2018 Annual Results and Project Update · Re-examining historic rock waste dumps Capital...

AIM: HGM

2018 Annual Results

and Project Update

April 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$ 682 per oz2

Strong track record of

paying dividends

1. Guidance for 2019 production of gold and gold equivalent

2. Figures for FY 2018

Chukotka

Cluster

Khabarovsk

Cluster

Baikal

Cluster

Kyrgyzstan

Unkurtash

Mongolia

China

Novo

Baley Hub Taseevskoye, ZIF-1,

Sredny Golgotay

MNV Belaya Gora

Blagodatnoye

Klen

Kekura

Valunisty

Kayen

Operating Mines

Development Projects

2018 Results Highlights

► 2018 production within guidance range of

265-275k oz.

► A strong operational year at MNV plus

completion of a new JORC-compliant

reserve audit that extended the project's

life of mine to 2029

► Belaya Gora output rose driven by better

recoveries, and a pre-feasibility study was

published regarding upgrades to the

processing plant and the processing of ore

from the nearby Blagodatnoye deposit

► Novo 1.3 Mtpa expansion continues in

order to offset expected decrease in

grades

► Costs remained stable despite growth in

expenses for fuel, energy, and labour

► The acquisition of the Valunisty mine and

related properties closed in December

2018

► Construction of the Kekura project

commenced following the completion of a

definitive feasibility study

4

2017 2018

Production (Oz gold and gold eq.)

272,274 269,500

All-in sustaining costs (US$/oz)

664 682

Total cash costs (US$/oz)

507 506

Revenue (US$ k)

316,682 311,153

EBITDA (US$ k)

155,275 153,060

Net profit (US$ k)

65,855 56,084

Net cash flow from

operations (US$ k)

130,990 136,247

Capital expenditure (US$ k)

58,336 62,347

Net debt*

(US$ k) (198,320) (194,286)

* On 01 Jan. 2019, excluding Valunisty debt

Commitment to Dividends

5

2.9%

6.2% 6.3%

7.7%

9.6%

9.8%

6.5%

9.1%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

US$ M

US$

per oz

* Based on the average share price for the period.

25.7

40.3

26.7 23.2 21.8

42.5 45.5

58

2011 2012 2013 2014 2015 2016 2017 2018

Highland Gold paid US$ 215

in dividends per oz produced

in 2018 and US$ 134 per oz

produced since 2011

Total dividends of

GBP 0.134 per share declared

for 2018, representing a yield

of 9.1%*

Future dividends secured by

dividend policy, which sets

target minimum payout of

20% of net operating cash

flow before capex.

114 89 83 163 169 215 140 186

Dividends Paid

Dividend Yield*

Our Strategy: Unlocking Value

6

Focus

corporate

development

on regions

of presence

Develop

assets at the

PFS/DFS

stage into

production

De-risk and

convert

additional

resources

into reserves

Focus on

operational

efficiency

and

continuous

improvement

Strengthen

commitment

to workplace

safety and

protecting

the

environment

Maximise

the upside

potential

of operating

assets

Control

Costs Returns to

Shareholders

Deliver

Growth

Valunisty: Value-Accretive Acquisition

7

In December 2018, Highland Gold acquired the Valunisty mine and related assets for US$ 85.9 M* in shares and assumed debt.

Key Advantages:

► Located in an existing operating region, Chukotka

► Increases annual production by 11%

► Acquisition was value-accretive for shareholders

Assets Purchased:

► Valunisty: an established, operating mine

► KAP: 831 km2 licence surrounding Valunisty, with several satellite deposits and exploration targets including the recently-commissioned Gorny mine

► Kayen: 1,214 km2 exploration area located 130 km from Kupol, the second largest gold mine in Russia

Upside Potential:

► Move to underground to reach higher-grade ore

► Processing plant expansion to 350 ktpa

► Substantial opportunities for resource-to-reserve conversion on KAP licence

1. JORC-compliant Resources and Reserves for Valunisty & KAS as of 01 Jan. 2019 incl. silver

2. FY 2018 estimated

Start Date 1999

Life of Mine 2028

Mine Type Open pit (+ underground)

Processing Gravity + cyanide leaching

Processing Capacity 250 ktpa

Au eq Resources (M,I&I)1 1.67 Moz @ 3.0 g/t

Au eq Reserves (P&P)1 503 koz @ 5.2 g/t

Au eq Production (2018) 38 koz

Avg Head Grade/Recovery 4.7 g/t | 96%

Total Cash Costs2 US$ 752/oz

Valunisty

* US$ 68.13 M in shares issued plus US$ 17.7 M in assumed debt as of closing

on December 27, 2018

MNV: Extending Life of Mine

8

Start Date 1991 (HGM 1999)

Life of Mine 2029

Mine Type Open pit & underground


Processing Capacity 1.4 Mtpa

Au Resources (M,I&I)1 1.48 Moz @ 3.2 g/t

Au Reserves (P&P)1 787 koz @ 2.7 g/t

Au Production (2018) 113 koz

Avg Head Grade/Recovery 2.92 g/t | 92.3%

Total Cash Costs (2018) US$ 600/oz

Key Challenge:

► Finding additional reserves to extend the life of mine

(was 2018), to continue making use of existing

infrastructure and maintain production level

Solutions:

► Ongoing, extensive near-mine exploration

programme on existing MNV licences

► Acquisition of three adjacent greenfield licences

► Re-examining historic rock waste dumps

Capital Commitment:

► US$ 3-5 million per year

Status:

► Life of mine extended to 2029

► Nearly 600k oz Au added to reserves in 2017-2018

► Over 675k tonnes of ore at 1.09 g/t Au taken from

the rock waste dumps to the mill since 2016

► Near-mine exploration programme continues

1. JORC-compliant Resources and Reserves as of 01 Jan. 2019

Mnogovershinnoye (MNV)

Novo: Capacity Expansion

9

Key Challenge:

► 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

Capital Commitment:

► US$ 10 million to complete Stage 1

Status:

► Stage 1 (mine capacity expansion) – most

infrastructure built or currently under construction

► Stage 2 (processing plant expansion) – in the design

phase, using ore sorting with X-ray transmission

(XRT)

► Commissioning expected in 2020

Start Date 2009

Life of Mine 2032

Mine Type Polymetallic, underground

Processing Gravity-flotation circuit


Au eq Resources (M,I&I) 1 2.72 Moz @ 3.8 g/t

Au eq Reserves (P&P)1 1.57 Moz @ 3.0 g/t

Au eq Production (2018) 113 koz


Total Cash Costs (2018) US$ 323/oz (US$ 399/oz)2


2. Including processing costs

Novoshirokinskoye (Novo)

Belaya Gora: Mill Upgrade and Blagodatnoye

10

Start Date 2014

Life of Mine1 2032

Mine Type Open pit

Processing Gravity


Au Resources (M,I&I)1 2 1.35 Moz @ 1.4 g/t

Au Reserves (P&P)1 2 906 koz @ 1.4 g/t

Au Production (2018) 44 koz


Total Cash Costs (2018) US$ 724/oz

1. Including Blagodatnoye


Key Challenges:

► Increase recoveries at the processing plant

► Adding resources to extend life of mine (was 2023)

Solutions:

► Add a carbon-in-pulp (CIP) circuit to the processing plant to improve recoveries from the current 75% to a range of 86-91%

► Plan for processing ore from the nearby Blagodatnoye licence at the Belaya Gora mill

Capital Commitment:

► US$ 15 M estimated for the plant upgrade (2019-2020)

► US$ 21 M estimated to move mining activity to Blagodatnoye after 2023

Status:

► A PFS for the plant upgrade and mining of Blagodatnoye was completed in 2018

► The plant upgrade is in the design phase

► Exploration is also underway on the Belaya Gora flanks licence

Belaya Gora

Kekura: Premier Development Project

Project Status

► Definitive Feasibility Study (DFS) published in 2018

► Several key infrastructure facilities (power substation, assay lab, fuel storage, shovel assembly, communications tower, roads) completed or under construction

► Camp and pilot processing plant already on site

Capital Commitment:

► US$ 229 M (pre-commissioning as per DFS)

Next Steps

► Stripping and preliminary ore mining in Q4 2019

► Full processing plant scheduled for completion by 2023

Upside Potential

► Included in the list of projects eligible for the government’s new Chukotka Advanced Special Economic Zone (ASEZ), which offers tax incentives that add more than US$ 100 million to NPV

► Exploration drilling commenced on several of 12 additional targets in the broader Kekura licence area to identify additional open pit reserves

11

Kekura

Est. Start Date 2023

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

2018 Financial Review

12

2018 Financial Highlights

13

2016 2017 2018

Gold and GE Production, koz 261 272 270

Revenue, USD m 306 317 311

Operating Profit (w/o impairment), USD m 92 102 109

Impairment Losses, USD m -23 0 0

EBITDA, USD m 162 155 153

STRONG BALANCE SHEET

Total Assets, USD m 1121 1142 1183

Total Equity, USD m 756 778 769

Net Debt, USD m 205 198 194

KEY RATIOS

TCC, USD / oz 454 507 506

AISC, USD / oz 652 664 682

Net Debt / EBITDA 1.3 1.3 1.3

EBITDA margin 53% 49% 49%

DIVIDENDS

Dividends paid during the year, USD m 31.7 43.9 49.6

Dividends declared during the year

Interim, GBP per share 0.050 0.050 0.060

2nd interim, GBP per share 0.054 0.050

3rd interim, GBP per share 0.024

Final, GBP per share 0.054

Total, GBP per share 0.104 0.104 0.134

Total Dividends declared for the year, USD m 41.8 45.5 57.8

All figures exclude the Valunisty acquisition

Metals Prices and Exchange Rates

14

2016 2017 2018

Gold Price 1,247 USD/oz 1,259 USD/oz 1,258 USD/oz

▼-0%

Silver Price 17 USD/oz 17 USD/oz 15 USD/oz

▼-9%

Lead Price 1,815 USD/t 2,293 USD/t 2,299 USD/t

▲ 0%

Zinc Price 1,967 USD/t 2,809 USD/t 2,858 USD/t

▲ 2%

Copper Price 6,546 USD/t

n.a.

USD/RUB 66.8 58.3 62.9

▲ 8%

EUR/USD 1.1 1.1 1.2

▲ 4%

GBP/USD 1.4 1.3 1.3

▲ 3%

HGML Revenue Breakdown

6 8 15

10 14 13 12 18 14 12

16 16

1 333 1 334 1 326 1 334 1 304 1 282

1 238 1 202 1 199 1 215 1 221

1 250

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2018 Gold Price Dynamics Compared To The Volume Of Sales

Au sold by MNV and BG, koz LMBA average price, USD/oz

Novo 23%

Belaya Gora 18%

MNV 45%

14%

2018

Au

86%

Cu 1%

Zn 2%

Pb 5%

Ag 6%

Novo 27%

Belaya Gora 17%

MNV 41%

15%

2017

Au

85%

Zn 2%

Pb 6%

Ag 8%

2018 Gold Price vs Volume of Sales

Other

Metals

Other

Metals

Low Cost, High Margin Producer

All-In Sustaining Costs

US$/oz (2018)

Source: Company data

Highland Gold’s EBITDA Margin: 49%

15

International Majors

Russian Companies

1309 1231

1057 1057 1051 1051 994 981 965 945

909 889 884 877 866 861 851 843 835 806

682 679 605

0

200

400

600

800

1000

1200

1400

TCC & AISC

16

HGML TCC was flat at USD 506/oz. The positive effect of the weaker rouble

(-8%) was offset by a 5% increase in MNV’s share of the volume of sales,

replacing less costly Novo ounces

MNV TCC decreased by 3% as the share of processed low-grade ore from waste

dumps fell from 24% to 1%, thus increasing head grade at the mill by 15%

Belaya Gora TCC decreased by 16%, mainly due to the lower share of ore from

stockpiles used in processing (23% in 2018 compared to 78% in 2017)

Novo TCC decreased by 8% due to a change in contract terms and conditions

(-USD 66 per oz in processing costs)

HGML AISC increased slightly to USD 682/oz due to increases in G&A (+9%)

and supporting CAPEX (+25%)

617 600

2017 2018

861

724

2017 2018

291 323

141 75

2017 2018

432

507 506

2017 2018

Total Cash Costs

664 682

H1 2017 H1 2018

399

-0%

-16%

-8%

+3%

TCC by Operating Asset Total Cash Costs

All-In Sustaining Costs

-3%

HGML, US$/oz MNV, US$/oz Belaya Gora, US$/oz Novo, US$/oz

HGML, US$/oz

Processing costs (US$/oz)

EBITDA

17

G&A -15

G&A -16

G&A -18

Novo 96

Novo 92 Novo

77

BG 26 BG

17 BG 23

MNV 55 MNV

62 MNV 69

Other 2

162 155 153 11.7

2.2

0.5 5.7 6.8

2.6

2016 2017 ExchangeRate

MetalPrices

Volume ofSales

Costs G&A Other 2018

G&A Costs Volume

of Sales

Metal

Prices

Exchange

Rate

+ US$ 4.9 m - exchange rate effect

- US$ 0.2 m - lower Au prices

+ US$ 6.0 m - increase in volume of sales (+10%)

- US$ 3.1 m - increase in cost of sales


- US$ 0.1 m - lower metal prices

- US$ 11.6 m - decrease in the volume of sales (-13%)

- US$ 7.3 m - increase in cost of sales


- US$ 0.1 m - lower Au prices

- US$ 0.3 m - decrease in the volume of sales (-2%)

+ US$ 3.5 m - decrease in cost of sales


- US$ 2.6 m - increase in G&A costs

Other

Income

Capital Expenditure

MNV

► USD 8.5 m – supporting investments: replacing worn-out equipment and

capital construction

► USD 2.8 m – exploration work and reserves estimations

► USD 1.6 m – regulatory filings and design work for a new tailings dam

► USD 2.6 m – capital development

► USD 5.2 m – capitalized ore bodies

Novo

► USD 2.8 m – supporting investments (replacement of worn-out equipment) and

design work for a new tailings dam

► USD 3.6 m – capital development

► USD 7.2 m – 1.3 Mtpa Expansion Project

Belaya Gora

► USD 1.0 m – supporting investments

► USD 2.1 m – exploration work

► USD 1.8 m – design work for new tailings dam and PFS for Blagodatnoye

Kekura

► USD 8.2 m – field camp and road maintenance , G&A

► USD 2.9 m – exploration work

► USD 2.9 m – purchases of fuel and equipment for plant-120

► USD 1.9 m – DFS and other research work

► USD 1.6 m – capital construction of the power substation

Baley Hub

► USD 0.6 m – exploration and research work

► USD 1.9 m – site maintenance

Development Projects - Highland Exploration (Unkurtash), Klen, Lyubov

► Minimal investments only to meet license commitments

18

US$ k, excl. VAT 2017 2018

KHABAROVSK CLUSTER 17,690 25,434

Mnogovershinnoye 13,872 20,659

Belaya Gora 3,818 4,775

BAIKAL CLUSTER 16,462 16,332

Novo 13,518 13,697

Taseevskoye 2,782 2,527

Lyubov 162 108

CHUKOTKA CLUSTER 22,532 18,749

Kekura 22,368 17,665

Klen + VK area 163 1,084

OTHER 1,652 1,834

Highland Exploration 1,456 1,088

Other 195 744

Total 58,336 62,347

Debt Portfolio

Debt Status as at 31.03.2019

► Gross debt: $222 m

► Net debt: US$ 201

► Effective interest rate: 4.19%

► Average tenor: 21 months

► US$ 490 m of undrawn

revolving credit facilities

► Net Debt/EBITDA ratio: 1.3

19

By Lender By Interest Rate By Term

60% Short-Term

40% Long-Term

77% Fixed

23% Floating

15% Rosba

nk

48% Unicre

dit

27% Raiffei

sen

10% Sberba

nk

212 208 232 222 206 199 194 201

4.54%

3.44%

4.20% 4.19%

0.77%

1.56%

2.50% 2.49%

31.12.2016 31.12.2017 31.12.2018* 31.03.2019

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

2019 Outlook

20

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 processing plant upgrades at Belaya Gora

►Ramp-up construction at Kekura

– Begin initial stripping and mining in Q4 2019

► Integrate the recently-acquired Valunisty mine and related operations and begin studies

on potential upgrades to its operations

►Capital Expenditure Budget: US$ 116 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 21

AIM: HGM

www.highlandgold.com

[email protected]

Thank You

2018 Annual Results and Project Update · Re-examining historic rock waste dumps Capital...

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