Highland Gold does turnaround at Mnogovershinoye (May 22, 2006)

The year 2005 ended with a financial loss for London-based Highland Gold Mining (HGHGF-O, HGM-L) but a turnaround in production at its mainstay Mnogovershinoye mine in the Khabarovsk region of Russia’s Far East offers some hope for 2006.

The company lost US$7.8 million on revenues of US$75.9 million in 2005, a net loss of US4 per share in a year when its gold production declined by 40,000 oz. It had made US$5 million on revenues of US$82.1 million in 2004, when it produced 200,000 oz.

At the Mnogovershinoye mine, severe weather in early 2005, a lack of development in the mine’s open pit and underground sections, and shortages of spares and consumable items combined to keep ore throughput to about 370,000 tonnes in the first half. In addition, some of the ore came from lower-grade oxidized stockpiles, which depressed the head grade to 5.5 grams gold per tonne against a planned 6.5 grams.

A review at mid-year by Highland and large shareholder Barrick Gold (ABX-T, ABX-N), and management changes at the mine, produced a plan to develop access in the pit and a significant increase in ore production. Underground development plans were also revised and the mine bought a new underground drill rig to improve production.

Average millhead grade for the year was 5.5 grams per tonne, down from 7.1 grams the year before, and with the lower throughput production declined to 140,000 oz. from 195,000 in 2005. Cash costs rose to US$275 per oz. from US$187 in 2005.

Highland’s Darasun mine in the Chita region of Siberia began full production in the second half of the year, producing 20,000 oz. gold from 208,000 tonnes of ore in 2005. Again, the pit and underground mine were insufficiently developed for the 2005 mine plan to be met, and cash costs ballooned to US$1,171 per oz.

Highland plans to produce 50,000 oz. from Darasun in 2006, and to bring the operation into profitability in the second half of the year.