Highland Gold Mining Ltd.
Annual Report 2014

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26 NEW STREET

ST. HELIER, JERSEY JE2 3RA

REGISTERED NO 83208

HIGHLAND 
GOLD MINING LIMITED 
ANNUAL REPORT & ACCOUNTS 2014

 
 
 
 
 
 
 
 
 
A YEAR OF  
ORGANIC GROWTH

HIGHLAND GOLD MINING LIMITED

CONTENTS

2. 

4. 

6. 

8. 

16. 

24. 

30. 

33. 

34. 

35. 

36. 

37. 

38. 

79. 

81. 

82. 

84. 

THE YEAR IN REVIEW

CHAIRMAN’S STATEMENT

MINE LOCATIONS

OPERATIONS REVIEW

FINANCIAL REVIEW

DIRECTORS' REPORT 

BOARD OF DIRECTORS

INDEPENDENT AUDITORS' REPORT

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED STATEMENT OF CASH FLOWS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

RESERVES AND RESOURCES

DIRECTORS, COMPANY SECRETARY AND ADVISERS

PRINCIPAL GROUP COMPANIES

NOTICE OF ANNUAL GENERAL MEETING

1

ANNUAL REPORT & ACCOUNTS 2014THE YEAR IN REVIEW

580,000 tonnes 

of ore mined and processed at Novo

Total production 

258,937 

oz of gold and gold equivalents

2

THE YEAR IN REVIEW

IFRS, US$000 (UNLESS STATED)

Production (gold and gold eq. oz)

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

Total Group cash costs (US$/oz)

Revenue

Operating profit

EBITDA

Net (loss)/profit

(Loss)/earnings per share (US$)

Net cash inflow from operations

Capital expenditure

Net debt position

2014

2013

258,937

233,696

809

645

304,230

55,855

123,617

(24,843)

(0.077)

104,422

65,538

842

611

304,206

77,019

132,750

54,697

0.167

94,700

143,706

(247,198)

(251,187)

Eugene Shvidler, Executive Chairman of Highland Gold Mining, 
commented: “In 2014, Highland Gold began commercial production 
at its third mine, Belaya Gora, while reaching record output at 
Novoshirokinskoye, continuing efforts to extend the life-of-mine at 
Mnogovershinnoye, and taking important steps in the process of bringing 
the Kekura project to fruition. The Company achieved record output  
while maintaining fiscal and financial discipline, despite the ongoing 
challenges faced by the industry. While we recorded a loss for the year, 
the Company’s underlying fundamentals remain sound even against the 
backdrop of lower gold prices. The Board and I are confident that 2015  
will see further improvement in our operational performance.”

HIGHLAND GOLD MINING LIMITED

THE YEAR IN REVIEW

2014 KEY EVENTS

•  Total production at Mnogovershinnoye (MNV), Novoshirokinskoye (Novo) and Belaya 
Gora rose 10.8% to a record 258,937 oz of gold and gold equivalents (2013: 233,696 oz) 

•  A 5.7% increase in total cash costs to US$645 per oz (2013: US$611 per oz) and a 3.8% 

fall in all-in sustaining cash costs to US$809 per oz (2013: US$842 per oz) 

•  Acquisition of licences for the North-Western Flank and Lower Horizon areas at MNV

•  Mined and processed ore at Novo rose more than 15% to record levels in excess  

of 580,000 tonnes driven by improved efficiencies 

•  Completion at Belaya Gora of the second stage gravity circuit (to improve recovery 

rates) and on-site state-of-the-art assay laboratory 

•  Conclusion of advanced exploration programme at Kekura, and delivery of scoping 

study undertaken by consultants Hatch 

•  Design documentation for the Klen deposit development project received approval 

from the Main State Review Board

• 

Impairment of Klen goodwill and other long-term assets of US$11.4 million due to 
postponement of project development

•  Net loss of US$24.8 million also influenced by US$9.6 million foreign exchange 

loss and US$49.4 million non-cash deferred tax charge. Adjusted net profit (free of 
impairment and abnormal foreign exchange, and applying a 33.3% effective income tax 
rate) was US$51.3 million (2013: US$54.7 million).

•  Average realised price for gold and gold equivalents in 2014 of US$1,175 per oz (2013: 

US$1,291 per oz)

• 

Interim dividend of £0.025 per share paid in October 2014 (2013: Interim dividend of 
£0.025 per share)

•  New US$50 million reserve credit facility arranged with UniCredit in September

•  Net debt to EBITDA ratio maintained at 2.0 (2013: 1.9) in line with Board’s policy

•  Lost Time Incident (LTI) rate reduced to all time low of 0.27 in 2014 (2013: 0.28)

POST YEAR EVENTS

•  Final dividend of £0.020 per share recommended, making a total distribution of £0.045 

per share for the year to 31 December 2014 (2013: £0.050 per share)

•  Documents for registration of Kekura reserves submitted to regulatory authorities 

•  Financing agreement with Alfa-Bank for US$60.0 million and Gazprombank for 

US$80.0 in April 2015

2015 TARGETS

•  Expand production in 2015 to between 270,000–285,000 oz of gold and gold 

equivalents (sourced from MNV, Novo and Belaya Gora)

•  MNV – Maintain stable levels of production while continuing to optimise cost controls

•  Novo – Drive further increases in output through greater efficiencies

•  Belaya Gora – Double output from 2014’s 38,000 oz through further improvements in 

mining and processing operations

•  Chukotka – Ongoing development of the Kekura project

•  Exploration – Prioritise MNV’s near mine exploration programme

ANNUAL REPORT & ACCOUNTS 2014

3

CHAIRMAN’S STATEMENT

CHAIRMAN’S STATEMENT

I am pleased to report that the quality of our Company’s 
asset base together with the rigorous cost disciplines 
that are integral to our business culture, underwrote a 
generally solid performance in 2014, a year characterised 
by a distinctly challenging trading climate.

Our cost control endeavours in this regard, combined 
with the beneficial effect on costs of the weakness of the 
Rouble against the US Dollar, particularly during the 
second half of the year, are reflected in a decrease in  
‘all-in sustaining cash costs’ by 3.8% to US$809.  
Total cash costs rose by 5.7%, influenced chiefly by the 
ramp-up of Belaya Gora and lower grades at MNV.

4

Despite the uptick in total cash costs, the 
Company remains near the median of our Russian 
and international peers in this indicator, and leads the 
pack in all-in sustaining costs. Management draws 
considerable encouragement from this achievement, 
which underlines the Company’s ‘low cost producer’ 
status and our competitive standing.

Total production from our three mines in Russia – 
Mnogovershinnoye (MNV), Novoshirokinskoye (Novo) 
and Belaya Gora – in 2014 reached a record 258,937 oz of 
gold and gold equivalents. While somewhat lower than 
our projections at the beginning of the year, the figure 
still represents a substantial 10.8% increase from 2013.

Technical teething problems were encountered at Belaya 
Gora’s mine and new processing plant during ramp up 
procedures and these, together with challenges caused 
by severe weather conditions in the Khabarovsk region, 
were the primary reasons for the less than anticipated 
growth in production.

The implementation of a series of measures designed 
to improve throughput and recoveries at Belaya Gora 
brought their rewards during the second half of 
2014 when average monthly processing throughput 
amounted to 127,000 tonnes of ore: fully compatible 
with the plant’s annual nameplate capacity of 
1.5 million tonnes. In the event, gold output from 
Belaya Gora increased more than fivefold to some 
38,000 oz and a doubling of this is targeted for the 
current year.

The contribution from MNV, although below the levels 
achieved in 2013, was once again substantial with gold 
production of more than 122,000 oz accounting for 
approximately 47% of total output.

Near mine exploration at MNV, designed to extend 
the life of the Company’s oldest mine, was one of 
our operational priorities in 2014 and will remain so 
throughout 2015. In order to sustain such activity we 
acquired a licence for exploration and mining rights at 
the North-Western Flank of the MNV ore body in July, 
followed in October by the purchase of a similar licence 
for the Lower Horizon of the MNV deposit. We believe 
that both properties possess good potential for the 
delivery of additional resources.

Last but far from least, the Novo complex achieved an 
exceptional operating performance with above budget 
throughput translating into record production levels, 
details of which are set out in the Operations Report. 
Management is intent on fully capitalising on Novo’s 
potential and, to this end, underground expansion is 
underway in order to gain access to new, lower horizons.

HIGHLAND GOLD MINING LIMITED

CHAIRMAN’S STATEMENT

In the space of five years, Highland Gold’s annual gold 
production has risen almost 60% from 163,000 oz in 
2009 to 259,000 oz in the year under review. Consequent 
to this consistent expansion, the Company has emerged 
as the sixth largest gold producer in Russia which, in turn, 
is the world’s second largest gold province and, supported 
by the effective devaluation of the Rouble against the US 
Dollar, the world’s lowest cost producer of the metal.

Our JORC compliant resource base stands at 17.14 Moz, 
alongside a 2.04 Moz reserve base, while our reserve grade, 
at 6.2 g/t, is one of the highest among our Russian peers.

In 2015 we are budgeting for a further increase in 
production to between 270,000 and 285,000 oz of gold and 
gold equivalents which, in broad-brush terms, we expect 
to achieve through maintaining stable production at MNV, 
driving throughput at Novo and further refining mining 
and processing operations at Belaya Gora. Optimisation of 
cost controls will be common to all operations.

Once again our development activity was firmly focused 
on the progression of our Kekura project, located in the 
challenging but investor-friendly region of Chukotka. The 
second half of the year witnessed the completion of an 
advanced exploration programme which provided the data 
necessary for the registration of reserves and a submission 
to this effect was made to regulatory authorities in Q1 2015.

The target date for commercial production at Kekura, 
which enjoys a JORC compliant resource of 2.9 Moz with 
an exceptionally high average grade of 8.7 g/t, is 2018 and, 
to this end, a draft scoping study carried out by the 
consultancy firm Hatch was delivered towards the end of 
the year.

In the light of these results, the Board is pleased to 
recommend a final dividend of £0.020 per share (2013: 
£0.025 per share) which, subject to approval at the 
forthcoming Annual General Meeting on 26 May 2015, 
will make a total distribution of £0.045 per share for the 
year to 31 December 2014 (2013: £0.050 per share).

The health and safety of our employees will always be of 
paramount importance and a new initiative in 2014 led to 
the establishment of mine rescue teams at Novo, MNV and 
BG, each of which were certified by a special committee. 
Our Lost Time Incident (LTI) rate (defined as the number 
of lost time incidents for every 200,000 man hours 
worked) declined from 0.28 in 2013 to a new low of 0.27. 
In pursuit of our zero incident rate target, we continue to 
place considerable emphasis on the importance of safety 
education, particularly with regard to engendering a 
sense of personal responsibility among employees, and a 
series of specialised training courses were well attended. 
Meanwhile, it is with deep regret that I have to record one 
fatality during the year.

5

Looking to the future, from a currently challenging 
market place, the Directors are committed to achieving 
measured increases in production, hand in hand with the 
ongoing implementation of rigid cost disciplines designed 
to maintain or extend our cost advantage. The Board 
remains equally committed to ensuring that the rewards  
of such strategies find reflection in a continuation of 
regular dividend distributions.

I now take much pleasure, on behalf of the Board,  
in thanking all our employees for the hard work and 
commitment that was responsible for our achievements 
during 2014.

Eugene Shvidler

Executive Chairman

ANNUAL REPORT & ACCOUNTS 2014

MINE LOCATIONS

MINE LOCATIONS

6

MOSCOW

RUSSIA

Bishkek

Unkurtash

KYRGYZSTAN

HIGHLAND GOLD MINING LIMITED

CHIEF EXECUTIVE OFFICER’S REPORT

MINE LOCATIONS

Kekura

Klen

Verkhne-Krichalskaya

7

Chita

Novoshirokinskoye

Taseevskoye

Lyubov

Mnogovershinnoye

Blagodatnoye

Belaya Gora

Khabarovsk

Vladivostok

Operating Mine

Development Project

Exploration Project

ANNUAL REPORT & ACCOUNTS 2014

OPERATIONS REVIEW

8

OPERATIONS REVIEW

HIGHLAND GOLD MINING LIMITEDOPERATIONS REVIEW

The 10.8% increase in overall production to a record 258,937 oz of gold and gold equivalents in 
2014 reflected further significant output from MNV, an above budget performance from Novo 
and, following initial ramp up challenges, a second half recovery in throughput at Belaya Gora’s 
new processing plant. Cost optimisation, primarily comprised of disciplined capital allocation and 
the implementation of operating efficiencies, was prioritised Group-wide. The shortfall in production, 
compared to expectations at the beginning of the year, largely reflected the problems encountered at 
Belaya Gora.

In 2015 we are budgeting for a further increase in production to between 270,000–285,000 oz of 
gold while, at the same time, continuing to focus on our development of the Kekura project, where 
commercial production is targeted for 2018, and our near mine exploratory activity at MNV. The latter 
will be sustained by the acquisitions, in 2014, of the North Western Flank and Lower Horizon licences.

MNOGOVERSHINNOYE (MNV) – Khabarovsk region, Russia
Process plant throughput in 2014 totalled 1,366,458 tonnes of ore which yielded 122,320 oz of gold.  
The recovery rate amounted to 91.8%.

Open-pit and underground ore production totalled 1,159,495 tonnes, while underground 
development increased from 7,996 metres in 2013 to 9,166 metres.

The average ore grade of 3.19 g/t was 13.8% below the level achieved in 2013. The decrease reflected a 
combination of mining complications and adverse geological conditions at the open pit of the Flank ore 
body, factors which led to a switch of mining operations to lower grade areas.
H1 2014
MNV
1,194,036
Waste stripping
5,151
Underground development
300,569
Open-pit ore mined
3.71
Open-pit ore grade
292,877
Underground ore mined
3.11
Underground ore grade
593,446
Total ore mined
3.42
Average grade
629,854
Ore processed
3.31
Average grade in processed ore
92.5
Recovery rate
61,761
Gold produced

H2 2013
2,429,865
4,163
459,349
3.7
352,462
3.6
811,811
3.7
657,527
3.9
92.1
76,263

2013
4,344,075
7,996
700,641
3.8
720,980
3.6
1,421,621
3.7
1,328,181
3.7
91.99
145,259

H2 2014
1,310,227
4,015
249,270
3.2
316,779
2.7
566,049
2.94
736,604
2.81
91.1
60,559

H1 2013
1,914,210
3,833
241,292
3.8
368,518
3.5
609,810
3.6
670,654
3.5
91.9
68,996

UNIT
m 3
m
t
g/t
t
g/t
t
g/t
t
g/t
%
oz

9

2014
2,504,263
9,166
549,839
3.5
609,656
2.91
1,159,495
3.19
1,366,458
3.04
91.8
122,320

PRODUCTION COSTS
Total cash costs amounted to US$722 per ounce (2013: US$647 per ounce) and all-in sustaining costs 
were US$835 per ounce (2013: US$783 per ounce).

CAPITAL COSTS
A total of US$12.2 million was invested at MNV in 2014. This included: capitalised expenditures 
and construction (US$5.8 million), purchase of equipment (US$5.0 million) and exploration 
(US$1.4 million).

ANNUAL REPORT & ACCOUNTS 2014

OPERATIONS REVIEW

OUTLOOK
An independent JORC compliant audit of MNV’s resources as of 1 January 2013 (completed in 
H1 2014 and reflected in the updated resource/reserve statement released with the 2013 Annual 
Report & Accounts) indicated a near 80% increase in resources, effectively supporting the life of the 
mine to 2017. Near mine exploration, following 2014’s new licence acquisitions, will remain a priority 
throughout 2015 in parallel with the implementation of further operational efficiencies designed to 
maintain stable production volumes.

NOVOSHIROKINSKOYE (NOVO) – Zabaikalsky region, Russia
Ore mining and processing at Novo continued to meet or exceed expectations in 2014 with mine 
output achieving a 15.8% increase versus 2013 to a record 583,472 tonnes of ore. A notable second half 
performance attained 110% of target. The average ore grade was 6.2 g/t (2013: 6.0 g/t), the recovery rate 
was 84.9% (2013: 83.8%) and the aforementioned volumes resulted in a rise of more than 20% in the 
production of gold and gold equivalents to 97,775 oz compared with 81,361 oz in 2013.

Underground development increased by almost 22% to 10,317 metres (2013: 8,478 metres).

The installation of additional flotation facilities enabled existing crushing and grinding capacity to be 
fully utilised, a development that resulted in mill throughputs and recoveries increasing by 16% and 
1.3% respectively in H2 2014 compared with H2 2013.

NOVO**

UNIT

H1 2013

H2 2013

H1 2014

H2 2014

10

Underground development

Ore mined

Average grade*

Ore processed

Average grade*

Recovery rate*

Gold produced (100%)*

m

t

g/t

t

g/t

%

oz

2013

8,478

2014

10,317

4,485

3,993

5,162

5,155

245,775

258,151

280,987

302,485

503,926

583,472

5.5

6.4

5.6

6.6

6.0

6.2

244, 907

260,178

281,137

301,685

505,085

582,822

5.5

84.3

6.4

83.8

5.6

84.3

6.6

85.3

6.0

83.8

6.2

84.9

36,634

44,727

42,949

54,826

81,361

97,775

*Approximate Au equivalent (metal content in the mined ore = Au 3.53 g/t, Ag 75.81 g/t, Pb 2.54%, Zn 1.12%).

**Figures represent 100% of Novo output. Highland Gold’s share is 97.7%.

PRODUCTION COSTS
Total cash costs amounted to US$429 per ounce (2013: US$542 per ounce) and all-in sustaining 
costs were US$517 per ounce (2013: US$667 per ounce).

CAPITAL COSTS
A total of US$8.0 million was invested at Novo in 2014. This included: capitalised expenditures and 
construction (US$3.4 million) and purchase of equipment (US$4.6 million).

OUTLOOK
In line with the mine’s long-term development plan, the Company has commenced an underground 
expansion project designed to facilitate access to new, lower horizons. The Central Commission 
of Reserves has approved an intermediate mining stage related to annual ore output of some 
600,000 tonnes.

HIGHLAND GOLD MINING LIMITED

OPERATIONS REVIEW

BELAYA GORA – Khabarovsk region, Russia
The Company continued the process of ramping up production at Belaya Gora with activity in 
H2 2014 focused on improving throughputs and recoveries, including the commissioning of a second 
gravity stage.

As a result of these measures, average monthly processing throughput expanded to 127,000 tonnes in 
H2 2014, versus 77,000 tonnes in H1 2014, a level which is fully compatible with the plant’s designed 
annual capacity of 1,500,000 tonnes. Mining operations were hindered by extreme weather conditions 
towards the end of the year which led to downtime. Despite this, total gold production increased from 
7,077 oz in 2013 to 38,842 oz in FY 2014. The average grade of ore mined in 2H 2014 was 1.52 g/t, 
representing a 15.1% improvement over H1 2014 and an 11% improvement over the corresponding 
period of 2013.

A state-of-the-art on-site assay laboratory was commissioned at Belaya Gora during the second half of 2014, 
while work was also carried out on the CIL and elution circuits, which were completed in early 2015.

BELAYA GORA

Waste stripping

Ore mined

Average grade mined

Ore processed

Average grade processed

Recovery rate

Gold produced

*ore processed at MNV

UNIT

H1 2013

H2 2013*

H1 2014

H2 2014

2013

2014

m 3

t

g/t

t

g/t

%

oz

963,278

672,562

767,690 1,137,601 1,635,840 1,905,291

815,585 1,011,095

465,610

611,457 1,826,680 1,077,067

1.4

1.4

1.32

1.52

1.4

1.43

–

–

–

–

291,962

462,333

764,972

*291,962 1,227,305

1.2

64.0

1.81

62.79

1.45

61.62

7,077

15,411

23,431

1.2

64.21

7,077

1.58

61.7

38,842

11

PRODUCTION COSTS
Total cash costs amounted to US$926 per ounce (2013: US$1,426 per ounce) and all-in sustaining costs 
were US$1,038 per ounce (2013: not applicable).

CAPITAL COSTS
During 2014 a total of US$21.1 million was invested at Belaya Gora. This included: capitalised 
expenditures and construction (US$14.5 million) and purchase of equipment (US$6.6 million).

OUTLOOK
Following upon the improved second half performance, a doubling of 2014’s gold production of 
38,842 oz is targeted for 2015. The Company has reviewed options with regard to advanced exploration 
at Belaya Gora. This process will continue in 2015 with the implementation of reverse circulation (RC) 
grade control drilling.

DEVELOPMENT PROJECTS 
KEKURA – Chukotka region, Russia
A major facet of the work undertaken at Kekura in H2 2014 was the development of a scoping 
study, drafted by consultants Hatch. This involved estimates for the prospective development of 
open-pit and underground excavation operations and the evaluation of options for the positioning 
of facilities. Topographical and geotechnical surveys were carried out prior to the drafting of an 
environmental impact assessment.

The Hatch study, delivered in December 2014, was subsequently updated internally and finalised in  
early 2015.

ANNUAL REPORT & ACCOUNTS 2014

OPERATIONS REVIEW

Based on key figures from the scoping study, a technical design assignment was generated, 
a general design contractor appointed, and tenders carried out to select subcontractors 
for various infrastructure facilities. In November 2014, the general design contractor began work on a 
design study.

CAPITAL COSTS
A total of US$12.2 million was invested at Kekura in 2014.

KLEN – Chukotka region, Russia
In H2 2014, the Company received a positive conclusion from the Main State Review Board regarding 
design documentation for the Klen deposit development project.

CAPITAL COSTS
In 2014, a total of US$6.7 million was invested at Klen.

TASEEVSKOYE AND SREDNIY GOLGOTAY – Zabaikalsky region, Russia
The Company is conducting pilot tests on processing ore from the Sredniy Golgotay deposit at 
the Novoshirokinskoye mill. Ore samples are being transported from the site and testing will be 
monitored by Irgiredmet, which will also be responsible for drafting the flow sheet. This work will be 
completed in H1 2015.

12

CAPITAL COSTS
During 2014 a total of US$1.8 million was invested at Taseevskoye.

EXPLORATION
The Company completed a total of more than 28,500 metres of drilling in 2014, primarily at MNV, 
Kekura, Verkhne-Krichalskaya and Unkurtash. The Company’s overall expenditure on exploration 
projects totalled US$18.0 million for the year, compared with US$16.0 million in 2013.

MNOGOVERSHINNOYE – Khabarovsk region, Russia
Near-mine exploration at MNV continued throughout 2014 as an operational priority, targeting 
additional resources in order to extend the life of the mine. In Q4, the Company acquired a licence in 
respect of exploration and mining rights for the Lower Horizon of the Mnogovershinnoye deposit, 
thereby extending the Company’s current licence for MNV to depths beyond the lower levels of 
existing state-approved reserves. The Lower Horizon of MNV represents untapped mineral potential 
within the mine’s immediate vicinity which may deliver new resources at MNV in the medium-term, 
utilising existing and extended underground infrastructure. The MNV North Western Flank licence, 
acquired in Q3, includes a large section of the Medvezhya zone which, with reported prognostic 
resources (P1 + P2) of circa 35 tonnes of gold, may also have the potential to deliver new resources.

Diamond core drilling activity for underground resource conversion in H2 2014 totalled 5,533 metres, 
following on 5,500 metres in H1.

At the MNV Western Flank licence, immediately adjacent to mining operations, the Company 
completed a detailed geochemical survey across the entire licence revealing an area with significantly 
elevated gold grades. This area, potentially marking a near surface resource, has been earmarked for 
follow-up exploration including trenching and drilling.

HIGHLAND GOLD MINING LIMITED

OPERATIONS REVIEW

BLAGODATNOYE – Khabarovsk region, Russia
The Blagodatnoye site, located 30 kilometres to the southwest of Belaya Gora, is targeting a near-
surface bulk mineable gold resource for a potential open-pit mining operation. In H1 2014, regulatory 
authorities approved the Company’s report on exploration results to date, including a calculation of 
prognostic resources and C2 category reserves with C2 of 18.6 tonnes at ca. 2.0 g/t. In H2 2014, the 
Company compiled and received regulatory approval for a new exploration project outlining follow-up 
work and technical requirements for future C1+C2 reserve registration with regulatory authorities.

KEKURA – Chukotka region, Russia
Exploration work in 2014 was focused on fulfilling all technical requirements for an updated  
pre-feasibility study, including a C1+C2 category reserve calculation, which the Company submitted  
to regulatory authorities (GKZ) for review in Q1 2015. By year-end 2014, all required technical studies  
were completed including more than 5,000 metres of infill drilling, metallurgical test work on  
multi-tonne composite ore samples and development of an optimal processing flow sheet. A response 
from GKZ is expected in April 2015.

The Company also concluded an exploratory prospecting programme across the greater licence area 
which included geochemical surveys, mapping, and grab sampling at selected targets. Preliminary 
results indicate areas with significant gold mineralisation in the immediate vicinity of the Kekura 
deposit, highlighting near-mine upside potential and warranting follow-up exploration.

VERKHNE-KRICHALSKAYA – Chukotka region, Russia
The Verkhne-Krichalskaya (VK) exploration and mining licence incorporates the Klen licence and could 
hold upside potential for the Klen project. In 2014, the Company completed more than 11,000 metres 
of exploration drilling at several targets including deeper levels of the Klen deposit and several gold 
prospects at VK identified during previous exploration programmes. Drilling results indicate limited 
potential at greater depths of the Klen deposit, while a preliminary resource calculation in relation to 
gold-mineralised vein structures at the VK prospects suggests additional resource potential for Klen.

UNKURTASH – Kyrgyzstan
The Unkurtash project holds a total JORC-compliant resource of 3.7 Moz of gold within three distinct 
prospects, Unkurtash, Sarytube and Karatube, located within the Company’s single Kassan licence 
(36 km²). In consideration of registering C1+C2 category reserves for the entire Unkurtash project,  
the Company compiled a pre-feasibility study and reserve calculation which will be submitted to GKZ  
in the medium-term.

In H2 2014, the Company completed a geochemical survey and 1,441 metres of exploratory drilling to 
test the resource potential of the Baikonur prospect, a possible extension of the Unkurtash prospect. 
Drilling returned intersects, several metres in length, with grading up to 3.1 g/t, while results from the 
survey indicate a geochemical gold anomaly which warrants further testing.

Qualified Persons Statement: Mr. Werner Klemens, Head of Exploration at Highland Gold, has reviewed 
and verified the information contained in this report with respect to reserve and resource matters.  
Mr. Klemens holds a Ph. D. in Geology from the University of Toronto. He has more than 17 years’ 
experience in mineral exploration and is a fellow of the Geological Association of Canada. A rigorous 
quality assurance programme complying with international standards is in effect at all exploration projects 
and includes duplicate sampling, insertion of standards, and check assaying at external laboratories.

ANNUAL REPORT & ACCOUNTS 2014

13

OPERATIONS REVIEW

HEALTH, SAFETY & ENVIRONMENT
The Company’s focus on occupational safety and site risk management, supported by educational 
courses designed to encourage a sense of personal responsibility among employees with regard to 
workplace safety, continued throughout 2014.

One of the most important developments was the creation of auxiliary mine rescue teams, each of 
which was certified by a special committee at the Novo and MNV/Belaya Gora mining areas. 
This proactive measure has, in turn, served to raise risk awareness.

The Lost Time Incident (“LTI”) rate (defined as the number of lost time incidents for every 
200,000 man hours worked) showed a reduction from 0.28 in 2013 to a new low of 0.27, one of the 
features being a year-on-year decrease in Novo’s LTIs from four to one.

Despite this decline, nine accidents were recorded Group-wide, one of which involved an employee of 
a contractor while another, regrettably, resulted in a fatality. The latter incident was fully investigated 
and reported to the Board, and the Company continues to improve and expand its safety training 
efforts to prevent future accidents.

14

Some 1,105 employees received a safety induction course (1 day), 424 employees received work safety 
training in respect of hazardous production risks (3–5 day courses) and 499 employees were trained 
and tested with regard to industrial safety (7–30 day programmes).

In September 2014, the Company’s management division and the MNV unit underwent 
successful audits, carried out by international consultants DNV, to check compliance of the 
current environmental management systems with the ISO 14001 standard. Novo and Belaya Gora 
successfully completed similar audits in December 2014.

A total of 52 employees received specialised training in internal environmental audit, while 
environmental safety training was provided for 120 employees at MNV, Belaya Gora and Novo.

CONCLUSION
Our principal objectives in 2015, taking into account the current weakness of the marketplace, are to 
expand production in line with our forecast, significantly progress our Kekura development towards 
the targeted start-up date of 2018 and continue to prioritise our near-mine exploratory activities 
at MNV. The retention of our ‘low cost’ advantage is of paramount importance and a disciplined 
approach will continue to be brought to bear with regard to capital allocation.

HIGHLAND GOLD MINING LIMITED

OPERATIONS REVIEW

New near-mine licences 
acquired at MNV

All-In Sustaining Costs 

US$809 per oz

15

ANNUAL REPORT & ACCOUNTS 2014FINANCIAL REVIEW

FINANCIAL REVIEW

The Group demonstrated solid financial performance in 
2014 despite continued weakness in prices for precious 
metals, exemplified by a 12% decrease in the price of gold.
An 11% increase in gold produced, the devaluation of the 
Russian Rouble versus the US Dollar, and ongoing efforts at 
cost control allowed us to deliver strong operational results.

The Group’s key financial parameters, including total 
cash costs*, all-in sustaining costs** and EBITDA, 
for 2014 were competitive on a worldwide basis and 
demonstrate management’s ability to accept challenges 
and mitigate external risks. They also indicate the Group’s 
competitiveness in a volatile market.

Overall Group revenue was US$304.23 million in 2014 
compared to US$304.21 million in 2013, basically remaining 
level despite a 12% decrease in gold prices. Stable revenue 
was not a result of hedging activity in 2014, but of higher 
sales volumes of gold and gold equivalents. The Group 
sold 259,027 ounces of gold and gold equivalents in 
2014 compared to 237,271 ounces in 2013. MNV’s share 
of sales at 127,734 oz showed a 13.6% decrease versus 
2013, while Novo’s share at 92,885 eq. oz registered a 
significant 13.1% advance. Belaya Gora sold 38,408 ounces in 
2014 however revenue from the sale of 1,916 oz from Belaya 
Gora in Q1 2014 was netted off with costs of sales and 
capitalised into the cost of the plant as part of start-up work.

16

The average price of gold realised by MNV and Belaya Gora 
(net of commission) decreased by 10.1% to US$1,263 per 
ounce in 2014 compared to US$1,405 per ounce in 2013. 
The average price of gold equivalents realised by Novo in 
2014 was US$1,018 per eq. oz, 5.4% below the level achieved in 
2013. The average price at Novo is based on the spot price 
for metals contained in the concentrates (gold, lead, zinc and 
silver) and net of the fixed processing and refining costs at the 
Kazzinc plant. The Group’s average realised price of gold and 
gold equivalents was US$1,175 per oz in 2014 compared to 
US$1,291 per oz in 2013, a decline of 9.0%.

The completion of start-up work at Belaya Gora led to 
the first-time recognition of its costs within the Group’s 
cost of sales starting the second quarter of 2014. Despite 
commencing a new plant, the increase in the Group’s 
cost of sales was limited to 12.2%, or US$24.9 million, at 
US$228.5 million in 2014 (2013: US$203.6 million).

Total cash costs (TCC) amounted to US$645 per oz in 
2014, compared to US$611 per oz in 2013. In spite of a 

significant decrease in average grade (minus 17.8% in 
comparison with 2013) and mining at remote ore zones, 
the increase in TCC at MNV was limited to 11.6%, reaching 
US$722 per oz (2013: US$647 per oz). At Novo, the rise in 
production volumes by 15.4%, overall improvement in 
equipment efficiency, a reduction in the consumption 
of inputs, and a decrease in tariffs for transportation 
allowed us to reduce TCC by 20.9% to US$429 per eq. 
oz versus US$542 per eq. oz in 2013. In its first year of 
operation, BG had TCC at the level of US$926 per oz.

All-in sustaining costs (AISC) per ounce sold decreased 
from US$842 per ounce in 2013 to US$809 per ounce in 
2014 and were among the lowest in the gold mining 
sector in the world.

The Group’s EBITDA (defined as operating profit 
excluding depreciation and amortisation, impairment 
loss, movement in ore stockpile obsolescence provision, 
movement in raw materials and consumables obsolescence 
provision, result of disposal of a non-core entity and gain 
on settlement of contingent consideration) decreased 
by 6.9% to US$123.6 million in 2014 compared with 
US$132.8 million in 2013, chiefly due to lower gold prices. 
The EBITDA margin (defined as EBITDA divided by total 
revenue) decreased from 43.6% to 40.6%, within range of 
the most efficient gold miners. EBITDA margin was 41.9% 
at MNV and 53.4% at Novo. The EBITDA margin at BG was 
21.3% due to its early stage of production.

In July 2014, management finalised the Kekura acquisition 
and settled the Group’s outstanding contingent 
consideration for US$5.6 million less than the previously-
provided amount. This figure was recognised as a gain on 
settlement of contingent consideration in the consolidated 
statement of comprehensive income.

Management has analysed any potential impairments as of 
31 December 2014, and determined that the postponement 
of development activity at Klen indicated an impairment of 
goodwill and the assets. Goodwill at Klen was impaired in 
full by US$10.2 million and other assets were impaired by 
US$1.2 million.

In 2014, the Group recorded a net finance loss of 
US$0.8 million compared with net finance income 
of US$7.8 million in 2013. This was primarily due to 
recognition of unwinding costs totaling US$2.4 million 
(2013: US$1.4 million) and interest expense on bank loans in 

HIGHLAND GOLD MINING LIMITED

FINANCIAL REVIEW

the amount of US$1.9 million in 2014. In 2013, interest 
expense was capitalised into the cost of development 
assets at BG and Kekura in full. In addition, there was a 
positive reassessment of fair value on coupon bonds of 
US$3.3 million in 2014 versus US$9.2 million in 2013.

A foreign exchange loss of US$9.6 million (2013: loss of 
US$2.8 million) resulted from the settlement of foreign 
currency transactions and the translation of monetary 
assets and liabilities denominated in currencies such as 
Russian Roubles and Pounds Sterling into US Dollars. 
The foreign exchange loss primarily reflected a 71.9% 
devaluation of the Russian Rouble during 2014 and a  
5.8% devaluation of Pounds Sterling against US Dollars.

The income tax charge amounted to US$70.3 million in 
2014 compared to US$27.4 million in 2013. The tax charge 
included US$20.7 million for current tax expenses (MNV: 
US$20.6 million, other: US$0.1 million), US$0.2 million of 
prior year tax adjustment and US$49.4 million in respect 
of deferred tax. The deferred tax charge is a non-cash 
item which resulted from the translation of the tax base 
denominated in foreign currency into US Dollars. The 
effective tax rate increased from 33.3% in 2013 to 154.6% 
in 2014, mainly due to foreign exchange movements and 
differences in the Russian tax and IFRS depreciation charges.

In 2014, the Group recorded a net loss after tax 
of US$24.8 million (2013: net profit after tax of 
US$54.7 million) and a loss per share of US$0.077 (2013: 
earnings per share of US$0.167), mainly caused by non-cash 
deferred tax expense, foreign exchange and impairment 
losses. Adjusted net profit (free of impairment losses 
and abnormal foreign exchange, and applying a 33.3% of 
effective income tax rate) amounted to US$51.3 million 
(2013: US$54.7 million).

The Group’s cash inflow from operating activities in 
2014 rose by US$9.7 million to US$104.4 million, compared 
with to US$94.7 million in 2013.

During the year to 31 December 2014, the Group invested 
US$65.5 million in capital expenditures, versus 
US$143.7 million in 2013. Capital expenditures in 

2014 included US$12.2 million at MNV, US$8.0 million at 
Novo, US$21.1 million at Belaya Gora, US$6.7 million at Klen 
and the adjacent Verchne-Krichalskaya area, US$12.2 million 
at Kekura, and US$5.3 million related to other entities within 
the Group. The required capital expenditures were funded by 
operating cash flow and debt.

The Group’s net debt position as of 31 December 
2014 amounted to US$247.2 million compared to a net debt 
position on 31 December 2013 of US$251.2 million. Net 
debt is defined as cash at bank, deposits and bonds, decreased 
by any bank borrowings. The present ratio of net debt to 
EBITDA is 2.0, which is in line with the Board’s policy.

EVENTS AFTER THE REPORTING PERIOD
In April 2015, the Group signed a financing agreement  
with Alfa-Bank for a US$60.0 million facility, with the draw 
period set until 31 December 2016. This facility  
will be used to finance the Group’s development and 
operating activities.

Also in April, the Group signed a financing agreement with 
Gazprombank for a US$80.0 million facility with a draw 
period set until 31 December 2018. This facility will be used to 
refinance the existing debt of the Group.

DIVIDENDS
The final dividend for the year ending 31 December 2013 in 
the amount of US$13.7 million was paid on 30 May 2014.

17

The Group paid an interim dividend of GBP 0.025 per 
share (2013: an interim dividend of GBP 0.025 per share) 
which resulted in an aggregate interim dividend payment 
of US$13.1 million (2013: US$13.0 million). The interim 
dividend was paid on 24 October 2014.

The Board has recommended a final dividend of GBP 0.020 
per share which, taking into account the interim dividend 
paid in October 2014, makes for a total dividend of GBP 0.045 
per share for the year (2013: GBP 0.050 per share). The final 
dividend will be paid on 29 May 2015 to shareholders on the 
register as of the close of business on 1 May 2015 (the record 
date). The ex-dividend date will be 30 April 2015.

*  

 Total cash costs include mine site operating costs such as mining, processing, administration, royalties and production taxes, but are exclusive of 
depreciation, depletion and amortisation, capital and exploration costs. Total cash costs are then divided by ounces sold to arrive at the total cash 
costs of sales. This data provides additional information and is a non-GAAP measure.

**   In line with guidance issued by the World Gold Council, the formula used to define all-in sustaining cash costs measure commences with total cash 
costs per ounce sold and then adds sustaining capital expenditures, corporate general and administrative costs, mine site exploration and evaluation 
costs and environmental rehabilitation costs. This data seeks to represent the total costs of producing gold from current operations, and therefore it 
does not include capital expenditures attributable to projects or mine expansions, exploration and evaluation costs attributable to growth projects, 
income tax payments, interest costs or dividend payments.

  Rounding of figures may result in computational discrepancies

ANNUAL REPORT & ACCOUNTS 2014

PRINCIPAL RISKS AND UNCERTAINTIES

PRINCIPAL RISKS AND UNCERTAINTIES

The Group acknowledges there are many risks inherent to a mining business that will always exist, 
and the challenge is to manage them effectively. The Group recognises that dealing with risks is 
an integral part of managing its operations and is fundamental to the Group’s business success.

The Group’s risk management system is designed to be a consistent and clear framework for 
managing and reporting the most significant operational risks to the Board of Directors.  
The Board is responsible for maintaining the Group’s risk management system, defining risk appetite, 
and monitoring the most significant risks.

The Audit Committee supports the Board of Directors in monitoring the Group’s risk exposures 
and is responsible for reviewing the effectiveness of the risk management system. The risk register is 
presented to the Audit committee following periodic updates by the executive management. The risk 
register and framework use the Group’s risk matrix and universal risk prioritisation and rating scale, 
which grade and prioritise perceived and known risks based on the probability of the adverse event 
occurring and scale of consequences from a risk occurrence. The risk register defines a responsible 
body or individuals who are charged with monitoring, managing and mitigating these risks.

Executive management performs the risk identification, assessment and mitigation 
throughout various areas of the Group’s business, ranging from detailed assessment of environmental 
risk at the operational level of each mine, to the monitoring of delivery risks with respect to each 
major capital project and the assessment and mitigation of risks at executive management and Board 
levels through the internal control system and specific risk management actions.

18

The Group’s principal risks are set out below and, for the most part, are typical of the risks associated 
with other companies in the gold mining industry. We consider that, in general, the Group was 
affected by the same risks as in prior periods, although the precise implications of certain risks may 
have changed together with our remedial actions.

The Group takes into account known risks but there may be additional risks unknown to the Group 
and other risks, currently believed to be immaterial, which could develop into material risks. 
Therefore, the Group’s risks listed below do not represent a complete register of the risks  
and uncertainties.

HIGHLAND GOLD MINING LIMITED

PRINCIPAL RISKS AND UNCERTAINTIES

MARKET AND FINANCIAL RISKS

RISK NAME RISK DESCRIPTION

MITIGATION

Commodity 
prices

The Group’s product prices are subject to international supply 
and demand and can be volatile.

A significant and/or prolonged fall in the commodity prices 
of the metals produced by the Group (primarily Au and to a 
lesser extent Pb, Zn and Ag) could have an adverse impact on 
sales and profits. The Group did not use hedging in 2014 and 
prior periods and price fluctuations had an effect on the 
Group’s profits.

Furthermore, the financial viability of the Group’s exploration, 
development projects and production operations is sensitive to 
price levels and may become questionable in an environment 
of decreasing prices. Management may have to reassess the 
economic model and recognise impairment losses. 

The Group constantly monitors price trends and 
forecast reports, implements measures to reduce 
costs to appropriate levels, checks the viability of 
the exploration and development projects and, if 
necessary, revises specific investment plans and 
schedules. The Group regularly reviews possibilities 
for hedging against commodity price changes.

Financial risks 

Adverse economic conditions or uncertainties that affect global and Russian finance markets can give rise to risks 
which may negatively impact the Group’s operations and results.

Please refer to Note 31 to the Consolidated Financial Statements for further details explaining the implications and 
management of financial risks.

CURRENCY RISK
Adverse fluctuations in Russian Rouble/USD and GBP/USD 
exchange rates. The Group collects most revenues in US 
Dollars and also obtains financing in US Dollars. The majority 
of costs are also linked to US Dollars although a significant 
portion is incurred in Russian Roubles.

In 2014, the Group benefited from the devaluation of the 
Russian Rouble. The negative side of Rouble depreciation is 
that the Group’s assets denominated in Roubles lost value and 
these losses were recognised, and the rate of Rouble inflation is 
expected to be higher in future periods. 

CREDIT RISK
Risk of loss related to a counterparty’s failure to perform its 
obligations under contracts or transactions in a certain 
timeframe, and as a result certain financial assets (including 
assets with high liquidity) may be impaired.

INTEREST RATE RISK
An increase in interest rates may adversely affect the 
Group’s financial results and its ability to demonstrate the 
economic viability of certain assets. 

LIQUIDITY RISK
Failure to accurately forecast, manage or maintain sufficient 
liquidity and credit could impact our ability to operate and 
result in financial loss.

An event such as a significant operational incident or 
geopolitical events may potentially increase financing costs 
and limit access to financing that could put pressure on the 
Group’s liquidity.

The Group uses natural hedging and matches 
revenue and debt denominated in US Dollars, and 
reviews other possible ways to hedge exchange rate 
fluctuations if appropriate. The Group did not use 
currency hedges in 2014 nor in prior periods.

19

The Group places cash in reputable and highly rated 
financial institutions and constantly monitors the 
financial/economic situation.

The Group sells commodities to creditworthy and 
reliable customers.

The majority of the Group’s loans and borrowings 
have fixed rates at the date of debt drawdown.

The Group uses a short-term, medium-term cash 
planning system and long-term cash flow forecasts 
are prepared in line with strategic planning.

The Group has a centralised treasury function which 
ensures that there is enough liquidity for day-to-day 
operations at each location and reviews the need to 
attract additional external financing. Possibilities 
to secure loans at appropriate rates are constantly 
monitored by the Group.

ANNUAL REPORT & ACCOUNTS 2014

PRINCIPAL RISKS AND UNCERTAINTIES

OPERATING RISKS

RISK NAME RISK DESCRIPTION

MITIGATION

The Group is 
subject to 
extensive 
environmental, 
health and 
safety laws and 
regulations

Group companies are controlled and guided by various 
safety and health regulations and regulatory agencies. For its 
operations, the Group is required to keep various licences such 
as licences to use industrial explosives and for the operation 
of flammable, explosive and chemically aggressive production 
facilities of hazard class I, II and III. Stricter regulations could 
cause the Group to incur additional costs in order to comply 
with the new regulations.

Risks associated 
with exploration 
activities

20

State environmental agencies supervise and regulate the 
Group’s operations in accordance with applicable laws and 
regulations regarding the use of such contaminants as 
cyanide-containing reagents. The Group monitors compliance 
with environmental requirements and incurs costs to achieve 
compliance, but if environmental regulations change, Group 
companies may face heavy fines and waste removal claims, 
which may become a significant burden on the Group and 
result in demands to cease operational activity. The absence of 
a final product would lead to a decrease in profitability.

The Group’s estimates of ore reserves and mineral 
resources are subject to a number of assumptions and 
variables, including geological, metallurgical and technical 
factors, future commodity prices and production costs. 
Fluctuations in any of these variables could result in lower 
than expected revenues, higher costs, and lower operating 
profits and could lead to reduction in reserves and resources 
estimation.

The Group makes significant investments in exploration 
performed at greenfield sites to develop the business and at 
brownfield sites to extend the life of mines. However, the 
exploration activities may not be successful due to many 
factors including either geological or economic and may not 
result in an increase in Group resources.

Also there is a risk that any invalidation of geological models 
of the developed deposits may have a negative effect on the 
ability to meet production plans and lead to a general increase  
in production costs and a decrease in performance of 
particular assets.

The Group has a separate HSE Committee where all 
key HSE risks are considered and monitored

The Group’s policies with regard to the environment 
and health and safety are based on the applicable 
legislation. Changes in legislation are monitored.

The Group purchases the necessary equipment to 
prevent fires, flooding or other accidents and for 
the prevention of pollution. The Group organises 
training and assessment programmes for all staff 
and regularly checks their compliance with HSE 
rules and regulations. An external provider of rescue 
services is contracted in accordance with legislation.

The Group implements best practices and in 
2014 completed the certification of all major 
production sites under ISO 14001:2004 and 
regular internal and external environment 
audits are performed and remediation actions 
are implemented.

The Group conducts detailed exploration and 
considers various production methods before 
proceeding with the best commercial and  
economic options.

The Group employs in-house experts who have a 
proven track record of successful exploration work 
and a history of moving exploration projects to 
the next stage (i. e. mine development). External 
consultants (including internationally recognised 
consultants for a JORC-compliant resource audit) are 
contracted when appropriate.

The Board reviews exploration projects on a regular 
basis and approves all exploration activities and costs 
based on indicative economic probabilities.

A review of the Group’s exploration activities is 
presented in the Exploration section on pages 12 
to 13. Information regarding the Group’s mineral 
resources and reserves, reported in accordance with 
JORC, is presented on pages 79 to 80.

In the process of production the Group regularly 
takes a set of measures to update 3D deposit models 
and adjust mining operation plans based on the 
latest available information.

The Group undertakes development exploration 
during the production stage to define the ongoing 
nature of reserves and geological conditions.  
The Group has a system in place to monitor the 
quality of ore and has facilities to blend the ore for 
optimal processing.

HIGHLAND GOLD MINING LIMITED

PRINCIPAL RISKS AND UNCERTAINTIES

The Group’s 
deposits are 
subject to 
exploration and 
mining licences 

Group companies must comply with mineral exploration and 
mining licence requirements. Non-compliance with licence 
requirements or major licence changes may result in a loss 
of licence and mineral rights, or significant costs to ensure 
compliance with new requirements.

Production risks The Group’s mining operations are affected by numerous 

risk factors not wholly within the Group’s control, including 
flooding, pit slope and rim slide, unexpected/unusual 
geological variations or technical issues, extreme weather 
conditions and natural disasters, which could adversely affect 
production volumes and costs, damage electricity supply 
facilities or damage other major equipment or infrastructure.

Group companies, in both open-pit and underground 
operations, may encounter unusual geological formations, 
including overly thin ore bodies, incidental deterioration in 
ore quality (lower grade), and dilution.

Unexpected interruptions in processing and technological 
characteristics of the ore may result in lower recovery rates 
than expected.

As a result of these factors, end-product unit costs may turn 
out to be considerably above budget. This might hinder 
the implementation of production plans, and cause major 
losses in the form of impairment of various assets and 
goodwill.

New construction 
projects

The Group faces challenges in developing major projects, 
particularly in geographically remote locations and in 
technically challenging areas.

The cost of new construction projects is usually  
significant and may differ from initial investment plans. 
The economics of a project are dependent upon the 
macroeconomic situation, product prices, the geological  
and technological conditions of a particular deposit, 
construction costs, logistics, regulatory issues, and the 
availability of skilled operating personnel.

Incorrect decisions to allocate the capital between projects 
and poor project management may result in a decrease  
in the profitability of a particular project and affect the 
Group’s results.

Compliance with licence requirements is monitored 
monthly at management level, and a licence 
compliance report is drafted. The report serves as 
a basis to develop measures to meet the terms and 
conditions of agreements. The Group’s management 
and the Board are regularly informed as to 
compliance with licence agreements.

The Group employs in-house planning experts 
who specialise in mine engineering and design 
and are responsible for developing optimal safe 
and commercially-viable mine plans. In turn, 
the in-house mine plans are reviewed by external 
consultants and state authorities.

The mine plans include consideration of safe open-
pit and underground mining operations, including 
smoke warning systems, personal protection kits: 
gas masks, self-rescue systems, etc., and mine 
dewatering equipment.

The Group implemented a number of processes to 
ensure that production is provided by the necessary 
machinery and equipment, and that there is relevant 
standby equipment available. Regular maintenance is 
performed by qualified Group employees and 
contractors to ensure reliable machinery and 
equipment operations. Stocks of spares parts for 
urgent repairs are maintained.

Details of the operational performance of each of the 
Group’s operations are included in the Operations 
section on pages 9 to 14.

The Group initiates new projects, mine extensions, 
etc., based on detailed investment plans and a 
review of management resources. Major projects are 
subject to external consultants’ reports and JORC 
evaluation.

Control is exercised over investment projects 
at all stages of their implementation and widely 
recognised project management techniques are 
employed. Management and the Board closely 
monitor the status of new projects, costs incurred 
and project issues. Corrective actions are taken  
if required.

21

ANNUAL REPORT & ACCOUNTS 2014

PRINCIPAL RISKS AND UNCERTAINTIES

HUMAN RESOURCES RISKS
RISK NAME RISK DESCRIPTION

Skilled workforce 
shortage

The Group competes with other companies for the retention 
and engagement of mining and production staff, including 
geologists, mining engineers, processing and other specialists, 
and workers.

Skilled workforce shortage is a common issue in the 
mining industry; this is evident in Russia and impacts the 
Group’s activities.

In view of the workforce shortage, the Group’s ability to 
recruit and fill vacancies on a timely basis may have a 
negative impact on its operations and prospects.

MITIGATION

The Group monitors the labour and salary market 
to provide acceptable and competitive packages to 
attract and retain skilled specialists.

One of the responsibilities of the Group’s 
Remuneration Committee is to consider and approve 
remuneration for senior management.

STRATEGIC RISKS
RISK NAME RISK DESCRIPTION

22

An adequate 
resource base 
needs to be 
maintained for 
future operations 
and replacement 
of depleted mines

Due to the fact that the life of a mine is limited, the Group has 
to strategically seek to replenish its resource base through the 
development of own projects or through M&A activity.

Mine development from exploration to production is a 
prolonged process. There can be no guarantee that current or 
prospective exploration will lead to sustainable production in 
the future.

Potential 
government 
actions

Risks related to changes in the political and economic 
situation and legislative regulation in the Russian Federation 
and Kyrgyzstan are significant for the Group as the Group’s 
major operations are located in these jurisdictions.

The Group’s operations in these jurisdictions are regulated  
by numerous laws, standards and guides in various areas.  
The Group’s approach is to strive to comply with all applicable 
laws and regulations.

There is a risk that government and government agencies 
could perform actions, adopt new laws, taxes, regulations, 
rules, or other requirements which could have a 
negative impact on the Group’s business and operations.

Recent developments in Ukraine and Crimea 
resulted in international economic sanctions on certain 
Russian government officials, other individuals and certain 
Russian companies which, accompanied by the decrease in oil 
prices on the international market, may continue to adversely 
affect the Russian economy.

Specifically, there is uncertainty regarding the reliability of 
supply chain, and the availability and cost of capital.

MITIGATION

The Group has development plans for the future and 
new acquisitions are subject to Board approval. The 
Group undertakes exploration projects to sustain 
and increase the resource base. Project feasibility 
studies are carried out regularly.

The Group monitors political developments and new 
legislation, and assesses possible implications for the 
Group.

In addition, the Group has established lines of 
communication with various governmental 
authorities in order to contribute to the thinking of 
such bodies and, when appropriate, to participate in 
relevant discussions with political and regulatory 
authorities.

The Group monitors and assesses the effect of 
sanctions imposed and further developments on an 
on-going basis.

HIGHLAND GOLD MINING LIMITED

 
PRINCIPAL RISKS AND UNCERTAINTIES

Advanced exploration programme with 

5,000 metres of infill drilling completed at Kekura
EBITDA          
US$ 123,617 million

23

ANNUAL REPORT & ACCOUNTS 2014DIRECTORS’ REPORT

DIRECTORS’ REPORT
The Directors of Highland Gold Mining Limited are pleased to submit 
their Directors’ Report together with the audited financial statements 
for the year ended 31 December 2014.

REVIEW OF ACTIVITIES
Highland Gold Mining Limited (“Highland Gold” or the “Company” or the “Group”) 
was incorporated in Jersey on 23 May 2002 for the principal purpose of establishing a portfolio of 
gold mining operations within the Russian Federation. The Group’s activities, structure and operating 
companies are described more fully on pages 82 and 83 of the Annual Report. The Chairman’s 
Statement and the Operations Review highlight the Company’s business developments during 
2014 and future prospects. The Company’s shares are quoted on the AIM market of the London  
Stock Exchange.

RESULTS AND DIVIDENDS
An overview of the Group’s results for the financial year to 31 December 2014 appears in the 
Financial Review on page 16 of the Report. The Group recorded a loss for the year of US$ 24.8 million 
(2013: profit of US$54.7 million).

The Directors recommend the payment of a final dividend on Ordinary shares of £0.020  
(2013: £0.025) per share payable on 29 May 2015. This continues to reflect the Board's confidence  
in Highland Gold’s growth projections.

24

ACCOUNTING POLICIES
Highland Gold’s consolidated financial statements are presented in accordance with International 
Financial Reporting Standards (IFRS) as adopted by the European Union with the US dollar as its 
reporting currency.

DIRECTORS AND THEIR INTERESTS
The interests of the Directors in office, and of persons connected with them, in the Company’s 
£0.001 ordinary shares, not previously reported and any subsequent changes up to the date of this 
report, are shown below:

DIRECTOR
Duncan Baxter

Eugene Shvidler

ORDINARY SHARES
AT 31/12/2014
20,000

ORDINARY SHARES
AT 31/12/2013
20,000

AVAILABLE OPTIONS
AT 31/12/2014
–

36,916,144

36,916,144

–

Primerod International Limited is the holding vehicle through which certain individual persons, 
managers and connected parties of Millhouse LLC, including Valery Oyf, the Chief Executive Officer 
of RDM, hold a combined 32% interest in the Company.

No other Directors have an interest in the share capital of the Company. All available options expired 
on 22 September 2014.

The Company has adopted a share dealing code for Directors and relevant employees, which 
prescribes a strict permissions procedure prior to any trading in the Company’s shares.

HIGHLAND GOLD MINING LIMITED

 
DIRECTORS’ REPORT

CORPORATE GOVERNANCE
The Directors have implemented many of the main principles of good governance under the UK 
Corporate Governance Code issued by the Financial Reporting Council in September 2012 having 
regard to the size and nature of the Company’s activities. The Board is assisted by a number of 
Committees with delegated authority to review key business risks, in addition to the financial risks 
applicable to the Group in operating its business. In 2013, the Board adopted an Anti-Corruption 
policy and an Internal Code of Business Conduct and Ethics details of which can be seen on the 
website at www.highlandgold.com.

THE BOARD
The Board is currently comprised of seven Directors, four of whom are non-executives.  
Three Non-Executive Directors, comprising Duncan Baxter, Colin Belshaw and Terry Robinson, 
bring an element of independence to the Board and provide a balance to those Directors who  
cannot be regarded as independent. Eugene Shvidler, Olga Pokrovskaya and John Mann are affiliated 
with Millhouse LLC which, together with persons connected with it, owns 32% of the issued share 
capital of the Company via Primerod, in addition to Mr Shvidler’s interest of 11.35%.

The Board meets on a regular basis to review the business and performance of the Group, to ensure 
that financing needs are appropriate and to consider development and acquisition opportunities.  
A total of six Board and Board Committee meetings were held during the year.

Where appropriate the Directors have full access to the Company Secretary and independent 
professional advice at the Company’s expense. The Company has in place appropriate Directors and 
Officers Liability insurance.

25

In April 2015, the Board appointed Non-Executive Chairman Eugene Shvidler as Executive Chairman 
of Highland Gold, allowing him to take a more hands-on role in shaping corporate strategy. Other 
changes to the Board in April 2015 included the appointment of John Mann as Executive Director, 
Head of Communications, responsible for IR and PR and the resignations of Alla Baranovskaya Chief 
Financial Officer and Sergey Mineev, Head of Exploration & Capital Projects Development, both of 
whom remain with the Company. Eugene Tenenbaum has also resigned from the Board. The reasons 
for these changes were partly to trim the Board, to comply with new Russian external investment 
requirements, and to increase the influence of independent directors. 

The Board undertook a self assessment review in early 2014 from which no material issues arose. 
The Board will continue to undertake such a review on a biennial basis provided there are no major 
changes to the Board that would render such a review ineffective. We anticipate the next review will 
take place during 2016.

Terry Robinson is the Senior Independent Non-Executive Director who is available to meet with 
major shareholders.

It is a requirement that all Directors retire by rotation at least every three years and new 
appointments be confirmed at the following Annual General Meeting. John Mann will retire and 
offer himself for election, and Duncan Baxter, Olga Pokrovskaya and Valery Oyf who retire by 
rotation will offer themselves for re-election at the Annual General Meeting to be held on 26 May 
2015. The Remuneration and Nomination Committee has agreed and recommended  
these reappointments.

Profiles of the Directors are to be found on page 30 of this Report.

ANNUAL REPORT & ACCOUNTS 2014

DIRECTORS’ REPORT

26

AUDIT COMMITTEE
The Audit Committee in 2014 consisted of four Directors, of which three are non-executive 
and is chaired by Terry Robinson. The Audit Committee met three times during 2014 to 
consider the annual and interim financial statements, and the corporate audit programme. 
Management is invited to attend meetings as appropriate. There are defined Terms of 
Reference for the Audit Committee which are reviewed by the Board on an annual basis and 
are available for inspection at the Annual General Meeting and can been seen on the website 
at www.highlandgold.com. The Committee is responsible for ensuring that the appropriate 
financial reporting procedures are properly maintained and reported upon, reviewing 
accounting policies, meeting the auditors and reviewing their reports relating to the accounts 
and internal control systems. The Audit Committee also considers budgets and has agreed an 
authorisation and expenditure policy. The Audit Committee is responsible for monitoring key 
risks and has implemented, through the internal audit department, a process for reporting 
on and monitoring those risks. The other members of the Committee during 2014 were Olga 
Pokrovskaya Eugene Tenenbaum and Alla Baranovskaya. Audit Committee members meet 
with management and the auditors on a regular basis.

REMUNERATION AND NOMINATION COMMITTEE
During 2014, the Committee consisted of four Directors, of which three are non-executive, 
comprising Duncan Baxter, as Chairman, Eugene Tenenbaum, Valery Oyf and Terry Robinson. 
The Committee is responsible for reviewing the performance of executive management and, 
where appropriate, other senior executives, and for determining their appropriate levels 
of remuneration. Recommendations are made, as and when appropriate, with regard to 
appointments in respect of Directors, the Chairmanship of Committees, senior management 
and directors of Group subsidiary companies. The composition of the Board is monitored 
on an ongoing basis. The Committee makes recommendations to the Board, within defined 
terms of reference, which the Board reviews at least annually. The Committee also examines 
fees in relation to non-executive remuneration and committee Chairmen. The Committee 
held one meeting during the year. Details of the Directors’ remuneration are given on page 29. 
The Committee has considered and recommended to the Board the election and re-election of 
John Mann, Duncan Baxter, Olga Pokrovskaya and Valery Oyf respectively as Directors of the 
Company at the forthcoming AGM.

HEALTH, SAFETY AND ENVIRONMENTAL COMMITTEE
The Board has established a Health, Safety and Environmental Committee which is chaired 
by Olga Pokrovskaya. The other members of the Committee during 2014 were Terry 
Robinson, Colin Belshaw and Sergey Mineev. The Committee considers, in conjunction with 
management, development and training requirements and regulatory compliance matters 
related to health, safety and environmental issues. The Committee makes recommendations to 
the Board, within agreed terms of reference, which the Board reviews at least annually.  
The Committee met twice during the year. Details of the progress and performance of the 
Company in respect of health, safety and the environment are given in the Operations Report 
on pages 8 to 15.

OTHER COMMITTEES
In addition, the Group management company in Russia, OOO Russdragmet (“RDM”), has 
established a risk and control platform through regular meetings. The members of the 
Executive Committee, which meets weekly, include management from RDM’s functional 

HIGHLAND GOLD MINING LIMITED

DIRECTORS’ REPORT

departments and the General Directors of the mine sites. The Committee is chaired 
by Valery Oyf, the Chief Executive Officer of RDM. The key role of the Committee is to 
ensure the implementation of decisions taken by the Board and committees, to manage  
the day-to-day operational activities and to make recommendations to the Board.  
The Committee delegates part of its duties to three internal RDM committees: the Risk 
Committee; the Budget Committee and the Investment Committee.

INTERNAL CONTROLS
The Directors have overall responsibility for the Group’s internal control and effectiveness in 
safeguarding the assets of the Group. Internal controls can provide reasonable, but not absolute, 
assurance against material misstatements or loss. The processes used by the Board to review the 
effectiveness of the internal controls are carried out by the Audit Committee. There is an Internal 
Audit Charter, which can be seen on the website at www.highlandgold.com.

RELATIONS WITH SHAREHOLDERS
The Group’s website provides comprehensive information on the Company’s business, 
results and personnel and is used to update shareholders and the market in respect of key 
developments and announcements (www.highlandgold.com). 

Shareholders are encouraged to use the Annual General Meeting as a forum at which to 
communicate with Directors. Due notice of the Annual General Meeting is provided to all 
shareholders. The Company also utilises investor and public relations functions, webinars 
and road shows through brokers and the Nomad.

Shareholders passed a special resolution at the Annual General Meeting on 27 May 
2014 whereby the Directors were authorised to allot and grant rights to subscribe for, or 
convert securities into, shares in the Company up to a maximum nominal amount equivalent 
to 33% of the nominal amount of the authorised but unissued share capital of the Company, 
to such persons at such times and on such terms as they think proper without first making 
an offer to each person who holds shares in the Company. Such authority will expire at the 
conclusion of the Company’s Annual General Meeting in 2017.

SUBSTANTIAL SHAREHOLDINGS
As at close of business on 30 March 2015, the Company had been notified of the 
following interests, other than Directors’ interests, which amounted to three per cent or 
more of the issued share capital of the Company:

NAME OF HOLDER
Primerod International Limited*

Prosperity Capital management

J. P. Morgan Asset Management

Ivan Koulakov

NUMBER
104,080,000

54,685,994

19,448,593

13,500,000

PERCENTAGE
32.00%

16.81%

5.98%

4.15%

*  Primerod International Limited is the holding vehicle through which certain individual persons, managers and 
connected parties of Millhouse LLC, including Valery Oyf, the Chief Executive Officer of RDM, and with others 
hold a combined 32% interest in the Company.

ANNUAL REPORT & ACCOUNTS 2014

27

 
DIRECTORS’ REPORT

GOING CONCERN
Having made relevant enquiries, the Directors believe that it is appropriate to adopt the 
going concern basis in the preparation of the 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.

AUDITORS
Ernst & Young LLP have expressed their willingness to continue as auditors of the Company 
and a resolution for their reappointment will be proposed at the forthcoming Annual General 
Meeting.

ANNUAL GENERAL MEETING NOTICE
The Annual General Meeting will be held at 1:00 pm on Tuesday 26 May 2015 at 26 New Street, 
St Helier, Jersey JE2 3RA. The notice convening the Annual General Meeting is set out on page 
84 of the Report.

STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RELATION 
TO THE ANNUAL REPORT AND FINANCIAL STATEMENTS 
The Directors are responsible for preparing the Annual Report and the financial statements in 
accordance with applicable laws and regulations.

28

Jersey Company law requires directors to prepare financial statements for each financial 
period in accordance with any generally accepted accounting principles. The financial 
statements of the company are required by law to give a true and fair view of the state of affairs 
of the company at the period end and of the profit or loss of the Company for the period then 
ended. In preparing these financial statements, the directors should:
• 
select suitable accounting policies and apply them consistently;
•  make judgments and estimates that are reasonable;
• 

specify which generally accepted accounting principles have been adopted in their 
preparation; and

•  prepare the financial statements on the going concern basis unless it is inappropriate to 

presume that the company will continue in business.

The directors are responsible for keeping accounting records which are sufficient to show and 
explain its transactions and are such as to disclose with reasonable accuracy at any time the 
financial position of the company and enable them to ensure that the financial statements 
prepared by the company comply with the requirements of the Companies (Jersey) Law 1991. 
They are also responsible for safeguarding the assets of the group and, accordingly, for taking 
reasonable steps to further the prevention and detection of fraud and other irregularities.

REPORT ON DIRECTORS’ REMUNERATION
The remuneration of executive management currently comprises basic salary and 
discretionary bonus. Incentives available in relation to executive management and other key 
personnel include the Unapproved share option scheme, managed by the Remuneration and 
Nominations Committee, and other market related remuneration benefits.

HIGHLAND GOLD MINING LIMITED

DIRECTORS’ REPORT

No grants of options under the Unapproved share option scheme were made during 2014 and 
management and employees were incentivised through a bonus scheme, currently of a 
discretionary nature. All remaining options under the Unapproved share option scheme 
have vested and are exercisable up to the seventh anniversary from the date when the options 
were granted. There were no options outstanding as of 31 December 2014 (2013: 450,000).  
For the remaining options the exercise period lapsed on 22 September 2014.

The Company does not operate a pension scheme for executive management or Directors.  
The executive Directors are entitled to certain benefits and participate in the long term incentive 
programme.

The remuneration paid to the Directors in the financial period to 31 December 2014 was as follows: 

US$
2013

US$
2014

FEES AND REMUNERATION

US$
2013

BONUS

US$
2014

Eugene Shvidler

Duncan Baxter

Eugene Tenenbaum

Olga Pokrovskaya

Terry Robinson

Colin Belshaw

Valery Oyf

Alla Baranovskaya

Sergey Mineev

500,000

160,000

100,000

125,000

160,000

30,832

982,897

603,690

303,313

500,000

160,000

100,000

125,000

160,000

100,000

1,020,165

626,893

288,701

103,242

10,324

114,256

–

29

The Group has entered into letters of appointment with both the Executive and Non-Executive 
Directors of the Company, all the Non-Executive Directors of which are reviewed on an annual 
basis and none of which have an expiry date or notice period of more than one year. The Executive 
Directors are governed by their Russian Contracts of Employment. The Remuneration and 
Nomination Committee and the Board had agreed not to increase remuneration or pay any ex-gratia 
payments for additional work undertaken during the year by the Non-Executive Directors.

By Order of the Board

21 April 2015

ANNUAL REPORT & ACCOUNTS 2014

BOARD OF DIRECTORS

BOARD OF DIRECTORS

EUGENE SHVIDLER
EXECUTIVE CHAIRMAN
Eugene Shvidler is a graduate of the I. M. Gubkin Moscow Institute of Oil and Gas with a masters 
degree in applied mathematics, while also holding an MBA in finance and a MS in international 
tax from Fordham University. He worked as Senior Vice President of Sibneft beginning in 1995 and 
served as President of the company from 1998 through 2005. Mr. Shvidler is currently Chairman of 
Millhouse LLC, and a Non-Executive Director of the Evraz Group since 2006. He joined the Highland 
Gold Board of Directors in January 2008 and was appointed Executive Chairman in April 2015.

DUNCAN BAXTER
INDEPENDENT NON-EXECUTIVE DIRECTOR
Duncan Baxter began his career in banking with Barclays in Zimbabwe before joining RAL in 1978. 
In 1985 he became a Director of Commercial Bank (Jersey) Ltd, which was subsequently acquired by 
Swiss Bank Corporation. Since leaving Swiss Bank in 1998 he has undertaken consultancy projects 
for international banks and investment management companies. He is a Fellow of the Institute 
of Chartered Secretaries, the Securities Institute and the Institute of Bankers. He joined the 
Company in November 2002.

30

COLIN BELSHAW
INDEPENDENT NON–EXECUTIVE DIRECTOR
Colin Belshaw gained a Dip.CSM (1st Class) in 1979 from the Camborne School of Mines, Cornwall, 
UK and is a Fellow of the Institute of Materials, Minerals and Mining (FIMMM), and registered as 
an Incorporated Engineer (I. Eng) with the Engineering Council of the United Kingdom. He has held 
numerous operating and corporate positions, including responsibility for Kinross Gold’s Kubaka and 
Birkachan mining operations in Russia. His most recent executive role was as DRC based COO of 
Banro Corporation of Toronto, from which he resigned in March 2013. 

JOHN MANN
EXECUTIVE DIRECTOR
HEAD OF COMMUNICATIONS 
John Mann studied political science at Harvard University with a focus on Soviet history and politics. 
He is a professional of 20 years in the fields of public relations, public affairs and investor relations, 
18 of which were spent in the CIS region. Mr Mann acted as a consultant to some of the world’s 
largest natural resources, energy, and consumer products corporations before joining Russian listed 
oil major Sibneft in 2002 as Head of International Public Relations. From 2006, he has served as Head 
of Communications for Millhouse LLC, joining Highland in autumn 2014. He joined the Board of 
Directors in April 2015. 

HIGHLAND GOLD MINING LIMITED

BOARD OF DIRECTORS

VALERY OYF
EXECUTIVE DIRECTOR
CEO
Valery Oyf is a graduate of the I. M. Gubkin Moscow Institute of Oil and Gas and worked as  
Vice President of Sibneft from 1997 through to 2004. From 2004 until June 2008 Mr. Oyf served  
as a senator representing the Omsk region, a Siberian constituency, in Russia’s Federation Council. 
Prior to his appointment as Chief Executive Officer of Highland Gold in September 2008, he held the 
post of General Director of Millhouse LLC. 

OLGA POKROVSKAYA
NON-EXECUTIVE DIRECTOR
Olga Pokrovskaya graduated with honours from the State Financial Academy. Ms. Pokrovskaya  
served as Senior Audit Manager at accountancy firm Arthur Andersen from 1991 until 1997.  
She subsequently joined Russian oil major Sibneft, where she held several key finance positions 
including Head of Corporate Finance from 2004. In July 2006, Ms. Pokrovskaya became Head of 
Corporate Finance at Millhouse LLC, where she currently serves in the role of financial advisor.  
She joined the Highland Gold Board of Directors in January 2008.

TERRY ROBINSON
NON-EXECUTIVE DIRECTOR
CHAIRMAN OF THE AUDIT COMMITTEE
Terry Robinson is a qualified chartered accountant and has 40 years’ international business 
experience. He spent 20 years at Lonrho PLC, the international mining and trading group, the last  
10 years of which he served as a main board director. Since 1998 he has been variously occupied  
with international business recovery engagements and investment projects including natural 
resources in the UK, Russia, the CIS and Brazil. Mr. Robinson is a Non-Executive Director of the 
Evraz Group, a major steel producer. He was elected to the Board of OJSC Raspadskaya, a subsidiary 
of Evraz, in 2013, and currently serves as Chairman. He is an Independent Director and Deputy 
Chairman of Katanga Mining Limited and is also a Fellow of the Institute of Chartered Accountants 
of England and Wales. He joined the Highland Gold Board of Directors in April 2008.

31

ANNUAL REPORT & ACCOUNTS 2014

ACCOUNTS 2014

HIGHLAND GOLD MINING LIMITED
CONSOLIDATED FINANCIAL STATEMENTS
31 DECEMBER 2014

32

HIGHLAND GOLD MINING LIMITEDACCOUNTS 2014

INDEPENDENT AUDITORS' REPORT TO THE 
MEMBERS OF HIGHLAND GOLD MINING LIMITED

We have audited the financial statements of Highland Gold 
Mining Limited for the year ended 31 December 2014 which 
comprise the Consolidated Statement of Comprehensive 
Income, the Consolidated Statement of Financial Position, the 
Consolidated Statement of Changes in Equity, the Consolidated 
Statement of Cash Flows and the related notes 1 to 34. The 
financial reporting framework that has been applied in their 
preparation is applicable law and International Financial 
Reporting Standards as adopted by the European Union. 

This report is made solely to the company’s members, as a body, 
in accordance with Article 113A of the Companies (Jersey) Law 
1991. Our audit work has been undertaken so that we might 
state to the company’s members those matters we are required 
to state to them in an auditor’s report and for no other purpose. 
To the fullest extent permitted by law, we do not accept or 
assume responsibility to anyone other than the company and 
the company’s members as a body, for our audit work, for this 
report, or for the opinions we have formed.

RESPECTIVE RESPONSIBILITIES OF 
DIRECTORS AND AUDITORS

As explained more fully in the Directors’ Responsibilities 
Statement, the directors are responsible for the preparation 
of the financial statements and for being satisfied that they 
give a true and fair view. Our responsibility is to audit 
and express an opinion on the financial statements in 
accordance with applicable law and International Standards 
on Auditing (UK and Ireland). Those standards require 
us to comply with the Auditing Practices Board’s Ethical 
Standards for Auditors.

SCOPE OF THE AUDIT OF THE 
FINANCIAL STATEMENTS
An audit involves obtaining evidence about the amounts 
and disclosures in the financial statements sufficient to 
give reasonable assurance that the financial statements 
are free from material misstatement, whether caused by 
fraud or error. This includes an assessment of: whether 
the accounting policies are appropriate to the group’s 
circumstances and have been consistently applied and 
adequately disclosed; the reasonableness of significant 
accounting estimates made by the directors; and the overall 
presentation of the financial statements. In addition, we 
read all the financial and non-financial information in 

the annual report to identify material inconsistencies 
with the audited financial statements and to identify 
any information that is apparently materially incorrect 
based on, or materially inconsistent with, the knowledge 
acquired by us in the course of performing the audit. If we 
become aware of any apparent material misstatements or 
inconsistencies we consider the implications for our report.

OPINION ON FINANCIAL STATEMENTS
In our opinion the financial statements:
•  give a true and fair view of the state of the group’s  

affairs as at 31 December 2014 and of its loss for the  
year then ended; 

•  have been properly prepared in accordance with 
International Financial Reporting Standards as  
adopted by the European Union; and

•  have been prepared in accordance with the 

requirements of the Companies (Jersey) Law 1991.

MATTERS ON WHICH WE ARE 
REQUIRED TO REPORT BY EXCEPTION

33

We have nothing to report in respect of the following 
matters where the Companies (Jersey) Law 1991 requires  
us to report to you if, in our opinion:
•  proper accounting records have not been kept, or proper 
returns adequate for our audit have not been received 
from branches not visited by us; or
the financial statements are not in agreement with the 
accounting records and returns; or

• 

•  we have not received all the information and 

explanations we require for our audit.

for and on behalf of Ernst & Young LLP

Ken Williamson

London

21 April 2015

NOTES
1.  The maintenance and integrity of the Highland Gold Mining Limited 
website is the responsibility of the directors; the work carried out 
by the auditors does not involve consideration of these matters and, 
accordingly, the auditors accept no responsibility for any changes that 
may have occurred to the financial statements since they were initially 
presented on the website.

2.   Legislation in Jersey governing the preparation and dissemination of 
financial statements may differ from legislation in other jurisdictions.

ANNUAL REPORT & ACCOUNTS 2014

 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 
FOR THE YEAR ENDED 31 DECEMBER

Revenue

Cost of sales

Gross profit

Administrative expenses 

Other operating income 

Other operating expenses 

Impairment losses

Gain on settlement of contingent consideration

Operating profit

Foreign exchange loss

Finance income

Finance costs

Profit before income tax

Current income tax expense

Adjustments in respect of prior year income tax

Deferred income tax expense

Total income tax expense

(Loss)/profit for the year

Total comprehensive (loss)/income for the year 

34

Attributable to:

Equity holders of the parent

Non-controlling interests

 (Loss)/earnings per share (US$ per share)

Basic, for the profit for the year attributable to ordinary equity holders 
of the parent
Diluted, for the profit for the year attributable to ordinary equity 
holders of the parent

NOTES

8

9

10

11.1

11.2

6, 18

5

12

13.1

13.2

14

14

14

14

15

15

2014
US$000 

304,230

 (228,518)

75,712

 (15,464)

8,634

 (7,248)

 (11,401)

5,622

55,855

 (9,599)

3,457

 (4,226)

45,487

 (20,677)

 (249)

 (49,404)

 (70,330)

 (24,843)

 (24,843)

 (24,942)

99

 (0.077)

 (0.077)

2013
US$000 

304,206

(203,609)

100,597

(18,646)

2,757

(7,689)

–

–

77,019

(2,767)

9,429

(1,620)

82,061

(26,755)

(59)

(550)

(27,364)

54,697

54,697

54,463

234

0.167

0.167

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

HIGHLAND GOLD MINING LIMITED

 
 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONSOLIDATED STATEMENT OF FINANCIAL POSITION 
AS AT

NOTES

31 DECEMBER 2014 
US$000 

31 DECEMBER 2013* 
US$000 

ASSETS
Non-current assets 
Exploration and evaluation assets
Mine properties
Property, plant and equipment
Intangible assets
Inventories
Other non-current assets
Deferred income tax asset
Total non-current assets
Current assets
Inventories
Trade and other receivables
Income tax prepaid
Prepayments
Financial assets
Cash and cash equivalents
Other current assets
Total current assets
Total assets

EQUITY AND LIABILITIES 
Equity attributable to equity holders of the parent
Issued capital
Share premium
Assets revaluation reserve
Retained earnings
Total equity attributable to equity holders of the parent
Non-controlling interests
Total equity
Non-current liabilities
Interest-bearing loans and borrowings
Long-term accounts payable
Provisions
Deferred income tax liability
Total non-current liabilities
Current liabilities
Trade and other payables
Interest-bearing loans and borrowings
Provisions
Total current liabilities
Total liabilities
Total equity and liabilities

16
16
16
5,17
21
19
14

21
22

23
32
24

25

25

26
27
28
14

27
26
28

296,739
321,407
359,466
87,119
6,664
3,580
82
1,075,057

77,337
28,889
3,711
2,000
42,957
12,946
899
168,739
1,243,796

585
718,419
832
47,698
767,534
2,570
770,104

145,443
305
15,699
129,035
290,482

25,552
157,658
–
183,210
473,692
1,243,796

270,287
338,007
367,486
97,324
14,623
13,272
826
1,101,825

70,678
53,111
1,811
6,389
50,199
7,938
805
190,931
1,292,756

585
718,419
832
99,444
819,280
2,471
821,751

185,309
441
34,402
80,375
300,527

46,445
124,015
18
170,478
471,005
1,292,756

35

The financial statements were approved by the Board of Directors on 21 April 2015 and signed on its behalf by: 
Valery Oyf and Olga Pokrovskaya.
*  Certain line items have been reclassified in the consolidated statement of financial position as at 31 December 2013. Refer to Note 3 for 

further details.

ANNUAL REPORT & ACCOUNTS 2014

 
 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED STATEMENT OF CASH FLOWS

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 
FOR THE YEAR ENDED 31 DECEMBER

ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT

ISSUED 
CAPITAL
US$000

SHARE 
PREMIUM
US$000

NOTES

ASSET 
REVALUATION 
RESERVE
US$000

RETAINED 
EARNINGS 
US$000

TOTAL
US$000

NON-
CONTROLLING 
NTEREST
US$000

TOTAL 
EQUITY
US$000

At 1 January 2013 

585

718,419

832

73,122 792,958

2,237

795,195

Total comprehensive income 
for the year

Dividends paid to equity 
holders of the parent

At 31 December 2013 

Total comprehensive (loss)/
income for the year

Dividends paid to equity 
holders of the parent

At 31 December 2014

33

33

– 

–

– 

–

– 

–

54,463

54,463

234

54,697

 (28,141)

 (28,141)

–

 (28,141)

585

718,419

832

99,444 819,280

2,471

821,751

– 

–

– 

–

– 

–

 (24,942)

 (24,942)

99

 (24,843)

 (26,804)

 (26,804)

–

 (26,804)

585

718,419

832

47,698 767,534

2,570

770,104

36

HIGHLAND GOLD MINING LIMITED

 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED STATEMENT OF CASH FLOWS

CONSOLIDATED STATEMENT OF CASH FLOWS 
FOR THE YEAR ENDED 31 DECEMBER

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

NOTES

2014 
US$000

2013 
US$000

45,487

82,061

Depreciation of mine properties and property, plant and equipment

Impairment losses

Movement in ore stockpiles obsolescence provision

Movement in raw materials and consumables obsolescence provision

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

Impairment of construction in progress

Loss/(gain) on disposal of property, plant and equipment

Bank interest receivable

Bonds and shares fair value movement

Interest expense on bank loans

Accretion expense on site restoration provision

Gain on change in estimation – site restoration asset

Gain on settlement of contingent consideration

Unwinding of contingent consideration liability

Net foreign exchange loss

Movement in provisions

Loss/(income) from disposal of an entity

Other non-cash (income)/expenses

Working capital adjustments:

Decrease/(increase) in trade and other receivables and prepayments

Decrease/(increase) in inventories

Decrease in trade and other payables

Income tax paid

Net cash flows from operating activities

Investing activities

Proceeds from sale of property, plant and equipment

Proceeds from disposal of an entity

Purchase of property, plant and equipment

Capitalised interest paid

Increase in deferred stripping costs

Acquisition of subsidiaries

Interest received from deposits

Interest received from bonds

Sale of investments – bonds

Sale of investments – shares

Net cash flows used in investing activities

Financing activities

Proceeds from borrowings

Dividends paid to equity holders of the parent

Repayment of borrowings

Interest paid 

Repayment under assignment agreements

Net cash flows (used in)/from financing activities

Net decrease in cash and cash equivalents

Effects of exchange rate changes

Cash and cash equivalents at 1 January 

Cash and cash equivalents at 31 December

37

9

6, 18

11.2.1

11.2

11.2, 16

11.2

11.1, 11.2

13.1

13.1, 32

13.2

13.2

11.1

5

13.2

12

11.2.2

6

6, 16

16

5

32

32

32

26

33

5

24

24

59,392

11,401

664

509

393

500

781

 (160)

 (3,265)

1,871

2,355

 (7,535)

 (5,622)

–

9,599

 (149)

918

 (32)

7,671

950

 (2,241)

 (19,065)

104,422

330

–

 (65,538)

 (10,995)

 (5,554)

–

159

4,058

6,449

–

54,645

–

2,386

1

619

–

 (38)

 (253)

 (9,176)

–

1,386

–

–

180

2,767

326

 (1,301)

127

 (3,117)

 (10,968)

 (754)

 (24,191)

94,700

306

304

 (143,706)

 (9,277)

 (11,826)

 (195,394)

253

4,176

5,252

3,644

 (71,091)

 (346,268)

136,560

 (26,804)

 (140,896)

 (1,502)

–

 (32,642)

689

4,319

7,938

12,946

325,799

 (28,141)

 (24,766)

 (399)

 (17,099)

255,394

3,826

 (3,139)

7,251

7,938

ANNUAL REPORT & ACCOUNTS 2014

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. CORPORATE INFORMATION
The consolidated financial statements of Highland Gold Mining Limited for the year ended 31 December 2014 were 
authorised for issue in accordance with a resolution of the Directors on 21 April 2015.

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
The consolidated financial statements have been prepared on a historical cost basis except for financial instruments 
carried at fair value through profit or loss and assets and liabilities acquired in business combination that have been 
measured at fair value. The consolidated financial statements are presented in US dollars, which is the parent company’s 
functional and the Group’s presentation currency. All values are rounded to the nearest thousand (US$000) except when 
otherwise indicated.

STATEMENT OF COMPLIANCE
The consolidated financial statements of Highland Gold Mining Limited and all its subsidiaries (the Group) have been 
prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and 
the Companies (Jersey) Law 1991.

BASIS OF CONSOLIDATION
The consolidated financial statements comprise the financial statements of Highland Gold Mining Limited and all its 
subsidiaries as at 31 December each year.

38

A subsidiary is an entity, including an unincorporated entity such as a partnership, that is controlled by another entity 
(known as the parent). Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group 
obtains control, and continue to be consolidated until the date that such control ceases.

The financial statements of the subsidiaries are prepared for the same reporting year as the parent company, using 
consistent accounting policies.

All intra-group balances, transactions, unrealised gains and losses resulting from intra-group transactions are 
eliminated in full.

The accounting policies in Note 3 have been applied when preparing the consolidated financial statements.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 
BUSINESS COMBINATIONS AND GOODWILL
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as 
the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-
controlling interest in the acquiree. For each business combination, the Group elects whether it measures the non-
controlling interest in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets. 
Acquisition costs incurred are expensed and included in administrative expenses.

When the Group acquires a business, it assesses the assets and liabilities assumed for appropriate classification and 
designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the 
acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.

HIGHLAND GOLD MINING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held 
equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss.

Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. 
Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability will be 
recognised in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income. If the 
contingent consideration is classified as equity, it will not be remeasured. Subsequent settlement is accounted for within 
equity. In instances where the contingent consideration does not fall within the scope of IAS 39, it is measured in 
accordance with the appropriate IFRS.

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred, the amount 
recognised for non-controlling interest and the acquisition date fair value of any previously held equity interest in the 
acquiree over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value 
of the net assets of the subsidiary acquired, the difference is recognised in profit or loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. An impairment loss on 
goodwill cannot be reversed under any circumstances. For the purpose of impairment testing, goodwill acquired in 
a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are 
expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to 
those units.

Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill 
associated with the operation disposed of is included in the carrying amount of the operation when determining the gain 
or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of 
the operation disposed of and the portion of the cash-generating unit retained.

39

Further information is contained in Note 18.

FOREIGN CURRENCY AND FOREIGN CURRENCY TRANSLATION
The Group’s consolidated financial statements are presented in US dollars, which is also the parent company’s functional 
currency. Each entity in the Group determines its own functional currency and items included in the financial statements 
of each entity are measured using that functional currency.

Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of 
exchange ruling at the reporting date. Foreign exchange gains and losses resulting from the settlement of foreign currency 
transactions and from the translation of monetary assets and liabilities into the functional currency at year-end official 
exchange rates are recognised in the statement of comprehensive income.

Non-monetary items that are measured at historical cost in a foreign currency are translated using the exchange rates 
at the date of the initial transaction. Non-monetary items measured at a revalued amount in a foreign currency are 
translated using the exchange rates at the date when the fair value was determined.

The principal exchange rates against US dollars that were applied are:

31 DECEMBER 2014

31 DECEMBER 2013

Average

RUR

GBP

Closing

RUR

GBP

39.038

0.607

56.258

0.644

31.906

0.639

32.729

0.607

ANNUAL REPORT & ACCOUNTS 2014

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

PROPERTY, PLANT AND EQUIPMENT
With the exception of those acquired through business combination, on initial acquisition land and buildings, plant and 
equipment are valued at cost, being the purchase price and the directly attributable costs of acquisition or construction 
required to bring the asset to the location and condition necessary for the asset to be capable of operating in the 
manner intended by management.

In subsequent periods, buildings, plant and equipment are stated at cost less accumulated depreciation and 
any impairment in value, whilst land is stated at cost less any impairment in value and is not depreciated.  
Property, plant and equipment acquired through business combinations are stated at their acquisition date fair values 
on initial recognition.

The net carrying amounts of land, buildings, plant and equipment are reviewed for impairment either individually or at 
the cash-generating unit level when events and changes in circumstances indicate that the carrying amount may not be 
recoverable. To the extent that these values exceed their recoverable amounts, that excess is fully provided against in the 
financial year in which this is determined.

Expenditure on major maintenance or repairs includes the cost of replacement of parts of assets and overhaul costs. 
Where an asset or part of an asset is replaced and it is probable that future economic benefits associated with the item will 
be available to the Group, the expenditure is capitalised and the carrying amount of the item replaced is derecognised. 
Similarly, overhaul costs associated with major maintenance are capitalised and depreciated over their useful lives 
where it is probable that future economic benefits will be available and any remaining carrying amounts of the cost 
of previous overhauls are derecognised. All other costs, including repair and maintenance expenditure, are expensed 
as incurred.

40

Where an item of property, plant and equipment is disposed of, it is derecognised and the difference between its 
carrying value and net sales proceeds is disclosed as a profit or loss on disposal in the statement of comprehensive income.

Any items of property, plant or equipment that cease to have future economic benefits expected to arise from their 
continued use or disposal are derecognised with any gain or loss included in the statement of comprehensive income in 
the financial year in which the item is derecognised.

DEPRECIATION AND DEPLETION
Depreciation is provided so as to write off the cost, less estimated residual values of buildings, plant and equipment (based 
on prices prevailing at the balance date) on the following bases:
•  Mineral properties are depreciated using a unit of production method based on estimated economically recoverable 

reserves, which results in a depreciation charge proportional to the depletion of reserves.

•  Buildings, plant and equipment unrelated to production are depreciated using the straight-line method based on 

estimated useful lives.

Where parts of an asset have different useful lives, depreciation is calculated on each separate part. Each item or part’s 
estimated useful life has due regard to both its own physical life limitations and the present assessment of economically 
recoverable reserves of the mine property at which the item is located, and to possible future variations in those 
assessments. Estimates of remaining useful lives and residual values are reviewed annually. Changes in estimates which 
affect unit of production calculations are accounted for prospectively.

Depreciation of mineral properties at Mnogovershinnoye (MNV) in 2014 has been calculated based on a JORC report with 
estimated economically recoverable reserves up to 2017 (2013: up to 2017). All other assets at MNV were depreciated using 
the straight-line method based on management’s best estimate (up to 2017).

Depreciation of mineral properties at Novo in 2014 has been calculated based on a JORC report with estimated 
economically recoverable reserves up to 2024 (2013: up to 2025). All other assets at Novo were depreciated using the 
straight-line method based on management’s best estimate (up to 2024).

HIGHLAND GOLD MINING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Depreciation of mineral properties at Belaya Gora (BG) in 2014 has been calculated based on a JORC report with estimated 
economically recoverable reserves up to 2022 (2013: up to 2019). All other assets at BG were depreciated using the straight-
line method based on management’s best estimate (up to 2022).

The expected residual useful lives at the Group’s entities are as follows: 

Buildings 

Plant and Equipment 

4–16 years

1–16 years

The depreciation on items of properties, plant and equipment used in the exploration and development activities is 
recognised as part of the initial cost of the related assets and is treated on a consistent basis with the entity’s other 
exploration and development expenditure.

EXPLORATION AND EVALUATION EXPENDITURE
Exploration and evaluation expenditure relates to costs incurred on the exploration and evaluation of potential mineral 
reserves and includes costs such as exploratory drilling and sample testing and the costs of pre-feasibility studies. 
Exploration and evaluation expenditure for each area of interest, other than that acquired from the purchase of another 
mining company, is carried forward as an asset provided that one of the following conditions is met:
• 

such costs are expected to be recouped in full through successful development and exploration of the area of interest 
or alternatively, by its sale; or

•  exploration and evaluation activities in the area of interest have not yet reached a stage which permits a reasonable 

assessment of the existence or otherwise of economically recoverable reserves, and active and significant operations in 
relation to the area are continuing, or planned for the future.

Purchased exploration and evaluation assets are recognised as assets at their cost of acquisition or at fair value if 
purchased as part of a business combination.

41

An impairment review is performed, either individually or at the cash-generating unit level, when there are indicators that 
the carrying amount of the assets may exceed their recoverable amounts. To the extent that this occurs, the excess is fully 
provided against, in the financial period in which this is determined. Exploration assets are reassessed on a regular basis 
and these costs are carried forward provided that at least one of the conditions outlined above is met.

Expenditure is transferred to mine properties once the work completed to date supports the future development of the 
property and such development receives appropriate approvals.

MINE DEVELOPMENT EXPENDITURE
Capitalised mine development costs include expenditure incurred to develop new ore bodies, to define future 
mineralisation in existing ore bodies, to expand the capacity of a mine and to maintain production, and also interest and 
financing costs relating to the construction of mineral property.

Mine development costs are, upon commencement of production, depreciated using a unit of production method 
based on the estimated proven and probable mineral reserves to which they relate, or are written off if the property is 
abandoned. The net carrying amounts of mine development costs at each mine property are reviewed for impairment 
either individually or at the cash-generating unit level when events and changes in circumstances indicate that the 
carrying amount may not be recoverable. To the extent that these values exceed their recoverable amounts, that excess is 
fully provided against the statement of comprehensive income in the financial year in which this is determined.

ANNUAL REPORT & ACCOUNTS 2014

 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MINE PROPERTIES
The development costs are transferred to the mine properties category when the asset is available for use; this is 
when commercial levels of production are achieved. The restoration provision cost is capitalised within mine assets. 
The cost of acquiring mine assets after the start of production is capitalised on the statement of financial position 
as incurred and included in the mine properties category. The cost of acquiring rights on mineral reserves and mineral 
resources including directly attributable expenses is capitalised on the statement of financial position as incurred 
and included in the mine properties category. The initial cost of a mine property comprises its construction cost, any 
costs directly attributable to bringing the mining property into operation, the initial estimate of the provision for mine 
closure cost, and, for qualifying assets, borrowing costs. Mine assets and mineral rights are amortised using the units-of-
production method based on estimated proven and probable mineral reserves.

The net carrying amounts of mine assets and mineral rights are reviewed for impairment either individually or at the cash-
generating unit level when events and changes in circumstances indicate that the carrying amount may not be recoverable. 
To the extent that these values exceed their recoverable amounts, that excess is fully provided against the statement of 
comprehensive income in the financial year in which this is determined.

STRIPPING COSTS
The Group incurs waste removal costs (stripping costs) during the production phase of surface mining operations.

During the production phase, stripping costs (production stripping costs) can be incurred both in relation to the 
production of inventory in that period and the creation of improved access and mining flexibility in relation to ore to be 
mined in the future. The former are included as part of the costs of inventory, while the latter are capitalised as a stripping 
activity asset, where certain criteria are met.

42

CONSTRUCTION WORK IN PROGRESS
Assets in the course of construction are capitalised in the construction work in progress account. On completion, the cost 
of construction is transferred to the appropriate category of property, plant and equipment.

No depreciation is charged on assets in the construction work in progress account. These assets are depreciated upon their 
transfer to the appropriate category of property, plant and equipment.

INCIDENTAL AND NON-INCIDENTAL INCOME
During the construction of an asset, the Group may earn some income.

Income and related expenses of incidental operations that are not, in themselves, necessary to bring the 
asset itself to the location and condition necessary for it to be capable of operating in the manner intended by 
management, are recognised in profit or loss and included in their respective classifications of income and expenses. 
Such incidental income is not offset against the cost of the asset.

Income generated wholly and necessarily as a result of the process of bringing the asset into the location and condition 
for its intended use is credited to the cost of asset.

FAIR VALUE MEASUREMENT
The Group measures financial instruments at fair value at each balance sheet date. Fair values of financial instruments 
measured at amortised cost are disclosed in Note 32.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction 
between market participants at the measurement date. The fair value measurement is based on the presumption that the 
transaction to sell the asset or transfer the liability takes place either:
• 
• 

in the principal market for the asset or liability, or
in the absence of a principal market, in the most advantageous market for the asset or liability.

The principal or the most advantageous market must be accessible to by the Group.

HIGHLAND GOLD MINING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing 
the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic 
benefits by using the asset in its highest and best use or by selling it to another market participant that would use the 
asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available 
to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the 
fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement 
as a whole:

Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities
Level 2 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly 
or indirectly observable
Level 3 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable

For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines 
whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest 
level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the 
nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above. 
Further information on fair values is described in Note 32.

43

IMPAIRMENT
At each reporting date, management assesses whether there is any indication of impairment within the categories of 
property, plant and equipment. If any such indication exists, management estimates the recoverable amount, which is 
determined as the higher of an asset’s fair value less costs of disposal and its value in use. The carrying amount is 
reduced to the recoverable amount and an impairment loss is recognised in the statement of comprehensive income. 
An impairment loss recognised for an asset in prior years is reversed if there has been a change in the estimates used to 
determine the asset’s value in use or fair value less costs of disposal.

Gains and losses on disposals determined by comparing proceeds with carrying amount are recognised in the statement 
of comprehensive income.

LEASES 
OPERATING LEASES

Where the Group is a lessee in a lease which does not transfer substantially all the risks and rewards of ownership from 
the lessor to the Group, the total lease payments are charged to the statement of comprehensive income on a straight-line 
basis over the period of the lease.

FINANCE LEASE

Where the Group is a lessee in a lease which transfers substantially all the risks and rewards of ownership to the Group, 
the assets leased are capitalised in property, plant and equipment at the lower of the fair value of the leased asset and the 
present value of the minimum lease payments, on commencement of the lease. Each lease payment is allocated between the 
liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental 
obligations, net of future finance charges, are stated separately as finance lease liabilities. The interest cost is charged to the 
statement of comprehensive income over the lease period. The assets acquired under finance leases are depreciated over the 
shorter of their useful life and the lease term if the Group is not reasonably certain that it will obtain ownership by the end of 
the lease term.

ANNUAL REPORT & ACCOUNTS 2014

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FINANCIAL ASSETS AND LIABILITIES 
FINANCIAL INSTRUMENTS CLASSIFICATION AND RECOGNITION

Financial assets and liabilities are recognised when the Group becomes party to the contracts that give rise to them.  
The Group determines the classification of its financial assets and liabilities at initial recognition (which in the case of 
financial assets existing at the transition date, includes designation at that date) and, where allowed and appropriate,  
re-evaluates this designation at each financial year end. When financial assets and liabilities are recognised initially,  
they are measured at fair value, being the transaction price plus, in the case of financial assets not at fair value through 
profit or loss, directly attributable transaction costs.

Financial assets are classified as either financial assets at fair value through profit or loss, loans and receivables, held-
to-maturity investments or available-for-sale financial assets, as appropriate. Where as a result of a change in intention 
or ability, it is no longer appropriate to classify an investment as held to maturity, the investment is reclassified into the 
available-for-sale category.

Currently the Group does not have held-to-maturity investments or available-for-sale financial assets.

FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

Financial assets at initial recognition are designated at fair value through profit and loss. When a group of financial assets is 
managed on it performance this is evaluated on a fair value basis in accordance with a documented risk management strategy.

LOANS AND RECEIVABLES

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an 
active market, do not qualify as trading assets and have not been designated as either fair value through profit or loss 
or available for sale. Such assets are carried at amortised cost using the effective interest method. Gains and losses are 
recognised in the statement of comprehensive income when the loans and receivables are derecognised or impaired,  
as well as through the amortisation process.

44

DERECOGNITION OF FINANCIAL ASSETS AND LIABILITIES

A financial asset is derecognised where:
• 
• 

the rights to receive cash flows from the asset have expired;
the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full 
without material delay to a third party under a ‘pass-through’ arrangement; or
the Group has transferred its rights to receive cash flows from the asset and either has transferred substantially all 
the risks and rewards of the asset, or has neither transferred nor retained substantially all the risks and rewards of the 
asset, but has transferred control of the asset.

• 

Where the Group has transferred its right to receive cash flows from an asset and has neither transferred nor retained 
substantially all the risks and rewards of the asset nor transferred control of the asset, it continues to recognise the 
financial asset to the extent of its continuing involvement in the asset.

A financial liability is derecognised when the obligation under the liability is discharged or is cancelled or expires. Gains 
on derecognition are recognised within finance revenue and losses within finance costs.

Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the 
terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition 
of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is 
recognised in profit or loss.

INVENTORIES
Inventories are recorded at the lower of cost and net realisable value. Cost is determined on a weighted average basis. 
The cost of finished goods and work in progress comprises raw material, direct labour, other direct costs and related 
production overheads (based on normal operating capacity) but excludes borrowing costs. Net realisable value is the 
estimated selling price in the ordinary course of business, less the cost of completion and selling expenses.

HIGHLAND GOLD MINING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The inventories are segregated by the following:
•  gold in process which is valued at the average total production cost at the relevant stage of production;
•  gold on hand which is valued on an average total production cost method;
•  ore stockpiles which are valued at the average cost of mining and stockpiling the ore;
• 

raw materials and consumables (including fuel and spare parts): materials, goods or supplies to be either directly 
or indirectly consumed in the production process which are valued at weighted average costs.

TRADE AND OTHER RECEIVABLES
Trade and other receivables are carried at amortised cost using the effective interest method. A provision for impairment 
of receivables is established when there is objective evidence that the Group will not be able to collect all amounts due 
according to the original terms of receivables. The amount of the provision is the difference between the asset’s carrying 
amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The amount 
of the provision is recognised in the statement of comprehensive income.

CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash in hand, deposits held at call with banks, and other short-term highly 
liquid investments with original maturities of three months or less.

SHARE CAPITAL
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in 
equity as a deduction, net of tax, from the proceeds. Any excess of the fair value of consideration received over the 
par value of shares issued is taken to the share premium account.

VALUE ADDED TAX
Gold production and subsequent sales are not subject to output value added tax. Input VAT is recoverable through cash, 
against income tax and other taxes. Where input VAT is not recoverable the VAT provision is created on the statement of 
financial position corresponding with the statement of comprehensive income in a relevant period.

45

BORROWINGS
Borrowings are initially recognised at fair value, net of transaction costs incurred. Subsequently, borrowings are carried at 
amortised cost using the effective interest method. Borrowing costs directly attributable to the acquisition, construction 
or production of an asset that necessarily takes a substantial period of time to get ready for its intended use (a qualifying 
asset) are capitalised as part of the cost of the respective asset, during the period of time that is required to complete and 
prepare the asset for its intended use. All other borrowing costs are expensed.

TRADE AND OTHER PAYABLES
Trade payables are accrued when the counterparty has performed its obligations under the contract; they are carried at 
amortised cost using the effective interest method.

PROVISIONS FOR LIABILITIES AND CHARGES
A provision is recognised when the Group has a present legal or constructive obligation as a result of a past event, 
when it is probable that an outflow of resources will be required to settle the obligation, and when a reliable estimate of 
the amount can be made.

ENVIRONMENTAL PROTECTION, REHABILITATION AND CLOSURE COSTS
Provision is made for close down, restoration and environmental clean-up costs (including the dismantling and demolition 
of infrastructure, removal of residual materials and remediation of disturbed areas), where there is a legal or constructive 
obligation to do so, in the accounting period in which the environmental disturbance occurs, based on the estimated 
future costs. Where material, the provision is discounted and the unwinding of the discount is shown as a finance cost in 
the statement of comprehensive income. At the time of establishing the provision, a corresponding asset, is capitalised and 
depreciated on a unit of production basis.

The provision is reviewed on an annual basis for changes in cost estimates or lives of operations.

ANNUAL REPORT & ACCOUNTS 2014

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

REVENUE RECOGNITION
Revenue is recognised at the fair value of the consideration received or receivable to the extent that it is probable that 
the economic benefits will flow to the group and the revenue can be reliably measured and when all significant risks and 
rewards of ownership of the asset sold are transferred to the customer. Gold sales revenue is recognised when the product 
has been dispatched to the purchaser and is no longer under the physical control of the producer. At this point the Group 
retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control 
over the product.

Novo as a concentrate producer and seller has contracts where price risk is retained for a specified period after the sale has 
occurred. The price payable under the concentrate contract is determined by reference to prices quoted in an organised 
market (LME). The title to the commodity passes to the buyer on delivery. At this time a provisional invoice is generated 
based on the average price over the previous month. 85% of the provisional invoice is settled within a few days. The 
remaining 15% (plus or minus any adjustment on 100% of the value of the sale for movements in price from the price in 
the provisional invoice and the final price, plus any minor volume adjustments resulting from the final assay) is settled in 
4 months after the date of the delivery.

Pricing adjustment features that are based on quoted market prices for a date subsequent to the date of shipment or 
delivery of the commodity represent a derivative financial instrument once the commodity has been delivered. The 
derivative has a fair value, based on the pricing formula set out in the contract, which is based on quoted market prices.

Adjustments for prices are calculated using the best estimate. Adjustments for volumes (metal grades in concentrates) 
are based on the available actual test results. No corrections are made in respect of periods where no final test results are 
available.

46

Both prices and volume adjustments are booked to the accounts receivable corresponding to the Revenue from 
concentrate sales.

EMPLOYEE BENEFITS
Wages, salaries, contributions to the Russian Federation state pension and social insurance funds, paid annual leave and 
sick leave, bonuses, and non-monetary benefits (such as health services) are accrued in the year in which the associated 
services are rendered by the employees of the Group.

PENSION PLAN
The Group pays contributions to personal pension schemes of employees, which are administered independently of the 
Group. The Group has an obligation to make one time payments to the employees when they retire. This obligation is 
calculated by multiplying the monthly salary by the whole amount of years worked at the entity.

SHARE BASED PAYMENTS
EQUITY-SETTLED TRANSACTIONS

The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which 
they are granted and is recognised as an expense over the vesting period, which ends on the date on which the relevant 
employees become fully entitled to the award. Fair value is determined using an appropriate pricing model. In valuing 
equity-settled transactions, no account is taken of any vesting conditions, other than conditions linked to the price of the 
shares of the Company (market conditions).

No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a 
market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided 
that all other vesting conditions are satisfied.

At each reporting date before vesting, the cumulative expense is calculated, representing the extent to which the vesting 
period has expired and management’s best estimate of the achievement or otherwise of non-market conditions and of 
the number of equity instruments that will ultimately vest or, in the case of an instrument subject to a market condition, 

HIGHLAND GOLD MINING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

be treated as vesting as described above. The movement in cumulative expense since the previous reporting date is 
recognised in the statement of comprehensive income, with a corresponding entry in equity.

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any cost not yet 
recognised in the statement of comprehensive income for the award is expensed immediately. Any compensation paid up 
to the fair value of the award at the cancellation or settlement date is deducted from equity, with any excess over fair value 
being treated as an expense in the statement of comprehensive income.

CASH-SETTLED TRANSACTIONS

The cost of cash-settled transactions is measured at fair value using an appropriate option pricing model. Fair value is 
established initially at the grant date and at each reporting date thereafter until the awards are settled. During the vesting 
period a liability is recognised representing the product of the fair value of the award and the portion of the vesting 
period expired as at the reporting date. From the end of the vesting period until settlement, the liability represents the full 
fair value of the award as at the reporting date. Changes in the carrying amount of the liability are recognised in profit or 
loss for the period.

EARNINGS PER SHARE
Earnings per share is determined by dividing the profit or loss attributable to equity holders of the Company by the 
weighted average number of participating shares outstanding during the reporting year.

DIVIDEND DISTRIBUTION
Dividends on equity shares are recognised in the consolidated statement of changes in equity.

INCOME TAXES
Current tax for each taxable entity in the Group is based on the local taxable income at the local statutory tax rate 
enacted at the reporting date and includes adjustments to tax payable or recoverable in respect of previous periods. 
The income tax charge/(credit) comprises current tax and deferred tax and is recognised in the consolidated statement of 
comprehensive income, except to the extent that it relates to items charged or credited directly to equity, in which case it is 
recognised in equity.

47

Deferred income tax is recognised using the statement of financial position liability method in respect of tax losses carried 
forward and temporary differences between the tax bases of assets and liabilities, and their carrying amounts for financial 
reporting purposes, except as indicated below.

Deferred income tax liabilities are recognised for all taxable temporary difference except:
•  where the deferred income tax liability arises from the initial recognition of goodwill, or the initial recognition of an 
asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither 
the accounting profit nor taxable profit or loss; and
in respect of taxable temporary differences associated with investments in subsidiaries and interests in joint ventures, 
where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary 
differences will not reverse in the foreseeable future.

• 

Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets 
and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible 
temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilised, except:
•  where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition 
of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects 
neither the accounting profit nor taxable profit or loss; and
in respect of deductible temporary differences associated with investments in subsidiaries and interests in joint ventures, 
deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the 
foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

• 

ANNUAL REPORT & ACCOUNTS 2014

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is 
no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be 
utilised. To the extent that an asset not previously recognised fulfils the criteria for recognition, a deferred income tax 
asset is recorded.

Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which the 
asset is realised or the liability is settled, based on tax rates and tax laws enacted or substantively enacted at the reporting date.

RECLASSIFICATIONS
Certain  line  items  have  been  reclassified  in  the  consolidated  statement  of  financial  position  as  at  31  December 
2013  to  keep  the  presentation  form  consistent  with  2014  presentation.  As  a  result  of  the  reclassifications,  as  at 
31  December  2013  inventories  were  decreased  by  US$0.3  million,  trade  and  other  receivables  were  decreased  by 
US$0.5 million and other current assets were increased by US$0.8 million.

NEW STANDARDS, INTERPRETATIONS AND AMENDMENTS ADOPTED BY THE GROUP
The accounting policies adopted in the preparation of the Group‘s annual financial statements for the year ended 
31 December 2014 are consistent with those followed in the preparation of the Group‘s annual financial statements for 
the year ended 31 December 2013, except for the adoption of new amendments and improvements to IFRSs effective as of 
1 January 2014, noted below.

STANDARDS AND INTERPRETATIONS ADOPTED WITH NO EFFECT ON REPORTED RESULTS, FINANCIAL POSITION OR 
DISCLOSURES
IFRS 10 CONSOLIDATED FINANCIAL STATEMENTS

48

The new standard provides additional guidance to assist in the determination of which entities are controlled and are 
required to be consolidated. This standard replaces the portion of IAS 27 Consolidated and separate financial statements 
that addresses the accounting for consolidated financial statements. The new standard became mandatory in the EU for 
financial years beginning on or after 1 January 2014. The new standard did not have an impact on the financial position or 
performance of the Group.

IFRS 11 JOINT ARRANGEMENTS

The new standard replaces IAS 31 Interests in joint ventures and SIC 13 Jointly-controlled entities – non-monetary 
contributions by ventures. The standard defines contractually agreed sharing of control of an arrangement and the accounting 
for joint operations and joint ventures. The new standard became mandatory in the EU for annual periods beginning on or 
after 1 January 2014. The new standard did not have an impact on the financial position or performance of the Group.

IFRS 12 DISCLOSURE OF INVOLVEMENT WITH OTHER ENTITIES

The new standard covers the disclosures that were previously required in consolidated financial statements under IAS 
27 Consolidated and separate financial statements as well as those included in IAS 31 Interests in joint ventures and IAS 
28 Investments in associates. The new standard became mandatory in the EU for financial years beginning on or after 
1 January 2014.

IAS 32 FINANCIAL INSTRUMENTS: PRESENTATION – OFFSETTING FINANCIAL ASSETS AND FINANCIAL LIABILITIES

The amendment clarifies existing application issues relating to the offset of financial assets and financial liabilities 
requirements. The amendment became effective for financial years beginning on or after 1 January 2014 with retrospective 
application.

IAS 36 IMPAIRMENT OF ASSETS – RECOVERABLE AMOUNT DISCLOSURES

The amendment to the standard was issued in May 2013 and became effective for financial years beginning on or 
after 1 January 2014. The amendment removes the requirement to disclose recoverable amounts when there has been 
no impairment or reversal of impairment. Further to that, the disclosure requirements have been aligned with those under 
US GAAP for impaired assets. Further information is contained in Note 18.

HIGHLAND GOLD MINING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

IAS 39 FINANCIAL INSTRUMENTS: RECOGNITION AND MEASUREMENT – NOVATION OF DERIVATIVES AND CONTINUATION 
HEDGE ACCOUNTING

The amendment to the standard was issued in June 2013 and provides guidance in respect of the continuation of hedge 
accounting if a hedging derivative was novated. The amendment became effective for the financial years beginning on or 
after 1 January 2014.

NEW STANDARDS AND INTERPRETATIONS NOT YET ADOPTED
The Group has elected not to early adopt the following revised and amended standards, which are not yet mandatory in 
the EU. The list below includes only standards and interpretations that could have an impact on the consolidated financial 
statements of the Group.

IFRS 9 FINANCIAL INSTRUMENTS

The complete standard has been issued in July 2014 including the requirements previously issued and additional amendments. 
The new standard replaces IAS 39 and includes a new expected loss impairment model, changes to the classification and 
measurement requirements of financial assets as well as to hedge accounting. The new standard becomes effective for financial 
years beginning on or after 1 January 2018. The Group will assess the impact on its consolidated financial statements.

IFRS 15 REVENUE FROM CONTRACTS WITH CUSTOMERS

The new standard was issued in May 2014 and establishes the principles for the disclosure of useful information in 
the financial statements in respect of contracts with customers. The new standard becomes mandatory for financial 
years beginning on or after 1 January 2017. The effect from the additional disclosure requirements will be assessed and 
disclosure will be made once the Group has fully assessed the impact of applying IFRS 15.

IFRS 11 JOINT ARRANGEMENTS – ACQUISITION OF INTERESTS IN JOINT OPERATIONS

The amendment was issued in May 2014 and provides guidance in respect of the accounting for acquisitions in interests of 
joint operations. The amendment becomes mandatory for financial years beginning on or after 1 January 2016. The Group 
does not expect an impact on its consolidated financial statements from this amendment.

49

IAS 1 PRESENTATION OF FINANCIAL STATEMENTS – DISCLOSURE INITIATIVE

The amendment was issued in December 2014 and includes a number of smaller projects aiming to improve the 
presentation and disclosure principles and requirements in existing standards. The amendment becomes mandatory for 
financial years beginning on or after 1 January 2016. The Group does not expect a significant impact on its consolidated 
financial statements arising from the application of this amendment.

IAS 16 PROPERTY, PLANT AND EQUIPMENT AND IAS 38 INTANGIBLE ASSETS – CLARIFICATION OF ACCEPTABLE METHODS 
OF DEPRECIATION AND AMORTISATION

The amendment to the two standards was issued in November 2013 and becomes effective for financial years beginning on 
or after 1 January 2016. The amendment clarifies the pattern to be applied in case of revenue-based amortisation methods 
for tangible and intangible assets. The Group does not apply revenue-based amortisation methods and does thus not 
expect an impact on its consolidated financial statements.

IAS 19 EMPLOYEE BENEFITS – DEFINED BENEFIT PLANS: EMPLOYEE CONTRIBUTIONS

The amendment to the standard was issued in November 2013. Whilst the IAS B implementation date is for financial years 
beginning on or after 1 July 2014, the amendment becomes mandatory in the EU at the latest for annual periods beginning 
on or after 1 February 2015. The amendment provides guidance in respect of the accounting for employee contributions 
set out in the formal terms of a defined benefit plan. The Group does not expect a significant impact on its consolidated 
financial statements from this amendment.

IAS 27 SEPARATE FINANCIAL STATEMENTS – EQUITY METHOD

The amendment to the standard was issued in August 2014 and becomes effective for financial years beginning on or after 
1 January 2016. The amendment allows the use of the equity method to account for investments in subsidiaries, associates 
and joint ventures in an entity’s separate IFRS financial statements if local regulation requires using the equity method. 

ANNUAL REPORT & ACCOUNTS 2014

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

This amendment applies only to the separate financial statements of the parent entity and is irrelevant for the consolidated 
financial statements of the Group.

IFRIC 21 LEVIES

The new interpretation clarifies when to recognise a liability for a levy imposed by governments (including government 
agencies and similar bodies) in accordance with laws and regulations. The IAS B implementation date is for periods 
beginning on or after 1 January 2014 whereas the interpretation becomes mandatory in the EU at the latest for 
annual periods beginning on or after 17 June 2014. Income taxes in accordance with IAS 12, fines and other penalties 
and liabilities arising from trading schemes are not covered by this interpretation. The Group does not expect a 
significant impact on its consolidated financial statements from this new interpretation.

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

4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING ACCOUNTING POLICIES
The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities. Estimates and 
judgements are continually evaluated and are based on management’s experience and other factors, including expectations 
of future events that are believed to be reasonable under the circumstances. Management also makes certain judgements, 
apart from those involving estimations, in the process of applying the accounting policies. Judgements that have the 
most significant effect on the amounts recognised in the financial statements and estimates that can cause a significant 
adjustment to the carrying amount of assets and liabilities within the next financial year include:

JUDGEMENTS
DEFERRED STRIPPING COSTS
The Group accounts for stripping costs incurred during the production stage of its open-pit operations on the basis of the 
relevant production measure calculated for every identified component of every ore body (volume of waste to volume of 
ore extracted).

50

Production stripping costs are capitalised as part of a non-current stripping activity asset if:

probable future economic benefits associated with the stripping activity will flow to the Group;
•  costs can be measured reliably; and
• 
•  During the production phase, stripping costs (production stripping costs) can be incurred both in relation to the 

the Group can identify the component of the ore body for which access has been improved.

production of inventory in that period and the creation of improved access and mining flexibility in relation to ore to 
be mined in the future. The former are included as part of the costs of inventory, while the latter are capitalised as a 
stripping activity asset, where certain criteria are met.

Significant judgement is required to distinguish between development stripping and production stripping and to 
distinguish between the production stripping that relates to the extraction of inventory and what relates to the creation of 
a stripping activity asset.

Once the Group has identified its production stripping for each surface mining operation, it identifies the separate 
components of the ore bodies for each of its mining operations. An identifiable component is a specific volume of the 
ore body that is made more accessible by the stripping activity. Significant judgement is required to identify and define 
these components, and also to determine the expected volumes of waste to be stripped and ore to be mined in each of 
these components. These assessments are undertaken for each individual mining operation based on the information 
available in the mine plan.

The mine plans and, therefore, the identification of components, will vary between mines for a number of reasons. 
These include, but are not limited to, the type of commodity, the geological characteristics of the ore body, the 
geographical location and/or financial considerations.

HIGHLAND GOLD MINING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Judgement is also required to identify a suitable production measure to be used to allocate production stripping costs 
between inventory and any stripping activity asset (s) for each component. The Group considers that the ratio of the 
expected volume of waste to be stripped for an expected volume of ore to be mined for a specific component of the ore 
body, is the most suitable production measure.

Furthermore, judgements and estimates are also used to apply the units of production method in determining the 
depreciable lives of the stripping activity asset (s).

GOING CONCERN
The Directors consider that the Group will continue as a going concern.

In assessing the going concern status, the Directors have taken account of the Group’s financial position, expected future 
trading performance, its borrowings, available credit facilities and capital expenditure commitments, considerations of the 
gold price, currency exchange rates, and other risks facing the Group. After making appropriate enquiries, the Directors 
consider that the Group has adequate resources to continue in operational existence for at least the next 12 months from 
the date of signing these consolidated financial statements and that it is appropriate to adopt the going concern basis in 
preparing these consolidated financial statements. Having examined all scenarios, the Group also concluded that no 
covenants are breached in any of these adverse pricing scenarios.

WRITE-OFF OF ASSETS
A fixed asset is written off when it is determined that there is no further use for the asset: it is obsolete or no longer in use, 
and there is no resale market for it. Old inefficient equipment that is not expected to provide future economic benefits to 
the Group is written off.

DISPOSAL OF AN ENTITY
The Group determined that the sale of ZAO Trade House Mnogovershinnoye (TH MNV) does not constitute a 
discontinued operation as the disposal did not lead to the Group abandoning any geographical area of operation or any 
product line (Note 11).

51

NON-INCIDENTAL INCOME
In the course of start-up works in the first quarter of 2014 BG produced and sold 1,916 ounces of gold (in the second, 
third and fourth quarters of 2013: 7,060 ounces of gold). The revenue from sale of the gold was generated wholly and 
necessarily as a result of the process of bringing the plant into the condition for its intended use. Therefore the revenues of 
US$2.5 million and the related costs of US$5.5 million (in the second, third and fourth quarters of 2013: the revenues of 
US$8.5 million and the related costs of US$9.3 million) were capitalised into the cost of the plant.

FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
The Group classifies financial assets as “financial assets at fair value through profit or loss” when this group of assets is 
managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management 
or investment strategy, and information about them is provided internally on that basis to the Group’s key management 
personnel. The Group’s financial assets held at fair value through profit or loss comprise coupon bonds, which have a 
carrying value at 31 December 2014 of US$43.0 million (2013: US$50.2 million). The Group uses quoted market prices 
to determine fair value for financial assets. The fair value adjustment on financial assets at fair value through profit or 
loss is recognised in the consolidated statement of comprehensive income for the period. The Group does not reclassify 
financial instruments in or out of this category while they are held.

INVENTORIES
If the ore stockpile is not expected to be processed in 12 months after the reporting date, it is included in non-current assets. 
Physical volumes of such ore stockpiles are taken from technical reports, approved annual mine plans and life-of-mine models.

FUNCTIONAL CURRENCY
Each entity in the Group determines its own functional currency and items included in the financial statements of each 
entity are measured using that functional currency. USD is the functional currency of all entities both in 2013 and 2014.

ANNUAL REPORT & ACCOUNTS 2014

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

ESTIMATIONS AND ASSUMPTIONS 
IMPAIRMENT OF NON-CURRENT ASSETS
NON-FINANCIAL ASSETS (EXCLUDING GOODWILL)

The Group assesses, at each reporting date, whether there is an indication that an asset (or CGU) may be impaired. If 
any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s or CGU’s 
recoverable amount. The recoverable amount is the higher of an asset’s or CGU’s fair value less costs of disposal (FVLCD) 
and its value in use (VIU). The recoverable amount is determined for an individual asset, unless the asset does not generate 
cash inflows that are largely independent of those from other assets or groups of assets, in which case the asset is tested as 
part of a larger CGU to which it belongs. Where the carrying amount of an asset or CGU exceeds its recoverable amount, 
the asset/CGU is considered impaired and is written down to its recoverable amount. Management has assessed its CGUs 
as being an individual mine, which is the lowest level for which cash inflows are largely independent of those of other assets.

In calculating the recoverable amount, the estimated future cash flows are discounted to their present value using a post-tax 
discount rate that reflects current market assessments of the time value of money and the risks specific to the asset/CGU. 
In determining the recoverable amount, recent market transactions (where available) are taken into account. If no such 
transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation 
multiples and other available fair value indicators. Further details on how FVLCD is calculated are outlined in Note 18.

The Group bases its impairment calculation on detailed budgets and forecasts, which are prepared separately for each of 
the Group’s CGUs to which the individual assets are allocated, based on the life-of-mine plans. The estimated cash flows 
are based on expected future production, metal selling prices, operating costs and forecast capital expenditure.

Impairment losses are recognised in the statement of profit or loss and other comprehensive income in those expense 
categories consistent with the function of the impaired asset.

52

For assets/CGUs excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication 
that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group 
estimates the asset’s or CGU’s recoverable amount. A previously recognised impairment loss is reversed only if there has 
been a change in the assumptions used to determine the asset’s/CGU’s recoverable amount since the last impairment loss 
was recognised. The reversal is limited so that the carrying amount of the asset/CGU does not exceed either its recoverable 
amount, or the carrying amount that would have been determined, net of depreciation, had no impairment loss been 
recognised for the asset/CGU in prior years. Such a reversal is recognised in the statement of profit or loss. The Group has 
made a judgement in determining that an indicator of impairment existed in the instance where the carrying value of the Klen 
asset exceeded its recoverable value. Refer to Note 18 for further details.

GOODWILL

Goodwill is tested for impairment annually (as at 31 December) and when circumstances indicate that the carrying value 
may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or group of 
CGUs) to which the goodwill relates. Where the recoverable amount of the CGU is less than its carrying amount including 
goodwill, an impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods.
Note 18 outlines the significant judgements and estimations made when preparing impairment tests of non-current assets, 
including post-tax discount rates.

TAX LEGISLATION
Russian tax, currency and customs legislation is subject to varying interpretations. Please refer to Note 29 for details.  
The Group establishes provisions, based on reasonable estimates, for possible consequences of audits by the tax authorities  
in the countries in which it operates. The amounts of such provisions is based on various factors, such as experience with 
previous tax audits and differing interpretations of tax regulations by the taxable entity and the responsible authority.

DEFERRED INCOME TAX ASSET RECOGNITION
Management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon 
the likely timing and level of future tax profits together with an assessment of the effect of future tax planning strategies. 
Further details are contained in Note 14.

HIGHLAND GOLD MINING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SITE RESTORATION PROVISION
A provision is recognised for expected close down, restoration and environmental clean-up costs based on the estimated 
future costs of such activities. It is expected that most of these costs will be incurred at the end of life of the operating 
mine. Assumptions used to calculate the provision for site restoration were based on the government requirements 
applicable to sites closure, and assumptions regarding the life of mine (which is assumed to close in 2017 at MNV, in 
2022 at BG, in 2024 at Novo, in 2029 at Klen and in 2028 at Kekura), expected site restoration activities (removal of waste, 
restoration of mine sites), and current prices for similar activities.

INVENTORY OBSOLESCENCE
The Group entities perform a detailed analysis of old items of stock and create a specific provision for them once 
determined recovery of value unlikely. Then the Group performs a turnover analysis for the remaining items of inventory 
by aging. If the Group identifies impairment indicators, the obsolescence provision is then recognised at the statement of 
financial position. The movement in the obsolescence provision is recognised in the statement of comprehensive income.

DETERMINATION OF ORE RESERVES AND RESOURCES
The Group estimates its ore reserves and mineral resources in accordance with the rules and requirements of the Russian 
State Committee for Reserves (GKZ) as well as in accordance with JORC.

Proven and probable reserves in accordance with JORC have been used in the units of production calculation for depreciation, 
as management views the JORC reserves as a more accurate approximation of the reserves that will ultimately be recovered.

There are numerous uncertainties inherent in estimating ore reserves. Assumptions that are valid at the time of estimation 
may change significantly when new information becomes available. Changes in the forecast prices of commodities, 
exchange rates, production costs or recovery rates may change the economic status of reserves and may ultimately 
result in the reserves being restated.

EXPLORATION AND EVALUATION EXPENDITURE
The application of the Group’s accounting policy for exploration and evaluation expenditure requires judgement in 
determining whether it is likely that the asset will bring economic benefits in the future, which may be based on 
assumptions about future events or circumstances. Estimates and assumptions made may change if new information 
becomes available. If, after expenditure is capitalised, information becomes available suggesting that the recovery of 
expenditure is unlikely, the amount capitalised is written off in the statement of comprehensive income in the period when 
the new information becomes available.

53

5. BUSINESS COMBINATIONS
PRIOR YEAR ACQUISITION OF ZAO BAZOVYE METALLY
On 29 March 2013, the Group acquired from Union Mining Holdings Limited a 100% share in ZAO Bazovye Metally 
(Kekura) which holds the mining and exploration rights to the Kekura gold deposit and surrounding licence area.  
Kekura’s resource base will contribute to the long-term production profile of the Group and represents a solid foundation 
for the Group’s further growth.

The Group determined that this transaction represents a business combination.

PURCHASE CONSIDERATION

Cash paid

Fair value of loan assigned

Fair value of contingent consideration

Total consideration transferred

US$000

189,323

17,677

15,820

222,820

ANNUAL REPORT & ACCOUNTS 2014

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

From total consideration of US$222.8 million, US$189.3 million was paid in cash and US$17.7 million represented the 
fair value of the loan payable assigned to the Group. This amount of US$207.0 million was funded via a new debt facility 
with Gazprombank.

The amount of US$17.1 million, representing the carrying value of the loan assigned at the date of acquisition, was paid on 
29 March 2013.

The additional payment of US$5.0 million is the amount of contingent consideration payable in December 2013 as long as 
there are no third-parties’ claims. It was recognised at the fair value of US$4.9 million, a 2.6% discount factor was applied. 
This part of contingent consideration was settled in full in 2013.

In addition, at the acquisition date up to US$11.0 million of contingent consideration was payable upon the completion 
of various contractual terms. At the acquisition date the contingent consideration was recognised at the fair value of 
US$10.9 million applying a 2.2% discount factor. As at 31 December 2013 US$0.5 million was paid in advance and up to 
US$10.5 million remained outstanding and was expected to be paid in 2014.

In June 2014 management became aware that several contractual terms agreed as part of the acquisition were not 
met. Therefore, US$5.6 million of the contingent consideration would no longer be payable. This was subsequently 
formalised in an agreement in July 2014. The release of this provision was recognised as a gain on settlement of contingent 
consideration in the 2014 consolidated statement of comprehensive income. US$3.8 million was paid in July 2014 with the 
remaining US$0.4 million to be paid in 2015.

ASSETS ACQUIRED AND LIABILITIES ASSUMED
The estimated fair value of the identifiable assets and liabilities of Kekura at the date of acquisition were as follows:

54

Assets

Exploration and evaluation assets

Property, plant and equipment

Accounts receivable and other debtors

Total assets acquired

Liabilities

Borrowings

Deferred tax liabilities

Trade accounts and notes payable

Total liabilities assumed

Total identifiable net assets at fair value

Goodwill arising on acquisition

Purchase price

Plus: fair value of loan

Total consideration transferred

FAIR VALUE 
RECOGNISED  
ON ACQUISITION 
US$000

161,357

79,756

3,415

244,528

 (17,677)

 (37,673)

 (789)

 (56,139)

188,389

16,754

205,143

17,677

222,820

The goodwill balance of US$16.8 million is the result of the requirement to recognise a deferred tax liability calculated as 
the difference between the tax effect of the fair value of the assets and liabilities acquired and their tax bases. Goodwill is 
allocated entirely to the development and exploration company (Kekura). None of the goodwill recognised is expected to 
be deductable for income tax purposes.

From the date of acquisition, Kekura has contributed US$0.0 million to revenue and loss of US$0.4 million to the profit 
before income tax of the Group in 2013. If the combination had taken place at the beginning of the year 2013, revenue of the 
Group in 2013 would have been US$304.2 million and profit before income tax of the Group would have been US$54.7 million.

HIGHLAND GOLD MINING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

6. 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.

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 the licences being in the development and 
exploration stage: Kekura, Klen, Taseevskoye, Unkurtash, Lubov, and related service entities: Zabaykalzolotoproyekt 
(ZZP) and BSC. In the consolidated financial statements as at 31 December 2013 ZZP was shown in the ‘other’ segment. 
In the consolidated financial statements as at 31 December 2014 ZZP has been reclassified from the ‘other’ segment to 
the development and exploration segment due to the nature of its activities (construction supervision and research) in the 
comparative segment information for 2013 to keep the presentation form consistent with 2014 presentation.

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/(loss) excluding depreciation and amortisation, 
impairment losses, movement in ore stockpiles obsolescence provision, movement in raw materials and consumables obsolescence 
provision, result of disposal of a non-core entity and gain on settlement of contingent consideration). 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.

55

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/(loss) for the year.

The finance costs, finance income, income taxes, foreign exchange gains/(losses), other non-current assets and current 
assets 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 3 of 
the financial statements.

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

In 2014 the gold revenue of US$207.3 million reported in the gold production segment was received from sales to 
Gazprombank (2013: US$209.5 million) and the silver revenue of US$1.6 million reported in the gold production segment 
was received from sales to MDM Bank (2013: US$1.8 million) in the territory of the Russian Federation.

In 2014 the concentrate revenue reported in the polymetallic concentrate production segment in the amount of 
US$94.5 million was received from sales to Kazzinc (2013: US$88.3 million) in the territory of the Republic of Kazakhstan.

Other third-party revenues in both 2014 and 2013 were received in the territory of the Russian Federation.

Inter-segment revenues mostly represent management services.

ANNUAL REPORT & ACCOUNTS 2014

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 (664)

 (605)

–

–

207,326
1,571
– 
314
107
209,318
166,925
78,291

YEAR ENDED 
31 DECEMBER 2014 
Revenue
Gold revenue
Silver revenue
Concentrate revenue
Other third-party
Inter-segment
Total revenue
Cost of sales 
EBITDA
Other segment information
Depreciation
Movement in ore 
stockpiles obsolescence 
provision
Movement in raw 
materials and 
consumables 
obsolescence provision
Impairment losses
Impairment of 
construction in progress
Gain on settlement 
of contingent 
consideration
Loss from disposal of 
an entity
Finance income
Finance costs
Foreign exchange loss
Profit before income tax 
Income tax
Loss for the year
Segment assets at 31 December 2014 
Non-current assets
Capital expenditure*
Goodwill
Other non-current 
assets
Current assets**
Total assets

231,553
22,253

8,060

111,555

56

GOLD PRODUCTION 
SEGMENT
US$000

POLYMETALLIC 
CONCENTRATE 
PRODUCTION SEGMENT
US$000

DEVELOPMENT & 
EXPLORATION
US$000

OTHER
US$000

ELIMINATIONS
US$000

TOTAL
US$000

– 
– 
94,521
265
– 
94,786
60,338
50,661

– 
– 
– 
233
673
906
1,172
 (2,396)

– 
– 
– 
–
13,032
13,032
83
 (2,939)

– 
– 
– 
– 
 (13,812)
 (13,812)
– 
– 

 (39,024)

 (20,246)

 (47)

 (75)

207,326
1,571
94,521
812
– 
304,230
228,518
 123,617

 (59,392)

 (664)

 (509)

 (11,401)

 (500)

5,622

 (918)

3,457
 (4,226)
 (9,599)
45,487
 (70,330)
 (24,843)

977,612
87,119

10,326

168,739
1,243,796

–

–

–

–

–

–
–

–

–

96

–

–

–

–

 (11,401)

 (500)

185,696
5,134

357

35,225

559,811
59,732

1,446

7,216

–

–

–

–

552
–

463

50,327

 (35,584)

CAPITAL EXPENDITURE – 
ADDITIONS IN 2014***, 
INCLUDING:

Stripping activity assets

Capitalised bank interest

Settled accounts payable

Cash capital expenditure

38,368

5,554

1,714

 (2,161)

33,261

7,829

25,256

106

–

–

 (132)

7,961

–

9,281

 (8,197)

24,172

–

–

 (38)

144

–

–

–

–

–

71,559

5,554

10,995

 (10,528)

65,538

* Capital expenditure is the sum of exploration and evaluation assets, mine properties and property, plant and equipment.
** Current assets include corporate cash and cash equivalents of US$12.9 million, investments of US$43.0 million, inventories of US$77.3 million,  
trade and other receivables of US$28.9 million and other assets of US$6.6 million. Eliminations relate to intercompany accounts receivable.

*** Capital expenditure – additions in 2014 – includes additions to property, plant and equipment of US$67.7 million (Note 16) and capitalised interest 

of US$11.0 million (Note 16) less prepayments previously made for property, plant and equipment of US$7.1 million.

Non-current assets for 2014 are located in the Russian Federation (US$1,032.4 million) and in the Kyrgyz Republic 
(US$42.7 million). Current assets for 2014 are located in the Russian Federation.

HIGHLAND GOLD MINING LIMITED

 
 
 
 
 
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

GOLD PRODUCTION 
SEGMENT
US$000

 (2,386)

 (35,190)

209,500
1,819
–
366
193
211,878
136,200
97,961

YEAR ENDED 
31 DECEMBER 2013  
Revenue
Gold revenue
Silver revenue
Concentrate revenue
Other third-party
Inter-segment
Total revenue
Cost of sales 
EBITDA
Other segment information
Depreciation
Movement in 
ore stockpiles 
obsolescence 
provision
Movement in raw 
materials and 
consumables 
obsolescence 
provision
Income from disposal 
of an entity
Finance income
Finance costs
Foreign exchange loss
Profit before income tax 
Income tax
Profit for the year
Segment assets at 31 December 2013 
Non-current assets
Capital expenditure*
Goodwill
Other non-current 
assets
Current assets**
Total assets

232,674
22,253

114,928

25,814

 (1)

POLYMETALLIC 
CONCENTRATE 
PRODUCTION 
SEGMENT
US$000

DEVELOPMENT & 
EXPLORATION
US$000

OTHER
US$000

ELIMINATIONS
US$000

TOTAL
US$000

–
–
88,333
300
–
88,633
63,882
38,499

–
–
–
744
684
1,428
1,235
 (679)

–
–
–
3,144
15,078
18,222
2,292
 (3,031)

–
–
–
–
 (15,955)
 (15,955)
–
–

 (19,061)

 (49)

 (345)

–

–

–

–

–

–

209,500
1,819
88,333
4,554
–
304,206
203,609
132,750

 (54,645)

 (2,386)

 (1)

1,301

9,429
 (1,620)
 (2,767)
82,061
 (27,364)
54,697

975,780
97,324

28,721

190,931
1,292,756

57

–

–

–

–
–

–

204,934
5,134

198

29,552

537,652
69,937

2,217

520
–

492

16,833

57,797

 (28,179)

CAPITAL 
EXPENDITURE – 
ADDITIONS IN 
2013***, INCLUDING:
Stripping activity
assets
Capitalised 
bank interest
Non-cash capital 
expenditure****
Cash capital 
expenditure

89,549

11,826

1,514

1,022

9,361

75,324

187

– 

– 

– 

– 

7,763

8,590

– 

– 

– 

75,187

9,361

58,971

187

–

– 

– 

– 

–

174,421

11,826

9,277

9,612

143,706

* Capital expenditure is the sum of exploration and evaluation assets, mine properties and property, plant and equipment.
** Current assets include corporate cash and cash equivalents of US$7.9 million, investments of US$50.2 million, inventories of US$70.7 million, 
trade and other receivables of US$53.1 million and other assets of US$9.0 million. Eliminations relate to intercompany accounts receivable.

*** Capital expenditure – additions in 2013 – includes additions to property, plant and equipment of US$195.8 million (Note 16) and 

capitalised interest of US$9.3 million (Note 16), less prepayments previously made for property, plant and equipment of US$30.7 million.
**** Non-cash capital expenditure includes unpaid accounts payable of US$8.6 million and inventories of US$1.0 million sold to contractor.

Non-current assets for 2013 are located in the Russian Federation (US$1,060.2 million) and in the Kyrgyz Republic 
(US$41.7 million). Current assets for 2013 are located in the Russian Federation.

ANNUAL REPORT & ACCOUNTS 2014

 
 
 
 
 
 
 
 
 
 
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

7. AUDITORS’ REMUNERATION
The Group accrued the following amounts in respect of the audit of the financial statements 
and other services provided to the Group.

Audit of the Group financial 
statements 
Local statutory audits for 
subsidiaries

Ernst & Young

Others

Total

2014 
US$000

2013 
US$000

2014 
US$000

2013 
US$000

2014 
US$000

2013 
US$000

673

19

692

701

18

719

–

94

94

–

244

244

673

113

786

701

262

963

8. REVENUE
The Group operates in one principal area of activity, that of production of gold and 
concentrates.

Gold sales

Concentrate sales*

Silver sales

Other sales 

Total revenue

2014 
US$000

207,326

94,521

1,571

812

2013 
US$000

209,500

88,333

1,819

4,554

304,230

304,206

*  Concentrate sales include the negative fair value movement of an embedded derivative in the amount of 

US$0.4 million (2013: a positive fair value movement of US$0.2 million).

9. COST OF SALES

58

Operating costs

Movement in ore stockpiles

Movement in finished goods

Capitalised to stripping activity assets

Employee benefits expense

Depreciation, depletion and amortisation

Raw materials and consumables used

Taxes other than income tax*

Total cost of sales

* Other taxes include mineral extraction tax, property tax, transport tax etc.

10. ADMINISTRATIVE EXPENSES

Management company administrative expenses

TH MNV administrative expenses (Note 11.2.2)

Minimum lease payments recognised as an operating lease expense 

Salaries and wages of parent company

Auditors’ remuneration (Note 7)

Legal and professional fees

Bank charges

Travel expenses of parent company

Allowance for doubtful debts
Other administrative expenses
Total administrative expenses

2014 
US$000

42,990

14,808

 (1,543)

 (6,084)

52,101

59,392

47,403

19,451

2013 
US$000

45,564

 (8,486)

689

 (11,130)

55,412

54,645

47,920

18,995

228,518

203,609

2014 
US$000

11,203

–

1,131

1,145

786

726

265

192

–
16
15,464

2013 
US$000

12,296

1,262

1,098

1,078

963

818

406

298

146
281
18,646

HIGHLAND GOLD MINING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

11. OTHER OPERATING INCOME AND EXPENSES
11.1. OTHER OPERATING INCOME

Other income

Income from disposal of an entity

11.2.2

Gain on disposal of property, plant and equipment

Reversal of allowance for doubtful debts

Accounts payable write-off

Change in estimation – site restoration asset

16

Total other operating income

11.2. OTHER OPERATING EXPENSES

Movement in ore stockpiles obsolescence provision

11.2.1

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

Impairment of construction in progress

11.2.3

Donations

Loss on disposal of property, plant and equipment

Loss on disposal of inventory

Movement in raw materials and consumables 
obsolescence provision

Loss on disposal of an entity

Other taxes relating to prior periods

Other expenses

Total other operating expenses

11.2.2

2014 
US$000

831

–

–

146

122

7,535

8,634

2014 
US$000

664

393

500

1,239

781

–

509

918

617

1,627

7,248

2013 
US$000

1,218

1,301

38

–

200

–

2,757

2013 
US$000

2,386

619

–

2,564

–

454

1

–

–

1,665

7,689

11.2.1. MOVEMENT IN ORE STOCKPILES OBSOLESCENCE PROVISION
Stock-piled low grade ore at BG is tested for impairment annually. The balance of ore stockpiles in the amount of 
US$0.7 million was written down in 2014 (2013: US$2.4 million).

11.2.2. DISPOSAL OF AN ENTITY
In 2013 the Group sold Trade House Mnogovershinnoye (TH MNV) to a non-related party. TH MNV was involved in 
non-core activities of the Group, providing trading, hotel-type and catering services to other companies. It formed part 
of the “other” reporting segment. Gain on disposal of TH MNV of US$1.3 million was recognised in 2013 (net liabilities 
of US$1.0 million and proceeds of US$0.3 million). Loss on disposal of TH MNV of US$0.9 million in 2014 represents the 
allowance made for doubtful accounts related to the sale.

11.2.3. IMPAIRMENT OF CONSTRUCTION IN PROGRESS
The recoverable amount of a construction in progress item determined as at 31 December 2014 was lower than its carrying 
amount because the Group does not expect to derive future cash flows from the asset. The asset was considered impaired 
and was written down to its recoverable amount (Nil).

12. FOREIGN EXCHANGE GAINS AND LOSSES
The total amount of foreign exchange loss for the year ended 31 December 2014 was US$9.6 million (2013: loss of 
US$2.8 million) resulting from the settlement of foreign currency transactions and from the translation of monetary assets 
and liabilities denominated in foreign currencies such as Russian Roubles and British pounds into the functional currency.

ANNUAL REPORT & ACCOUNTS 2014

59

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

13. FINANCE INCOME AND COSTS
13.1. FINANCE INCOME

Bonds and shares fair value movement (Note 32)

Bank interest 

Other finance income

Total finance income 

13.2. FINANCE COSTS

Accretion expense on site restoration provision (Note 28)

Interest expense on bank loans*

Unwinding of contingent consideration liability

Other finance costs

Total finance costs 

* Interest on bank loans was capitalised in full in 2013.

14. INCOME TAX

2014 
US$000

3,265

160

32

3,457

2014 
US$000

2,355

1,871

–

–

2013 
US$000

9,176

253

–

9,429

2013 
US$000

1,386

–

180

54

4,226

1,620

The major components of income tax expense for the years ended 31 December 2014 and 2013 are:

60

Consolidated statement of comprehensive income

Current income tax:

Current income tax charge

Adjustments in respect of prior year current tax

Deferred income tax:

Relating to origination of temporary differences
Income tax expense reported in the statement of 
comprehensive income

2014 
US$000

2013 
US$000

20,677

249

20,926

49,404

70,330

26,755

59

26,814

550

27,364

A reconciliation between the actual tax expense and the expected tax expense based on the accounting 
profit multiplied by Russian statutory tax rate of 20% for the year ended 31 December 2014 and 2013 is 
as follows:

Accounting profit before income tax 

At Russian statutory income tax rate of 20% 

Non-deductible expenses

Effect of translation of tax base denominated in foreign currency

Adjustments in respect of prior year tax

Loss arising from disposal of an entity

Lower tax rates on overseas losses/(earnings)

Unrecognised losses

(Gain)/loss from other unrecognised temporary differences
Income tax expense at the effective tax rate of 155%  
(2013: 33%)
Income tax expense reported in the consolidated statement  
of comprehensive income

2014 
US$000

45,487

9,097

2,143

52,204

249

–

2,293

4,874

 (530)

2013 
US$000

82,061

16,412

3,480

6,474

59

 (334)

 (863)

625

1,511

70,330

27,364

70,330

27,364

HIGHLAND GOLD MINING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DEFERRED INCOME TAX
Deferred income tax at 31 December relates to the following:

Consolidated 
statement of financial 
position

Consolidated 
statement of 
comprehensive income

Acquisitions

2014 
US$000

2013 
US$000

2014 
US$000

2013 
US$000

2014 
US$000

2013 
US$000

Deferred income tax liability

Property, plant and equipment

 (142,271)

 (105,632)

36,639

6,265

Inventory

Accounts receivable and  
other debtors

Deferred financing costs

Deferred income tax assets

Accounts receivable and other 
debtors

Inventory

Provisions for liabilities and 
charges

Trade accounts and notes payable

Tax losses

Net deferred income 
tax liabilities

 (9,880)

 (3,239)

6,641

 (803)

 (159)

 (58)

 (92)

644

 (34)

178

139

92

 (153,012)

 (109,122)

43,890

6,674

664

1,040

376

 (339)

–

–

–

–

–

–

107

20

1,093

22,302

24,059

842

27,691

29,573

 (251)

5,389

 (486)

 (5,426)

5,514

 (6,124)

 (128,953)

 (79,549)

49,404

550

–

–

–

–

–

–

–

–

–

–

–

–

 (39,346)

–

–

–

 (39,346)

–

–

–

–

1,673

1,673

 (37,673)

Entity-specific deferred tax positions are presented below:

61

Deferred income tax assets

Deferred income tax liabilities

Deferred tax liabilities net

2014 
US$000

82

 (129,035)

 (128,953)

2013 
US$000

826

 (80,375)

 (79,549)

No deferred tax benefits are recognised in relation to site restoration provisions and obsolescence provisions. Restoration 
expenses are tax deductible when incurred. However, it is not certain that there will be sufficient income towards the end of 
the mine’s life against which the restoration expenditure can be offset and therefore future tax relief has not been assumed.

The amount of the deductible temporary differences for which no deferred tax asset has been recognised in respect of the 
site restoration provision at 31 December 2014 is US$14.9 million (31 December 2013: US$18.6 million).

No deferred tax benefit is recognised in relation to the provision for obsolete inventory. These materials are unlikely to be 
used for production purposes in the future and therefore future tax relief is not assumed. The amount of the deductible 
temporary differences for which no deferred tax asset has been recognised in respect of the obsolescence provision at 
31 December 2014 is US$15.3 million (31 December 2013: US$14.1 million).

The amount of the deductible temporary differences for which no deferred tax asset has been recognised in respect of the 
tax losses at 31 December 2014 is US$32.2 million (31 December 2013: US$7.9 million). The non-recognition of tax losses is 
due to insufficient expected future income against which these losses could be offset.

According to Russian tax legislation, tax losses expire if not utilised within 10 years of accruing. In 2012 the income tax in 
Kyrgyzstan was decreased to 0% for entities engaged in gold mining and gold selling.

ANNUAL REPORT & ACCOUNTS 2014

 
 
 
 
 
 
 
 
 
 
 
 
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The temporary differences associated with investments in subsidiaries, for which deferred tax liability in respect  
of withholding tax on dividends has not been recognised aggregate to US$321.8 million (2013: US$456.5 million).  
deferred tax liability has been recognised in respect of these differences because the Group is able to control the timing 
of the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the 
foreseeable future.

The total deferred tax liabilities arising from these temporary differences should be between US$0 and US$16.1 million 
(2013: US$0 and US$22.8 million), depending on the manner in which the investments are ultimately realised.

Profits arising in the Company for the 2014 and 2013 years of assessment will be subject to Jersey tax at the standard 
corporate income tax rate of 0%.

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

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 year plus the weighted average number 
of ordinary shares that would be issued, for no consideration, 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:

Net (loss)/profit attributable to ordinary equity holders of the parent
Net (loss)/profit attributable to ordinary equity holders of  
the parent

62

Weighted average number of ordinary shares for basic earnings  
per share
Effect of dilution:

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

2014
US$000

 (24,843)

 (24,843)

2013
US$000

54,697

54,697

Thousands

Thousands

325,222

325,222

–

–

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.

HIGHLAND GOLD MINING LIMITED

 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

16. MINE PROPERTIES, EXPLORATION AND EVALUATION ASSETS, AND PROPERTY, PLANT 
AND EQUIPMENT 
RECONCILIATION OF FIXED ASSETS ON PERIOD-BY-PERIOD BASIS FOR THE PERIOD ENDING 31 DECEMBER 2014

EXPLORATION 
AND 
EVALUATION 
ASSETS
US$000

MINE 
PROPERTIES
US$000

STRIPPING 
ACTIVITY 
ASSETS
US$000

FREEHOLD 
BUILDING
US$000

PLANT AND 
EQUIPMENT
US$000

CONSTRUCTION 
IN PROGRESS
US$000

TOTAL
US$000

Cost

At 1 January 2014

270,287

443,270

28,701

99,736

154,777

197,608

1,194,379

Reclassification 

Additions 

Transfers

Write-off*

Disposals

Capitalised depreciation 

Capitalised interest**

Change in estimation – site 
restoration asset***
At 31 December 2014

Depreciation 
and impairment

At 1 January 2014 

Reclassification 

Provided during the year

Transfers

Write-off*

Impairment of 
construction in progress

Disposals

Capitalised depreciation

Change in estimation – site 
restoration asset***

Impairment

Capitalised to inventory

At 31 December 2014

Net book value:

At 1 January 2014 

At 31 December 2014

 (2,202)

14,742

 (1,188)

–

–

5,819

9,281

–

10,199

5,133

 (383)

–

1,370

1,714

–

 (22,918)

–

5,554

–

–

–

1,777

–

–

2,060

–

101,179

–

 (94)

–

–

–

 (2,290)

1,308

53,406

 (2,175)

 (481)

–

–

–

857

35,893

 (161,333)

 (192)

 (896)

5,898

–

–

 (1,575)

67,696

 (2,803)

 (2,750)

 (1,471)

14,864

10,995

 (22,918)

296,739

438,385

36,032

202,881

204,545

77,835

1,256,417

–

–

–

–

–

–

–

–

–

–

–

–

110,516

23,448

–

22,945

 (1,095)

 (368)

–

–

654

 (9,476)

1,196

–

–

4,881

–

–

–

–

309

–

–

–

25,171

 (777)

12,066

 (479)

–

–

 (8)

7,236

–

–

–

59,391

 (798)

19,500

 (1,229)

 (1,989)

–

 (352)

6,665

–

–

825

63

73

218,599

–

–

–

–

 (1,575)

59,392

 (2,803)

 (2,357)

500

500

–

–

–

–

–

 (360)

14,864

 (9,476)

1,196

825

124,372

28,638

43,209

82,013

573

278,805

270,287

296,739

332,754

314,013

5,253

7,394

74,565

95,386

197,535

975,780

159,672

122,532

77,262

977,612

* Write-off for 2014 in the amount of US$0.4 million relates to retirement of old inefficient equipment.
** Capitalised interest for 2014 includes US$9.3 million of borrowing costs capitalised at Kekura and US$1.7 million of borrowing costs capitalised at 

BG at interest rates between 4.2% and 5.0%.

***  During 2014 there was a reduction in the rehabilitation estimate (Note 28) of US$21.0 million which exceeded the corresponding net book value in 

fixed assets by US$7.5 million. This excess was recognised in other operating income.

No plant and equipment has been pledged as security for bank loans in 2014.

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

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

ANNUAL REPORT & ACCOUNTS 2014

 
 
 
 
 
 
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

RECONCILIATION OF FIXED ASSETS ON PERIOD-BY-PERIOD BASIS FOR THE PERIOD ENDING 31 DECEMBER 2013

EXPLORATION 
AND 
EVALUATION 
ASSETS
US$000

MINE 
PROPERTIES
US$000

72,903

20,740

447,077

10,753

842

 (15,031)

–

–

6,682

7,763

–

–

161,357

270,287

–

–

–

–

–

–

–

–

–

 (19)

–

3,182

1,514

 (4,206)

–

–

443,270

28,701

91,869

26,306

 (10,018)

 (18)

–

2,377

–

–

12,890

10,558

–

–

–

–

–

–

STRIPPING 
ACTIVITY 
ASSETS
US$000

16,875

11,826

–

–

–

–

–

–

–

–

FREEHOLD 
BUILDING
US$000

PLANT AND 
EQUIPMENT
US$000

CONSTRUCTION 
IN PROGRESS
US$000

TOTAL
US$000

49,075

113,890

45,584

745,404

–

12,832

 (15)

 (429)

–

–

–

–

1,706

30,373

 (4,859)

 (902)

–

–

–

–

150,777

195,802

 (29,190)

 (40)

 (3)

3,600

–

–

 (174)

 (4,933)

 (1,334)

13,464

9,277

 (4,206)

 (34)

 (34)

38,273

99,736

14,569

26,914

241,113

154,777

197,608 1,194,379

8,605

4,525

8,843

 (12)

 (127)

3,337

–

–

41,198

13,256

1,001

 (4,284)

 (477)

7,750

947

–

–

–

–

–

–

–

–

73

73

154,562

54,645

 (174)

 (4,314)

 (604)

13,464

947

73

218,599

Cost

At 1 January 2013

Additions 

Transfers

Write-off*

Disposals**

Capitalised depreciation 

Capitalised interest***

Change in estimation – site 
restoration asset****

Reclass to inventory

Kekura acquisition

At 31 December 2013

Depreciation 
and impairment

At 1 January 2013 

Provided during the year

Transfers

Write-off*

Disposals**

Capitalised depreciation

Capitalised to inventory

Other adjustments

At 31 December 2013

Net book value:

At 1 January 2013 

At 31 December 2013

64

110,516

23,448

25,171

59,391

72,903

270,287

355,208

332,754

3,985

5,253

40,470

74,565

72,692

95,386

45,584

590,842

197,535

975,780

* Write-off for 2013 in the amount of US$0.6 million relates to retirement of old inefficient equipment.
** Disposals for 2013 include cost of US$0.7 million and depreciation of US$0.2 million related to disposal of an entity.
*** Capitalised interest for 2013 includes US$7.8 million of borrowing costs capitalised at Kekura and US$1.5 million of borrowing costs capitalised at 

BG at interest rates between 4.2% and 5.6%.

****  During 2013 a reduction in the rehabilitation estimate (Note 28) of US$5.4 million which was booked as a decrease to mining assets and  

non-current provisions.

No plant and equipment has been pledged as security for bank loans in 2013.

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

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

The following amounts in relation to exploration and evaluation activities have been recognised in the consolidated 
statement of comprehensive income or the consolidated cash flow statement as applicable:

Operating expenses

Net cash from operating activities

Net cash used in investing activities

2014
US$000
 (328)

–

19,738

2013
US$000
 (401)

–

29,176

HIGHLAND GOLD MINING LIMITED

 
 
 
 
 
 
 
 
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

17. INTANGIBLE ASSETS

Cost
At 1 January 2013
Business combination – acquisition of subsidiary (Note 5)
At 31 December 2013
Additions
At 31 December 2014
Impairment
At 1 January 2013
Provided during the year
At 31 December 2013
Provided during the year
At 31 December 2014
Net book value:
At 31 December 2013
At 31 December 2014

GOODWILL
US$000

80,570
16,754
97,324
–
97,324

–
–
–
10,205
10,205

97,324
87,119

Goodwill arises principally because of the following factors:
•  The ability to capture unique synergies that can be realised from managing a portfolio of both acquired and existing 

mines in our regional business units, and

•  The requirement to recognise deferred tax assets and liabilities for the difference between the assigned values and the 
tax bases of assets acquired and liabilities assumed in a business combination at amounts that do not reflect fair value

At 31 December 2014 intangible assets represented goodwill arising from the Barrick transaction (US$65.2 million), from 
acquisition of Novo (US$5.1 million) and from acquisition of Kekura (US$16.8 million). Goodwill allocated to Klen in the 
amount of US$10.2 million was impaired in full in 2014.

65

Goodwill is allocated to a single or group of cash-generating units as appropriate, representing the lowest level at 
which it is monitored for management purposes. Goodwill is allocated to the following groups of cash-generating units:

Goodwill allocated to the operating gold mining company (MNV)
Goodwill allocated to the operating gold mining company (BG)
Goodwill allocated to the polymetallic mining company (Novo)
Goodwill allocated to the group of development and  
exploration assets (excluding Klen and Kekura)
Goodwill allocated to development and exploration  
company (Klen)
Goodwill allocated to development and exploration  
company (Kekura)
Balance at 31 December 

2014
US$000
9,690
12,563
5,134

42,978

2013
US$000
9,690
12,563
5,134

42,978

–

10,205

16,754

87,119

16,754

97,324

18. IMPAIRMENT TESTING OF NON-CURRENT ASSETS
In accordance with the accounting policies and processes, each asset or CGU is evaluated annually at 31 December, to 
determine whether there are any indications of impairment. If any such indications of impairment exist, a formal estimate 
of the recoverable amount is performed.

Management has determined the recoverable amounts in 2014 and 2013 using fair value less costs of disposal (FVLCD) 
calculations. FVLCD is determined at the cash-generating unit level, in this case being the separate gold production and 
development and exploration assets, by discounting the expected cash flows estimated by management over the life of the mine:
•  MNV till 2017; 
•  BG – 2022; 
•  Novo – 2024; 

•   Klen – 2029; 
•   Kekura – 2028; 
•   Taseevskoye – 2028; 

•   Unkurtash – 2035;
•   Lubov – 2032.

ANNUAL REPORT & ACCOUNTS 2014

 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The calculation of the FVLCD is sensitive to the following assumptions:
•  Recoverable reserves and resources;
•  Production volumes;
•  Real discount rates;
•  Metal prices; and
•  Operating costs.

Recoverable reserves and resources are based on the proven and probable reserves and resources in existence at the end of 
the year.

Estimated production volumes are based on detailed life-of-mine plans and take into account development plans for the 
mines approved by management as part of the long-term planning process.

Metal prices are based on management judgement with reference to well-known analysts forecasts.

Operating costs are based on management’s best estimate over the life of the mine.

Discount rates represent the current market assessment of the risks specific to each project, taking into consideration  
the time value of money and individual risks of the underlying assets that have not been incorporated in the cash  
flow estimates. 

The table below shows the key assumptions used in the fair value calculation at 31 December 2014 and 2013.

Post-tax discount rate for cash flows in the operating gold mining 
company (MNV),% 

Post-tax discount rate for cash flows in the operating gold mining 
company (BG),%

66

Post-tax discount rate for cash flows in the polymetallic mining 
company (Novo),%

Post-tax discount rate for cash flows in the gold mining company 
being at development stage (Klen),% 
Post-tax discount rate for cash flows in the gold mining company 
being at development stage (Taseevskoye),%
Post-tax discount rate for cash flows in the gold mining company 
being at exploration stage (Kekura),% 
Post-tax discount rate for cash flows in the gold mining company 
being at exploration stage (Unkurtash)*,%
Post-tax discount rate for cash flows in the gold mining company 
being at exploration stage (Lubov),%

Gold price, US$ per ounce in the future periods

Silver price, US$ per ounce in the future periods

Lead price, US$ per tonne in the future periods

Zinc price, US$ per tonne in the future periods

* No income tax in Kyrgyzstan since 2012.

2014

9.35

10.35

10.35

11.35

11.35

11.35

11.35

11.35

1,200

16

2,200

2,200

2013

6.11

7.11

7.11

7.11

7.11

7.11

8.11

7.11

1,200

22

2,100

1,850

As a result of the recoverable amount analysis performed during the year, the following impairment losses were 
recognised:

Goodwill

Mine properties

Total impairment losses 

2014
US$000

10,205

1,196

11,401

2013
US$000

–

–

–

HIGHLAND GOLD MINING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The impairment loss was recognised in relation to the Klen project. The triggers for the impairment test were primarily the 
effect of changes to the mine plan which resulted in postponing the development activities at Klen. As part of the Group’s 
annual impairment assessment, it was determined that due to the changes in estimates of the mine plan, the carrying 
amount of goodwill and mine properties exceeded their recoverable amounts. The carrying amount of goodwill allocated 
to Klen and representing a deferred tax liability has been reduced to Nil via the recognition of an impairment loss of 
US$10.2 million during the year ended 31 December 2014. Another US$1.2 million was recognised as an impairment 
loss in respect of mine properties at Klen.

Any rise in the post-tax discount rate, any decrease in gold prices below 1,200 per ounce or any increase in operating or 
capital costs at Klen would result in a further impairment of mine properties and equipment.

For impairment of property, plant and equipment and intangible assets, fair value less costs of disposal are determined 
by discounting the post-tax cash flows expected to be generated from future gold production net of selling costs 
taking into account assumptions that market participants would typically use in estimating fair values. These estimates 
are categorised within Level 3 of the fair value hierarchy. Post-tax cash flows are derived from projected production 
profiles for each asset taking into account forward market commodity prices over the relevant period and where external 
forward prices are not available the Group’s Board approved life-of-mine model assumptions are used. As each asset has 
different reserve and resource characteristics and contractual terms, the post-tax cash flows for each asset are calculated 
using individual economic models which include assumptions around the amount of recoverable reserves, production 
costs, life of mine/licence period and the selling price of the gold produced. Refer to Note 32 for fair value disclosures in 
respect of assets carried at fair value.

19. OTHER NON-CURRENT ASSETS

Non-current prepayments*

Non-current portion of accounts receivable*

Other non-current assets

Total other non-current assets 

2014
US$000

3,177

–

403

3,580

2013
US$000

11,354

1,447

471

13,272

67

*  The portion of prepayments and accounts receivable that will be realised in a period greater than 12 months from the reporting date is classified as 
non-current assets. Non-current prepayments include advances given to suppliers for equipment and construction works. Non-current accounts in 
2013 receivable relate to the disposal of an entity.

20. SHARE-BASED PAYMENT PLANS
EMPLOYEE SHARE OPTION PLAN
Options for 75,000 shares were forfeited in 2013 due to the retirement of certain participants. Options for 450,000 shares 
expired in 2014. Currently there are no participants of the scheme.

The following table illustrates the number and weighted average exercise price (WAEP) of, and movements in, share 
options during the year.

Outstanding as at 1 January 

Expired during the year

Forfeited during the year

Outstanding as at 31 December

Exercisable at 31 December

2014
NO.

450,000

 (450,000)

–

–

2014
WAEP

£0.96

£0.96

–

–

2013
NO.

525,000

–

 (75,000)

450,000

450,000

2013
WAEP

£0.96

–

£0.96

£0.96

£0.96

ANNUAL REPORT & ACCOUNTS 2014

 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the share options outstanding as at 31 December 2013, the weighted average remaining contractual life was 0.73 years. 
The exercise price for options outstanding at the end of 2013 was £0.96.

The fair value of the share based payments was estimated using the Black-Scholes-Merton option pricing model taking into 
account the terms and conditions upon which the instruments were granted.

21. INVENTORIES
NON-CURRENT*

Ore stockpiles 

Ore stockpile obsolescence provision

Total inventories

2014 
US$000

11,273

11,273

 (4,609)

6,664

2013 
US$000

18,569

18,569

 (3,946)

14,623

* 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.

CURRENT

Raw materials and consumables

Ore stockpiles 

Gold in progress

Finished goods

68

Raw materials and consumables obsolescence provision

Total inventories

No inventory has been pledged as security.

22. TRADE AND OTHER RECEIVABLES

VAT receivable

Other taxes receivable

Related party receivables (Note 30)

Trade receivables*

Other receivables

2014 
US$000

68,771

12,821

4,704

1,709

88,005

 (10,668)

77,337

2014
US$000

18,548

94

104

7,895

2,248

2013 
US$000

58,441

15,424

6,799

173

80,837

 (10,159)

70,678

2013
US$000

39,589

1

459

9,798

3,264

28,889

53,111

* As at 31 December 2014, a negative price and volume adjustment was booked to trade receivables in the amount of US$2.4 million (2013: a negative 

adjustment in the amount of US$0.9 million).

The Group’s trade customers have no history of default.

Other receivables are non-interest bearing and are generally on 30–90 days-term.

HIGHLAND GOLD MINING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

As at 31 December, VAT receivable was provided for as follows:

At 1 January

Additions

Utilisation

At 31 December

2014
US$000 

242

–

 (197)

45

2013
US$000 

45

197

–

242

The VAT provision is recognised to reflect the risk of non-receipt of input VAT refund which is subject to approval  
by local tax authorities and other amounts expected to expire after the three-year statutory period. The movement  
in the VAT provision is recognised within other administrative expenses.

All trade and other receivables are not past due and are not impaired. The Group does not expect any problems  
with recovering this amount.

23. PREPAYMENTS

Prepayments

2014
US$000

2,000

2,000

2013
US$000

6,389

6,389

Prepayments include advances given to suppliers for raw materials and consumables.

24. CASH AND CASH EQUIVALENTS
Cash at bank earns interest at fixed rates based on daily bank deposit rates. Short-term deposits are made for varying 
periods of between one day and three months depending on the immediate cash requirements of the Group, and 
earn interest at the respective short-term deposit rates. The deposits are placed with the banks with credit rating  
BBB/A-2 (Standard & Poor’s) or higher. The fair value of cash and cash equivalents is equal to the carrying value.

69

Cash in hand and at bank

Short-term deposits

25. ISSUED CAPITAL AND RESERVES
A) ISSUED SHARE CAPITAL

AUTHORISED

Ordinary shares of £0.001 each

2014
US$000

12,759

187

12,946

2013
US$000

5,979

1,959

7,938

2014
SHARES

2013
SHARES

750,000,000

750,000,000

ORDINARY SHARES ISSUED AND FULLY PAID

SHARES AMOUNT US$000 

At 1 January 2013

Ordinary shares issued

At 31 December 2013

Ordinary shares issued

At 31 December 2014

325,222,098

–

325,222,098

–

325,222,098

585

–

585

–

585

ANNUAL REPORT & ACCOUNTS 2014

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

B) NATURE AND PURPOSE OF OTHER RESERVES
ASSET REVALUATION RESERVE
The asset revaluation reserve is used to record increases in the fair value of land and buildings and decreases to the 
extent that such decrease relates to an increase on the same asset previously recognised in equity.

26. INTEREST-BEARING LOANS AND BORROWINGS

EFFECTIVE INTEREST RATE%

MATURITY

2014 
US$000

2013 
US$000

Current

Gazprombank loan*

5.6, 5.0 from 30 April 2013

March 2014

–

6,875

Gazprombank loan**

5.17, 5.0 from 30 April 2013, 
4.0 from 28 October 2013

Gazprombank loan***

Sberbank loan*****

5.0

4.2

Non-current

Gazprombank loan**

5.17, 5.0 from 30 April 2013, 
4.0 from 28 October 2013

Gazprombank loan**** 5.4 

Gazprombank loan***

Sberbank loan*****

5.0

4.2

Total

March 2016

May 2016

September 2016

March 2016

March 2017

May 2016

September 2016

88,714

88,714

19,111

49,833

15,926

12,500

157,658

124,015

22,179

110,893

77,926

7,963

37,375

–

27,074

47,342

145,443

185,309

303,101

309,324

70

* In October 2012 the Group raised financing with Gazprombank at a 5.6% interest rate with the draw period set till 23 January 2013. In April 

2013 the rate was changed to 5.0%. The loan was repaid in March 2014.

** In March 2013 the Group raised financing with Gazprombank at a 5.17% interest rate with the draw period set till 21 June 2013. In April 2013 the 

rate was changed to 5.0%. In October 2013 the rate was changed to 4.0%. The loan is repayable in monthly instalments between December 

2013 and March 2016. The loan is secured by future gold sales at market prices at a time of sale. The outstanding amount of funds obtained under 

the agreement at 31 December 2014 is US$110.9 million (2013: US$199.6 million). The outstanding bank debt is subject to the following covenant: 

the ratio of total debt to EBITDA should be equal to or lower than 4.0.

*** In June 2013 the Group raised financing with Gazprombank at a 5.0% interest rate with the draw period set till 20 October 2013. The loan is 

repayable in monthly instalments between March 2014 and May 2016. The loan is secured by future gold sales at market prices at a time of sale. 

The outstanding amount of funds obtained under the agreement at 31 December 2014 is US$27.1 million (2013: US$43.0 million).  

The outstanding bank debt is subject to the following covenant: the ratio of total debt to EBITDA should be equal to or lower than 4.0.

**** In March 2014 the Group secured a revolving facility with Gazprombank with the draw period set till 31 March 2016. The interest rate is set 

for every instalment separately, with the maximum of 15.0% in USD and 20.0% in RUR. Every instalment is repayable in one year, with the final 

repayment in March 2017. The loan is secured by future gold sales at market prices at the time of sale. The outstanding amount of funds obtained 

under the agreement at 31 December 2014 is US$77.9 million (2013: Nil). The outstanding bank debt is subject to the following covenant: the ratio 

of total debt to EBITDA should be equal to or lower than 4.0.

***** In September 2013 the Group signed a new financing agreement with Sberbank for a US$100.0 million facility at a 3.8% interest rate with 

the draw period set till 2 September 2016. The loan is repayable in instalments between December 2014 and September 2016. The outstanding 

amount of funds obtained under the agreement at 31 December 2014 is US$87.2 million (2013: US$59.8 million). The outstanding bank debt is 

subject to the following covenant: the ratio of net debt to EBITDA should be equal to or lower than 4.0.

The total outstanding bank debt of the Group at 31 December 2014 is US$303.1 million (2013: US$309.3 million).

HIGHLAND GOLD MINING LIMITED

 
 
 
 
 
 
 
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

27. TRADE AND OTHER PAYABLES
NON-CURRENT

Non-current portion of pension liabilities

CURRENT

Contingent consideration liability (Note 5)

Trade payables

Salaries payable

Income tax payable

Other taxes payable

Other current payables

2014 
US$000

2013 
US$000

305

305

441

441

2014 
US$000

400

10,220

6,735

3,418

4,367

412

2013 
US$000

10,504

19,491

10,182

–

5,198

1,070

25,552

46,445

Terms and conditions of current financial liabilities included above:
•  Salaries payable are non-interest bearing and are normally settled on 30-day terms. 

Outstanding vacations are also included in this line.

•  Trade and other payables are non-interest bearing and are normally settled on 30–60 day terms.
•  Other taxes payable include mineral extraction tax, property tax, social taxes and VAT. These are 

non-interest bearing and are normally settled within 30–60 days.

•  For terms and conditions in regards of contingent consideration, refer to Note 5.

28. PROVISIONS

At 1 January 2013

Accretion

Disposal

Utilisation of provision

Additions

Effect of changes in the discount and inflation rates

Effect of changes in estimated costs

Effect of exchange rate changes

At 31 December 2013

Accretion

Disposal

Utilisation of provision

Effect of changes in the discount and inflation rates

Effect of changes in estimated costs

Effect of exchange rate changes 

At 31 December 2014

Current 2013

Non-current 2013

Current 2014

Non-current 2014

SITE RESTORATION 
PROVISION 
US$000

LEGAL PROVISION 
US$000

37,272

1,386

–

 (50)

1,163

 (8,040)

5,415

 (2,744)

34,402

2,355

–

 (81)

 (4,362)

1,307

 (17,922)

15,699

–

34,402

34,402

–

15,699

15,699

123

18

 (123)

–

–

–

–

–

18

–

 (18)

–

–

–

–

–

18

–

18

–

–

–

TOTAL 
US$000

37,395

1,404

 (123)

 (50)

1,163

 (8,040)

5,415

 (2,744)

34,420

2,355

 (18)

 (81)

 (4,362)

1,307

 (17,922)

15,699

18

34,402

34,420

–

15,699

15,699

ANNUAL REPORT & ACCOUNTS 2014

71

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SITE RESTORATION PROVISION
In 2014 the Group performed a re-assessment of the site restoration provision at MNV. The assessments were based on 
government requirements applicable to similar sites that have closed recently, and assumptions regarding the life of mine 
(which is assumed to close in 2017), site restoration activities expected to be carried out in 2016 and 2017 (removal of 
waste, restoration of mine sites), current prices for similar activities and risk-free RUR-denominated government bonds 
discount rates of 13.4% for 2016 and 15.4% for 2017 (2013: RUR-denominated government bonds rate of 6.8%).

A risk-free RUR-denominated government bonds discount rate of 14.9% (2013: RUR-denominated government bonds rate 
of 6.1%) has been used to calculate the site restoration liability at Novo assuming its closure in 2024.

A risk-free RUR-denominated government bonds discount rate of 14.4% (2013: RUR-denominated government bonds rate 
of 7.2%) has been used to calculate the site restoration liability at BG assuming its closure in 2022.

A risk-free RUR-denominated government bonds discount rate of 13.3% (2013: RUR-denominated government bonds rate 
of 7.4%) has been used to calculate the site restoration liability at Klen and Kekura assuming site closure in 2028.

The decrease in site restoration liability in the amount of US$17.9 million was due to devaluation of RUR against USD in 
2014 (2013: decrease of US$2.7 million).

The total change in estimation of site restoration liability amounts to US$21.0 million in 2014 (2013: US$5.4 million).

LEGAL PROVISION
The legal provision represents management’s best estimate of the amounts required to settle various claims against the Group.

72

29. COMMITMENTS AND CONTINGENCIES
OPERATING LEASE COMMITMENTS – GROUP AS LESSEE
The Group has renewed a commercial lease on its office premises in March 2015. This lease has a life of 3 years. There 
are no restrictions placed upon the Group by entering into this lease. The operating lease charge for the year ended 
31 December 2014 was US$1.1 million (2013: US$1.1 million).

Future minimum rentals payable under non-cancellable operating leases as at 31 December are as follows:

Within one year

After one year but not more than five years

2014 
US$000

815

2,144

2,959

2013 
US$000

1,073

180

1,253

CAPITAL COMMITMENTS
At 31 December 2013, the Group had commitments of US$9.8 million (2013: US$21.8 million) principally relating to 
development assets and US$1.6 million (2013: US$1.0 million) for the acquisition of new machinery.

FINANCE LEASE AND HIRE PURCHASE COMMITMENTS
As at 31 December 2014 the Group has no current finance leases and hire purchase contracts.

CONTINGENT LIABILITIES
Management has identified possible tax claims within the various jurisdictions in which it operates totalling US$3.1 million 
as at 31 December 2014 (at 31 December 2013: US$1.3 million). In management’s view these possible tax claims will likely not 
result in a future outflow of resources, consequently no provision is required in respect of these matters.

In addition, because a number of fiscal periods remain open to review by the tax authorities, there is a risk that 
transactions and interpretations that have not been identified by management or challenged in the past may be challenged 
by the authorities in the future, although this risk significantly diminishes with the passage of time. It is not practical to 
determine the amount of any such potential claims or the likelihood of any unfavourable outcome.

HIGHLAND GOLD MINING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Notwithstanding the above risks, management believes that its interpretation of the relevant legislation is appropriate and 
that the Group has complied with all regulations, and paid or accrued all taxes and withholdings that are applicable. Where 
the risk of outflow of resources is probable, the Group has accrued tax liabilities based on management’s best estimate.

30. RELATED PARTY DISCLOSURES
Details of the investments in which the Group holds 20% or more of the nominal value of any class of share capital are as 
follows:
NAME

COUNTRY 
OF INCORPORATION

SHAREHOLDING
%

Subsidiary undertakings

Held by the ultimate parent

Stanmix Investments Limited

Stanmix Holding Limited

Cyprus

Cyprus

Highland Exploration Kyrgyzstan LLC (Unkurtash)

Kyrgyzstan

Held indirectly via subsidiaries

AO Mnogovershinnoye (MNV)

OAO Novo-Shirokinsky Rudnik (Novo)

OOO Belaya Gora (BG)

OOO Lubavinskoye (Lubov)

OOO Taseevskoye

OOO Klen

ZAO Bazovye Metally (Kekura)

OOO Russdragmet (RDM)

OOO BSC

OOO Zabaykalzolotoproyekt (ZZP)

ZAO TH Mnogovershinnoye – till 5 August 2013

OOO RDM-Resources – till 11 November 2014

Russia

Russia

Russia

Russia

Russia

Russia

Russia

Russia

Russia

Russia

Russia

Russia

100

100

100

100

97.9*

100

100

100

100

100

100

100

100

100

100

73

* There are no restrictions imposed by non-controlling interest on our ability to use assets and settle liabilities of Novo.

ENTITY WITH SIGNIFICANT INFLUENCE OVER THE GROUP
Following the Second Subscription on new ordinary shares in Highland Gold Mining Limited on 15 January 2008 by 
Primerod International Limited, Primerod held 32% of Highland Gold at 31 December 2014.

Persons connected with Eugene Shvidler, Non-executive Director of the Company, have acquired 26,020,000 ordinary 
shares of £0.001 per share in the capital of the Company on 7 May 2008 at a price of US$3.048 per share. Eugene Shvidler, 
together with the persons connected with him, own 36,916,144 ordinary shares of £0.001 per share in the capital of the 
Company representing 11.35% of the total issued share capital of the Company.

Prosperity Capital Management held 17.29% of Highland Gold at 31 December 2014.

TERMS AND CONDITIONS OF TRANSACTIONS WITH RELATED PARTIES
There were no related party transactions in 2014. The sales to and purchases from related parties are made at normal 
market prices and arm’s length terms. There are no outstanding balances at 31 December 2014 (2013: Nil). There have 
been no guarantees provided or received for any related party receivables or payables. For the year ended 31 December 
2014, the Group has not recorded any impairment of receivables relating to amounts owed by related parties (2013: Nil). 
This assessment is undertaken each financial year through examining the financial position of the related party and the 
market in which the related party operates.

ANNUAL REPORT & ACCOUNTS 2014

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

COMPENSATION OF KEY MANAGEMENT PERSONNEL OF THE GROUP

Short-term employee benefits

Total compensation paid to key management personnel

2014
US$000

5,131

5,131

2013
US$000

4,117

4,117

The amounts disclosed in the table are the amounts recognised as an expense during the reporting period related to key 
management personnel, the Directors of the parent company and subsidiaries, including social security contributions.  
For detailed Directors’ compensation refer to report on Directors’ remuneration.

LOAN ISSUED TO MANAGEMENT OF THE GROUP
In 2013 the Group issued an interest-free RUR-denominated loan to a Director of the Group in the amount of US$0.4 million 
(2014: no loans issued to Directors of the Group). The loan is repayable in equal monthly instalments between May 2013 and 
May 2018. The outstanding amount of loan at the date of authorising these financial statements is US$0.1 million.

DIRECTORS’ INTERESTS IN AN EMPLOYEE SHARE INCENTIVE PLAN
Share options held by members of the Board of Directors to purchase ordinary shares expired in 2014.

31. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The Group’s principal financial liabilities comprise bank loans and trade payables. The main purpose of these financial 
liabilities is to raise finance for the Group’s operations. The Group has various financial assets such as trade receivables 
and cash and short-term deposits, which arise directly from its operations.

GOLD PRICE RISK
In year 2014 as well as in prior years, the Group continued its no hedge policy in relation to the gold price.

74

EMBEDDED DERIVATIVE
Novo as the main concentrate producer and seller of the Group has long-term sale contracts with Kazzinc where price 
risk is retained for a specific period after the sale has occurred. The price payable under the concentrate contract is 
determined by reference to prices quoted in an organised market (LME). The title to the commodity passes to the buyer 
on delivery. At this time a provisional invoice is generated based on the average price over the previous months. 85% of the 
provisional invoice is settled within a few days. The remaining 15% (plus or minus any adjustment on 100% of the value 
of the sale for movements in price from the price in the provisional invoice and the final price, plus any minor volume 
adjustments resulting from the final assay) is settled in 4 months after the date of delivery.

Pricing adjustment features that are based on quoted market prices for a date subsequent to the date of shipment  
or delivery of the commodity represent a derivative financial instrument once the commodity has been delivered.  
The derivative has a fair value, based on the pricing formula set out in the contract, which is based on quoted  
market prices.

FOREIGN CURRENCY RISK
Taking into account that gold prices are formed in the international markets and denominated in US dollars, the Group 
seeks to mitigate the foreign currency risk by raising its debt facilities and most part of its trade liabilities denominated in 
US dollars. However as a result of investing and operating activities in Russia the Group’s statement of financial position 
can still be affected by movements in the RUR/USD exchange rates. Besides, the Group also has transactional currency 
exposures connected with operations denominated in GBP.

The following table demonstrates the sensitivity to a reasonably possible change in the EUR, RUR and GBP exchange rates, 
with all other variables held constant, of the Group’s profit before tax (due to changes in the fair value of monetary assets 
and liabilities).

HIGHLAND GOLD MINING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2013

2014

INCREASE/DECREASE IN 
RUR RATE

EFFECT ON PROFIT 
BEFORE TAX
US$000

INCREASE/DECREASE IN 
GBP RATE

EFFECT ON PROFIT 
BEFORE TAX
US$000

6%

-6%

17%

-17%

891

 (891)

 (447)

447

6%

-6%

6%

-6%

3,054

 (3,054)

2,714

 (2,714)

There is no other foreign currency impact on equity.

CREDIT RISK
Maximum exposure to credit risk is represented by carrying amount of financial assets. Credit risk arises from 
debtor’s inability to make payment of their obligations to the Group as they become due (without taking into account 
the fair value of any guarantee or pledged assets); and by non-compliance by the counterparties in transactions in cash, 
which is limited to balances deposited in banks and accounts receivable at the reporting dates. To manage this risk, 
the Group deposits its surplus funds in highly rated financial institutions, establishes conservative credit policies and 
constantly evaluates the conditions of the market in which it conducts its activities. The Group sells the produced gold to 
recognised, creditworthy banks. The sold gold is being paid for in advance, or immediately after the sale. Therefore, there 
are no trade receivables associated with the gold trade.

With respect to credit risk arising from the other financial assets of the Group, which comprises bank coupon bonds, 
the Group’s exposure to credit risk arises from default of the counterparty, with a minimum exposure equal to the 
carrying amount of these instruments. The Group limits its counterparty credit risk on these assets by dealing only with 
financial institutions with credit ratings at least BBB/A-2 (Standard & Poor’s) or higher.

LIQUIDITY RISK
The Group monitors its risk to a shortage of funds using a recurring liquidity planning tool. This tool considers the 
maturity of both its financial investments and financial assets (e. g. accounts receivables, other financial assets) and 
projected cash flows from operations.

75

The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank 
overdrafts, bank loans, finance leases and hire purchase contracts.

Please refer to Note 26 for the information on the financial covenants the Group is bound by.

The table below summarises the maturity profile of the Group’s financial liabilities at 31 December 2014 and 
31 December 2015 based on contractual undiscounted payments.

YEAR ENDED 31 DECEMBER 2013
Interest bearing loans and 
borrowings
Trade and other payables
Contingent consideration liability

YEAR ENDED 31 DECEMBER 2014
Interest bearing loans and 
borrowings

Trade and other payables

Contingent consideration liability

ON DEMAND 
US$000

< 1 YEAR 
US$000

1–2 YEARS 
US$000

2–5 YEARS 
US$000

> 5 YEARS 
US$000

TOTAL 
US$000

–
–
–
–

134,368
30,591
10,504
175,463

160,437
–
–
160,437

30,721
–
–
30,721

–
–
–
–

325,526
30,591
10,504
366,621

ON DEMAND 
US$000

< 1 YEAR 
US$000

1–2 YEARS 
US$000

2–5 YEARS 
US$000

> 5 YEARS 
US$000

TOTAL 
US$000

–

–

–

–

245,182

68,587

17,265

400

–

–

262,847

68,587

–

–

–

–

–

–

–

–

313,769

17,265

400

331,434

Interest bearing loans and borrowings for the year ended 31 December 2014 with maturity of less than 1 year include a 
revolving facility secured with Gazprombank: the amount of US$77.9 million outstanding at 31 December 2014 has been 
presented as non-current liabilities in the consolidated statement of financial position. Refer to Note 26 for further details.

ANNUAL REPORT & ACCOUNTS 2014

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

CAPITAL MANAGEMENT
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order 
to provide returns for shareholders, benefits for other stakeholders and to maintain an optimal capital structure to reduce 
the cost of capital. Capital comprises equity and debt financing. For information related to equity refer to consolidated 
statement of changes in equity. For information on debt financing refer to Note 26. In order to ensure an appropriate 
return for shareholders’ capital invested in the Company, management thoroughly evaluates all material projects and 
potential acquisitions and has them approved by the Board where applicable.

INTEREST RATE RISK
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in 
market interest rates. The exposure to the risk of changes in market interest rates relates primarily to long-term debt 
obligations with floating interest rates. The Group mitigates this risk through signing financing arrangements at fixed rates.

As at 31 December 2014 the Group has outstanding bank debt at fixed rates in the amount of US$303.1 million.

MARKET PRICE RISK
Market price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of 
changes in market prices. Financial instruments affected by market price risk include the Group’s investments in bonds 
and shares and embedded derivatives.

The following table demonstrates the sensitivity of investments in bonds and shares to a reasonably possible change in 
market prices:

76

Bonds

Bonds

INCREASE/DECREASE IN 
PRICES,%

5%

-5%

Effect on profit before tax

2014
US$000

2,240

 (2,240)

2013
US$000

2,330

 (2,330)

The following table demonstrates the sensitivity of the embedded derivative to a reasonably possible change in metal prices:

Effect on derivative

Lead

Zinc

Gold

Silver

INCREASE/DECREASE IN 
PRICES,%

5%

-5%

5%

-5%

5%

-5%

5%

-5%

2014
US$000

91

 (91)

35

 (35)

253

 (253)

85

 (85)

2013
US$000

74

 (74)

29

 (29)

231

 (231)

76

 (76)

HIGHLAND GOLD MINING LIMITED

 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

32. FINANCIAL ASSETS AND LIABILITIES
The Group’s financial instruments comprise borrowings, investments, cash, deposits and various items, such as trade 
debtors, embedded derivatives, trade creditors and contractual provisions arising in the ordinary course of its operations.

FAIR VALUES
Set out below is a comparison by category of carrying amounts and fair values of all of the Group’s financial instruments.

Financial assets

Cash and cash equivalents
Financial instruments at fair value through profit or 
loss (coupon bonds)

Trade and other receivables

Trade receivables (including embedded derivative)

Financial liabilities

CARRYING AMOUNT

FAIR VALUE

2014 
US$000

2013 
US$000

2014 
US$000

2013 
US$000

12,946

7,938

12,946

7,938

42,957

2,388

7,895

50,199

5,945

9,798

42,957

2,388

7,895

50,199

5,708

9,798

Interest-bearing loans and borrowings

303,393

309,782

303,101

309,324

Trade and other payables

Contingent consideration

17,367

400

30,743

10,504

17,367

400

30,743

10,504

The fair value of the financial assets and liabilities is included at the amount at which the instrument could be 
exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The following 
methods and assumptions were used to estimate the fair values:
•  The carrying amounts of financial instruments, such as cash and short-term deposits, short-term accounts  

receivable and payable and other current liabilities approximate their fair value.

•  Fixed-rate interest-bearing loans and borrowings are evaluated based on current market interest rates.
•  The fair value of the derivative is based on quoted market prices

77

COUPON BONDS AND SHARES
During 2014 the Group received US$6.5 million as a result of selling some bonds (2013: US$5.3 million) and 
US$4.1 million of coupon interest (2013: US$4.2 million).

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

The table below contains bonds and shares fair value movement.

At 1 January

Fair value gain

Foreign exchange (loss)/gain

Coupon interest income accrued

Bonds and shares fair value movement

Coupon interest income received

Bonds sold 

Shares sold 

At 31 December 

2014
US$000

50,199

2,013

 (2,512)

3,764

3,265

 (4,058)

 (6,449)

–

42,957

2013
US$000

54,095

4,178

1,104

3,894

9,176

 (4,176)

 (5,252)

 (3,644)

50,199

ANNUAL REPORT & ACCOUNTS 2014

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

RESOURCES AND RESERVES

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

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

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

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

ASSETS MEASURED AT FAIR VALUE

Coupon bonds

Trade receivables (embedded derivative)

Coupon bonds

Trade receivables (embedded derivative)

LIABILITIES MEASURED AT AMORTISED COST

78

Interest-bearing loans and borrowings

Interest-bearing loans and borrowings

31 DEC 2013
US$000

50,199

204

31 DEC 2014
US$000

42,957

 (383)

LEVEL 1
US$000

50,199

–

LEVEL 1
US$000

42,957

–

31 DEC 2013
US$000

309,324

31 DEC 2014
US$000

303,101

LEVEL 2
US$000

–

204

LEVEL 2
US$000

–

 (383)

LEVEL 3
US$000

309,324

LEVEL 3
US$000

303,101

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

33. DIVIDENDS
The Group paid an interim dividend of GBP 0.025 per share (2013: an interim dividend of GBP 0.025 per share) which 
resulted in an aggregate interim dividend payment of US$13.1 million (2013: US$13.0 million). The interim dividend was 
paid on 24 October 2014.

The final dividend for the year ending 31 December 2013 in the amount of US$13.7 million was paid on 30 May 2014.

The Board has recommended a final dividend of GBP 0.020 per share which, taking into account the interim dividend 
paid in October 2014, gives a total dividend of GBP 0.045 per share for the year (2013: GBP 0.050 per share). The final 
dividend will be paid on 29 May 2015 to shareholders on the register at the close of business on 1 May 2015 (the record 
date). The ex-dividend date will be 30 April 2015.

34. EVENTS AFTER THE REPORTING PERIOD
In April 2015 the Group signed a financing agreement with Alfa-bank for a US$60.0 million facility with the draw period 
set till 31 December 2016. This facility will be used to finance development and operating activities of the Group.

In April 2015 the Group signed a financing agreement with Gazprombank for a US$80.0 million facility with the draw 
period set till 31 December 2018. This facility will be used to refinance the existing debt of the Group.

HIGHLAND GOLD MINING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

RESOURCES AND RESERVES

MINERAL RESOURCES 
AS AT 31 DECEMBER, 2014 REPORTED IN ACCORDANCE WITH JORC

PROJECT NAME 

MNOGOVERSHINNOYE

TASEEVSKOYE

UNKURTASH

NOVOSHIROKINSKOYE 

BELAYA GORA 

KLEN

KEKURA

LYUBAVINSKOYE

TOTAL

CLASSIFICATION 
Measured 
Indicated 
Measured +Indicated 
Inferred 
Total
Indicated 
Inferred 
Total
Measured 
Indicated 
Measured +Indicated 
Inferred 
Total
Measured 
Indicated 
Measured +Indicated 
Inferred 
Total
Measured 
Indicated 
Measured +Indicated 
Inferred 
Total
Indicated 
Inferred 
Total
Indicated 
Inferred 
Total
Measured 
Indicated 
Measured +Indicated 
Inferred 
Total
Measured 
Indicated 
Measured +Indicated 
Inferred 
Total

ORE,  
TONNES
 5,936,640   
 3,640,124   
 9,576,764   
 6,354,000   
 15,930,764   
 25,785,000   
 5,278,000   
 31,063,000   
 21,024,000   
 32,870,000   
 53,894,000   
 12,291,000   
 66,185,000   
 1,855,488   
 3,547,709   
 5,403,197   
 1,510,303   
 6,913,500   
 4,549,776   
 3,648,019   
 8,197,795   
 4,028,000   
 12,225,795   
 2,850,000   
 1,020,000   
 3,870,000   
 5,000,000   
 5,350,000   
 10,350,000   
 1,304,990   
 9,802,700   
 11,107,690   
 139,540   
 11,247,230   
 34,670,894   
 87,143,552   
 121,814,446   
 35,970,843   
 157,785,289   

HIGHLAND’S  
INTEREST (%)
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
97.9%
97.9%
97.9%
97.9%
97.9%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%

GOLD,  
G/T
3.8
2.9
3.5
3.4
3.4
4.9
6.1
5.1
1.7
1.8
1.8
1.7
1.7
8.5
8.1
8.3
5.1
7.6
2.4
2.5
2.5
2.3
2.4
5.8
2.9
5.0
9.6
7.9
8.7
1.5
1.3
1.3
1.8
1.3
2.5
3.6
3.3
3.8
3.4

CONTAINED 
GOLD, 
OUNCES
 730,462   
 340,383   
 1,070,845   
 691,983   
 1,762,829   
 4,057,587   
 1,030,766   
 5,088,353   
 1,179,836   
 1,860,917   
 3,040,753   
656,004
 3,696,757   
 505,586   
 928,436   
 1,434,022   
246,981
 1,681,003   
357,042
296,881
653,923
291,707
 945,630   
 530,809   
 96,452   
 627,261   
 1,540,664   
 1,351,103   
 2,891,767   
62,758
413,330
476,088
8,198
 484,287   
 2,835,684   
 9,969,007   
 12,804,691   
 4,373,195   
 17,177,886   

GOLD OUNCES 
ATTRIBUTABLE 
TO HIGHLAND
 730,462   
 340,383   
 1,070,845   
 691,983   
 1,762,829   
 4,057,587   
 1,030,766   
 5,088,353   
 1,179,836   
 1,860,917   
 3,040,753   
 656,004   
 3,696,757   
 494,969   
 908,939   
 1,403,907   
 241,794   
 1,645,701   
357,042
296,881
653,923
291,707
 945,630   
 530,809   
 96,452   
 627,261   
 1,540,664   
 1,351,103   
 2,891,767   
62,758
413,330
476,088
8,198
 484,287   
 2,825,067   
 9,949,510   
 12,774,577   
 4,368,008   
 17,142,585   

1. MNV, Taseevskoye, Belaya Gora,  Unkurtash, Klen and Lyubavinskoye resource estimations do not include a silver assessment.
2. MNV, Novoshirokinskoye and Belaya Gora Mineral Resources are inclusive of Mineral Reserves.  
3. MNV Mineral Resources are undiluted and based upon a gold price of US$1,200 per ounce. Resources were evaluated with specific cutoff grade > 1.0 g/t. 

MNV Mineral Resources for Deep are undiluted and based upon a gold price of US$1,100 per ounce. Resources were evaluated with specific cutoff grade > 1.5 g/t. 
Taseevskoe Mineral Resources are undiluted and based upon a gold price of US$ 1,000 per ounce. Resources were evaluated with specific cutoff grade > 1.8 g/t. 
Unkurtash Mineral Resources are undiluted and based upon a gold price of US$1,600 per ounce. Resources were evaluated with specific cutoff grade > 0.8 g/t. 
Belaya Gora Mineral Resources are undiluted and based upon a gold price of US$850 per ounce. Resources were evaluated with specific cutoff grade > 0.7 g/t. 
Klen Mineral Resources were evaluated with specific cutoff grade > 1.0 g/t. 
Kekura Mineral Resources were evaluated with specific cutoff grade > 0.8 g/t.  
Lyubavinskoye Mineral Resources were evaluated with specific cutoff grade > 0.5 g/t.

4. Resource estimates for MNV (Deep), Taseevskoye, and Belaya Gora deposits were confirmed by Micromine Consulting, 2010 - 2011. 

Resource estimates for MNV were confirmed by CSA Global Pty., 2012 
Resource estimate for Novoshirokinskoye was confirmed by Wardell Armstrong International (WAI), 2011. 
Resource estimate for Lyubavinskoye was confirmed by IMC Montan, 2012. 
Resource estimate for Unkurtash was reconfirmed by IMC Montan, 2013. 
Resource estimate for Klen and Kekura was confirmed by Micon International, 2012.

5. The Novoshirokinskoye resource estimate is performed for gold equivalent calculated as follows: Pb*0.510496+Zn*0.430005+Ag*0.01723 (WAI coefficients).

ANNUAL REPORT & ACCOUNTS 2014

79

RESOURCES AND RESERVES

DIRECTORS, COMPANY SECRETARY AND ADVISERS

RESERVES 
AS AT 31 DECEMBER, 2014 REPORTED IN ACCORDANCE WITH JORC

PROJECT NAME  

CLASSIFICATION

ORE, TONNES GOLD, G/T

CONTAINED 
GOLD,
OUNCES

HIGHLAND’S
INTEREST (%)

GOLD OUNCES 
ATTRIBUTABLE 
TO HIGHLAND

MNOGOVERSHINNOYE

Probable

Proven

Proven + Probable

Proven

NOVOSHIROKINSKOYE 

Probable

1,719,762

683,755

2,403,517

 1,723,840   

 3,130,205   

Proven + Probable

 4,854,045   

BELAYA GORA  

Proven

Probable

 1,790,793   

 1,384,372   

TOTAL

Proven + Probable

 3,175,165   

Proven

Probable

 5,234,395   

 5,198,332   

Proven + Probable

 10,432,727   

3.73

4.09

3.83

8.7

8.6

8.6

4.1

4.3

4.2

5.5

6.8

6.2

206,203

89,997

296,200

481,292

862,411

1,343,703

237,345

189,534

 426,879   

 924,840   

 1,141,942   

 2,066,782   

100%

100%

100%

97.9%

97.9%

97.9%

100%

100%

100%

206,203

89,997

296,200

 471,185   

 844,301   

1,315,485

237,345

189,534

 426,879   

 914,733   

 1,123,832   

 2,038,565   

1. MNV, TAS and BG reserve estimate does not include a silver assessment.
2. MNV Mineable Reserves are undiluted and based upon a gold price of US$ 1,200 per ounce and marginal cut-off 1.45 g/t.
3. MNV Mineable Reserves  for Deep are undiluted and based upon a gold price of US$ 1,100 per ounce and marginal cut-off  > 1.5 g/t.
4. The Belaya Gora values shown are based upon a gold price of $ 850 per ounce.
5.  Mineral reserves at MNV, Novo and Belaya Gora have been estimated in accordance with JORC guidelines and include adjustments that 

80

have been made to reconcile the reserves with annual production.

HIGHLAND GOLD MINING LIMITED

RESOURCES AND RESERVES

DIRECTORS, COMPANY SECRETARY AND ADVISERS

DIRECTORS, COMPANY SECRETARY AND ADVISERS

Terry Robinson 
Non-Executive Director***

Olga Pokrovskaya 
Non-Executive Director**

Valery Oyf 
Chief Executive Officer

CURRENT DIRECTORS
Eugene Shvidler 
Executive Chairman 
(appointed Executive Chairman  
on 22 April 2015)

Duncan Baxter 
Non-Executive Director*

Colin Belshaw 
Non-Executive Director

John Mann 
Head of Communications 
(appointed on 9 April 2015)

* Chairman of the Nomination and Remuneration Committee; 

** Chairman of the Health, Safety and Environment Committee; 

*** Chairman of the Audit Committee

PAST DIRECTORS
Sergey Mineev 
Head of Exploration & Capital 
Projects Development 
(resigned on 9 April 2015)

Alla Baranovskaya 
Chief Financial Officer 
(resigned on 9 April 2015)

Eugene Tenenbaum 
Non-Executive Director 
(resigned on 9 April 2015)

All of: 
26 New Street 
St Helier 
Jersey JE2 3RA

HEAD OFFICE AND 
REGISTERED OFFICE
26 New Street
St Helier
Jersey JE2 3RA

COMPANY SECRETARY
Bedell Secretaries Limited
26 New Street
St Helier
Jersey JE2 3RA

NOMINATED ADVISER AND 
BROKER
Numis Securities Limited 
The London Stock Exchange 
Building 
10 Paternoster Square 
London
EC4M 7LT

JOINT BROKER
Peat & Co
118 Piccadilly
London
W1J 7NW

AUDITORS TO THE
COMPANY AND GROUP
Ernst & Young LLP
1 More London Place
London SE1 2AF

81

REGISTRARS
Capita Registrars (Jersey) Limited
12 Castle Street
St Helier
Jersey
JE2 3RT

TRANSFER AGENT
Capita Registrars
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU 

SOLICITORS TO THE 
COMPANY

as to Russian Law
PricewaterhouseCoopers
Kosmodamianskaya Nab. 52 Bld. 5,
115054 Moscow, Russia

as to Jersey Law
Bedell Cristin
PO Box 75
26 New Street
St Helier
Jersey JE4 8PP

BANKERS
Royal Bank of Canada
(Channel Islands) Limited
19–21 Broad Street
St Helier
Jersey JE4 8RR

FINANCIAL CALENDAR 
Ex Dividend Date: 30 April 2015

Record date: 1 May 2015

Post 2014 Annual report:  
8 May 2015

Annual General Meeting:  
26 May 2015

Dividend Payment Date:  
29 May 2015

2015 Interim Announcement and 
Interim Report: September 2015

Listing sector/ticker Reuters: 
HGM.L

Number of shares in issue: 
325,222,098

ANNUAL REPORT & ACCOUNTS 2014

PRINCIPAL GROUP COMPANIES

PRINCIPAL GROUP COMPANIES AS OF 31.12.2014
HIGHLAND GOLD MINING LIMITED HOLDS THE EQUITY SHARE CAPITAL OF THE FOLLOWING COMPANIES:

NAME

Stanmix Holding Limited

Stanmix Investments Limited

Highland Exploration LLC

%

100

100

100

COUNTRY OF 
INCORPORATION

PRINCIPAL ACTIVITY AND PLACE  
OF BUSINESS

Cyprus

Cyprus

Holding Company, Cyprus

Finance Company, Cyprus

Kyrgyzstan

Holder of Unkurtash and Kassan licences

STANMIX HOLDING LIMITED HOLDS THE EQUITY SHARE CAPITAL OF THE FOLLOWING COMPANIES:

NAME

Russdragmet (RDM) (OOO)

Mnogovershinnoye (MNV) (ZAO)

Taseevskoye (OOO)

Zabaykalzolotoproyekt (OOO)

Novo-Shirokinsky Rudnik (Novo) (OAO)

82

Belaya Gora (OOO)

Lubavinskoye (OOO)

Klen (OOO)

BSC (OOO)

Bazovye Metally (ZAO)

%

100

100

100

100

97.9

100

100

100

100

100

COUNTRY OF 
INCORPORATION

PRINCIPAL ACTIVITY AND PLACE  
OF BUSINESS

Russia

Russia

Russia

Russia

Russia

Russia

Russia

Russia

Russia

Russia

Management company

Holder of MNV and Blagodatnoye licences

Holder of Taseevskoye, ZIF-1 and Sredne-
Golgotayskoye licences

Project engineering, Russia

Holder of Novo licence

Holder of Belaya Gora licence

Holder of Lubavinskoye licence

Holder of Klen licence

Service company, Russia, ChAO

Holder of Stadukhinsky Area licence

HIGHLAND GOLD MINING LIMITED

PRINCIPAL GROUP COMPANIES

HIGHLAND GOLD MINING LIMITED

100%

100%

100%

HIGHLAND EXPLORATION LLC

STANMIX INVESTMENT LIMITED

STANMIX HOLDING LIMITED

100%

BSC 

100%

97.9%

100%

RDM

NOVO-SHIROKINSKY 

RUDNIK

KLEN

83

100%

100%

100%

100%

BELAYA GORA 

MNOGOVERSHINNOYE 

(MNV) 

TASEEVSKOYE

LUBAVINSKOYE

100%

100%

BAZOVIYE METALLY 

ZABAYKAL-

ZOLOTOPROYEKT

ANNUAL REPORT & ACCOUNTS 2014

NOTICE OF ANNUAL GENERAL MEETING

NOTICE OF ANNUAL GENERAL MEETING
HIGHLAND GOLD MINING LIMITED (THE “COMPANY”) (INCORPORATED AND 
REGISTERED IN JERSEY UNDER THE COMPANIES (JERSEY) LAW 1991, AS AMENDED,  
WITH REGISTERED NUMBER 83208)

NOTICE OF ANNUAL GENERAL MEETING
Notice is hereby given that the Annual General Meeting of Highland Gold Mining Limited  
(the Company) will be held on Tuesday 26 May, 2015 at 26 New Street, St Helier, Jersey JE2 3RA  
at 1:00 pm to consider and, if thought fit, pass the following ordinary resolutions; 

ORDINARY BUSINESS (ORDINARY RESOLUTIONS)
1. To receive and adopt the Report of the Directors, the Audited Financial Statements and Auditors' 

Report for the year ended 31 December 2014.

2. That a final dividend of £0.02 for each Ordinary share of £0.001 in the Company be declared.
3. That John Mann who retires as a Director of the Company be elected.
4. That Valery Oyf who retires by rotation as a Director of the Company be re-elected.
5. That Olga Pokrovskaya who retires by rotation as a Director of the Company be re-elected.
6. That Duncan Baxter who retires by rotation as a Director of the Company be re-elected.
7. That Ernst & Young LLP be re-elected as Auditors of the Company, to hold office until the 

conclusion of the next Annual General Meeting.

8. That the Directors be authorised to fix the Auditors' remuneration.

84

By Order of the Board

08 May 2015

NOTES
1. Any member entitled to attend and vote at the above meeting may appoint one or more proxies to 
attend and, on a poll, to vote instead of him. A proxy need not also be a member of the Company.  
A form of proxy is enclosed with this notice to members.

2. A form of proxy is enclosed which, to be effective, must be completed and deposited at Capita Asset 
Services, PXS, 34 Beckenham Road, Beckenham, BR3 4TU not less than 24 hours before the time 
fixed for the meeting (or any adjournment of such meeting).

3. Completion and return of a form of proxy does not preclude a member from attending 

and voting in person.

4. Only those shareholders registered in the register of members of the Company as at 24 hours prior 

to the time fixed for the meeting (or, in the cause of an adjournment, as at 24 hours before the 
time of the adjourned meeting) shall be entitled to attend or vote at the meeting in respect of the 
number of shares registered in their name at that time. Pursuant to Article 40 (2) of the Companies 
(Uncertificated Securities Jersey) Order 1999, changes to entries on the register of members after 
such time shall be disregarded in determining the rights of any person to attend and vote.

5. Directors’ Service contracts and register of Directors’ interests in the Share Capital of the Company 

are available at the registered office of the Company for inspection during usual business hours 
on weekdays from the date of this notice until the date of the meeting and at the meeting until the 
conclusion of the meeting.

HIGHLAND GOLD MINING LIMITED

A YEAR OF  

ORGANIC GROWTH

HIGHLAND GOLD MINING LIMITED

H

I

G

H

L

A

N

D

G

O

L

D

M

I

N

I

N

G

L

I

M

I

T

E

D

A

N

N

U

A

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R

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P

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&

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C

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2

0

1

4

26 NEW STREET

ST. HELIER, JERSEY JE2 3RA

REGISTERED NO 83208

HIGHLAND 

GOLD MINING LIMITED 

ANNUAL REPORT & ACCOUNTS 2014