Acquisition of Chukotka Assets - highlandgold.com · Highland Gold Mining Ltd. (“Highland...
Transcript of Acquisition of Chukotka Assets - highlandgold.com · Highland Gold Mining Ltd. (“Highland...
Acquisition of
Chukotka Assets
April 2018
Disclaimer
2
Certain statements within this presentation constitute forward looking statements. Such forward looking statements involve risks
and other factors which may cause the actual results, achievements or performance of the Group to be materially different from
any future results, achievements or performance expressed or implied by such forward looking statements. Such risks and other
factors include, but are not limited to, general economic and business conditions, changes in government regulations, currency
fluctuations, the gold price, the Group’s ability to recover its reserves or develop new reserves, competition, changes in
development plans and other risks.
There can be no assurance that the results and events contemplated by the forward looking statements contained in this
presentation will, in fact, occur. These forward-looking statements are correct or represent honestly held views only as at the
date of delivery of this presentation.
The Company will not undertake any obligation to release publicly any revisions to these forward looking statements to reflect
events, circumstances and unanticipated events occurring after the date of this presentation except as required by law or by
regulatory authority.
Nothing in this presentation constitutes an offer, invitation, recommendation to purchase, sell or subscribe for any securities in
any jurisdiction or solicitation of any offer to purchase, sell or subscribe for any securities in any jurisdiction and neither the issue
of the information nor anything contained herein shall form the basis of or be relied upon in connection with, or act as any
inducement to enter into, any investment activity.
…
Total cash costs include mine site operating costs such as mining, processing, administration, royalties and production taxes,
but are exclusive of depreciation, depletion and amortization, capital and exploration costs. Total cash costs are then divided by
ounces sold to arrive at the total cash costs of sales. This data provides additional information and is a non-IFRS measure. In
line with guidance issued by the World Gold Council, the formula used to define all-in sustaining cash costs measure
commences with total cash costs per ounce sold and then adds sustaining capital expenditures, corporate general and
administrative costs, mine site exploration and evaluation costs and environmental rehabilitation costs. This data seeks to
represent the total costs of producing gold equivalent from current operations, and therefore it does not include capital
expenditures attributable to projects or mine expansions, exploration and evaluation costs attributable to growth projects,
income tax payments, interest costs or dividend payments.
Transaction Overview
3
Proposed transaction
Highland Gold Mining Ltd. (“Highland Gold”, “Highland” or “HGM”) to acquire certain assets in the
Chukotka region (collectively, “Acquisition Assets”)
A related party transaction with 100% of the acquired assets belonging to the concert party1
Consideration
Acquisition Enterprise Value of US$91m, comprising:
- $79 m in Highland Gold shares (issued at 20 day VWAP ending 23 April 2018)
- Assumption of $12 m of existing net debt3
NAV of $131 m2
Conditions
Highland Gold independent shareholder vote for “Whitewash” waiver from mandatory general offer
otherwise required under the Takeover Code (50% of independent shareholder votes cast)
Shareholder loan conversion
Transaction approval by the Federal Antimonopoly Service (FAS)
Transaction approval by the Foreign Investment Advisory Council (FIAC)
Post-deal shareholder
structure
Concert party – 44.1%4
Institutional and Retail Shareholders – 55.9%4
Vendors locked in for 6 months
Indicative timeline
Transaction announcement / mailing of Circular - 26 April 2018
Shareholder meeting – 24 May 2018
Closing expected in Q3-Q4 2018
1. Board of Directors, management and affiliated parties
2. Estimate based on PFS results prepared by CSA Global. Valuation as at 01.01.2018 applying 8% discount rate less $12 m net debt and $10 m Q1 2018 cash flow adjustment. Includes inferred
resources of 505 koz AuEq valued at $50/oz
3. As at 20.04.2018, excluding shareholder loans (to be converted before closing) and including value of finished precious metals
4. Assuming HGM share price of GBp146 (20 day VWAP) and USD/GBP exchange rate of 1.39 as at 23.04.2018 at 4.30pm
Diversified portfolio of high-quality assets with solid growth project pipeline
Valunisty: well established long-life operation (11 years) with significant underground potential
KAP: a number of satellite deposits and exploration targets including recently commissioned Gorny mine (combined resource base
of 571 koz AuEq)
Kayen: prospective 1,214 km2 exploration area located only ~130 km from Kupol, the second largest gold mine in Russia1
Corporate and operating synergies
Strengthening footprint in the core region of Chukotka
Leveraging Highland management team’s successful track record of running Valunisty operations
Cost savings via improving logistics (joint use of Highland’s Vladivostok logistics center)
Further operational optimisation potential through Highland’s expertise
Attractively valued and cash flow enhancing
Value accretive on key operational and financial metrics (NAV, production, cash return to shareholders and adjusted EPS)
Attractive P/NAV ratio for a producing asset 0.60x
Cementing Highland’s status as a peer-leading dividend payer
High-grade resource and reserve base
Ore Reserves: 554 koz of AuEq at 5.1 g/t (JORC 2012)2
Mineral Resources: 1,723 koz of AuEq at 3.0 g/t (JORC 2012)2
Substantial opportunities for resource-to-reserve conversion
Attractive production growth
Immediately increases Highland Gold’s production by 11% to ~300 koz3
Boost in production following the processing plant upgrade (to 350 ktpa) and underground mining commissioning at Valunisty
Strategic Rationale
4
1. In terms of production for 2016
2. As at 01.01.2018 (CSA Global)
3. Based on 2017: 272 koz for Highland and 31 koz AuEq for Valunisty (2018E production – 41 koz as per budget)
127
105
131
(12)
(10)
25
NPV, as at 31 Dec 2017(Valunisty and
Gorny reserves)
Net debt, as at20 Apr 2018
FCF forQ1 2018
EV/Resources(KAP inferred
resources)
NAV
Sum-of-The-Parts Valuation
5
SOTP Valuation KAP Valuation
KAP Valuation
KAP inferred resources, koz AuEq 505
@ HGM EV/Resources multiple 50
KAP resources valuation, $ m 25
Reserves and
ResourcesOre
AuEq
Grade
AuEq
contained
(kt) (g/t) (koz)
Valunisty O/P 1,700 3.9 215
Valunisty U/G 1,488 6.4 305
KAP (Gorny) 209 5.2 35
Reserves 3,397 5.1 554
(reflected in the NAV / financial model)
Valunisty 11,600 3.1 1,152
KAP Indicated 571 3.6 66
KAP Inferred 5,427 2.9 505
(valuation based on the EV/Resources multiple)
Resources 17,598 3.0 1,723
$ m
1. Not accounted for in the financial model and JORC-compliant Ore Reserves
2. As at 20.04.2018, excluding shareholder loans (to be converted before closing) and including value of finished precious metals
2
Assets’ Brief Overview
6
Project Location
JORC Reserves and Resources
Overview
KAP License Area
Located in Chukotka, a well established gold district where
Highland Gold already has a significant strategic presence
(Kekura, Klen)
Valunisty mine
Located within the boundaries of KAP license area
Significant supporting infrastructure:
– 110 kV grid to site
– Site access via seasonal roads from the port of Egvekinot
(~250 km)
Production ’17 - 30.8 koz1; Mine life - 11 years
Reserves of 554 koz at 5.1 g/t AuEq as at 01.01.2018
Kanchanalo-Amguemskaya Area (KAP)
Resource base for the Valunisty mill with significant exploration
potential
Mineral Resources - 0.6 moz at 3.0 g/t AuEq
Kayenmivaam (Kayen)
Prospective ~1,214 km2 exploration target with ~30 km drilled to
date
1. Operating performance distorted due to power supply disruptions in 2017
Zhilny (21.8 km)
Shakh (12.2 km)
Gorny (18.2 km)
Valunisty
mine area
KAP license
Valunisty Mill
Mines
License areas
Roads
Osenny
(~30 km)
KlenBilibino
Kekura Kupol
Anadyr
Dvoinoye
Mayskoye
Egvikinot (port)
Pevek
Kayen
Highland deposits
Deposits / exploration
areas to acquire
Operating mine
Airport
Port
Major settlements
Ugolnye Kopi
Egvekinot to Vladivostok
(~4,900km, Jul - Oct)
Planned road
Winter road(Jan - Apr)
Road from Valunisty to Egvikinot(Winter 290 km, Jan - Apr)(Summer 220 km, Jul - Oct)
Valunisty / KAP
Existing powerline
(Valunisty-Egvikinot)
Planned powerline
(Anadyr-Valunisty)
Roads / planned roads
Water routes
Summer road(Jul - Oct)
Omolon
Karalveem
Grand Total Ore AuEq
Grade AuEq AuEq
(kt) (g/t) (kg) (koz)
Valunisty O/P (probable) 1,700 3.9 6,686 215
Valunisty U/G (probable) 1,488 6.4 9,480 305
KAP (Gorny) (P&P) 209 5.2 1,078 35
Reserves 3,397 5.1 17,244 554
Valunisty (I&I) 11,600 3.1 35,837 1,152
KAP (I&I) 5,998 3.0 17,756 571
Resources 17,598 3.0 53,593 1,723
7
Gorny
Status Pilot mining
Distance from the mill 18 km
Mine type O/P
Commodities Gold-Silver
Production ’18E 15.7 koz
TCC ’18E $340/oz
Reserves3 35 koz @ 5.2 g/t
Resources3 309 koz @ 2.6 g/t
LoM 2018 (pilot mining)
Significant high-grade resource
base with limited capex
Only 18 km from the mill
Pilot mining is under way
In-fill drilling expected in 2018-2019
with further reserve expansion
Full-scale mining operation
expected in 2019
Significant tax reliefs (ASEZ)
Key highlights
Shakh
Status Resource Estimate
Distance from the mill 12 km
Mine type O/P
Commodities Gold
Resources N/A
Drilling to date 9 km
LoM N/A
Expected launch 10 years+
Promising exploration area in close
vicinity to Zhilny
Currently 27 quartz veins identified
Further drilling planned
Mining to commence after Valunisty
and Gorny are depleted
Key highlights
Valunisty
Established long-life operation with
high-grade reserve base
Production since 1999
~470 koz produced to date4
Established infrastructure in place
Significant decrease in production
costs following processing plant
ramp-up and start of U/G mining in
2020
ASEZ tax reliefs to support cash
generation from U/G operations
Key highlights
Status Production
Distance from the mill On site
Mine type O/P, U/G1
Commodities Gold-Silver
Production ’17 30.8 koz
TCC ‘16 $709/oz
TCC ‘172 $887/oz
Reserves3 520 koz @ 5.1 g/t
Resources3 1,152 koz @ 3.1 g/t
LoM 2028
Zhilny
Significant Ag credits
Large resource base (262 koz
AuEq) to support mine life
extension
Additional metallurgical test works
to be completed in 2018
Mining to commence after Valunisty
and Gorny are depleted
Key highlights
Status Resource Estimate
Distance from the mill 21 km
Mine type O/P
Commodities Silver-Gold
Reserves N/A
Resources3 262 koz @ 3.5 g/t
LoM N/A
Expected launch 10 years+
Production Resource Estimate
Well-known and established operations with significant cost reduction and exploration potential
Diversified Portfolio of High Quality Assets
Note: reserves and resources are on gold equivalent basis
1. Underground mining to commence in 2020
2. According to Russian Accounting Standards, IFRS accounts are yet to be released
3. Ore Reserves and Mineral Resources in gold equivalent in accordance with JORC, as at 01.01.2018 (CSA Global)
4. Data available from 2006 only as per Valunisty’s management
5. As per Valunisty’s management, not verified by Highland
Kayen
Status Exploration
Total area 1,214 km2
Drilling to date ~23.3 km
Historical cost to date $15.3 m5
Over 30 km of drilling
Contains a number of exploration
targets with multiple geochemical
anomalies
No JORC-compliant resource yet
Key highlights
Exploration
Successful Track Record of Optimizing Operations with
Upside Remaining
8
In March 2015, Auriant Mining with Denis
Alexandrov as CEO was awarded a
management contract for Valunistiy
Measures introduced to improve Valunistiy
operational efficiency and financial
performance:
Permanent permit on mining operations
received
Shift to own blasting operations
Mining equipment upgraded
Exploration work by own drilling rig at
KAP
Strengthened management team
1
TCC $1,448/oz $709/oz
Valunisty 2014 Valunisty 2016
Production 26 koz 33 koz
Cash return to
shareholders1$2.9 m $5.3 m
EBITDA ($3.8 m) $17.6 m
Note: production on gold equivalent basis, all historical data derived from IFRS accounts
1. Net repayments on shareholders debt for KAP LLC and Valunisty LLC
FCF ($1.4 m) $9.6 m
2
3
4
5
15.68 15.54
Highland Valunisty incr.
HGM Acquisition Assets incr.
0.8370.044
0.833
0.881
Highland Valunisty incr. Pro-forma avg'18-28E
HGM Acquisition Assets incr.
27231 48
303 321
Highland Pro-forma Pro-forma avg '18-28E
HGM Acquisition Assets
Pro Forma ImpactValue accretion and enhanced dividend distribution
Note: Mineral Resources and Ore Reserves are in accordance with JORC
1. For HGM dividends paid; for Valunisty net repayments on shareholders debt for KAP LLC and Valunisty LLC
2. Production ‘17 for HGM and CSA Global estimate for Valunisty (LoM)
3. Assumes the issue of 38.6 m shares, based on an equity valuation of US$79 m and 20-day VWAP of 146p per HGM share as at 23.04.2018
Estimated 11% uplift in production – Highland Gold becomes a ~300koz pa gold producer
9
43.6 11.5
55.1
Highland Pro-forma
HGM Acquisition Assets
Cash return to
shareholders1, ’17 $ m
Pro-forma
0.1340.017
0.151
Highland Valunisty incr.
HGM Acquisition Assets incr.
Cash return to
shareholders1 ‘17, $ per share3
Pro-forma
Gold Production, ’17 koz
Pro-forma Pro-forma
avg ’18-28E2
Production ’17, oz per ‘000 shares3
Pro-formaPro-forma
avg ’18-28E2
5.10.6
5.7
Highland Pro-forma
HGM Acquisition Assets
Reserves, moz
Pro-forma
Reserves, oz per ‘000 shares3
Pro-forma
44.1%
55.9%
10
Supportive Shareholder Base
1. Board of Directors, management and affiliated parties2. Assuming HGM share price of GBp146 and USD/GBP exchange rate of 1.39 (20 day VWAP) as at 23.04.20183. Assuming new shareholders will join relationship agreement
Transaction will result in increase of concert party’s stake from 37.4% to 44.1%
Increase of concert party’s
stake in HGM by 6.6%
37.4%
62.6%
Concert party
Free float
HGM Pre-Transaction Ownership
1
HGM Post-Transaction Ownership2,3
Valunisty Mine Overview
12
Located ~250 km from the port of Egvekinot
within the boundaries of KAP license area
Favorable processing (CIP) supporting high
recoveries
11-year mine life
Processing plant ramp-up to 350 ktpa expected
by 2020
110KV grid power to site
Camp facilities with capacity for 350 workers
The orebody is a narrow steeply dipping vein
hosted deposit
Ore Reserves1 - 520 koz at 5.1 g/t AuEq
Mineral Resources1 - 1.2 moz at 3.1 g/t AuEq
Valunisty MineProducing mine with established infrastructure
Historical performanceTailings storage facility
Accommodationblock
No
vaya
Zo
ne
Novaya open pit
Slurry pond
Plant site
Glavnaya Zone
Open pit #2
Open pit #1
0 5 10km
110/35kVsubstation
General Layout Overview
1. As at 01.01.2018 (CSA Global)
2. Based on FY 2017 Russian Accounting Standards, IFRS are yet to
be released
2014 2015 2016 2017
Production (koz AuEq) 26 35 33 31
Head Grade AuEq (g/t) 3.9 4.7 4.6 4.6
Au recovery (%) 94.5% 95.3% 95.9% 95.6%
TCC ($/oz) 1,448 842 709 8872
AISC ($/oz) 1,485 975 790 1,0062
13
Valunisty MineProducing mine with established infrastructure (Cont’d)
Processing Plant Mine Site
Mining Operations Open Pit (Novaya Zone)
TO REPLACE - RCH
Valunisty MineEstablished open pit operations with significant underground upside
14
Open Pit Mining Underground Mining
Mining operations since 2003
Remaining mine life - 11 years
Deposit divided into two main zones: Novaya and
Glavnaya
Open pit operations to be reduced to ~100 ktpa the
underground mining commissioning
CAPEX 2017 – $2.3 m
TCC 2017 – $887/oz1
Ore Reserves2 – 215 koz at 3.9 g/t AuEq
Existing Open Pits
To commence in 2020
Mine life of 8 years
Highly selective shrinkage stoping is considered a
preferred mining method for the deposit
Target production rate – 250 ktpa
Initial capital expenditure – $26m
Significant tax relief (ASEZ) to be applied (the
agreement signed in 2016)
Ore Reserves2 – 305 koz at 6.4 g/t AuEq
Underground Mine Design
1. Financial performance distorted due to power supply disruptions in 2017
2. As at 01.01.2018 (CSA Global)
Novaya Zone
Glavnaya Zone
Key Operating Metrics Commentary
1. Starting from 20202. Brokers’ long-term consensus
Key Financial MetricsUnit LoM
TCC $/oz 697
AISC $/oz 812
NPV@8% $ m 127
15
Valunisty MinePFS results: large reserve base and robust economics
Gold Price ($/oz)
$m $1,050 $1,100 $1,150 $1,200 $1,250 $1,3002 $1,350 $1,400 $1,450 E
xch
an
ge
ra
te (
US
D/R
UB
)
56.0 $50 $66 $81 $97 $111 $126 $140 $155 $169
57.0 $55 $70 $86 $101 $116 $130 $145 $159 $173
58.0 $59 $75 $90 $105 $120 $134 $149 $163 $177
59.0 $63 $79 $94 $109 $124 $138 $152 $167 $181
60.0 $68 $83 $98 $113 $127 $142 $156 $171 $185
61.0 $72 $87 $102 $116 $131 $145 $160 $174 $189
62.0 $75 $91 $105 $120 $135 $149 $163 $178 $192
63.0 $79 $94 $109 $123 $138 $152 $167 $181 $196
64.0 $83 $98 $112 $127 $141 $156 $170 $185 $199
NPV Sensitivities
Open pit
Unit LoM
Waste mt 43
Strip ratio t/t 23
Ore mined mt 1.9
Avg grade, AuEq g/t 4.0
AuEq contained koz 245
Mine life years 11
Underground
Unit LoM
Capital development ‘000 m3 239
Ore mined mt 1.5
Avg grade, AuEq g/t 6.4
AuEq contained koz 304
Mine life years 8
Total
Unit LoM
Ore mined mt 3.4
Avg grade, AuEq g/t 5.0
AuEq contained koz 549
Annual throughput1 ktpa 350
Gold recovery % 95%
Total AuEq production koz 532
Avg. AuEq production koz 48
Pre-feasibility level study for Valunisty completed by CSA in July 2017
Valunisty / Highland initiated revision of the mine plan and financial model
The model is based on the following assumptions:
– Pricing base case in financial model - $1,250/oz Au, $16/oz Ag
– FX rate of 60 RUB/USD applied over LoM
– Valuation as at beginning of 2018
– Model is in real terms; real pricing and mainly flat OPEX assumed (except electricity prices)
– Underground mine design, cost profile as per RPM study completed in June 2017
– Selective shrinkage stopping mining to be employed
– Production plant ramp-up to 350 ktpa from 2020
KAP Overview
Gorny309
Zhilny262
KAPHigh quality assets in close vicinity to production plant
17
Significant resource base (571 koz AuEq) and exploration potential to support mine life extension of the Valunisty mine
KAP license area located within the Eastern Chukotka flank of the Okhotsk-Chukotka volcanic belt (OCVB)
The license covers the area of 831 km2 comprising the Valunisty deposit and the areas of Gorny, Zhilny, Shakh and Osenny
Mineralisation is associated with metasomatites which host quartz and adular-quartz veins with silver-gold mineralisation
Mining operations at Zhilny and Shakh expected to commence after Valunisty and Gorny reserves are depleted
AuEq Mineral Resources
by asset, koz AuEq
Overview
Note: Mineral Resources and Ore Reserve as at 01.01.2018 (CSA Global)
571 koz
0 5km
Valunisty Mill
Zhilny
Status Resource estimate
Distance from the mill 21 km
Resources 262 koz @ 3.5 g/t AuEq
Gorny
Status Pilot mining
Distance from the mill 18 km
Reserves 35 koz @ 5.2 g/t AuEq
Resources 309 koz @ 2.6 g/t AuEq
Osenny
Status Exploration
Distance from the mill ~30 km
Resources N/A
Valunisty mine area
KAP License Area
Shakh
Status Resource estimate
Distance from the mill 12 km
Drilling to date 9 km
Resources N/A
KAPGorny. Current pilot mining with near-term full scale production
18
Plan View of Gorny Area
NORTH
CENTRAL
GORNY-7
Located only 18 km from the Valunisty mill
Significant potential for Resources-to-Reserves
conversion
Pilot mining is under way
In-fill drilling expected in 2018-2019 with further reserve
expansion
Full-scale mining operations expected in 2019
Mineralisation of gold-bearing quartz and adular-quartz
veins occur mainly among secondary quartzites
Ore Reserves1 - 35 koz at 5.2 g/t AuEq
Mineral Resources1 - 309 koz at 2.6 g/t AuEq
Overview
Gorny 7 Planned Open Pit
1. As at 01.01.2018 (CSA Global)
Kayenmivaam (“Kayen”) Overview
Kayenmivaam (“Kayen”) Overview
License AreaOverview Prospective 1,214 km2 exploration area located only ~130 km
from Kupol
Acquired by current shareholders in 2010
Drilling to date1 - ~23.3 km
Historical cost to date1,2 - ~$15.3 m
Trenches, ditches to date1 - 338,796 sq m
No JORC-compliant resource yet
Levoberezhny and Televeem / Televeem North are considered
the most prospective areas
Levoberezhny / Aryk
Preliminary C2+P1 resource estimate3 of 7.1 t Au at 2.5 g/t Au
and 341 t Ag at 120 g/t (up to 125 m depth)
Au and Ag grades in grab samples reach 150 g/t Au and 21 kg/t
Ag
Televeem / Televeem North
Extensive (more than 12 km) and thick (2.5 - 3 km) mineralized
zone with underexplored gold bearing veins with single
intersections
Average thickness of ore bodies (247 intersections) - 1.14 m at
8.05 g/t Au and 64 g/t Ag (up to 150 m depth)
Key license requirements
Report on prospecting and exploration works undertaken in 2011-
2016 to be submitted by April 2018
Exploration programme to be submitted by October 2018
1. 2000-2004 and 2011-2017 exploration and prospecting programmes
2. Inclusive of 12m RUB spent on the license
3. In accordance with Russian State Commission on Mineral Resources (GKZ), non-JORC compliant 20
Levoberzhny
Aryk
Televeem North
Televeem
Complexny
Kayen Middle
Mayuler
QuartzKayen Left
Appendices
Development History
22
1992
Valunisty ore cluster
was established
Gorny discovered,
mineral resources
estimate
1998
O/P mining
commissioned at
Valunisty
2003
Kanchalano-
Amguemskaya Area
(KAP) discovered
1957
Prospecting works
at KAP (well
logging, areal
measurements)
2007-2011
2011
Valunisty Mine LLC
acquired a license
on exploration and
mining at Valunisty
Valunisty Mine LLC
acquired by current
shareholders
2012
Valunisty and KAP
first JORC Mineral
Resource estimate
2013
KAP LLC acquired
by current
shareholders
2015 2016 2017
Auriant engaged as a
management Company
for
Valunisty and KAP
(2015 - 2016)
Valunisty and KAP
JORC Ore Reserve
estimate
Valunisty Reserves
increase (GKZ)
Extensive exploration
program at KAP
2013-2017
2018
Pilot mining at
Gorny commences
6%
0%
23
The Beringovsky Advanced Special Economic Zone (ASEZ)
Tax reliefs for Valunisty and KAP
Overview
As the part of the long-term Government strategy for
attracting direct investments into the Far East the
Beringovsky ASEZ was created in August, 2015
The law assumes significant tax reliefs to the corporate
income and mineral extraction taxes once operations
commence
The benefits can be used from the first year in which profits
are generated
The Beringovsky ASEZ covers the area of Anadyr city and
a significant part of the Anadyr municipal district
In 2016, the Valunisty mine (to be applied to U/G operations
only) and KAP joined the Beringovsky ASEZ
‒ Combined Valunisty U/G and KAP production over
mine life (2018 onwards) - ~340 koz
Location
Tax benefits
20%
0% 0%
30%
80 days
Declarative
2.2%
Profit tax Royalty1 Property tax Payroll Tax VAT refund
Years 1-5: 0%
Years 6-10: 12%
Years 1-2: 0%
Years 3-4: 1.2%
Years 5-6: 2.4%
Years 1-2: 0%
Years 6-10: 1.1%
Anadyr
Valunisty / KAPEgvekinot
Source: Tax Code of Russian Federation
1. In case of gold (standard royalty – 6.0%)
2. Effective rate
3. Expected PFS results (CSA Global), exclusive of Zhilny, Shakh and Osenny
15%2
JORC Ore Reserves (as at 1 January 2018)
24
Source: CSA Global
1. Equivalent gold grades are calculated as follows: Au Eq (g/t) = Au (g/t) + Conversion Factor*Ag (g/t);
Conversion Factors are calculated as follows: (Net Ag price / Net Au price) * (Ag recovery / Au recovery);
Assumed metal prices (Net price) for gold equivalent conversion are $1,250/oz for gold and $16/oz for silver;
Au recoveries for Valunisty – 95%, Gorny – 93%; Ag recoveries for Valunisty – 75%, Gorny – 75%
Valunisty Ore Grade Cont. Au Cont. Au Grade Cont. Ag Cont. Ag Au Eq Au Eq Grade1
(kt) (g/t Au) (kg) (koz) (g/t Ag) (kg) (koz) (kg) (koz) (g/t AuEq)
Novaya Underground 1,488 5.80 8,634 278 56.31 83,794 2,694 9,480 305 6.4
Novaya Open Pit 1,054 3.39 3,571 115 44.60 47,003 1,511 4,046 130 3.8
Glavnaya Open Pit 646 3.74 2,418 78 33.95 21,937 705 2,640 85 4.1
Total Valunisty (Probable) 3,188 4.59 14,623 470 47.91 152,735 4,911 16,166 520 5.1
KAP (Gorny) Ore Grade Cont. Au Cont. Au Grade Cont. Ag Cont. Ag Au Eq Au Eq Grade1
(kt) (g/t Au) (kg) (koz) (g/t Ag) (kg) (koz) (kg) (koz) (g/t AuEq)
Gorny proved 44 6.39 281 9 32.90 1,449 47 296 10 6.7
Gorny probable 165 3.92 645 21 80.36 13,238 426 782 25 4.7
Total Gorny 209 4.44 927 30 70.35 14,687 472 1,078 35 5.2
Grand Total Ore Grade Cont. Au Cont. Au Grade Cont. Ag Cont. Ag Au Eq Au Eq Grade1
(kt) (g/t Au) (kg) (koz) (g/t Ag) (kg) (koz) (kg) (koz) (g/t AuEq)
Proved 44 6.39 281 9 32.90 1,449 47 296 10 6.7
Probable 3,353 4.55 15,268 491 49.50 165,973 5,336 16,948 545 5.1
Grand Total 3,397 4.58 15,549 500 49.29 167,422 5,383 17,244 554 5.1
JORC Mineral Resources (as at 1 January 2018)
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Valunisty Total1 Ore Grade Cont. Au Cont. Au Grade Cont. Ag Cont. Ag Au Eq Au Eq Grade4
(kt) (g/t Au) (kg) (koz) (g/t Ag) (kg) (koz) (kg) (koz) (g/t AuEq)
Indicated 8,757 2.98 26,088 839 36.62 320,682 10,310 29,329 943 3.35
Inferred 2,843 1.91 5,426 174 37.66 107,069 3,442 6,508 209 2.29
Total Valunisty 11,600 2.72 31,514 1,013 36.88 427,751 13,753 35,837 1,152 3.09
Gorny2 Ore Grade Cont. Au Cont. Au Grade Cont. Ag Cont. Ag Au Eq Au Eq Grade4
(kt) (g/t Au) (kg) (koz) (g/t Ag) (kg) (koz) (kg) (koz) (g/t AuEq)
Indicated 571 2.94 1,677 54 61.26 34,981 1,125 2,038 66 3.57
Inferred 3,097 2.18 6,761 217 25.38 78,612 2,527 7,573 243 2.45
Total Gorny 3,668 2.30 8,439 271 30.97 113,594 3,652 9,611 309 2.62
Zhilny3 Ore Grade Cont. Au Cont. Au Grade Cont. Ag Cont. Ag Au Eq Au Eq Grade4
(kt) (g/t Au) (kg) (koz) (g/t Ag) (kg) (koz) (kg) (koz) (g/t AuEq)
Inferred 2,330 0.99 2,317 74 209.14 487,296 15,667 8,145 262 3.50
Total Zhilny 2,330 0.99 2,317 74 209.14 487,296 15,667 8,145 262 3.50
KAP Total Ore Grade Cont. Au Cont. Au Grade Cont. Ag Cont. Ag Au Eq Au Eq Grade4
(kt) (g/t Au) (kg) (koz) (g/t Ag) (kg) (koz) (kg) (koz) (g/t AuEq)
Indicated 571 2.94 1,677 54 61.26 34,981 1,125 2,038 66 3.57
Inferred 5,427 1.67 9,078 292 104.28 565,909 18,194 15,718 505 2.90
Total KAP 5,998 1.79 10,756 346 100.18 600,890 19,319 17,756 571 2.96
Grand Total Ore Grade Cont. Au Cont. Au Grade Cont. Ag Cont. Ag Au Eq Au Eq Grade4
(kt) (g/t Au) (kg) (koz) (g/t Ag) (kg) (koz) (kg) (koz) (g/t AuEq)
Indicated 9,328 2.98 27,765 893 38.13 355,663 11,435 31,367 1,008 3.36
Inferred 8,270 1.75 14,504 466 81.38 672,977 21,637 22,226 715 2.69
Grand Total 17,598 2.40 42,270 1,359 58.45 1,028,641 33,072 53,593 1,723 3.05
Source: CSA Global
Note: updated Mineral Resources (as at 1 January 2018) expected by the end 2017
1. Resources evaluated with specific cut-off grade of 0.5 g/t Au;
2. Resources evaluated with specific cut-off grade of 0.5 g/t Au;
3. Resources evaluated with specific cut-off grade of 40 g/t Ag;
4. Equivalent gold grades are calculated as follows: Au Eq (g/t) = Au (g/t) + Conversion Factor*Ag (g/t);
Conversion Factors are calculated as follows: (Net Ag price / Net Au price) * (Ag recovery / Au recovery);
Assumed metal prices (Net price) for gold equivalent conversion are $1,250/oz for gold and $16/oz for silver;
Au recoveries for Valunisty – 95%, Gorny – 93%, Zhilny – 91%; Ag recoveries for Valunisty – 75%, Gorny – 75%, Zhilny – 85%
Consolidated Financial Statements (IFRS)
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Source: Company’s audited IFRS financial statementsNote: Consolidated accounts of Valunisty LLC and KAP LLC;1. EBITDA adjusted for movement in raw materials and consumables obsolescence provision, as per HGM approach 2. Non-IFRS measure3. Exclusive of related-party debt4. Adjustments are to be reflected in the FY 2017 financial statements; cash flow statement above is not adjusted
IFRS, US$000 (unless stated) 9M 20172016
(adjusted)42015 2014
P&L
Sales revenue 28,521 40,639 40,996 35,120
EBITDA1 6,933 17,573 11,427 (3,843)
Net profit /(loss) for the period 141 5,306 503 (8,418)
Balance sheet
Total Assets 78,325 75,218 74,626 37,121
Total Equity (2,042) (2,184) (7,490) (7,836)
Total Liabilities 78,325 75,218 74,626 37,121
Including
Related-party debt 56,780 62,287 63,282 33,013
Bank loans 16,309 9,286 12,579 6,800
Cash flow statement
Operating cash flow 3,000 14,419 4,503 (234)
Investing cash flow (5,211) (4,806) (5,942) (1,191)
Financing cash flow (1,355) (9,440) 4,231 832
Cash and cash equivalents, eop 345 3,911 3,738 946
Key financial metrics
EBITDA1 6,933 17,573 11,427 (3,843)
EBITDA1 margin 24% 43% 28% NM
Free cash flow (2,211) 9,613 (1,439) (1,425)
Total cash cost (TCC)2, $/oz 951 709 842 1,448
Capex2 5,211 4,811 6,133 1,242
Net debt3 15,964 5,375 8,841 5,854
Net debt / EBITDA3 2.3x 0.3x 0.7x NM