RNS Number:4770K
Highland Gold Mining Limited
29 April 2003
29 April 2003
Highland Gold Announces Final Results
for the six months to 31 December 2002
Financial Highlights
* Admission to AIM in December 2002 raising US$25 million for the Company
after costs
* Turnover
- Turnover of US$27.4 million for the period
- Full year pro forma turnover US$55.7 million (2001: US$ 40.1 million)
* Operating profit
- Operating profit of US$8.6 million,
- Full year pro forma operating profit US$25.8 million (2001: US$13.6
million)
* Profit before tax
- US$9.4 million in the period
- US$14.7 million in the first half for MNV
* Earnings per share of 6.9 cents per share
* Recommended dividend of US$0.01 per share
Business Highlights
* Total 2002 gold production at MNV of 178,000 oz (2001: 153,000 oz)
* Average cash operating cost for the year - $149 per oz
* Acquisition of Novoshirokinskoye
* Capital expenditure of US$11.3 million for the period (excluding
acquisition of Novoshirokinskoye)
* Long term licences secured at Darasun and Teremky to 2023 post year end
Commenting on the results, Peter Daresbury, Executive Chairman said:
"Since the successful admission to trading on AIM, we have exceeded our
production targets at MNV and have made considerable progress with our
development projects at both Darasun and Novoshirokinskoye.
"In recent months, operating costs, some external, have risen and we expect
certain of these costs to continue to rise in 2003. In part this reflects
planned increases in expenditure which will enable the Group to continue to
optimise the performance of the mining operations at MNV. Furthermore, it is
important to note that Russia remains a low cost environment for gold mining.
This is illustrated by the Group's average annual cash operating costs of US$149
/oz. In the first quarter of 2003, I am pleased to report that the Company
processed 209,000 tonnes of ore, a like-for-like increase of 11% against 2002.
"Highland Gold's existing platform of operational and development assets in
Russia, together with its financial, technical and operational expertise,
provides a firm foundation for the achievement of the Group's strategic goals.
The Board is confident that with the number and quality of opportunities that it
is pursuing and the access to international capital that the admission to AIM
has provided, the Group has all that is necessary to allow it to become a
mid-tier gold producer."
Enquiries: 020 7404 5959
Highland Gold Lord Daresbury, Executive Chairman
Ivan Koulakov, Managing Director
Brunswick Patrick Handley
Mark Antelme
CHAIRMAN'S STATEMENT
It gives me great pleasure to present Highland Gold's first results to
shareholders for the six month period to 31 December 2002. We have made
substantial progress since the Company's incorporation in May 2002 and the
subsequent acquisition of a suite of gold producing and development assets in
Russia centred on MNV, one of Russia's largest producing gold mines in 2002.
We successfully completed the admission of the Company's shares to AIM in
December and, in doing so, became the second largest company on AIM by market
capitalisation. A total of US$39 million was raised in difficult market
conditions (of which US$25 million was new money for the Company) and it is
testament to the quality of the assets and the Company's management team that
such a significant capital raising was achieved.
Results and progress since admission to AIM
In the six months to 31 December 2002 the Group reported revenue of $27.4
million, operating cash flow before capital expenditure of US$9.4 million and
profit after tax of US$7.1 million. The Company reported earnings per share for
the period of 6.9 cents per share. The Company's operating mine at MNV produced
87,300 oz during the period at an average recovered grade of 6.5 grammes per
tonne.
It is perhaps more appropriate to comment on the pro forma results of MNV for
the full year. Pro forma turnover rose by 39% to US$55.7 million - for the
twelve months to 31 December 2002 (US$40.1 million in 2001) and pro forma
operating profit rose by 90% to US$25.8 million (US$13.6 million in 2001).
Annual production at MNV for the year ended 31 December 2002 was 178,000 oz of
gold, ahead of our expectations, with an average recovered grade of 6.9 grammes
per tonne.
MNV reported pro forma operating profits of US$10.1 million for the six month
period against US$15.7 million for the first half of the year. Absolute
operating costs have increased in the second half and the reasons are more fully
explained in the Managing Director's Review and the Financial Review.
Proceeds from the placing in December, available bank facilities and the
operating cash flow from MNV, provides the Group with sufficient financial
resources to continue the development of MNV and to bring the Darasun and
Novoshirokinskoye projects into full production.
At the time of Admission we stated the Group's intention to adopt a progressive
dividend policy whilst maintaining a close watch on the capital requirements of
the business and taking a prudent view on the Group's debt position. I believe
this is an important element of the investment proposition and I am pleased to
recommend the Company's first dividend of US$0.01 per share.
With regard to our assets, as envisaged at the time of Admission, long-term
licences have been secured at two key deposits at the Darasun development and
the registration of important assets at MNV has now been completed. We are
continuing to consolidate our key strategic assets and are on track to bring our
development projects into full production.
The economic and regulatory environment
Since 1998 the Russian gold industry has undergone a period of fundamental
change that has created a more favourable climate for the development and
operation of gold mines in Russia. Furthermore, continued structural reform has
led to a more open environment for overseas initiatives, and a number of recent
investments by foreign companies and the improvement of Russia's credit rating
support this.
Despite Russia's significant gold reserves, there is no single gold company
producing in excess of 1 million oz of gold per annum. Russia's gold assets
have not been fully developed and remain under-capitalised. In our view, this
reflects the slow evolution of the regulatory environment governing the gold
mining industry, compared with other mineral and resource sectors.
This environment, coupled with the recent positive developments both in Russia
and in the Russian gold industry, provides an opportunity for Highland Gold to
follow a strategy of establishing a portfolio of Russian gold projects that
fulfil the Group's technical and economic development criteria. In actively
pursuing this strategy, the Group is able to apply the considerable experience
it has accumulated during the development of the MNV mine.
Much has changed in the regulatory environment and the Group has made progress
in moving towards major aspects of the Combined Code and best practice
initiatives. Principally we have focused on: the constitution of the Board of
Directors to ensure there is an appropriate balance of executive and
non-executive directors with suitable experience; relations with shareholders;
social and environmental risks; and internal control and risk management.
Board and management
On 10 February 2002, after our financial year end, we announced the resignation
of Ted Grobicki from the Board (together with Peter McKenna, his alternate) and
Mike Pleming replaced him as a non-executive director. At the time I expressed
our gratitude for the considerable input from Ted and Peter, both of whom are
executives of Harmony Gold Mining Company, in developing our strategy and
welcomed Mike, a non-executive director of both Harmony Gold Mining Company and
Impala Platinum Holdings who comes with many years' mining and exploration
experience.
The Group has a successful Russian executive management team which, together
with the Directors, is committed to the expansion of the Group's production base
whilst ensuring rigorous financial and operational controls.
I would like to take the opportunity to thank the management and the entire work
force for a successful year in 2002. Without them we would not be so ideally
placed to take our business forward.
Strategic development
The Directors currently envisage that, in the near term, emphasis will be placed
on the optimisation of the existing operations at MNV, the development of the
Darasun project, and the completion and development of Novoshirokinskoye. We
look forward to first gold production at Darasun in the first half of 2004, and
based on the successful completion of the Darasun and Novoshirokinskoye
projects, the Group has the potential to increase production by a further
160,000oz of gold per year.
Mining acquisition opportunities are being pursued which should add further to
our record of profitable growth and deliver more value to shareholders. We look
forward to updating the market on these developments.
Outlook
The overall market for gold producers has recently been affected by the
weakening of the US dollar and the reduction in the gold price from its recent
high, but we are pleased with the Company's overall performance since admission
to AIM. Macroeconomic factors such as the gold price and the US dollar/Russian
rouble exchange rate will continue to influence our results and it is therefore
important that the Company maintains a firm control of its own costs.
In recent months, operating costs, some external, have risen and we expect
certain of these costs to continue to rise in 2003. In part this reflects
planned increases in expenditure which will enable the Group to continue to
optimise the performance of the mining operations at MNV. Furthermore, it is
important to note that Russia remains a low cost environment for gold mining.
This is illustrated by the Group's average annual cash operating costs of US$149
/oz. In the first quarter of 2003, I am pleased to report that the Company
processed 209,000 tonnes of ore, a like-for-like increase of 11% against 2002.
In carrying out our intended strategy of developing the Group as a platform for
further growth and consolidation in the Russian gold mining industry, we have
made a number of improvements to the Group's processes and controls and made
appointments at the executive management level. We will continue to review the
composition of the Board and executive management team.
Highland Gold's existing platform of operational and development assets in
Russia, together with its financial, technical and operational expertise,
provides a firm foundation for the achievement of the Group's strategic goals.
The Board is confident that with the number and quality of opportunities that it
is pursuing and the access to international capital that the admission to AIM
has provided, the Group has all that is necessary to allow it to become a
mid-tier gold producer.
Peter Daresbury
Chairman
MANAGING DIRECTOR'S REVIEW
It gives me great pleasure to comment on the results of the Group in our first
year as a publicly quoted company. After the success of our AIM admission and
placing, the pro forma results for the full year to 31 December 2002 are
particularly pleasing and show the continued progress of the Group.
Group operations and reserves
The Group has an aggregate resource base of 8.0 million oz of gold, comprising
7.2 million oz of gold and approximately 0.8 million oz of gold equivalents at
the gold and polymetallic deposit at Novoshirokinskoye.
Highland Gold owns and operates the MNV gold mine which is situated near to
Nikolaevsk in the Khabarovsk Region of Far East Russia, approximately 650km
north of the city of Khabarovsk. MNV owns the licence for gold mining there
which is valid until the end of 2018. Operations at MNV consist of both
underground and open-pit mining of several high grade gold deposits. MNV was one
of Russia's largest gold producers in 2002 and has reserves of 2.3 million oz of
gold at an average grade of 8.9 grammes per tonne and resources of 3.0 million
oz of gold at an average grade of 9.7 grammes per tonne.
During the year we produced 806,000 tonnes of ore at MNV (of which 388,000
tonnes were from open pit operations and 375,000 were from the underground mine,
the remaining 43,000 tonnes being released from the stockpile) at an average
recovered grade of 6.9 grammes per tonne and average recovery of 91.7%. A total
of 178,000 oz of gold was produced, an increase of 16% over our 2001 production
of 153,000 oz. I am pleased to add that this performance has continued into 2003
with 209,000 tonnes of ore processed in the first quarter, a like for like
increase of 11% against the same period in 2002.
We continue to seek to optimise the performance of operations at MNV and to
develop the gold reserves there. We spent a total of US$4.5 million on capital
expenditure during the second half of 2002 and plan to spend approximately
US$6.1 million during 2003, mainly on the upgrading of mining equipment.
The Darasun project is situated in the Chita Region of Eastern Russia and
consists of an existing, but currently non-operational, gold mining complex
having open-pit and underground mining development and mineral processing
facilities. It consists of three deposits, Darasun, Teremky and Talatui. The
Company holds a 100% interest in Darasun which holds certain assets of the
Darasun project including the gold mining licences at Darasun and Teremky which
expire in 2023 and which were recently awarded to Darasun. It is anticipated
that mining production will commence in the first half of 2004 with full
production of an estimated 450,000 tonnes of ore in 2005. We are planning to
spend approximately $22.6 million on capital expenditure at Darasun in 2003,
predominantly on mill construction and development of the underground
infrastructure.
The Novoshirokinskoye gold and polymetallic mining project is also located in
the Chita region, close to Darasun. The Group acquired an 81.29% interest in
Novoshirokinskoye, which holds certain key assets essential to the future
development of this project. A further 2.17% had been acquired by the end of
2002 and a further 3.62% has since been acquired in 2003. We continue to work
closely with Irkutsk Scientific Research Institute on the feasibility study for
the Novoshirokinskoye project and we expect to complete this work by the end of
the year. In addition, we are also working closely with the local administration
in Chita to ensure that the Group fully complies with all aspects of the gold
mining licence. We expect to spend approximately US$2 million of capital
expenditure at this project in 2003 and assuming that the above-mentioned work
programmes are completed to our satisfaction, we anticipate being able to bring
the mine into production during 2005.
Operating costs at MNV have increased in the period. This can be attributed to
a number of factors including:
* Certain planned cost increases relating to the transition of mining
operations to a new ore body;
* Increased production costs associated with processing of higher volumes
of lower grade ore;
* Increases in the price of consumables used in the extraction process;
* Electricity and transportation costs.
Furthermore, a higher proportion of our production came from the relatively more
expensive underground mining in the second half of the year.
We have continued to analyse our cost base to ensure that cost increases are
mitigated. We have already commenced the construction of our own power supply
at MNV to ensure not only efficiency and reliability of our power supply, but
also control over our costs.
We continue to maintain excellent working relationships with the local
governments of Khabarovsk and Chita. The mining operations have a significant
impact on the local economies as the major employers in the area and we look
forward to continuing to provide opportunity and prosperity in these regions.
Future projects and acquisitions
The Group has an outstanding body of proven mining and metallurgical expertise
and experience. With this skills base Highland Gold is well positioned to
capitalise on any acquisition the Board identifies as value enhancing for
shareholders.
Ivan Koulakov
Managing Director
FINANCIAL REVIEW
Highland Gold was incorporated on 23 May 2002 and its first accounting period
was the 37 days to 30 June 2002. These financial statements include the results
for the accounting period for the six months ended 31 December 2002, the first
accounting period following the successful admission to the Alternative
Investment Market of the London Stock Exchange ("AIM").
During this period, the only significant contributor to Highland Gold's results
has been its main operating subsidiary, MNV. Therefore, in addition to its
reported results, Highland Gold is also presenting pro forma results for the six
months ended 30 June 2002 and the twelve months ended 31 December 2002, in order
to enable shareholders to assess the current performance in the context of the
past performance of MNV. The pro forma results include adjustments for specified
items and have been derived from the UK GAAP accounting information.
Reconciliation of reported profit to pro forma result
Pro forma MNV
result six Six Pro forma
Administrative Impact of months months result year MNV
expenses of fair value ended 31 to 30 to 31 Year to 31
other group adjustments December June December December
Reported companies (a) (b) 2002 2002 (c) 2002 2001 (c)
US $'000 US $'000 US $'000 US $'000 US $'000 US $'000 US $'000
Turnover 27,420 - - 27,420 28,264 55,684 40,108
Cost of sales (15,329) - 419 (14,910) (10,450) (25,360) (20,749)
Gross profit 12,091 - 419 12,510 17,814 30,324 19,359
Administrative (3,479) 1,109 - (2,370) (2,108) (4,478) (5,771)
expenses
Operating profit 8,612 1,109 419 10,140 15,706 25,846 13,588
(a) Jersey and Moscow head office expenses
(b) Impact of amortisation of purchase premium
(c) Previously reported UK GAAP figures for MNV
Financial performance
For the period ending 31 December 2002 the Group reported revenue of US$27.4
million, operating profit of US$8.6 million and profit after taxation of US$7.1
million. This includes a one-off gain of US$2.0 million from the renegotiation
of a loan with a supplier of fixed assets to MNV.
Pro forma revenue for the full year rose by 39% from US$40.1 million in 2001 to
US$55.7 million.
Tonnes of ore processed rose from 389,000 in the first half of the year to
417,000 in the second half.
Pro forma cost of sales have increased by 43% from US$10.5 million to US$14.9
million in the second half of the year. As outlined in the Managing Director's
Review, this can be attributed to a number of factors including:
* Certain planned cost increases relating to the transition of mining
operations to a new ore body;
* Increased production costs associated with processing of higher volumes
of lower grade ore;
* Increases in the price of consumables used in the extraction process;
* Electricity and transportation costs.
Furthermore, a higher proportion of our production came from the relatively more
expensive underground mining in the second half of the year.
The group is taking a number of steps to mitigate its exposure to such cost
fluctuations including development of a proprietary power supply, consideration
of more efficient transportation routes and improvement in production processes
through a full review of its cost structure to be commissioned in 2003.
Pro forma operating profit increased by 90% from US$13.6 million in 2001 to
US$25.8 million in 2002. Savings in administration costs of 22% were achieved at
MNV. However, additional administration expenses were incurred on the
introduction of certain costs at Highland Gold necessary to create the platform
for future growth and consolidation and to address the requirements of becoming
a publicly quoted company.
1. CONSOLIDATED PROFIT AND LOSS ACCOUNT
184 day period 37 day period
ended 31 ended 30 June
December 2002 2002
US$000 US$000
TURNOVER
Continuing operations 27,420 4,711
Cost of sales (15,329) (1,836)
GROSS PROFIT 12,091 2,875
Administrative costs (3,479) (370)
OPERATING PROFIT 8,612 2,505
Bank interest receivable 41 2
Gain on loan renegotiation 2,032 -
Bank interest payable and similar charges (1,192) (24)
Foreign exchange (losses)/gains (59) 137
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 9,434 2,620
Tax on profit on ordinary activities (2,338) (800)
PROFIT FOR THE FINANCIAL PERIOD 7,096 1,820
Dividends (1,105) -
PROFIT RETAINED FOR THE FINANCIAL PERIOD 5,991 1,820
RETAINED EARNINGS BROUGHT FORWARD 1,820 -
RETAINED EARNINGS CARRIED FORWARD 7,811 1,820
2. CONSOLIDATED BALANCE SHEET
At 31 December At 30 June 2002
2002
US$000 US$000
FIXED ASSETS
Tangible assets 55,874 48,314
Investments - 1,052
55,874 49,366
CURRENT ASSETS
Stocks 13,355 8,919
Debtors 10,931 13,011
Cash at bank and in hand 26,525 1,782
50,811 23,712
CREDITORS: amounts falling due within one year (24,242) (14,591)
NET CURRENT ASSETS 26,569 9,121
TOTAL ASSETS LESS CURRENT LIABILITIES 82,443 58,487
CREDITORS: amounts falling due after more than one year (8,570) (12,602)
PROVISIONS FOR LIABILITIES AND CHARGES (10,722) (14,372)
MINORITY INTERESTS - EQUITY (482) -
62,669 31,513
CAPITAL AND RESERVES
Called up share capital 162 146
Share premium 54,696 29,919
Share issue cost reserve - (372)
Profit and loss account 7,811 1,820
62,669 31,513
3. COMPANY BALANCE SHEET
At 31 December At 30 June 2002
2002
US$000 US$000
FIXED ASSETS
Investments 30,901 30,901
CURRENT ASSETS
Debtors 1,814 56
Cash at bank and in hand 25,933 24
27,747 80
CREDITORS: amounts falling due within one year (3,770) (1,109)
NET CURRENT ASSETS/(LIABILITIES) 23,977 (1,029)
TOTAL ASSETS LESS CURRENT LIABILITIES 54,878 29,872
CREDITORS: amounts falling due after more than one year - (178)
54,878 29,694
CAPITAL AND RESERVES
Called up share capital 162 146
Share premium 54,696 29,919
Share issue cost reserve - (372)
Profit and loss account 20 1
54,878 29,694
4. CONSOLIDATED CASH FLOW STATEMENT
184 day 31
period ended 37 day period
December ended 30 June
2002 2002
US$000 US$000
NET CASH INFLOW FROM OPERATING ACTIVITIES 9,399 3,748
RETURN OF INVESTMENT AND SERVICING OF FINANCE
Interest received 41 2
Interest paid on bank loans (686) (11)
Interest paid on finance leases - (8)
NET CASH OUTFLOW FROM E (645) (17)
RETURNS ON INVESTMENT AND SERVICING OF FINANCE
TAXATION
Overseas tax paid (3,913) (800)
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Payments to acquire tangible fixed assets (10,799) (322)
Receipts from sale of tangible fixed assets 350 -
Payments to acquire investments (541) (477)
Receipts from repayment of investments 768 44
NET CASH OUTFLOW ON
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT (10,572) (755)
ACQUISITIONS AND DISPOSALS
Purchase of subsidiary undertakings (2,430) (30,000)
Net cash acquired with subsidiary undertakings - 71
NET CASH OUTFLOW ON ACQUSITIONS AND DISPOSALS (2,430) (29.929)
NET CASH OUTFLOW BEFORE FINANCING (7,811) (27,753)
FINANCING
Issue of ordinary share capital 31,838 31,529
Receipts from new loans 8,932 -
Share issue costs (7,045) (1,510)
Repayment of capital element of finance leases (1,379) (498)
CASH INFLOW FROM FINANCING 32,346 29,521
INCREASE IN CASH 24,535 1,768
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN
NET DEBT
Increase in cash 24,535 1,768
Repayment of capital element of finance leases 1,379 498
Cash inflow from increase in loans (8,932) -
MOVEMENTS IN NET DEBT ARISING FROM CASHFLOWS 16,982 2,266
Re-negotiation of loan 2,032 -
New finance leases and fair value adjustments (585) -
Finance leases acquired with subsidiary undertakings - (7,634)
Loans/long term creditors acquired with subsidiary undertakings - (10,972)
Exchange differences 208 14
MOVEMENT IN NET DEBT 18,637 (16,326)
NET DEBT AT BEGINNING OF PERIOD (16,326) -
NET CASH/(DEBT) AT END OF PERIOD 2,311 (16,326)
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SELEEASDSELL