2019 annual results and project update · rate), the gold price, the group’s ability to recover...
TRANSCRIPT
2019 Annual Results and Project Update
April 2020
AIM: HGM
Disclaimer
Certain statements within this presentation constitute forward looking statements. Such forward looking statements involve risks and other
factors which may cause the actual results, achievements or performance of the Group to be materially different from any future results,
achievements or performance expressed or implied by such forward looking statements. Such risks and other factors include, but are not
limited to, general economic and business conditions, changes in government regulations, currency fluctuations (including the US$/RUR
rate), the gold price, the Group’s ability to recover its reserves or develop new reserves, competition, changes in development plans and
other risks.
There can be no assurance that the results and events contemplated by the forward looking statements contained in this presentation will,
in fact, occur. These forward-looking statements are correct or represent honestly held views only as at the date of delivery of this
presentation.
The Company will not undertake any obligation to release publicly any revisions to these forward looking statements to reflect events,
circumstances and unanticipated events occurring after the date of this presentation except as required by law or by regulatory authority.
***
Total cash costs include mine site operating costs such as mining, processing, administration, royalties and production taxes, but are
exclusive of depreciation, depletion and amortisation, capital and exploration costs. Total cash costs are then divided by ounces sold to
arrive at the total cash costs of sales. This data provides additional information and is a non-GAAP measure.
In line with guidance issued by the World Gold Council, the formula used to define all-in sustaining costs measure commences with total
cash costs per ounce sold and then adds sustaining capital expenditures, corporate general and administrative costs, mine site exploration
and evaluation costs and environmental rehabilitation costs. This data seeks to represent the total costs of producing gold from current
operations, and therefore it does not include capital expenditures attributable to projects or mine expansions, exploration and evaluation
costs attributable to growth projects, income tax payments, interest costs or dividend payments.
2
Highland Gold Today
3
Russia
Kazakhstan
Chukotka
Cluster
Khabarovsk
Cluster
Baikal
Cluster
Kyrgyzstan
Unkurtash
Mongolia
China
Novo
MNV Belaya Gora
Blagodatnoye
Klen
Kekura
Valunisty
Kayen
Operating Mines
Under Construction
Development Projects
Competence Center
1. Guidance for 2020 production of gold and gold equivalent
Baley Hub
Taseevskoye, ZIF-1,
Sredny Golgotay
Moscow
Vladivostok
Khabarovsk
► Gold miner with four operating assets and
one mine under construction
► Annual production of 290-300 koz1
► Low-cost, high-margin producer
► Pipeline of attractive development projects
and clear pathway to growth
► Committed to paying dividends
Revenue
395 million US$
2018: 311 ▲ +27%
TCC
556 US$/oz
2018: 506 ▲ +10%
Net Profit
178 million US$
2018: 56 ▲ +217%
EBITDA
205 million US$
2018: 153 ▲ +34%
AISC
791 US$/oz
2018: 682 ▲ +16%
Earning per Share
0.49 US$
2018: 0.15 ▲ +216%
2019 Results Highlights
4
113 124
113 107
44 40
30
2018 2019
301
270 Valunisty
Belaya
Gora
Novo
MNV
+12%
Annual Production
koz gold and gold equivalent
2019 Results Highlights
► MNV – Outperformed management expectations, with production up 10% on the back of improved grades and higher processing volume.
► Novo – Exceeded production targets for 2019, although output was 5% lower year-on-year due to expected lower grades and changes in the balance of prices for metals in its concentrates.
► Belaya Gora – Despite a strong Q4, production decreased by 9% due to lower grades and downtime at the processing plant earlier in the year.
► Valunisty – Acquired at year-end 2018, Valunisty added 11% (30k oz) to Highland Gold’s production in 2019.
► Kekura - Construction gathered pace, with several key infrastructure facilities at or near completion, while initial stripping and mining commenced in Q4.
► The Board of Directors approved a third interim dividend in respect of 2019 in the amount of £0.035 per share, expressing confidence in the Company’s cash generation and strong balance sheet
5
Operations Third Interim Dividend
► Deborah Gudgeon joined the Board of Directors in December 2019 as Independent Non-Executive Director, filling the seat left vacant by the sudden passing of Terry Robinson last summer. Deborah will chair the Board’s Audit & Risk Committee
► Following the departure of Anton Kim at year’s end, Michael Monaghan joined the Company in March 2020 as Chief Operating Officer, bringing with him over four decades of experience in the industry
Corporate News
Guidance
Range
Meeting Our Production Guidance
6
255
261
255
272
265
270
290
301
290
2016 2017 2018 2019 2020
265 265
275
300
Annual Production vs Guidance
koz gold and gold equivalent
Annual
Production
300
800
1000
1200
1400
1600
1800
2000
0
50
100
150
200
250
Focused on Shareholder Returns
7
5 4.8
3 2.5 2.5 2.5 2 2 2.5
5 5.4 5 5.4 6 5 5 5
10-Year Return
Equity: 91%
Dividends: 58%
Annualised Return: 11%
5-Year Return
Equity: 535%
Dividends: 135%
Annualised Return: 50%
1-Year Return
Equity 44%
Dividends: 8%
Annualised Return: 51%
2.4
HGM Share Price
(pence)
Gold Price
(US$/oz)
Dividends Paid
(pence per share)
3.5
Calculated for 15 April 2010 to 15 April 2020. Includes third interim dividend for 2019, declared on 15 April 2020.
Committed to Paying Dividends
8
Highland Gold has paid out
an average of US$151 per
ounce produced since 2011
Total dividends for 2019:
GBP 0.135 per share
Total payout: US$61 M
Dividend policy sets a target
minimum payout of 20% of
net operating cash flow
before capex
Dividend Yield*
25.7
40.3
26.7 23.2 21.8
42.5 45.5
58.0 61.2
2.9%
6.2% 6.3%
7.7%
9.6% 9.8%
6.5%
9.1%
7.2%
-5.0%
-3.0%
-1.0%
1.0%
3.0%
5.0%
7.0%
9.0%
11.0%
-5
5
15
25
35
45
55
65
75
85
2011 2012 2013 2014 2015 2016 2017 2018 2019
114 89 83 163 169 215 140 186 203
* Based on the average share price for the period
Total Dividends
Paid (US$ M)
US$ per oz
Worldwide Fund for Nature 2019
Environmental Transparency Rating
►Highland Gold ranked #13 overall
among the 40 largest metals &
mining companies in Russia
►Ranked #2 for lowest environmental
impact
►Award for most improved reporting
Company-wide contest to collect
plastic for recycling in H2 2019
►Employees at each office and
production site collected a total
of 4.4 tonnes of plastic
►Served as a basis for employee
education and for expanding trash
sorting across the Company
1 1 1
5
2.8
4.9
4.0
2.6
0
2
4
6
8
10
12
14
16
0
1
2
3
4
5
6
2016 2017 2018 2019
Operating Sustainably
9
Health & Safety
Environment
LTIFR*
Fatalities
* Lost Time Incident Frequency Rate (LTIFR), calculated as the number of incidents for every 1,000,000 man-hours
► New HSE team implemented stricter standards for
incident reporting
► New corporate health & safety standards began
rolling out across the Company
► Improved overall HSE performance, but high fatality
rate in H1 2019 triggered a decision to commission
an extensive external audit in autumn 2019 to help
fine-tune systems
2019 MINEX Russia award
for corporate social responsibility
►Recognised for corporate
sponsorship of the renovation and
construction of social infrastructure
(kindergartens, schools, churches,
sports facilities) in villages where
we operate
Community
Preparing for the Pandemic
10
► Our primary concern is the health and safety of our employees and the well-being of the communities in which we operate
► To date, we have not experienced any significant disruptions to our production or sales
2019 Q1 2020 Plans for Q2 2020
• Highland Gold installed a state-of-the-
art health monitoring system at our
mines, and that system is now
additionally being used to screen for
signs of coronavirus infection before
employees enter a site
• Highland Gold contracted recognised
worldwide healthcare provider
International SOS for services at our
mine sites, and they are now assisting
with supplementary preventative
measures, including the screening of all
shift employees in regional capitals
before they travel to site
• COVID-19 Task Force established at
head office and mine sites
• Non-essential employee travel
restricted and office staff sent to work
from home
• Employee shifts extended until 01 June
2020 and contractors compelled to
follow suit
• Comfortable isolation zones equipped
at each mine site in case an employee
needs to be quarantined
• Mines stockpiling one to three months
of ore that could feed the processing
plants operating on a skeleton crew
• Potential back-up suppliers identified in
case of supply chain disruptions
• Institute a broad coronavirus testing
program for Highland Gold employees
• Establish bases with on-site testing in
regional capitals to facilitate shift
changes via 14-day quarantine
• Study options to improve automation in
our processes, an effort which could
yield benefits beyond the current
pandemic
Unlocking Value
Executing Our Strategy
11
►Highland Gold has articulated and executed a clear operating strategy
Develop
advanced-
stage projects
into production
De-risk early-
stage projects
and convert
resources into
reserves
Focus
corporate
development
on regions of
presence
Concentrate on
operational
efficiency and
continuous
improvement
Maintain
commitment to
operating in a
sustainable
manner
Maximise
the upside
potential of
operating
assets
Control
Costs Returns to
Shareholders
Deliver
Growth
MNV Novo Belaya Gora Valunisty
Goal Extend life of mine Offset expected decrease in
grades
Improve recoveries and enable
processing of ore from the
Blagodatnoye deposit
Increase production and lower
costs
Project Extensive near-mine
exploration programme
Increase mining and
processing capacity from
800 ktpa to 1.3 Mtpa
Upgrade processing plant to
add a carbon-in-pulp (CIP)
circuit and increase recoveries
from ~75% to 86-91%
Initiate underground mining to
reach higher grades and
increase mill throughput from
250 ktpa to 350 ktpa
Status Completed
► 2016-2018 exploration added over 600k oz Au to reserves
► Life of mine extended to 2029
► Exploration continues at MNV and on three new adjacent greenfield licences
In Progress
► Mine: construction of infrastructure to boost capacity in advanced stage
► Mill: X-ray transmission (XRT) ore sorting technology selected and equipment ordered
► Completion due by year-end 2020
In Progress
► Site preparations finalised
► Completion due in H2 2020
► Tailings dam improvements in progress
► 776k oz Au reserves booked for Blagodatnoye, extending combined life of project to 2032
Planning Stage
► Engineering surveys, design work, cost estimates and tender preparations are in progress for both the underground mine and the processing plant expansion
Effect Maintain mine production level Maintain mine production level +20-30% mine production +50-60% mine production
and lower TCC
2020
Capex
US$26 million
► US$5 M – exploration
► US$21 M – maintenance
US$35 million
► US$23 M – mine & mill
expansion
► US$12 M – maintenance &
exploration
US$17 million
► US$14 M – processing
plant upgrade
US$9 million
► US$2 M – project work
► US$7 M – maintenance and
exploration
Operating Mines - Maximising Upside Potential
12
Development Projects – Advancing the Pipeline
13
Advanced-Stage Projects Status Reserves*
(koz Au)
Average
Grade (g/t)
Kekura Active construction phase. Completion and commissioning
by 2023. 2,009 7.0
Baley ZIF-1 Tailings Heap leach design completed. Most regulatory approvals
received. Commissioning expected in 2021-2022. 344 1.0
Early-Stage Projects Status Resources**
(koz Au)
Average
Grade (g/t)
Taseevskoye Amendments to mining plans approved by regulators in
December 2019, pushing back the development target to
2024.
5,088 5.1
Unkurtash Scoping study completed in 2017. 2020 budget includes
funding for a pre-feasibility study to aid in the search for a
project partner.
3,697 1.7
Klen Additional exploration carried out at Klen and the
surrounding Verkhne-Krichalskaya zone in 2019.
Evaluation of drilling results is in progress.
627 5.0
* Proven and probable reserves (JORC 2012) as of 01.01.2019. ** Measured, indicated and inferred resources (JORC 2012) as of 01.01.2019
Kekura
Post-Tax IRR*
38%
NPV (10%)*
US$311 M
Life of Mine
16 years
Low Projected TCC
US$511/oz
* Figures according to 2018 Definitive Feasibility Study @ US$1250/oz Au
and do not account for value of ASEZ tax breaks
Kekura is Highland Gold’s premier development project,
with high grade ore and low projected costs
► Life of Mine: 16 years
► Mining: Open pit and underground
► Processing plant:
800 ktpa capacity
Gravity + cyanide leaching
► Estimated annual Au Production:
172 koz (years 1-8)
46 koz (years 9-16)
► 2020 Capex: US$107 M
► Upside potential:
1500 sq. km licence area
12 additional exploration targets
► Granted residency in the Chukotka Advanced Special Economic Zone (ASEZ), providing a series of tax incentives that add more than US$ 100 million to NPV
14
High-Grade Ore Reserves
2.0 Moz Au @ 7.0 g/t
Kekura Project Update
15
1
2 5
6
3 4 7
Site Map
1
Open Pit • Initial stripping and mining began in Q4 2019
2
Pilot Processing Plant • 120 ktpa capacity with 35-40% recovery
• First gold received in March 2020
3
Camp
3
Camp Expansion • Modular buildings en route to site
Mining Support Facilities • Assay Laboratory built in 2019
Kekura Project Update
16
1
2 5
6
3 4 7
Site Map
4
Fuel Storage • Over 1900 tonnes of fuel delivered in Q1 2020
5
Power Substation • Ready to receive electricity from regional
power grid this year
6 7
Communications
Tower
261 272 270 301 290 300
320
500
Building Towards the Future
17
2016 2017 2018 2019 2020 2021 2022 2023
300 320
350
500+ Projected Production Profile
koz gold and gold equivalent
Current
management
team joined
Valunisty
acquisition
Novo
capacity
expansion
Belaya Gora
mill upgrade
Baley ZIF-1
Tailings
construction
Kekura
launch
Valunisty
expansion
► Increase production to over 500 koz/year by 2023
► Double EBITDA
► Keep TCC in the range of US$550-600
18
2019 Financial Results
Net Cash Flow
138 million US$
2018: 136 ▲ +1.5%
Net Debt/EBITDA
1.2
2018: 1.4* ▼ 0.2
Revenue
395 million US$
2018: 311 ▲ +27%
2019 Financial Highlights
US$000 (unless stated) 2019 2018
Production (gold and gold eq. oz) 300,704 269,500
Total cash costs (US$/oz)1 556 506
All-in sustaining costs (US$/oz) 791 682
Revenue 395,386 311,153
Operating profit 161,483 109,186
EBITDA 205,079 153,060
EBITDA margin 52% 49%
Net cash flow from operations 138,448 136,247
Net profit 177,794 56,084
Earnings per share (US$) 0.487 0.154
Net debt (250,169) (211,433)
Net debt/EBITDA ratio 1.2 *1.4
19 * Including US$17.7 M of Valunisty debt assumed at acquisition on 27.12.2018
and repaid in Q1 2019. Excluding that, net debt/EBITDA was 1.3
Metals Price and Currency Exchange Environment
20
2018 2019 ∆
Gold US$/oz 1,258 1,395 ▲ +11%
Silver US$/oz 15 16 ▲ +4%
Lead US$/t 2,299 1,990 ▼ -13%
Zinc US$/t 2,858 2,556 ▼ -11%
Copper US$/t 6,546 5,991 ▼ -8%
Gold eq. (Novo) US$/oz 1,017 1,248 ▲ +23%
USD/RUB 62.8 64.9 ▲ +3%
EUR/USD 1.18 1.12 ▼ -5%
GBP/USD 1.33 1.28 ▼ -4%
2018
Cu 1%
Zn 2%
Pb 5%
Ag 6%
2019
Au
89%
Other
Metals
Au
86%
MNV
45%
Valunisty
9%
Belaya Gora
18% Novo
23%
14%
MNV
43%
Belaya Gora
14%
Novo
23%
11%
Cu 1% Zn 1%
Pb 3%
Ag 6% 10.4
22.3 16.7 13.4 16.9 13.5 13.1 16.2
10.0 18.1 15.9 20.0
1292 1320 1302 1288 1283
1358 1415
1497 1510 1495 1472 1480
1000
1100
1200
1300
1400
1500
1600
0
5
10
15
20
25
30
35
40
45
50
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
LMBA Average
Au price (US$/oz) Au Sold (koz)* * Au sold by MNV, Belaya Gora and Valunisty
2019 Gold Prices vs Volume of Sales
HGML Revenue Breakdown
Other
Metals
EBITDA
21
153 153 170 175.0
218.0 212 209 207 205
17 5
46 3 9 3 2
0
50
100
150
200
2018 Valunisty Exchange
Rate
Metals
Prices
Volume of
Sales
Costs G&A Other
Expenses 2019
69
99
77 87
23 23 0 17
-16 -21 -22
-2
18
38
58
78
98
118
2018 2019 2018 2019 2018 2019 2018 2019 2018 2019
MNV Novo Belaya Gora Valunisty G&A & Other
US$ M
EBITDA by Asset
US$ M
2019 EBITDA Margin: 52%
2018: 49%
TCC & AISC
22
724 794
100
200
300
400
500
600
700
800
900
2018 2019
600 565
100
200
300
400
500
600
700
800
900
2018 2019
All-In Sustaining Costs
US$/oz
Total Cash Costs by Asset
323 391
75 93
100
200
300
400
500
600
700
800
900
2018 2019
399
786
100
200
300
400
500
600
700
800
900
2018 2019
MNV
► TCC decreased by 6% due to 9% growth in the volume of sales, which compensated for the effect of rising energy costs (+27%)
Belaya Gora
► TCC increased by 10% mainly due to the lower average grade (-7% y-o-y), higher energy costs (+27%) and the hiring of two contractors for mining activities
Novo
► TCC increased by 21% to due to the reduction in sales volume (-5%) and an increase in salaries to match the local market median
Valunisty
► TCC was lower than budgeted due to the use of impaired ore from stockpiles
483
■ concentrate processing costs
-6%
+10%
+21%
506 556
100
200
300
400
500
600
700
800
2018 2019
+10%
► TCC increased by 10% due to the addition of Valunisty, with its higher production cost profile, and the decrease in the share of less costly Novo ounces from 41% in 2018 to 35% in 2019
682 791
100
200
300
400
500
600
700
800
2018 2019
Total Cash Costs
► AISC rose by 16% due to significant write-downs of stockpiles at Belaya Gora (+US$ 6.7 m) and Valunisty (+US$ 4.5 m), an increase in supporting CAPEX (+32%) and G&A (+9%)
+16%
Low-Cost Producer
23
1310
1124
1038 1034 1023 1010 998 983 978 970 966 943 912
866
791 778 738
594
0
200
400
600
800
1000
1200
1400 International Peer
Russian Peers
All-In Sustaining Costs
FY 2019 – US$/oz
Source: published company data
Investing in Growth
24
Estimated 2020 Capex: US$205-210 M
► Kekura construction
► Novo expansion and Belaya Gora mill upgrade
► MNV exploration and maintenance
► Preparations for Baley ZIF-1 Tailings project & Valunisty expansion
58 62 89
205- 210
0
50
100
150
200
250
2017 2018 2019 2020E
Kekura 107
MNV 26
Belaya Gora 17
Novo 35
Valunisty 9
Other 12
Capital Expenditure by Year
US$ M
Kekura 39
MNV 21
Belaya Gora 5
Novo 13
Valunisty 4
Other 7
2019 Capex by Asset
US$ M
2020E Capex by Asset
US$ M
Comfortable Balance Sheet
25
► Comfortable debt level
Net Debt/EBITDA ratio of 1.2
► Portfolio of low-cost, long-term debt
Debt Status as at 31.03.2020
‒ Gross debt: US$326 M
‒ Net debt: US$254 M
‒ Effective interest rate: 3.74%
‒ All debt is fixed-rate
‒ Average tenor: 56 months
► Substantial liquidity
~US$340 M of undrawn revolving credit facilities
► Capital expenditure fully funded by operating cash flow and available low-cost bank debt.
208 232 289 326 199 194 246 254
3.44%
4.24%
3.76% 3.74%
1.56%
2.50%
1.76%
0.98%
31.12.2017 31.12.2018* 31.12.2019 31.03.2020
Gross Debt(US$ M)
Net Debt(US$ M)
InterestRate
Libor 1MUS$
* Excluding US$17.7 M of Valunisty debt @ 5.12%
assumed on 27.12.2018 and repaid in Q1 2019.
Debt is shown free of the modification effect of IFRS 9
Short Term 2%
LongTerm 98%
Sberbank
45%
Rosbank
11%
Raiffeisen
23%
Alfa Bank
13% Unicredit
8%
Debt Portfolio
By Lender By Term
26
Targets for 2020
2020 Targets
► Maintain production in the range of 290-300k oz of gold and gold equivalent
► Complete improvement projects at operating assets
Novo 1.3 Mtpa expansion
Belaya Gora processing plant upgrade
Additional exploration at MNV
Preparations for Valunisty expansion
► Continue construction work at Kekura in preparation for commercial production in 2023
► Support and expand ongoing efforts to improve workplace safety and employee wellbeing
► Manage risks associated with the COVID-19 pandemic
27
Thank You!
www.highlandgold.com