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Highland Gold H1'16 earnings jump 159% on production boost, lower costs

Highland Gold Mining Ltd. said Sept. 26 that earnings in the first half attributable to shareholders totaled US$36.8 million, a 159% increase on a yearly basis, reflecting higher gold output, higher prices and lower costs due to a cheaper Russian ruble.

All-in sustaining costs of production at the gold miner partly controlled by billionaire Roman Abramovich fell by 14% to US$609 per ounce, while total cash costs fell to US$444 per ounce from US$538, making Highland one of the cheapest gold producers in the world behind Russian peer PJSC Polyus Gold.

Revenues totaled US$147.1 million, nearly 13% more than in the first half of 2015, while EBITDA jumped by 45% on the same period to US$79.7 million in the first six months of 2016. Net debt fell by nearly 15% to US$197.9 million as of July 1.

The company produced 128,671 ounces of gold and gold equivalent during the period, up 6% year over year.

Given the strong results, Highland's board approved an interim dividend of US$11.9 million in the first half, or 5 British pence per share, the highest dividend yield from the group in recent years.

Expansion strategy

Speaking during a conference call following the announcement, CEO Denis Alexandrov said the results foreshadowed further production expansions over the coming few years.

Central to the growth strategy is the plan to bring Highland's flagship Kekura mine into production by 2019.

Other aspects include completing a feasibility study over the Klen property by the end of 2016 and boosting the throughput capacity at Highland's Novoshirokinskoye processing facility to 1.3 million tonnes per year by 2018.

"We think there are good grounds to think the DFS for Klen will be positive," Alexandrov said.

He also confirmed plans to spend approximately US$180 million building Kekura between 2016 and 2018.

"The amount depends on the equipment we will use for mill. Equipment selection should be finished by February next year," he said.

The company may also start processing ore from adjacent properties in the mill of its Belaya Gora mine, where output could rise by approximately one-third to 80,000 ounces per year by 2020.

Grades have been low at that mine in the first half, which the group blamed for the mine's 25% increase in cash costs over the period. Highland is now planning to supplement mining at Belaya Gora with processing lower-grade ore that was stockpiled when mining capacity was running higher than the mill could handle, Alexandrov said.

Combined, these expansion projects should more than double the company's annual gold output, to between 500,000 ounces and 520,000 ounces by 2020, according to John Mann, head of investor relations at Highland.

But the real future the company is in Highland's downstream exploration, Alexandrov said.

The company is spending US$18 million this year to drill approximately 68,000 meters by the end of of this year, Mann told SNL Metals & Mining during a Sept. 26 interview.

He said drilling efforts have focused around the company's existing mines and development projects, including a 25,000-meter program to convert resources indicated at the Kekura mine, and 15,000 meters each at the Blagodatnoye and the Baley Hub.

Highland may also acquire new gold assets via merger and acquisition deals, Alexandrov said.

"Third — we will be focusing on non-organic growth opportunities in regions in which we are present, Chukotka, Khabarovsk and Baikal," he said.

Mann clarified the statement, noting that, "we are looking around the areas in which we operate, and if something becomes available that makes sense, we'd definitely look into it. Also we are looking for opportunities close to those sites to source more feedback for the mills."

The company is planning to significantly boost mining and processing capacity at Novoshirokinskoye, while in the group of projects known as the Khabarovsk Cluster, Highland wants to upgrade the mill at Belaya Gora to include carbon in-leach circuits and also enable the processing of ore from Blagodatnoye, 30 kilometers to the south.

Meanwhile, the mill at the flagship Mnogovershinnoye mine is also expected to have spare processing capacity as its production dwindles due to reserves exhaustion.

Although Mnogovershinnoye's production should remain at about 100,000 ounces per year by 2020, Highland could source extra "high-grade" ore from third-party deposits to keep the processing facilities working at full capacity, Mann said.

SNL Metals & Mining is owned by S&P Global Inc.