Q3 2018 Operating Results

18.10.2018

Highland Gold Mining Limited ("Highland Gold" or the "Company", AIM: HGM) today reports its operating results for the three months ended 30 September 2018 ("Q3 2018").

HIGHLIGHTS

  • Production at Mnogovershinnoye (MNV), Novoshirokinskoye (Novo) and Belaya Gora in Q3 2018 totalled 74,826 oz of gold and gold equivalent, an increase of 4.4% from 71,767 oz in Q3 2017.
  • Total production for the first nine months of 2018 ("9M 2018") was stable year-on-year at 203,747 oz of gold and gold equivalent compared to 203,552 in 9M 2017.
  • Aided by higher grades, MNV surpassed 2017 nine-month output, more than making up for lost ground after operating at reduced capacity in the first quarter of this year.
  • Belaya Gora production was steady year-on-year as higher recoveries and grades offset slightly-lower processing plant throughput.
  • Novo output was lower in Q3 2018 due to lower recoveries and grades, while work continued on the planned mine expansion.
  • Average realised gold price during the quarter of US$ 1,206 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 Limited

(Joint Broker)

Jeffrey Couch, Tom Rider, Pascal Lussier Duquette

+44 (0) 207 236 1010

Peat & Co

(Joint Broker)

Charlie Peat

+44 (0) 207 104 2334

KHABAROVSK REGION, RUSSIA

Mnogovershinnoye (MNV)

  • Higher ore grades from both underground and open pit, combined with less ore mined from lower-grade historic waste dumps, boosted Q3 2018 production by 17% year-on-year.
  • Total ore mined increased by 2% YoY.

MNV

Units

Q3 2017

Q3 2018

9M 2017

9M 2018

Waste stripping

t

1,908,915

1,160,684

5,615,716

3,258,130

Underground development

m

2,993

2,943

8,416

8,866

Open-pit ore mined

t

82,902

144,091

243,802

285,073

Open-pit ore grade

g/t

2.21

2.47

2.07

2.36

Waste dumps ore mined

t

71,112

20,966

252,177

68,262

Waste dumps ore grade

g/t

1.18

1.04

1.12

1.04

Underground ore mined

t

209,463

205,379

598,120

613,282

Underground ore grade

g/t

3.08

3.45

3.10

3.21

Total ore mined

t

363,477

370,436

1,094,099

966,617

Average grade

g/t

2.51

2.93

2.41

2.81

Ore processed

t

364,073

361,014

1,084,536

970,240

Average grade

g/t

2.58

2.96

2.48

2.83

Recovery rate

%

92.3

92.7

91.4

92.3

Gold produced

oz

27,376

31,942

78,125

80,031

Near-mine exploration in Q3 2018 included drilling on the lower horizons of the main MNV license area. Drilling results were included in a cumulative reserve estimate for MNV that was submitted to and successfully reviewed by experts at the State Committee on Reserves. A new JORC-compliant reserve report for MNV is being finalised and will be published in the coming months.

Grade control surface drilling progressed on the flanks of several of MNV's ore bodies during the quarter. Drilling totalled 6,640 metres and focused on the Central, Intermediate, Upper, and Northern ore bodies. Another 800 m were drilled on MNV's historic waste dumps.

On the Kulibinskaya area, one of the Company's three greenfield licenses adjacent to MNV, field geochemical surveys and assay tests were performed as part of an initial exploration programme last year, with several gold anomalies identified. Based on those results, the Company conducted 54,485 m3 of trenching in Q3 2018. Logging and sampling are in progress.

On the Zamanchivaya licence area, trenching began in June across identified halos in order to verify them. Q3 2018 trenching amounted to 8,247 m3, bringing the total for the year to 15,296 m3. Core drilling was carried out in areas with heightened gold grades that were identified with trench sampling. Q3 drilling at the site amounted to 2,223 m.

Belaya Gora 

  • Substantial year-on-year increase in Q3 2018 ore mining and stripping.
  • The average grade of mined ore increased by 24% for the quarter.
  • Recovery rates reached 76.2%, 4% higher year-on-year.
  • Ore processing declined slightly YoY, but the difference was more than offset by higher average grade and recovery.  

Belaya Gora

Units

Q3 2017

Q3 2018

9M 2017

9M 2018

Waste stripping

t

888,030

1,543,717

2,277,993

4,006,628

Ore mined

t

108,476

583,239

803,544

1,638,835

Average grade

g/t

0.70

0.87

0.79

0.83

Including:

 

 

 

 

 

-       Ore Au >0.7 g/t

t

58,823

372,213

370,415

879,473

-       Average grade

g/t

0.93

1.12

1.11

1.15

-        Ore Au 0.3-0.7 g/t

t

49,653

211,026

433,129

759,362

-       Average grade

g/t

0.42

0.44

0.52

0.46

Ore from stockpiles

t

344,577

84,047

978,358

246,947

Average grade

g/t

1.10

1.02

1.05

1.01

Ore processed

t

463,134

456,970

1,273,683

1,175,838

Average grade

g/t

1.08

1.13

1.11

1.12

Recovery rate

%

73.0

76.2

72.2

75.7

Gold produced

oz

12,280

12,677

32,314

32,481

The Company carried out core drilling within the boundaries of the Belaya Gora pit shell during the quarter with the aim of performing geomechanical and hydrogeological studies. Six holes were drilled totalling 1,020 metres.

On the adjacent Belaya Gora flanks licence, exploration drilling continued on the Kolchansky and Zayachy prospects, completing a programme of 7,850 metres drilled this year. Two batches of metallurgical samples totalling one tonne in weight were extracted from the cores for metallurgical tests. Forty samples were extracted from the cores' ore intervals for hardness testing.

Blagodatnoye

As per the pre-feasibility study published by the Company earlier this year, the Blagodatnoye deposit is being targeted to supply additional ore to the Belaya Gora mill later in the life of the project.

In order to satisfy regulatory requirements, the Company submitted a Russian-standard feasibility study covering exploration parameters and a reserve estimate for Blagodatnoye to the State Expert Panel for review on August 29, 2018. The review process is expected to be completed in about three months.

ZABAIKALSKY REGION, RUSSIA

Novoshirokinskoye (Novo) 

  • Q3 2018 ore mining totalled 213,533 tonnes, which was 9.67% lower YoY.
  • Ore processing rose slightly but was offset by lower grades and recoveries.

Novo

Units

Q3 2017

Q3 2018

9M 2017

9M 2018

Underground development

M

2,833

2,669.5

8,553

8,853

Ore mined

T

220,755

213,533

635,618

652,963

Average grade *

g/t

5.37

5.30

5.42

5.50

Ore processed

T

213,572

216,271

618,167

621,780

Average grade *

g/t

5.47

5.35

5.49

5.66

Recovery rate *

%

85.43

81.2

85.30

80.6

Gold produced *

oz

32,111

30,207

93,113

91,235

* calculated as Au equivalent in actual prices

(metal grades in ore mined = Au 3.08 g/t, Ag 60.10 g/t, Pb 1.80 %, Zn 0.71 %).

Work continued on Stage 1 of the Novo 1.3 Mtpa expansion project in Q3 2018, which involves upgrades to the underground mine. Highlights included:

  • The adjustment of design documentation for reconstruction of the skip hoist (dosing station);
  • The drafting of design documentation for the water drainage facility at the +637 m level;
  • Excavation for the water drainage facility at the +637 m level;
  • Underground active storage of explosive materials at the +750 m level; and
  • Preparations for construction of the main fan unit.

For Stage 2 of the project, which covers processing plant upgrades, engineering and geological studies for the plant, pipe racks, and chemicals storage upgrade were carried out.

Earlier this year, Novo commenced a new exploration drilling programme from both surface and underground with the aim of developing a more detailed geological model of the deposit and optimising mining activities. In Q3 2018, a contractor carried out drilling on ore bodies below the 637.5 m level, completing nine boreholes of a planned total of 26.

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

Geotechproekt LLC continues to develop designs for an 840 ktpa heap leach facility for ore from the Baley ZIF-1 tailings licence. The contractor completed and reported on engineering studies over the course of Q3 2018. It also drafted and received approval for the project's principal design solutions, and conducted public hearings in line with environmental impact study (OVOS) requirements.

The heap leach design was reviewed and approved by the regional Committee on Reserves of regulatory agency Rosnedra in September of this year. Design documentation was also submitted to environmental agency Rosprirodnadzor for expert panel review. Approval by the Main State Environmental Expert Commission is expected in November of this year.

At the Sredny Golgotay deposit, Micromine Consulting Services issued a report with a Russian statutory resource estimate to be used as the basis of a Scoping Study for the project. Wardell Armstrong was awarded a contract to draft the study and results are expected in January 2019.

At Taseevskoye, geophysical survey tests were carried out in Q3 2018 with the aim of delineating the outlines of the old underground workings present under the site. The work is intended to contribute to better-quality geological exploration planning in the future. Interpretation of the results is in progress.

CHUKOTKA AUTONOMOUS DISTRICT, RUSSIA

Kekura

Operations at Kekura in Q3 2018 covered a broad variety of preparations for construction and mining at the deposit.  The Company prepared specifications for future orders of construction materials and engineering and processing equipment, while contractors carried out a range of vital studies and site surveys.

Scientific research company Rosnedra LLC completed and submitted for state geological expert review a report entitled "Programme of Hydrogeological Works for Exploration of Underground Water Reserves of the Khrebtovaya River". The report addresses options for supplying processing and potable water for the project.

Contractor EngGeo LLC carried out several assignments during the quarter:

  • A geodesic survey, including aerial laser scanning and geodesic control points, with desktop studies that are ongoing;
  • An environmental survey, including samples taken along the traverse with photos of the area and its fauna, as well as field and desktop hydrometeorological studies; and
  • Ground reconnaissance on the sites where geological work will be performed for construction of Kekura's mining and processing facilities.

SPb-Giproshakht LLC performed a comprehensive inspection of the buildings and structures of the existing pilot plant for processing bulk metallurgical samples. Detailed design documentation is under development for the construction of Kekura's main processing plant utilizing the existing pilot plant.

Kekura's explosives storage facility was re-equipped during the quarter. Preparations are in progress to welcome a commission from regulatory agency Rostechnadzor, which is responsible for approving the commissioning of hazardous facilities.

In September, construction and installation work was completed on the Kekura 110/6 kV substation, which is designed to receive electricity from a new power line being built to the site by the government. Start-up and adjustment of the substation is underway.

Also in September, an open pit excavator was assembled and tested. The foundation for a communications tower was likewise completed in Q3 2018.

Materials and equipment for the construction of a second fuel storage facility were delivered to the port of Arkhangelsk in September. Delivery to the Kekura site by winter road is expected to take place in March 2019.

Klen

The Company and regulators signed an amendment to the Klen license agreement (№ AND 01191 BE) in Q3 2018 that reflects the most recent technical project for the deposit. The process of registering the updated document is currently in progress.

Also during the quarter, ore samples from Klen were collected and transported to Moscow to test their suitability for pre-concentration using X-Ray separation technology. A tender to select a contractor for this test work is in its final stages.

The further development of design documentation for Klen was postponed until the end of the year, by which time the X-ray separation tests results should be ready. By then it should also be clear if Klen will be included in the government's proposed Baimskaya priority development zone, which among other advantages would offer special tax privileges for the project.

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 Q3 2018, the Lost Time Incident Frequency Rate (LTIFR) was 3.43 compared to 1.56 in the third quarter of last year. The increase resulted from a total of five incidents – three at Novo and two at MNV – compared to just two in the period last year.

Over the course of 9M 2018, the LTIFR was 4.49 compared to 5.28 in the first nine months of last year. The difference reflects a decrease in the number of workplace incidents from 21 last year to 19 this year (11 at Novo, one at Belaya Gora, six at MNV and one in the Moscow office).

Training sessions conducted in Q3 2018 included a "Conscious Safety Management" course for 32 people in the Moscow office, 54 at Novo, and 20 at MNV. An "Internal Incident Investigation" course was completed by 18 people at Novo and 23 at MNV.

Other efforts included the development of a set of tools based on several new corporate standards which are being introduced across all operations. The new standards cover PPE quality and use; contractors’ safety management; audits and rating of labour safety; and emergency medical response.

A new employee health management programme was introduced in August and September of this year. Relevant audits were carried out at Novo and MNV and are being used to further develop the concept.

The Company's auxiliary mine rescue teams are being kept on alert at each of its operations with a view to ensuring their preparedness to participate in resolving emergency situations.

Highland Gold continues to adhere to its stated policy of protecting the environment and operating in accordance with all relevant regulatory requirements. An environmental monitoring system is in place at each of the Company's operations.

In Q3 2018, the Company conducted 49 internal environmental management audits at MNV, Belaya Gora and Novo to ensure compliance with environmental legislation. Action plans were developed based on audit findings in an effort to minimize the causes of any systematic violations.

Over the course of the year, 1,910 employees underwent basic environmental safety training and 420 employees had training and tests on class I-IV hazardous waste disposal via the OlimpOKS system. The Company sent 50 managers and specialists for skills improvement training in dedicated centres where they attended professional environmental training courses.