Q3 2016 Operating Results

03.11.2016

Highland Gold Mining Limited (“Highland Gold” or the “Company”) today reports its operating results for the three months ended September 30, 2016 ('Q3').

HIGHLIGHTS

  • Total production of 191,752 oz of gold and gold equivalent over the first nine months of the year, in line with 191,408 oz during the same period of 2015
  • Total Q3 2016 production of 63,096 oz, a decrease of 11% from 70,864 oz in Q3 2015.
    • Production at Mnogovershinnoye (MNV) and Novoshirokinskoye (Novo) in line with Q3 of last year.
    • Lower output at Belaya Gora due to management decision to process lower grade stockpiles while contractor SRK develops updated mining and processing plans.
  • Average Q3 realized gold price of 1,335 USD/oz.
  • Exploration drilling programmes totalling over 60k metres completed at MNV, Kekura, Blagodatnoye and Sredny Golgotay.
  • At Kekura, Fluor awarded a contract for key sections of a detailed feasibility study (DFS), while construction of key infrastructure is underway.
  • The Company affirms its forecast for total production of gold and gold equivalent of 255,000-265,000 oz for the full year.

FOR FURTHER INFORMATION PLEASE CONTACT:

Highland Gold

John Mann, Head of Communications
+ 7 495 424 95 21
Duncan Baxter, Non-Executive Director
+ 44 (0) 1534 814 202

Numis Securities Limited
(Nominated Adviser and Broker)

John Prior, James Black

Paul Gillam

+44 (0) 207 260 1000

 

Peat & Co
(Joint Broker)

Charlie Peat
+44 (0) 207 104 2334

 

KHABAROVSK REGION, RUSSIA

Mnogovershinnoye (MNV)

  • Higher grades from underground mining resulted in an overall 1.7% increase in grades at the mill versus Q3 2015, and an increase of 4.7% versus Q2 2016.
  • Recovery rates at the mill rose to over 92% in Q3.
MNV Units Q3 2015 Q3 2016 9 Months 2015 9 Months 2016
Waste stripping m3 1,250,689 907,643 3,028,611 1,213,543
Underground development m 2,924 2,876 7,211 8,739
Open-pit ore mined t 334,333 201,853 623,753 223,920
Open-pit ore grade g/t 2.08 1.85 2.08 1.96
Waste dumps ore mined* t - 2,801 - 279,113
Waste dumps ore grade g/t - 1.21 - 1.06
Underground ore mined t 166,885 195,367 497,214 546,703
Underground ore grade g/t 2.49 3.05 2.30 3.15
Total ore mined t 501,218 400,021 1,120,967 1,049,736
Average grade g/t 2.22 2.42 2.18 2.34
Ore processed t 347,486 348,201 1,052,979 1,020,801
Average grade g/t 2.39 2.43 2.18 2.33
Recovery rate % 91.9 92.1 90.1 91.4
Gold produced oz 24,766 24,837 67,218 69,755

Work continues on evaluating MNV's historic waste dumps, some of which were reclassified and successfully processed during the first half of this year. An estimated 212.7k tonnes of material containing 8,200 oz of gold were identified as ore and registered with regulators in Q3, bringing the total to 512k tonnes of ore reclassified over the course of the year. Following further sampling, two additional reserve reports are currently being prepared for regulators.

Exploration programmes for the Central and Eastern flanks of the Northern ore body (MNV Lower Horizons licence) were completed during the quarter. Reserve estimates for these areas are expected to receive approval from regulators by year-end.

In addition, exploration programmes were developed for the lower horizons of the Southern and Flank ore bodies. Work will commence in early Q4 2016 and be completed by the end of 2017.

At the Chainoye ore zone (MNV Western Flank licence), eight trenches were dug with a total volume of 20k m3 in order to investigate geochemical anomalies. As a result of trench sampling, several potential ore zones were delineated and core drilling of 1,070 metres is planned for early Q4 to test this potential.

An updated JORC reserve report for MNV is expected in Q1 2017, which will include the results of all prior exploration.

Belaya Gora

  • In Q3, management switched focus to the treatment of low-grade ore stockpiles at Belaya Gora while SRK continues work on plans for optimising future mining and processing operations.
  • Work progressed on a cut-back of the northeast wall of the Stockwork pit to uncover underlying ore horizons.
Belaya Gora Units Q3 2015 Q3 2016 9 Months 2015 9 Months 2016
Waste stripping m3 1,043,857 1,117,675 2,601,114 4,412,376
Ore mined t 831,870 293,076 1,717,184 1,248,461
Average grade g/t 1.39 1.20 1.51 1.21
Ore processed t 474,551 400,312 1,149,536 1,233,821
Average grade g/t 1.56 1.11 1.74 1.23
Recovery rate % 76.5 68.5 76.1 71.5
Gold produced oz 18,557 9,637 48,714 34,982

Alongside efforts to boost recoveries by improving the existing processing flowsheet, the Company is working with SRK on designs for additional cyanide leach (CIL) capacity at the Belaya Gora mill. The results of a comprehensive review of the processing plant flowsheet are expected in Q4 2016.

Blagodatnoye

In order to augment the mineral resource base for Belaya Gora, the Company has targeted further exploration of resources at the nearby Blagodatnoye gold deposit. The licence has preliminarily measured С2 category reserves for open pit mining of about 10 million tonnes of ore. Initial metallurgical test work has supported gold recovery around 90% via cyanidation.

In Q3, the Company completed an extensive drilling programme at the site, including 15,000 metres for resource identification and upgrade, 1,000 metres for geotechnical investigation, and 1,500 metres for hydrological evaluation. The Company expects to submit a reserve report to the State Expert Review Panel in the first half of 2017.

An updated JORC reserve statement for both Belaya Gora and Blagodatnoye will be finalised in Q1 2017, along with a study on the option of treating ore from both deposits at the Belaya Gora mill using CIL processing technology.

ZABAIKALSKY REGION, RUSSIA

Novoshirokinskoye (Novo)

  • Ore mining in Q3 fell 9% year-on-year to 162,321 tonnes due to capital repairs on the mine shaft loading boxes. Over the first nine months of 2016, ore production was 12% higher than during the same period of 2015.
  • Ore processing in Q3 continued to gain pace with a 10% increase over Q3 2015.
Novo Units Q3 2015 Q3 2016 9 Months 2015 9 Months 2016
Underground development m 2,767 2,649 8,079 8,456
Ore mined t 177,736 163,321 503,365 564,304
Average grade * g/t 5.62 5.46 5.44 5.48
Ore processed t 176,536 194,309 508,087 566,254
Average grade * g/t 5.61 5.27 5.44 5.49
Recovery rate * % 86.55 85.68 85.74 86.23
Gold produced * oz 27,541 28,112 75,476 86,072

* In gold equivalents at actual prices.
(Metal grade of mined ore = Au 3.12 g/t, Ag 69.88 g/t, Pb 2.42 %, Zn 0.63 %)

Preparatory construction work for the planned expansion of Novo's processing capacity to 1.3 million tonnes per annum continued in Q3. Geotechnical construction studies are being finalised and design documentation is being developed. The mine and mill are expected to reach the new, increased capacity in late 2018.

Sredny Golgotay - Kaftan Site

A pilot project for mining ore from the Kaftan site of the Sredny Golgotay licence continued during the period. Some 6,262 tonnes of ore at 3.04 g/t were transported and processed at the Novo mill.

In July, a grade control drilling programme of 7,330 metres designed to investigate Kaftan's resources was completed by contractors Sosnovgeo JSC. Drilling was performed both from underground and from the surface. Some 8,281 assay results were obtained and the Company is currently re-evaluating Kaftan's resource.

Sredny Golgotay (Kaftan) Units Q3 2015 Q3 2016 9 Months 2015 9 Months 2016
Underground development m - - - 766
Ore mined t - 6,396 - 19,499
Average Grade g/t - 3.07 - 2.69
Ore processed t - 6,262 - 10,763
Average Grade g/t - 3.04 - 3.27
Gold produced oz - 510 - 943

 

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

The Company commenced the de-watering of the existing Taseevskoye open pit in May of this year and, as of the end of Q3, over 940k m3 of water had been pumped. The programme will continue until December 2016.

At Sredny Golgotay, R&D testwork was carried out regarding the potential for an X-ray fluorescence spectrometry (XRF) sorting plant. If tests are successful, such a facility could enable the pre-concentration of gold-bearing ore prior to transport and treatment at Novo. A pilot XRF unit has been launched and a preliminary report on the results of the XRF process is expected in Q4.

Lyubov (ZIF tailings)

The Company retained an outside contractor for a resource verification project at Lyubov in Q3. The project entailed the trial processing of material from the Khaverginskoye, Lyubov and Nikolaevskoye tailings dams and waste dumps inside the Lyubov licence area, and involved 4,200 m3 of trenching and 96 metres of exploratory drilling to evaluate available resources, with sampling performed by SGS-Chita. The project is due to be completed in Q2 of 2017.

CHUKOTKA AUTONOMOUS DISTRICT, RUSSIA

Kekura

The Company completed its 25,000 metre 2016 exploration programme for Kekura in the third quarter. The effort focused on the eastern flank of the deposit, with the goal of confirming and potentially increasing reserves intended for underground mining. An updated JORC reserve calculation is expected in Q1 2017.

Work is ongoing on drafting a detailed feasibility study (DFS) for Kekura. Following a tender process, Fluor Canada was awarded a contract to develop the processing and tailings sections of the DFS. Fluor will also consolidate DFS project report sections written by other consultants into a single report after they are reviewed and analysed. In parallel with this work, Fluor will advise on the procurement of key processing plant equipment.

Preparations for 2017 construction and installation work are ongoing, including the procurement of construction materials and the selection of the contractors for construction of key infrastructure facilities.

Klen

Worked continued on an updated pre-feasibility study (PFS) for Klen in Q3. Contractor Hatch has provided data on mining methodology, processing, and infrastructure, and a financial model. A final PFS report is currently being prepared and will include updated processing parameters following testwork planned for Q4. The report is now expected in Q1 2017.

In order to meet requirement in the Klen licence, a technical design for developing the deposit was submitted to and approved by regulatory authorities.

HEALTH, SAFETY, AND ENVIRONMENT

Following a fatality at MNV in September, the Company re-dedicated itself to ensuring occupational safety, managing production risks, providing effective staff training, and strongly encouraging personal responsibility at the workplace. A new occupational safety team is being put in place to improve adherence to international best practices at each of the Company's locations.

The Lost Time Incident (“LTI”) factor (defined as the number of lost time incidents for every 200,000 man hours) over the first nine months of 2016 was 0.37 (0.32 for Jan-Sep 2015). Nine incidents were recorded across the Company including one fatality, versus eight incidents for the same period last year (all of which were minor). Of the total, three minor injuries and one fatality occurred at MNV, two incidents were at Belaya Gora, two were at Novo, and one at Kekura.

So far this year, a safety induction (1 day) course was given to 1,356 employees, while 173 managers and specialists passed self-tuition courses and testing using OlimpOKS software and were certified on industrial safety (7-30 day programmes). Auxiliary mine rescue teams are kept ready at mine sites to address emergency localisation and response.

The Company continues to observe environmental and regulatory requirements and no environmental incidents were reported. In 2016, environmental safety training was given to 805 employees as of September 30, and 273 employees received training and passed tests on I-IV hazard category waste handling.