HGM.L Regulatory News (HGM)

HIGHLAND GOLD MINING LIMITED

21 January 2020

Q4 2019 Operating Results

Highland Gold Mining Limited ("Highland Gold" or the "Company", AIM: HGM) today reports its operating results for the three months ended 31 December 2019 ("Q4 2019") and for the full year of 2019.

HIGHLIGHTS

·; Highland Gold's four operating mines produced a total of 83,429 oz of gold and gold equivalent in Q4 2019, a 27% increase from 65,753 in Q4 2018.

·; Total gold and gold equivalent production in 2019 was 300,704 oz, an increase of 12% from 269,500 oz produced in 2018 and slightly above the guidance range of 290,000-300,000 oz.

·; The average realised gold price was 1,482 US$/oz in Q4 2019 and 1,395 US$/oz for the full year.

·; Mnogovershinnoye (MNV) outperformed expectations, with production up 9% in Q4 2019 and 10% for the full year on the back of improved grades and higher processing volume.

·; Novo also exceeded its production targets for 2019, with improved Q4 2019 production making up for a weaker first half, although output was lower year-on-year.

·; A strong fourth quarter at Belaya Gora helped to offset part of its shortfall earlier in the year, while work accelerated on planned upgrades to the mine's processing plant.

·; Pre-stripping and initial mining got underway at the Company's key development project, Kekura, where construction also gathered pace in the latter part of 2019.

·; Capital expenditure for the year 2019 totalled US$ 94 million and is expected to rise to US$ 205-210 million in 2020 as construction continues at Kekura, Belaya Gora, and Novo.

·; A 2nd interim dividend of £0.05 per share was announced on 12 December 2019 and paid to shareholders on 17 January 2020, bringing the total payout to date for 2019 to £0.10 per share.

·; The Company forecasts that total production of gold and gold equivalent in 2020 will be in the range of 290,000-300,000 oz.

FOR FURTHER INFORMATION, PLEASE CONTACT:

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CORPORATE NEWS

Chief Operating Officer Anton Kim has informed the Board of Directors of his intention to leave the Company, effective January 24, to pursue other opportunities. The Company would like to put on record its thanks to Anton for his service over the past two years and for his important role in delivering a strong operational year in 2019.

Sergey Baikalov, who currently oversees operations in the Khabarovsk cluster as Managing Director for the Far East Region, will fill the COO position on a temporary basis. The Board and management will conduct a thorough search to find the strongest available candidate to fill the vacancy on a permanent basis.

KHABAROVSK REGION, RUSSIA

Mnogovershinnoye (MNV)

·; Q4 2019 gold production rose 9% year-on-year, attributable to incremental improvements in grades, recoveries and processing volumes.

·; Q4 2019 ore grades from the underground rose by 16% year-on-year as the Company accessed high-grade blocks in the Deer ore body.

·; Total Q4 2019 ore mining was down 14% year-on-year, mainly due to reduced open pit mining during planned stripping work to prepare new mining blocks at the Quiet ore body.

·; For the full year, gold production increased by 10% thanks to improved head grade and ore processing volume.

The Company continued to implement its broad near-mine exploration programme at MNV in Q4 2019. Exploration was performed using an innovative combined method, first drilling upward from underground to locate new ore occurrences and subsequently from the surface to verify and delineate ore zones.

Drilling over the course of the year focused on the Deep, Quiet, Intermediate, Northern and Deer ore bodies, with 216 holes totalling 15,981 metres. Exploration results are being tallied and early estimates of additions to gold reserves for several ore bodies have been calculated and are due to be finalised in Q1 2020. A full JORC-compliant update of MNV's reserves based on 2019 drilling results is also in preparation and expected to be completed early this year.

Separately, the Company continues to reassess MNV's historic waste dumps, which supplied 291k tonnes of ore at 1.1 g/t to the processing plant in 2019. An assessment of stockpiles near the Pebble ore body, with ore containing an estimated 900 kg of gold (29 koz), was prepared in late 2019 and submitted for state expert review, which is pending. This programme will continue throughout 2020.

On the Company's three greenfield licences adjacent to MNV, geochemical prospecting work was completed on the Kulibinskaya and Zamanchivaya zones. A full exploration programme based on those results, including diamond drilling and trenching at various sites on these licences and on the Vilkinskaya licence, was carried out over the course of the year. Assay tests and reviews of the results are in progress.

MNV near-mine exploration will continue in 2020, with primary focus on the Intermediate, Watershed, and Upper ore bodies and on the Kulibinskaya and Vilkinskaya licence areas.

Belaya Gora

·; Ore mining more than doubled in Q4 2019 compared to Q4 2018, and rose by 30% for the full year 2019 versus the previous year.

·; Processing plant throughput declined by 12% year-on-year in the fourth quarter, but recovery rates were substantially higher at 82.6%.

·; Gold production for the full year decreased by 9% in 2019 due to lower ore grades and operational challenges at the processing plant earlier in the year.

Work on the Company's planned upgrade to the Belaya Gora processing plant and various related capital projects accelerated in Q4 2019. Plans call for the addition of a carbon-in-pulp (CIP) circuit to improve gold recoveries from an average of 77.6% in 2019 to up to 90% and to enable the plant to process ore from the nearby Blagodatnoye deposit. Completion is expected in the second half of 2020.

Highlights from the fourth quarter include:

·; The selection of contractors for detailed design documentation and capital construction, and suppliers for construction materials and basic processing equipment for the sorption/elution circuit;

·; The dismantling of a chemical storage facility to make way for future construction;

·; The completion, review, and revision of detailed design documentation and architectural plans for various structures and the layout of the expanded processing plant, including a decision to construct the new circuit as a separate, adjacent building in order to reduce costs;

·; Initial site preparations for construction of the sorption/elution circuit; and

·; The development of plans for the expansion of Belaya Gora's tailings dam, which have already undergone one additional external expert review and which are expected to be completed and submitted for regulatory approval by March 2020.

With regard to the tailings dam, in Q4 2019, contractors completed the construction of a new buttress on the existing dam as well as work on raising the level of the dam.

Exploration on the flanks of Belaya Gora also continued in Q4 2019, with a focus on the Kolchansky ore zone. In December, the Company conducted 2,000 metres of diamond drilling to verify geophysical anomalies identified earlier. Drilling continues in early 2020 and is expected to be completed by the end of this month.

In parallel, a new exploration programme through 2023 was developed covering Kolchansky and the whole Belaya Gora flanks licence. That programme was submitted for regulatory review in December and approval is expected in Q1 2020.

ZABAIKALSKY REGION, RUSSIA

Novoshirokinskoye (Novo)

·; Q4 2019 grades and recovery rates improved by 22% and 3% year-on-year, respectively, helping to increase gold equivalent production by 25%.

·; Ore mining rose by 8% year-on-year in Q4 2019, totalling 230,846 tonnes, but ore processing volumes dipped by 1%.

·; Gold equivalent production for the full year 2019 was higher than forecasted, but 5% lower year-on-year reflecting lower grades in the first half and influenced by fluctuations in the balance of prices for gold, silver, lead, and zinc.

* In gold equivalent at actual prices

(Metal grade of mined ore = Au 3.09 g/t, Ag 53.46 g/t, Pb 1.06%, Zn 0.50%, Cu 0.24%).

The expansion of Novo's ore mining and processing capacity from 800 ktpa to 1.3 Mtpa, which is scheduled for completion later this year, continues to be a key focus for the Company. Progress in Q4 2019 included:

·; The completion of a buttress and the fifth level expansion of the tailings dam;

·; The initiation of construction on surface building foundations and air vents for the new underground ventilation system; and

·; The awarding of a contract for reconstruction of the skip hoist, which is scheduled for the middle of 2020.

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

Highland Gold received further regulatory approval for the overall design of the Baley ZIF-1 Tailings heap leach project in Q4 2019. Following on earlier sign-off by the regional mining agency and state environmental experts, the State Expert Panel in Krasnoyarsk granted its approval of the project in November 2019.

The heap leach will process 840k tonnes per year from the tailings dam of the former Baley processing plant, which contains an estimated 9.7 million tonnes of slime at a grade of 0.98 g/t Au, producing 15,000 oz of gold per year upon completion. As a next step, in late 2019, the Company prepared technical assignments to inform future equipment purchases and initiated more detailed construction design work.

At the Sredny Golgotay deposit, contractor Wardell Armstrong completed work on a scoping study presenting various options for the development of the project. More than 10 different technologies were reviewed in the report, which forms the basis of an ongoing in-house trade-off analysis to determine the expediency of commercial development. In parallel, a market analysis is in progress with a view towards selecting a contractor for a pre-feasibility study including geological, technical, metallurgical, hydro-geological and other analyses.

Project bureau Zabaikalzolotoproekt LLC completed work on amendments to the mine design filed with regulators for the Taseevskoye deposit, including relocation of the project's process water pond. The mine design, which was approved by regulators in December, sets a new target of the year 2024 for the beginning of ore mining at Taseevskoye.

CHUKOTKA, RUSSIA

Valunisty

·; Ore mining was 7% lower in Q4 2019 and 4% lower for the year, but processing volume increased by 1% and 13% respectively.

·; Gold equivalent production was down for the quarter and the year, but in line with revised 2019 production plans as the mill processed ore from the Glavnaya and Novaya zones instead of the main Valunisty deposit and satellite Gorny mine.

(pre-acquisition 2018 data showed for comparison only)

* In gold equivalent, including silver.

Medium-term plans for Valunisty include the expansion of the processing plant's capacity to 350k tonnes of ore per year and the initiation of underground mining. In Q4 2019, contractors carried out inspections of the existing structures at the site, and high-level plans for the start of underground mining were developed. More detailed design work on both projects are in progress.

The Company carried out a total of 4,720 metres of exploration drilling at Valunisty in 2019 and 918.5 metres on the surrounding KAS licence. Drilling results were used to update open pit mining plans and will figure in future reserve audits.

Kekura

Highland Gold's key development project, Kekura, conducted its first blast in October 2019, and pre-stripping and initial mining continued throughout the quarter. Construction work is progressing, with many of the capital projects in progress over the course of 2019 completed in Q4 2019. The communications tower, cross-site power line, middlings storage facility, dispatcher's room and various other basic facilities are ready for operation or already in use. Testing work on the power substation, built earlier in the year, was also completed in Q4 2019.

The fuel storage tanks and related structures are complete, aside from some pipe and equipment installation, and have already received their first shipment of fuel. Refurbishment work was finalised on the pilot processing plant and the crushing unit. The assay laboratory is ready aside from minor interior work. In addition, ground preparations for the camp expansion and mining equipment assembly sites are complete and the sites are ready for construction. A new water pumping station is 70% finished.

Design documentation for the mine and processing plant were submitted for environmental review in Q4 2019, and have already received sign-off from sanitation regulators. Supply tenders for steel construction materials and equipment are currently in progress for the next stage of construction, which includes the main processing plant and the repair shop, with a view towards delivering the bulk of materials to the nearest ports during the next navigation window in summer 2020.

HEALTH, SAFETY AND ENVIRONMENT

Highland Gold's key health and safety goals include ensuring safe labour conditions, managing operational risks, offering ongoing employee training programmes and encouraging personal accountability for safety at the workplace.

In Q4 2019, the Lost Time Incident Frequency Rate (LTIFR), calculated as the number of incidents for every 1,000,000 man-hours, was 3.12 compared to 1.96 during the same period last year. The Company witnessed six incidents (versus three in Q3 2019) - one at Novo, two at MNV and three at Valunisty.

For the full year 2019, the LTIFR declined to 2.60 versus 4.01 the previous year. A total of 14 minor accidents were registered across the Company (five at Valunisty, four at Novo, four at MNV and one at Belaya Gora), down from 22 the previous year.

Unfortunately, Highland Gold also registered five fatalities in the first few months of 2019 (two at Belaya Gora and three at Novo), compared to one fatality in all of 2018. In light of this, last autumn, the Board of Directors and management called on outside consultants to conduct an extensive audit of the Company's HSE practices, which took place at Novo, Belaya Gora and MNV in November-December 2019. Additionally, the Company appointed a new top-level executive to oversee health & safety, environment and other sustainability issues.

Training sessions conducted for employees in Q4 2019 included courses on "Analysis of safe work performance" for 25 people from Novo and 65 people from MNV; "Conscious safety attitude" for 34 employees from Novo and 63 employees from MNV; and "Efficient safety management methods" and "Behavioural safety audits" for 22 managers at MNV.

For the full year, a total of 1,656 employees attended training sessions on Highland Gold's corporate HSE standards.

Other key HSE highlights for 2019 included the revision or introduction of a range of corporate standards covering contractor safety management, emergency medical response, leader inspections, HSE risk assessment, safe working practices analysis, hazard identification, and STOP (Safety Training Observation Programme) cards to help employees make safety assessments before beginning a task. The company opened a driving school near MNV and Belaya Gora in the town of Nikolaevsk-na-Amur, installed new health screening equipment at each operating mine, ordered new ambulatory vehicles, and contracted International SOS to improve medical services.

The management-level HSE Committee and the Board of Director's HSE Committee each met three times over the course of the year. Meeting agendas covered all of the topics outlined above, including detailed discussions of safety incidents, as well as issues related to the ongoing implementation and improvement of the Company's HSE strategy.

Environment

In December 2019, the Russian chapter of the World Wide Fund for Nature (WWF) published its annual Environmental Transparency Rating for mining and metals companies operating in Russia. Highland Gold achieved its highest-ever overall ranking of #13 out of the 40 largest companies in the industry, and notably came in second place for lowest environmental impact. The WWF presented the Company with an award for most improved performance in terms of the level of information provided for the rating.

In Q4 2019, Highland Gold tallied the results of a company-wide contest to collect plastic for recycling, which began in Q2 2019 and continued throughout the year. Employees at each office and production site together collected an impressive 4.4 tonnes of plastic, with Novo leading the pack with 1.8 tonnes. The contest served as a basis for expanding trash sorting across the Company's operations while also educating employees on the importance of recycling.

Reducing the impact of its operations on the environment remains one of Highland Gold's key priorities and an environmental monitoring system is in place at each of the Company's operating sites. The Company also continuously monitors and analyses performance in adhering to its environmental policies in order to outline risks and determine steps to mitigate them.

Over the course of the fourth quarter, outside consultants DNV conducted supervisory audits of environmental management systems at the Moscow office, Belaya Gora, and MNV to assure compliance with the ISO 14001-2015 standard. No major deficiencies were identified, which confirms that the environmental management systems in place are effective.

Some 2,615 employees underwent refresher training on environmental safety in Q4 2019, while 130 employees sat for training on class I-IV hazard waste treatment with subsequent testing using the OlimpOKS system. Another 53 managers and specialists attended external professional environmental courses in the specialized training centres.