Q2 2020 Operating Results

09 July 2020 

Highland Gold Mining Limited ("Highland Gold" or the "Company", AIM: HGM) today reports its operating results for the three months ended 30 June 2020 ("Q2 2020").

HIGHLIGHTS 

  • Highland Gold’s four operating mines produced a total of 61,357 oz of gold and gold equivalent in Q2 2020, in-line with production forecasts for the quarter (Q2 2019: 70,293 oz).
  • For the first half of the year (“H1 2020”), total production was 125,347 oz of gold and gold equivalent, also in-line with internal production targets (H1 2019: 142,254 oz).
  • The Company affirms its guidance for total production of 290,000-300,000 oz of gold and gold equivalent in 2020.
  • Mnogovershinnoye (MNV) and Valunisty increased waste stripping by 101% and 35%, respectively, in H1 2020 in preparation to access higher-grade open pit reserves in the second half of the year.
  • Equipment is on-site and buildings are currently being erected for the processing plant expansions at Novoshirokinskoye (Novo) and Belaya Gora, with both projects on track for completion this year.
  • Kekura construction also continues as scheduled, with several second phase facilities in progress including the main processing plant and the camp expansion.
  • Construction has begun on the Baley ZIF-1 Tailings heap leach project, which is expected to produce first gold in 2022 with average annual output of 15,000 oz over 11 years.
  • Production, sales and supply chain were not materially affected by the COVID-19 pandemic, as outlined in the pandemic response statement issued by the Company on 29 June 2020.
  • The average realised gold price was US$ 1,723 per ounce in the second quarter and US$ 1,655 in the first half of the 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)

Tom Rider, Pascal Lussier Duquette, Neil Elliot

+44 (0) 207 236 1010

Peat & Co

(Joint Broker)

Charlie Peat

+44 (0) 207 104 2334

 

KHABAROVSK REGION, RUSSIA 

Mnogovershinnoye (MNV) 

  • Waste stripping increased by 94% in Q2 2020 year-on-year and 101% in H1 2020 as MNV prepared to access high-grade mineralisation zones in the Intermediate ore body in H2 2020 and to develop new areas of the Quiet ore body in 2021
  • The average grade of ore mined in the second quarter increased by 5% year-on-year and the volume of mined ore increased by 4%, however, stockpile blending at the RomPad resulted in a lower head grade at the mill which led to a 6% decline in gold production

MNV

Units

Q2 2019

Q2 2020

H1 2019

H1 2020

Waste stripping

t

1,441,361

2,810,631

2,635,346

5,298,765

Underground development

m

3,087

2,892

5,570

5,835

Open-pit ore mined

t

87,497

44,255

176,189

61,233

Open-pit ore grade

g/t

2.41

3.20

2.38

3.13

Underground ore mined

t

188,990

202,179

380,334

400,601

Underground ore grade

g/t

3.83

4.09

4.01

3.77

Waste dumps ore mined

t

90,447

131,509

146,249

163,063

Waste dumps ore grade

g/t

1.10

1.11

1.10

1.09

Total ore mined

t

366,934

377,943

702,772

624,897

Average grade

g/t

2.82

2.95

2.99

3.01

Ore processed

t

364,380

359,335

704,252

694,349

Average grade

g/t

2.68

2.58

2.92

2.58

Recovery rate

%

91.6

92.0

91.7

91.8

Gold produced

oz

28,728

26,999

59,317

52,721

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. Construction on the Tier-3 tailings dam began in Q2 2020, with initial work by contractor Zoloto Plyus LLC focused on dam bedding compaction and bund wall construction. Spetspromstroy LLC will begin work on the second part of those areas in July, while Avik LLC is currently reinforcing the dike of the Tier-2 tailings dam.

Exploration work at MNV in Q2 2020 focused on grade control drilling of the mine’s historic waste dumps, which continue to supply material of over 1.1 g/t to top up volumes at the processing plant. Over 1,100 metres of drilling was completed by the end of the quarter.

Also in Q2 2020, the Company submitted updated Russian-standard reserve estimates for the Intermediate and Deer ore bodies to regulators for mining approval, which is expected to come in July. The estimates are based on grade control drilling conducted last year and include reserves targeted for underground mining at the Deer ore body. Regulators have already signed off on reserve reports for the Pebble ore body during the quarter.

Belaya Gora                          

  • Belaya Gora reduced its stripping ratio by 36% in Q2 2020 thanks to cutbacks on the upper levels of the open pit that were completed in 2019
  • Ore mining increased by 55% year-on-year as the mine reduced reliance on ore from stockpiles
  • Processing plant throughput increased by 6.3% year-on-year due to on-time scheduled maintenance and reduced unscheduled downtime
  • The recovery rate during the quarter was 75%, which is 2.5% higher year-on-year due to an increase in the average grade of processed ore and better control over the level of metal lost in tailings

Belaya Gora

Units

Q2 2019

Q2 2020

H1 2019

H1 2020

Waste stripping

t

2,872,141

1,859,545

4,506,796

4,305,215

Ore mined

t

311,323

570,889

1,016,752

1,304,656

Average grade

g/t

0.82

0.86

0.88

0.87

including:

 

 

 

 

 

-        Ore Au >0.6 g/t*

t

169,163

380,331

633,064

865,297

-        Average grade

g/t

1.07

1.06

1.11

1.11

-        Ore Au 0.3-0.6 g/t*

t

142,160

190,558

383,687

439,359

-        Average grade

g/t

0.53

0.46

0.50

0.40

Ore from stockpiles

t

179,796

-

211,469

-

Average grade

g/t

0.83

-

0.84

-

Ore processed

t

345,983

367,067

778,784

730,565

Average grade

g/t

0.87

0.93

1.03

0.99

Recovery rate

%

73.1

75.0

74.9

76.0

Gold produced

oz

6,546

8,172

18,322

17,826

* 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.

Equipment for the new processing plant circuits arrived on site in Q2 2020. The sorption/elution and pre-leach circuit equipment is undergoing testing and preparation for installation, while the electrowinning circuit has already been installed. Materials for auxiliary buildings to house the sorption/elution circuit and pre-leach circuits are also on-site and the pouring of foundations and assembly of steel structure are in progress.

Geological exploration at Belaya Gora is focused on the flanks of the mine, which include the Kolchanka, Zayachiy and Ogorodny zones. Prospecting on Kolchanka and Zayachiy concluded in 2019 and resulted in the addition of new reserves totalling 2.1 million tonnes of ore at 1.1 g/t, containing an estimated 76,000 oz of gold. The new reserves were reported in the Company’s updated JORC reserve statement in the 2019 Annual Report published in May of this year.

A new exploration programme through 2023 is now in progress after being approved by regulators in February. Work is currently focused on the Ogorodny zone, where drilling began in March and continued throughout Q2 2020.

 

ZABAIKALSKY REGION, RUSSIA 

Novoshirokinskoye (Novo) 

  • Ore mining increased by 26% year-on-year in Q2 2020 and by 19% for H1 2020
  • Ore processing likewise increased by 4.5% in Q2 2020 and by 3.3% in H1 2020
  • Mined grades continued to be lower year-on-year, as expected, due to the accessing of lower grade stopes 

Novo

Units

Q2 2019

Q2 2020

H1 2019

H1 2020

Underground development

m

2,570

2,412

5,295

4,958

Ore mined

t

191,077

240,815

411,175

490,509

Average grade*

g/t

5.16

3.10

4.53

3.38

Ore processed

t

201,963

211,071

414,321

428,110

Average grade*

g/t

5.30

3.31

4.73

3.58

Recovery rate*

%

79.8

76.5

79.0

77.7

Gold produced*

oz

27,453

17,163

49,742

38,298

*  Gold equivalent calculated at actual prices

(Metal grade of mined ore = Au 2.23 g/t, Ag 41.55 g/t, Pb 0.88 %, Zn 0.41 %, 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 lower grades. 

In Q2 2020, construction work continued on the skip hoist, ventilation system, and heating facilities, which are all designed to support increased output from the mine. Construction of a new building for the pre-concentration circuit at the processing plant is progressing steadily. Additionally, design work continued for the expansion of Novo’s tailings dam, an underground water pumping facility, and a new water treatment facility.

The Company’s geologists have initiated an exploration programme on the flanks and lower levels of the Novo deposit. The aim of the drilling is to improve knowledge of the deposit’s remaining reserves and to verify grades for future production planning.

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

Construction commenced on the Baley ZIF-1 Tailings project in Q2 2020. The project entails building 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. The project has been granted residency status in the Zabaikal Advanced Special Economic Zone (ASEZ), which will confer a range of tax benefits once production begins.

Contractors have been mobilised for the first phase of construction, including conducting earthwork at the site, removing topsoil, and installing poles for overhead wiring. Potential vendors for processing equipment are currently being evaluated.

Also in Q2 2020, Highland Gold’s project bureau, Zabaikalzolotoproekt, worked with in-house specialists on updated scoping studies for the Taseevskoye and Sredny Golgotay deposits, and initial drafts are now under review. A scope of work for geo-metallurgical mapping of Taseevskoye has been drafted and a request for proposals issued. That work will be followed by the drafting of a pre-feasibility study, including geological, technical, metallurgical, hydro-geological and other studies.

Lyubavinskoye (Lyubov) 

From October 2019 through March 2020, contractor Areal Resurs carried out drilling on the Evgraf prospect as part of a small exploration programme. The Evgraf prospect is characterised by stockwork-type mineralisation where gold is associated with disseminated quartz-sulphide veinlets localised within a granitic stock and surrounding shales. It has been the focus of most of the Company’s exploration work on the Lyubov licence area.

The exploration programme was designed to confirm the deposit’s known resources, based on prospecting carried out in 2008-2011, and to identify any additional mineralisation on the flanks and lower horizons of the ore body. A total of 6,334 metres over 43 wells were drilled at the site, thereby reducing the interval between exploration holes to 25 x 25 metres.

In Q2 20202, SGS Vostok Ltd. completed laboratory work on the samples from the drilling programme. The results confirmed that the deposit has complex mineralisation and the tighter drilling interval substantially improved the understanding of the ore body. In-house estimates based on the results and an updated block model show a notable improvement in grade over previous resource estimates, resulting in the potential addition of over 62,000 oz of gold to Lyubov’s measured, indicated and inferred resources.

2012 Assessment (JORC)

Measured, Indicated and Inferred Resources

2020 Estimate

Measured, Indicated and Inferred Resources

Ore
(k tonnes)

Average grade Au (g/t)

Contained Au

(oz)

Ore
(k tonnes)

Average grade Au (g/t)

Contained Au

(oz)

11,247

1.34

484,287

11,192

1.52

546,916

 

CHUKOTKA, RUSSIA 

Valunisty

  • Waste stripping increased by 21.7% in Q2 2020 and 34.7% in H1 2020, year-on-year, as mining moved to lower levels of ore body № 12 in the mine’s Novaya zone, where higher-grade ore of around 6 g/t is now being accessed
  • Ore mining volumes rose by 21% in Q2 2020, while ore processing was also slightly higher.

Valunisty

Units

Q2 2019

Q2 2020

H1 2019

H1 2020

Waste stripping

t

   1,442,078

1,753,868

  2,467,662

3,325,703

Ore mined

t

91,319

110,498

134,415

166,185

Average grade*

g/t

2.79

2.82

2.76

2.85

Ore processed

t

68,986

71,335

131,593

136,427

Average grade*

g/t

3.21

3.61

3.37

3.44

Recovery rate

%

95.6

96.4

95.2

95.9

Gold produced*

oz

7,566

9,023

14,873

16,502

* Gold equivalent, calculated at actual prices, including silver

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 commencement of underground mining. Design work and engineering studies for both projects advanced during Q2 2020. The Company also initiated tenders and began purchasing equipment for the processing plant expansion.

Both the processing plant and underground mining projects were subjected to public hearings during the quarter and received approval from the local community. Documentation for both projects is now being prepared for state environmental expert review.

Valunisty’s grade control drilling programme continued during the second quarter, focused on the southern part of the Novaya zone. In total for H1 2020, the Company drilled 4,893 metres over 47 holes and extracted 1,602 core samples for analysis. To date, results are back from the laboratory on 703 assay tests.

Kekura

Initial stripping and ore mining at Kekura, which began last October, continued in Q2 2020. A series of trials is currently in progress to define optimal mining parameters in line with international best practice for ore block excavation, including various drill & blast and selective mining techniques. Blast Movement Technologies (BMT) will also be trialled in August to measure ore displacement and minimise ore loss and dilution.

Work during the quarter also continued on ramping up the mine’s pilot processing plant, which poured its first gold in March of this year. The pilot 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.

On 29 June 2020, ore from Block P6_1160 mine block arrived at the pilot processing plant and, on observation, a significant amount of free gold was identified with various sized particles including a number of nuggets in the ore material. The largest nugget measured 1.5 x 2.8 mm with a weight of 4.28 g. The total weight of nuggets of different sizes and shapes in only one sample of mill feed per shift was 10.32 g. The gold is associated with iron hydroxides.

Some 8,500 tonnes of cargo were delivered from seaports to Kekura during the current winter road season in Q1 2020 and early Q2 2020 in order to support construction and mining efforts. 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.

Other developments during the quarter included:

  • Additional construction permits for the project were received;
  • Construction work on the main processing plant got underway, including groundwork and foundations;
  • Modular buildings for the expanded camp were assembled, including two dormitories for 150 beds and a new canteen with the capacity to seat 152 people;
  • The overheard power line network across the site was completed; and
  • Detailed designs were prepared for the repair shop and hazardous chemicals storage facility.

The manufacturing of steel structures and additional equipment for the main processing plant and repair shop was accelerated during the quarter with the aim of having them delivered to port in Chukotka during the 2020 navigation window for further shipment to site by winter road in early 2021.

Kayenmivaam (Kayen)

On 02 June 2020, Highland Gold announced that it had entered into an agreement for the sale of Kayen, an early-stage gold exploration property received as an add-on to the Valunisty acquisition in December 2018. The Company will sell its wholly-owned subsidiary SVGGK LLC, holder of the Kayen license, to an unrelated party for US$15 million to be paid in two equal instalments, the first at closing and the second following the legal transfer of shares. In addition, the Company will receive a 2% royalty on gold produced and sold from the deposit in excess of 500,000 ounces for a period of 30 years. The transaction is subject to approval by Russia’s Federal Anti-Monopoly Service and is expected to be completed later this year. 

 

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 2020, the Company recorded a Lost Time Incident Frequency Rate (LTIFR), calculated as the number of incidents for every 1,000,000 man-hours, of 1.12, a substantial improvement versus the LTIFR of 2.5 in Q2 2019. Two workplace injuries were registered during the quarter, both at MNV, compared to three injuries (one each at MNV, Belaya Gora and Valunisty) and one fatality at Novo in Q2 2019.

A key focus of the HSE team during the quarter was the Company’s response to the COVID-19 pandemic. In addition to the corporate task force operating from the Moscow office, coronavirus task forces are in action at each production site. The Company published a detailed report on its pandemic response on 29 June 2020.

As part of that response, the Company developed a distance learning programme on corporate standards, including compulsory training on HSE topics, for employees residing at each mine’s pre-shift Observation Centres. Employees are expected to complete the training before they begin their shift rotation.

Despite the logistical challenges due to many people working remotely or in lockdown, the Company was able to go ahead with a new initiative entitled Safety Day. The event, which will be held annually, is designed to recognise people, teams and initiatives that contribute toward measurable improvements in the Company’s HSE performance. During a ceremony broadcast live online across each office and production site on June 11, CEO Denis Alexandrov announced the winners in several HSE categories at each subsidiary, who received prizes including monetary rewards.

In May and June, Safety Management System audits were conducted at Novo, MNV, Belaya Gora, Valunisty and Kekura. Based on the audit results, each subsidiary is developing action plans for continued roll-out of the system. This is being coupled with a broad risk assessment programme to create a register of risks for each production site.

Environment 

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 Q2 2020.

There were 124 internal audits of environmental management systems at the Company’s operations in Q2 2020 to ensure compliance with environmental legislation. In cases where deficiencies were identified, action plans were prepared based on the audit results to address the root causes of any violations.

Over the course of the quarter, 1,608 employees received general environmental training, 74 employees underwent training and testing in management of hazardous waste, and 77 managers and specialists had skills improvement training in outside environmental training centers.

***

Mr. Andrey Sevryugin, Senior Specialist in the Geology and Subsoil Use Department at Highland Gold, has reviewed and verified the information contained in this release with respect to mineral resources. Mr Sevryugin is an Expert of the Russian Society of Subsoil Use Experts (OERN) and has sufficient experience relevant to the style of mineralisation and type of deposit under consideration to qualify as a Competent Person as defined in the JORC Code 2012 Edition.

Glossary      

JORC - Widely accepted standard for reporting mineral resources and ore reserves established by the Australasian Joint Ore Reserves Committee.

Mineral Resource - concentration or occurrence of solid material of economic interest in or on the Earth's crust in such form, grade or quality and quantity that there are reasonable prospects for eventual economic extraction. The location, quantity, grade or quality, continuity and other geological characteristics of a Mineral Resource are known, estimated or interpreted from specific geological evidence and knowledge, including sampling.

Measured Resource - that part of a Mineral Resource for which tonnage, densities, shape, physical characteristics, grade and mineral content can be estimated with a high level of confidence.  It is based on detailed and reliable exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes.  The locations are spaced closely enough to confirm geological and grade continuity.

Indicated Mineral Resource - that part of a Mineral Resource for which quantity, grade or quality, densities, shape and physical characteristics can be estimated with a level of confidence sufficient to allow the appropriate application of technical and economic parameters, to support mine planning and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable exploration and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough for geological and grade continuity to be reasonably assumed.

Inferred Mineral Resource - that part of a Mineral Resource for which quantity and grade or quality can be estimated on the basis of geological evidence and limited sampling and reasonably assumed, but not verified, geological and grade continuity. The estimate is based on limited information and sampling gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes.