		861		948
Net foreign exchange gains		(19,691)		(4,832)
Movement in provisions		288		769
Working capital adjustments:
Decrease/ (increase) in trade and other receivables		1,902		(2,958)
Decrease/ (increase) in inventories		12,541		(4,895)
Increase in deferred costs		(1,397)		(640)
(Decrease)/ increase in trade and other payables		(21,798)		6,709
Income tax paid		(2,512)		(11,603)
Net cash flows from operating activities		18,290		10,988
Cash flows from investing activities
Purchase of property, plant and equipment		(15,715)		(43,672)
Net proceeds received from Mayskoe disposal	4	104,719		-
Net proceeds received from Darasun disposal		-		5,000
Loans given to joint venture		(982)		(12,403)
Interest received		2,040		8,333
Net cash flows (used in)/ from investing activities		90,062		(42,742)
Cash flows from financing activities
Issue of ordinary shares		-		192,522
Share issue costs		-		(9,386)
Proceeds from borrowings		12,357		4,870
Repayment of borrowings		(17,479)		(61,648)
Interest paid		(6,228)		(6,402)
Receipt from Kazzinc to finance joint venture		2,898		10,153
Lease payments		(1,005)		(980)
Net cash flows (used in)/ from financing activities		(9,457)		129,129
Net increase/(decrease) in cash and cash equivalents		98,895		97,375
Cash and cash equivalents at 1 January		173,062		211,275
Effects of exchange rate changes		22,830		-
Cash and cash equivalents at 30 June		294,787		308,650

1. Corporate information

These interim condensed consolidated financial statements of Highland Gold Mining Limited for the six months ended 30 June 2009 were authorised for issue in accordance with a resolution of the directors on 21 September 2009. 

The ultimate parent entity of the Group, Highland Gold Mining Limited, is a public company incorporated and domiciled in Jersey. Its ordinary shares are traded on the Alternative Investment Market ("AIM").

The principal activity is building of a portfolio of gold mining operations within the Russian Federation.

2. Basis of preparation and accounting policies

Basis of preparation

These interim condensed consolidated financial statements for the six months ended 30 June 2009 have been prepared in accordance with IAS 34 Interim Financial Reporting.

The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements as at 31 December 2008. 

Significant accounting policies

The accounting policies and methods of computation adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2008, except for the adoption of new Standards and Interpretations, noted below:

●

IFRS 8 Operating segments

This standard requires disclosure of information of the Group's operating segments and replaces the requirement to determine primary (business) and secondary (geographical) reporting segments of the Group. IFRS 8 replaces IAS 14 'Segment Reporting' upon its effective date. IFRS 8 defines an operating segment as the component of an entity: (a) that engages in business activities from which it may earn revenues and incur expenses, (b) whose operating results are regularly reviewed by the entity's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and (c) for which discrete financial information is available. The effect of IFRS 8 is analysed in note 4.

●

IAS 1 Presentation of Financial Statements

The standard separates owner and non-owner changes in equity. The statement of changes in equity will include only details of transactions with owners, with non-owner changes in equity presented as a single line. In addition, the Standard introduces the statement of comprehensive income which presents all items of recognised income and expense, either in one single statement, or in two linked statements. The Group has elected to present it in one single statement, as it has no elements of other comprehensive income.

3. Segment information 

For management purposes, the Group is organized into business units based on the nature of their activities, and has four reportable operating segments as follows:

	●	The gold production segment;
	●	The polymetallic concentrate production segment;
	●	Development and exploration segment;
	●	Others.

As the gold production segment, namely Mnogovershinnoye, is the only cash generating unit, the management monitors its operating results separately for the purpose of making decisions about resource allocation and evaluating the effectiveness of its activity. 

The polymetallic concentrate production segment, namely Novoshirokinskoye, will be commissioned in October 2009. The management analyses it separately to make a decision of commissioning the project.

Development and exploration segment contains the holders of the licenses being at the development and exploration stage.

Head office, management company, trade house and other have been aggregated to form the reportable segment "Others".

Segment performance is evaluated based on EBIDTA and profit or loss after the income tax in respect of the gold production segment. The development and exploration segments are evaluated based on the life of mine models in connection with the capital expenditure spent during the reporting period.

The following tables present revenue and profit and loss information as well as assets information of the Group's operating segments.

Six months ended 30 June 2009 (unaudited)		MNV		Novo		Development & Exploration		Other		Adjustments & eliminations		Total
		US$000		US$000		US$000		US$000		US$000		US$000
Revenue
Gold revenue		76,336		-		-		-		-		76,336
Silver revenue		680		-		-		-		-		680
Other third-party		3		26		68		1,653		-		1,750
Inter-segment		94		-		2		6,390		(6,486)		-
Total revenue		77,113		26		70		8,043		(6,486)		78,766
EBITDA		31,031		(692)		(132)		(8,808)		5,863		27,262
Other segment information
Depreciation*												(7,822)
Net finance revenue including foreign exchange												24,283
Profit from continuing operations before income tax												43,723
Income tax												(4,100)
Profit for the period from continuing operations												39,623
* Depreciation		(7,569)		-		-		(253)		-		(7,822)
Segment assets at 30 June 2009
Non-current assets
Capital expenditure		67,917		8,147		91,218		9,405		-		176,687
Goodwill												65,231
Financial assets												37,005
Other non-current assets												761
Current assets												366,862
Total assets												646,546
Capital expenditure - addition in 1H 2009 including:		9,163		6,983		9,530		83		-		25,759
deferred stripping costs		1,397		-		-		-		-		1,397
capitalised interest		-		4,899		3,241		-		-		8,140

_______________________________________________________________________________

  

Six months ended 30 June 2008 (unaudited)		MNV		Novo		Development & Exploration		Other		Adjustments & eliminations		Total
		US$000		US$000		US$000		US$000		US$000		US$000
Revenue
Gold revenue		73,697		-		-		-		-		73,697
Silver revenue		416		-		-		-		-		416
Other third-party		4		-		-		2,378		(38)		2,344
Inter-segment		108		-		2		34,685		(34,795)		-
Total revenue		74,225		-		2		37,063		(34,833)		76,457
EBIDTA		26,495		(64)		(3,423)		(2,905)		496		20,599
Other segment information
Depreciation*												(6,609)
Net finance revenue including foreign exchange												13,323
Profit from continuing operations before income tax												27,313
Income tax												(4,942)
Profit for the period from continuing operations												22,371
* Depreciation		(6,158)		-		-		(451)		-		(6,609)
Segment assets at 31 December 2008
Non-current assets
Capital expenditure		67,930		1,167		188,349		3,536		-		260,982
Goodwill												65,231
Financial assets												33,749
Other non-current assets												1,852
Current assets												275,837
Total assets												637,651

Segment performance is evaluated based on EBITDA (defined as operating profit) excluding depreciation, amortization) which is derived from the information in the consolidated financial statements. The Highland Gold financing (including finance costs and finance income), income taxes and foreign exchange gain/(loss) are managed on a group basis and are not allocated to operating segments.

  4. Discontinued operation

On 29 April 2009, the Board of Directors of Highland Gold Mining Limited publicly announced that it has sold the issued share capital of its subsidiary Zolotrudnaya Kompaniya Mayskoye Limited Liability Company ("Mayskoye") for a net cash consideration of US$104.7 million to a group of Russian companies, one of which is JSC Polymetal and none of which were connected with any of Highland Gold's directors or major shareholders. The transaction was completed on 28 April 2009. The results of Mayskoye are as follows:

	2009		2008
	Unaudited
	US$000		US$000
Revenue	244		37
Expenses	(292)		(259)
Gross loss	(48)		(222)
Administrative costs	(100)		(306)
Other operating income/ (costs)	3		(15)
Operating loss	(145)		(543)
Finance income	4		6
Finance costs	(51)		-
Exchange loss	(1,360)		(183)
Loss before tax from discontinued operation	(1,552)		(720)
Tax income / (expense)
related to changes in deferred tax	-		728
Profit/ (loss) for the period from discontinued operation	(1,552)		8
result on disposal of discontinued operation	-		-
(Loss)/gain after tax for the period from discontinued operation	(1,552)		8

The carrying values of the major classes of assets and liabilities of Mayskoye at the end of 2008 and at its disposal date were as follows:

	28 April		31 December
	2009		2008
	unaudited		restated
	US$000		US$000
Property, plant and equipment	100,452		96,464
Inventory	3,767		4,092
Trade and other receivables	8,198		9,354
Cash	281		80
Total assets	112,698		109,990
Non-current liabilities	-		(49)
Current liabilities	(7,698)		(14,242)
Net assets	105,000		95,699

  Net result from Mayskoye in the first half of 2008 and 2009 was as follows:

	For the six mounths ended 30 June
	2009		2008
	Unaudited
	US$000		US$000
Proceeds from Mayskoye disposal	105,000		-
Mayskoye's net assets disposed	(105,000)		-
Profit/ (loss) for the period from discontinued operation	(1,552)		8
Net result from Mayskoye	(1,552)		8

Cash inflow on sale:

	Unaudited
	US$000
Consideration received	105,000
Net cash disposed of with the discontinued operation	(281)
Net cash inflow from disposal	104,719

Loss per share from discontinued operation:
Basic	US$(0.005)		US$(0.000)
Diluted	US$(0.005)		US$(0.000)

5. Income tax

The major components of income tax expense in the interim consolidated income statement are:

	For the six months ended  30 June
	2009		2008 Restated
	Unaudited
	US$000		US$000
Current income tax
Current income tax charge	4,531		6,666
Adjustments in respect of prior year current tax	-		198
Deferred income tax
Relating to origination and reversal of temporary differences	(431)		(1,922)
Income tax expense	4,100		4,942

  6. Property, plant and equipment

		Mine development		Exploration and evaluation assets		Freehold building		Plant and equipment		Construction in progress		Deferred stripping costs		Total
		US$000		US$000		US$000		US$000		US$000		US$000		US$000
Cost
At 1 January 2009		359,295		27,806		40,993		94,383		63,368		55		585,900
Additions		8,085		979		-		4,157		3,001		1,397		17,619
Additions - capitalised inrerest		8,140		-		-		-		-		-		8,140
Transfers and other movements		13,939		-		-		195		(14,134)		-		-
Capitalised depreciation		45		-		-		-		-		-		45
Write off		-		(1,584)		-		-		-		-		(1,584)
Disposal of Mayskoye (a)		(153,013)		-		(9,383)		(18,096)		(37,392)		-		(217,884)
Disposals		-		-		(1)		(1,064)		-		-		(1,065)
At 30 June 2009		236,491		27,201		31,609		79,575		14,843		1,452		391,171
Depreciation and impairment
At 1 January 2009		249,986		-		24,949		43,237		6,746		-		324,918
Depreciation charge		4,816		-		317		2,689		-		-		7,822
Disposal of Mayskoye Impairment (a)		(114,065)		-		-		-		-		-		(114,065)
Disposal of Mayskoye (a)		-		-		(652)		(2,715)		-		-		(3,367)
Disposals		-		-		(1)		(868)		-		-		(869)
Capitalised depreciation		-		-		3		42		-		-		45
At 30 June 2009		140,737		-		24,616		42,385		6,746		-		214,484
Net book value:
At 1 January 2009		109,309		27,806		16,044		51,146		56,622		55		260,982
At 30 June 2009		95,754		27,201		6,993		37,190		8,097		1,452		176,687
		Mine development		Exploration and evaluation assets		Freehold building		Plant and equipment		Construction in progress		Deferred stripping costs		Total
		US$000		US$000		US$000		US$000		US$000		US$000		US$000
Cost
At 1 January 2008		264,454		23,077		36,090		77,505		19,509		2,256		422,891
Additions		29,086		5,026		48		1,800		8,820		640		45,420
Additions - capitalised inrerest		6,958		-		-		-		-		-		6,958
Transfers and other movements		(509)		173		4,499		2,111		(6,274)		-		-
Capitalised depreciation		938		-		-		-		-		-		938
Write off		-		(3,318)		-		-		-		-		(3,318)
Disposals		-		-		-		(168)		-		-		(168)
At 30 June 2008		300,927		24,958		40,637		81,248		22,055		2,896		472,721
Depreciation and impairment
At 1 January 2008		60,647		-		20,052		27,819		6,746		-		115,264
Depreciation charge		3,535		-		314		2,760		-		-		6,609
Disposals		-		-		-		(18)		-		-		(18)
Capitalised depreciation		-		-		319		619		-		-		938
At 30 June 2008		64,182		-		20,685		31,180		6,746		-		122,793
Net book value:
At 1 January 2008		203,807		23,077		16,038		49,686		12,763		2,256		307,627
At 30 June 2008 (restated)		236,745		24,958		19,952		50,068		15,309		2,896		349,928

(a) The balance of Mayskoye's property, plant and equipment at the date of disposal was US$100.5 million (Note 4).

7. Commitments and contingencies

Capital commitments 

At 30 June 2009, the Group had commitments of US$2.4 million (at 31 December 2008: US$2.7 million, at 30 June 2008: US$25.5 million) principally relating to development assets and US$0.5 million (at 31 December 2008: US$1.2 million, at 30 June 2008: US$9.8 million) for the acquisition of new machinery.

Contingent Liabilities

Management has identified possible tax claims within the various jurisdictions in which it operates totalling US$0.3 million as at 30 June 2009 (at 31 December 2008: US$0.7 million, at  30 June 2008: US$ 10.8 million). In management's view these possible tax claims will likely not result in a future outflow of resources, consequently no provision is required in respect of these matters.

8. Cash and cash equivalents

For the purpose of the interim consolidated cash flow statement, cash and cash equivalents are comprised of the following:

	30 June		31 December		30 June
	2009		2008		2008
	Unaudited		Audited		Unaudited
	US$000		US$000		US$000
Cash at bank and in hand	3,029		5,321		14,251
Short term deposits	291,758		167,661		293,154
	294,787		172,982		307,405
Cash at bank and in hand attributable to a discontinued operation	-		80		1,245
	294,787		173,062		308,650

9. Interest-bearing loans and borrowings

On 16 March 2009 the Group received a new 15 month US$10 million facility at a 10% interest rate with a pledge over Mnogovershinnoye fixed assets from Unicredit Bank. This facility is used to finance the development needs of the Group.

During the first half of 2009, the Group partially repaid US$15.8 million of the existing debt facilities. Additionally, the Group drew down US$2.4 and repaid US$1.7 million of overdraft facility. 

  

10. Share Capital

	30 June 2009		31 December 2008
Authorised
	Shares		Shares
Ordinary shares of £0.001 each	750,000,000		750,000,000
Ordinary shares issued and fully paid	Shares		Amount
At 30 June 2008, 31 December 2008 and 30 June 2009	325,197,098		585

11. Events after the balance sheet event

The Group arranged new long-term loans with UniCredit bank in the amount of US$15 million which was drawn down on 28 July 2009 and with GazPromBank in the amount of US$25 million which was drawn down on 4 September 2009. The new financing facility will be used for financing the capital expenditure programme.

ENDIR UARWRKORKUAR