HGM.L Regulatory News (HGM)

13 Aug 2007 07:00

Highland Gold Mining Limited13 August 2007 HIGHLAND GOLD MINING LIMITED FIRST HALF 2007 TRADING UPDATE 13 August 2007 - Highland Gold Mining Limited ("Highland Gold", or the"Company") announces an update on it's trading for the half year ended 30 June2007. Financial results for the period will be released on 24 September 2007. Conference call Highland Gold will hold a conference call hosted by Henry Horne, Managingdirector, Rene Marion, COO, and Scott Perry, CFO to discuss this trading update.The conference call will take place at 12:00 UK time (15:00 Moscow time) onMonday, 13 August 2007. To participate in the conference call, please dial oneof the following toll-free numbers: 020 8974 7900 United Kingdom +44 20 8974 7900 International Dial In Passcode 278 222 If you need help during your conference press * 0 and an operator will be happyto help you. A replay of the conference will be available after the call's completion. Replay details:Available from: Tue Aug 14, 2007 at 12:59 AM BSTAvailable for: 7 daysFreefone dial-in number: 0800 032 9687 (UK BYO)Direct dial-in number: 0207 136 9233 (UK BYO)Passcode: 98745158 *** Commenting on today's announcement Henry Horne, Managing Director said: "Theencouraging dynamics at MNV as a result of a wide ranging set of ongoinginitiatives aimed at increasing production and decreasing costs, the debtrestructurings initiatives achieved to date and the preliminary agreementreached on the sale of Darasun have put the Company on a very stable footing.Now we look forward to the successful commissioning of Novoshirokinskoye,scheduled for the second half of 2008 and further progress on the Mayskoye andTaseevskoye projects as well as our exploration projects". FIRST HALF HIGHLIGHTS •Ongoing improvements in safety performance •Highland Gold produced 58,196 ounces of gold in 1H 2007 at MNV •MNV operational review and optimisation audit completed in Q1 with production augmentation and efficiency initiatives identified •Confirmed 2007 annual production target of 160,000 oz to 170,000 oz •July 2007 production at MNV indicative of the future monthly production profile •Conditional agreement on the sale of Darasun mining complex reached •Good progress on all development and exploration projects •Further debt restructuring achieved HEALTH AND SAFETY There has been a 30% reduction in lost time incidents compared to the sameperiod in 2006 and a 42% reduction to the end of July. Three sites (Taseevskoye,Novoshirokinskoye and Mayskoye) as well as the exploration group have achievedzero lost time incidents year to date. As of the end of July, the total numberof hours worked Group wide without a lost time incident (LTI) have exceeded onemillion hours. Subsequently, with regret we announce that on August 8 we had afatal underground accident at MNV involving an LHD operator. This incident iscurrently under investigation. Training remains a key strategy towards raising safety awareness at our minesites. Initiatives such as safety leadership, risk assessment, drug and alcoholawareness and fire prevention are just a few of the programs being implementedby the Company improving ownership and accountability for safety and health. MNOGOVERSHINNOYE MINE (MNV) - Khabarovsk Region MNV Operating Statistics: --------------------------------------------------------------------------------MNV 6 months ended 30 June Unit 2007 2006Mine development Waste stripping 000 M3 867 751Underground Meters 4 740 4 609MiningOpen pit Tonnes 141 086 205 896 g/tonne 5,74 5,90Underground Tonnes 261 189 209 255 g/tonne 4,79 5,90Total ore mined Tonnes 402 275 415 151 g/tonne 5,12 5,90Ore processed Tonnes 381 201 485 561 g/tonne 5,20 5,60Incl. from stockpile Tonnes (21 074) 70 410 g/tonne 3,69 3,83Recovery rate % 91,26 90,90Gold recovered Ounces 58 196 79 444Gold sold Ounces 62 643 75 594Gold price received US$/oz 655 599 At MNV short and long term value adding initiatives which were identified duringthe 1Q 2007 Operational Review & Optimisation Audit are being successfullyimplemented. Many of the mining initiatives focus on the short term recapitalisation andoptimal mining sequencing of the mines which as expected has resulted in notablylower production in 1Q 2007 but will result in increasing productioncontributions in the future. The operation capitalised on the lower ore feed by taking the processingfacility offline earlier in the year to accelerate key maintenance activitiesthat will have a significant impact later. The open pit and underground operations at over 266 thousand tonnes in Q2 wasthe highest ever production rate for MNV and in fact was 32% higher than 2006'saverage quarterly rate. It was also the first quarter in the operation's historythat mining capacity exceeded processing capacity allowing the operation toestablish a stockpile ahead of the mill. Establishing a stockpile ahead of the mill in Q2 allowed the operation toincrease mill utilization and to have one of its best quarters in processing inthe history of the operation. Processing nearly 252,000 tonnes in Q2 wasapproximately 8% higher than the average quarterly rate in 2006 Some of the additional key divisional initiatives being implemented are: • At the open pit an accelerated stripping programme (Q2 stripping and total rock movement was approximately 23% higher than the 2006 quarterly average) has been initiated to re-sequence the open pit mining plan to improve the value of the mine by ensuring consistent ore flow and higher productivity which will also combat some of the increasing industry cost pressures. Ore production during the second quarter was 17% over the 2006 quarterly average. • The mining fleet is being re-capitalised by completing a significant overhaul on key fleet items and through the purchase of new trucks, a loader and other service equipment which will be fully commissioned by the end of Q3. • A significant portion of Darasun's open pit mining equipment including trucks, a hydraulic excavator and a drilling rig have been employed at MNV to further accelerate these efforts. This initiative has resulted in accelerated ore production in the Upper orebodyand will allow us to establish an access road to the Pebble and Quiet ore miningzones for production in 2008. It has also resulted in the cancellation of some planned capital equipmentorders for MNV in 2007 and has positioned the mine to retire old electricdrilling and loading fleet equipment within 12 months. The benefits of the above initiatives are already being realised and willcontinue to improve as additional new equipment items such as open pit loadersand trucks arrive on site in Q3. This is best illustrated by the following month-on-month open pit ore productionchart: Chart 1: Mnogovershinnoye Monthly Open Pit Ore Production (See attached link) http://www.rns-pdf.londonstockexchange.com/rns/9047b_-2007-8-10.pdf Underground at MNV there is an accelerated mine development programme beingundertaken to increase developed inventory of accessible mining areas to ensureoptimal sequencing in the future. This will improve the effectiveness of theoperation's ore stope extraction function and the mine's reserve/mine plan gradereconciliations. It will also result in production efficiencies by concentratingequipment and management supervision in the optimal sequenced mining areas asopposed to stretching all of the mine's resources over less important miningzones. Similar to the review of the open pit, the benefits of the above initiatives arealready being realised and will continue to improve as additional new equipmentitems such as loaders and trucks arrive on site in Q3 2007. The second quarterproduction of 155,555 tonnes was 46% higher than the 2006 quarterly average. Inaddition, lateral development during the second quarter of over 2,600 meters was28% greater than the quarterly average for 2006, positioning the mine well forfurther production improvements with the delivery of the new equipment in thethird quarter. The benefit to date of these initiatives is best illustrated by the followingmonth-on-month underground ore production chart: Chart 2: Mnogovershinnoye Monthly Underground Ore Production (See attached link) http://www.rns-pdf.londonstockexchange.com/rns/9047b_2-2007-8-10.pdf The processing division established ore stockpiles ahead of the mill allowingthe facility to substantially improve on utilization, culminating in July'sproduction rate reaching 102,942 tonnes or an improvement of 17% in throughputover any previous month in the history of the operation without adverselyimpacting metallurgical recovery. The processing facility at MNV is being upgraded to increase the grindingcircuit capacity which will now be split into two trains increasing the mine'sprocessing capacity by 25% to a nominal 110,000 tonnes per month by year-endcompared to the historical technical limit of 88,000 tonnes per month. The mill expansion will significantly augment the mine's annual gold productionprofile and is necessary for the operation in order to treat the increased oreproduction being realised from both the open pit and underground mines. Other components of the mill upgrade initiatives include increase in the leachresidence time to improve mill recovery and reduce cyanide and hypochloriteconsumption by mid-2008, automation of the grinding circuit to reduceelectricity, reagent and water consumption, installation of a gravity circuitwhich is anticipated to be fully commissioned by the end of Q3. Coinciding with limited open pit and underground ore feed due to the open pitand underground mine re-sequencing efforts, the majority of this year's plannedmajor mill maintenance programmes were carried out in 1Q 2007 which haspositioned the mill favourably for optimal processing capacity for the remainderof the year. Already the benefits are starting to accrue with average millavailability running at 96% during Q2. During the 1Q 2007 accelerated mill maintenance initiative, the mine was able tobuild a stockpile inventory which will provide the operation with betterflexibility to both mitigate weather interruptions and to optimise the blend ofthe open pit and underground ore in the mill feed, thereby optimising millthroughput rates and recovery efficiencies. Although the mill expansion will not be fully complete until year-end, theintermediary throughput benefits are already starting to accrue as illustratedbelow: Chart 3: Mnogovershinnoye Monthly Processing Volume (See attached link) http://www.rns-pdf.londonstockexchange.com/rns/9047b_3-2007-8-10.pdf Furthermore, a new centralised inventory warehouse has been constructed and iscurrently being stocked. This will result in productivity improvements andinventory cost management improvements which will be fully realised in 2008.Construction and commissioning of a centralised surface maintenance shop isprogressing well. This is expected to generate numerous productivity and costimprovements in terms of the mining equipment fleet. Certain human resourceinitiatives are being implemented to reduce turnover and range from a re-vamp oflong term remuneration incentives to refurbishing the on-site accommodationfacilities. The operational review audit has confirmed the 2007 annual production target of160,000 oz to 170,000 oz. In addition, it has identified further increases inMNV's annual year on year gold production profile with the operation aiming toproduce c. 200,000 oz in 2009. Chart 4: Mnogovershinnoye Monthly Gold Production (See attached link) http://www.rns-pdf.londonstockexchange.com/rns/9047b_4-2007-8-10.pdf DARASUN MINE - Chita Region, Russia A conditional agreement for the sale of the Darasun mine was signed in Augustbetween Highland Gold's wholly owned subsidiary Stanmix Holding Limited and aRussian company Uzhuralzoloto Group of Companies. An announcement to this effectwas made on 8 August. The total consideration under the deal amounts to US$25million. The agreement is subject to approval of certain conditions precedent,the principal one being the obtaining of the Russian anti-monopoly approval bythe buyer. The transaction is expected to close by the end of 2007. NOVOSHIROKINSKOYE DEVELOPMENT PROJECT - Chita Region, Russia The Company continues to work in partnership with Kazzinc to optimise productionand sales opportunities at the site. Detailed engineering for plant and facilityconstruction is in progress. The main construction contractor has been selected,has mobilized and has begun work on facilities. Initial construction is focusing on infrastructure, accommodation and utilities.Mining equipment has been ordered and processing equipment is in the tenderphase. The contract for the construction of the tailings dam and water storagedam has been awarded. A new block model has been developed and a new mine plan will be produced in Q3.By year end the Company will have the Novoshirokinskoye resources/reservesclassified under the JORC code. The site began underground development work in July. Stoping will begin in early2008 in anticipation of building a surface stockpile suitable in size for asecond half 2008 startup of the mill. Manning of the project is currently in progress with more than 400 joint ventureemployees already on site. The complete project management and construction teamis now in place. MAYSKOYE DEVELOPMENT PROJECT - Chukotka Region, Russia The Mayskoye Feasibility Study is progressing well and is scheduled forcompletion in Q4 2007. The study is focusing on a 850,000 tpy flotation and Bioxleach plant, and is being jointly undertaken by SRK (South Africa) and AkerKvaerner (Canada). Lakefield Research's preliminary testing indicates a 74% recovery from oxide oreusing conventional CIL and 89% recovery from sulphide material using Biox plant. An infill drilling program has been designed to convert inferred resources toindicated by year end, and using two Mayskoye operated drill rigs, is currentlyunderway. A total of 9,382 meters have been drilled to date in 2007.19,250meters were drilled under the additional exploration program. Over 2,300 assayshave been received year to date from the TSNIGRI lab (Moscow) and Alex Stewart(Moscow). A contract for 7,000 meters was awarded to Boart Longyear in order tocarry out deeper exploration drilling at the lower levels (below 500 meters) forfurther resource growth. It is anticipated that by year end, JORC resources and reserves for the Mayskoyeproject will be updated. The construction of the shift camp for 500 people was completed. The filling ofthe first layer of Komsomolsky - Mayskoye access road (54 km) was completed and8 km of the finishing road capping was completed. TASEEVSKOYE DEVELOPMENT PROJECT - Chita Region, Russia The 2006-2007 exploration drilling programme at the Taseevskoye deposit was35,500 meters, with 44,809 samples being assayed. The 2007 9,053 meter drillingprogramme, including 1,568m being drilled from the frozen pit lake, has beencompleted. The resource block model, as well as a revised estimation of reserves, takinginto account the drilling programme results, are expected in 4Q 2007. The second phase of metallurgical test work programme was started. The main testwork is being carried out at the TOMC laboratory in Irkutsk. Other studies areto be carried out at SGS Lakefield (South Africa) and SGS in Chita. The mainareas of focus are optimization of the flotation process parameters as well asLeachOX and BIOX. The baseline environmental study programme has started and the first publichearings regarding the Resettlement Action Plan (RAP) were held. A Pre-Feasibility Study is scheduled to be completed by year end with an updateof the JORC resources and reserves. EXPLORATION Belaya Gora - Khabarovsk Region, Russia A total of 5,500 metres of diamond drilling and 300 metres of trenching havebeen completed on schedule during H1 2007 at the two targets Pologaya andStockwork. More than 6,000 samples have been assayed which confirmed previousexploration results and corroborate our geological models for two types ofmineralization: a subhorizontal tabular deposit with oxidized ore at Pologayaand a steeply dipping vein-veinlet system at Stockwork. The ongoing drillingprogramme continues to deliver positive results from both targets where anadditional 6,000 m of drilling, 250 m of trenching and metallurgical test workare to be completed in the second half of 2007 with the objective of delineatinga mineral resource of C1+C2 and P1 category. Lyubov - Chita Region, Russia 1,500 metres of diamond drilling, 500 metres of trenching and 5 sq km ofgeophysical surveys (IP, resistivity, magnetic) have been completed on schedule.1,500 samples have been collected, all assays are pending. The current drillingprogram is testing three geophysical anomalies which we identified in 2006 asthe most promising exploration targets located in known zones of significantgold mineralization. An additional 2,000 m of drilling, 500 m of trenching andgeophysical surveying are to be completed during Q3 2007 and will serve fordefining a P1+P2 resource. Analytical results received in H1 2007 from our 2006 resource-delineationdrilling at the Malo-Fedorovsky prospect (separate license) could not confirmthe resource parameters officially quoted during the property auction for thisprospect. Sovinoye - Chukotka Region, Russia 1,500 metres out of a 2,700 metres total programme of large-diameter drillinghave been completed on the 1.2 sq km gold-mineralized zone at Sovinoye. Samplepreparation for separate assaying of mineral concentrates and tailings is inprogress. Partial assays have been received which confirm a low-gradegold-mineralized system as indicated by previous explorers. The drilling programand interpretation of results is expected to be completed in Q3 2007. Unkurtash - Kyrgyzstan 13 drill holes totalling 1,800 metres out of a 4,000 metres large-diameterreverse-circulation drilling programme have been completed at three prospects(Sarytube, Kartytube, and Unkurtash). 1,800 samples weighing 25 kg each havebeen collected. Partial assays received to date confirm a low-grade potentialfor the Sarytube and Karytube prospects, but most assays for the Unkurtashprospect are still pending. Completion of the drilling programme and evaluationof results for all three prospects is planned for Q3 2007. Maya Inikan - Khabarovsk Region, Russia In Q1 2007 we received 2,200 fire assays from our 2006 grass root explorationprogramme which included a stream-sediment geochemical survey covering theentire licence area. The programme successfully delineated a new explorationtarget with a well defined geochemical gold anomaly covering a 60 sq km areaincluding a main anomaly of 15 sq km. A detailed exploration programme fortesting the new anomaly is being designed in H2 2007. Sarasa - Altai Region, Russia The Sarasa licence is a 400 sq km grass root property acquired through Barrick.A small scale geochemical exploration programme in 2006 was aimed at evaluatingthe property potential for Carlin type gold mineralisation at selectedprospects. Overall results from the survey are not supportive of significantconcentrations of gold mineralisation on the property and therefore do notwarrant further exploration. The property licence is therefore being returned. DEBT RESTRUCTURING The key to long term sustained value creation for Highland Gold lies in theCompany's ability to bring its development projects into profitable productionin which one of the Group's primary financing objectives is optimising thecapital financing structure of the business. To aid the achievement of this aim,the Group is focused on the optimization of its capital structure and hasinitiated two key debt restructuring processes this year: • In early April, the Group announced a significant debt restructuring where US$90 million in new financing facilities was raised through two large Russian banks comprising a US$60 million facility with MDM Bank and a US$30 million facility with GazpromBank following which, the Group immediately utilised a portion of the proceeds to complete the early repayment of the existing Syndicated Loan Facility (approximately US$25.6 million) • Recently, the Group received approval from Russian bank GazpromBank to establish a new five year term US$45 million corporate debt facility which is available to fund the future development of the Highland Group. Of this US$45 million debt facility, US$15 million will be used to refinance an existing US$15 million loan that is outstanding with GazpromBank and is due to mature in June 2008. The early refinancing of this existing facility will see the maturity profile pushed out to December 2011 These debt restructuring activities are a key element of Highland Gold's ongoingcapital management plan and continue to further align the company's debtmaturities with its business plan. In addition, these facilities further reduceHighland Gold's weighted average cost of capital and incorporate significantlyflexible covenants that are well suited to a growth focused company likeHighland Gold. Compliance with AIM rules AIM Rule 26 has been complied with and the Company information in respectthereof is now available on our website at www.highlandgold.com - ENDS - For further information please contact: Henry Horne, Managing Director Dmitry Yakushkin, Director of Communications Moscow: + 7 (495) 777 31 55 Dominic Palmer-Tomkinson, Head of Investor Relations London: +44 (0) 207851 64 00 Or, WMC Communications, Alex Glover on +44 20 7930 9030 This information is provided by RNS The company news service from the London Stock Exchange