2016 H1 Interim Results and Project Update September 2016 - - PowerPoint PPT Presentation

2016 H1 Interim Results and Project Update

September 2016

Disclaimer

Certain statements within this presentation constitute forward looking statements. Such forward looking statements involve risks and other factors which may cause the actual results, achievements or performance of the Group to be materially different from any future results, achievements or performance expressed or implied by such forward looking statements. Such risks and other factors include, but are not limited to, general economic and business conditions, changes in government regulations, currency fluctuations (including the US$/RUR rate), the gold price, the Group’s ability to recover its reserves or develop new reserves, competition, changes in development plans and other risks. There can be no assurance that the results and events contemplated by the forward looking statements contained in this presentation will, in fact, occur. These forward-looking statements are correct or represent honestly held views only as at the date of delivery of this presentation. The Company will not undertake any obligation to release publicly any revisions to these forward looking statements to reflect events, circumstances and unanticipated events occurring after the date of this presentation except as required by law or by regulatory authority.

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Highland Gold Today

Focus development in the regions of presence Drive production growth by developing existing resources Maximise usage of existing infrastructure and milling capacity Seek and consolidate reserves around existing production clusters

Our Vision

Maintain position as low-cost producer through strict cost controls Strengthen commitment to safety and protecting the environment

Belaya Gora Mnogovershinnoye (MNV) Baley Hub (Taseevskoye, Sredny Golgotay) Novoshirokinskoye (Novo) Blagodatnoye Lyubov Unkurtash

Khabarovsk Cluster Chukotka Cluster Baikal Cluster Kyrgyzstan

Exploration Project Development Project Operating Mine

• Three operating mines and a pipeline
• f promising development projects.
• Operations focused in 3 regions of

the Russian Federation.

Kekura

Klen

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Corporate Overview

0.0 0.5 1.0 1.5 2.0 2.5 3.0 20 40 60 80 100 120 140 160 32% 11% 42% 15%

Ownership Structure 2016 Share Performance

Share Price (GBX) Average Daily Trading Volume (mln GBP)

Prosperity Capital Management Primerod Board & Management Other

Free Float: 57%

AIM-Listed: HGM.L

• Shareholders include a broad range of major high-

quality UK and European institutional investors

Committed to Best Practice in Corporate Governance

• Led by an experienced Board of Directors and

management team

• Seven directors – an executive chairman, one

executive director, and five non-executive directors

Shares 325,222,098 Market Cap* GBP 427,667,059 H1 2016 Earnings/Share US$ 0.113

* on 22 Sep 2016

Share Data

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H1 2016 Highlights

Total production of 128,671 oz of gold and gold equivalent ↑6% Total Cash Costs – 444 US$/oz All-In Sustaining Costs – 609 US$/oz ↓18% ↓14% Net Debt of US$ 197.9m on 01.07.16 ↓15% H1 2016 EBITDA – US$ 80 million EBITDA Margin of 54% ↑45% H1 2016 Free Cash Flow of US$ 60.7m ↑60% Interim Dividend of £0.05 per share approved by Board of Directors (H1 2015 - £0.02 )

• MNV and Novo exceeded internal

production targets for the half

• Efforts to optimise mine and mill
• perations at Belaya Gora ongoing
• Progress in exploration programmes at

MNV and 3 development projects

• Work commenced on planned expansion
• f the Novo mill
• PFS for Kekura completed and reviewed,

preparations for construction underway

Operational Milestones

Percentage comparisons are H1 2016 versus H1 2015

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H1 2016 Financial Overview

IFRS, US$000 (unless stated) H1 2015 H1 2016 Gold sold (gold and gold eq. oz) 119,277 127,697 Total Group cash costs (US$/oz) 538 444 Group all-in sustaining costs (US$/oz) 710 609 Revenue 130,740 147,097 Operating profit 18,778 50,420 Net profit 14,466 37,052 EBITDA 54,885 79,720 EBITDA margin (%) 42% 54% Earnings per share (US$) 0.044 0.113 Net cash inflow from operations 56,523 78,378 Capital expenditure 18,153 18,814 Net debt position 232,427 197,900

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H1 2016 Financial Overview

H1 2014 H1 2015 H1 2016 Gold and GE Production, koz 120.1 121.2 128.7 Average Price of GE, US$/oz 1 210 1 088 1 143 P & L, US$ m Revenue 142.2 130.7 147.1 Cost of sales (109.7) (101.7) (86.7) Gross profit 32.5 29.0 60.4 Administrative expenses (8.2) (6.7) (7.0) Other operating (expenses) / income 1.9 (3.6) (2.9) Operating profit 26.3 18.8 50.4 Financial costs (1.6) (2.6) (3.5) Financial income 6.2 2.2

• FX

(1.5) (1.9) 1.9 Profit before income tax 29.4 16.6 48.8 Total income tax expense (9.1) (2.1) (11.8) Total comprehensive income for the period 20.3 14.5 37.1

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H1 2016 Financial Overview

30 June 2014 30 June 2015 30 June 2016 STRONG BALANCE SHEET Total Assets, US$ m 1 290.5 1 212.2 1 156.4 Total Equity, US$ m 828.4 774.5 764.7 Gross Debt (incl. leasing), US$ m 304.0 272.2 217.7 KEY INDICATORS TCC, US$ / oz 689 538 444 AISC, US$ / oz 900 710 609 EBITDA, US$ m 48.4 54.9 79.7 Net Debt / EBITDA 2.0 1.8 1.3 EBITDA margin 34% 42% 54% DIVIDENDS Dividends paid during H1, US$ m 13.7 10.1 11.9 Dividends declared during H1, GBP per share 0.025 0.020 0.050

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H1 2016 Operating Data

Mining Data Processing Data

• Ore mining volumes in H1 2016:

 650 kt at MNV (+5% y-o-y)  955 kt at Belaya Gora (+8% y-o-y)  402 kt at Novo (+23% y-o-y)  13 kt at Sredny Golgotay (Kaftan)

• 7% of mined ore was left in stockpiles

due to the ore selection programme at Belaya Gora

• Ore processing volumes in H1 2016:

 673 kt at MNV (-5% y-o-y)  834 kt at BG (+23% y-o-y)  376 kt at Novo (+14% y-o-y)

• includes Kaftan
• Average grade decreased by 5% due to

Belaya Gora grades falling from 1.9 g/t to 1.3 g/t (-31% y-o-y)

• Recovery rates increased by 1% thanks

to MNV and Novo

5,368 9,324 9,441

6.0 6.9 6.5

H1 2014 H1 2015 H1 2015 574 658 766 766 1,175 1,254 H1 2014 H1 2015 H1 2016

Underground Open Pit

1,373 1,712 1,883 H1 2014 H1 2015 H1 2016 3.28 2.63 2.5 84.1% 83.9% 84.8% H1 2014 H1 2015 H1 2015

Average Grade, g/t Recovery Rate, %

Average Grade and Recovery Rate Ore Processed, kt Rock Mined and Stripping Ratio Ore Mined, kt

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EBITDA Performance

48 55 80 16 7 6 3 1 10 20 30 40 50 60 70 80 90 100

H1 2014 Actual H1 2015 Actual Exchange Rate Metal Prices Volume of Sales Cost of Sales G&A H1 2016 Actual

+ US$ 7.2 m Slight increase in Au price at lower Zn and Pb prices + US$ 6.1 m Change in the volume of sales, including :

• NOVO + 8 077 oz Au equivalent
• MNV

+ 3 010 oz Au

• BG
• 2 667 oz Au
• US$ 3 .1 m

Increase in costs caused by 10% growth in mining and processing volumes

EBITDA BRIDGE, US$ m

54% 64% 52% 50% 44% 43% 40% 40% 39% 0% 20% 40% 60% HGML Polyus Gold** Nord Gold Polymetal Gold Fields Newcrest Mining Barrick Gold Anglogold Ashanti Newmont Mining

Median: 44%

EBITDA Margin

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TCC & AISC Performance

• Total Cash Costs fell by 18% to 444 US$/oz due to the

weaker rouble, increased gold sales and an efficiency improvement programme at Novo

• A 25% increase in BG TCC resulted from lower grades

and recovery rates

• All-In Sustaining Costs were down 14% to 609 US$/oz
• Low TCC were partially offset by an increase in

maintenance CAPEX and G&A

538 444 813 602 489 613 335 248 136 178

H1 2015 H1 2016 H1 2015 H1 2016 H1 2015 H1 2016 H1 2015 H1 2016

710 609

H1 2015 H1 2016

HGML TCC Breakdown by Mine

TCC (US$/oz)

MNV Belaya Gora Novo (adjusted)

471 426

Outside Processing Costs, US$/oz sold

AISC (US$/oz)

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Peer Cost Comparison

550 591 631 706 707 377 514 444 300 600 900

Newmont Mining Barrick Gold Goldcorp AngloGold Ashanti Kinross Gold Polyus Gold Polymetal HGML

Total Cash Costs, US$/oz

754 770 795 911 936 972 992 555 754 878 609 300 600 900

Newcrest Mining Barrick Gold Newmont Mining AngloGold Ashanti Goldcorp Kinross Gold Gold Fields Polyus Gold Polymetal Nordgold HGML

All-In Sustaining Costs, US$/oz

International Majors Russian Companies

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Operating Cash Costs

Cost Breakdown

Unit H1 2015 H1 2016 Deviation Consumables and spares m US$ 22.2 19.2

• 14%

Labour m US$ 19.5 18.1

• 7%

Services m US$ 11.3 9.8

• 13%

Power m US$ 4.1 3.9

• 8%

Taxes m US$ 7.9 6.9

• 13%

Total costs m US$ 65.0 57.9

• 11%
• Operating cash costs decreased by 11%,

despite an 8% increase in sales, due to NOVO cost reduction initiatives and the weaker rouble

• Operating cash cost structure remained

largely unchanged in H1 2016 with major cost items being materials (34%), labour (32%), services (15%), and taxes (12%)

Cost Breakdown by Mine, H1 2016

22% 38% 23% 8% 9%

Consumables and spares Labour Services Power Taxes

USD 14 m

NOVO

40% 25% 16% 6% 13%

Consumables and spares Labour Services Power Taxes

USD 16 m

BG

35% 32% 14% 6% 13%

Consumables and spares Labour Services Power Taxes

USD 28 m

MNV

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Capital Expenditure

MNV

• Near-mine exploration work, ongoing re-registration
• f reserves with regulator, maintenance capex

NOVO

• Program for boosting mine and mill capacity to 1.3

mtpa, maintenance capex BELAYA GORA

• Infrastructure facilities and mill stabilization

BLAGODATNOYE

• Drilling program

BALEY HUB

• Drilling program at Sredny Golgotay, preparations

for de-watering the pit at Taseevskoye KEKURA

• Exploration, project design, procurement and

transportation in preparation for construction KLEN

• Pre-feasibilty study

UNKURTASH

• Scoping study

15 9 12 2 12 8 7 30 18 19

H1 2014 H1 2015 H1 2016 Operating assets Exploration projects Development projects

CAPEX, m US$

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Cash Flow Performance

• Stable production
• Debt reduction
• Strong cash flow

Interim dividend £ 0.05/share

Cash Position Bridge (m US$)

24 20 78 19 6 7 38 12

30 60 90 120 150

Cash & Bonds 01.01.2016 Net Cash Flow from Operations Cash Capex Increase in Stripping Activity Assets Interest and Leasing Net Loan Repayment Dividends Paid Cash & Bonds 30.06.2016

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Debt Status

• Total debt decreased by US$

38 m in H1 2016

• Effective interest rate as of

01.07.2016 – 5.1% p.a. (was 5.43% on 01.01.2016)

• Average tenor – 23 months.

45% 34% 21%

Novo; $97,5m Belaya Gora; $72m MNV; $46m

55% 23% 16% 6%

Gazprombank; $118m UniCredit; $50m Alfa bank; $35m Sberbank; $12,5m

303 254 216 247 229 198 100 200 300

01.01.2015 01.01.2016 01.07.2016

Net Debt / EBITDA ratio = 1.3 as of 01.07.2016

Debt by Division Debt by Lender Gross Debt (m US$) Net Debt

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H1 2016 Production % HGM TCC ($/oz) % EBITDA MNV 44.9k oz 35% 602 28% Belaya Gora 25.3k oz 20% 613 17% Total 70.2k oz 55% 45%

Khabarovsk Cluster

Khabarovsk Region, Far East District Russian Federation

Mining Assets

• Mnogovershinnoye (MNV)
• Belaya Gora

Exploration Projects

• Blagodatnoye

MNV Belaya Gora Khabarovsk Nikolayevsk-na-Amur Blagodatnoye

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Belaya Gora Units H1 2015 H1 2016 Waste stripping m3 1,557,257 3,294,701 Ore mined t 885,314 955,385 Average grade g/t 1.63 1.22 Ore processed t 674,985 833,509 Average grade g/t 1.87 1.29 Recovery rate % 75.89 72.7 Gold produced

• z

30,157 25,349

MNV

• H1 2016 mining focused on higher-grade

underground reserves

• 300k tons of waste stockpiles re-evaluated and

processed

• 11k-meter exploration programme on MNV

Lower Horizons licence (Severnoye ore body) near completion, 2k meters added

• Trenching program underway on MNV Western

Flank licence (Chaynoye ore body).

Belaya Gora

• Higher H1 processing volumes were offset by a

fall in grades.

• Stabilisation of feed rate to mill led to reduced

tailings grade (overall recovery rate still affected by lower grades)

Khabarovsk Cluster

MNV Units H1 2015 H1 2016 Waste stripping m3 1,780,663 305,900 Underground development m 4,287 5,863 Open-pit ore mined t 289 420 22 067 Open-pit ore grade g/t 2.08 3.02 Waste dumps ore mined t – 276 312 Waste dumps ore grade g/t – 1.06 Underground ore mined t 330,329 351,336 Underground ore grade g/t 2.21 3.20 Total ore mined t 619,749 649,715 Average grade g/t 2.15 2.28 Ore processed t 705,493 672,600 Average grade g/t 2.08 2.28 Recovery rate % 89.0 90.93 Gold produced

• z

42,451 44,929

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Khabarovsk Cluster

Blagodatnoye

• Targeted for adding reserves to the Belaya

Gora mill

• Exploration drilling programme of 15,000 m

throughout H1 for the purpose of registering reserves with regulators

• 3.1 tonnes of samples extracted to develop a

processing flowsheet for the Belaya Gora mill

Outlook

MNV

• Ongoing reserve re-calculations (under Russian standards) expected to be completed in 2016
• Near-mine exploration results also expected later this year with a view toward extending the life
• f mine
• Investigating sourcing additional high-grade ore from other nearby deposits to feed the mill

Belaya Gora/Blagodatnoye

• Project design underway for mill upgrade to add CIL and improve recoveries
• Study underway to re-evaluate Belaya Gora reserves and for combined processing of ore from

Belaya Gora and Blagodatnoye. Results expected early next year

• Blagodatnoye exploration results expected later this year

Belaya Gora Blagodatnoye

30 km

MNV

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Baikal Cluster

Zabaikalsk Region, Eastern Siberia Russian Federation

H1 2016 Production % HGM TCC ($/oz) % EBITDA Novo 58.0k oz 45% 248 55%

Mining Assets

• Novoshirokinskoye (Novo)
• Sredny Golgotay – Kaftan site

Development Projects

• Baley Hub
• Taseevskoye
• Sredny Golgotay
• Baley ZIF-1 Tailings
• Lyubov

Lyubov Baley Hub Novo Chita

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Baikal Cluster

Novo Units H1 2015 H1 2016 Underground development m 5,312 5,808 Ore mined t 327,629 401,983 Average grade * g/t 5.4 5.5 Ore processed t 331,551 371,945 Average grade * g/t 5.4 5.6 Recovery rate * % 85.3 86.5 Gold produced *

• z

48,634 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 %)

Sredny Golgotay (Kaftan) Units H1 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

• z
• 433

Novo

• Improvements in underground development,

mining and processing in H1

• Preparatory construction work has commenced
• n the planned expansion of mining and milling

capacity to 1.3 million tonnes per annum

Sredny Golgotay (Kaftan)

• Pilot project to mine ore from the Kaftan site of

the Sredny Golgotay licence resulted in 4,501 tonnes of ore transported to the Novo mill

• The ore had an average grade of 3.6 g/t,

somewhat below initial expectations

• 7,900-meter drilling program carried out to better

asses Kaftan reserves, results in Q4

Lyubov

• Agreement signed with an outside contractor to process existing tailings at the Lyubov site.
• Equipment and materials delivered to site, infrastructure arranged, and pilot plant installed
• A pilot programme is currently underway

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Baikal Cluster

Baley Hub

• Dewatering of the existing Taseevskoye open pit

underway, to be completed by year-end

• Studying the possibility of processing oversized rocks

from Taseevskoye waste dumps (19 holes for a total of 208.7 metres drilled in Q2)

• Exploration drilling programme of 15,000 m commenced

in Q2 in order to validate state-registered reserves across the Sredny Golgotay licence

• Testwork was carried out at Sredny Golgotay on the

potential of for an X-ray fluorescence spectrometry (XRF) plant, which would enable the pre-concentration of gold- bearing ores from the site for processing at Novo

• Baley ZIF-1 tailings being assessed for potential to

improve economics of Sredny Golgotay development

Outlook

Novo

• Capacity expansion due to be completed in 2018

Baley Hub

• De-risking Taseevskoye will allow for updated assessment
• f reserves
• Several options being studied for joint development
• f Baley Hub licenses

Baley pit Taseevskoye pit TSF ZIF-2

570 571 571 572 572 573 573 Absolute water level, m Water Level Changes in Pits Taseevskoye Baley

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Resources Ore, mt Grade, g/t Au, moz Kekura* 10.68 7.5 2.57 Klen** 3.87 5.0 0.63

Chukotka Cluster

Chukotka Autonomous Province, Far East District Russian Federation

Development Projects

• Kekura
• Klen

* JORC, Apr 2016 PFS **JORC as of 31.12.2015 Indicated & Inferred

Klen Kekura Anadyr Pevek Bilibino

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Chukotka Cluster

Kekura

• Priority development project
• Located in the Bilibino District of the

Chukotka Autonomous Area, 120 km south of the town of Bilibino

• High grade, open pit and underground mining

and favourable metallurgy to make Kekura a low cost operation

• Envisaged initial mill capacity of 800 ktpa

with recoveries of ~85%

Klen

• International consultants Hatch currently

drafting a new pre-feasibility study for a processing plant and infrastructure facilities.

• Initial indications are that opportunities exist

to improve upon options previously considered for the project.

• PFS results expected in Q4

Kekura Key Project Parameters**

Unit Total Post-Tax IRR % 38 Post-Tax NPV (5%) US$ m 357 Milling Capacity ktpa 800 Average Annual Production (LoM) k oz 209 Capital Cost Estimate US$ m 188 Payback Period Years 3 Life of Mine Years 8

Kekura Mineral Resources**

Classification Tonnage (Mt) Au Grade (g/t) Metal Au (Moz) Indicated 7.412 8.64 2.06 Inferred 3.266 4.80 0.51 Total 10.678 7.47 2.57

Kekura Ore Reserves**

Classification Tonnage [Mt] Au Grade [g/t] Metal Au [Moz] Proven

• Probable Open Pit

4.296 10.94 1.51 Underground 0.541 9.04 0.16 Total 4.837 10.73 1.67

**

• Reserves & resources compliant to JORC Code 2012
• Resources cut-off grade of 1.0 g/t Au
• Reserves cut-off grade of 2.2 g/t Au at the open pit and 4.2 g/t Au for

the underground mine.

• A gold price of US$1,150 per troy ounce has been applied.
• Kekura project parameters based on 2016 PFS, without historical costs

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Chukotka Cluster

Completed

• Extensive exploration program
• Scoping study
• Registration of reserves with

GKZ

• Pre-feasibility study
• Fatal flaw review of initial open

pit and underground mine design.

• Metallurgical tests for selection of

processing technology

• Technical design documentation
• Contractors selected for process

plant building.and basic mill engineering

• Access roads from ice road to

process plant site, road from pit to process plant site.

In Progress

• 25k meter advanced exploration

programme to convert underground resources to “Indicated”

• Preparations for construction of

the main process plant building

• Purchases of materials for fuel

and lubricants storage

• Shipment of key construction

materials and structures to the Port of Pevek

2017-2019

• Complete engineering and pass

state expert review of design documentation

• Commence civil works on the

process plant and infrastructure facilities

• Commence

capital mining activities in the open pit

• Contracts for supply of main

equipment: mining, processing, auxiliary

• Delivery of the main equipment

to the port of Pevek during 2017 navigation period and to site in winter 2017-18.

• Equipment installation and piping
• Commissioning

Kekura Project Status

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Head of Chukotka Operations Head of Baikal Operations Head of Khabarovsk Operations

Production Planning:

• Mining
• Technology
• Project Office
• License Compliance

Health, Safety & Environment Geological Exploration Purchasing & Logistics Finance

• IFRS
• Budgeting & Accounting
• Corporate Finance

Corporate Development Investor Relations/PR Innovations HR, IT, Security Internal Audit

Improving Management Efficiency

• Develop strategy for regional growth:

mid- & long-term objectives, LOM

• Optimise and balance regional resources
• Sponsor projects, including exploration &

construction

• Develop and execute regional budget
• Staff recruitment

Focus on Result

• Group strategy
• Financial discipline
• Standardisation of functions
• Finalisation of group annual

production & budget KPIs

• Oversight of functional decisions eg. recruitment
• Search for & proposal of production improvements,

innovations in technology

• Execution of decisions on exploration budget,

capital construction projects & purchasing Head Office

Distribution

• f

Authority

Regional Operations

Focus on Process & Control

CEO Annual budget & production KPI execution, long-term production development 26

Highland Gold’s Investment Case

Growth Potential in High Grade Deposits Development Strategy Focused on Regional Hubs 4 mT Milling Capacity Already in Operation Disciplined Capital Allocation

Highland Gold’s Commitment To Growth

Commitment to Dividend

27