h1 2019 results and project update - highlandgold.com · h1 2019 results highlights production at...
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AIM: HGM
H1 2019 Results and Project Update
September 2019
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$/RUR rate), the gold price, the Group’s ability to recover its reserves or develop new reserves, competition,
changes in development plans and other risks.
There can be no assurance that the results and events contemplated by the forward looking statements contained in this
presentation will, in fact, occur. These forward-looking statements are correct or represent honestly held views only as at the date of
delivery of this presentation.
The Company will not undertake any obligation to release publicly any revisions to these forward looking statements to reflect
events, circumstances and unanticipated events occurring after the date of this presentation except as required by law or by
regulatory authority.
***
Total cash costs include mine site operating costs such as mining, processing, administration, royalties and production taxes, but are
exclusive of depreciation, depletion and amortisation, capital and exploration costs. Total cash costs are then divided by ounces sold
to arrive at the total cash costs of sales. This data provides additional information and is a non-GAAP measure.
In line with guidance issued by the World Gold Council, the formula used to define all-in sustaining cash costs measure commences
with total cash costs per ounce sold and then adds sustaining capital expenditures, corporate general and administrative costs, mine
site exploration and evaluation costs and environmental rehabilitation costs. This data seeks to represent the total costs of producing
gold from current operations, and therefore it does not include capital expenditures attributable to projects or mine expansions,
exploration and evaluation costs attributable to growth projects, income tax payments, interest costs or dividend payments.
2
Highland Gold Today
3
Russia
Kazakhstan
Four Operating Mines
with 290-300 koz
Annual Production1
2018: 270 koz
Pipeline of High-Grade
Development
Projects
Low-Cost Producer
with AISC of
US$ 778 per oz2
Strong track record of
paying dividends
1. Guidance for 2019 production of gold and gold equivalent
2. Figure for H1 2019
Chukotka
Cluster
Khabarovsk
Cluster
Baikal
Cluster
Kyrgyzstan
Unkurtash
Mongolia
China
Novo
Baley HubTaseevskoye, ZIF-1,
Sredny Golgotay
MNVBelaya Gora
Blagodatnoye
Klen
Kekura
Valunisty
Kayen
Operating Mines
Development Projects
H1 2019 Results Highlights
► Production at Mnogovershinnoye (MNV) in H1 2019 rose
by 23.3% over the first half of last year
► Newly-acquired Valunisty accounted for 10% of production
► Novoshirokinskoye (Novo) output was 18% lower due to
lower grades year-on-year, although grades improved in
the second quarter
►Belaya Gora production was 7.5% lower year-on-year due
to several operational challenges, including mill repairs
and a localised fire incident in Q2
► Construction work at Kekura and an exploration drilling
programme at Klen continued throughout H1 2019, as
both projects were officially granted residency in the
Chukotka special economic zone
4
H1 2019 H1 2018
Production (Oz gold and gold eq.)
142,254 128,921
All-in sustaining costs (US$/oz)
778 697
Total cash costs (US$/oz)
540 536
Revenue(US$ k)
174,676 146,897
EBITDA (US$ k)
EBITDA margin
86,54150%
71,42449%
Net profit(US$ k)
45,692 28,639
Net cash flow from
operations(US$ k)
72,566 65,700
Capital expenditure (US$ k)
31,327 26,534
Net debt*(US$ k)
216,917 189,071
* On June 30
Operating Highlights
48.159.3 61.0
49.7
19.8 18.3 14.9
H1
2018
H1
2019
H1
2018
H1
2019
H1
2018
H1
2019
H1
2018
H1
2019
MNV Novo Belaya Gora Valunisty
Production by Asset (koz)
Commitment to Dividends
5
2.9%
6.2%6.3%
7.7%
9.6%
9.8%
6.5%
9.1%
5.9%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
US$ M
* Based on the average share price for the period.
H1 2019 yield annualised
25.7
40.3
26.723.2 21.8
42.545.5
58.0
22.6
2011 2012 2013 2014 2015 2016 2017 2018 H12019
H1 2019 interim dividend:
GBP 0.05 per share
Total payout: US$ 22.6 m
Highland Gold paid an
average of US$ 134 per oz
produced in 2011-2018
Future dividends secured by
dividend policy, which sets
target minimum payout of
20% of net operating cash
flow before capex.
114 89 83 163 169 215140 186
Dividends Paid
Dividend Yield*
159
US$
per
oz
Highland Gold has articulated and
executed a clear operating strategy
Clear Operating Strategy
6
Develop assets at the
PFS/DFS stage into
production
Focus corporate
development on regions of
presence
De-risk and convert
additional resources into
reserves
Focus on operational
efficiency and continuous
improvement
Commitment to workplace
safety and protecting the
environment
Maximise the upside
potential of operating
assets
Control
CostsReturns to
Shareholders
Deliver
Growth
Unlocking Value
Expanding Throughput
Goal
► Increase throughput to offset an expected decline
in grades
Solution
► Expand mining and processing capacity from 800k
tonnes/year to 1.3 million tonnes/year
Status
► Stage 1 (mine capacity expansion)
– Construction work is in progress on the
ventilation system, skip hoist, pumping
station, water treatment facility, boiler unit,
and tailings dam upgrade
► Stage 2 (processing plant expansion)
– Technology and equipment selected for ore
sorting with X-ray transmission (XRT)
– Design work on ore sorting facility nearing
completion, with construction due next year
► Completion expected in 2020
Cost: US$42 million in 2019-2020
Extending Life of Mine
Goal
► Add reserves to extend the life of mine (was 2018)
Solutions
► Extensive near-mine exploration programme on
existing MNV licences
►Acquisition of three adjacent greenfield licences
► Re-examining historic rock waste dumps
Status
► Life of mine extended to 2029
► Nearly 600k oz Au added to reserves in 2017-2018
► Over 820k tonnes of ore at 1.09 g/t Au taken from
the rock waste dumps to the mill since 2016
► Exploration continues on MNV, MNV Flanks,
Kulibinskaya, Zamanchivaya and Vilkinskaya
– 7k metres drilled in H1 2019
– 1.2 km of trenching in H1 2019
– Annual budget of US$3-5 million
► Given the longer mine life, studies have been
commissioned on potential improvements to the
mine, the mill, and tailings storage.
Maximising the Upside Potential of Operating Assets
7
Mnogovershinnoye (MNV) Novoshirokinskoye (Novo)
Mill Upgrade and Additional Resources
Goals
► Increase recoveries at the processing plant
► Add resources to extend life of mine (was 2023)
Solutions
► Add reserves from nearby Blagodatnoye licence
► Add CIL circuit to the processing plant to improve
recoveries from the current 75% to a range of 86-
91% and enable processing of Blagodatnoye ore
► Exploration on the Belaya Gora Flanks licence
Status
► Processing plant upgrade in the late design phase
– Contractors and equipment selected
– Tailings dam upgrade in progress
– Completion expected in 2020
► 776k oz Au reserves booked for Blagodatnoye,
extending combined life of project to 2032
► Additional resources on the Belaya Gora Flanks
licence identified and being assessed
Cost: US $11.4 m for processing plant upgrade
Underground Mining and Mill Expansion
► The Valunisty mine and surrounding KAS licence
were acquired by Highland Gold in December 2018
Goals
► Increase production and lower costs
Solutions
► Move underground to reach higher ore grades
► Expand processing plant capacity from 250k
tonnes of ore per year to 350k tonnes/year
► Increase production from 40-45k oz to ~55k oz per
year
Status
► Engineering surveys, design work, and cost
estimates are in progress for both the underground
mine and the processing plant expansion
► Construction is expected to begin next year for
completion in 2021
Maximising the Upside Potential of Operating Assets
8
Belaya Gora Valunisty
Advancing Our Development Projects: Kekura
9
Kekura is Highland Gold’s premier development
project, with high grade ore and low projected costs
Project Status
► Definitive Feasibility Study (DFS) published in 2018
► Camp and pilot processing plant already on site
► Phase 1 facilities in active construction phase
– Completion expected in 2020
► Work on Phase 2 facilities, including main processing
plant (800 ktpa capacity), to begin in 2020
– Completion expected by 2023
► Stripping and preliminary ore mining in Q4 2019
► Granted residency in the Chukotka Advanced
Special Economic Zone (ASEZ), providing a series of
tax incentives that add more than US$ 100 million to
NPV
Cost: US$229 m (pre-commissioning as per DFS)
Upside Potential
► Exploration drilling commenced on several of 12
additional targets in the broader Kekura licence area
to identify additional open pit reserves
Kekura
Est. Start Date 2023
Life of Mine 16 years
Mine Type Open pit & underground
Processing Gravity + cyanide leaching
Processing Capacity 0.8 Mtpa
Au Resources (M,I&I) 2.46 Moz @ 8.1 g/t
Au Reserves (P&P) 2.00 Moz @ 7.0 g/t
Au Production
(est. annual)
172k oz (years 1-8)
46k oz (years 9-16)
Total Cash Costs (est.) US$ 511/oz
Advancing Our Development Projects: Kekura
10
32
75 68
1 Open pit2 Processing plant site3 Power substation4 Mining support facilities5 Camp6 Warehouses7 Fuel storage8 Communications tower
Kekura Site Plan
4
2
1
5
7
1
23
4
5 78
6
1
2
3
4
5
6
7
8
Advancing Our Development Projects: Kekura
11Diesel Power Station CampCrushing Unit
►Pilot Processing Plant
– Renovations, including steel
frame reinforcement, are in
progress and scheduled for
completion by year-end.
– 120k tonnes per year processing
capacity with expected
recoveries of 35%
– Commissioning in 2020
Existing Site Infrastructure
Advancing Our Development Projects: Kekura
12Assay Laboratory Fuel StoragePower Substation
►Most Phase 1 facilities at an
advanced state of construction
►Power Substation
– Ready to be connected to the
regional power grid by the end of
2019
►Camp Expansion
– Brought forward from Phase 2 to
improve facilities for construction
– Ground prepared and modular
buildings ordered
Communications Tower
Camp Expansion Site
Phase 1 Construction
Advancing Our Development Projects: Baley ZIF-1
13
► Part of Highland’s Baley Hub group of licences,
together with Taseevskoye and Sredne Golgotay
► Tailings from the processing of ore from the Baley
and Taseevskoye mines in 1929-1973
► Near local infrastructure for the town of Baley
(electricity, roads, water, rail)
► Being targeted for a heap leach operation
Project Status
► Detailed design work completed and submitted for
regulatory approval, which is expected later this
year
► Application submitted for admission into the Trans-
Baikal Advanced Special Economic Zone (ASEZ),
which would provide a series of tax incentives
► Construction set to begin in 2020 with first gold in
H2 2021
Cost: US$ 23m in 2019-2022
Baley ZIF-1 Tailings
Est. Start Date 2021
Life of Mine 11 years
Mine Type Open pit
Processing Heap leach
Processing Capacity 840 ktpa
Estimated slime reserves*9.7 m tonnes @ 0.98 g/t Au
and 2.84 g/t Ag
Estimated contained Au* 344k oz
Au Production
(est. average annual)15k oz
Total Cash Costs (est.) US$ 736/oz
* Estimates to Russian reserve standards
1
2
3
4
5
6
1
2
3
4
5
6
65
5
Advancing Our Development Projects: Baley ZIF-1
14
Open pit mining site
• Sump
• Open pit water drainage
pumping station
• Water drainage pipeline
• Settling pond
HL production site
• Crusher house
• Pelletization circuit
• HL pile
• Pond facilities
Processing plant site
• Hydro-metallurgical circuit
• Tanks
Floating Pumping Station
10 kV power line
• Powerline
• Transformer substation
Inter-site roads
• Access road to HL site
• Access road to the
processing plant
Baley ZIF-1 Site Plan
H1 2019 Financial Review
15
H1 2019 Financial Highlights
16
H1 2018 H1 2019
Gold and GE Production, koz 128.9 142.3
Revenue, US$ m 146.9 174.7
Operating Profit (w/o impairment), US$ m 50.7 57.4
Impairment Losses, US$ m - -
EBITDA, US$ m 71.4 86.5
STRONG BALANCE SHEET
Total Assets, US$ m 1,142.4 1,280.7
Total Equity, US$ m 782.0 865.9
Gross Debt*, US$ m 197.3 221.0
Net Debt*, US$ m 189.1 216.9
KEY RATIOS
TCC, US$ / oz 536 540
AISC, US$ / oz 697 778
Net Debt* / EBITDA 1.2 1.3
EBITDA margin 48.6% 49.5%
DIVIDENDS
Dividends paid during the period, US$ m 24.2 31.9
Dividends declared. GBP per share 0.06 0.05
* Including the modification effect of IFRS 9
Metals Prices and Exchange Rates
17
H1 2018 H1 2019 ∆
Gold US$/oz 1,313 1,308 ▼ -0%
Silver US$/oz 16 15 ▼ -6%
Lead US$/t 2,482 1,956 ▼ -21%
Zinc US$/t 3,343 2,744 ▼ -18%
Copper US$/t 6,879 6,160 ▼ -10%
USD/RUB 59.5 65.1 ▲ +8%
EUR/USD 1.2 1.1 ▼ -7%
GBP/USD 1.4 1.3 ▼ -6%
HGML Revenue Breakdown
H1 2019 Gold Price vs Volume of Sales
10
22 17 13 17 13
1 292 1 320 1 302 1 288 1 283
1 358
Jan Feb Mar Apr May Jun
Au sold by MNV, BG, Valunisty, koz LMBA average price, USD/oz
H1 2019
Cu 1%Zn 1%
Pb 3%
Ag 6%
H1 2018
Au
84%
Other
Metals
Au
89%
■ Au sold by MNV, BG and Valunisty (koz) ▬ LMBA average price (US$/oz)
MNV
45%Valunisty
10%
Belaya Gora
15%Novo
18%
11%
MNV
42%
Belaya Gora
17% Novo
25%
16%
Cu 1%
Zn 2%
Pb 6%
Ag 7%
Low Cost, High Margin Producer
All-In Sustaining Costs
H1 2019 EBITDA Margin: 50%
18
International Majors
Russian Companies1207
1112 1109 10851026 1023 1002 987 977 977 973
940 936 925 904855
778720 705 679
584
0
200
400
600
800
1000
1200
1400
Source: Published company data for H1 2019 (where available)
* Q1 2019 data** FY 2018 data
H1 2019 - US$/oz
Total Cash Costs & All-In Sustaining Costs
19
707541
299 385
795 775 7306886
H1
2018
H1
2019
H1
2018
H1
2019
H1
2018
H1
2019
H1
2018
H1
2019
TCC by Operating Asset
MNV Novo Belaya Gora Valunisty
N.A.
► Total Cash Costs remained practically unchanged at US$540/oz as the influence of the
weak ruble was offset by rising Novo TCC (+28%) and the inclusion of Valunisty
► MNV TCC decreased by 23%, aided by 28% growth in the volume of sales and the
weak ruble
► Novo TCC increased by 28% due to the lower volume of sales (-13%), salary indexation,
and changes in contract terms & conditions due to the shipment of lead concentrate with
a lower grade (27% versus 30%)
► BG TCC decreased slightly to US$775/oz as gold sales were supported by an increase
in processing volume but with a lower average grade
► All-In Sustaining Costs increased by 12% to US$778/oz due to:
– An 85% increase in sustaining CAPEX to replace old equipment
– Higher AISC at newly-acquired Valunisty
– The write-down of stockpiles at BG (+US$1.8 m) and Valunisty (+US$3.9 m)
536 540
H1 2018 H1 2019
697778
H1 2018 H1 2019
Total Cash Costs
All-In Sustaining Costs
US$/oz
US$/oz
Processing costs (US$/oz)
+1% -23% +28%
-3%
470366
+12%
EBITDA (US$ M)
20
71 7179.8 84.6 84.6 87.4 86.7 86.1 87
8.87.0 2.2 5.7 2.9 0.7 0.6
H1
2018
Valunisty Exchange
Rate
Metals
Prices
Volume of
Sales
Costs G&A Other
ExpenseH1
2019
- US$2.2 m – decrease in Au prices for MNV and BG
(-US$0.3 m) and gold equivalent for Novo (-US$1.9 m)
+ US$5.7 m – increase in the volume of sales by 6%,
including:
• Novo - 6.9 koz of Au eq. (-13%)
• MNV + 13.3 koz of Au (+28%)
• BG + 0.3 koz of Au (+2%)
- US$2.9 m – increase in costs
- US$0.7 m – increase in G&A
- US$0.6 m – other operating profits and losses
24
41 40
29
10 10 0 8
-3 -2
H1
2018
H1
2019
H1
2018
H1
2019
H1
2018
H1
2019
H1
2018
H1
2019
H1
2018
H1
2019
MNV Novo Belaya Gora Valunisty G&A & Other
EBITDA by Asset
39%
52%
39% 40%
68%
57%
42%
% = EBITDA margin
Key Factors
Capital Expenditure
MNV
► US$ 4.3 m – supporting investments (equipment replacement)
► US$ 1.1 m – exploration work
► US$ 0.4 m – regulatory filings and design work
► US$ 2.7 m – capital development
Novo
► US$ 1.7 m – supporting investments (equipment replacement)
► US$ 1.7 m – capital development
► US$ 1.5 m – Novo 1.3 Mtpa project capex
Belaya Gora
► US$ 1.1 m – supporting investments
► US$ 0.2 m – exploration work
► US$ 0.8 m – design work (mining optimization & processing plant
upgrade)
Valunisty (w/ KAS)
► US$ 0.5 m – research work
► US$ 1.5 m – supporting investments
Kekura
► US$ 5.8 m – field camp & road maintenance
► US$ 0.5 m – exploration work
► US$ 3.2 m – purchases of fuel and consumables for pilot processing plant
and initial open pit mining
► US$ 1.4 m – research work & capital construction for pilot plant
Taseevskoye
► US$ 1.0 m – site maintenance
► US$ 0.2 m – research work for ZIF-1 heap leach
Klen (w/ Verkhne Krichalskaya)
► US$ 1.1 m – exploration work21 Capex budget for 2019: US$124m
US$ k, excl. VATH1
2018
H1
2019
KHABAROVSK CLUSTER 8,908 10,619
Mnogovershinnoye 7,388 8,514
Belaya Gora 1,520 2,105
BAIKAL CLUSTER 7,955 6,185
Novo 6,704 4,937
Taseevskoye 1,197 1,154
Lyubov 55 94
CHUKOTKA CLUSTER 8,681 13,951
Valunisty (w/ KAS) - 2,017
Kekura 7,907 10,851
Klen (w/ Verkhne Krichalskaya) 774 1,083
OTHER 990 572
Highland Exploration (Unkurtash) 448 405
Other 542 167
Total 26,534 31,327
Credit Portfolio
Debt Status as at 31.08.2019
► Net Debt/EBITDA ratio: 1.3
► Gross debt: US$ 218 m
► Net debt: US$ 205 m
► Effective interest rate: 4.09%
– All debt is fixed-rate
► Average tenor: 36.6 months
– Was 18.1 months on 30.06.2018
► Over US$ 500 m of undrawn revolving
credit facilities
22
By Lender By Term
208232 222 218199 194 217 205
3.44%
4.20% 4.20% 4.09%
1.56%
2.50% 2.36%2.09%
31.12.2017 31.12.2018* 30.06.2019 31.08.2019
Gross Debt (US$ M)
Net Debt (US$ M)
Interest Rate
Libor 1M US$
Debt Breakdown
* Excluding US$ 17.7 m of Valunisty
debt @ 5.12% assumed on
27.12.2018 and repaid in Q1 2019
Debt is free of the modification effect
of IFRS 9
27%ShortTerm
73%LongTerm
40%
Sberbank4%
Rosbank
27%
Raiffeisen
4%
Alfa Bank
25%
Unicredit
2019 Outlook
23
Key Targets for 2019
►2019 production forecast: 290,000-300,000 oz gold & gold equivalent
►Continue to advance projects designed to improve operations at existing mines:
√ Near-mine exploration at MNV and adjacent licences
√ Construction on Stage 1 (mine) and design work for Stage 2 (mill) of Novo expansion
√ Design work for mine and processing plant upgrades at Belaya Gora and Valunisty
►Ramp-up construction at Kekura
– Begin initial stripping and mining in Q4 2019
►Capital Expenditure Budget: US$ 124 million
– About 50% of capex for Kekura
►Roll-out new programmes for health & safety, operational efficiency and continuous
improvement across each of the Company's operating units
√ In progress
24