Unlocking Value and Delivering Returns to Shareholders

Transcription

1 Unlocking Value and Delivering Returns to Shareholders Denis Alexandrov Chief Executive Officer Denver Gold Forum September 2018 AIM: HGM

2 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 Highland Gold Highlights Established gold producer Three operating mines Pipeline of high-grade development projects Clear strategy for growth Low cost, high margin Commitment to dividends 2018 Production Forecast: 265, ,000 oz Au + Au eq. Production (oz Au + Au eq.) Revenue (US$ M) EBITDA (US$ M) Net Cash Flow from Operations (US$ M) Net Profit (US$ M) Earnings per Share (US$) Total Cash Costs (US$/oz) All-In Sustaining Costs (US$/oz) 2017 H , ,

4 Corporate Overview 4 Listed on London AIM Incorporated in Jersey in 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* Enterprise Value Net Debt** HGM US$ 624M US$ 831M US$ 189M Net Debt/EBITDA (LTM)** 1.2x 2017 Earnings/Share US$ Shareholder Structure Share Price Performance 70 Sep 17 Dec 17 Mar 18 Jun 18 Sep 18 * On 20 September 2018 ** On 30 June 2018 HGM Gold Price FTSE All Share Mining Board & Management Institutions & Retail 17% 63% Free Float 53% 20% 10% Core Shareholder Group Prosperity Capital Management

5 Where We Operate Valunisty Kekura Klen Chukotka Cluster Moscow Russia Khabarovsk Cluster Baikal Cluster Blagodatnoye Mnogovershinnoye (MNV) Belaya Gora Novoshirokinskoye (Novo) km 600 m Kazakhstan Unkurtash Kyrgyzstan Baley Hub Taseevskoye Sredny Golgotay ZIF-1 Tailings Mongolia China Vladivostok Operating mines Development projects Pre-development Acquisition target

6 Our Strategy: Unlocking Value Maximise the upside potential of operating assets MNV Belaya Gora Novo New reserves Plant upgrade + Blagodatnoye Increase throughput Develop assets at the DFS/PFS stage into production Kekura Klen DFS complete. Begin construction New PFS + additional exploration De-risk and convert additional resources into reserves Taseevskoye Unkurtash De-water pit + confirm reserves Find partner + move to PFS stage Focus development on regions of presence Maintain commitment to operating safety and protecting the environment 6

7 Operating Environment Gold Mining in Russia Approximately 2/3 of costs in rubles Transparent licensing system Prospecting licenses for greenfield sites now available without tender Stable tax & legal regime 6% royalty 20% profit tax Skilled domestic workforce Government incentives for investing in the Far East Geopolitical Concerns Sanctions have had no effect on Highland Gold s operations Financing readily available and interest rates stable Internal procedures in place to ensure compliance Tax incentives, infrastructure grants, low-cost loans Designated Territories of Advanced Development 7

8 Low Cost, High Margin Producer All-In Sustaining Costs US$/oz (H1 2018) Highland Gold s EBITDA Margin: 49% International Majors Russian Companies Source: Company Data 8

9 GBX Commitment to Dividends Highland Gold is among the most consistent dividend payers in the gold industry Interim Dividend of GBP 0.06 per share declared for H Dividend policy sets target minimum payout of 20% of net operating cash flow % 10.0% % 6.0% Yield 4 4.0% 2 $25.7M $40.3M $26.7M $23.2M $21.8M $41.8M $48.3M $25.1M 2.0% H % 9 Dividend per share (pence) Yield (%) Total Payout (US$) Yield based on average share price for the period and annualised for H1 2018

10 10 Operational Overview

11 Mnogovershinnoye (MNV) 11 H Highlights H production of 48k oz Au (H1 2017: 51k) Processing volume in H was 15% lower y-o-y due to a damaged feed trunnion on one SAG mill line. Repairs were completed 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 H gold production only 5% lower year-on-year TCC affected by lower volumes and front-loaded production exploration drilling 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 Outlook 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 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 Q and will further extend the life of mine Production level expected to remain stable in mid-term MNV Snapshot Opened 1991 (HGM 1999) Life of Mine 2022 Mine Type Processing Processing Capacity Au Resources (M,I&I)** Au Reserves (P&P)** Au Production (2017) Avg Head Grade* Total Cash Costs* Production (koz) Recovery (%) Grade (g/t) H Khabarovsk Cluster Open pit & underground Gravity + cyanide leaching 1.4 Mtpa g/t g/t 103 koz 2.75 g/t US$ 707/oz TCC (US$) * H figures **JORC-compliant Resources and Reserves as of 31 Dec

12 Belaya Gora 12 H Highlights H 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 Outlook 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 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 Belaya Gora Snapshot Opened 2014 Life of Mine* 2032 Mine Type Processing Processing Capacity Au Resources (M,I&I)** Au Reserves (P&P)** Au Production (2017) Avg Head Grade* Total Cash Costs* ** with Blagodatnoye Production (koz) Recovery (%) Open pit Gravity 1.6 Mtpa 1.38 Moz@ 1.4 g/t g/t 43 koz 1.11 g/t US$ 795/oz Grade (g/t) H Khabarovsk Cluster TCC (US$) * H figures **JORC-compliant Resources and Reserves as of 31 Dec

13 Novoshirokinskoye (Novo) 13 H Highlights H production of 61k oz Au eq. (H1 2017: 61k) Higher processed grades for H 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 Outlook 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 overhaul, 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 Novo Snapshot Opened 2009 Life of Mine 2032 Mine Type Processing Processing Capacity Au eq Resources (M,I&I)** Au eq Reserves (P&P)** Au eq Production (2017) Avg Head Grade* Total Cash Costs* Production (koz) Recovery (%) Polymetallic, underground Gravity-flotation circuit 0.8 Mtpa g/t g/t 127k oz 5.83 g/t US$ 299/oz (US$ 366/oz***) Grade (g/t) H Baikal Cluster TCC (US$) * H figures **JORC-compliant Resources and Reserves as of 31 Dec *** Adjusted for processing costs as if producing dore. 299

14 Kekura Premier Development Project 14 H Highlights Definitive Feasibility Study (DFS) published in Q 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 Outlook 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 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 H Kekura Snapshot Est. Start Date 2021 Life of Mine Mine Type Processing Processing Capacity Au Resources (M,I&I) Au Reserves (P&P) Au Production (est. annual) Total Cash Costs (est.) Klen Chukotka Kekura 16 years Open pit & underground Gravity + cyanide leaching 0.8 Mtpa g/t g/t 172k oz (years 1-8) 46k oz (years 9-16) Pevek US$ 511/oz Mayskoye Dvoinoye Kupol Valunisty Anadyr Chukotka Cluster HGM Polymetal Kinross Figures based on 2018 Definitive Feasibility Study

15 Valunisty Value-Accretive Acquisition 15 Asset Overview 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 Transaction Structure 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 Q Requires approval by Russian Federal Antimonopoly Service Valunisty Snapshot Start Date 1999 LoM 2028 Mine Type Processing Processing Capacity Au eq Resources (M,I&I)* Au eq Reserves (P&P)* Au eq Production (2017) Avg Head Grade Total Cash Costs Chukotka Klen Kekura Kayen Pevek Open pit (+ underground) Gravity + cyanide leaching 250 ktpa g/t g/t 31 koz 4.6 g/t US$ 887/oz Mayskoye Dvoinoye Kupol Anadyr KAP Valunisty Chukotka Cluster Acquisition HGM Polymetal Kinross *Valunisty + KAP, JORC-compliant Resources and Reserves as of 31 Dec. 2017

16 Thank You 16 AIM: HGM