Q1 2020 Operating Results

22 April 2020

Highland Gold Mining Limited ("Highland Gold" or the "Company", AIM: HGM) today reports its operating results for the three months ended 31 March 2020 ("Q1 2020").

 

HIGHLIGHTS 

  • Highland Gold’s four operating mines produced a total of 63,482 oz of gold and gold equivalent in Q1 2020, in-line with production forecasts for the quarter (Q1 2019: 71,961 oz)
  • Production and sales were unaffected by the COVID-19 pandemic, as mine shifts were extended until 01 June 2020 and travel was restricted in order to protect the Company’s remote operations and nearby communities
  • The average realised gold price for the quarter was US$1,593/oz.
  • At Kekura, the pilot processing plant conducted its first gold pour in March, while preparations for summer construction continued with equipment, materials and supplies shipped to site over winter roads and construction crews already on location
  • Production at Mnogovershinnoye (MNV) exceeded targets for the quarter as open pit mining was reduced and stripping ramped up to prepare to access new high-grade ore zones in Q3 and Q4
  • Scheduled maintenance at the Belaya Gora processing plant, initially planned for April-May of this year, was brought forward to March
  • Novoshirokinskoye (Novo) gold equivalent production was 5% higher than forecasts despite expected lower grades                                                              
  • Valunisty saw Increased mining and processing volumes but lower grades during the quarter
  • To lock in lower interest rates, the Company drew down US$60 million in long-term debt from open credit lines in March at an average interest rate of 3.36%, bringing gross debt to US$326 million and net debt to US$254 million as of 31 March 2020. The net debt/EBITDA ratio remains comfortable at 1.2 and additional open credit lines worth US$340 million are available
  • Michael Monaghan joined the Company in March as Chief Operating Officer, bringing with him over four decades of experience in the industry
  • The Company affirms its guidance for total production of 290,000-300,000 oz of gold and gold equivalent in 2020.

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)

Tom Rider, Pascal Lussier Duquette, Neil Elliot

+44 (0) 207 236 1010

Peat & Co

(Joint Broker)

Charlie Peat

+44 (0) 207 104 2334

 

COVID-19 UPDATE 

On 20 March 2020, Highland Gold issued an update on measures being taken to protect the Company’s operations from the effects of the COVID-19 pandemic. Due to the remote location of Highland Gold’s operating and development assets and geographically-restricted access to those locations, the Company has not experienced any disruptions to its mining and processing plant operations and construction projects. Likewise, the Company is not currently experiencing material disruptions to its supply chain or sales. At present, no employees of Highland Gold are known to have tested positive for the COVID-19 virus.

Highland Gold is especially concerned about the health and well-being of its employees and the communities in which we operate, and the Company has taken several steps to protect them, including complex health screening for everyone on our production sites. In March, the Company established a COVID-19 task force, cancelled travel between offices and mines, permitted Moscow office employees to work from home, and extended the shifts of employees already at production sites until 01 June 2020, with additional overtime pay, to prevent new arrivals from bringing the virus to these locales.

Looking ahead, Highland Gold has been securing living quarters for employees either near the mines or in regional capitals with a view toward carrying out upcoming shift changes via 14 day quarantine. The Company has also been working on obtaining private-sector coronavirus testing which could help reduce the quarantine period. While at the facilities, employees will receive additional training on health and safety, corporate values and standards, and vocational subjects.

Meanwhile, to mitigate any risk to production, the mines are each currently stockpiling from two to three months of ore. The Company will continue to closely monitor the situation with its mining operations, supply chain, and the communities where we work, and will provide an update should there be any material changes.

 

KHABAROVSK REGION, RUSSIA 

Mnogovershinnoye (MNV) 

  • Open pit ore mining declined by 81% and the use of ore from waste dumps was 43% lower year-on-year, both in accordance with mining plans for the year
  • The head grade at the processing plant declined by 19% from Q1 2019, but was also in line with the 2020 production plan
  • Stripping increased by 108% y-o-y in preparation for mining new open pit areas in Q3 and Q4, while lateral development increased by 18% y-o-y

 

MNV

Units

Q1 2019

Q1 2020

Waste stripping

t

1,193,985

2,488,134

Underground development

m

2,483

2,943

Open-pit ore mined

t

88,692

16,978

Open-pit ore grade

g/t

2.34

2.96

Underground ore mined

t

191,344

198,422

Underground ore grade

g/t

4.18

3.44

Waste dumps ore mined

t

55,802

31,554

Waste dumps ore grade

g/t

1.11

1.04

Total ore mined

t

335,838

246,954

Average grade

g/t

3.18

3.10

Ore processed

t

339,872

335,014

Average grade

g/t

3.18

2.57

Recovery rate

%

91.9

91.6

Gold produced

oz

30,589

25,723

Following the success of the Company’s ongoing near-mine exploration programme and last year’s extension of MNV’s life of mine to 2029, planning work commenced for increasing the mine’s tailings capacity. In Q1 2020, a contractor was selected for construction of a third tier of the tailings storage facility. Work on the dam is scheduled to commence in May of this year. 

Updated reserve estimates for the Intermediate and Deer ore bodies are currently in progress, based on recent exploration and production drilling data. The Company expects to add incremental reserves for the ore bodies following the submission of a report to regulators in Q2 2020. 

 

Belaya Gora                          

  • Stripping increased as planned by 49% y-o-y and ore mining rose by 4% as the mill reduced reliance on previously-stockpiled ore
  • Processing plant throughput was 13% lower as scheduled SAG mill maintenance was brought forward from April-May to March

Belaya Gora

Units

Q1 2019

Q1 2020

Waste stripping

t

1,634,656

2,445,670

Ore mined

t

705,429

733,767

Average grade

g/t

0.91

0.93

including:

 

 

 

-        Ore Au >0.6 g/t*

t

463,901

484,966

-        Average grade

g/t

1.13

1.15

-        Ore Au 0.3-0.6 g/t*

t

241,527

248,801

-        Average grade

g/t

0.49

0.50

Ore processed

t

432,801

363,498

Average grade

g/t

1.15

1.06

Recovery rate

%

76.04

76.88

Gold produced

oz

11,775

9,665

* The low-grade cut-off in 2019 was 0.7 g/t

Highland Gold is entering the final stages of renovations to the Belaya Gora processing plant, which are on track for completion as scheduled in the second half of this year. The addition of a CIP circuit to the plant is expected to improve gold recovery to around 90% from the current average of about 75%. It will also enable the plant to process ore from the nearby Blagodatnoye deposit.

In March, the Company took delivery of key equipment for the project from Chinese supplier Jinpeng Mining Machinery, including the sorption/elution and pre-leach circuits. That equipment, construction materials for the structures to house it, and the building contractor’s personnel are all already on site, and the foundations of the new structures are currently being laid. 

In parallel, work continues on the expansion of the tailings storage facility at Belaya Gora. During the quarter, a contractor was hired for structural inspections and a local geophysics institute delivered data on earthquake preparedness. Soil samples around the existing tailings dam were tested for hardness to help more accurately calculate stability, which was deemed to be in line with requirements. 

The process of receiving approval for the design of the expanded tailings storage facility is now underway and public hearings are scheduled for Q2 2020. They will be followed by submissions to a panel of environmental experts and to the main State Expert Panel.  

Exploration drilling at Belaya Gora continued in Q1 2020 with a focus on the Ogorodny 1 area of the Belaya Gora flanks, where promising mineralization was discovered. The work will continue in Q2 2020 and the results used for an in-house estimation of reserve potential.

 

Krasnaya Gorka

In March, Highland Gold received an exploration licence for Krasnaya Gorka, a greenfield site about halfway along the ~40 km distance between the Belaya Gora mine and the Company’s Blagodatnoye deposit. The licence, valid until 2027, covers an area of 96.7 square kilometres. As with Blagodatnoye, Krasnaya Gorka is being targeted to provide additional resources for processing at the Belaya Gora mill.

According to the licence, Krasnaya Gorka contains Russian-standard P2 category prognosticated resources of gold, silver, lead, zinc, copper and molybdenum that will need to be confirmed and updated by Highland Gold’s geologists. The Company has initiated preparation of an exploration programme and will carry out preliminary preparations over the course of this year for prospecting work to begin in 2021.

 

ZABAIKALSKY REGION, RUSSIA 

Novoshirokinskoye (Novo) 

  • Ore mining volumes in Q1 2020 increased by 13% as Novo builds up stockpiles to feed the mill during mine renovation work scheduled for later this year
  • The average grade of ore mined declined by 9% y-o-y as some lower grade stopes were accessed 

Novo

Units

Q1 2019

Q1 2020

Underground development

m

2,725

2,546

Ore mined

t

220,098

249,694

Average grade*

g/t

4.03

3.68

Ore processed

t

212,358

217,039

Average grade*

g/t

4.23

3.88

Recovery rate

%

78.27

78.73

Gold produced*

oz

22,289

21,135

*  Gold equivalent calculated at actual prices

(Metal grade of mined ore = Au 2.32 g/t, Ag 42.47 g/t, Pb 0.98 %, Zn 0.46 %, Cu 0.22 %). 

The expansion of Novo’s ore mining and processing capacity from 800 ktpa to 1.3 Mtpa, which is scheduled for completion later this year, continues to be a key focus for the Company as it seeks to offset the effects of expected lower grades.  

TOMRA X-ray transmission (XRT) ore separators, ordered from German producer Outotec, were factory tested and certified in March. They have now arrived in Russia and cleared customs, and delivery to Novo is expected in May. The machinery will enable Novo to sort and treat increased production from the mine without changes to the capacity of the existing metallurgical plant. 

In Q1 2020, an old chemical storage facility was dismantled to make way for the ore pre-concentration building. A contractor has been selected for the construction work. 

Reconstruction of the mine’s skip hoist and of the hopper station also commenced during the quarter, while work on the upgraded ventilation system continued. Preparations are underway for construction of a new boiler unit for heating the underground fresh air intake. The development of design documentation for a new underground water pumping station is in progress.

 

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

The Baley ZIF-1 Tailings project has been granted residency status in the Zabaikal Advanced Special Economic Zone (ASEZ), which will confer a range of tax benefits on the project once production begins. The project envisions a heap leach to process 840k tonnes/year of slime from the tailings dam of the former Baley processing plant, producing an estimated 15,000 oz of gold per annum when launched in 2022. 

Design work for the heap leach and for construction of its production facilities continued over the course of Q1 2020. Design documentation for the project has been approved by the State Development Commission and by environmental experts. The Company is currently in the process of screening potential construction contractors and equipment vendors.

 

CHUKOTKA, RUSSIA 

Valunisty

  • Gold equivalent production was slightly lower due to a 10% decrease in head grade at the processing plant, however, the grade of ore mined increased by 7% year-on-year,
  • Ore mining and processing volumes increased by 29.2% and 4.0%, respectively, while stripping volume increased by 53.3% to expose new ore zones in Q2 and Q3.

Valunisty

Units

Q1 2019

Q1 2020

Waste stripping

t

1,025,585

1,571,835

Ore mined

t

43,095

55,687

Average grade*

g/t

3.07

3.28

Ore processed

t

62,608

65,092

Average grade*

g/t

3.98

3.60

Recovery rate

%

95.0

95.2

Gold produced*

oz

7,308

6,959

* Gold equivalent, calculated at actual prices, including silver

A new grade control drilling programme began at Valunisty in Q1 2020. The drilling covered 22 bore holes and 1,991 metres, and focused on the southern part of the Novaya zone in order to prepare for follow-up exploration of the ore bodies #10, 11 and 12. About 1,875 metres of core were logged and 577 samples were extracted and assayed.

Work continues on the planned expansion of Valunisty's processing plant capacity from 250k tonnes to 350k tonnes of ore per year, and for the initiation of underground mining. Principal design work, technical inspections of the processing plant buildings and their foundations, the development of high-level mining options, and calculations for mining equipment costs were among the tasks advanced during Q1 2020. Tender procedures were adopted for the procurement of equipment for the mill expansion. 

The Company published the scope of work for an environmental impact study. Public hearings on the subject are scheduled for the second and third quarters of this year.

 

Kekura

Highland Gold conducted the first gold pour at Kekura on 10 March 2020. The inaugural gold bar, weighing 46 ounces, was produced at the mine’s pilot processing plant following renovations to the facility last year and commissioning work over the course of Q1 2020. Initial stripping and ore mining at Kekura began last October.

The pilot processing plant has the capacity to treat 120 thousand tonnes of ore per year with test work showing recoveries of around 35%. Middlings from the pilot plant will be stored for eventual treatment at Kekura’s main processing plant, which is due for completion in late 2022.

About 8,500 tonnes of cargo were due for delivery from sea ports to the Kekura site during the current winter road season to support construction and mining efforts. Around half that amount made it to site in Q1 2020 with the remainder being delivered in early Q2. The total includes 1,900 tonnes of fuel as well as the mill for the main processing plant and 320 modules for construction of the expanded camp. Everything needed for the 2020 construction season is currently on site or in transit.

Other developments during the quarter included:

  • Additional construction permits for the project were received;
  • Tenders continued for construction materials to be delivered to port during the 2020 navigation window;
  • The Kekura power substation was certified for operation by regulators;
  • Open pit design documentation was drafted for submission to the State Expert Panel for review; and
  • Public hearings were held to review stage 2 design solutions, with local residents signing off on the Company’s construction plans. 

In addition, contracts were signed for the supply and installation of a second communications tower, a surveillance system for the assay laboratory, and a communications system for the power substation.

 

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 Q1 2020, the Lost Time Incident Frequency Rate (LTIFR), calculated as the number of incidents for every 1,000,000 man-hours, was 2.47 compared to 3.16 in Q1 2019. Five lost-time incidents were registered across the Company, including one at Novo and two each at MNV and Belaya Gora, an improvement over six incidents including three fatalities during the same period last year (one at Belaya Gora and five at Novo).

Managers and specialists at Valunisty, Kekura, MNV, Belaya Gora and Novo attended multiple training courses during the quarter. A course on “Efficient methods of safety management - Behavioural Safety Audits” was attended by 122 people; “Internal Incident investigations” - 79 people; “Risk Assessment” - 70 people; and “Conscious Safety Attitude” - 8 employees from Kekura and 22 from Novo.

The management-level HSE Committee held its regular meeting during the quarter and set new safety targets and principals for implementation throughout the Company.

Management also reviewed the results of an external audit of the safety management system carried out in the latter part of last year. The audit affirmed the general direction of Highland Gold’s health and safety policy, but offered some corrections to improve its implementation across the Company’s operations. An action plan based on those recommendations has already been adopted.  

The Company maintains auxiliary mine rescue teams on alert at each of its mines with a view to ensuring their preparedness to participate in resolving emergency situations. They were not called upon during the quarter.

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. There were no environmental incidents to report in Q1 2020.