H1 2018 Interim Results and Project Update€¦ · H1 2018 Interim Results and Project Update...

H1 2018 Interim Results

and Project Update

September 2018

AIM: HGM

Disclaimer

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 (including

the US$/RUR rate), 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.

***

Total cash costs include mine site operating costs such as mining, processing, administration, royalties and production taxes, but are

exclusive of depreciation, depletion and amortisation, 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-GAAP 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 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.

2

3

H1 2018 Highlights

Russia

Kekura

Klen

Mnogovershinnoye (MNV)

Belaya Gora

Blagodatnoye

Unkurtash

Novoshirokinskoye (Novo)

Kazakhstan Taseevskoye

Sredny Golgotay

ZIF-1 Tailings

Production

(Oz Au + Au eq.) 128,921 131,784

Revenue

(US$ k) 146,897 147,176

EBITDA

(US$ k) 71,424 73,248

Net Cash Flow from Operations

(US$ k) 65,700 63,211

Net Profit

(US$ k) 28,639 25,932

Total Cash Costs

(US$/oz) 536 509

All-In Sustaining Costs

(US$/oz) 697 674

Khabarovsk

Cluster

Baikal

Cluster

Chukotka

Cluster

Kyrgyzstan

Baley Hub

Operating mines

Development projects

Pre-development

Acquisition target

H1 2018 H1 2017

Valunisty

2018 Production Forecast:

265,000-275,000 oz Au + Au eq.

4

Our Strategy: Unlocking Value

Maximise

the upside potential

of operating assets

Develop

assets at the

DFS/PFS stage

into production

De-risk and

convert additional

resources

into reserves

Focus development on

regions of presence

Maintain commitment to operating safety

and protecting the environment

Kekura

Klen

Taseevskoye

Unkurtash

MNV

Belaya Gora

Novo

DFS complete. Begin construction

New PFS + additional exploration

De-water pit + confirm reserves

Find partner + move to PFS stage

New reserves

Plant upgrade +

Increase throughput

Blagodatnoye

5

Low Cost, High Margin Producer

International Majors

Russian Companies


US$/oz (H1 2018)

Source: Company Data Highland Gold’s EBITDA Margin: 49%

1315

1231

1037 1020 1012 965 955 954 945 930 918 906 893 887

857 854 847 835 830 828 793

697 639

0

200

400

600

800

1000

1200

1400

Commitment to Dividends

6

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

0

2

4

6

8

10

12

2011 2012 2013 2014 2015 2016 2017 H1 2018

GB

X

Dividend per share (pence) Yield (%) Total Payout (US$)

$25.7M $40.3M $26.7M $23.2M $21.8M $41.8M

Yield based on average share price for

the period and annualised for H1 2018

$48.3M $25.1M

Dividend policy sets target

minimum payout of 20% of

net operating cash flow

Interim Dividend of

GBP 0.06 per share

declared for H1 2018

Highland Gold is among

the most consistent dividend

payers in the gold industry

Yie

ld

0 Operational

Overview

MNV Snapshot

96 91.5

103 91.4

48

92.0

Production(koz)

Recovery(%)

Grade(g/t)

TCC(US$)

Khabarovsk Cluster

2.36 2.55

607 617

707

2.75

2016 2017 H1 2018

H1 2018 production of 48k oz Au (H1 2017: 51k)

Processing volume in H1 2018 was 15% lower year-on-year due

to a SAG mill line being out of operation following the discovery of

a damaged feed trunnion. The trunnion was replaced in March

and the plant is operating at full capacity

Increases in grade and recovery rates helped reduce the impact

of lower processing volume, with H1 2018 gold production only

5% lower year-on-year

TCC affected by lower volumes and front-loaded production

exploration in H1. Expected to be lower for the full year

New exploration licence received for the Vilkinskaya zone, a 33

sq km greenfield site adjacent to MNV

Ongoing near-mine exploration programme on existing MNV

licences, focusing on areas around previously-mined ore bodies

Exploration budget of US$ 3-5 M per year

Historic waste dumps being re-evaluated, adding over 1M tonnes

of ore with grades of ~1.1 g/t Au since 2016

Prospecting has begun on two adjacent greenfield licences

received in 2017 – Zamanchivaya (4.2 sq km) and

Kulibinskaya (38 sq km)

Updated JORC reserve estimate based on recent exploration is

expected in Q3 2018 and will further extend the life of mine.

Production level expected to remain stable in mid-term

8

Mnogovershinnoye (MNV)

H1 2018 Highlights

Outlook

* H1 2018 figures **JORC-compliant Resources and Reserves as of 31 Dec. 2017

Opened 1991 (HGM 1999)

Life of Mine 2022

Mine Type Open pit & underground

Processing Gravity + cyanide leaching

Processing Capacity 1.4 Mtpa

Au Resources (M,I&I)** 578 koz @ 7.7 g/t

Au Reserves (P&P)** 453 koz @ 5.5 g/t

Au Production (2017) 103 koz

Avg Head Grade* 2.75 g/t

Total Cash Costs* US$ 707/oz

45.9

71.4

43.2

72.5

19.8

75.4

Production(koz)

Recovery(%)

Grade(g/t)

TCC(US$)

9

Belaya Gora

1.11 1.21 1.11

678

861 795

Opened 2014

Life of Mine* 2032

Mine Type Open pit

Processing Gravity


Au Resources (M,I&I)** 1.38 Moz@ 1.4 g/t

Au Reserves (P&P)** 932 koz @ 1.4 g/t

Au Production (2017) 43 koz


Total Cash Costs* US$ 795/oz

Belaya Gora Snapshot Khabarovsk Cluster

H1 2018 production of 20k oz Au (H1 2017: 20k)

Improved recoveries (75.4% vs 71.7% in H1 2017) offset an 11%

drop in processing volume due to water supply issues in early Q1

and SAG mill re-lining in Q2

Ore mining rose 52% year-on-year as mining operations moved

from stockpiles back to the open pit

Design work initiated on Belaya Gora mill upgrade

A pre-feasibility study was published in early 2018, including:

– Upgrades to the processing plant, adding a carbon-in-pulp

(CIP) circuit to improve recoveries from 72% to a range of 86-

91% for Belaya Gora ore and 90% for Blagodatnoye ore

– New mining plans for Belaya Gora and Blagodatnoye

– Estimated capex of US$ 15M for the plant upgrade and

US$ 21M to move mining activity from Belaya Gora to

Blagodatnoye in 2023

– Updated resource estimates incorporating results from 2016-

2017 drilling on the Belaya Gora northeast flank and at

Blagodatnoye, tripling gold reserves for the operation

– Average annual production of 55 koz

Exploration of the Belaya Gora flanks (Kolchansky & Zayachy

prospects) is in progress, potentially adding further resources

H1 2018 Highlights

Outlook

2016 2017 H1 2018

* H1 2018 figures **JORC-compliant Resources and Reserves as of 31 Dec. 2017

** with Blagodatnoye

118

85.9

127

85.0

61

80.3

Production(koz)

Recovery(%)

Grade(g/t)

TCC(US$)

10

Novoshirokinskoye (Novo)

5.62 5.61

299 254

291

5.83

Opened 2009

Life of Mine 2032

Mine Type Polymetallic, underground

Processing Gravity-flotation circuit


Au eq Resources (M,I&I)** 2.87 Moz @ 3.9 g/t

Au eq Reserves (P&P)** 1.71 Moz @ 3.1 g/t

Au eq Production (2017) 127 koz


Total Cash Costs* US$ 299/oz (US$ 366/oz***)

Novo Snapshot Baikal Cluster

H1 2018 production of 61k oz Au eq. (H1 2017: 61k)

Higher processed grades for H1 2018 were offset by a drop in recovery rates due to a shift in the composition of mined ore

Work on Stage 1 of the Novo 1.3 Mtpa expansion project progressed, with a focus on project design revisions, site surveys and building inspections as per regulatory requirements

Updated JORC reserve audit completed in November 2017 with a lower cut-off grade and substantial increase in ore tonnage. To compensate for expected lower grades, the Company is in the process of expanding Novo’s mining and milling capacity to 1.3 Mtpa

Stage 1 – upgrades to the mining complex including a skip hoist overall, ventilation and heating systems

– A contractor has been selected and preparation work on the construction sites is underway

Stage 2 – processing plant upgrades

– Currently in the design phase.

– The Company is reviewing the potential for using dense media separation (DMS) or X-ray separation to reduce capital costs

H1 2018 Highlights

Outlook

* H1 2018 figures **JORC-compliant Resources and Reserves as of 31 Dec. 2017 *** Adjusted for processing costs as if producing dore.

2016 2017 H1 2018

H1 2018 Highlights

Kekura

Est. Start Date 2021

Life of Mine 16 years

Mine Type Open pit & underground



Au Resources (M,I&I) 2.46 Moz @ 8.1 g/t

Au Reserves (P&P) 2.00 Moz @ 7.0 g/t

Au Production

(est. annual)

172k oz (years 1-8)

46k oz (years 9-16)

Total Cash Costs (est.) US$ 511/oz

Kekura Snapshot Chukotka Cluster

Mayskoye

Kupol

Klen Dvoinoye Kekura

Chukotka

Polymetal

Kinross

Valunisty

Pevek

Anadyr

Definitive Feasibility Study (DFS) published in Q1 2018

Preparations and construction work on key infrastructure and facilities at the Kekura are underway

– Power substation, assay lab, fuel storage, shovel assembly, communications tower

Construction of a state-funded power line to connect Kekura to the regional electrical grid is progressing well

The Kekura DFS envisions:

– Sequential and combined open-pit and underground operation with an estimated total mine life of 16 years

– Processing plant capacity of 800 ktpa with 85% recovery

– Capex of US$ 229 M (pre-commissioning, excl. underground)

– Average annual gold production of 172 koz for the first eight years of operation and 46 koz for the final eight years

– Average total cash costs of US$ 511/oz and all-in sustaining costs of US$ 541/oz

The bulk of Kekura construction due to take place in 2019-2020

Upside potential in additional targets within licence area

– 12 additional targets in the broader Kekura licence area (nearly 1500 sq km.).

– Exploration drilling in progress on the Granat ore body, with 6500 m drilled in H1 2018

Outlook

Figures based on 2018 Definitive Feasibility Study 11

HGM

Asset Overview

Valunisty Acquisition

Start Date 1999

LoM 2028

Mine Type Open pit (+ underground)


Processing Capacity 250 ktpa

Au eq Resources (M,I&I)* 1.72 Moz @ 3.0 g/t

Au eq Reserves (P&P)* 554 koz @ 5.1 g/t

Au eq Production (2017) 31 koz

Avg Head Grade 4.6 g/t

Total Cash Costs US$ 887/oz

Valunisty Snapshot Chukotka Cluster

Mayskoye

Kupol

Klen Dvoinoye Kekura

Chukotka

Polymetal

Kinross

Valunisty

Pevek

Anadyr

Increases Highland Gold’s annual production by 11% to ~300 koz

(subsequent to deal closure)

Diversified portfolio of high-quality assets with growth pipeline

– Valunisty: well-established long-life operation (11 years) with

significant underground potential

– KAP: 831 km2 licence area in the vicinity of Valunisty

covering a number of satellite deposits and exploration

targets including the recently-commissioned Gorny mine

(combined resource base of 571 koz Au eq)

– Kayen: prospective 1,214 km2 exploration area located only

~130 km from Kupol, the second largest gold mine in Russia

Established infrastructure in place at Valunisty & KAP

Substantial opportunities for resource-to-reserve conversion

Acquisition enterprise value of US$91M

– US$79 m in shares, US$12M in assumed debt

– NAV of US$ 131M

Sellers (“concert party”) to increase HGM stake from 37% to 44%

– Independent shareholders approved whitewash for related-

party transaction at May 24 EGM

– Six-month lock-up period for new shares

Closing expected in Q3-Q4 2018

– Requires approval by Russian Federal Antimonopoly Service

Transaction Structure

12

KAP Kayen

HGM

Acquisition

*Valunisty + KAP, JORC-compliant Resources and Reserves as of 31 Dec. 2017

0 Financial Overview

H1 2018 Financial Highlights

* Excluding leasing obligations ** Including leasing obligations 14

H1 2018 H1 2017

Gold and GE Production, koz 128.9 131.8

Revenue, US$ M 146.9 147.2

EBITDA, US$ M 71.4 73.2

Profit for the period, US$ M 28.6 25.9

STRONG BALANCE SHEET

Total Assets, US$ M 1142.4 1124.5

Total Equity, US$ M 782.0 758.9

Gross Debt*, US$ M 197.3 204.3

Net Debt**, US$ M 189.1 203.5

KEY RATIOS

TCC, US$ / oz 536 509

AISC, US$ / oz 697 674

Net Debt / EBITDA 1.2 1.3

EBITDA margin 49% 50%

DIVIDENDS

Dividends declared, US$ M 25.1 21.3

Dividends declared, GBP per share 0.06 0.0498

H1 2018 Consolidated Income

Gross profit influenced by a 6% increase in realized metals prices, offset by a 5%

increase in TCC and lower depreciation expense

Operating profit influenced by lower other operating expenses as H1 2017 included

write-offs of Belaya Gora poor ore

Deferred income tax expense increased due to local currency devaluation, reflecting

that non-monetary assets are carried at historic US$ value, therefore depreciation

charge in IFRS is higher and net profit is lower than statutory taxable profits 15

K US$ H1 2018 H1 2017

Revenue 146,897 147,176

Cost of sales (86,763) (92,957)

Gross profit 60,134 54,219

Administrative expenses (7,920) (7,005)

Other operating income 293 1,240

Other operating expenses (1,841) (5,039)

Operating profit 50,666 43,415

Foreign exchange gain 255 1,522

Finance income 144 100

Finance costs (901) (1,520)

Profit before income tax 50,164 43,517

Current income tax expense (10,092) (14,939)

Withholding tax (4,401) (3,904)

Deferred income tax (expense)/ release (7,032) 1,258

Total income tax expense (21,525) (17,585)

Profit for the period 28,639 25,932

US$/oz MNV Belaya Gora Novo

(adjusted as if

producing Dore)

Processing costs (US$/oz)

US$/oz

Total Cash Costs & All-In Sustaining Costs

HGML TCC increased by 5% to US$ 536/oz due to the lower volume of sales

(-6%) and an increase in taxes (+US$ 3/oz)

MNV TCC grew by 19% due to a 3% decrease in the volume of sales, lower

processing volume, and front-loading of production exploration work in H1

BG TCC decreased by 10% mainly due to improved recovery rates, the weaker

local currency, and feeding the plant with cheaper current ore (in H1 2017, 78%

of the processed ore represented older stock)

Novo TCC decreased by 19% due to a change in contract terms and conditions

(-US$ 77 per oz in processing costs)

HGML AISC increased slightly to US$ 697/oz. The increase in TCC and G&A

was partly compensated for by lower supporting CAPEX (-20%) 16

595

707

H1 2017 H1 2018

880 795

H1 2017 H1 2018

305 299

145 68

H1 2017 H1 2018

450

509 536

H1 2017 H1 2018

Total Cash Costs


TCC by Operating Asset

674 697

H1 2017 H1 2018

366

+5%

+19%

-10%

-19%

+3%

EBITDA

+ US$ 8.7 M – increase in Au prices for MNV and BG (+US$

5.1 m) and gold equivalent for Novo (+US$ 3.6 m)

− US$ 9.0 M – decrease in the volume of sales by 6%,

including:

Novo - 3,912 oz of Au equivalent (-7%), reflecting the

increased volume of concentrates in transit and the

preparation of a lot of zinc concentrate for a new buyer

MNV - 1,635 oz of Au (-3%)

Belaya Gora - 1,781 oz of Au (-8%)

− US$ 1.4 M – increase in costs

− US$ 1.1 M – increase in G&A

− US$ 1.0 M – other operating profits and losses

EBITDA Bridge (US$ M)

EBITDA by Operating Asset (US$ M)

17 H1 2017 H1 2018 % EBITDA margin

73 71

8.7 9.0 2.0 1.4 1.1 1.0

H1 2017 MetalsPrices

Volumeof Sales

ExchangeRates

Costs G&A OtherExpense

H1 2018

MNV Belaya Gora Novo Other

32 28

8 10

42 42

-8 -9

51% 45%

30% 39%

70% 72%

Capital Expenditure

MNV

US$ 6.1 M – supporting investments: replacing worn-out

equipment

US$ 1.3 M – reserve estimation and other design work

Belaya Gora

US$ 0.3 M – supporting investments

US$ 0.6 M – exploration drilling

US$ 0.7 M – research and design

Novo

US$ 3.5 M – supporting investments (mining capital work

and replacement of worn-out equipment)

US$ 3.3 M – CAPEX for development: boosting the

capacity of the mine and processing plant to 1.3 Mtpa

Kekura

US$ 4.2 M – maintenance of the field camp and road

maintenance

US$ 1.9 M – exploration work

US$ 0.9 M – design and research work

US$ 0.9 M – equipment purchases and capital construction

Development Projects

(Highland Exploration, Klen, Taseevskoye, Lyubov)

Minimal investments only to meet licence commitments

18

US$ k (excluding VAT) H1 2018 H1 2017

Khabarovsk Cluster 8,908 7,494

MNV 7,388 5,963

Belaya Gora 1,520 1,531

Baikal Cluster 7,955 5,861

Novo 6,704 4,489

Taseevskoye 1,197 1,280

Lyubov 55 92

Chukotka Cluster 8,681 13,641

Kekura 7,907 13,537

Klen 774 105

Other 990 446

Highland Exploration 448 442

Other 542 4

Total Capital Expenditures 26,534 27,443

18.8

27.4 26.5

H1 2016 H1 2017 H1 2018

-3%

12 11

66 27

4 8

24

5 1

Cash & CE on01.01.2018

Net cash flowfrom operating

activities

Cash capitalexpenditure

Interest paidincl. capitalised

Debt repayment Dividends paid Withholdingtax expense

Other paymentsand leasing

Cash & CE on30.06.2018

Cash Flow

H1 2018 Operating Cash Flow was US$ 65M

Key outlays:

40% - CAPEX

35% - dividends

18% - debt service

Cash Position Bridge (US$ M)

19

26

36

12

5

29

35

H1 2017 H1 2018

Cash Flow by Operating Asset (US$ M)

MNV Belaya Gora Novo

www.highlandgold.com [email protected] +7 495 424-95-21

Share Price Performance

Shareholder Structure

21

Corporate Overview

Listed on London AIM

Incorporated in Jersey in 2002

15-year track record as a public company

Shareholders include a broad range of high-quality

UK, European and N. American institutional investors

Committed to Best Practice in Corporate

Governance

Led by an experienced Board of Directors and

management team

Seven directors – executive chairman, one executive

director, and five non-executive (three independent)

Shares 325,222,098

Market Cap* US$ 584M

Enterprise Value US$ 773M

Net Debt** US$ 189M

Net Debt/EBITDA (LTM)** 1.2x

2017 Earnings/Share US$ 0.201

* On 3 September 2018 ** On 30 June 2018

20%

10%

53%

17%

Prosperity

Capital

Management

Board &

Management

Institutions

& Retail

Core

Shareholder

Group

63%

Free

Float

HGM Gold Price FTSE All Share Mining

Sep’17 Dec‘17 Mar’18 Jun’18 Sep’18

HGM

70

100

130

H1 2018 Interim Results and Project Update€¦ · H1 2018 Interim Results and Project Update...

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