Q4 2016 Operating Results

26.01.2017

Highland Gold Mining Limited (“Highland Gold” or the “Company”) today reports its operating results for the three months ended December 31, 2016 ('Q4') and for the full year of 2016.

HIGHLIGHTS

  • Total 2016 production of 261,159 oz of gold and gold equivalent, in the upper half of the guidance range for the year of 255-265k oz. (2015 production: 262,485 oz).
  • Total Q4 2016 production of 69,237 oz versus 70,377 oz in Q4 2015.
  • Average Q4 realised gold price of 1,205 USD/oz.
  • Exploration drilling in Q4 focused on near-mine targets around MNV and on the Sredny Golgotay licence.
  • Adjusted internal Life-of-Mine model for Mnogovershinnoye (MNV), based on ongoing exploration and reserve recalculations, now envisions production through at least 2021.
  • Updated JORC reserve audit in progress with results expected by Q2 2017.
  • Novo expansion project continues with a design package now under development and scheduled to be submitted for approval in early Q2 2017.
  • At Kekura, contractors began work on a definitive feasibility study (DFS) in Q4, and results from 2016 exploration were compiled for an updated JORC expected in Q1 2017.
  • Total production of gold and gold equivalents in 2017 expected to remain stable at 255,000-265,000 oz.

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)

  • Ore mining in Q4 rose by 5% year-on-year, while grades improved by 4.8%.
  • The recovery rate for Q4 was 91.7%, which is 0.6% higher YoY.

MNV

Units

Q4 2015

Q4 2016

2015

2016

Waste stripping

m3

325,599

555,254

3,354,210

1,768,797

Underground development

m

3,239

2,642

10,450

11,381

Waste dumps ore mined

t

-

-

-

279,113

Waste dumps ore grade

g/t

-

-

-

1.06

Open-pit ore mined

t

88,320

181,573

712,073

405,493

Open-pit ore grade

g/t

1.50

1.96

2.01

1.95

Underground ore mined

t

268,005

193,209

765,219

739,912

Underground ore grade

g/t

2.54

2.79

2.38

3.05

Total ore mined

t

356,325

374,782

1,477,292

1,424,518

Average grade

g/t

2.28

2.39

2.20

2.35

Ore processed

t

359,840

360,162

1,412,819

1,380,963

Average grade

g/t

2.59

2.46

2.29

2.36

Recovery rate

%

91.1

91.7

90.4

91.5

Gold produced

oz

27,341

26,433

94,558

96,188

The ongoing evaluation of MNV's historic waste dumps resulted in reserves of 246.2k tonnes of ore, with an estimated 7,629 oz. of gold, being added to the state balance sheet in Q4. A total of 758.2k tonnes of ore were booked over the course of 2016. This programme will continue in 2017.

Following an extensive exploration programme earlier in the year, a reserve estimate is being finalised for lower levels of the Northern ore body (MNV Lower Horizons licence). The Company expects to submit a report to the State Expert Review panel by the end of January 2017.

Exploration commenced on the lower horizons of the Southern ore body in Q4. The first phase of the programme covered 2,494 metres of drilling and preliminary results revealed mineral intersections in the bore holes. Assay results are forthcoming.

Exploration work on the Central ore body was also completed during the quarter. A total of 27 holes with a length of 2,815.1 metres were drilled. A detailed reserve estimate is being prepared and is expected by the end of Q1 2017.

Additional drilling was carried out at on the Southern and Upper ore bodies in Q4. A total of 11 holes and 808.1 metres were drilled at Southern and 8 holes for 827.4 metres at Upper. Preliminary results revealed potential areas of mineralisation and assay results are forthcoming.

An updated JORC-compliant reserve audit of MNV is currently in progress, with results expected by Q2 2017. Extensive exploration will continue at MNV this year, focusing on the Southern, Flank, Upper, and Quiet ore zones as well as the MNV North-Western Flank licence (Bear ore body).

Belaya Gora

  • Beginning in Q3 2016 and continuing in the 4th quarter, operations at Belaya Gora focused on the treatment of low-grade ore stockpiles (~1 g/t) while work continued on plans for optimising future mining and processing operations.

Belaya Gora

Units

Q4 2015

Q4 2016

2015

2016

Waste stripping

m3

1,116,655

1,094,897

3,717,769

5,507,273

Ore mined

t

505,920

312,273

2,223,104

1,560,734

Average grade

g/t

1.21

1.28

1.45

1.23

Ore processed

t

401,752

409,325

1,551,288

1,643,146

Average grade

g/t

1.35

1.17

1.64

1.21

Recovery rate

%

72.7

71.4

75.4

71.4

Gold produced

oz

12,590

10,927

61,305

45,909

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, carried out throughout the quarter, are now expected in Q1 2017.

In addition, the Company performed 3,000 metres of drilling at Belaya Gora for reserve confirmation. A new JORC-compliant reserve statement is expected from SRK by April of this year.

Blagodatnoye

In order to augment the mineral resource base for Belaya Gora, the Company has targeted further exploration of resources at the Blagodatnoye gold deposit, located some 40 km from Belaya Gora. The licence has preliminarily measured С2 category reserves for open pit mining of about 10 million tonnes of ore. Initial metallurgical testwork has supported gold recovery of over 90% via cyanidation.

Following an extensive drilling programme for reserve verification earlier in the year, work at Blagodatnoye in Q4 focused on the collation and interpretation of exploration results. The Company expects to submit a report on reserve estimates to the State Expert Review panel in H1 2017 and to publish a JORC-compliant reserves statement by April.

ZABAIKALSKY REGION, RUSSIA

Novoshirokinskoye (Novo)

  • Ore mining in Q4 totalled 196,810 tonnes, a slight increase of 0.5% over last year.
  • Ore processing continued to gain pace in Q4, with process optimisation efforts helping to boost tonnage by 5%.

Novo

Units

Q4 2015

Q4 2016

2015

2016

Underground development

m

2,858

2,795

10,937

11,251

Ore mined

t

196,054

196,810

701,419

761,114

Average grade *

g/t

5.84

5.98

5.56

5.61

Ore processed **

t

183,197

191,717

691,284

757,971

Average grade *

g/t

5.97

6.00

5.58

5.62

Recovery rate *

%

86.60

85.20

85.98

86.88

Gold produced *

oz

30,446

31,505

105,922

117,577

* Calculated in Au equivalent in actual prices

** Excluding Sredny Golgotay ore processed

(Metal grade of mined ore = Au 3.74 g/t, Ag 62.99 g/t, Pb 1.99 %, Zn 0.60 %)

A project to expand Novo's annual ore processing capacity to 1.3 mtpa continued in Q4. The Company completed geotechnical work at construction sites as well as inspections of buildings and other structures under renovation. The preparation of design documentation is in full swing and a selection process is underway for contractors for construction and installation work. The mine is expected to achieve its new target production capacity in late 2018.

Sredny Golgotay - Kaftan Site

The Company continued its pilot project to treat ore from Sredny Golgotay (Kaftan site) at the Novo mill in Q4, with 4,532 tonnes of ore processed at a grade of 3.08 g/t. For the year, a total of 15,295 tonnes of Kaftan ore was processed with an average grade of 3.22 g/t.

During the last quarter, the results of grade control drilling conducted over the course of 2016 were combined with actual operating data to delineate ore bodies for any future mining at the Kaftan site. The drilling programme of 7,330 metres, completed last July and performed both from underground and from the surface, was designed to validate the quantity and quality of reserves in the area. The programme produced 8,281 assay results used in that evaluation.

Sredny Golgotay (Kaftan)

Units

Q4 2015*

Q4 2016

2015*

2016

Underground development

m

-

-

-

766

Ore mined

t

-

-

-

19,499

Average Grade

g/t

-

-

-

2.69

Ore processed

t

5,722

4,532

5,722

15,295

Average Grade

g/t

4.50

3.08

4.50

3.22

Gold produced

oz

699

372

699

1,315

* Previously reported as part of Novo production data for 2015

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

As of December 31, 2016, a de-watering programme at the existing Taseevskoye open pit, initiated in May of last year, resulted in the removal of over 2 million m3 of water out of a total 7 million m3. Water levels in the pit continue to decrease and do not show signs of inflow from the nearby Baley pit. The pumping programme is set to continue throughout 2017.

At Sredny Golgotay, R&D testwork continued regarding the potential for an X-ray fluorescence spectrometry (XRF) sorting plant, which would enable the pre-concentration of gold-bearing ores. A pilot XRF unit was launched and a preliminary report on the results of the XRF process was received in Q4. The results fell short of expectations, with an insufficient level of separation to make the process viable. Nevertheless, a decision was made to continue the study using different equipment and including finer grain sizes into the process.

Exploration work also continued at Sredny Golgotay, with trenching meterage totalling 1,757 metres (2,027 metres total for the year) and logging completed in full. Some 1,985 samples were extracted during the quarter, for a total of 2210 samples. Contractor SGS Chita has delivered 311 fire assay results and an additional 1,979 are expected by the end of January.

Diamond drilling meterage totalled 5,146 metres for the quarter, with 5,695 samples extracted, and 15,919 m for the year with 16,508 samples. For the full year, a total of 14,001 fire assay results were received and results for the remaining 3,410 samples are expected this month.

Based on exploration results, work to delineate the licence's ore bodies and estimate its reserves is in progress. Initial reserve estimates are expected in Q1 2017.

Lyubov Ore Cluster (ZIF tailings)

The Company retained an outside contractor for a resource verification project at Lyubov in the second half of last year. 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. Sample selection was carried out by SGS Chita. A total of 5,680 tonnes of ore was treated, yielding 170 oz of gold.

CHUKOTKA AUTONOMOUS DISTRICT, RUSSIA

Kekura

Desktop processing of results from the 25k-metre Kekura exploration programme was completed in the fourth quarter. Drilling had focused on the eastern flank of the deposit with the aim of resource confirming and potentially adding reserves for underground mining. The results of JORC-compliant resource re-evaluation are expected in Q1 2017.

In October, Fluor Canada commenced the development of definitive feasibility study (DFS) for the Kekura project. SRK was awarded a contract to draft the mining section of the DFS, with work beginning last December. The process is expected to continue in Q1 2017, during which Fluor will consolidate the various sections of the DFS into a single report.

As part of their remit, Fluor is also involved in the process of issuing and approving purchase orders for the main processing plant equipment. Quotes have already been received for milling and crushing equipment, power generators and press filters.

Preparations for 2017 construction and installation efforts are ongoing, including the procurement of construction materials and working with contractors for construction of key infrastructure facilities. A winter road to the site has already been built, the first shipment of diesel fuel has been delivered to site, and key commodity supplies from Pevek and Magadan are expected in February-March 2017.

Klen

Preparation of a revised pre-feasibility study (PFS) continued in Q4. Contractor Hatch has provided data on mining methodology, processing plant design, and infrastructure solutions as well as a financial and economic model. Some clarification on processing parameters is required and, following additional process testwork, an updated report is expected in Q2 2017.

HEALTH, SAFETY, AND ENVIRONMENT

In Q4 2016, the Company expanded its commitment to ensuring occupational safety and managing production risks, as well as training staff and encouraging their personal responsibility at the workplace.

A new health and safety team was assembled last autumn with a view towards improving the implementation of best safety practices across all operations. The key goal is to institute an occupational safety management system that, at its core, is focused on improving employees' behaviour towards health and safety.

Senior staff from the Moscow management office Russdragmet (33 managers) and from Novo (18 managers) and MNV (19 managers), attended an immersive course entitled “Conscious Safety Management” during the quarter. At Novo, 36 managers, specialists and workers took part in a training course on "Internal Accident Investigation".

New corporate standards for Internal Incident Investigation, a methodology for Behavioural Safety Audits and rules and regulations for Occupational Safety Committees were developed and are currently going through the approval process. Tools for Behavioural Safety Audits and Leader Bypass were rolled out at Novo and MNV.

These efforts, set to continue and expand in 2017, followed a substantial uptick in Lost Time Incidents ("LTI") in 2016 to 2.80 from 1.85 the previous year (LTI's are defined as the number of lost time incidents for every 1,000,000 man hours). Over the course of last year, 14 incidents were recorded across the Company including one fatality, compared to 12 incidents, all with only minor injuries, in 2015. Out of the total, six incidents (five minor and one fatal) occurred at MNV, three were at Belaya Gora, four at Novo and one at Kekura.

Overall, in 2016, safety induction and fire & electrical safety induction (one-day) courses were attended by 1,367 employees. While at work, 176 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 handle emergency localisation and response.

The Company duly observes environmental and regulatory requirements, and no environmental incidents were reported during the period. Critical risks to the environment from operations are constantly being evaluated and monitored in order to develop programmes for their mitigation.

Independent auditors DNV conducted a supervisory audit of the certified Environmental Management Systems (EMS) at Russdragmet, Belaya Gora and Novo last year, confirming their compliance with international ISO 14001:2004 standards. Environmental safety training was given to 966 employees, while 406 employees received training and passed tests on Category I-IV hazardous waste handling.