Q2 2019 Operating Results

19 July 2019

Highland Gold Mining Limited ("Highland Gold" or the "Company", AIM: HGM) today reports its operating results for the three months ended 30 June 2019 ("Q2 2019") and for the first half of 2019 ("H1 2019").

 

HIGHLIGHTS

  • Highland Gold produced a total of 70,293 oz of gold and gold equivalent in Q2 2019, a slight increase from 69,610 oz in Q2 2018.
  • Total production in H1 2019 was 142,254 oz of gold and gold equivalent, an increase of 10% from 128,921 in H1 2018.
  • Production at Mnogovershinnoye (MNV) in Q2 2019 was stable year-on-year, while H1 2019 output was up 23% over the previous year.
  • Belaya Gora and Novoshirokinskoye (Novo) saw year-on-year declines in output during both the second quarter and the first half of the year, although grades at Novo improved substantially in Q2 2019 compared to the previous quarter.
  • Construction work at Kekura and an exploration drilling programme at Klen continued during Q2 2019, as both projects were officially granted residency in the Chukotka special economic zone.
  • The average realised gold price was US$ 1,309 per ounce in the second quarter and US$ 1,308 in the first half of the year.
  • The Company affirms its forecast for total 2019 production of 290,000-300,000 oz of gold and gold equivalent.

 

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)

 

  • Gold production was level year-on-year in Q2 2019 as slightly higher mill throughput was offset by a slightly lower head grade.
  • Q2 2019 ore mining increased by 2% and included more ore from MNV's historic waste dumps.
  • Waste stripping rose by 9% during the quarter and 26% for H1 2019, in line with MNV's mining plan, which foresees an increase in average grades in the second half of this year.

MNV

Units

Q2 2018

Q2 2019

H1 2018

H1 2019

Waste stripping

t

1,316,531

1,441,361

2,097,446

2,635,346

Underground development

m

2,993

3,087

5,923

5,570

Open-pit ore mined

t

103,903

87,497

140,982

176,189

Open-pit ore grade

g/t

2.25

2.41

2.23

2.38

Underground ore mined

t

209,438

188,990

407,903

380,334

Underground ore grade

g/t

3.29

3.83

3.10

4.01

Waste dumps ore mined

t

47,296

90,447

47,296

146,249

Waste dumps ore grade

g/t

1.04

1.10

1.04

1.10

Total ore mined

t

360,637

366,934

596,181

702,772

Average grade

g/t

2. 70

2.82

2.73

2.99

Ore processed

t

359,582

364,380

609,126

704,252

Average grade

g/t

2.76

2.68

2.75

2.92

Recovery rate

%

91.9

91.6

92.0

91.74

Gold produced

oz

28,731

28,728

48,090

59,317

 

Following the extension of MNV's life of mine from 2022 to 2029, as announced by the Company earlier this year, a scoping study and design documentation were commissioned in Q2 2019 regarding renovations and upgrades to the mine, its production facilities and infrastructure. Tenders for the projects have been completed, contracts were awarded, and work on the scoping study is already in progress.

A trade-off study on options for increasing tailings storage capacity was also initiated during the quarter. Solutions under consideration include semi-dry and conventional stockpiling at various possible sites, and utilization of mined-out or abandoned open pits. The study is expected to be completed in the third quarter of this year.

Near-mine exploration at MNV in Q2 2019 focused on the flanks of the Deer and Intermediate ore bodies, outlining over 425k tonnes of potential new ore resources at grades ranging from 2.5 g/t to 5.5 g/t. The Company is in the process of preparing a report on the exploration work conducted at MNV during the first half of this year.

 

Belaya Gora

  • Q2 2019 stripping increased by 131% year-on-year, while ore mining volume fell by 45%, both due to the cutback of the pit walls on upper levels.
  • Mill throughput declined by 15% YoY due to SAG mill repairs and a localised fire incident in a pipeline in the main processing plant.
  • The processing plant's recovery rate in Q2 2019 was 73.1%, compared to 76% in Q2 2018, as a direct result of the lower average head grade.

Belaya Gora

Units

Q2 2018

Q2 2019

H1 2018

H1 2019

Waste stripping

t

1,241,719

2,872,141

2,462,911

4,506 796

Ore mined

t

561,797

311,323

1,055,596

1,016,752

Average grade

g/t

0.81

0.82

0.81

0.88

including:

 

 

 

 

 

-       Ore Au >0.7 g/t

t

273,442

169,163

507,260

633,064

-       Average grade

g/t

1.18

1.07

1.17

1.11

-        Ore Au 0.3-0.7 g/t

t

288,355

142,160

548,336

383,687

-       Average grade

g/t

0.46

0.53

0.47

0.50

Ore from stockpiles

t

78,570

179,796

162,900

211,469

Average grade

g/t

0.82

0.83

1.00

0.84

Ore processed

t

398,302

345,983

718,868

778,784

Average grade

g/t

1.09

0.87

1.11

1.03

Recovery rate

%

76.0

73.1

75.4

74.9

Gold produced

oz

10,827

6,546

19,804

18,322

 

Data is being assembled for a JORC-compliant audit of reserves in the Kolchansky and Zayachy prospects on the Belaya Gora Flanks licence, based on over 8,000 metres of exploration drilling in 2017 and 2018. In-house estimates compiled over the course of Q2 2019 point to potentially two million tonnes of ore at a grade of 1.16 g/t. The JORC reserve report is expected later this year.

 

ZABAIKALSKY REGION, RUSSIA

 Novoshirokinskoye (Novo)

 

  • Mined ore in Q2 2019 totalled 191k tonnes, which is 11.7% lower YoY, but ore processing volume inched up by 1% to 202k tonnes.
  • Mined ore grades were lower year-on-year at 5.16 g/t gold equivalent, but much improved versus 3.98 g/t in the first quarter of this year.

Novo

Units

Q2 2018

Q2 2019

H1 2018

H1 2019

Underground development

m

3,150

2,570

6,184

5,295

Ore mined

t

216,373

191,077

439,430

411,175

Average grade*

g/t

5.70

5.16

5.60

4.53

Ore processed

t

200,777

201,963

405,509

414,321

Average grade*

g/t

5.86

5.30

5.83

4.73

Recovery rate*

%

79.4

79.8

80.3

79.0

Gold produced (100%)*

oz

30,052

27,453

61,027

49,742

      * In gold equivalent at actual prices

      (Metal grade of mined ore = Au 2.76 g/t, Ag 51.96 g/t, Pb 0.99%, Zn 0.47%, Cu 0.25%).

 

Work on the Novo 1.3 Mtpa expansion project progressed in Q2 2019. Highlights included:

  • Continued construction work on a water pumping station at the +637m level in the underground mine, with completion expected in November 2019 after the installation and adjustment of electrical equipment;
  • The selection of contractors for work on the key remaining facilities for Stage 1 of the project (mine capacity expansion), covering reconstruction of the skip hoist and main ventilation system; and
  • The initiation of work on design documentation for expanding the tailings dam in preparation for Stage 2 of the project (processing plant capacity expansion).

 

Also during the quarter, the Company continued to undertake studies on future ore mining at Novo, with intensified production drilling over the past few months. The deliverable of this exercise will be an updated model of the mine's mineralogical and metallurgical balance.

 

Baley ore cluster (Teseevskoye, Sredny Golgotay and ZIF-1)

The Company continued design work on a heap leach facility with an annual processing capacity of 840k tonnes at the Baley ZIF-1 tailings licence during the quarter. Design documentation has undergone a preliminary review process at the State Expert Panel in Krasnoyarsk, and is being updated based on their feedback. The submission of project documentation for final expert review is underway, with approval expected in Q3 2019.

Work on finalising a scoping study for Sredny Golgotay, including a trade-off analysis of various options for developing the deposit, was ongoing in Q2 2019. The technical and financial parameters in a preliminary report received earlier this year are in the process of being reviewed and approved. The final report is expected in the coming weeks.

 

CHUKOTKA AUTONOMOUS DISTRICT, RUSSIA

As per the Company's announcement earlier this month, a key highlight of Q2 2019 was the completion of an agreement with Russia's Far East Development Corporation officially confirming residency in the Chukotka Advanced Special Economic Zone (ASEZ) for the Kekura and Klen projects, which was then signed on 03 July 2019. The ASEZ programme offers certain tax breaks and other incentives over the first five to ten years of operations.

 

Valunisty 

  • Waste stripping was 6% lower year-on-year in Q2 2019 and 17% lower for H1 2019 due to the redeployment of equipment for snow ploughing and due to equipment downtime.
  • Ore mining increased by 12% YoY in the second quarter and 15% in H1 2019, while ore processing rose by 15% and 28%, respectively.
  • Grades were lower, as expected, in H1 2019 as the mill processed ore from Valunisty's Glavnaya and Novaya zones, as opposed to the main Valunisty ore body and the satellite Gorny mine in H1 2018.

 

Valunisty

Units

Q2 2018

Q2 2019

H1 2018

H1 2019

Waste stripping

t

1,528,697

1,442,078

2,955,788

2,467 662

Ore mined

t

81,399.5

91,319

116,425

134,415

Average grade*

g/t

3.54

2.79

3.66

2.76

Ore processed

t

59,946

68,986

102,322

131,593

Average grade*

g/t

4.00

3.21

5.62

3.37

Recovery rate

%

95.75

95.57

95.9

95.2

Gold produced*

oz

7,940

7,566

19,117

14,873

* gold equivalent, including silver

 

Production exploration drilling at Valunisty in Q2 2019 focused on the southern part of the Novaya zone, covering 25 holes and totalling 4,720 metres. Cores were logged and 2,532 core samples totalling 2,274 m were extracted. The mine's central assay laboratory completed 4,272 assay tests during the period.

Engineering studies and project design work continued on the planned expansion of Valunisty's processing plant capacity from 250k tonnes to 350k tonnes of ore per annum, and for the beginning of underground mining at the site. Tests were conducted using XRT ore sorting technology, with the results now under review, and inspections were carried out on the existing processing plant buildings and foundations. Mining options were also reviewed along with cost estimates for mining equipment.

 

Kekura

The current phase of construction and preparations for subsequent stages continued throughout Q2 2019 at Kekura.

Progress was made in the ongoing construction of the assay laboratory, where the foundation and structural frame are now in place, and the communications tower, where the mast has been raised and equipment block installed. The Company also reinforced the steel structures of the main building of the pilot processing plant on site.

During the quarter, ground regrading work began in preparation for construction of an expanded camp. Work also began on an internal power line network to connect buildings around the site to Kekura’s power substation. The substation is due to be connected to the regional power grid later this year.

In June, Russian regulators approved Kekura’s mine allotment for the open pit, as well as the Company’s methodology for production exploration and grade control drilling. RC drilling commenced on site towards the end of the month. The Company plans to begin stripping and initial ore mining later this year.

 

Klen

The Company made preparations for conducting XRT bulk sorting tests on Klen ore in Q2 2019 to see if this ore sorting technology could be used for the project. A more representative sample in terms of volume and extraction method will be taken for testing in August.

While waiting for the tests to be conducted, a decision was made to review new alternatives for development of the deposit with a view towards reducing projected construction costs. The Company is preparing a tender for contractors for the technical design assignment.

 

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 Q2 2019, the Lost Time Incident Frequency Rate (LTIFR), calculated as the number of incidents for every 1,000,000 man-hours, was 2.77 compared to 4.22 in Q2 2018. Four lost-time incidents were registered during the period – one each at Novo, MNV, Belaya Gora and Valunisty – versus seven during the same period last year.

The Company is saddened to report that the incident at Novo involved a fatality. A welder was making repairs to the surge bin of an underground crusher housing and fell from height. An extensive investigation of the incident has been carried out and the Company has conducted additional safety briefings with mine employees in an effort to prevent a repeat of this unfortunate incident.

The Board of Directors' HSE Committee approved the Company's new HSE Policy and its targets and goals for the year at its meeting in March. Since then, a new corporate standard on "Analysis of Safe Workplace Practices" was developed. The standard and a related set of tools are currently being rolled out across the Company and its subsidiaries.

Training sessions conducted in Q2 2019 included: a "Conscious Safety Management" course for 24 employees at Novo and 274 at MNV; a "Risk Assessment" course for 28 people at MNV and 23 at Novo; and a "Defensive Driving" course for 41 employees at MNV.

A self-assessment of labour safety management systems was undertaken at Novo, MNV, Kekura and Valunisty in May 2019. The audit findings were used to develop an action plan aimed at further introducing improved labour safety management processes. In addition, a company-wide risk assessment project is in progress with the aim of developing a risk registry in accordance with corporate standards.

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, and reducing the impact of its operations on the environment remains one of the Company's key priorities.

Over the course of Q2 2019, in-house audits of environmental management systems were performed at MNV and Belaya Gora to ensure their compliance with environmental legislation. An action plan was developed based on the audits' findings in order to minimize the causes of systematic violations.

Across the Company, 1,117 employees underwent refresher training on environmental safety during the quarter. Another 270 employees sat for training and took exams on management of class I-IV hazardous materials. Eight managers and specialists attended external environmental safety courses.