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RNS

Interim Results Announcement for H1 2018

Released 07:00 04-Sep-2018

RNS Number : 6805Z
Highland Gold Mining Limited
04 September 2018
 

HIGHLAND GOLD MINING LIMITED

 

Interim Results Announcement for H1 2018

 

04 September 2018

 

View the full results announcement

http://www.rns-pdf.londonstockexchange.com/rns/6805Z_1-2018-9-4.pdf

 

Highland Gold Mining Limited ("Highland Gold" or the "Company" or "Group", AIM: HGM) today reports its unaudited financial results and production figures for the half year ended 30 June 2018 ("H1 2018").

 

FINANCIAL SUMMARY

IFRS, US$000 (unless otherwise stated)

H1 2018

H1 2017

Gold sold (gold and gold eq. oz)

121,174

128,503

Total Group cash costs (US$/oz)*

536

509

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

697

674

Revenue

146,897

147,176

Operating profit

50,666

43,415

Net profit

28,639

25,932

EBITDA*

71,424

73,248

EBITDA margin (%)*

49%

50%

Earnings per share (US$)

0.088

0.079

Net cash inflow from operations

65,700

63,211**

Capital expenditure

26,534

27,437

Net debt position*

189,071

203,538

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

** Withholding tax payment was transferred from operating to financing activities in cash flow statement for H1 2017.

 

The interim condensed consolidated financial statements of Highland Gold for the six months ended 30 June 2018 are set out below.

 

 

H1 2018 HIGHLIGHTS

 

Financial

·      Total first half revenue was flat year-on-year at US$146.9 million despite lower metal sales.

·      H1 2018 EBITDA was US$71.4 million, a decrease of 2.5% from H1 2017, chiefly due to increased administrative expenses. EBITDA margin for the period was 49% versus 50% for H1 2017.

·      All-in sustaining costs (AISC) per ounce rose to US$697 from US$674 in H1 2017 due to increased administrative expenses and higher maintenance capital expenditure.

·      The net debt to EBITDA ratio was stable at 1.23x as of 30 June 2018 versus 1.28x as of 31 December 2017, when net debt was US$198.3 million.

 

Operations

·      Total production at Mnogovershinnoye (MNV), Novoshirokinskoye (Novo) and Belaya Gora for H1 2018 was 128,921 oz of gold and gold equivalent, down 2.2% from 131,785 in H1 2017 due to lower volumes in the first quarter.

·      Increased output at MNV in the second quarter ("Q2") of 2018 helped make up ground on last year's first-half production level after the processing plant operated at reduced capacity for much of the first quarter ("Q1") of 2018.

·      Belaya Gora achieved improved recoveries as it also returned to full operating capacity in Q2, with first-half output stable year-on-year.

·      A general contractor was selected and mobilised for Stage 1 (mine expansion) of the Company's project to boost Novo's mining and processing capacity to 1.3 Mtpa.

·      A definitive feasibility study was completed for Kekura, where infrastructure preparation and construction work are now in progress.

·      A pre-feasibility study was completed for planned upgrades to the Belaya Gora mill and mining of the nearby Blagodatnoye deposit, including the first JORC-compliant reserve report for Blagodatnoye.

 

POST HALF YEAR EVENTS

·      Interim Dividend of £0.06 per share approved by the Board of Directors

·      The Company affirms its forecast for total production of gold and gold equivalent of 265,000-275,000 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 Tuesday, 04 September 2018 at 09:00 UK time (11:00 Moscow).

 

This event will be streamed live online. To listen and view the slide presentation in real time, it is recommended to access it via computer. The link for online registration is: https://digital.vevent.com/rt/highlandgoldmining/index.jsp?seid=26 

                                                                                                                                       

To register to participate by telephone and to receive local dial-in numbers, please follow this link: http://emea.directeventreg.com/registration/8788599 

 

 

FOR FURTHER INFORMATION PLEASE CONTACT:

 

Highland Gold Mining Ltd.

 

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 Joint Broker)

John Prior, James Black, Paul Gillam

+44 (0) 207 260 1000

 

BMO Capital Markets Limited

(Joint Broker)

Jeffrey Couch, Thomas Rider, Pascal Lussier Duquette

+44 (0) 207 236 1010

 

 

Peat & Co

(Joint Broker)

Charlie Peat

+44 (0) 207 104 2334

 

 

MESSAGE FROM THE CEO

 

For Highland Gold, 2018 is a year in which we expect to make incremental progress in our strategy of optimising our existing mines while advancing projects in our growth pipeline. Our performance in the first half of the year supports those objectives, and we succeeded in meeting our production targets despite operating challenges at each of our mines.

 

During the half, we continued efforts to identify and study new resources in and around existing operations at MNV, which are expected to culminate in a new reserve report due this autumn and an extension of life of mine. Stage One of the Novo capacity expansion is underway. Additionally, we published a pre-feasibility study for Belaya Gora and Blagodatnoye which shows the way forward for that project, and a definitive feasibility study for our premier development project Kekura, where initial infrastructure construction is in progress.

 

Our expanded focus on improving health and safety is taking root in each of our subsidiaries, as lost-time incidents were down during the half. Nevertheless, we understand that there is still work to do and safe driving has been highlighted as one area in need of particular focus alongside general work on improving the culture of safety.

 

Likewise, we understand there is work ahead in controlling costs, as demonstrated by a slight uptick in total cash costs (TCC) during the first half. Our management team has developed a series of initiatives which we expect to roll out this autumn to improve efficiency; review and standardise technical and business processes; build a more cohesive corporate culture; encourage continuous improvement and employee initiative; and expand internal and external communications, all with a view toward improving returns to shareholders. We look forward to sharing those efforts with our stakeholders in the coming months.

 

Denis Alexandrov

Chief Executive Officer

 

 

OPERATIONAL REVIEW

 

 

KHABAROVSK REGION, RUSSIA

 

Mnogovershinnoye (MNV)

 

·      Processing volume in H1 2018 was 15% lower year-on-year due to one of two SAG mill lines being out of operation following the discovery of a damaged feed trunnion. The trunnion was replaced in March 2018 and the plant is operating at full capacity.

·      Increases in grade and recovery rates helped reduce the impact of lower processing volume, with H1 2018 gold production only 5% lower year-on-year.

·      Ore mining fell 18% year-on-year as ore from stockpiles was used and as production plans were adjusted to shift volume to later in the year due to reduced processing capacity in Q1.

 

MNV

Units

H1 2017

H2 2017

H1 2018

Waste stripping

t

3,706,800

2,808,059,

2,097,446

Underground development

m

5,423

5,934

5,923

Open-pit ore mined

t

160,900

119,106

140,982

Open-pit ore grade

g/t

2.00

2.11

2.23

Waste dumps ore mined

t

181,065

146,293

47,296

Waste dumps ore grade

g/t

1.10

1.15

1.04

Underground ore mined

t

388,657

404,083

407,903

Underground ore grade

g/t

3.10

3.20

3.10

Total ore mined

t

730,622

669,482

596,181

Average grade

g/t

2.36

2.56

2.73

Ore processed

t

720,463

652,667

609,226

Average grade

g/t

2.43

2.67

2.75

Recovery rate

%

90.9

91.8

92.0

Gold produced

oz

50,749

51,753

48,090

 

Near-mine exploration work at MNV in H1 2018 included the identification of new ore zones at the Intermediate and Deer ore bodies as a result of drilling up from the existing underground mine. Surface drilling was also conducted on the flanks of several ore bodies (Intermediate, Burlivoye and Helicopter) to identify potential new resources.

 

An update of Russian regulatory economic parameters and registered reserves for MNV was completed in H1 2018, and the results submitted to authorities for review in June. A new JORC-compliant reserve audit, taking into account available data from the ongoing drilling programme, is in progress and is expected to be completed in Q3 2018.

 

Geochemical prospecting was completed on the greenfield Kulibinskaya and Zamanchivaya licences, located to the southwest and northeast of MNV, in H1 2018. Assay test results showed gold anomalies and were used to develop an exploration programme for the remainder of the year. Trenching began on the Zamanchivaya licence during Q2.

 

PRODUCTION COSTS

 

Total cash costs amounted to US$707 per oz (H1 2017: US$595 per oz) while all-in sustaining costs were US$851 per oz (H1 2017: US$737 per oz).

 

CAPITAL COSTS

 

A total of US$7.4 million was invested at MNV in H1 2018. This included capitalised expenditures and construction (US$0.5 million), purchase of equipment (US$6.0 million) and exploration (US$0.9 million).

 

 

Belaya Gora

 

·      Waste stripping rose 77% and ore mining rose 52% year-on-year in H1 2018 as mining operations moved from stockpiles to the open pit.

·      Water supply issues in early Q1 and SAG mill re-lining in Q2 resulted in an 11% drop in processing volume over the six-month period.

·      The processing plant recorded improved recovery rates in H1 2018 of 75.4%, compared to 71.7% in H1 2017.

 

Belaya Gora

Units

H1 2017

H2 2017

H1 2018

Waste stripping

t

1,389,963

1,545,570

2,462,911

Ore mined

t

695,068

384,725

1,055,596

Average grade

g/t

0.81

0.70

0.81

Including:

 

 

 

 

-     Ore Au >0.7 g/t

t

311,592

149,816

507,260

-     Average grade

g/t

1.14

1.09

1.17

-     Ore Au 0.3-0.7 g/t

t

383,476

234,909

548,336

-     Average grade

g/t

0.53

0.45

0.47

Ore from stockpiles

t

633,871

691,478

162,900

Average grade

g/t

1.01

1.11

1.00

Ore processed

t

810,549

886,261

718,868

Average grade

g/t

1.12

1.10

1.11

Recovery rate

%

71.7

73.3

75.4

Gold produced

oz

20,033

23,132

19,804

 

 

The Company published details of a pre-feasibility study (PFS) covering planned Belaya Gora processing plant upgrades and the nearby Blagodatnoye deposit in February of this year. The study included updated reserve figures for Belaya Gora.

 

The process of registering Belaya Gora's updated reserves with regulators, based on the results of 2017 diamond drilling on Belaya Gora's deep horizons and northeastern flank, was completed in the second quarter of the year.

 

The Company selected Kazgipertsvetmet and SGS Bateman to prepare technical design documentation for the Belaya Gora processing plant upgrade, which will include the addition of a carbon-in-pulp (CIP) circuit in order to improve recoveries.

 

New exploration drilling over the course of H1 2018 totalled over 7,500 metres and focussed on the Kolchansky and Zayachy prospects on the adjacent Belaya Gora Flanks licence. The work is expected to be completed in Q3 2018.

 

PRODUCTION COSTS

 

Total cash costs amounted to US$795 per oz (H1 2017: US$880 per oz) while all-in sustaining costs were US$849 per oz (H1 2017: US$1,114 per oz).

 

CAPITAL COSTS

 

A total of US$1.5 million was invested at Belaya Gora in H1 2018. This included capitalised expenditures and construction (US$0.8 million) and exploration (US$0.7 million).

 

 

Blagodatnoye

 

The Company's first JORC-compliant reserve report for Blagodatnoye was published earlier this year together with the Belaya Gora PFS. Work on the project in H1 2018 focused on interpreting data from previous exploration, preparing a Russian-standard feasibility study for reserve calculation, and registering those reserves with state regulators.

 

The PFS calls for Blagodatnoye ore to be processed at the Belaya Gora process plant beginning in 2023, thereby extending the life of the combined project until 2032.

 

 

ZABAIKALSKY REGION, RUSSIA

 

Novoshirokinskoye (Novo)

 

·      Total Au equivalent production in H1 2018 was flat year-on-year.

·      Higher processed grades for H1 2018 were offset by a drop in recovery rates due to a shift in the composition of mined ore, with lower lead content and higher gold grade. Processing adjustments to account for the change in ore are being reviewed.

 

Novo

Units

H1 2017

H2 2017

H1 2018

Underground development

M

5,720

5,659

6,184

Ore mined

T

414,863

443,243

439,430

Average grade *

g/t

5.45

5.58

5.60

Ore processed

T

404,595

421,224

405,509

Average grade *

g/t

5.50

5.72

5.83

Recovery rate *

%

85.24

84.7

80.3

Gold produced *

oz

61,002

65,604

61,027

* Calculated in Au equivalent at actual prices

(Metal grade of mined ore = Au 3.65 g/t, Ag 50.31 g/t, Pb 1.28 %, Zn 0.41 %).

 

Work on the Novo 1.3 Mtpa expansion project in H1 2018 included: geotechnical surveys on the site of a planned stormwater treatment facility; comprehensive examinations of the mine's existing winding engine building, headframe, crusher building, QC and main ventilation fan building; and inspections of the foundations of other existing buildings and structures, as per requirements determined by the Russian State Expert Board.

 

Stage 1 of the expansion project (mine upgrades) involves construction of a new main ventilation fan building, new boiler, and water treatment plant; upgrades to the main rock hoisting shaft, including winding engine, headframe, loading boxes, primary crusher; and modification to associated surface buildings. Design documentation is currently being revised based on recommendations received from the State Expert Board earlier in the year.

 

The Company completed a tender to select a general contractor for construction and installation of Stage 1 facilities in H1 2018. Preparation work on the construction sites is underway. Additional tenders were held and delivery contracts signed for key equipment for the main rock hoisting shaft upgrade.

 

For Stage 2 of the expansion project (process plant and tailings storage improvements), the Company is reviewing the potential for using dense media separation (DMS) or X-ray separation to reduce capital costs. Studies are in progress on the use of these technologies on Novo ore, and a financial evaluation is being conducted together with consultants SGS Bateman.

 

Novo commenced a new exploration drilling programme from both surface and underground late in the first half with the aim of developing a more detailed geological model of the deposit and optimising mining activities. The work is being supervised by SRK Consulting.

 

PRODUCTION COSTS

 

Total cash costs amounted to US$299 per oz (H1 2017: US$305 per oz) while all-in sustaining costs were US$366 per oz (H1 2017: US$344 per oz).

 

CAPITAL COSTS

 

A total of US$6.7 million was invested at Novo in H1 2018. This included capitalised expenditures and construction (US$4.9 million) and purchase of equipment (US$1.8 million).

 

 

Baley Ore Cluster (Taseevskoye, Sredny Golgotay and ZIF-1)

 

Project engineering by general contractor Geotekhproekt for an 840 ktpa heap leach operation on the Baley ZIF-1 tailings licence got underway in H1 2018. The first stage included site surveys and the selection of key technical solutions, which have been completed. Public hearings on an Environmental Impact Assessment of the project have been held. Project engineering documentation has been developed in preparation for submission to the State Environmental Expert Board and mining regulators for approval in Q3 2018.

 

Micromine Consulting Services was retained to draft initial mineral resource estimates for the Sredny Golgotay deposit, which will be used as the basis for a Scoping Study for the project. Tenders are underway to select contractors for the study as well as for development of an exploration and development programme.

 

At the Taseevskoye deposit, the Company has retained a contractor to perform experimental methodical geophysical studies to determine the boundaries of the former mine's underground workings. The results would be used to inform future exploration at the site. Work on the study will begin in Q3 2018.

 

 

CHUKOTKA AUTONOMOUS DISTRICT, RUSSIA

 

Kekura

 

In early H1 2018, the Company published details of a definitive feasibility study (DFS) for Kekura, including an updated JORC-compliant reserve report for the deposit. Preparations and construction work on key infrastructure and facilities at the Kekura site got underway during the reporting period. Furthermore, a technical audit of existing buildings and structures at Kekura was conducted earlier this year, and repairs carried out where warranted.

 

Detailed engineering for an assay laboratory was completed in Q2, with construction work beginning this summer. Project engineering for technical upgrades to the explosives storage facility also were undertaken and work on the facility is scheduled to begin in September.

 

Earthwork at the site of the planned fuel and lubricant storage facility was carried out in May and June, including drilling for cast piles installation. Equipment installation is likewise set to start in September of this year.

 

In June, work on a shovel assembly for future open pit mining was initiated. Also during the month, a road connecting the camp to the site of a planned communications tower was completed, setting the stage for foundation work on the tower and related buildings to begin this summer.

 

Earthwork, foundations, and grounding installations were completed for Kekura's 110/6 kV power substation over the course of Q2 2018. The step-down substation is designed to receive power from the Bilibino-Kekura-Peschanka-Omsukchan power line currently being constructed by the government. Electrical equipment installation will commence in Q3 2018.

 

The Company held a tender in May for a contractor to identify groundwater supplies near the Khrebtovaya River to be used for drinking and household water. NIF Rosnedra Ltd was selected and commenced hydrogeological work for the project in June. The Company expects to submit the project for review by the State Geological Expert Board in Q3 2018.

 

Exploration drilling in the first half totalled 6,500 metres and focused on the Granat prospect within the broader Kekura licence area. Granat is being targeted to potentially add more open pit reserves to the Kekura operation.

 

 

Klen

 

Earlier this year, state regulators signed off on changes to the mining schedule for the Klen deposit. Their decision formed the basis of an application by the Company to the Chukotka regional resources agency requesting amendments to the terms of the Klen licence agreement so as to delay the start of mining. A decision is expected in Q3 2018.

 

Additionally, the Company selected Giprotsvetmet for project engineering on the mine and process plant and other major technical solutions at Klen. Separately, work began on testing Klen ore properties for preliminary separation by the XRT method and sample collection for testing is set to begin this summer.

 

 

KYRGYZSTAN

 

Unkurtash

 

Last year, the Company published a scoping study for Unkurtash envisioning mining at two open pits and an 18-year life of mine, with annual production of 133k oz of gold at an average operating cost of US$ 616/oz. Total capital expenditure to start production is estimated at US$322 million.

 

In H1 2018, the Company continued to develop and review various alternatives for proceeding with the project, including partnering with another strategic investor to co-develop Unkurtash. While this review is in progress, activity at the site is focused solely on meeting any legal licence obligations.

 

 

VALUNISTY ACQUISITION

 

On April 26, 2018, the Company announced its intention to acquire three companies with assets in the Russian region of Chukotka, including:

•      Valunisty, an operating gold mine and processing plant with annual production of 31 koz (2017);

•      The Kanchalano-Amguemskaya Square ("KAS") licence, which covers territory surrounding Valunisty and hosts several satellite deposits including the operating Gorny open pit and the Zhilny deposit; and

•      Kayenmivaam ("Kayen"), an exploration licence with several promising target deposits, located 130 km to the southeast of Kinross Gold's Kupol mine.

 

At an Extraordinary General Meeting held on May 24, Highland Gold shareholders were asked to vote on a measure granting the Company's Board of Directors authority to issue shares to complete the transaction. In addition, because the acquisition is a related-party transaction, shareholders unaffiliated with the sellers were asked to vote on a waiver of the obligation that would otherwise arise under Rule 9 of the Takeover Code to make an offer for those shares in the Company not already held by the sellers. Both measures passed.

 

The transaction is subject to approval by Russia's Federal Antimonopoly Service (FAS) and Foreign Investment Advisory Council (FIAC). Completion is expected in Q4 2018.

 

 

HEALTH, SAFETY, AND ENVIRONMENT

 

Highland Gold's key health and safety goals include ensuring safe labour conditions, managing operational risks, offering ongoing employee training programmes and encouraging personal accountability for safety at the workplace.

 

The Lost Time Incidents Frequency Rate (LTIFR) in H1 2018 was 5.04, down from 6.84 in the same period last year. There were a total of 14 loss-time incidents registered across the Group during the period - eight at Novo, five at MNV and one at the Moscow office. That compares to a total of 18 incidents and one fatality in the first half of 2017.

 

The Company drafted and implemented a corporate standard for Contractors' Safety Management in H1 2018. Tools are being introduced in each operating unit in accordance with these standards.

 

Another area of focus was transportation safety, with the Company offering a Defensive Driving course attended by 54 employees at Novo, 17 at MNV and eight from Moscow.

 

Senior staff from the Moscow office (19), MNV (17), Novo (12), and Kekura (24) attended a course on Conscious Safety Management during the reporting period. Employees at Novo (10), MNV (12) and Kekura (11) also took part in courses on Internal Accident Investigation. Another 16 people at Novo attended courses entitled "Safety Management System Audit". In addition, work began to prepare seven in-house trainers/coaches at Novo to conduct additional workshops on Conscious Safety Management.

 

In June, an audit of the work safety management system was conducted at Novo, MNV, and Kekura. Based on the audit results, each subsidiary is developing an action plan on continued implementation of work safety management processes.

 

Protecting the environment and complying with regulatory requirements likewise remains a priority for Highland Gold. One of the Company's key goals this year is to find new ways to decrease the environmental impact of its operations.

 

Regular internal audits of the Company's environmental management system were conducted at MNV, Belaya Gora and Novo in both Q1 and Q2, with a focus on compliance with environmental protection legislation. Each audit is followed by the drafting of measures to minimise potential causes of system failures.

 

Environmental safety training was provided to over 1500 employees during the reporting period, while over 500 employees completed training and testing on class I-IV hazard waste management. The Company sent 50 managers and specialists for further career development through training in outside professional environmental programmes.

 

 

FINANCIAL REVIEW

 

CHIEF FINANCIAL OFFICER'S REPORT

 

Highland Gold's financial performance in H1 2018 was supported by a variety of macroeconomic factors, such as the weaker rouble and stronger prices for precious and base metals. Simultaneously, it was under pressure from rising prices for oil and increasing interbank lending rates (LIBOR). Management concentrated on increasing operating cash flow in order to meet its goals of maintaining a strong cash position and paying dividends to shareholders.

 

Over the reporting period, the Company sold 121,174 ounces of gold and gold equivalent, compared to 128,503 ounces in H1 2017. Overall revenue was broadly level year-on-year at US$146.9 million.

 

Revenue from gold sales amounted to US$87.1 million (H1 2017: US$86.4 million) during the half. MNV decreased its sales volume by 3.4% from 48,779 in H1 2017 to 47,144 ounces in H1 2018. Belaya Gora saw its sales volume slip to 19,224 ounces (H1 2017: 21,005 oz), a decrease of 8.5%. The Company continued to employ a "no hedge" policy. The average price of gold realised by MNV and Belaya Gora (net of commission) was US$1,313 per oz, in line with the average market price (average H1 2018 LBMA price was US$1,319 per oz) demonstrating an increase of 6.0% year-on-year.

 

Concentrate revenue of US$58.8 million was stable y-o-y. Novo's sales slightly decreased to 54,806 eq. oz (down 6.7% y-o-y), reflecting the increased volume of concentrates in transit for which control had not passed to the buyer and a higher volume of concentrates in stock as we prepare a lot for a new purchaser. The average price of gold equivalent realised by Novo increased 5.9% to US$1,073 per eq. oz in H1 2018 from US$1,013 per eq. oz in H1 2017. The average price at Novo is based on the spot prices for metals contained in the concentrates (gold, lead, zinc, silver and copper), net of fixed processing and refining costs at third-party plants. Final adjustments are made within a maximum of 4 months after the date of shipment.

 

 

 

 

Gold and Gold Equivalent Sold by Mine, oz

 

 

H1 2018

H1 2017

Novo

54,806  (45.2%)

58,718   (45.7%)

MNV

47,144  (38.9%)

48,779   (38.0%)

Belaya Gora

19,224  (15.9%)

21,005   (16.3%)

Total

121,174

128,503

Lower production volume at MNV and Belaya Gora, the pressure of increasing prices for oil and coal, as well as overall inflation (about 2.5% in H1 2018) were partially offset by the depreciation of the local currency (with the average rouble/dollar exchange rate increasing by 3.0% y-o-y). Cost of sales net of depreciation decreased by 1.2% to US$66.0 million in H1 2018 (H1 2017: US$66.8 million).

 

Depreciation was US$20.7 million, down 20.6% y-o-y, mainly, as a result of the extension of life of mine at operating assets (the MNV LOM model was extended from 2022 to 2032 and Belaya Gora from 2026 to 2032, both reflecting the inclusion of Blagodatnoye, while Novo was extended from 2029 to 2033).

 

The Company registered 5.1% growth in labour costs in H1 2018 (reflecting annual selective salary increases) and additional costs for third-party services as we move to outsource some functions, such as mill and plant maintenance, operational drilling, and lining.

 

Cash Operating Costs

 

Total Cash costs breakdown

 

H1 2018

H1 2017

y-o-y

 

US$'000

US$'000

Change, %

 

 

 

 

Cost of sales

86,763

92,957

(6.7%)

 - depreciation, depletion and amortisation

(20,746)

(26,138)

(20.6%)

 

 

 

 

Cost of sales, net of depreciation, depletion and amortisation

66,017

66,819

(1.2%)

 

 

 

 

Breakdown per item:

 

 

 

Labour

24,524

23,334

5.1%

Consumables and spares

19,987

19,924

0.3%

Power

5,677

5,810

(2.3%)

Movement in ore stockpiles, finished goods and stripping assets

(4,336)

(1,629)

166.2%

Maintenance, repairs and third parties services

11,919

11,034

8.0%

Taxes other than income tax

8,246

8,346

(1.2%)

 

 

Total cash costs* per ounce (TCC) went up by 5.3% to US$536 per oz, still well below the industry median. Breaking it down by business unit, total cash costs at Novo were US$299 per eq. oz (H1 2017: US$305 per eq. oz), declining by 2.2% y-o-y and reflecting the depreciation of the rouble. MNV had total cash costs of US$707 per oz (H1 2017: US$595 per oz) as a result of the lower volume of ore mined and processed, as capacity was reduced in Q1 due to a damaged feed trunnion at the mill. At Belaya Gora, improved recovery rates, the weaker local currency, and feeding the plant with cheaper current ore (in H1 2017 78% of the processed ore represented older stock) all contributed to a reduction in total cash costs to US$795 per oz from US$880 a year earlier.

 

* 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 per ounce. This data provides additional information and is a non-GAAP measure.

 

 

 

TCC and AISC calculation

 

 

H1 2018

US$'000

H1 2017

US$'000

y-o-y

change, %

 

 

 

 

Cost of sales, net of depreciation, depletion and amortisation

66,017

66,819

(1.2%)

- cost of other sales

(1,039)

(1,393)

(25.7%)

 

 

 

 

Total cash costs (TCC)

64,978

65,421

(0.7%)

 

 

 

 

+ administrative expenses

7,920

7,005

13.1%

+ accretion and amortisation on site restoration provision

828

706

17.3%

+ movement in ore stockpiles obsolescence provision

-

3,185

100.0%

+ sustaining capital expenditure

10,721

10,264

4.5%

Total all-in sustaining costs (AISC)

84,447

86,581

(2.5%)

 

 

 

 

Gold sold (gold and gold eq. oz)

121,174

128,503

(5.7%)

TCC (US$/oz)

536

509

5.3%

AISC (US$/oz)

697

674

3.4%

 

All-in sustaining costs (AISC) increased by 3.4% to US$697 per oz in H1 2018 from US$674 per oz in H1 2017, mainly due to the lower volume of sales. In H1 2018, there were no write-downs of Belaya Gora low-grade ore in stockpiles (H1 2017: negative effect of US$3.2 million), while sustaining capital expenditure increased by 4.5% to US$10.7 million.

 

During H1 2018, the Company demonstrated stable revenue and flat cash costs. EBITDA slightly decreased by 2.5% to US$71.4 million, reflecting higher administrative expenses following  higher legal costs related to the proposed Valunisty transaction. The EBITDA margin (EBITDA margin is defined as EBITDA divided by total revenue) decreased from 49.8% to 48.6%, which remains within range of the most efficient gold miners. Broken down by business unit, EBITDA margin was 67.8% at Novo (H1 2017: 65.1%), 39.2% at MNV (H1 2017: 45.5%), and 38.8% at Belaya Gora (H1 2017: 28.9%).

 

EBITDA Reconciliation to Operating Profit

 

 

H1' 2018

US$'000

H1' 2017

US$'000

Operating profit

50,666

43,415

depreciation and amortisation

20,746

26,138

individual impairment losses (including reversal)

-

193

movement in ore stockpiles obsolescence provision

-

3,185

movement in raw materials and consumables obsolescence provision

12

317

EBITDA

71,424

73,248

 

 

HGML EBITDA Bridge, USD M

 

H1 2017

73.3

+ Metal Prices

8.7

- Volume of Sales

(9.0)

- Costs

(1.5)

H1 2018

71.4

 

The Company analysed internal and external indicators of impairment or reversal of previously recognised impairment losses and discovered no such indicators.

 

In H1 2018, the Company recognised a net finance cost of US$0.8 million compared to US$1.4 million in H1 2017. The principal components were interest expense on bank loans and leasing for US$0.1 million in H1 2018 (H1 2017: US$0.7 million) and accretion expense on site restoration liability amounting to US$0.8 million (H1 2017: US$0.8 million). The main amount of interest expense was capitalised into the cost of qualified assets at Kekura.

 

A foreign exchange gain of US$0.3 million (H1 2017: US$1.5 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 equalled US$21.5 million in H1 2018 compared with US$17.6 million in H1 2017. The growth resulted from a substantial US$8.3 million increase in deferred tax expense, largely because of future tax revaluation following the rouble's depreciation at the end of the period. Withholding tax expense was recorded at US$4.6 million (H1 2017: US$3.9 million).

 

Current tax expenses totalled US$10.1 million (Novo: US$6.7 million and MNV: US$3.4 million), which was US$4.8 million lower than in H1 2017.

 

Net profit for the first half of 2018 totalled US$28.6 million compared to a profit of US$25.9 million in H1 2017, mainly reflecting lower depreciation charges and no impairment loss for Belaya Gora ore, partially offset by higher tax expenses. Earnings per share amounted to US$0.088 (H1 2017: US$0.079).

 

The Company's cash inflow from operating activities was US$65.7 million (H1 2017: US$63.2 million).

 

Capital expenditures for the reporting period totalled US$26.5 million versus US$27.4 million in H1 2017. This largely reflected higher development CAPEX at MNV for near-mine exploration designed to replace reserves; expenses for the Novo 1.3 mtpa expansion project; and the development of Kekura. Capital expenditures included US$7.4 million at MNV, US$6.7 million at Novo, US$1.5 million at Belaya Gora, US$7.9 million at Kekura, US$1.2 million at Taseevskoye, US$0.8 million at Klen and US$1.0 million related to other exploration and development assets. Capital expenditures were entirely funded by operating cash flow.

 

The Company's debt is denominated in US dollars. Gross debt was reduced by 4.9% to US$197.3 million as of 30 June 2018 (31 December 2017: US$207.4 million) over the reporting period. The effective interest rate was 3.6% vs 3.4% at the end of 2017.

 

At the end of the reporting period, cash and cash equivalents amounted to US$10.9 million, compared to US$12.4 million as of 31 December 2017. The Company's net debt position including lease liabilities was US$189.1 million (Net debt is defined as cash at bank, deposits and bonds, decreased by any bank borrowing and lease obligations).

 

Gross and Net Debt Comparison

 

 

31 Dec 2017

US$'000

30 Jun 2018

US$'000

Gross debt

207,368

197,302

Net debt

198,320

189,071

Interest rate

3.40%

3.60%

LIBOR

1.56%

2.09%

Net debt/EBITDA

1.28x

1.23x

 

The ratio of net debt to EBITDA decreased from 1.28 on 31 December 2017 to 1.23 on 30 June 2018, which is well within the Board of Directors' debt policy.

 

 

Cash Position Bridge, USD M

-

Cash & Cash equivalents (1 Jan 2018)

12

Net cash flow from operating activities

+66

Cash capital expenditure

(27)

Interest paid Incl. capitalised

(4)

Debt repayment

(8)

Dividends paid

(24)

Withholding tax expense

(5)

Other payments and leasing

+1

Cash & Cash equivalents (30 Jun 2018)

11

 

 

EVENTS AFTER THE REPORTING PERIOD

 

There were no significant events after the reporting period, except for dividends declared.

 

PAYMENT OF DIVIDENDS

 

The Board of Directors has approved an interim dividend of £0.06 per share, to be paid to shareholders on 05 October 2018. The ex-dividend date is 13 September 2018 and the record date is 14 September 2018.

 

The Company offers an option for shareholders to elect to receive their dividends in US dollars. Payments for dividends in US dollars are fixed at an exchange rate of 1.2878 GBP/US$, or US$ 0.077 per share. To receive payment in US dollars, shareholders should complete and file the Currency Election Form no later than the record date (Election Deadline), 14 September 2018. The form and instructions for filing it are available on the Shares & Dividends page of the Highland Gold website (www.highlandgold.com).

 

At the AGM earlier this year, shareholders approved the Company's proposed scrip dividend scheme, which would have additionally offered the option to receive dividends as new shares. However, the Board of Directors has decided not to offer a scrip dividend at this time.

 

Alla Baranovskaya

Chief Financial Officer

 

Rounding of figures may result in computational discrepancies

 

 

Interim consolidated statement of comprehensive income

for the six months ended 30 June

 

 

2018

 

2017

 

 

unaudited

unaudited

 

Notes

US$000

US$000

 

 

 

 

 

Revenue

3

146,897

 

147,176

Cost of sales

3

(86,763)

 

(92,957)

Gross profit

 

60,134

 

54,219

 

 

 

 

 

Administrative expenses

 

(7,920)

 

(7,005)

Other operating income

 

293

 

1,240

Other operating expenses

 

(1,841)

 

(5,039)

Operating profit

 

50,666

 

43,415

 

 

 

 

 

Foreign exchange gain

 

255

 

1,522

Finance income

4.1

144

 

100

Finance costs

4.2

(901)

 

(1,520)

Profit before income tax

 

50,164

 

43,517

 

 

 

 

 

Current income tax expense

5

(10,092)

 

(14,939)

Withholding tax

5

(4,401)

 

(3,904)

Deferred income tax (expense)/ release

5

(7,032)

 

1,258

Total income tax expense

5

(21,525)

 

(17,585)

 

 

 

 

 

Profit for the period

 

28,639

 

25,932

 

 

 

 

 

Total comprehensive income for the period

 

28,639

 

25,932

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

Equity holders of the parent

 

28,557

 

25,687

Non-controlling interests

 

82

 

245

 

 

 

 

 

Earnings per share (US$ per share)

 

 

 

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

14

0.088

0.079

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

14

0.088

0.079

 

 

 

 

 

 

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

 

Interim consolidated statement of financial position

as at 30 June 2018

 

Notes

30 June
2018
unaudited

 

31 December
2017
audited

 

30 June
2017
unaudited

 
 
 

 

US$000

US$000

US$000

 

Assets

 

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

 

 

Exploration and evaluation assets

6

90,407

 

88,926

 

87,129

 

Mine properties

6

593,014

 

588,035

 

575,645

 

Property, plant and equipment

6

291,812

 

289,162

 

292,714

 

Intangible assets

3

57,802

 

57,802

 

57,802

 

Inventories

9

2,015

 

624

 

1,877

 

Other non-current assets

 

9,529

 

10,858

 

10,041

 

Deferred income tax asset

 

-

 

129

 

23

 

Total non-current assets

 

1,044,579

 

1,035,536

 

1,025,231

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Inventories

9

56,563

 

58,620

 

58,943

 

Trade and other receivables

 

24,414

 

27,687

 

27,886

 

Income tax prepaid

 

1,718

 

1,494

 

3,019

 

Prepayments

 

2,364

 

4,026

 

4,057

 

Cash and cash equivalents

10

10,906

 

12,388

 

4,268

 

Other current assets

 

1,879

 

2,401

 

1,055

 

Total current assets

 

97,844

 

106,616

 

99,228

 

Total assets

 

1,142,423

 

1,142,152

 

1,124,459

 

 

 

 

 

 

 

 

 

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

 

59,765

 

55,371

 

37,098

 

Total equity attributable to equity holders of the parent

 

779,601

 

775,207

 

756,934

 

Non-controlling interests

 

2,395

 

2,309

 

1,974

 

Total equity

 

781,996

 

777,516

 

758,908

 

 

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

 

Interest-bearing loans and borrowings

7,11

169,550

 

192,351

 

180,438

 

Liability under finance lease

7

1,827

 

2,260

 

2,357

 

Long-term accounts payable

 

347

 

331

 

219

 

Provisions

 

20,175

 

20,830

 

19,444

 

Deferred income tax liability

 

114,517

 

107,614

 

112,810

 

Total non-current liabilities

 

306,416

 

323,386

 

315,268

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Trade and other payables

 

25,404

 

23,454

 

24,730

 

Interest-bearing loans and borrowings

7,11

27,752

 

15,017

 

23,850

 

Income tax payable

 

7

 

1,699

 

542

 

Liability under finance lease

7

848

 

1,080

 

1,161

 

Total current liabilities

 

54,011

 

41,250

 

50,283

 

Total liabilities

 

360,427

 

364,636

 

365,551

 

Total equity and liabilities

 

1,142,423

 

1,142,152

 

1,124,459

 

 

The financial statements were approved by the Board of Directors on 03 September 2018 and signed on its behalf by: John Mann and Olga Pokrovskaya.

 

Interim consolidated statement of changes in equity

for the six months ended 30 June 2018

 

 

 

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 2017

 

585

718,419

832

55,371

775,207

2,309

777,516

Total comprehensive income for the period

 

-

-

-

28,557

28,557

82

28,639

Novo share redemption

13

-

-

-

(4)

(4)

4

-

Dividends paid to equity holders of the parent

 

-

-

-

(24,159)

(24,159)

-

(24,159)

At 30 June 2018 (unaudited)

 

585

718,419

832

59,765

779,601

2,395

781,996

 

 

for the six months ended 30 June 2017

 

 

 

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 2016

 

585

718,419

832

33,947

753,783

1,859

755,642

 

Total comprehensive income for the period

 

-

-

-

25,687

25,687

245

25,932

 

Novo shares purchase

13

-

-

-

80

80

(130)

(50)

 

Dividends paid to equity holders of the parent

 

-

-

-

(22,616)

(22,616)

-

(22,616)

 

At 30 June 2017 (unaudited)

 

585

718,419

832

37,098

756,934

1,974

758,908

 

 

 

 

 

 

 

 

Interim consolidated cash flow statement

for the six months ended 30 June

 

 

 

2018

 

2017

 

 

unaudited

 

unaudited

 

Notes

US$000

 

US$000

Operating activities

 

 

 

 

Profit before income tax

50,164

 

43,517

 

 

 

 

 

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

 

 

 

 

Depreciation of mine properties and property, plant and equipment

6

20,746

 

26,138

Movement in ore stockpiles obsolescence provision

9

-

 

3,185

Movement in raw materials and consumables obsolescence provision

9

12

 

317

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

6

254

 

161

Individual impairment of property, plant and equipment and mine assets

6

-

 

193

Gain on disposal of property, plant and equipment

 

(85)

 

(424)

Bank interest receivable

4.1

(143)

 

(99)

Interest expense on bank loans

4.2

11

 

608

Accretion expense on site restoration provision

4.2

758

 

780

Net foreign exchange loss/(gain)

 

(255)

 

(1,522)

Other non-cash (income)/expenses

 

387

 

323

Working capital adjustments:

 

 

 

 

Increase in trade and other receivables and prepayments

 

6,691

 

2,350

Increase in inventories

 

1,015

 

1,202

Increase/ (decrease) in trade and other payables

 

(1,667)

 

4,458

Income tax paid

 

(12,188)

 

(17,976)

Net cash flows from operating activities

 

65,700

 

63,211

 

 

 

 

 

Investing activities

 

 

 

 

Proceeds from sale of property, plant and equipment

380

 

772

Purchase of property, plant and equipment

3

(26,534)

 

(27,437)

Capitalised interest paid

3, 6, 7

(3,522)

 

(3,892)

Increase in stripping activity assets

6

(738)

 

(1,833)

Interest received from deposits

 

143

 

99

Novo shares purchase

 

-

 

(50)

Net cash flows (used in)/from investing activities

 

(30,271)

 

(32,341)

 

 

 

 

 

Financing activities

 

 

 

 

Proceeds from borrowings

31,344

 

155,680

Repayment of borrowings

7

(38,900)

 

(163,054)

Dividends paid to equity holders of the parent

 

(24,159)

 

(22,616)

Withholding tax paid

 

(4,648)

 

(3,895)

Payment under finance lease, including interest

7

(746)

 

(800)

Interest paid

 

-

 

(631)

Net cash flows (used in)/ from financing activities

 

(37,109)

 

(35,316)

 

 

 

 

 

Net (decrease)/increase in cash and cash equivalents

 

(1,680)

 

(4,446)

Effects of exchange rate changes

 

198

 

(34)

Cash and cash equivalents at 1 January

 

12,388

 

8,748

Cash and cash equivalents at 30 June

 

10,906

 

4,268

 

1.       Corporate information

These interim condensed consolidated financial statements of Highland Gold Mining Limited for the six months ended 30 June 2018 were authorised for issue in accordance with a resolution of the Directors on 03 September 2018.

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 2018 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 2017 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 2017.

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 2017, except for the adoption of new standards and interpretations effective as of 1 January 2018. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

Effective 1 January 2018, the Group applies, for the first time, IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments.

The nature and the impact of each amendment is described below:

 

New Standards and Interpretations adopted by the Group

IFRS 15 Revenue from Contracts with Customers

IFRS 15 was issued in May 2014, and amended in April 2016, and establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.

 

The Group adopted IFRS 15 "Revenue from Contracts with Customers" using a modified retrospective method of adoption on the required effective date:

 

• The comparative information for each of the primary financial statements is presented based on the requirements of IAS 18 and related Interpretations.

 

• As a result of the assessment of the impact of IFRS 15 on prior periods, the Group did not identify any material impact of the new accounting requirements and therefore no catch-up adjustments have been recognised in the statement of changes in equity.

 

For further information please refer to the 2017 consolidated financial statements for more details on the Company's impact assessment and the related judgements.

 

IFRS 9 Financial Instruments

IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition and Measurement for annual periods beginning on 1 January 2018, bringing together two important aspects of the accounting for financial instruments project: classification and measurement, and impairment.

 

The Group adopted the new standard on the required effective date using a modified retrospective method of adoption and did not restate comparative information, which follows the classification, measurement and disclosure requirements of IAS 39. The effect of the modified loans as at 1 January 2018 is recognised in the cost of the mining assets at Kekura due to the modified loans have been withdrawn in order to develop qualified assets at this project.

 

 

The effect on the Group of adopting IFRS 9 is, as follows:

 

·      Loan modification

IFRS 9 changes accounting for loan modifications, which the Group may experience from time to time. According to the new requirements:

• The Company should recalculate the amortised cost of the bank loans when the terms are modified. The estimated future cash flows under new terms (inflated at the new interest rate) should be discounted at the original effective interest rate. As a result, IFRS bank loan liabilities will differ from the liabilities under the bank loan agreements.

• The effect of the loans recalculation should be recognised in the statement of comprehensive income or in the cost of the qualified assets.

• A change in index (e.g. LIBOR) of the floating-rate loans does not represent a modification.

• New tranches of the revolving agreements are treated as new loans under IFRS 9 and modifications are not required.

Impact of the loan modification on the statement of financial position at the recognition date is the following:

 

Balance at 31.12.2017 published

 

Loan modification under IFRS 9

Balance at 01.01.2018

 

US$000

 

US$000

US$000

Mining assets

588,035

 

(3,417)

584,618

Interest-bearing loans and borrowings

207,368

 

(3,417)

203,951

 

·      Embedded derivatives

Under IFRS 9, embedded derivatives are no longer separated from a host financial asset. Instead, financial assets are classified based on their contractual terms and the Group's business model. Embedded derivatives attached to Novo's concentrate sales will be shown within trade receivables.

 

The accounting for derivatives embedded in financial liabilities and in non-financial host contracts has not changed from that required by IAS 39.

 

·      Impairment

 

The standard also introduces expected credit losses (ECL) impairment model, which means that anticipated as opposed to incurred credit losses will be recognised resulting in earlier recognition of impairment. The adoption of the ECL requirements of IFRS 9 revealed no additional material impairment of the Group's financial assets.

 

For further information, please refer to the 2017 consolidated financial statements for more details on the Company's impact assessment and the related judgements.

 

New Standards and Interpretations that will be adopted in future periods

IFRS 16 Leases

IFRS 16 was issued in January 2016 and it replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17.

 

In 2017, the Group assembled a project team to begin the process of assessing the impact of the lease standard. We analysed the main contracts, segregated them by types, defined our initial approach.

The Group expect that IFRS 16 will result in an increase in assets and liabilities as fewer leases will be expensed as payments are made. Also we expect an increase in depreciation and accretion expenses and also an increase in cash flow from operating activities as lease payments will be reclassified as a financing outflow in our cash flow statements.

 

In 2018, the Group continues to assess the potential effect of IFRS 16 on its consolidated financial statements and to quantify the adjustments that will be required upon implementation of the new standard in 2019. 

 

 

 

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 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 contained 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 2018 the gold and silver revenue reported in the gold production segment was received from sales to Gazprombank (US$87.9 million) in the territory of the Russian Federation.

In the first half of 2017 the gold and silver revenue reported in the gold production segment was received from sales to Gazprombank (US$87.6 million) in the territory of the Russian Federation.

In the first half of 2018 the concentrate revenue reported in the polymetallic concentrate production segment in the amount of US$58.8 million was received from sales to Kazzinc in the territory of the Republic of Kazakhstan (H1 2018: US$27.8 million; H1 2017: US$35.2 million), to Hyosung and Trafigura corporation in the territory of the People's Republic of China (H1 2018: US$29.1 million; H1 2017: US$24.3 million and H1 2018: US$1.9 million; H1 2017: US$Nil respectively).

Other third-party revenues in both H1 2018 and H1 2017 were received in the territory of the Russian Federation.

Inter-segment revenues mostly represent management services.

 

 

 

 

 

 

 

 

Period ended 30 June 2018

 

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

 

87,122

 

-

 

-

 

-

 

-

 

87,122

Silver revenue

 

759

 

-

 

-

 

-

 

-

 

759

Concentrate revenue*

 

-

 

58,815

 

-

 

-

 

-

 

58,815

Other third-party

 

32

 

118

 

51

 

-

 

-

 

201

Inter-segment

 

36

 

-

 

-

 

6,739

 

(6,775)

 

-

Total revenue

 

87,949

 

58,933

 

51

 

6,739

 

(6,775)

 

146,897

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

62,241

 

24,236

 

254

 

32

 

-

 

86,763

EBITDA

 

34,373

 

39,949

 

(585)

 

(2,313)

 

-

 

71,424

 

 

 

 

 

 

 

 

 

 

 

 

 

Other segment information

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation

 

(12,843)

 

(7,868)

 

(3)

 

(32)

 

-

 

(20,746)

Movement in ore stockpiles obsolescence provision

 

-

 

-

 

-

 

-

 

-

 

-

Movement in raw materials and consumables obsolescence provision

 

6

 

(18)

 

-

 

-

 

-

 

(12)

Individual impairment

 

 

 

 

 

 

 

 

 

 

 

-

Finance income

 

 

 

 

 

 

 

 

 

 

 

144

Finance costs

 

 

 

 

 

 

 

 

 

 

 

(901)

Foreign exchange gain

 

 

 

 

 

 

 

 

 

 

 

255

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit before income tax

 

 

 

 

 

 

 

 

 

 

 

50,164

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax

 

 

 

 

 

 

 

 

 

 

 

(21,525)

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the period

 

 

 

 

 

 

 

 

 

 

 

28,639

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment assets at 30 June 2018

 

 

 

 

 

 

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditure**

 

174,418

 

158,443

 

641,439

 

933

 

-

 

975,233

Goodwill

 

9,690

 

5,134

 

42,978

 

-

 

-

 

57,802

Other non-current assets

 

4,714

 

2,791

 

3,660

 

379

 

-

 

11,544

Current assets***

 

70,972

 

33,796

 

4,551

 

4,368

 

(15,843)

 

97,844

Total assets

 

 

 

 

 

 

 

 

 

 

 

1,142,423

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditure - addition during the first half of 2018****, including:

 

12,304

 

6,741

 

11,970

 

733

 

-

 

31,748

Stripping activity assets

 

738

 

-

 

-

 

-

 

-

 

738

Capitalised interest

 

-

 

-

 

1,017

 

-

 

-

 

1,017

Unpaid/ (settled) accounts payable

 

2,658

 

37

 

574

 

190

 

-

 

3,459

Cash capital expenditure

 

8,908

 

6,704

 

10,379

 

543

 

-

 

26,534

 

 

 

 

 

 

 

 

 

 

 

 

 

 

*Concentrate revenue contains US$61.8 million of IFRS 15 revenue, based on initial invoices, and a negative provisional price adjustment of  US$3.0 million which represents changes in the fair value of embedded derivatives.

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

***Current assets at 30 June 2018 include corporate cash and cash equivalents of US$10.9 million, inventories of US$56.6 million, trade and other receivables of US$26.1 million and other assets of US$4.2 million. Eliminations relate to intercompany accounts receivable.

**** Capital expenditure for the first half of 2018 includes additions to property, plant and equipment of US$31.7 million (Note 6), capitalised interest of US$0.9 million (Note 6) and capitalised upfront commission US$0.1 million (Note 6)  and prepayments previously made for property, plant and equipment of US$(1.0) million.

Non-current assets at 30 June 2018 are located in the Russian Federation (US$999.2 million) and in the Kyrgyz Republic (US$45.4 million). Current assets at 30 June 2018 are located in the Russian Federation.

Period ended 30 June 2017

 

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

 

86,415

 

-

 

-

 

-

 

-

 

86,415

Silver revenue

 

1,169

 

-

 

-

 

-

 

-

 

1,169

Concentrate revenue

 

-

 

59,460

 

-

 

-

 

-

 

59,460

Other third-party

 

40

 

84

 

8

 

-

 

-

 

132

Inter-segment

 

31

 

-

 

-

 

6,726

 

(6,757)

 

-

Total revenue

 

87,655

 

59,544

 

8

 

6,726

 

(6,757)

 

147,176

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

66,303

 

26,421

 

198

 

35

 

-

 

92,957

EBITDA

 

35,548

 

38,756

 

(636)

 

(420)

 

-

 

73,248

 

 

 

 

 

 

 

 

 

 

 

 

 

Other segment information

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation

 

(17,607)

 

(8,487)

 

(10)

 

(34)

 

-

 

(26,138)

Movement in ore stockpiles obsolescence provision

 

(3,185)

 

 

 

 

 

(3,185)

Movement in raw materials and consumables obsolescence provision

 

(206)

 

(111)

 

-

 

-

 

-

 

(317)

Individual impairment

 

 

 

 

 

 

 

 

 

 

 

(193)

Finance income

 

 

 

 

 

 

 

 

 

 

 

100

Finance costs

 

 

 

 

 

 

 

 

 

 

 

(1,520)

Foreign exchange gain

 

 

 

 

 

 

 

 

 

 

 

1,522

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit before income tax

 

 

 

 

 

 

 

 

 

 

 

43,517

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax

 

 

 

 

 

 

 

 

 

 

 

(17,585)

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the period

 

 

 

 

 

 

 

 

 

 

 

25,932

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment assets at 30 June 2017

 

 

 

 

 

 

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditure*

 

177,933

 

163,998

 

613,432

 

125

 

-

 

955,488

Goodwill

 

9,690

 

5,134

 

42,978

 

-

 

-

 

57,802

Other non-current assets

 

3,204

 

470

 

7,958

 

309

 

-

 

11,941

Current assets**

 

63,228

 

30,331

 

6,402

 

4,407

 

(5,140)

 

99,228

Total assets

 

 

 

 

 

 

 

 

 

 

 

1,124,459

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditure - addition during the first half of 2017***, including:

 

11,260

 

6,057

 

20,678

 

6

 

-

 

38,001

Stripping activity assets

 

1,833

 

-

 

-

 

-

 

-

 

1,833

Capitalised interest

 

-

 

-

 

3,967

 

-

 

-

 

3,967

Unpaid/ (settled) accounts payable

 

2,710

 

1,751

 

380

 

(77)

 

-

 

4,764

Cash capital expenditure

 

6,717

 

4,306

 

16,331

 

83

 

-

 

27,437

 

 

 

 

 

 

 

 

 

 

 

 

 

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

** Current assets at 30 June 2017 include corporate cash and cash equivalents of US$4.3 million, inventories of US$58.9 million, trade and other receivables of US$30.9 million and other assets of US$5.1 million. Eliminations relate to intercompany accounts receivable.

*** Capital expenditure for the first half of 2017 includes additions to property, plant and equipment of US$29.0 million (Note 6) and capitalised interest of US$3.9 million (Note 6), capitalised upfront commission US$0.1 million (Note 6) and prepayments previously made for property, plant and equipment of US$5.0 million.

Non-current assets at 30 June 2017 are located in the Russian Federation (US$981.3 million) and in the Kyrgyz Republic (US$43.9 million). Current assets at 30 June 2017 are located in the Russian Federation.

 

 

4.       Finance income and costs

4.1       Finance income

 

For the six months ended
30 June

 

2018

 

2017

 

US$000

 

US$000

 

 

 

 

Bank interest

143

 

99

Other finance income

1

 

1

Total finance income

144

 

100

4.2       Finance costs

 

For the six months ended
30 June

 

2018

 

2017

 

US$000

 

US$000

 

 

 

 

Accretion expense on site restoration provision

758

 

780

Interest expense on bank loans*

11

 

608

Interest expense on finance lease

132

 

132

Total finance costs

901

 

1,520

 

*During the first half of 2018, the Company incurred borrowing costs in the amount of US$4.4 million (including the modification effect (Note 6)). The full amount, with the exception for U$11 thousand related to acquisition of trucks, was capitalised at Kekura mining assets.

 

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

 

2018

  

2017

 

US$000

 

US$000

Current income tax

 

 

 

Current income tax charge

10,092

 

14,939

Withholding tax on dividends

4,648

 

3,895

Adjustments in respect of prior year current tax

(247)

 

9

Deferred income tax

 

 

 

Relating to origination and reversal of temporary differences

7,032

 

(1,258)

Income tax expense

21,525

 

17,585

There are no tax amounts recognised directly in equity during the first half of 2018 (H1 2017: Nil).

The majority of the Group entities are Russian tax residents. Income tax for the six months ended 30 June 2018 is charged at 33.6% (H1 2017: 31.5%), representing the best estimate of the average annual effective income tax rate expected for the full year, applied to the pre-tax income of the six months period. The effective income tax rate in the first half of 2018 is higher than the statutory rate of 20% for the Russian Federation mainly due to non-deductible expenses and 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.

Withholding tax related to dividends paid by MNV to Stanmix Holding Limited.

 

 

 

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

 

Reconciliation of fixed assets for the period ending 30 June 2018

 

 

 

Exploration and evaluation assets

 

Mining assets

 

Stripping activity assets

 

Freehold building

 

Plant and equipment

 

Construction in progress

 

Total

 

 

US$000

 

US$000

 

US$000

 

US$000

 

US$000

 

US$000

 

US$000

Cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 31 December 2017

 

88,926

 

768,181

 

19,724

 

218,474

 

237,103

 

76,852

 

1,409,260

Additions

 

2,139

 

7,490

 

738

 

14

 

79

 

21,218

 

31,678

Transfers

 

(258)

 

4,968

 

-

 

(583)

 

8,239

 

(12,366)

 

-

Write-off*

 

-

 

-

 

-

 

(176)

 

(1,560)

 

-

 

(1,736)

Disposals

 

-

 

-

 

-

 

(174)

 

(433)

 

(264)

 

(871)

Capitalised depreciation

 

131

 

2,477

 

-

 

-

 

-

 

612

 

3,220

Capitalised interest**

 

-

 

1,017

 

-

 

-

 

-

 

-

 

1,017

Change in estimation - site restoration asset***

 

-

 

(1,403)

 

-

 

-

 

-

 

-

 

(1,403)

Other movement

 

 -

 

 

 

 

(111)

 

(66)

 

(177)

At 30 June 2018

 

90,938

 

782,730

 

20,462

 

217,555

 

243,317

 

85,986

 

1,440,988

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and impairment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 31 December 2017

 

-

 

191,223

 

8,647

 

96,375

 

145,302

 

1,590

 

443,137

Provided during the year

 

-

 

7,974

 

2,202

 

2,940

 

7,630

 

-

 

20,746

Transfers

 

-

 

-

 

-

 

-

 

-

 

-

 

-

Write-off*

 

-

 

-

 

-

 

(50)

 

(1,432)

 

-

 

(1,482)

Disposals

 

-

 

-

 

-

 

(155)

 

(421)

 

-

 

(576)

Capitalised depreciation

 

-

 

130

 

-

 

1,561

 

1,529

 

-

 

3,220

Capitalised to inventory

 

-

 

2

 

-

 

193

 

(16)

 

-

 

179

Impairment

 

531

 

-

 

-

 

-

 

-

 

-

 

531

At 30 June 2018

 

531

 

199,329

 

10,849

 

100,864

 

152,592

 

1,590

 

465,755

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net book value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 31 December 2017

 

88,926

 

576,958

 

11,077

 

122,099

 

91,801

 

75,262

 

966,123

At 30 June 2018

 

90,407

 

583,401

 

9,613

 

116,691

 

90,725

 

84,396

 

975,233

 

* Write-off for the first half of 2018 in the amount of US$0.3 million relates to retirement of old inefficient equipment.

** Borrowing costs capitalised at Kekura mining assets for the first half of 2018 include US$0.9 million of interest expense (containing US$3.5 million of interest as per agreement increased by US$0.8 million of the modification effect during H1 2018 decreased by US$3.4 million of the modification effect as at 01 January 2018) and capitalised upfront commission of US$0.1 million. The modified effective interest rates were between 3.0% and 6.2% (actual effective interest rates as per agreements: 3.0% and 4.7%).

*** During the first half of 2018 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 decrease in the cost estimate is US$1.4 million (decrease of US$1.3 million at MNV, decrease of US$0.4 million at Novo, increase of US$ 0.3 million at BG and decrease of US$ 0.04 million at Kekura) which was booked as an decrease to mining assets and non-current provisions.

No plant and equipment has been pledged as security for bank loans in the first half of 2018.

Mine properties in the interim consolidated statement of financial position comprise mine 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 2017

 

                

 

 

Exploration and evaluation assets

 

Mine assets

 

Stripping activity assets

 

Freehold building

 

Plant and equipment

 

Construction in progress

 

Total

 

 

US$000

 

US$000

 

US$000

 

US$000

 

US$000

 

US$000

 

US$000

Cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 31 December 2016

 

85,459

 

737,342

 

21,638

 

214,538

 

229,190

 

63,997

 

1,352,164

Additions

 

1,658

 

8,175

 

1,833

 

-

 

226

 

17,156

 

29,048

Transfers

 

(125)

 

1,453

 

-

 

(152)

 

5,955

 

(7,609)

 

(478)

Write-off*

 

-

 

(22)

 

-

 

(80)

 

(1,468)

 

-

 

(1,570)

Disposals

 

-

 

(205)

 

-

 

-

 

(193)

 

(319)

 

(717)

Capitalised depreciation

 

137

 

3,165

 

-

 

-

 

-

 

289

 

3,591

Capitalised interest**

 

-

 

3,967

 

-

 

-

 

-

 

-

 

3,967

Change in estimation - site restoration asset***

 

-

 

1,034

 

-

 

443

 

-

 

-

 

1,477

At 30 June 2017

 

87,129

 

754,909

 

23,471

 

214,749

 

233,710

 

73,514

 

1,387,482

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and impairment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 31 December 2016

 

-

 

180,465

 

10,753

 

84,223

 

126,860

 

1,623

 

403,924

Provided during the period

 

-

 

9,237

 

2,356

 

4,618

 

9,927

 

-

 

26,138

Transfers

 

-

 

-

 

-

 

(171)

 

(307)

 

-

 

(478)

Write-off*

 

-

 

(21)

 

-

 

(54)

 

(1,334)

 

-

 

(1,409)

Disposals

 

-

 

(202)

 

-

 

-

 

(167)

 

-

 

(369)

Capitalised depreciation

 

-

 

133

 

-

 

1,556

 

1,902

 

-

 

3,591

Capitalised to inventory

 

-

 

14

 

-

 

189

 

201

 

-

 

404

Impairment

 

-

 

-

 

-

 

-

 

-

 

193

 

193

At 30 June 2017

 

-

 

189,626

 

13,109

 

90,361

 

137,082

 

1,816

 

431,994

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net book value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 31 December 2016

 

85,459

 

556,877

 

10,885

 

130,315

 

102,330

 

62,374

 

948,240

At 30 June 2017

 

87,129

 

565,283

 

10,362

 

124,388

 

96,628

 

71,698

 

955,488

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                   

 

* Write-off for the first half of 2017 in the amount of US$0.2 million relates to retirement of old inefficient equipment.

** Capitalised interest for the first half of 2017 includes US$3.9 million of borrowing costs capitalised at Kekura at interest rates between 2.3% and 5.2% and capitalised upfront commission of US$0.1 million.

*** During the first half of 2017 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$1.5 million (increase of US$0.4 million at MNV, increase of US$0.6 million at Novo, increase of US$ 0.3 million at BG and increase of US$ 0.2 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 2017.

Mine properties in the interim consolidated statement of financial position comprise mine 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 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.

The carrying amounts of financial instruments, such as cash, accounts receivable and payable, loans payable, approximate their fair value.

 

The Group held the following financial instruments measured at fair value:

 

30 June 2018

Level 2

 

US$000

US$000

US$000

Trade receivables, incl. embedded derivative

12,222

-

12,222

 

 

 

 

30 June 2017

Level 1

Level 2

 

 

US$000

US$000

US$000

Trade receivables (embedded derivative only)

 

275

-

275

 

In H1 2017, trade receivables included a US$0.3 million positive fair value balance relating to an embedded derivative relating to the price adjustment at Novo. Following adoption of IFRS 9, an embedded derivative is no longer separated from the host receivables, which are carried at fair value and amounted to US$12,222 at 30 June 2018.

 

Changes in liabilities arising from financing activities

 

 

1 January 2018

 

Cash flow

 

Accrued interest as per agreements

 

Adjustment on accrued interest as per IFRS 9

 

Foreign exchange movement

 

IFRS 9 adjustment - effect on opening balance

 

Other

 

31 June 2018

 

 

US$000

 

US$000

 

US$000

 

US$000

 

US$000

 

US$000

 

US$000

 

US$000

Interest bearing loans and borrowings (excluding items listed below)

 

207,368

 

(11,078)

 

3,532

 

836

 

(4)

 

(3,417)

 

65

 

197,302

Obligations under finance leases and hire purchase contracts

 

3,340

 

(746)

 

132

 

 

 

(51)

 

-

 

(0)

 

2,675

Total liabilities from financing activities

 

210,708

 

(11,824)

 

3,664

 

836

 

(55)

 

(3,417)

 

65

 

199,977

 

8.       Commitments and contingencies

Capital commitments

At 30 June 2018, the Group had commitments of US$24.2 million (at 31 December 2017: US$14.2 million, at 30 June 2017: US$9.3 million) principally relating to development assets and US$2.6 million (at 31 December 2017: US$3.0 million, at 30 June 2017: US$8.7 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$0.4 million at 30 June 2018 (at 31 December 2017: US$2.2 million, at 30 June 2017: US$2.1 million).

 

 

 

9.       Inventories

 

 

30 June

31 December

30 June

2018

2017

2017

unaudited

audited

unaudited

Non-current*

US$000

US$000

US$000

Ore stockpiles

19,708

16,256

15,901

Ore stockpile obsolescence provision**

(17,693)

(15,632)

(14,024)

Total non-current inventories

2,015

624

1,877

 

 

30 June

31 December

30 June

2018

2017

2017

unaudited

audited

unaudited

Current

US$000

US$000

US$000

Raw materials and consumables

46,659

51,108

50,449

Ore stockpiles

13,507

15,709

17,144

Gold in progress

6,081

5,004

6,325

Finished goods

2,630

1,156

891

 

68,877

72,977

74,809

 

 

 

 

Raw materials and consumables obsolescence provision***

(12,223)

(12,205)

(12,106)

Ore stockpile obsolescence provision**

(91)

(2,152)

(3,760)

Total inventories

56,563

58,620

58,943

* 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.

** Stockpiled low-grade ore at BG is tested for impairment semi-annually. Movement in ore stockpile obsolescence provision amounted to US$Nil in H1 2018 (H1 2017: US$3.2 million).

*** Movement in raw materials and consumables obsolescence provision amounted to US$0.02 million in the first half of 2018 (H1 2017: US$0.3 million). 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. 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

31 December

30 June

2018

2017

2017

unaudited

audited

unaudited

 

US$000

US$000

US$000

Cash at bank and in hand

8,683

10,565

4,268

Short term deposits

2,223

1,823

-

 

 

10,906

12,388

4,268

         

 

 

 

 

11.     Interest-bearing loans and borrowings

 

 

 

 

 

 

30 June 2018
unaudited
US$000

31 December 2017
audited
US$000

30 June 2017
unaudited
US$000

 

Effective interest rate as per agreement  %

Effective interest rate under IFRS 9  %

Modification

Maturity

Current

 

 

 

 

 

 

 

Raiffaizen loan (6)

 4.2 (2017: 3.7)

 5.6 (2017: 3.7)

 Modified

November 2019

11,000

11,000

7,333

UniCredit loan (7)

 3.6 (2017: 3.6)

 3.8 (2017: 3.6)

 Modified

October 2020

16,517

4,017

16,517

Sberbank loan (9)

                       8.8  

                     8.8  

 Non-modified

May 2022

235

-

-

 

 

 

 

 

27,752

15,017

23,850

Non-current

 

 

 

 

 

 

 

Gazprombank loan (1)

                          3.1  

                     3.1  

 Non-modified

March 2020

40,630

43,630

26,340

Sberbank loan (2)

                          3.4  

                     3.4  

 Non-modified

August 2021

20,000

20,000

-

Gazprombank loan (3)

                     4.7  

                     4.7  

 Non-modified

December 2018

-

-

14,285

UniCredit loan (4)

 4.1 (2017: 3.6)

 6.2 (2017: 3.6)

 Modified

June 2020

47,836

50,000

50,000

Alfa-bank loan (5)

                       4.3  

                     4.3  

 Non-modified

December 2018

-

-

42,000

Raiffaizen loan (6)

 4.2 (2017: 3.7)

 5.6 (2017: 3.7)

 Modified

November 2019

5,207

11,000

14,667

UniCredit loan (7)

 3.6 (2017: 3.6)

 3.8 (2017: 3.6)

 Modified

October 2020

33,172

45,721

33,146

Alfa-bank loan (8)

                       3.0  

                     3.0  

 Non-modified

December 2019

22,000

22,000

-

Sberbank loan (9)

                       8.8  

                     8.8  

 Non-modified

May 2022

705

-

-

 

 

 

 

 

169,550

192,351

180,438

Total

 

 

 

 

197,302

207,368

204,288

 

(1)   In March 2017, the Group secured a revolving facility with Gazprombank with the draw period set until 1 March 2020. The interest rate is set for every instalment separately. The loan is repayable in instalments between March 2017 and March 2020. The drawn down payable balance obtained under the agreement at 30 June 2018 is US$40.6 million (31 December 2017: US$43.6 million; 30 June 2017: US$26.3). The outstanding bank debt is subject to the following covenants: the ratio of total debt to EBITDA should be equal to or lower than 4.0; the ratio of EBITDA to interest expense should be equal to or higher than 4.0.

 

(2)   In August 2017, the Group secured a revolving facility with Sberbank with the draw period set until 14 August 2021. The interest rate is set for every instalment separately. The loan is repayable in instalments between August 2017 and August 2021. The drawn down payable balance obtained under the agreement at 30 June 2018 is US$20.0 million (31 December 2017: US$20.0 million; 30 June 2017: Nil). The outstanding bank debt is subject to the following covenants: the ratio of net debt to EBITDA should be equal to or lower than 3.5.

 

(3)   The loan was repaid in September 2017.

 

(4)   In December 2015, the Group raised financing with UniCredit bank. In November 2017, the interest rate per agreement decreased to LIBOR USD 1M + 2.05% from LIBOR USD 1M + 2.8% in June 2017 (2016: LIBOR USD 1M + 4.0%) with the draw period set until 17 January 2016. Due to implementation of new requirement of IFRS 9 effective rate is LIBOR 1M at the date of modification + 5%. The loan is repayable in instalments between July 2019 and June 2020 (2016: between July 2017 and December 2018). The drawn down payable balance obtained under the agreement at 30 June 2018 is US$50.0 million (31 December 2017: US$50.0 million; 30 June 2017: US$50.0 million). Due to implementation of new requirement of IFRS 9 book value of the loan was modified and at 30 June 2018 is US$47.8 million (31 December 2017: US$50.0 million; 30 June 2017: US$50.0 million). For more information about transition adjustment, please see Note 2.

The outstanding bank debt is subject to the following covenants: the ratio of net debt to EBITDA should be equal to or lower than 3.5 and the Group EBITDA to interest expense ratio should be equal to or higher than 4.0.

 

(5)   The loan was repaid in September 2017.

 

(6)   In August 2016, the Group raised financing with Raiffeisenbank at a LIBOR USD 1M + 2.1% (till May 2017 LIBOR USD 1M + 4.4%; till November LIBOR USD 1M + 2.75%) interest rate with the draw period set until 23 September 2016. Due to implementation of new requirement of IFRS 9 effective rate is LIBOR 1M at the date of modification + 4.4%. The loan is repayable in November 2019. The drawn down payable balance obtained under the agreement at 30 June 2018 is US$16.5 million (31 December 2017: US$22.0 million; 30 June 2017: US$22.0 million). Due to implementation of new requirement of IFRS 9 book value of the loan was modified and at 30 June 2018 is US$16.2 million (31 December 2017: US$22.0 million; 30 June 2017: US$22.0 million). For more information about transition adjustment, please see Note 2. The outstanding bank debt is subject to the following covenants: the ratio of total net debt to EBITDA should be equal to or lower than 4.0; the ratio of EBITDA to interest expense should be equal to or higher than 4.0; the ratio of total net debt to Equity should be lower than 0.6.

 

(7)   In October 2016, the Group raised financing with UniCredit bank adjusted for an upfront fee amounting to 0.9% with the draw period set until 20 November 2016.  In November 2017, the interest rate decreased to 3.4% from 3.55% in 2016. Due to implementation of new requirement of IFRS 9 effective rate is 3.8%. The loan is repayable October 2020 (2016: October 2019). The drawn down payable balance obtained under the agreement at 30 June 2018 is US$49.8 million (31 December 2017: US$49.7 million; 30 June 2017: US$49.7 million). Due to implementation of new requirement of IFRS 9 book value of the loan was modified and at 30 June 2018 is US$49.7 million (31 December 2017: US$49.7 million; 30 June 2017: US$49.7 million). For more information about transition adjustment, please see Note 2. The outstanding bank debt is subject to the following covenants: the ratio of net debt to EBITDA should be equal to or lower than 3.5; the ratio of EBITDA to interest expenses should be equal to or higher than 4.0.

 

(8)   In August 2016, the Group secured a revolving facility with Alfabank with the draw period set until 31 December 2019. The interest rate is set for every instalment separately. The loan is repayable in instalments between August 2016 and December 2019. The drawn down payable balance obtained under the agreement at 30 June 2018 is US$22.0 million (31 December 2017: US$22.0 million; 30 June 2017: Nil). The outstanding bank debt is subject to the following covenants: the ratio of total net debt to EBITDA should be equal to or lower than 4.0.

 

(9)   In May 2018, the Group secured a facility with Sberbank with the draw period set until 31 August 2018. The interest rate is 8.75%. The loan is repayable in instalments between September 2018 and May 2022. The drawn down payable balance obtained under the agreement at 30 June 2018 is US$0.9 million (31 December 2017: Nil; 30 June 2017: Nil). The outstanding bank debt is subject to the following covenants: the ratio of net debt to EBITDA should be equal to or lower than 3.5.

 

The total outstanding bank debt of the Group at 30 June 2018 is US$197.3 million. There were no covenant breaches as at 30 June 2018.

 

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 2018 OJSC Novo-Shirokinsky Rudnik performed a partial redemption of its shares acquired in prior periods. As a result, the share of non-controlling interest increased by US$4 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

 

 

2018

 

2017

 

 

US$000

 

US$000

 

 

 

 

 

Net profit attributable to ordinary equity holders of the parent

 

28,557

 

25,687

 

 

 

 

 

 

 

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.

The share capital comprises only one class of ordinary shares, which carry a voting right and the right to a dividend. There are no restrictions on the distribution of dividends and the repayment of capital.

 

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 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 2018 there was no indicator of impairment of non-current assets, including goodwill.

 

16.     Events after the reporting period

There were no significant events after the reporting period, except for dividends declared.

The Board of Directors has approved an interim dividend of £0.06 per share, to be paid to shareholders on 5 October 2018. The ex-dividend date is 13 September 2018 and the record date is 14 September 2018.

 


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Interim Results Announcement for H1 2018 - RNS