Highland Gold, We Are Taking the Utmost Precautions to Protect the Health of Our Employees and the Small, Remote Communities in Which We Operate
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HIGHLAND MINING GOLD LIMITED Annual Report and Accounts 2019 A world-class asset base of production, development and exploration projects. What we do We unite achievers to carefully and responsibly mine the riches of the land to develop regions, to improve the wellbeing of families and to deliver returns for shareholders. How we do it Balancing a steady rate of gold production with the advancement of our major development and exploration projects. A message from our Chairman I am pleased to report that the ongoing pursuit of our stated strategy of balancing a steady rate of gold production with the advancement of our major development projects was reflected in a highly satisfactory year’s trading during 2019. The Company achieved record production, meeting its production guidance once again, and remains among the lowest-cost gold producers. These factors, together with favourable gold prices, helped to deliver a strong financial performance and to fund continued returns to our shareholders in the form of dividends. The Company faces a busy year ahead in 2020 as we move to complete major improvement projects at Novo and Belaya Gora and to maintain the pace of construction at our premier development project, Kekura. While capital expenditure will rise substantially, we are confident of our ability to sustain both growth and dividends based on our strong cash generation, stable balance sheet with long-term and low-cost debt, and solid liquidity position with roughly $340 million of untapped open credit lines. As we move forward in 2020, the COVID-19 pandemic is clearly an unpredictable factor that all businesses must take into account. At Highland Gold, we are taking the utmost precautions to protect the health of our employees and the small, remote communities in which we operate. Fortunately, we have not experienced any significant disruptions to our production or sales to date, and our mines continue to operate albeit with measures designed to protect our teams from the risks associated with this pandemic. We have already published one COVID-19 operations update in March 2020, and will continue to do so should any material issues arise. Eugene Shvidler Executive Chairman D Highland Gold Mining Limited | Annual Report and Accounts 2019 Financial highlights Strategic Report Production (gold and gold eq. oz) 300,704 269,500 +12% All-in sustaining costs (US$/oz)1 791 682 +16% Total cash costs (US$/oz)1 556 506 +10% Revenue (US$ M) 395.4 311.2 +27% Operating profit (US$ M)1 161.5 109.2 +48% EBITDA (US$ M)1 205.1 153.1 +34% Net profit (US$ M) 0201 10 177.8 56.1 +217% At a Glance CEO’s Review Earnings per share (US$) 0.487 0.154 +216% Net cash inflow from Operations (US$ M) 138.4 136.2 +2% Capital expenditure (US$ M) 06 12 Chairman’s Statement Operational Review 89.3 62.3 +43% Net debt (US$ M)1 250.2 211.4 +18% Net debt/EBITDA ratio (31 Dec.) 1.22 1.38 08 20 Operational highlights Strategy CFO’s Report » MNV – Outperformed management expectations, with Our mission is to unite achievers to carefully production up 10% on the back of improved grades and and responsibly mine higher processing volume. the riches of the land, » Novo – Exceeded production targets for 2019, although to develop regions, to output was 5% lower year-on-year due to expected improve the wellbeing lower grades and changes in the balance of prices for of families, and to deliver returns metals in its concentrates. for shareholders. » Belaya Gora – Despite a strong Q4, production decreased 26 by 9% due to lower grades and downtime at the Principal Risks processing plant earlier in the year. and Uncertainties » Valunisty – Acquired at year-end 2018, Valunisty added 11% (30k oz) to Highland Gold’s production in 2019. » Kekura – Construction gathered pace, with several key infrastructure facilities at or near completion, while initial stripping and mining commenced in Q4. 1. The financial performance reported by the Company contains certain Alternative Performance Measures (APMs) disclosed to complement measures that are defined or specified under International Financial Reporting Standards (IFRS). For more 34 information on the definition and calculation of non-IFRS APMs used in this report, including Earnings before interest, tax, depreciation and amortisation (EBITDA), Total cash costs, All-in sustaining costs and Net debt, please see the Sustainability “CFO's Report” section. Highland Gold Mining Limited | Annual Report and Accounts 2019 Strategic Report • Governance • Financial Statements 01 Governance Financial Statements 0238 0356 65 110 Introduction to Independent Auditor’s Consolidated Statement Directors, Company Governance Report to the Members of Cash Flows Secretary and Advisers of Highland Gold Mining The Directors of Highland Gold Mining Limited are committed to the principles of good governance. The goal is to foster a unified corporate culture and ensure that employees at all levels are aligned 62 66 111 with the Company’s Consolidated Statement Notes to the Consolidated Financial Calendar strategy and standards. of Comprehensive Income Financial Statements 42 63 104 Directors’ Report Consolidated Statement Mineral Resources of Financial Position and Ore Reserves 44 64 107 Board of Directors Consolidated Statement Group Companies of Changes in Equity 46 108 Governance Report Notice of Annual General Meeting 02 • • • Highland Gold Mining Limited | Annual Report and Accounts 2019 At a Glance A world-class asset base of producing, development and exploration projects Russia Valunisty Novoshirokinskoye Belaya Gora Mnogovershinnoye Kekura Kayenmivaam Klen Kazakhstan Kyrgyzstan Lyubov Blagodatnoye Baley Hub Unkurtash Producing mine Exploration & development Highland Gold Mining Limited | Annual Report and Accounts 2019 Strategic Report • Governance • Financial Statements 03 OPERATIONS AND DEVELOPMENT EXPLORATION PRODUCED GOLD FOR 2020 TARGETS KEY Highland Gold’s 1. Kekura Mnogovershinnoye » Maintain operations are Kekura is Highland Gold’s premier production in located around development project, with construction 123,814 the range of three main hubs underway and commercial production 290-300k oz of expected to begin by 2023. Belaya Gora gold and gold in the Khabarovsk, equivalent Zabaikalsk and 2. Klen 40,067 » Complete Chukotka regions Highland Gold holds licences for the improvement of Russia as well Klen gold deposit and the adjacent Novoshirokinksoye projects at as Kyrgyzstan in Verkhne-Krichalskaya property, where Novo (1.3 Mtpa Central Asia. renewed exploration drilling is in 106,784 expansion) and progress. Belaya Gora Valunisty (processing plant 3. Baley Hub upgrade) The Baley group of deposits includes 30,039 » Continue the large Taseevskoye resource, the construction Sredny Golgotay deposit, and tailings ounces of gold & gold work at Kekura from the former Baley 1 processing equivalent in preparation plant (ZIF-1). for commercial 4. Unkurtash production in Unkurtash, located in Kyrgyzstan, 2023 is an advanced exploration project » Support and featuring stockwork-disseminated expand ongoing gold mineralisation hosted in a efforts to improve granite intrusion. workplace safety and employee 5. Kayenmivaam (Kayen) wellbeing Kayen is a 1,214km2 exploration area located approximately 130km from Kupol, the second largest gold mine in Russia. It consists of five exploration targets. 6. Blagodatnoye The Blagodatnoye deposit is being targeted as an additional source of ore for the Belaya Gora processing plant. 04 • • • Highland Gold Mining Limited | Annual Report and Accounts 2019 04 — 37 Strategic Report 01Chairman’s Statement The ongoing pursuit of our stated strategy of balancing a steady rate of gold production with the advancement of our major development and exploration projects was reflected in a highly satisfactory year’s trading during 2019. CEO’s Review I have every confidence that management’s continued pursuit of our clearly defined operating strategies, hand in hand with adherence to the Company’s rigorous cost controls, augurs well for the attainment of our growth targets. CFO’s Report For the first time in its history, the Company recorded production of over 300 thousand ounces, generating EBITDA of US$205.1 million and funding a US$98.2 million investment in projects. Highland Gold Mining Limited | Annual Report and Accounts 2019 Strategic Report • Governance • Financial Statements 05 06 • • • Highland Gold Mining Limited | Annual Report and Accounts 2019 Chairman’s Statement Dear Shareholder, Eugene Shvidler I am pleased to report that the Chairman ongoing pursuit of our stated strategy of balancing a steady rate of gold production with the advancement of our major development and exploration projects was reflected in a highly satisfactory year’s trading during 2019. Overall output from our four operating mines – MNV, Novo, Belaya Gora and Valunisty – totalled 300,704 oz of gold and gold equivalent. This represented a 12% increase (largely reflecting the Valunisty acquisition) versus 2018’s output of 269,500 oz and more than met our guidance range of between 290,000 and 300,000 oz. In line with the aforementioned objective our production guidance in respect of 2020 remains at 290,000 - 300,000 oz. I make no apologies for reiterating the importance of Highland Gold Mining’s low cost credentials: the differentiator that is integral to the fulfilment of the Company’s growth targets and the distribution of the resultant rewards to shareholders. Such low cost characteristics will be highly beneficial during the current financial year when capital expenditure is expected to more than double from 2019’s US$89 million to US$205 – 210 million as construction at Kekura, our flagship development project in the Chukotka region gathers momentum, modernisation is brought to bear at MNV, upgrades are progressed at Novo and Belaya Gora, expansion is undertaken at Valunisty and our investment in exploration continues. Shareholders will be pleased to learn that, in keeping with the Company’s traditional financing practices, the capex envisaged for 2020 will be fully funded by a combination of operating cash flow and low cost bank debt.