Q1 2018 Operating Results

30.04.2018

Highland Gold Mining Limited ("Highland Gold" or the "Company", AIM: HGM) today reports its operating results for the three months ended 31 March 2018.

HIGHLIGHTS

  • Total production at Mnogovershinnoye (MNV), Novoshirokinskoye (Novo) and Belaya Gora in Q1 2018 of 59,311 oz of gold and gold equivalent, down 9% from 65,243 oz in Q1 2017.
  • MNV's quarterly output slowed as technical issues uncovered in Q4 2017 resulted in reduced processing plant capacity. The mill returned to full volume in early March.
  • The Belaya Gora processing plant experienced seasonal technical issues during the quarter but is likewise now operating at full capacity.
  • Novo saw slight increases in ore mining and processing but gold equivalent production remained flat year-on-year due to lower recoveries.
  • Average realised gold price during the quarter of US$ 1,329 per ounce.
  • The Company affirms its forecast for total production of gold and gold equivalent of 265,000-275,000 oz for the full year.

FOR FURTHER INFORMATION PLEASE CONTACT:

Highland Gold Mining Ltd.

 

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 Joint Broker)

John Prior, James Black, Paul Gillam

+44 (0) 207 260 1000

 

BMO Capital Markets

(Joint Broker)

Jeffrey Couch, Neil Haycock, Pascal Lussier Duquette

+44 (0) 207 236 1010

Peat & Co

(Joint Broker)

Charlie Peat

+44 (0) 207 104 2334

KHABAROVSK REGION, RUSSIA

Mnogovershinnoye (MNV)

  • Ore mining declined by 33% year-on-year in Q1 2018 due to the reduced availability of processing capacity and the use of ore from stockpiles.
  • Processing volumes fell by 31% year-on-year due to one of two SAG mill lines being halted in Q4 2017 following the discovery of a damaged feed trunnion. The trunnion was replaced in March 2018 and the line is now operational.

MNV

Units

Q1 2017

Q1 2018

Waste stripping

t

1,869,075

780,915

Underground development

m

2,596

2,930

Open-pit ore mined

t

49,858

37,079

Open-pit ore grade

g/t

2.10

2.18

Waste dumps ore mined

t

114,328

-

Waste dumps ore grade

g/t

1.11

-

Underground ore mined

t

188,362

198,465

Underground ore grade

g/t

3.01

2.90

Total ore mined

t

352,548

235,544

Average grade

g/t

2.26

2.78

Ore processed

t

360,137

249,544

Average grade

g/t

2.36

2.74

Recovery rate

%

90.6

92.2

Gold produced

oz

24,185

19,359

 

Near-mine exploration at MNV in Q1 2018 focused on drilling from underground at the Intermediate and Deer ore bodies. New ore zones have been identified and outlined based on the results of this work and updated reserve estimates are in the process of being filed with regulators.

Geochemical prospecting has been completed on the Kulibinskaya and Zamanchivaya licences, located to the southwest and northeast of MNV. Assay test results showed gold anomalies and are being used to develop an exploration programme for the remainder of this year.

An updated JORC compliant reserves estimate for MNV, including the results of 2017 exploration, is expected at the end of Q3 2018.

Belaya Gora

  • Waste stripping increased by 85% year-on-year in Q1 2018 as mining operations moved from stockpiles to the open pit.
  • Total ore mining increased by 9% year-on-year.
  • Ore processing declined by 16% year-on-year due to seasonal problems with water supply to the mill.
  • The recovery rate was 74.68%, an increase of 6.1% over the same period last year.

Belaya Gora

Units

Q1 2017

Q1 2018

Waste stripping

t

661,031

1,221,192

Ore mined

t

453,372

493,799

Average grade

g/t

0.84

0.80

Including:

 

 

 

-       Ore Au >0.75 g/t

t

214 300

233 818

-       Average grade

g/t

1.16

1.16

-       Ore Au 0.3-0.75 g/t

t

239 072

259 981

-       Average grade

g/t

0.55

0.48

Ore processed

t

380,714

320,566

Average grade

g/t

1.11

1.12

Recovery rate

%

70.4

74.7

Gold produced

oz

9,527

8,977

 

In early Q1 2018, the Company published details of a pre-feasibility study (PFS) covering planned upgrades to the Belaya Gora processing plant and the eventual processing of ore from the nearby Blagodatnoye deposit at the mill. The study included updated reserve figures for Belaya Gora.

The process of estimating potential new reserves and registering them with regulators continued through the quarter, based on the results of diamond drilling on Belaya Gora's deep horizons and northeastern flank completed in 2017.

Exploration drilling totalling 4,000 metres was carried out on the Kolchansky and Zayachy prospects on the adjacent Belaya Gora Flanks licence in Q1 2018, with the programme set to continue in the second quarter. Another 1,500 metres will be drilled on Kolchansky's western flank and for infill drilling at Zayachy. The work is expected to be completed by the end of April.

The Company selected Kazgipertsvetmet and SGS Bateman to prepare technical design documentation for the Belaya Gora processing plant upgrade, which will include the addition of a carbon-in-pulp (CIP) circuit in order to improve recoveries.

Blagodatnoye

The Company's first JORC-compliant reserve report for Blagodatnoye was published in Q1 2018 as part of the Belaya Gora PFS. Work continued on interpreting data from additional exploration drilling carried out last year and on registering reserves with state regulators.

It is envisaged that Blagodatnoye ore will be pre-crushed on site and trucked to the Belaya Gora processing plant once the Belaya Gora open pit is mined out.

ZABAIKALSKY REGION, RUSSIA

Novoshirokinskoye (Novo)

  • Q1 2018 ore mining totalled 223,057 tonnes, up 7.5% from Q1 of last year.
  • Ore processing also gained pace during the quarter, rising 3% due to the optimisation of technological processes, but recovery rates dipped slightly.

Novo

Units

Q1 2017

Q1 2018

Underground development

m

3,110

3,034

Ore mined

t

207,463

223,057

Average grade*

g/t

5.69

5,51

Ore processed**

t

199,006

204,732

Average grade*

g/t

5.76

5.80

Recovery rate*

%

85.5

81.2

Gold produced*

Oz

31,531

30,975

 

* Calculated in Au equivalent at actual prices
Metal grade of mined ore = Au 3.11 g/t, Ag 55.90 g/t, Pb 1.52 %, Zn 0.45 %

Work on the expansion of Novo's ore mining and processing capacity to 1.3 Mtpa continued in Q1 2018. The Company completed additional engineering and geological surveys on the site for a new run-off treatment plant.

Design documentation and construction schedules for Stage 1 of the expansion project, focused on increasing underground ore production to 1.3 Mtpa, were formulated and submitted to the state regulators for approval. This stage is forecast to be completed by year-end 2018 and includes comprehensive upgrades to the main rock hoisting shaft, including winding engine, headframe, loading boxes, primary crusher, and modification to associated surface buildings. Additional work will include the installation of a new main ventilation fan, a new boiler, and the water treatment plant.

For Stage 2 of the project (processing plant upgrades), the design process is underway on a new line at the processing plant and for the tailings dam. Contractor Mekhanobr-Engineering is managing the design process. Construction is scheduled to commence in 2019 with full capacity reached in 2020.

The Company is also reviewing the potential for using dense media separation (DMS) or X-ray separation to reduce capital costs for the Stage 2 mill expansion.

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

The Company selected Geotechproekt LLC (Ekaterinburg) as contractor to carry out design work on a proposed heap leach operation at the ZIF-1 Tailings licence, with expected annual throughput of up to 840 k tonnes of ore. Field studies were carried out over the course of Q1 2018 to inform an engineering study, and a report is currently in preparation.

Micromine is assessing 2016 exploration data for the Sredny Golgotay licence with a view towards providing a new, updated resource estimate for the deposit.

CHUKOTKA AUTONOMOUS DISTRICT, RUSSIA

Kekura

In early Q1 2018, the Company published details of a definitive feasibility study (DFS) for Kekura, including an updated JORC-compliant reserve report for the deposit. Construction on several key infrastructure facilities for the project is scheduled to get underway this year.

The government is currently building the Bilibino-Kekura-Peschanka-Omsukchan power line, which will bring the regional electricity grid to Kekura in 2019. The Company received State Expert Board approval for a planned 110/6 kV power substation in Q1 2018 and is now in the process of receiving construction permits. Equipment for the substation was delivered to the port of Pevek by Rostek JSC under a supply and installation contract. Transportation of the equipment to the Kekura site is in progress and is to be completed by the end of April.

Also during the quarter, a tender was held to select a contractor to draft design documentation for mining of Kekura and the processing plant. The contract was awarded to SPb Giproshakht.

Exploration drilling continued on the Granat prospect within the broader Kekura licence area during the quarter. Of a total programme of 6,500 metres, 6,245 metres were completed over 64 holes. Granat is being targeted to potentially add more open pit reserves to the Kekura operation.

Klen

The bulk of work on an updated PFS for Klen was completed by Hatch in Q1 2018. Finalisation of the report is in progress.

State authorities approved changes to the Company's schedule for developing the deposit. An application was filed to Chukotka branch of Rosnedra to make changes to the license agreement and adjust the start date. A decision is expected in Q2 2018.

The Company also held a tender for drafting design documentation for the mine and processing plant during the quarter. Giprotsvetmet was selected for the project.

KYRGYZSTAN

Unkurtash

The Company initiated several pre-project studies at Unkurtash during the first quarter.

KenToo, a Bishkek-based research and design centre, was awarded a contract to develop mine design documentation for Unkurtash in accordance with mining license commitments. The work will be conducted in stages, with the delivery of final results for consideration and submission for State Expert Board approval by June 1, 2019.

In addition, a test run was conducted to produce 10 kg of sulphide gravitation-flotation concentrates for marketing studies and evaluation. Gold recovery into sulphide pyrite concentrate exceeded 90%, with Au grades up to 34 g/t, Ag grades of 30 g/t, and about 2% of As impurities. The total concentrate yield was 4.58%.

Bishkek-based Premium Invest LLC won a contract to perform a large-scale topographic survey of the tier III area of Unkurtash, and the company has initiated fieldwork. Completion of the work and delivery of final results according to the Technical Assignment are expected by October 1, 2018.

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.

To those ends, senior staff from the Company’s Moscow management office (8 managers) and Novo (12 managers) attended courses titled "Conscious Safety Management” during Q1 2018. At Novo, 10 employees also attended an “Internal Accident Investigation” training course, and eight staff from Moscow and 26 at Novo participated in a “Defensive Driving” training course. Another 16 people at Novo attended courses entitled “Safety Management System Audit”.

Several new corporate standards were developed and introduced during the reporting period (“PPE quality and use standard”, “Safety management system audit methodology”, and 5 PPE technical requirements). Tools are being introduced in each operating unit in accordance with these standards.

A management-level HSE Committee meeting was held on February 09, 2018 and attendees approved a transportation safety programme along with a set of goals for 2018. A set of principles for setting safety targets were defined for each of the Company's operating units.

The Lost Time Incidents Frequency Rate (LTIFR) in Q1 2018 was 6.57 versus 6.31 in Q1 2017. There were a total of 9 incidents across the Group over the course of the quarter – five at Novo, three at MNV and 1 at the Moscow office. By comparison, there were also 9 minor incidents in Q1 2017: 4 at MNV and 5 at Novo.

As in past years, auxiliary mine rescue teams have been kept ready at each mine site to handle emergency containment and response.

The Company continues to observe environmental and regulatory requirements and has an ongoing program to identify and analyse any risks from operations that might impact the environment. Protecting the environment by decreasing the impact of its operations is one of the Highland's main goals for the year.

Internal environmental management audits were conducted at MNV, Belaya Gora and Novo to check compliance with environmental legislation. Action plans were developed based on audit results with the aim to minimize reoccurring violations.

About 435 employees went through environmental training programmes and 182 employees had class I-IV hazard waste treatment training with subsequent testing using the OlimpOKS system. Environmental monitoring programmes were developed and approved for 2018 during the reporting period.