Source - RNS
RNS Number : 7478K
Highland Gold Mining Limited
26 September 2016
 

 

HIGHLAND GOLD MINING LIMITED

 

Interim Results Announcement for H1 2016

 

26 September 2016

 

 

Highland Gold Mining Limited ("Highland Gold", the "Company" or "Group") today reports its unaudited financial results and production figures for the half year ended 30 June 2016 ("H1").


Click on, or paste the following link into your web browser, to view the associated PDF document.
http://www.rns-pdf.londonstockexchange.com/rns/7478K_-2016-9-23.pdf


 

FINANCIAL SUMMARY

IFRS, US$000 (unless stated)

H1 2016

H1 2015

Gold sold (gold and gold eq. oz)

127,697

119,277

Total Group cash costs (US$/oz)*

444

538

Group all-in sustaining costs (US$/oz)*

609

710

Revenue

147,097

130,740

Operating profit

50,420

18,778

Net profit

37,052

14,466

EBITDA*

79,720

54,885

EBITDA margin (%)*

54%

42%

Earnings per share (US$)

0.113

0.044

Net cash inflow from operations

78,378

56,523

Capital expenditure

18,814

18,153

Net debt position*

197,900

232,427

 

* Definitions for non-IFRS terms are provided in the glossary to the Chief Financial Officer's Report below.

 

The interim condensed consolidated financial statements of Highland Gold for the six months ended 30 June 2016 are set out below.

 

 

H1 2016 HIGHLIGHTS

 

Financial

·     Total first half revenue rose 13% year-on-year to US$147.1 million, reflecting improved metals prices and increased sales volumes during the period.

·     H1 2016 EBITDA was US$ 79.7 million, an increase of 45% over H1 2015, while EBITDA margin rose to 54%.

·     All-in sustaining costs (AISC) per ounce fell by 14% to US$609/oz, assisted by ongoing weakness in the rouble and strict cost controls.

·     Free cash flow (defined as net cash flows from operating activities less cash flows used in investing activities) was US$60.7 million

·     Net debt to EBITDA ratio reduced to 1.3 as of 30 June 2016 versus 1.7 as of 31 December 2016 as the Company directed free cash flow to debt repayment.

 

Operations

·     Total H1 2016 production of 128,671 oz of gold and gold equivalent at Mnogovershinnoye (MNV), Novoshirokinskoye (Novo), Belaya Gora, and Sredny Golgotay (Kaftan site), an increase of 6% from 121,242 oz in H1 2015.

·     MNV and Novo exceeded internal production targets for the quarter, while at Belaya Gora efforts to optimise operations were ongoing.

·     Exploration work continued on the Northern ore body at MNV, with reserves expected to receive approval from regulators by year-end.

·     Work commenced on the planned expansion of processing capacity at the Novo mill.

·     Pre-feasibility study completed for Kekura, and a subsequent fatal flaw review supported open pit and underground mine design plans.

·     Scoping studies initiated for the Baley Cluster Projects (Taseevskoye, Sredny Golgotay and ZIF-1 tailings) and Unkurtash, and a revised pre-feasibility study initiated for Klen.

 

POST HALF YEAR EVENTS

·     Interim Dividend of £0.05 per share approved by the Board of Directors

·     The Company affirms its forecast for total production of gold and gold equivalent of 255,000-265,000 oz for the full year.

 

CONFERENCE CALL DETAILS

 

The Company will hold a simultaneous webcast and conference call to discuss the results, hosted by CEO Denis Alexandrov, on Monday, 26 September 2016 at 10:00 UK time (12:00 Moscow).

 

This event is being streamed. It is recommended that you listen via your computer speakers. The link for online registration is: http://engage.vevent.com/rt/webcasting/index.jsp?seid=746 

 

To register to participate by telephone and to receive local dial-in numbers, please follow this link:

http://emea.directeventreg.com/registration/87650126 

 

 

FOR FURTHER INFORMATION PLEASE CONTACT:

 

Highland Gold               

John Mann, Head of Communications
+ 7 495 424 95 21
Duncan Baxter, Non-Executive Director
+ 44 (0) 1534 814 202



Numis Securities Limited
(Nominated Adviser and Broker)

John Prior, James Black

Paul Gillam

+44 (0) 207 260 1000

 

Peat & Co
(Joint Broker)

Charlie Peat
+44 (0) 207 104 2334

 

***

CEO STATEMENT

 

 

Denis Alexandrov, CEO of Highland Gold, said:

 

"Sadly, I have to begin by stating that, after the reporting period, on 10 September, the Company witnessed a fatality at our MNV underground mine. In light of this accident and an increase in minor incidents this year, we have undertaken urgent measures to strengthen and expand our HSE team and to update our safety standards across all of our operations. We have also initiated safety inspections of all underground shafts at MNV and Novo.

 

Overall, the Company witnessed a positive first half of 2016, with increased production, stronger gold prices, cost controls, and the weak rouble together contributing to improved earnings, lower costs and higher margins.

 

At the core of this progress were MNV and Novo, which both exceeded their six-month production targets. Work on reassessing MNV's reserves, as well as exploration of near-mine targets, continued apace with a target of extending life of mine. Novo increased mining and processing throughput while also advancing plans to expand the mill's capacity to 1.3 million tons over the next two years.

 

Belaya Gora continued to face challenges with both geology and metallurgy during the half, despite higher ore production and a reduction in tailings grade. The Company has initiated work, together with consultants SRK, to reassess the mine's reserves, to study the combined processing of Belaya Gora ores with those of the nearby Blagodatnoye deposit, and to upgrade the mill with CIL technology. This work will continue throughout the second half and be finalised early next year.

 

The Company also saw progress in its exploration and development projects, with over US$ 10 million spent on drilling programs at MNV, Kekura, Sredne Golgotay, and Blagodatnoye, as well as on a pre-feasibility study (PFS) for Klen, open pit dewatering at Taseevskoye, and a scoping study for Unkurtash. A PFS for Kekura was delivered in the second quarter and preparations for construction at the site are already underway. These efforts are laying the foundations for production growth in the years to come."

 

 

OPERATIONAL REVIEW

 

 

Mnogovershinnoye (MNV), Khabarovsk Region, Russia

 

·     A re-evaluation of MNV's historical waste dumps resulted in 300,000 tonnes of ore being put on the balance sheet at a grade of just over 1.0 g/t.

 

·     Significant improvement was seen in mined grades during H1.

 

·     Improvement in ore mining, recovery and total gold production over H1 2015 figures.

 

 

MNV

Units

H1 2015

H2 2015

H1 2016

Waste stripping

m3

1,780,663

1,573,547

305,900

Underground development

m

4,287

6,163

5,863

Open-pit ore mined

t

289 420

448,548

22 067

Open-pit ore grade

g/t

2.08

1.85

3.02

Waste dumps ore mined

t

-

-

276 312

Waste dumps ore grade

g/t

-

-

1.06

Underground ore mined

t

330,329

434,890

351,336

Underground ore grade

g/t

2.21

2.52

3.20

Total ore mined

t

619,749

883,438

649,715

Average grade

g/t

2.15

2.18

2.28

Ore processed

t

705,493

707,326

672,600

Average grade

g/t

2.08

2.49

2.28

Recovery rate

%

89.0

91.5

90.93

Gold produced

oz

42,451

52,107

44,929

 

 

Novoshirokinskoye (Novo), Zabaikalsky Region, Russia

 

·     Underground development, ore mining and processing continued to trend upward versus the previous two halves.

 

·     Recovery rates remain stable at over 86%.

 

Novo

Units

H1 2015

H2 2015

H1 2016

Underground development

m

5,312

5,625

5,808

Ore mined

t

327,629

373,790

401,983

Average grade *

g/t

5.4

5.7

5.5

Ore processed

t

331,551

359,733

371,945

Average grade *

g/t

5.4

5.8

5.6

Recovery rate *

%

85.3

86.6

86.5

Gold produced *

oz

48,634

57,987

57,960

* In gold equivalents at actual prices.

(Metal grade of mined ore = Au 3.09 g/t, Ag 86.08 g/t, Pb 2.63 %, Zn 0.71 %)

 

Preparatory construction work has commenced on the planned expansion of Novo's processing capacity to 1.3 million tonnes per annum. Geotechnical construction studies are being finalised at the site and design documentation is being developed. The mine and mill are expected to reach the new, increased capacity in late 2018.

 

 

Belaya Gora, Khabarovsk Region, Russia

 

·     Higher H1 processing volumes versus H1 2015 were offset by a fall in grades.

 

·     The percentage recovery rate fell slightly due to the lower grades, but improvements in mill performance meant the amount of gold sent to tailings was actually reduced to 0.35 g/t from 0.45 g/t for the first half.

 

Belaya Gora

Units

H1 2015

H2 2015

H1 2016

Waste stripping

m3

1,557,257

2,160,512

3,294,701

Ore mined

t

885,314

1,337,790

955,385

Average grade

g/t

1.63

1.32

1.22

Ore processed

t

674,985

876,303

833,509

Average grade

g/t

1.87

1.47

1.29

Recovery rate

%

75.89

74.9

72.7

Gold produced

oz

30,157

31,149

25,349

 

Studies continued on avenues for improving recovery rates at the mill, while outside consultants have been brought in to assist in optimising mining operations and reassessing gold reserves.

 

 

Sredny Golgotay (Kaftan Site), Zabaikalsky Region, Russia

 

A pilot project to mine ore from the Kaftan site of the Sredny Golgotay licence, initiated in Q1 of this year, resulted in 4,501 tonnes of ore being transported to the Novo mill for processing. The ore had an average grade of 3.6 g/t, somewhat below initial expectations.

 

To help to better understand the quantity and quality of reserves at Kaftan, contractor Sosnovgeo carried out part of a 7,900 metre grade control drilling programme at the site. As of June 30, 6,654 linear metres were drilled. Assay results were obtained for 6,610 samples. The drilling was completed in July and results are expected later this year.

 

Sredny Golgotay (Kaftan)

Units

H1 2015

H2 2015

H1 2016

Underground development

m

-

-

766

Ore mined

t

-

-

13,103

Average Grade

g/t

-

-

2.50

Ore processed

t

-

-

4,501

Average Grade

g/t

-

-

3.6

Gold produced

oz

-

-

433

 

 

DEVELOPMENT PROJECTS

 

Kekura, Chukotka Autonomous District, Russia

 

Work carried out at Kekura in H1 included completion of a pre-feasibility study (PFS) drafted by Wardell Armstrong; development by a Russian design institute of a methodology for calculation of losses and dilution; and development of design documentation for a mining and processing complex.

 

A Fatal Flaw Review of the Kekura PFS by RungePincockMinarco resulted in a positive opinion on mine designs for both the open pit and underground scenarios. Ore reserves were determined to be of high quality and the project was recognised as having a low sensitivity towards gold prices.

 

The work produced by RungePincockMinarco identified a pathway forward for further optimisation of technical solutions and improvement of the project's economic viability.

 

Preparations for 2017 construction and installation are underway, including the procurement of construction materials and the selection of contractors to build key infrastructure facilities.

 

In the second half of the year, the Company will focus on obtaining approval of project documentation from the main environmental and state expert review panels; receiving approval of design documentation; obtaining permits for construction; and further preparing for the commencement of construction and installation work.

 

 

Klen, Chukotka Autonomous District, Russia

 

In H1, the Company initiated a review of previous decisions on Klen with a view towards identifying a viable scenario to develop the project under current market conditions. International consultants Hatch were selected via tender to draft a new pre-feasibility study for a processing plant and infrastructure facilities at Klen. Initial indications are that opportunities do exist to improve and optimise previous options considered for the project.

 

The Company expects to receive a full financial and economic model for Klen and to make a decision on further project development in the second half of this year.

 

 

Lyubov, Zabaikalsky Region, Russia.

 

During the first half, the Company signed an agreement with an outside contractor to process ore from existing tailings at the Lyubov site. Impoundments, water intake and drainage ditches have been arranged, a processing plant has been installed, and commissioning is underway, with all of the necessary equipment and materials delivered to the site. A pilot programme to test the project's production potential is expected to commence in the third quarter of this year.

 

 

Baley Ore Cluster, Zabaikalsky Region, Russia.

(Taseevskoye, Sredny Golgotay and ZIF-1 tailings licences)

 

At Taseevskoye, a programme was initiated in H1 to evaluate oversized rock stockpiles with a view to confirming reserves for a potential heap leaching initiative. The Company drilled 19 holes for a total of 208.7 metres drilled in Q2. Results indicated that the rock massif is likely waste from previous mining and the resource has been estimated at 700,000 tonnes at an average grade of 0.8 g/t.

 

On May 10, the Company began the process of dewatering the existing Taseevskoye open pit in order to provide drill platforms necessary for further evaluation, initially removing approximately 135,000 m3 of water. The programme will continue up until mid-November of this year.

 

At Sredny Golgotay, testwork was carried out on the first phase of R&D work on the development of a pilot X-ray fluorescence spectrometry (XRF) plant, which would enable the pre-concentration of gold-bearing ores from the site. Initial results indicate that XRF might be a feasible and effective solution, and a decision was made to continue to the second and third phases of the R&D programme.

 

 

EXPLORATION

 

Mnogovershinnoye, Khabarovsk Region, Russia.

 

The Company is close to completing the second stage of its exploration drilling programme at the Northern ore body (MNV Lower Horizon licence), which called for 11,000 m of diamond drilling this year. An ore zone of approximately 600 m in length with an average thickness of 1.2 m and average grade of 5.7 g/t has been identified on the Eastern flank of this ore body. An initial resource estimate from this drilling programme is expected in the fourth quarter.

 

Drilling and evaluation of the new reserves are ongoing. An additional 2,000 m on a 50x50 m grid were added to the programme to evaluate the Western flank of the ore body.

 

Also in H1, exploration drilling at underlying levels of the Southern and Flank ore bodies were initiated.

 

At the Chaynoye ore body (MNV Western Flank licence), trenching has commenced to verify anomalies identified during earlier exploration efforts.

 

 



 

Blagodatnoye, Khabarovsk Region, Russia.

 

In order to augment the mineral resource base for Belaya Gora, the Company has targeted further exploration of gold reserves at the nearby Blagodatnoye gold deposit. The licence has preliminarily measured С2 category reserves for open pit mining of about 10 million tonnes of ore and approximately 525,000 oz of gold.  Initial metallurgical test work has supported gold recovery of up to 93% via cyanidation.

 

An exploration drilling programme of 15,000 m extended throughout H1 for the purpose of registering reserves with regulators and potentially adding measured and indicated reserves. Completion of the programme is expected in the fourth quarter. Additionally, processing samples of 3.1 tonnes of ore were extracted to develop a flowsheet for processing at the Belaya Gora mill.

 

 

Kekura, Chukotka Autonomous District.

 

A 25,000-metre exploration drilling programme, initiated early this year, continued throughout H1 with the goal of confirming and potentially increasing reserves intended for underground mining, which were not included in the JORC reserve audit results announced earlier this year.

 

As of June 30, a total of 16,900 metres had been drilled. Preliminary gold assay results continue to confirm the presence of commercial mineralisation with high gold grades in previously-explored ore zones. The programme is scheduled for completion in the fourth quarter.

 

 

Sredny Golgotay, Zabaikalsky Region, Russia.

 

An exploration drilling programme of 15,000 m commenced in Q2 in order to validate state-registered reserves across the Sredny Golgotay licence; to check for potential additional resources from low-grade halos surrounding high-grade veins; and to identify reserves suitable for open pit mining. The results are expected by year-end.

 

 

HEALTH, SAFETY, AND ENVIRONMENT

 

The Company remains dedicated to ensuring occupational safety and managing production risks, as well as offering relevant training for its employees and encouraging them to take personal responsibility at the workplace.

 

The Lost Time Incident ("LTI") factor (defined as the number of lost time incidents for every 200,000 man hours) in the first half of this year was 0.31 (0.25 in H1 2015). Five incidents were recorded across the Company, including three at MNV and two at Novo. All of them were minor injuries.

 

By mid-year, a safety induction (1 day) course was given to 688 employees in 2016. Meanwhile, 98 managers and specialists passed self-tuition courses and testing using OlimpOKS software (without work disruption) and were certified on industrial safety (7-30 day programmes).

 

Auxiliary mine rescue teams are kept ready at mine sites to address emergency localisation and response.

 

The Company continues to observe environmental and regulatory requirements and no environmental incidents were reported. In 2016, environmental safety training had been provided to 688 employees as of 30 June.



 

INTERIM FINANCIAL REVIEW

 

 

CHIEF FINANCIAL OFFICER'S REPORT

 

 

Strong operational performances at Novo and MNV resulted in a 6.1% growth in production in the first half of 2016. Favourable macroeconomic conditions, such as improving gold prices, the weak Rouble and better access to liquidity in Russia, allowed the Company to demonstrate sustained growth, increased margins and robust cash flow. Highland Gold continues to keep production costs low and to adhere to its goals of maintaining a strong cash position and paying dividends.

 

Overall Group revenue was US$147.1 million in H1 2016 compared to US$130.7 million in H1 2015. A 7.1% increase in the sales volume of gold and gold equivalents (GE), accompanied by slightly higher gold prices, resulted in 12.5% growth in revenue. Over the reporting period, the Company sold 127,697 ounces of gold and gold equivalents compared to 119,277 ounces in H1 2015. Novo and MNV increased their sales volumes, with Novo's sales growing to 57,787 eq. oz (up 16.2% y-o-y), accounting for 45.3% of the total, while MNV increased its sales volume by 7.2% to 44,902 ounces in H1 2016 for a 35.2% share. BG, with its share at 19.6%, saw its sales volume slip to 25,008 ounces (H1 2015: 27,675 oz), a decrease of 9.6%.

 

The Group continued its "no hedge" policy in H1 2016. The average realised price of gold for MNV and Belaya Gora (net of commission) was US$1,225 per oz, in line with the average market price (average H1 2016 LBMA price was US$1,222 per oz) and a slight increase of 1.9% y-o-y. Due to higher gold prices and the improved quality of concentrates, the average price of gold equivalents realised by Novo increased to US$1,044 per eq. oz in H1 2016, compared to US$928 per eq. oz in H1 2015. The average price at Novo is based on the spot price for metals contained in the concentrates (gold, lead, zinc and silver), net of fixed processing and refining costs at third-party plants.

 

The Company's cost of sales net of depreciation decreased by 11.7% to US$58.0 million in H1 2016 (H1 2015: US$65.6 million). The positive effect of the Russian Rouble's weakness enabled the Company to offset the negative impact of overall inflation and an increase in prices for energy and some major consumables. Depreciation was US$28.8 million, down 20.3% y-o-y, mainly resulting from the extension of life-of-mine at all operational assets.

 

Cash Operating Costs

 


H1 2016

US$000

H1 2015

US$000

y-o-y

change, %





Cost of sales

86,737

101,699

(14.7%)

- depreciation, depletion and amortisation

(28,753)

(36,057)

(20.3%)





Cost of sales, net of depreciation, depletion and amortisation

57,984

65,642

(11.7%)





Breakdown per item:




Labour

20,472

20,918

(2.1%)

Consumables and spares

22,350

23,976

(6.8%)

Power

4,264

4,368

(2.4%)

Movement in ore stockpiles, finished goods and stripping assets

(8,503)

(4,696)

81.1%

Maintenance and repairs

11,289

12,435

(9.2%)

Taxes other than income tax

8,112

8,641

(6.1%)

 

Total cash costs [1] (TCC) decreased by a significant 17.6% to US$444 per oz, some 16.5% below the industry average. Breaking it down by business unit, total cash costs at our low-cost producer Novo were US$248 per eq. oz, falling by 25.9% from the first half of the previous year and reflecting the rise in production volumes, and improved grades and recoveries. MNV, our oldest mine, also saw considerably lower total cash costs of US$602 per oz (H1 2015: US$813 per oz) due to increases in the average grade and recovery rate. As a result of lower grades and recovery rates, total cash costs at Belaya Gora increased from US$489 per oz to US$613 per oz y-o-y.

 

All-in sustaining costs [2] (AISC) per ounce dropped by 14.3% to US$609 in H1 2016 from US$710 in H1 2015.

 

 

TCC and AISC Calculations

 


H1 2016

US$000

H1 2015

US$000

y-o-y

change, %





Cost of sales, net of depreciation, depletion and amortisation

57,984

65,642

(11.7%)

- сost of other sales

(1,312)

(1,424)

(7.9%)





Total cash costs (TCC)

56,672

64,218

(11.8%)





 + administrative expenses

7,048

6,652

6.0%

 + accretion and amortisation on site restoration provision

827

1,153

(28.3%)

 + sustaining capital expenditure

13,195

12,708

3.8%

Total all-in sustaining costs (AISC)

77,742

84,731

(8.2%)





Gold sold (gold and gold eq.oz)

127,697

119,277

7.1%

TCC (US$/oz)

444

538

(17.6%)

AISC (US$/oz)

609

710

(14.3%)

 

 

The Group's administrative expenses grew by 6.0% y-o-y, to $7.0 million.

 

Higher sales volumes, cost control initiatives and the weaker Rouble resulted in a 45.2% increase in EBITDA [3], to US$79.7 million in H1 2016 from US$54.9 million in H1 2015. The EBITDA margin [4] rose from 42.0% to 54.2%, within range of the world's most efficient gold miners. Broken down by business unit, EBITDA margin was 73.5% at Novo (H1 2015: 59.7%), 40.8% at MNV (H1 2015: 24.8%) and 49.1% at BG.

 

HGML EBITDA Bridge, million US$

 

H1 2014

48

H1 2015

55

Exchange Rate

+16

Metal Prices

+7

Volume of Sales

+6

Cost of Sales

-3

G&A

-1

H1 2016

80

 

 

The Company analysed internal and external indicators of impairment or reversal of previously recognised impairment losses. Management came to the conclusion that there were no such items as of 30 June 2016.

 

In H1 2016, the Group recorded a net finance loss of US$3.5 million compared to a US$0.4 million loss in H1 2015. The fair value of bonds held by the Company decreased by US$1.4 million (mainly due to a weaker Pound sterling) whereas in H1 2015 the company recognised a gain of US$2.1 million. Interest expense on bank loans was recorded in the amount of US$1.3 million in H1 2016 versus US$1.4 million in H1 2015.

 

A foreign exchange gain of US$1.9 million (H1 2015: loss of US$1.8 million) resulted from the settlement of foreign currency transactions and the transfer of monetary assets and liabilities denominated in currencies such as Russian Roubles into US Dollars.

 

Income tax charges totalled US$11.8 million in H1 2016 compared to US$2.1 million in H1 2015. The tax figure is comprised of US$17.5 million of current tax expenses (US$9.9 million at Novo, US$7.5 million at MNV and other US$0.1 million) and US$5.7 million (H1 2015: release of US$7.7 million) of deferred tax release.

 

Net profit for the first half of 2016 was US$37.1 million, compared to a profit of US$14.5 million in H1 2015, mainly reflecting higher revenue, lower cost of sales and foreign exchange gain due to the devaluation of the Russian Rouble. Earnings per share more than doubled to US$0.113 (H1 2015: US$0.044).

 

The Group's cash inflow from operating activities totalled US$78.4 million (H1 2015: US$56.5 million).

 

Capital expenditures in H1 remained flat y-o-y, totalling US$18.8 million versus US$18.2 million in H1 2015. They included US$6.0 million at MNV, US$3.8 million at Novo, US$1.3 million at Belaya Gora, US$5.4 million at Kekura, US$1.6 million at Taseevskoye, and US$0.7 million related to other exploration and development projects within the Group. Capital expenditures were funded by operating cash flow.

 

The amounts drawn down under the bank facilities decreased by 15.0% to US$215.5 million as of 30 June 2016 (31 December 2015: US$253.4 million). The Company's debt is denominated in USD with an effective annual interest rate of 5.09%. Despite the higher LIBOR, the interest rate was reduced by 0.40% since the end of 2015.

 

Gross Debt Breakdown, thousand US$

(6/30/2016)

 

Gross debt breakdown by business unit

 

MNV

46,000

21%

Novo

97,500

45%

BG

72,000

33%

Total

215,500

100%

 

Gross debt breakdown by lender

 

Gazprom

118,000

55%

Sberbank

12,500

6%

UniCredit

50,000

23%

Alfa

35,000

16%

Total

215,500

100%

 

The Group's net debt position [5] as of 30 June 2016 was US$197.9 million, compared to US$231.4 million as of 31 December 2015. Cash and cash equivalents (GBP-denominated bonds) as of 30 June 2016 amounted to US$19.8 million, compared to US$24.2 million as of 31 December 2015.

 

The ratio of net debt to EBITDA was 1.3 on 30 June 2016, which is substantially lower than the ratio of 1.7 as of 31 December 2015 and well within the Board of Directors' debt policy.

 



 

Cash Position Bridge, million US$

 

Cash & bonds (01.01.2016)

24.0

Net cash flow from operations

+78.0

Cash capital expenditure

-19.0

Increase in stripping activity assets

-6.0

Interest and leasing

-7.0

Net loan repayment

-38.0

Dividends paid

-12.0

Cash & bonds (30.06.2016)

20.0

 

 

Management reaffirms its intention to continue operational improvements and to improve margins, therefore allowing us to maintain a strong cash position and to continue to pay dividends.

 

EVENTS AFTER THE REPORTING PERIOD

 

In August 2016, the Group signed additional agreements with Alfa Bank and Raiffeisen Bank. The new agreements are long-term credit facilities with an overall limit of US$102.0 million, providing an extension of the final maturity until December 2019.

 

PAYMENT OF DIVIDENDS

 

The Board has approved an interim dividend of £0.05 per share. The interim dividend will be paid on 21 October 2016 to shareholders on the register at the close of business on 7 October 2016. The ex-dividend date is 6 October 2016.

 

PRINCIPAL RISKS AND UNCERTAINTIES

 

The Group is exposed to a number of risks and uncertainties which in most cases are relevant to the entire gold mining industry. These risks and uncertainties could cause actual results to differ materially from expected or historical results.

 

Main risks and uncertainties are disclosed in the Group's 2015 Annual Report (Pages 18-23) and have not changed during the first half of 2016. The Group's management considered these risks likely to be the same risks faced for the rest of 2016 and the Group at the moment does not foresee any additional principal risks.

 

 

Rounding of figures may result in computational discrepancies

 

Glossary


Interim consolidated statement of comprehensive income

for the six months ended 30 June


Notes

2016
unaudited
US$000


2015
unaudited
US$000






Revenue

3

147,097


130,740

Cost of sales

3

(86,737)


(101,699)

Gross profit


60,360


29,041






Administrative expenses


(7,048)


(6,652)

Other operating income


197


173

Other operating expenses


(3,089)


(3,784)

Operating profit


50,420


18,778






Foreign exchange gain/ (loss)


1,928


(1,781)

Finance income

4.1

70


2,175

Finance costs

4.2

(3,579)


(2,558)

Profit before income tax


48,839


16,614






Current income tax expense

5

(17,452)


(9,847)

Deferred income tax release

5

5,665


7,699

Total income tax expense

5

(11,787)


(2,148)






Profit for the period


37,052


14,466






Total comprehensive income for the period


37,052


14,466
















Attributable to:





Equity holders of the parent


36,815


14,160

Non-controlling interests


237


306






Earnings per share (US$ per share)



·         Basic, for the profit for the period attributable to ordinary equity holders of the parent

14

0.113

0.044

·         Diluted, for the profit for the period attributable to ordinary equity holders of the parent

14

0.113

0.044

 

The Group does not have any items of other comprehensive income or any discontinued operations.

 

 



Interim consolidated statement of financial position

as at


Notes

30 June
2016
unaudited


31 December
2015
audited


30 June
2015
unaudited


US$000

US$000

US$000

Assets







Non-current assets







Exploration and evaluation assets

6

84,922


309,101


309,413

Mine properties

6

559,080


318,068


326,715

Property, plant and equipment

6

308,912


320,986


337,776

Intangible assets

3

70,365


70,365


87,119

Inventories

9

15,020


16,372


13,487

Other non-current assets


2,970


3,845


3,252

Deferred income tax asset


4


-


18

Total non-current assets


1,041,273


1,038,737


1,077,780








Current assets







Inventories

9

59,307


67,758


58,541

Trade and other receivables


33,751


31,188


29,518

Income tax prepaid


133


3,770


2,591

Prepayments


1,706


888


3,576

Financial assets

7

7,779


21,150


33,618

Cash and cash equivalents

10

11,995


3,058


6,164

Other current assets


439


602


422

Total current assets


115,110


128,414


134,430

Total assets


1,156,383


1,167,151


1,212,210








Equity and liabilities







Equity attributable to equity holders of the parent







Issued capital

12

585


585


585

Share premium


718,419


718,419


718,419

Assets revaluation reserve


832


832


832

Retained earnings


43,764


18,176


51,762

Total equity attributable to equity holders of the parent


763,600


738,012


771,598

Non-controlling interests


1,072


1,566


2,876

Total equity


764,672


739,578


774,474








Non-current liabilities







Interest-bearing loans and borrowings

11

121,651


183,000


193,959

Provisions


19,142


16,026


19,971

Liability under finance lease


1,364


1,526


978

Long-term accounts payable


260


223


318

Deferred income tax liability


129,795


135,457


121,272

Total non-current liabilities


272,212


336,232


336,498








Current liabilities







Trade and other payables


23,330


20,201


23,325

Interest-bearing loans and borrowings

11

93,807


70,375


76,852

Liability under finance lease


852


749


420

Income tax payable


1,510


16


641

Total current liabilities


119,499


91,341


101,238

Total liabilities


391,711


427,573


437,736

Total equity and liabilities


1,156,383


1,167,151


1,212,210

 

 

 



Interim consolidated statement of changes in equity

for the six months ended 30 June 2016

 



Attributable to equity holders of the parent





Issued capital

Share premium

Asset revaluation reserve

Retained earnings

Total

Non-controlling interest

Total equity

 


Notes

US$000

US$000

US$000

US$000

US$000

US$000

US$000

 

At 31 December 2015


585

718,419

832

18,176

738,012

1,566

739,578

 

Total comprehensive income for the period


-

-

-

36,815

36,815

237

37,052

 

Novo shares purchase

13

-

-

-

643

643

(731)

(88)

 

Dividends paid to equity holders of the parent


-

-

-

(11,870)

(11,870)

-

(11,870)

 

At 30 June 2016 (unaudited)


585

718,419

832

43,764

763,600

1,072

764,672

 

 

for the six months ended 30 June 2015

 



Attributable to equity holders of the parent





Issued capital

Share premium

Asset revaluation reserve

Retained earnings

Total

Non-controlling interest

Total equity

 



US$000

US$000

US$000

US$000

US$000

US$000

US$000

 

At 31 December 2014


585

718,419

832

47,698

767,534

2,570

770,104

 

Total comprehensive income for the period


-

-

-

14,160

14,160 

306

 14,466

 

Dividends paid to equity holders of the parent


-

-

-

(10,096)

(10,096)

-

(10,096)

 

At 30 June 2015 (unaudited)


585

718,419

832

51,762

771,598

2,876

774,474

 

 

 

 



Interim consolidated cash flow statement

for the six months ended 30 June



2016
unaudited


2015
unaudited


Notes

US$000


US$000

Operating activities





Profit before income tax


48,839


16,614






Adjustments to reconcile profit before income tax
to net cash flows from operating activities:





Depreciation of mine properties and property, plant and equipment

6

28,753


36,057

Movement in raw materials and consumables obsolescence provision

9

562


50

Write-off of mine properties and property, plant and equipment

6

218


1,236

(Gain)/ loss on disposal of property, plant and equipment


(22)


107

Bank interest receivable

4.1

(64)


(45)

Bonds fair value movement

4.1, 7

1,381


(2,123)

Interest expense on bank loans

4.2

1,286


1,442

Accretion expense on site restoration provision

4.2

801


1,096

Net foreign exchange (gain)/ loss


(1,928)


1,781

Other non-cash expenses


220


918

Working capital adjustments:





Increase in trade and other receivables and prepayments


(4,436)


(4,195)

Decrease in inventories


9,960


12,454

Increase in trade and other payables


4,688


1,198






Income tax paid


(11,880)


(10,067)

Net cash flows from operating activities


78,378


56,523






Investing activities





Proceeds from sale of property, plant and equipment


57


16

Purchase of property, plant and equipment

3

(18,814)


(18,153)

Capitalised interest paid

3, 6

(5,288)


(6,290)

Increase in stripping activity assets

6

(5,554)


(5,865)

Interest received from deposits


64


45

Interest received from bonds

7

-


1,373

Purchase of investments - bonds

7

-


(3,818)

Novo shares purchase

13

(88)


-

Sale of investments - bonds

7

11,990


13,907

Net cash flows used in investing activities


(17,633)


(18,785)






Financing activities





Proceeds from borrowings


177,500


311,424

Repayment of borrowings


(215,500)


(344,453)

Dividends paid to equity holders of the parent


(11,870)


(10,096)

Payment under finance lease, including interest


(533)


-

Interest paid


(1,284)


(1,385)

Net cash flows used in financing activities


(51,687)


(44,510)






Net (decrease)/ increase in cash and cash equivalents


9,058


(6,772)

Effects of exchange rate changes


(121)


(10)

Cash and cash equivalents at 1 January


3,058


12,946

Cash and cash equivalents at 30 June


11,995


6,164

 


1.       Corporate information

These interim condensed consolidated financial statements of Highland Gold Mining Limited for the six months ended 30 June 2016 were authorised for issue in accordance with a resolution of the Directors on 23 September 2016.

Highland Gold Mining Limited is a public company incorporated and domiciled in Jersey. The registered office is located at 26 New Street, St Helier, Jersey JE2 3RA. Its ordinary shares are traded on the Alternative Investment Market (AIM).

The principal activity is building a portfolio of gold mining operations within the Russian Federation and Kyrgyzstan.

 

2.       Basis of preparation and accounting policies

Basis of preparation

The interim condensed consolidated financial statements for the six months ended 30 June 2016 have been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union. The annual financial statements of the Group for the year ended 31 December 2015 were prepared in accordance with International Financial Reporting Standards as adopted by the European Union and Companies (Jersey) Law 1991.

The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements as at 31 December 2015.

Having made relevant enquiries, the Directors believe that it is appropriate to adopt the going concern basis in the preparation of the interim condensed consolidated financial statements in view of the fact that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future.

The impact of seasonality or cyclicality on operations is not considered significant to the interim condensed consolidated financial statements.

Changes in accounting policies and presentation rules

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those applied in the preparation of the consolidated financial statements for the year ended 31 December 2015, except for the adoption of new standards and interpretations effective as of 1 January 2016. Although these new standards and amendments apply for the first time in 2016, they do not have a material impact on the interim condensed consolidated financial statements of the Group and are not expected to have a material impact on the annual consolidated financial statements of the Group.

The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

3.       Segment information

For management purposes, the Group is organised into business units based on the nature of their activities, and has four reportable segments as follows:

·      Gold production;

·      Polymetallic concentrate production;

·      Development and exploration; and

·      Other.

The gold production reportable segment comprises two operating segments, namely Mnogovershinnoye (MNV) and Belaya Gora (BG) at which level management monitors its results for the purpose of making decisions about resource allocation and evaluating the effectiveness of its activity. MNV and BG have been aggregated into one reportable segment as they exhibit similar long-term financial performance and have similar economic characteristics: nature of products (gold and silver), nature of the production processes, type of customer for their products (banks), methods used to distribute their products and nature of the environment (both are located in the Khabarovsk region).

The polymetallic concentrate production segment, namely Novoshirokinskoye (Novo), is analysed by management separately due to the fact that the nature of its activities differs from the gold production process.

The development and exploration segment contains entities which hold licenses in the development and exploration stages: Kekura, Klen, Taseevskoye, Unkurtash, Lubov, and related service entities: Zabaykalzolotoproyekt (ZZP) and BSC.

The 'other' segment includes head office, management company and other non-operating companies which have been aggregated to form the reportable segment.

Segment performance is evaluated based on EBITDA (defined as operating profit excluding depreciation and amortisation, impairment losses, movement in ore stockpiles obsolescence provision, movement in raw materials and consumables obsolescence provision and gain on settlement of contingent consideration). The development and exploration segment is evaluated based on the life of mine models in connection with the capital expenditure spent during the reporting period.

The following tables present revenue, EBITDA and assets information for the Group's reportable segments. The segment information is reconciled to the Group's profit after tax for the period.

The finance costs, finance income, income taxes, foreign exchange gains/ (losses) are managed on a group basis and are not allocated to operating segments.

Transfer prices between operating segments are on an arm's length basis in a manner similar to transactions with third parties.

The accounting policies used by the Group in reporting segments internally are the same as those described in Note 2 of the interim condensed consolidated financial statements.

Revenue from several customers was greater than 10% of total revenues.

In the first half of 2016 the gold and silver revenue reported in the gold production segment was received from sales to Gazprombank (US$86.6 million) in the territory of the Russian Federation.

In the first half of 2015 the gold and silver revenue reported in the gold production segment was received from sales to Gazprombank (US$84.4 million) in the territory of the Russian Federation.

In the first half of 2016 the concentrate revenue reported in the polymetallic concentrate production segment in the amount of US$60.3 million was received from sales to Kazzinc in the territory of the Republic of Kazakhstan (H1 2016: US$53.6 million; H1 2015: US$46.1 million) and to Hyosung corporation in the territory of the People's Republic of China (H1 2016: US$6.7 million; H1 2015: Nil).

Other third-party revenues in both H1 2016 and H1 2015 were received in the territory of the Russian Federation.

Inter-segment revenues mostly represent management services.



 

Period ended 30 June 2016


Gold production segment


Polymetallic concentrate production segment


Development & exploration


Other


Eliminations


Total



US$000


US$000


US$000


US$000


US$000


US$000














Revenue













Gold revenue


85,620


-


-


-


-


85,620

Silver revenue


995


-


-


-


-


995

Concentrate revenue


-


60,320


-


-


-


60,320

Other third-party


76


78


8


-


-


162

Inter-segment


24


-


-


5,586


(5,610)


-

Total revenue


86,715


60,398


8


5,586


(5,610)


147,097














Cost of sales


62,798


23,631


255


53


-


86,737

EBITDA


37,717


44,416


(554)


(1,859)


-


79,720














Other segment information













Depreciation


(19,376)


(9,310)


(16)


(51)


-


(28,753)

Movement in raw materials and consumables obsolescence provision


(562)


-


-


-


-


(562)

Individual impairment












15

Finance income












70

Finance costs












(3,579)

Foreign exchange gain












1,928














Profit before income tax












48,839














Income tax












(11,787)














Profit for the period












37,052














Segment assets at 30 June 2016













Non-current assets













Capital expenditure*


207,178


165,763


579,467


506


-


952,914

Goodwill


22,253


5,134


42,978


-


-


70,365

Other non-current assets


15,464


1,666


566


298


-


17,994

Current assets**


80,394


37,027


4,577


9,736


(16,624)


115,110

Total assets












1,156,383














Capital expenditure - addition during the first half of 2016***, including:


13,942


4,463


13,015


7


-


31,427

Stripping activity assets


5,554


-


-


-


-


5,554

Capitalised interest


-


-


5,288


-


-


5,288

Unpaid/ (settled) accounts payable


1,072


664


83


(48)


-


1,771

Cash capital expenditure


7,316


3,799


7,644


55


-


18,814














* Capital expenditure is the sum of exploration and evaluation assets, mine properties and property, plant and equipment.

** Current assets at 30 June 2016 include corporate cash and cash equivalents of US$12.0 million, investments of US$7.8 million, inventories of US$59.3 million, trade and other receivables of US$33.8 million and other assets of US$2.2 million. Eliminations relate to intercompany accounts receivable.

*** Capital expenditure for the first half of 2016 includes additions to property, plant and equipment of US$26.9 million (Note 7) and capitalised interest of US$5.3 million (Note 7), less prepayments previously made for property, plant and equipment of US$0.8 million.

Non-current assets at 30 June 2016 are located in the Russian Federation (US$ 998.1 million) and in the Kyrgyz Republic (US$43.2 million). Current assets at 30 June 2016 are located in the Russian Federation.



 

Period ended 30 June 2015


Gold production segment


Polymetallic concentrate production segment


Development & exploration


Other


Eliminations


Total



US$000


US$000


US$000


US$000


US$000


US$000














Revenue













Gold revenue


83,640


-


-


-


-


83,640

Silver revenue


801


-


-


-


-


801

Concentrate revenue


-


46,110


-


-


-


46,110

Other third-party


101


81


7


-


-


189

Inter-segment


47


-


62


5,900


(6,009)


-

Total revenue


84,589


46,191


69


5,900


(6,009)


130,740














Cost of sales


74,215


26,983


461


40


-


101,699

EBITDA


31,679


27,588


(2,909)


(1,473)


-


54,885














Other segment information













Depreciation


(25,726)


(10,271)


(22)


(38)


-


(36,057)

Movement in raw materials and consumables obsolescence provision


(50)


-


-


-


-


(50)

Finance income












2,175

Finance costs












(2,558)

Foreign exchange loss












(1,781)














Profit before income tax












16,614














Income tax












(2,148)














Profit for the period












14,466














Segment assets at 31 December 2015













Non-current assets













Capital expenditure*


210,489


170,688


566,426


552


-


948,155

Goodwill


22,253


5,134


42,978


-


-


70,365

Other non-current assets


18,959


387


544


327


-


20,217

Current assets**


83,545


26,101


4,098


28,656


(13,986)


128,414

Total assets












1,167,151














Capital expenditure - addition during the first half of 2015***, including:


13,293


3,423


13,902


14


-


30,632

Stripping activity assets


5,865


-


-


-


-


5,865

Capitalised interest


-


-


6,290


-


-


6,290

Unpaid/ (settled) accounts payable


443


77


(91)


(105)


-


324

Cash capital expenditure


6,985


3,346


7,703


119


-


18,153














* Capital expenditure is the sum of exploration and evaluation assets, mine properties and property, plant and equipment.

** Current assets at 31 December 2015 include corporate cash and cash equivalents of US$3.1 million, investments of US$21.2 million, inventories of US$67.8 million, trade and other receivables of US$31.2 million and other assets of US$5.1 million. Eliminations relate to intercompany accounts receivable.

*** Capital expenditure for the first half of 2015 includes additions to property, plant and equipment of US$24.8 million (Note 7) and capitalised interest of US$6.3 million (Note 7), less prepayments previously made for property, plant and equipment of US$0.5 million.

Non-current assets at 31 December 2015 are located in the Russian Federation (US$995.7 million) and in the Kyrgyz Republic (US$43.0 million). Current assets at 30 June 2015 are located in the Russian Federation.

  

 

4.       Finance income and costs

4.1       Finance income


For the six months ended
30 June


2016


2015


US$000


US$000





Bonds fair value movement (Note 8)

-


2,123

Bank interest

64


45

Other finance income

6


7

Total finance income

70


2,175

4.2       Finance costs


For the six months ended
30 June


2016


2015


US$000


US$000





Accretion expense on site restoration provision

801


1,096

Interest expense on bank loans

1,286


1,442

Interest expense on finance lease

111


20

Bonds fair value movement (Note 8)

1,381


-

Total finance costs

3,579


2,558

 

 

5.       Income tax

The major components of income tax expense in the interim consolidated statement of comprehensive income are:


For the six months ended
30 June


2016

  

2015


US$000


US$000

Current income tax




Current income tax charge

17,452


9,847

Adjustments in respect of prior year current/deferred tax

-


-

Deferred income tax




Relating to origination of temporary differences

(5,665)


(7,699)

Income tax expense

11,787


2,148

There are no tax amounts recognised directly in equity during the first half of 2016 (H1 2015: Nil).

The majority of the Group entities are Russian tax residents. Tax for the six months ended 30 June 2016 is charged at 24.6% (H1 2015: 12.9%), representing the best estimate of the average annual effective tax rate expected for the full year, applied to the pre-tax income of the six months period. The effective tax rate in the first half of 2016 is higher than the statutory rate of 20% mainly due to the lower tax rates on overseas losses.

The actual tax expense differs from the amount which would have been determined by applying the statutory rate of 20% for the Russian Federation to profit before income tax as a result of the application of relevant jurisdictional tax regulations, which disallow certain deductions which are included in the determination of accounting profit.

 



 

6.       Mine properties, exploration and evaluation assets, and property, plant and equipment

 

                 Reconciliation of fixed assets for the period ending 30 June 2016



Mining assets


Exploration and evaluation assets


Freehold building


Plant and equipment


Construction in progress


Stripping activity assets


Total



US$000


US$000


US$000


US$000


US$000


US$000


US$000

Cost















At 31 December 2015


460,703


323,117


205,277


218,437


67,343


17,225


1,292,102

Additions


4,455


6,846


-


1,325


8,673


5,554


26,853

Transfers


253,856


(252,151)


892


6,295


(9,325)


-


(433)

Write-off*


2


-


(591)


(2,396)


-


-


(2,985)

Disposals


-


-


-


(299)


-


-


(299)

Capitalised depreciation


553


1,822


-


-


406


64


2,845

Capitalised interest**


-


5,288


-


-


-


-


5,288

Change in estimation - site restoration asset***


2,328


-


-


-


-


-


2,328

At 30 June 2016


721,897


84,922


205,578


223,362


67,097


22,843


1,325,699
















Depreciation and impairment















At 31 December 2015


151,128


14,016


65,935


102,565


1,571


8,732


343,947

Provided during the period


10,444


-


6,156


11,138


-


1,015


28,753

Transfers


14,016


(14,016)


(7)


(311)


(115)


-


(433)

Write-off*


-


-


(565)


(2,202)


-


-


(2,767)

Disposals








(264)






(264)

Capitalised depreciation


325


-


971


1,549


-


-


2,845

Capitalised to inventory


-


-


125


593


-


-


718

Other adjustments


-


-


-


-


(14)


-


(14)

At 30 June 2016


175,913


-


72,615


113,068


1,442


9,747


372,785
















Net book value:















At 31 December 2015


309,575


309,101


139,342


115,872


65,772


8,493


948,155

At 30 June 2016


545,984


84,922


132,963


110,294


65,655


13,096


952,914
















* Write-off for the first half of 2016 in the amount of US$0.2 million relates to retirement of old inefficient equipment.

** Capitalised interest for the first half of 2016 includes US$5.3 million of borrowing costs capitalised at Kekura at interest rates between 4.2% and 6.5%.

*** During the first half of 2016 there was a change in the rehabilitation estimate associated with the change in volumes of expected site restoration activities, discount and inflation rates. The net present value of the increase in the cost estimate is US$2.3 million (increase of US$0.8 million at MNV, increase of US$0.7 million at Novo, increase of US$0.7 million at BG and increase of US$0.1 million at Kekura) which was booked as an increase to mining assets and non-current provisions.

No plant and equipment has been pledged as security for bank loans in the first half of 2016.

Mine properties in the interim consolidated statement of financial position comprise mining assets and stripping activity assets.

Property, plant and equipment in the interim consolidated statement of financial position comprise freehold building, plant and equipment and construction in progress.



 

                 Reconciliation of fixed assets for the period ending 30 June 2015



Mining assets


Exploration and evaluation assets


Freehold building


Plant and equipment


Construction in progress


Stripping activity assets


Total



US$000


US$000


US$000


US$000


US$000


US$000


US$000

Cost















At 31 December 2014


438,385


296,739


202,881


204,545


77,835


36,032


1,256,417

Additions


3,002


4,598


-


1,605


9,710


5,865


24,780

Transfers


10,272


(668)


(6,899)


3,544


(7,497)


-


(1,248)

Write-off*


(132)


-


(284)


(3,435)


(592)


(3,646)


(8,089)

Disposals


-


-


(5)


(99)


(76)


-


(180)

Capitalised depreciation


408


2,454


-


-


1,219


-


4,081

Capitalised interest**


-


6,290


-


-


-


-


6,290

Change in estimation - site restoration asset***


3,186


-


-


-


-


-


3,186

At 30 June 2015


455,121


309,413


195,693


206,159


80,599


38,251


1,285,236
















Depreciation and impairment















At 31 December 2014


124,372


-


43,209


82,013


573


28,638


278,805

Provided during the period


10,773


-


8,216


12,378


-


4,690


36,057

Transfers


1,904


-


(374)


(2,778)


-


-


(1,248)

Write-off*


(117)


-


-


(2,590)


(500)


(3,646)


(6,853)

Disposals


-


-


(4)


(53)


-


-


(57)

Capitalised depreciation


43


-


2,000


2,038


-


-


4,081

Capitalised to inventory


-


-


155


373


-


-


528

Other adjustments


-


-


-


-


19


-


19

At 30 June 2015


136,975


-


53,202


91,381


92


29,682


311,332
















Net book value:















At 31 December 2014


314,013


296,739


159,672


122,532


77,262


7,394


977,612

At 30 June 2015


318,146


309,413


142,491


114,778


80,507


8,569


973,904
















 

* Write-off for the first half of 2015 in the amount of US$1.2 million relates to retirement of old inefficient equipment.

** Capitalised interest for the first half of 2015 includes US$6.3 million of borrowing costs capitalised at Kekura at a 5.2% interest rate.

*** During the first half of 2015 there was a change in the rehabilitation estimate associated with the change in volumes of expected site restoration activities, discount and inflation rates. The net present value of the increase in the cost estimate is US$3.2 million (increase of US$0.6 million at MNV, increase of US$1.4 million at Novo, increase of US$1.0 million at BG, increase of US$0.1 million at Klen and increase of US$0.1 million at Kekura) which was booked as an increase to mining assets and non-current provisions.

No plant and equipment has been pledged as security for bank loans in the first half of 2015.

Mine properties in the interim consolidated statement of financial position comprise mining assets and stripping activity assets.

Property, plant and equipment in the interim consolidated statement of financial position comprise freehold building, plant and equipment and construction in progress.

 



 

7.       Financial assets and liabilities

Fair values

The current values of the financial assets and financial liabilities approximate their fair values. The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The following methods and assumptions were used to estimate the fair values:

·      The carrying amounts of financial instruments, such as cash and short-term deposits, short-term accounts receivable and payable and other current liabilities approximate their fair value.

·      Fixed-rate interest-bearing loans and borrowings are evaluated based on current market interest rates.

·      The fair value of the embedded derivative is based on quoted market prices

Coupon bonds

During the first half of 2016 the Group received US$12.0 million as a result of selling some bonds.

The bonds are treated as financial assets at fair value through profit or loss. Fair value of those bonds was determined based on quoted bid prices (source: Bloomberg). The table below contains bonds fair value movement.


30 June 2016

31 December 2015

30 June 2015

unaudited

audited

unaudited


US$000

US$000

US$000

Fair value of bonds at the beginning of the period

21,150

42,957

42,957

Fair value (loss)/ gain

(840)

14

234

Foreign exchange (loss)/ gain

(1,174)

(1,271)

404

Coupon interest income accrued

633

2,503

1,485

Bonds fair value movement

(1,381)

1,246

2,123

Coupon interest income received

-

(2,534)

(1,373)

Bonds sold

(11,990)

(24,337)

(13,907)

Bonds purchased

-

3,818

3,818

Fair value of bonds at the end of the period

7,779

21,150

33,618

 



Fair value hierarchy

The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities

Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly

Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.

 

Assets measured at fair value


30 June 2016

Level 1

Level 2



US$000

US$000

US$000

Coupon bonds


7,779

7,779

-

Trade receivables (embedded derivative)


2,068

-

2,068








31 Dec 2015

Level 1

Level 2



US$000

US$000

US$000

Coupon bonds


21,150

21,150

-

Trade receivables (embedded derivative)


1,261

-

1,261








30 June 2015

Level 1

Level 2



US$000

US$000

US$000

Coupon bonds


33,618

33,618

-

Trade receivables (embedded derivative)


(2,402)

-

(2,402)

 

There have been no transfers between fair value levels during the reporting period.

8.       Commitments and contingencies

Capital commitments

At 30 June 2016, the Group had commitments of US$10.2 million (at 31 December 2015: US$5.8 million, at 30 June 2015: US$11.0 million) principally relating to development assets and US$4.9 million (at 31 December 2015: US$1.9 million, at 30 June 2015: US$1.4 million) for the acquisition of new machinery.

Contingent liabilities

Management has identified possible tax claims within the various jurisdictions in which the Group operates totalling US$3.4 million at 30 June 2016 (at 31 December 2015: US$2.3 million, at 30 June 2015: US$3.1 million).

 



 

9.       Inventories

Non-current*

30 June
2016
unaudited

31 December 2015
audited

30 June
2015
unaudited


US$000

US$000

US$000

Ore stockpiles

16,986

21,101

18,096


16,986

21,101

18,096





Ore stockpile obsolescence provision 

(1,966)

(4,729)

(4,609)

Total non-current inventories

15,020

16,372

13,487

* The portion of the ore stockpiles that is to be processed in more than 12 months from the reporting date is classified as non-current inventory.

 


30 June
2016
unaudited

31 December 2015
audited

30 June
2015
unaudited

Current

US$000

US$000

US$000

Raw materials and consumables

53,027

66,195

57,796

Ore stockpiles

14,531

6,661

4,118

Gold in progress

5,121

5,195

6,465

Finished goods

783

896

880


73,462

78,947

69,259





Raw materials and consumables obsolescence provision

(11,392)

(11,189)

(10,718)

Ore stockpile obsolescence provision

(2,763)



Total current inventories

59,307

67,758

58,541

 

Movement in raw materials and consumables obsolescence provision amounted to US$0.6 million in the first half of 2016 (H1 2015: US$0.05 million). US$0.4 million of materials provided in prior periods were sold in H1 2016. No inventory has been pledged as security.

 

10.     Cash and cash equivalents

Cash at bank earns interest at fixed rates based on daily bank deposit rates. Short-term deposits are made for varying periods of between one day and three months depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates. The deposits are placed with banks with credit rating Ba2 (Moody's). The fair value of cash and cash equivalents is equal to the carrying value.

For the purpose of the interim consolidated cash flow statement, cash and cash equivalents comprise the following:


30 June
2016
unaudited

31 December 2015
audited

30 June
2015
unaudited

US$000

US$000

US$000

Cash in hand and at bank

7,638

3,058

4,164

Short term deposits

4,357

-

2,000


11,995

3,058

6,164

 



 

11.     Interest-bearing loans and borrowings


Effective interest rate %

Maturity

30 June
2016
unaudited

US$000

31 December
2015
audited

US$000

30 June
2015
unaudited

US$000

Current






Sberbank loan (1)

4.2

September 2016

12,458

37,375

49,833

Gazprombank loan (2)

4.0

March 2017

46,000

33,000

9,500

Gazprombank loan (3)

5.0, 7.0 from
18 March 2015

August 2015

-

-

17,519

Gazprombank loan (5)

6.5, 5.7 from
30 June 2016

December 2018

32,571

-

-

UniCredit loan (6)

5.5

December 2018

2,778

-

-




93,807

70,375

76,852







Non-current






Sberbank loan (1)

4.2

September 2016

-

-

12,458

Gazprombank loan (2)

4.0

March 2017

-

22,500

60,000

Gazprombank loan (4)

7.9

November 2015

-

-

80,000

Gazprombank loan (5)

6.5, 5.7 from
30 June 2016

December 2018

39,429

80,000

-

UniCredit loan (6)

5.5

December 2018

47,222

50,000

-

Alfa-bank loan (7)

5.3

December 2018

35,000

30,500

41,501




121,651

183,000

193,959

Total



215,458

253,375

270,811













(1) In September 2013 the Group raised financing with Sberbank at a 3.8% interest rate (at a 4.2% effective interest rate) with the draw period set till 2 September 2016. The loan is repayable in instalments between December 2014 and September 2016. The drawn down loan payable balance under the agreement at 30 June 2016 is US$12.5 million. The outstanding bank debt is subject to the following covenant: the ratio of net debt to EBITDA should be equal to or lower than 4.0.

(2) In March 2014 the Group secured a revolving facility with Gazprombank with the draw period set till 31 March 2016. The interest rate is set for every instalment separately. Every instalment is repayable in one year, with the final repayment in March 2017. The drawn down loan payable balance under the agreement at 30 June 2016 is US$46.0 million. The outstanding bank debt is subject to the following covenant: the ratio of total debt to EBITDA should be equal to or lower than 4.0.

(3) In March 2015 the interest rate was changed to 7.0%. The loan was repaid in August 2015.

(4) The loan was repaid in November 2015.

(5) In November 2015 the Group raised financing with Gazprombank at a 6.5% interest rate with the draw period set till 18 February 2016. In June 2016 the interest rate was changed to 5.7%. The loan is repayable in instalments between April 2017 and December 2018. The drawn down loan payable balance under the agreement at 30 June 2016 is US$72.0 million. The outstanding bank debt is subject to the following covenant: the ratio of total debt to EBITDA should be equal to or lower than 4.0.

(6) In December 2015 the Group raised financing with UniCredit bank at a LIBOR USD 1M + 5.0% interest rate with the draw period set till 17 January 2016. The loan is repayable in instalments between June 2017 and December 2018. The drawn down payable balance obtained under the agreement at 30 June 2016 is US$50.0 million. The outstanding bank debt is subject to the following covenant: the ratio of net debt to EBITDA should be equal to or lower than 3.5.

(7) In April 2015 the Group raised financing with Alfa-Bank with the draw period set till 31 December 2018. The interest rate is set for every instalment separately. The loan is repayable in December 2018. The drawn down loan payable balance under the agreement at 30 June 2016 is US$35.0 million. The outstanding bank debt is subject to the following covenant: the ratio of net debt to EBITDA should be equal to or lower than 4.0.

The total outstanding bank debt of the Group at 30 June 2016 is US$215.5 million. There were no covenant breaches as at 30 June 2016.

 



 

12.     Share Capital

The total amount of the authorised ordinary shares of £0.001 each remained unchanged and equalled 750,000,000.

Ordinary shares issued and fully paid amounted to 325,222,098 shares, representing US$585 thousand.

 

13.     Related party transactions

During the first half of 2016 the Group acquired 0.54% of OJSC Novo-Shirokinsky Rudnik's shares for cash consideration of US $88 thousand, which resulted in a decrease of non-controlling interest of US $731 thousand.

 

14.     Earnings per share

Basic earnings per share amounts are calculated by dividing profit for the period attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period.

Diluted earnings per share amounts are calculated by dividing the profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period plus the weighted average number of ordinary shares that would be issued on the exercise of share options into ordinary shares.

The following reflects the income and share data used in the basic and diluted earnings per share computations:


 

 

For the six months ended 30 June



2016


2015



US$000


US$000






Net profit attributable to ordinary equity holders of the parent


36,815


14,160








Thousands


Thousands

Weighted average number of ordinary shares for basic earnings per share


325,222


325,222

Weighted average number of ordinary shares adjusted for the effect of dilution


325,222


325,222

There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of these financial statements.

15.     Impairment of goodwill and non-current assets

In accordance with the Group's accounting policy, goodwill is tested for impairment annually and when circumstances indicate the carrying value may be impaired.

When there is an indicator of impairment of non-current assets within a cash-generating unit (CGU) or a group of CGUs containing goodwill, non-current assets are tested for impairment first at each CGU and any impairment loss on the non-current assets is recognised before testing the groups of CGUs for a potential goodwill impairment. Impairment is recognised when the carrying amount exceeds the recoverable amount.

Non-current assets are tested for impairment when events or changes in circumstances suggest that the carrying amount may not be recoverable. The assessment is done at the CGU level, which is the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets.

In the first half of 2016 there was no indicator of impairment of non-current assets, including goodwill.

 

16.     Events after the reporting period

In August 2016, the Group signed additional agreements with Alfa Bank and Raiffeisen Bank. The new agreements are long-term credit facilities with an overall limit of US$102.0 million, providing an extension of the final maturity until December 2019.

The Board has approved an interim dividend of £0.05 per share (H1 2015: £0.02 per share). The interim dividend will be paid on 21 October 2016 to shareholders on the register at the close of business on 7 October 2016. The ex-dividend date will be 6 October 2016.

 



[1] 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.

 

[2] 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.

 

[3] EBITDA is defined as operating profit/ (loss) excluding depreciation and amortisation, impairment losses, movement in ore stockpiles obsolescence provision, movement in raw materials and consumables obsolescence provision, result of disposal of a non-core entity and gain on settlement of contingent consideration

 

[4] EBITDA margin is defined as EBITDA divided by total revenue

 

[5] Net debt is defined as cash at bank, deposits and bonds, decreased by any bank borrowing and lease obligations

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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