Highland Gold Mining Ltd.
Annual Report 2015

Plain-text annual report

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 L R E P O R T & A C C O U N T S 2 0 1 5 ANNUAL REPORT & ACCOUNTS  2015 HIGHLAND GOLD MINING LIMITED           HIGHLAND GOLD MINING LIMITED Mine Locations Financial Review The Year in Review Financial Highlights Operational Review Chairman’s Statement CONTENTS 2 3 4 6 8 14 18 Principal Risks and Uncertainties 24 Directors’ Report 29 Report on Remuneration 30 Board of Directors 32 Independent Auditors’ Report 34 Consolidated Financial Statements 38 Notes to the Consolidated Financial Statements 78 Reserves and Resources 80 Principal Group Companies 82 Directors, Company Secretary and Advisers 83 Notice of Annual General Meeting ANNUAL REPORT & ACCOUNTS 2015 1 FINANCIAL HIGHLIGHTS IFRS, US$000 (unless stated) Production (gold and gold eq. oz) Group all-in sustaining costs (US$/oz) Total Group cash costs (US$/oz) Revenue Operating profit EBITDA Net loss Loss per share (US$) Adjusted net profit* Net cash inflow from operations Capital expenditure Net debt position 2015 2014 262,485 258,937 640 480 276,175 22,413 133,317 (10,019) (0.032) 49,570 105,603 42,195 809 645 304,230 55,855 123,617 (24,843) (0.077) 51,340 104,422 65,538 (229,167) (247,198) * Free of impairment and exchange rate losses and with a normalised tax rate (please see page 16) 2 HIGHLAND GOLD MINING LIMITED THE YEAR IN REVIEW KEY EVENTS • Total production at Mnogovershinnoye (MNV), Novoshirokinskoye (Novo) and Belaya Gora for the full year 2015 of 262,485 oz of gold and gold equivalents, an increase of 1.4% compared with 258,937 oz in 2014. • Average realised price for gold and gold equivalents in 2015 was US$1,062 per oz (2014: US$1,175 per oz). • Total Cash Costs reduced by 25.6% to US$480 per oz and All-In Sustaining Cash Costs lowered by 20.9% to US$640 per oz. • Interim dividend of £0.020 per share paid for H1 2015 (2014: Interim dividend of £0.025 per share). • Lost Time Incident Rate (LTI) rate edged up slightly from 2014’s all-time low of 0.27 to 0.30. POST YEAR EVENTS • Denis Alexandrov appointed Chief Executive Officer of Highland Gold's Moscow-based management company, Russdragmet LLC, effective January 18. Outgoing CEO Valery Oyf remains with the Company as Non-Executive Director. • Despite lower prices, strong cost performance facilitated a 7.8% increase in EBITDA to US$133.3 million (2014: US$123.6 million), while EBITDA margin reached 48.3% versus 40.6% in 2014. • Updated registration of Russian category reserves for 12 ore bodies within the MNV licence with regulatory authorities is underway and is expected to result in an extension of the life of the mine. • Net loss of US$10.0 million compared to net loss • Final dividend of £0.025 per share recommended, of US$24.8 million in 2014, primarily due to impairment of Kekura due to delayed project development and non-cash deferred tax charges related to currency fluctuations. • Adjusted net profit, free of impairment and exchange rate loss and with a normalised tax rate, amounted to US$49.6 million (2014: US$51.3 million). • Project development activity focused on advancement of the Kekura project including the completion of geotechnical studies, pre-design surveys, and data calculation for selection of a processing flowsheet, together with the commencement of design work for the processing plant. A scoping study for the Baley Ore Cluster projects (Taseevskoye, Sredny Golgotay and ZIF-1) was also initiated. making a total distribution of £0.045 per share for the year to 31 December 2015 (2014: £0.045 per share). TARGETS FOR 2016 • Maintain stable total production of gold and gold equivalents in the range of 255,000-265,000 oz, as the natural decline at MNV, as it approaches the end of mine life, is offset by improvements at Belaya Gora in the second half. • MNV – Continue efforts to expand the resource base in order to keep the mill in operation for years to come. • Belaya Gora – Further increase gold output by seeking improvements in mining operations and processing recovery rates. • Exploration efforts focused on promising near-mine targets at MNV designed to extend life of mine. and processing plant under plans to boost throughput to 1.3 mtpa. • Novo – Complete studies for expansion of the mine • New US$50 million three-year pre-export loan • Ongoing development of the flagship Kekura project agreement concluded between Novo and UniCredit Bank: to be used to refinance existing debt. alongside steps to advance other development projects currently in the pipeline. • Net debt to EBITDA ratio reduced to 1.7 as of 31 December 2015 from 2.0 a year earlier. ANNUAL REPORT & ACCOUNTS 2015 3 CHAIRMAN’S STATEMENT CHAIRMAN’S STATEMENT Dear Shareholder, I am pleased to report that 2015 witnessed significant progress across all the key elements of Highland’s production and resource base which, in view of a challenging trading backdrop, were prioritised during the latter part of the preceding year. The importance of Highland’s low cost producer status, in relation to the gold price dynamic, cannot be overstated and a 25.6% reduction in our Total Cash Costs to US$480 per oz, accompanied by a 20.9% fall in All-In Sustaining Cash Costs to US$640 per oz, underlines our acknowledged credentials as one of the lowest cost producers of gold in Russia which, in turn, is the lowest cost producer of the metal in the world. The drivers of these key performance indicators were: (i) management’s dual focus on optimising costs and maximising throughput across the Company’s operations; and (ii) the devaluation of the Russian Rouble against the US$. The average gold and gold equivalents price realised during 2015 amounted to US$1,062 per oz (2014: US$1,175 per oz) and should be seen against our All-In Sustaining Cash Costs measurement. These factors were also reflected in a 7.8% increase in 2015’s EBITDA to US$133.3 million, a performance which translates into an EBITDA margin of 48.3% (2014: 40.6%): a comforting litmus test of operating profitability. Overall production from our three mines in Russia – Mnogovershinnoye (MNV), Novoshirokinskoye (Novo) and Belaya Goya – recorded a modest year-on-year increase from 258,937 oz of gold and gold equivalents in 2014 to a record 262,485 oz, albeit less than our original expectations. This means that, in the space of six years, management has expanded output by more than 60% compared to the 163,208 oz recorded in 2009: a compound annual growth rate of 7%. Management continues to focus on extending the life of MNV and further near-mine exploratory activity was pursued during the year with a view to enhancing both the underground and open-pit operations. A reassessment of reserves is under way, the outcome of which is expected to indicate an extension of MNV’s life expectancy beyond the JORC-compliant resource estimate of 2017. Completion of the second stage of the processing plant at Belaya Gora, our youngest mine, enabled the facility to process 1,551,288 tonnes of ore, a 26.4% improvement versus 2014, thereby achieving its annual nameplate capacity of 1.5 million tonnes. Lower than expected grades at Belaya Gora and related issues with below-forecast recovery rates during the latter part of 2015 were chiefly responsible for the shortfall against our overall production estimate of 270,000 oz but, despite this, the higher throughput led to a 57.8% increase in the mine's gold production to 61,306 oz. Novo proved the star performer with a record 691,284 tonnes of processed ore, representing a 18.6% increase over 2014’s throughput, yielding a record 106,621 oz of gold and gold equivalents. We are intent on driving our ambitious long-term optimisation model for Novo and underground expansion, designed to access new horizons, is under way, hand in hand with plans to almost double annual processing capacity to 1.3 million tonnes by the end of 2018. The advancement of our Kekura development, situated in the Chukotka region of North East Russia, gathered momentum. Pre-design studies and surveys were completed in respect of the mining complex and design work commenced on the processing plant. Kekura’s favourable metallurgy, combined with the utilisation of open-pit and underground mining techniques, could form the basis for a ‘low cost’ operation. We remain positive about the project, despite having to take an impairment charge on the asset for 2015. Although the output of MNV, our original flagship mine, is in natural decline the old workhorse, so to speak, still accounted for some 36.0% of total output with a contribution of 94,558 oz of gold. In the Zabaikalsky region, where Novo is located, management has initiated a scoping study on the joint development of our Baley Ore Cluster projects which comprise the Taseevskoye and Sredny Golgotay deposits and ZIF-1 tailings. This is being conducted 4 HIGHLAND GOLD MINING LIMITED by Amec Foster Wheeler and is scheduled for completion during 2016. Meanwhile, a pilot programme is under way to mine ore at Sredny Golgotay for processing at Novo. Your Board has constantly emphasised its commitment, subject to all prudent provisions, to the return of profits to shareholders by way of dividend payments. Accordingly, the Board is pleased to recommend the payment of a final dividend of £0.025 per share (2014: £0.020 per share) which, subject to approval at the Annual General Meeting on 25 May 2016, will make a total distribution of £0.045 per share (2014: £0.045 per share) for the financial year to 31 December 2015. The health and safety of our employees is paramount and management is ever-conscious of the risks and hazards associated with the mining industry as we endeavour to achieve a zero incident rate. Education has always been central to our approach and considerable emphasis is placed on the need for employees to develop a sense of responsibility for the safety of themselves and others. To this end, a series of specialised training courses were once again well attended. The mine rescue teams, established at MNV, Novo and Belaya Gora in 2014, remain on call in the event of an emergency. Despite such measures, our Lost Time Incident Rate (LTI) rate (defined as the number of lost time incidents for every 200,000 man hours worked) edged up slightly from 2014’s all time low of 0.27 to 0.30. With regard to Highland’s environmental responsibilities, the Company is committed to minimising the impact of its operations. In keeping with this, management continued to meet all applicable environmental laws and implement all relevant recommendations from the supervisory authorities throughout 2015. as a Non-Executive Director. Mr Alexandrov was the former CEO of Auriant Mining AB, a Swedish company engaged in gold exploration and production in Russia, and is also a former Finance Director of Highland. It gives me much pleasure to welcome Mr Alexandrov back to Highland. I also wish to record the Board’s thanks to Mr Oyf for his excellent stewardship of Highland during an eight- year tenure that witnessed the establishment of Novo and Belaya Gora, substantial growth and an ultra- competitive cost base. Directors Alla Baranovskaya and Sergey Mineev, together with Non-Executive Director Eugene Tenenbaum, stepped down from the Board in the spring of 2015, although Ms Baranovskaya and Mr Mineev continue to play key roles as part of the Company’s executive management team. I would like to thank them all, on behalf of the Board, for their valuable contributions to Highland’s development. At the same time, John Mann, the Company’s Head of Communications, was appointed an Executive Director. John is widely versed in public relations, public affairs and investor relations and his experience leaves him admirably qualified to liaise directly with the investment community on behalf of the Board. Our approach to output levels in 2016, taking into account the run down at MNV, will focus on ‘stability’ with an approximate target of 255,000 to 265,000 oz of gold and gold equivalents. We are intent on progressing the achievements of 2015 and, to this end, our priorities will be to: pursue our near-mine exploration programme at MNV; accelerate the expansion of Novo; refine Belaya Gora’s mining and processing operations; and advance our Kekura and Taseevskoye/Baley projects. Your Board remains confident that Highland is well positioned to achieve these value creating objectives. The composition of the Board and management team has undergone considerable change since my last statement, the most significant aspect of which occurred in January 2016, post the period under review, with the appointment of Denis Alexandrov as Chief Executive Officer of Highland's Moscow- based management company, Russdragmet LLC, in succession to Valery Oyf who remains on the Board It now gives me much pleasure, on behalf of the Board, to thank all our employees for the hard work and commitment that brought about the achievements of 2015.   EugeneShvidler Executive Chairman ANNUAL REPORT & ACCOUNTS 2015 5 MINE LOCATIONS R U S S I A MOSCOW ASTANA K A Z A K H S T A N K Y R G Y Z S T A N Unkurtash 6 HIGHLAND GOLD MINING LIMITED Klen Kekura Novoshirokinskoye Belaya Gora Taseevskoye MNV Sr.Golgotay Blagodatnoye Lyubov Operating Mine Development Project Exploration Project ANNUAL REPORT & ACCOUNTS 2015 7 OPERATIONAL REVIEW OPERATIONAL REVIEW Management’s focus on minimising costs and maximising operational throughput, together with the weak Rouble, brought considerable rewards during 2015, the most important of which was an extension of the advantage Highland enjoys as one of the lowest cost gold producers in the world. The priorities in 2016 will be to build on the successes of the year under review – particularly the above-budget performance of Novo and the attainment of nameplate processing capacity at Belaya Gora – and embark on the next stage of our flagship development project, Kekura. The near-mine exploratory activity at MNV will continue during 2016 as the Company pursues its stated objective of extending the life of the mine beyond 2017: a prospect that waits on a current reassessment of reserves. Output totals will represent something of a balancing act between the run down at MNV – which still accounted for more than a third of 2015’s peak production of 262,485 oz of gold and gold equivalents – and envisaged output from the two sister mines. Against this backdrop, management is looking to achieve a stable production outcome of between 255,000 and 265,000 oz of gold and gold equivalents in 2016. We will also endeavour to further extend our cost advantage over our international and domestic peers, primarily through judicious capital allocation, the utilisation of rigorous cost disciplines and the implementation of innovative operating efficiencies. MNOGOVERSHINNOYE (MNV), KhabarovsK region, russia Process plant throughput at MNV totalled 1,412,819 tonnes of ore to yield 94,558 oz of gold in 2015 compared with 122,320 oz in 2014. A decline in the recovery rate from 2014’s 91.8% to 90.4% reflected changes in mineral composition and lower gold grades. Open-pit and underground ore production registered a near 30% increase to 1,503,187 tonnes year-on-year, while underground development increased from 2014’s 9,166 metres to 10,450 metres following a 53.5% increase in second half activity to 6,163 metres versus H2 2014. The average grade of mined ore at 2.17 g/t was 32.0% below the level achieved in 2014. This reflected open- pit mining complications at the Flank ore body which led to the redeployment of operations to lower grade- bearing areas. MNV Waste stripping Underground development Open-pit ore mined Open-pit ore grade Underground ore mined Underground ore grade Total ore mined Average grade Ore processed Average grade Recovery rate Gold produced Units m3 m t g/t t g/t t g/t t g/t % oz H1 2014 H2 2014 H1 2015 H2 2015 2014 2015 1,194,036 1,310,227 1,780,663 1,573,547 2,504,263 3,354,210 5,151 4,015 4,287 6,163 9,166 10,450 300,569 3.71 292,877 3.11 593,446 3.42 629,854 3.31 92.5 61,761 249,270 3.2 316,779 2.7 566,049 2.94 736,604 2.81 91.1 60,559 289,420 2.08 330,329 2.21 619,749 2.15 705,493 2.08 89.0 42,451 448,548 1.85 434,890 2.52 883,438 2.18 707,326 2.49 91.5 52,107 549,839 3.5 609,656 2.91 1,159,495 3.19 1,366,458 3.04 91.8 122,320 737,968 1.94 765,219 2.38 1,503,187 2.17 1,412,819 2.29 90.4 94,558 8 HIGHLAND GOLD MINING LIMITED PRODUCTION COSTS Total cash costs amounted to US$691 per ounce (2014: US$722 per ounce) while all-in sustaining costs were US$881 per ounce (2014: US$835 per ounce). CAPITAL COSTS A total of US$10.3 million was invested at MNV in 2015. This included capitalised expenditures and construction (US$3.1 million), purchase of equipment (US$6.2 million) and exploration (US$1.0 million). OUTLOOK The acquisitions of the North Western Flank and Lower Horizon licences in 2014 were specifically designed to supplement MNV’s resource base, thereby extending the life of the mine. To further this objective, the near-mine exploration activity of 2015 continues in 2016. Targeted resources encompass both the underground and open- pit operations and the anticipated reassessment of reserves has the potential to extend the life of the mine well beyond the current JORC-compliant resource estimate of 2017. NOVOSHIROKINSKOYE (NOVO), ZabaiKalsKy region, russia The optimisation of mining and processing technology at Novo led to an above budget performance for the year which ultimately resulted in a 9.0% increase in production to a record 106,621 oz of gold and gold equivalents. Mine output achieved a year-on-year increase of 20.2% to 701,419 tonnes, while processed ore recorded a 18.6% advance to 691,284 tonnes: record levels in both instances. In order to facilitate immediate and prospective increases in throughput, new inter-circuit flotation equipment was installed during H2 2015 with Zn flotation capacity ramped up. This benefited the recovery rate which improved to 86.6% in H2 2015 compared with 85.3% for the corresponding period of 2014. Onsite production of granulated explosives commenced in H2 2015: a development designed to reduce costs. Novo Underground development Ore mined Average grade * Ore processed Average grade * Recovery rate * Gold produced * Units H1 2014 H2 2014 H1 2015 H2 2015 2014 2015 m t g/t t g/t % oz 5,162 5,155 5,312 5,625 10,317 10,937 280,987 5.6 281,137 5.6 84.3 42,949 302,485 6.6 301,685 6.6 85.3 54,826 327,629 5.4 331,551 5.4 85.3 48,634 373,790 5.7 359,733 5.8 86.6 57,987 583,472 6.2 582,822 6.2 84.9 97,775 701,419 5.6 691,284 5.6 86.0 106,621 * In gold equivalents at actual prices (metal grade of mined ore = Au 2.85 g/t, Ag 90.40 g/t, Pb 2.77%, Zn 0.75%). PRODUCTION COSTS Total cash costs amounted to US$302 per ounce (2014: US$429 per ounce) while all-in sustaining costs were US$353 per ounce (2014: US$517 per ounce). CAPITAL COSTS A total of US$4.9 million was invested at Novo in 2015. This included capitalised expenditures and construction (US$2.2 million) and purchase of equipment (US$2.7 million). OUTLOOK Significant expansion is planned at Novo in accordance with our long-term model and the extension of underground mining operations, designed to access new horizons, will continue during 2016. In the wake of studies initiated in H2 2015, plans have been approved for a near-doubling of processing capacity to 1.3 million tonnes per annum by the end of 2018. ANNUAL REPORT & ACCOUNTS 2015 9 OPERATIONAL REVIEW BELAYA GORA, KhabarovsK region, russia Total production of gold and gold equivalents at Belaya Gora recorded a 57.8% increase to 61,306 oz in 2015 compared with 38,842 oz in 2014. The scale of increase in activity is reflected in the quantity of ore mined which more than doubled to 2,223,104 tonnes in 2015 following a second half increase of 118.8% to 1,337,790 tonnes versus H2 2014. The commissioning of the second stage gravity circuit of the Belaya Gora processing plant enabled the facility to attain its nameplate capacity of 1.5 million tonnes. Processed ore totalled 1,551,288 tonnes: a 26.4% increase compared with 2014’s 1,227,305 tonnes. The year-on-year recovery rate showed a 22.2% improvement to 75.4%. Partial flooding of the open-pit in Q4 2015, due to severe weather conditions, disrupted the mining plan and was partly responsible for a significant decline in the average grade of mined ore to 1.32 g/t in H2 2015 compared with 1.63 g/t in the first half. This, in turn, contributed to the shortfall against the Company’s overall production target of 270,000 oz of gold and gold equivalents in respect of 2015. Design work on plant automation systems made good progress and installation is currently underway, aimed at maintaining steady state operations and optimising reagent consumption. Additional test and design work is underway for further modifications to the circuit in order to improve overall plant recoveries. Preliminary work has commenced on the construction of a solid waste storage facility near Chlya, located some 12 kilometres to the west of the plant. The land has been cleared, site grading has begun and completion is expected in 2016. Belaya Gora Waste stripping Ore mined Average grade Ore processed Average grade Recovery rate Gold produced Units m3 t g/t t g/t % oz H1 2014 767,690 465,610 1.32 462,333 1.81 62.79 15,411 H2 2014 H1 2015 H2 2015 2014 2015 1,137,601 611,457 1.52 764,972 1.45 61.6 23,431 1,557,257 885,314 1.63 674,985 1.87 75.89 30,157 2,160,512 1,337,790 1.32 876,303 1.47 74.9 31,149 1,905,291 1,077,067 1.43 1,227,305 1.58 61.7 38,842 3,717,769 2,223,104 1.45 1,551,288 1.64 75.4 61,306 PRODUCTION COSTS Total cash costs amounted to US$465 per ounce (2014: US$926 per ounce) while all-in sustaining costs were US$551 per ounce (2014: US$1,038 per ounce). CAPITAL COSTS A total of US$11.5 million was invested at Belaya Gora in 2015. This included capitalised expenditures and construction (US$9.2 million) and purchase of equipment (US$2.3 million). OUTLOOK Following the increased throughput figures recorded at Belaya Gora in the year under review the focus in 2016 will be on improving grade control and achieving a further increase in recovery rates. The installation of a new crushing unit in Q4 2015 is expected to facilitate a more stable mill operation. SREDNY GOLGOTAY, ZabaiKalsKy region, russia Preparatory mining operations commenced on the Kaftanovsky zone of the Sredny Golgotay deposit, part of the Taseevskoye group of licences, during the second half of 2015. Initial activity included re-entering and refurbishing the audit access, development of the site infrastructure and gaining regulatory approval for 2016’s mining plan. 10 HIGHLAND GOLD MINING LIMITED CAPITAL COSTS A total of US$0.7 million was invested at Sredny Golgotay in 2015. This included capitalised expenditures and construction. OUTLOOK The aforementioned mining plan calls for the extraction of 40,000 tonnes of ore in 2016 to be processed at Novo for the purpose of producing flotation concentrate. DEVELOPMENT PROJECTS KEKURA, ChuKotKa region, russia More than 6,000 tonnes of material and equipment were delivered to the Kekura site during H1 2015 to facilitate ongoing activities and pave the way for construction. The first half of the year also brought approval from the State Committee on Reserves (GKZ) in respect of 62.1 tonnes (1.99 million oz) of compliant (C1+C2 category) gold reserves at the project. The principal focus during the second half of 2015 was the development of design documentation in respect of the mine and the processing plant. Progress on the respective designs was as follows: • Mining complex and infrastructure – Pre-design studies and surveys were completed and public hearings held regarding the design documentation. • Processing plant and auxiliary facilities – Process studies were completed and calculations made for the selection of a processing flowsheet. The process flowsheet, selected in early 2016, consists of single stage crushing, SAG and ball mill, single stage gravity recovery, with CIL. A draft report relating to an independent estimate of JORC reserves, conducted by Wardell Armstrong, was received during H2 2015. The proposed parameters in the draft are currently being adjusted and developed in further detail to the level of a Mining Feasibility Study. Publication of the report is expected in mid-2016. The priorities at Kekura during 2016 will be: (i) to receive approval of first-stage mining design and documentation from the relevant state mining and environmental agencies; (ii) obtain a construction permit; (iii) complete design documentation for the second stage of project development and apply for regulatory approval; and (iv) prepare for the onset of construction work. TASEEVSKOYE, ZabaiKalsKy region, russia During the second half of 2015 we initiated a Scoping Study for the Baley Ore Cluster projects comprised of: Taseevskoye, Sredny Golgotay and ZIF-1 Tailings. This work is expected to be completed by mid-2016. KLEN, ChuKotKa region, russia With Kekura the priority in the Chukotka region, the Klen site is on care and maintenance. ANNUAL REPORT & ACCOUNTS 2015 11 OPERATIONAL REVIEW EXPLORATION The Company completed more than 28,800 metres of exploration drilling in 2015, primarily at MNV. Overall expenditure on exploration projects totalled US$8.5 million for the year, compared with US$18.0 million in 2014. MNOGOVERSHINNOYE – KhabarovsK region, russia The Company’s focus on near-mine exploration at MNV, designed to extend the life of the mine’s underground and open-pit operations, continued throughout 2015 and encompassed the upgrading of existing resources and targeting of additional resources. In late Q2 2015, at the Lower Horizon MNV licence, management initiated an underground exploration drilling programme at the lower horizons of the Severnoye ore body to delineate additional resources in the vicinity of existing underground infrastructure. By the end of 2015, approximately 9,300 metres of drilling had been completed which intersected ore grade gold mineralisation. Results warranted a follow-up programme with more than 10,000 metres of drilling scheduled for completion in 2016. Diamond core drilling activity in respect of all underground resource conversion in 2015 totalled 17,961 metres. At the Western Flank MNV licence, immediately adjacent to the mine’s operations (Chaynoye prospect), management compiled and submitted to the regulator a report on the exploration results to date. A follow-up trenching and drilling programme is planned for 2016, targeting a potential open-pit resource at the site of a prominent gold anomaly identified during 2014’s exploration activities. KEKURA – ChuKotKa region, russia The Company, in line with its ongoing development studies at Kekura, advanced an updated JORC-compliant resource/reserve evaluation by an international consultancy, with final results released in Q2 2016. A substantial resource conversion drilling programme is planned in 2016 for sections of the deposit designated for underground mining. A multi-year exploration programme targeting near-mine upside potential at identified prospects adjacent to the Kekura deposit has been devised and awaits regulatory approval. A modest exploration programme for alluvial gold, carried out at selected prospects in the vicinity of the Kekura deposit, was completed in H2 2015. OTHER PROJECTS Reflecting the prioritisation of other projects, no field work was conducted at the Belaya Gora Flanks, Blagodatnoye, Verkhne-Krichalskaya and Unkurtash projects during 2015. 12 HIGHLAND GOLD MINING LIMITED HEALTH, SAFETY & ENVIRONMENT The Company continued to focus on occupational safety and risk management on site throughout 2015 as we strived towards our goal of zero workplace incidents. Various staff training courses were properly attended and, as is customary, employees were encouraged to assume a sense of personal responsibility for their safety and for the safety of their colleagues. A total of 12 incidents (2014: nine) were recorded across the Group during the year: three were attributable to MNV (one of which was serious); five to Novo; and four to BG (one of which involved a contractor). Regrettably, our Lost Time Incident (LTI) rate (defined as the number of lost time incidents for every 200,000 man-hours worked) increased slightly from 2014’s all-time low of 0.27 to 0.30. A total of 1,546 employees attended an induction safety course (1 day), 1,176 received training in safe operating methods at hazardous facilities (3-5 day course), and 380 received a 7-30 day training course in industrial safety with subsequent certification. We have retained the auxiliary mine rescue crews, formed in 2014, as an additional resource in the event of an emergency. During H2 2015, MNV received a licence for the safe operation of explosive, fire and chemically-hazardous production substances. Novo was granted a licence for the production of industrial-grade explosives. The Company is totally committed to meeting all applicable environmental laws and implementing all relevant recommendations from the supervising authorities. In November 2015, MNV and Russdragmet (Moscow office) successfully completed recertification audits for the adherence of in-situ environmental management systems to the ISO 14001 standard. The audits confirmed compliance with environmental regulations. In addition, the Company successfully implemented a certified ISO 14001 standard environmental management system at Belaya Gora and Novo. Environmental protection courses were provided to 530 employees, while 625 employees received training with regard to the safe handling of industrial waste. Public hearings were successfully held in Bilibino, Chukotka region, during October, to discuss the design of the Kekura mining complex and infrastructure, together with the materials involved, in order to assess the impact on the environment. ANNUAL REPORT & ACCOUNTS 2015 13 FINANCIAL REVIEW FINANCIAL REVIEW In an environment of lower prices for precious and base metals in 2015, the Company succeeded in maintaining a stable level of production while keeping costs under control, reducing debt, and paying competitive dividends. Overall Group revenue was US$276.2 million in 2015 compared to US$304.2 million in 2014. The negative impact of lower metals prices resulted in a 9.2% decrease in revenue. Over the reporting period, the Company sold 258,292 ounces of gold and gold equivalents compared to 257,111 ounces in 2014. Novo and BG considerably increased their share in the Group’s total sales volume, with Novo’s sales growing to 105,299 eq. oz (up 13.4% y-o-y) and accounting for 40.8% of the total, while Belaya Gora sold 59,971 ounces in 2015 for a 23.2% share. MNV, with its share of 36.0%, remained a significant contributor to total sales volume with 93,022 ounces. The Group continued to practice a “no hedge” policy in 2015. The average price of gold realised by MNV and Belaya Gora (net of commission) was US$1,154 per oz, in line with the average market price (average 2015 LBMA price was US$1,160 per oz) and down by 8.6% y-o-y. The average price of gold equivalents realised by Novo was US$927 per eq. oz in 2015, compared to US$1,018 per eq. oz in 2014. The average price at Novo is based on the spot price for metals contained in the concentrates (gold, lead, zinc and silver), net of fixed processing and refining costs at the KazZinc plant. The Company’s average realised price of gold and gold equivalents amounted to US$1,062 per oz in 2015, compared with US$1,175 per oz in 2014, a decline of 9.6%. The Company’s cost of sales net of depreciation decreased by 25.0% to US$126.8 million in 2015 (2014: US$169.1 million). The positive effect of the Russian Rouble's devaluation enabled the Company to offset the negative impact of the overall inflation (12.9%) and an increase in prices for energy and some major consumables. Depreciation was US$72.6 million, up 22.2% y-o-y, largely resulting from the BG plant launch. Cash operating Costs Costofsales – depreciation, depletion and amortisation 2015 US$000 199,365 (72,583) 2014 US$000 228,518 (59,392) y-o-y change, % (12.8%) 22.2% Costofsales,netofdepreciation,depletionandamortisation 126,782 169,126 (25.0%) Breakdownperitem: Labour Consumables and spares Power Movement in ore stockpiles, finished goods and stripping assets Maintenance and repairs Taxes other than income tax 40,448 48,127 8,736 (12,745) 26,286 15,930 52,101 47,403 11,785 7,181 31,205 19,451 (22.4%) 1.5% (25.9%) (277.5%) (15.8%) (18.1%) Total cash costs (TCC)1 decreased by a significant 25.6% to US$480 per oz, some 20.0% below the industry average. Breaking it down by business unit, total cash costs at Belaya Gora halved from US$926 per oz to US$465 per oz y-o-y as a result of economies of scale, improved grades and recovery rates. Total cash costs at Novo were US$302 per eq. oz, falling by 29.5% from the previous year, largely reflecting the rise in production volumes. MNV, our oldest mine, also saw decreased total cash costs of US$691 per oz (2014: US$722 per oz) despite a considerable 24.7% reduction in average grade. All-in sustaining costs (AISC)2 per ounce dropped by 20.9% to US$640 per oz in 2015 from US$809 per oz in 2014. 14 HIGHLAND GOLD MINING LIMITED TCC and aISC CalCulaTIonS Cost of sales, net of depreciation, depletion and amortisation – cost of by-products and other sales – taxes other than income tax at other entities 2015 US$000 126,782 (2,374) (392) 2014 US$000 169,126 (2,962) (307) y-o-y change, % (25.0%) (19.9%) 27.7% Total cash costs (TCC) 124 016 165 857 (25.2%) + administrative expenses + accretion and amortisation on site restoration provision + movement in ore stockpiles obsolescence provision + sustaining capital expenditure Total all-in sustaining costs (AISC) Gold sold (gold and gold eq.oz) TCC (US$/oz) AISC (US$/oz) 13,127 2,541 120 25,561 165,365 258,292 480 640 15,464 3,704 664 22,324 208,013 257,111 645 809 (15.1%) (31.4%) (81.9%) 14.5% (20.5%) 0.5% (25.6%) (20.9%) The Group’s administrative expenses fell by 15.1% y-o-y to $13.1 million, owing to the weaker Rouble and expense optimisation measures. The Group’s EBITDA3 increased by 7.8% in 2015 to US$133.3 million, compared to US$123.6 million in 2014. The EBITDA margin4 increased from 40.6% to 48.3%, within range of the most efficient gold miners. Broken down by business unit, EBITDA margin was 34.1% at MNV (2014: 41.9%) and 64.2% at Novo (2014: 53.4%). The EBITDA margin at BG showed significant growth from 21.5% to 57.7% due to increased production volume. EBITda BrIdgE, uS$ mIllIon 133 124 39 37 133 11 150 100 50 0 2013 Actual 2014 Actual Price of Sales Volume of Sales Cost of Sales 2015 Actual The Company analysed any potential impairments as of 31 December 2015 and determined that there were, in fact, indicators of impairment loss at Kekura, namely the effect of lower gold price assumptions and changes to the mine plan. Kekura’s goodwill was impaired by US$16.8 million, its exploration and evaluation assets were impaired by US$14.0 million and its property, plant and equipment were impaired by US$5.2 million. In 2015, the Group recorded a net finance loss of US$4.2 million compared to a loss of US$0.8 million in 2014. During the period, the fair value of bonds increased by US$1.2 million whereas in 2014 the gain was higher (US$3.3 million). Interest expense on bank loans was recorded in the amount of US$3.3 million in 2015 versus US$1.9 million in 2014. This increase resulted from zero capitalisation of BG interest due to the launch of the plant, while US$1.7 million of interest expense was capitalised at this business unit in 2014. ANNUAL REPORT & ACCOUNTS 2015 15 FINANCIAL REVIEW A foreign exchange loss of US$4.3 million (2014: loss of US$9.6 million) resulted from the settlement of foreign currency transactions and the transfer of monetary assets and liabilities denominated in currencies such as Russian Roubles and Pounds Sterling into US Dollars. Income tax charges totalled US$23.9 million in 2015 compared to US$70.3 million in 2014. The tax figure is comprised of US$15.9 million of current tax expenses (US$9.7 million at MNV, US$6.1 million at Novo and other US$0.1 million), US$1.5 million of prior year tax adjustment and US$6.5 million of deferred tax. The reduction of income tax was primarily a result of decreased foreign exchange movement. A lower net loss of US$10.0 million for the year, compared to a net loss of US$24.8 million in 2014, reflects a substantial reduction in foreign exchange fluctuations compared to 2014, which in that year resulted in a large deferred tax charge, but were somewhat offset by higher impairment charges. Loss per share amounted to US$0.032 (2014: US$0.077). Adjusted Net Profit5 CAlCulAtioN Loss for the year - impairment losses + foreign exchange loss + normalisation of income tax Adjusted net profit 2015 US$000 (10,019) 35,982 4,321 19,286 49,570 2014 US$000 (24,843) 11,401 9,599 55,183 51,340 y-o-y change, % (59.7%) 215.6% (55.0%) (65.1%) (3.4%) The Group's cash inflow from operating activities totalled US$105.6 million (2014: US$104.4 million) despite falling metal prices. The Company invested US$42.2 million in capital expenditures over the course of 2015, compared to US$65.5 million in the prior year. This decline was a result of lower spending on BG, strict controls on capital allocation, and the Russian Rouble devaluation. Сapital expenditures included US$10.3 million at MNV, US$4.9 million at Novo, US$11.5 million at Belaya Gora, US$11.8 million at Kekura, US$2.8 million at Taseevskoye and US$0.9 million related to other exploration and development projects within the Group. Capital expenditures were funded by operating cash flow. Debt decreased by 16.4% to US$253.4 million as of 31 December 2015. The Company’s debt is denominated in USD with an effective annual interest rate of 5.49%. The interest rate increased by 1.0% due to a lack of bank liquidity and overall higher borrowing costs in Russia. Capitalised interest for 2015 includes US$12.4 million of borrowing costs capitalised at Kekura at interest rates between 4.0% and 7.0%. GROSS DEBT BREAKDOWN BY BUSINESS UNITS, US$ thousand GROSS DEBT BREAKDOWN BY BANKS, US$ thousand Novo $118,000 46% MNV $55,500 22% BG $80,000 32% Gazprombank $135,500 53% Sberbank $37,500 15% Alfa-bank $30,500 12% UniCredit $50,000 20% The Group’s net debt position6 as of 31 December 2015 was US$229.2 million, compared to US$247.2 million as of 31 December 2014. Cash and GBP-denominated bonds as of 31 December 2015 amounted to US$24.2 million, compared to US$55.9 million as of 31 December 2014. 16 HIGHLAND GOLD MINING LIMITED The present ratio of net debt to EBITDA is 1.7, which is in line with the Board’s policy. Cash position bridge, us$ million 42 105 150 100 75 50 25 0 56 9 2 15 51 20 2 24 5 1 0 2 . 1 0 1 0 . t a s d n o b & h s a C s e i t i v i t c a s w o l f h s a c t e N g n i t a r e p o m o r f e r u t i d n e p x e l a t i p a c h s a C i g n p p i r t s n i e s a e r c n I s t e s s a y t i v i t c a t s e r e t n I t s e r e t n I i d e v e c e r s d n o b m o r f . l c n i , i d a p d e s i l a t i p a c t n e m y a p e R i s g n w o r r o b f o s r e d o h l y t i u q e i n g e r o F r e h t O & e g n a h c x e t n e r a p e h t f o s d n o b & h s a C 5 1 0 2 . . 2 1 1 3 t a i d a p s d n e d v D i i o Management demonstrated its ability to deliver stable financial results despite exacting market trends during the reporting year. t PAYMENT OF DIVIDENDS A final dividend for the year ending 31 December 2014 in the amount of US$10.1 million was paid on 21 May 2015. The Group paid an interim dividend of GBP 0.020 per share (2014: an interim dividend of GBP 0.025 per share), which resulted in an aggregate interim dividend payment of US$10.0 million (2014: US$13.1 million). The interim dividend was paid on 12 October 2015. The Board has recommended a final dividend for 2015 of GBP 0.025 per share which, taking into account the interim dividend paid in October 2015, makes a total dividend of GBP 0.045 per share for the year (2014: GBP 0.045 per share). The final dividend will be paid on 27 May 2016 to shareholders on the register at the close of business on 29 April 2016 (the record date). The ex-dividend date will be 28 April 2016. 1. 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. 2. 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. 3. EBITDA is 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. 4. EBITDA margin is defined as EBITDA divided by total revenue. 5. Adjusted net profit is defined as net profit/(loss) free of impairment losses and foreign exchange, and applying a 33.3% effective income tax rate (consistent with prior years in order to remove the foreign exchange effect related to deferred tax) 6. Net debt is defined as cash at bank, deposits and bonds, decreased by any bank borrowings. Rounding of figures may result in computational discrepancies. ANNUAL REPORT & ACCOUNTS 2015 17 PRINCIPAL RISKS AND UNCERTAINTIES PRINCIPAL RISKS AND UNCERTAINTIES The Group is exposed to a number of risks and uncertainties that in most cases are relevant to the entire gold mining industry. These risks and uncertainties could cause actual results to differ materially from expected or historical results. The main 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. At an operational level, all mines identify, prioritise and directly engage stakeholder groups that have the potential to affect their operational, sustainability or financial performance. 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. 18 HIGHLAND GOLD MINING LIMITED MARKET AND FINANCIAL RISKS RISK NAME RISK DESCRIPTION MITIGATION The Group constantly monitors price trends and forecasts, maintains a cost-cutting programme, checks the viability of exploration and development projects based on the current and projected price levels and, if necessary, revises specific investment plans and schedules. The Group regularly reviews possibilities for hedging against commodity price changes. 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 2015 or prior periods and price fluctuations had an effect on the Group’s profits. The capability to invest in growth projects is limited during periods of low commodity prices – which may, in turn, affect future performance. 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. Financialrisks 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 30 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 the majority of revenues in US Dollars and also obtains financing in US Dollars. The majority of costs are linked to US Dollars although a significant portion is incurred in Russian Roubles. In 2015 and 2014, the Group benefited from the devaluation of the Russian Rouble. The negative aspect of Rouble depreciation was that the Group’s net monetary assets denominated in Roubles lost value and these losses were recognised. Credit risKs Risk of loss related to a counterparty’s failure to perform its contractual obligations or transactions in a certain timeframe and, as a result, certain financial assets (including assets with high liquidity) may be impaired. interest rate risK Interest rates are affected by geopolitical and macroeconomic events. An increase in interest rates may adversely affect the Group’s financial results and its ability to demonstrate the economic viability of certain assets. 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 2015 and 2014 nor in prior periods. 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. ANNUAL REPORT & ACCOUNTS 2015 19 PRINCIPAL RISKS AND UNCERTAINTIES Financialrisks (continued) 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 a short-term, medium-term cash planning system and long-term cash flow forecasts are prepared in line with strategic planning. The Group’s centralised treasury function ensures that there is sufficient liquidity for day- to-day operations at each location and reviews the need to attract additional external financing. Opportunities to secure loans at appropriate rates are constantly monitored by the Group. OPERATING RISKS RISK NAME RISK DESCRIPTION MITIGATION Risksassociatedwith explorationactivities The Group’s estimates of ore reserves and mineral resources are subject to a number of assumptions and approximations, 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 reductions in estimated reserves and resources. The Group makes significant investments in exploration activities performed at greenfield sites to develop the business and at brownfield sites to extend the life of mines. For various reasons, including geological and economic factors, such activities may prove unsuccessful and may not result in an increase in Group resources. The failure to discover new resources could adversely affect the Group’s future performance. TheGroup’sdeposits aresubjectto explorationand mininglicences 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. The Group conducts detailed exploration and assesses results in accordance with widely recognised methods of resources/reserves evaluation. In-house geologists have a proven track record of successful exploration work and a history of exploration projects moved to the next stage (i.e. mine development and production). The Group engages internationally recognised external consultants to confirm its resources and reserves estimates (information regarding the Group’s mineral resources and reserves, reported in accordance with JORC, is presented on pages 78-79). 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 page 12. Compliance with licence requirements is constantly monitored at management level. To diminish risks, measures are developed to meet or renegotiate the terms and conditions of licence agreements. The Group’s senior management and the Board are regularly informed as to compliance with licence agreements. 20 HIGHLAND GOLD MINING LIMITED RISK NAME RISK DESCRIPTION MITIGATION Productionrisks andfailuretodeliver productionplans Newconstruction projects Skilledworkforce shortage 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. Such factors could adversely affect production volumes and costs or damage electricity supply facilities and/ or other necessary items of 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 and this might hinder the implementation of production plans and cause major losses in the form of impairment of various assets and goodwill. The Group faces challenges in developing major projects, particularly in geographically remote locations and in technically challenging areas. Construction projects require significant resources and should be executed in accordance with planned costs and within defined terms. Cost overruns and timely execution in projects directly impact the capital, productivity and commercial performance of assets across the Group. Incorrect capital allocation and poor project management may result in a decrease in the profitability of a particular project and affect the Group’s results. The Group experiences intense competition with other companies for the retention and engagement of mining and production staff, including geologists, engineers, production process managers and other mining specialists. The loss of key personnel or a failure to attract, retain and motivate qualified personnel, could have a materially adverse effect on the Group’s business, financial state and operational results. 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 facilitated by the necessary machinery and equipment, and that relevant standby equipment is available. Regular maintenance is performed by qualified Group employees and contractors to ensure reliable machinery and equipment operations. Stocks of spare parts are maintained for urgent repairs. Details of the operational performance of each of the Group’s operations are included in the Operations section on pages 8-13. 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. Capital expenditure disciplines and controls are implemented to deliver on-budget performance for construction projects. Widely recognised project management techniques are employed. The Group applied a stage-gate process to ensure the cash generation potential of future growth projects. Management and the Board closely monitor the status of new projects, costs incurred and project issues. The Group monitors the labour and salary markets and develops motivation systems to attract qualified personnel and retain key employees. One of the responsibilities of the Group’s Remuneration Committee is to consider and approve remuneration for senior management. ANNUAL REPORT & ACCOUNTS 2015 21 PRINCIPAL RISKS AND UNCERTAINTIES RISK NAME RISK DESCRIPTION MITIGATION TheGroupis subjecttoextensive environmental,health andsafetylawsand regulations The Group is focused on health and safety issues and environmental protection, both of which are prioritised. Safety and environmental policies are based on the applicable legislation. Changes in legislation are monitored. The Group purchases the necessary equipment to prevent fires, flooding, other accidents and 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 strives to implement international best practices, conducts regular internal and external environmental audits, and implements remedial actions where required. In 2014, it completed the certification of all major production sites under ISO 14001:2004, and in 2015 successfully completed ISO 14001 recertification audits. At Board level the Group’s HSE Committee considers and monitors all key HSE risks. Group companies are subject to various environmental, health and safety regulations stipulated by the relevant regulatory agencies. The Group’s operations require various licences/permissions with regard to the use of industrial explosives, the operation of flammable, explosive and chemically aggressive production facilities and the use of hazardous structures. Stricter regulations could cause the Group to incur additional costs in order to comply with the new regulations. 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. Inability to deliver appropriate levels of safety and environmental protection may result in loss of life, workplace injuries, pollution and lead to a stoppage of operations, significant fines and a threat to the Group’s licence to operate. 22 HIGHLAND GOLD MINING LIMITED STRATEGIC RISKS RISK NAME RISK DESCRIPTION MITIGATION Anadequate resourcebase needstobe maintainedfor futureoperations andreplacement ofdepleted 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 organic projects or through M&A activity. The Group undertakes exploration projects to sustain and increase the resource base. Comprehensive near-mine exploration plans are developed for all sites. 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. The Group is actively looking for opportunities around its existing operational assets to create competitive advantages through synergies within the Group and with regard to competitors’ projects. Senior management 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. In 2014 and 2015, the Group was not directly affected by any sanctions, although the macroeconomic situation in Russia resulted in an increase in the cost of capital for the Group. The Group monitors further developments on an ongoing basis. Regulatory changesand government 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. 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 in respect of certain Russian government officials, other individuals and certain Russian companies which, together with the decrease in oil prices on the international market, adversely affected the Russian economy. Specifically, there is uncertainty regarding the reliability of supply chain and the availability and cost of capital. The geopolitical situation may have an adverse effect on the Group’s market value. Changeinresidualrisklevelassessmentas comparedtothesimilarriskin2014: Increased Decreased Nochange   ANNUAL REPORT & ACCOUNTS 2015 23 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 2015. 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 80-81 of the Annual Report. The Chairman’s Statement and the Operational Review highlight the Company’s business developments during 2015 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 2015 appears in the Financial Review on page 14 of the Report. The Group achieved a loss for the year of US$10.0 million (2014: loss of US$24.8 million). The Directors recommend the payment of a final dividend on the Ordinary shares of GBP 0.025 (2014: GBP 0.020) per share payable on 27 May 2016. This continues to reflect the Board’s confidence in Highland Gold’s growth projections. 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 31/12/2015 20,000 36,916,144 Ordinary shares At 31/12/2014 Available options At 31/12/2015 20,000 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, 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. 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 2014 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. The Board has 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. 24 HIGHLAND GOLD MINING LIMITED THE BOARD The Board is currently comprised of seven Directors, five of whom are Non-Executives. Eugene Shvidler, Executive Chairman, and John Mann, Head of Communications, are Executive Directors. Three Non-Executive Directors – 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. The Board considers them as independent in character and judgement and are free from any business or other relationship which could materially interfere with the exercise of their independent judgement, in compliance with the UK Corporate Governance Code. Valery Oyf and Olga Pokrovskaya are affiliated with Millhouse LLC which, together with persons connected to 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. In April 2015, the Board appointed Non-Executive Chairman Eugene Shvidler as Executive Chairman. Other changes to the Board during the year included the appointment of John Mann in April as an Executive Director, Head of Communications, responsible for IR and PR and the resignation 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. In January 2016, Valery Oyf was appointed a Non-Executive Director having stepped down from CEO on the appointment of Denis Alexandrov as CEO. 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. Eugene Shvidler, Terry Robinson and Colin Belshaw who retire by rotation will offer themselves for re-election at the Annual General Meeting to be held on 25 May 2016. The Remuneration and Nomination Committee has agreed and recommended these reappointments. The profiles of the Directors are to be found on page 30 of this Annual Report. AUDIT COMMITTEE The Audit Committee in 2015 consisted of two Non-Executive Directors and is chaired by Terry Robinson. The other members of the Committee during 2015 were Olga Pokrovskaya and Eugene Tenenbaum who resigned from the Committee in April 2015. Audit Committee members meet with management and the auditors on a regular basis. The Audit Committee met three times during 2015 to consider the annual and interim financial statements and the internal and external audit programme. In April 2016, the Audit Committee considered and reviewed the 2015 Financial Statements and the Annual Report statements as to the Company’s Principal Risks and Uncertainties, the Directors’ Report and the Operational and Financial Review. Management and external auditors are invited to attend Committee 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; details can also be found on the Company’s website ANNUAL REPORT & ACCOUNTS 2015 25 DIRECTORS’ REPORT 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 Audit Committee reviews the annual Internal Audit Plan and Internal Audit’s recommendations in response to their audit findings. Subsequently, Internal Audit reports to the Audit Committee on management’s delivery of such audit recommendations. Internal Audit also reviews and reports on the measurement and completeness of the Risk Register including the detailed management remedial actions. Reports and action on whistleblowing events to the Audit Committee are also within the remit of Internal Audit. With regard to the Financial Statements, the Audit Committee’s key considerations were in respect of the consistency and appropriateness of the inputs for the Impairment review. These inputs: Life of Mine (LOM), Gold price, annual volumes, cash cost of production and CAPEX, together with the proposed WACC, are the drivers of the separate mine forward financial models and value in use calculation. A further consideration of the Audit Committee was the Company’s decision to include in the Company’s UOP/ depletion calculation an element of the Measured and Indicated (M&I) resources that the Company expects to be converted to reserves, in addition to the previous practice of using only the Proven and Probable reserves in UOP/depletion calculations. After receiving management’s assurances as evidenced by the increased LOM and determining the increased CAPEX to bring M&I resources into the LOM calculations, the Audit Committee was comfortable with the amended UOP/depletion calculations. The Audit Committee recommended the Interim Half-Year Financial Statements and the 2015 full year audited Financial Statements to the Board for approval and, with some amendments, the Annual Report segments, as detailed above, for Board approval. Finally, the Audit Committee undertook a self-assessment of its own performance, and that of Internal Audit and an extensive assessment of the external auditors which included input from management’s assessment. Following the consideration of this assessment the Audit Committee recommended to the Board the reappointment of Ernst and Young LLP as the Company’s auditors. REMUNERATION AND NOMINATION COMMITTEE During 2015, the Committee consisted of three Directors, all of which are non-executive, comprising Duncan Baxter, as Chairman, Valery Oyf and Terry Robinson. Eugene Tenenbaum resigned from the Committee in April 2015. 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 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 re-election of Eugene Shvidler, Terry Robinson and Colin Belshaw respectively as Directors of the Company at the forthcoming AGM. The Committee also discussed and recommended to the Board the appointment of Denis Alexandrov as CEO with effect from January 2016. 26 HIGHLAND GOLD MINING LIMITED 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 2015 were Terry Robinson, Colin Belshaw and Sergey Mineev, who resigned in April 2015. 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 Review on page 13. 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 departments and the General Directors of the mine sites. 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 controls 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 31 March 2016, the Company had been notified of the following interests, other than Directors’ interests, which amounted to 3% 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 Percentage 104,080,000 54,685,994 19,448,593 13,500,000 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, and with others hold a combined 32% interest in the Company. ANNUAL REPORT & ACCOUNTS 2015 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 11.00 am on Wednesday 25 May 2016 at 26 New Street, St Helier, Jersey JE2 3RA. The notice convening the Annual General Meeting is set out on page 83 of the Annual 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. 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 REMUNERATION POLICY The overall responsibility for establishing a suitable remuneration policy lies with the Board. The Remuneration and Nomination Committee has terms of reference to work within and makes recommendations to the Board designed to provide a framework for Executive Director and senior management remuneration. The Remuneration Policy for Executive Directors, Non-Executive Directors and senior management is based on general principles that provide competitive packages designed to attract and retain suitably qualified and talented individuals who can align themselves with the overall objectives and corporate culture of the Company. The remuneration of Executive Directors, other than the Executive Chairman and senior management, currently comprises basic salary and discretionary bonus. The executive management and Executive Directors are entitled to certain benefits and are eligible to participate in the long-term incentive programme. The Company does not operate a pension scheme for executive management or Directors. The Executive Chairman’s fees are set by the Committee. Basic salary takes into account the performance of the individual, any changes in responsibility and rates of market remuneration. 28 HIGHLAND GOLD MINING LIMITED Discretionary bonuses, currently paid in cash although they could include a share element, are solely dependent on an overall assessment of the individual’s performance, with both financial and non-financial options available. In addition, incentives are available in relation to Executive Directors, senior management and other key personnel under the unapproved share option scheme, managed by the Committee. No such scheme shares are currently granted or vested. The Committee does not operate a ‘clawback’ facility in respect of Directors’ and senior managers’ remuneration; such arrangements being unenforceable under the Russian labour code. The remuneration of Non-Executive Directors is considered by the Executive Directors, with input from senior management, and takes into account the nature and risk of the business, time commitment, additional responsibilities and competitive fee levels. Non-Executive Directors’ fees comprise a base fee and an additional fee for chairmanship of a committee. Other benefits are not available to Non-Executive Directors. REPORT ON REMUNERATION The remuneration paid to the Directors in the financial period to 31 December 2015 was as follows: US$ Eugene Shvidler Duncan Baxter Olga Pokrovskaya Terry Robinson Colin Belshaw Valery Oyf John Mann Eugene Tenenbaum* Alla Baranovskaya* Sergey Mineev* Fees and remuneration Bonus 2015 500,000 160,000 125,000 160,000 100,000 2014 500,000 160,000 125,000 160,000 100,000 1,239,081 1,020,165 80,000 33,333 177,689 101,554 – 100,000 626,893 288,701 2015 2014 – – – – – – – – – – – – – – – – 36,496 3,318 114,256 – * Eugene Tenenbaum, Alla Baranovskya and Sergey Mineev resigned in April 2015. As Company executives, Ms Baranovskaya and Mr Mineev continued to receive a salary after their resignation from the Board. No grants of options under the unapproved share option scheme were made during 2015 and management and employees were incentivised through a bonus scheme, currently of a discretionary nature. There were no options outstanding as of 31 December 2015 (2014: Nil). The Group has entered into letters of appointment with both the Executive and Non-Executive Directors. The latter are reviewed on an annual basis and none of the letters of appointment have an expiry date or notice period of more than one year. The Executive Directors, other than the Chairman, 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. Further information on the Remuneration and Nomination Committee can be found on page 26 of this Annual Report.  ByOrderoftheBoard 19 April 2016 ANNUAL REPORT & ACCOUNTS 2015 29 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 master’s 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 is a retired banker with over 25 years’ experience in international banking, latterly as managing director of Swiss Bank Corporation. Since leaving Swiss Bank in 1998 he has undertaken consultancy projects for international banks and investment management companies. He is a Jersey resident and holds a number of other non-executive directorships. He is a Fellow of the Institute of Chartered Secretaries, the Securities Institute and the Institute of Bankers. He was a member of the Highland Gold Board of Directors from 2002 until early 2008 and rejoined the Board in autumn 2008. COLIN BELSHAW INDEPENDENT NON-EXECUTIVE DIRECTOR Colin Belshaw gained a Dip.CSM (1st Class) in 1979 from the Camborne School of Mines, Cornwall, UK, he is a Fellow of the Institute of Materials, Minerals and Mining (FIMMM), registered as an Incorporated Engineer (I.Eng) with the Engineering Council of the United Kingdom, and holds the Mine Managers Certificate of Ghana. He has held numerous operating and corporate positions, including responsibility for Kinross Gold’s Kubaka and Birkachan mining operations in Russia, Vice President Operations of Golden Star Resources in Ghana, and his most recent executive role was as DRC-based COO of Banro Corporation. 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 consulted 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. 30 HIGHLAND GOLD MINING LIMITED VALERY OYF NON-EXECUTIVE DIRECTOR 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, and later as General Director of Millhouse LLC. He was Chief Executive Officer of Highland Gold from 2008 until 2016. 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 SENIOR INDEPENDENT DIRECTOR CHAIRMAN OF THE AUDIT COMMITTEE, MEMBER OF THE REMCO, NOMINATION AND HSE COMMITTEES 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. He was elected to the Board of OJSC Raspadskaya, a subsidiary of Evraz plc, 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. ANNUAL REPORT & ACCOUNTS 2015 31 INDEPENDENT AUDITORS’ REPORT 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 2015 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 33. 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 2015 and of its net 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. 32 HIGHLAND GOLD MINING LIMITED MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION 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.     KenWilliamson for and on behalf of Ernst & Young LLP, London 19 April 2016 NOTES: 1. The maintenance and integrity of the Highland Gold Mining Limited web site 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 web site. 2. Legislation in Jersey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. ANNUAL REPORT & ACCOUNTS 2015 33 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 December Revenue Cost of sales Grossprofit Administrative expenses Other operating income Other operating expenses Impairment losses Gain on settlement of contingent consideration Operatingprofit Foreign exchange loss Finance income Finance costs Profitbeforeincometax Current income tax expense Adjustments in respect of prior year income tax Deferred income tax expense Totalincometaxexpense Lossfortheyear Totalcomprehensivelossfortheyear Attributableto: Equity holders of the parent Non-controlling interests Losspershare(US$pershare) 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 7 8 9 10.1 10.2 5, 17 4 11 12.1 12.2 13 13 13 13 14 14 2015 US$000 276,175 (199 365) 76,810 (13,127) 2,882 (8,170) (35,982) – 22,413 (4,321) 1,331 (5,529) 13,894 (15,867) (1,542) (6,504) (23,913) (10,019) (10,019) 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) (10,316) (24,942) 297 99 (0.032) (0.077) (0.032) (0.077) The Group does not have any items of other comprehensive income or any discontinued operations. 34 HIGHLAND GOLD MINING LIMITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION as at Notes 31 December 2015 US$000 31 December 2014 US$000 ASSETS Non-currentassets Exploration and evaluation assets Mine properties Property, plant and equipment Intangible assets Inventories Other non-current assets Deferred income tax asset Totalnon-currentassets Currentassets Inventories Trade and other receivables Income tax prepaid Prepayments Financial assets Cash and cash equivalents Other current assets Totalcurrentassets Totalassets EQUITY AND LIABILITIES Equityattributabletoequityholdersoftheparent Issued capital Share premium Assets revaluation reserve Retained earnings Totalequityattributabletoequityholdersoftheparent Non-controlling interests Totalequity Non-currentliabilities Interest-bearing loans and borrowings Liability under finance lease Long-term accounts payable Provisions Deferred income tax liability Totalnon-currentliabilities Currentliabilities Trade and other payables Interest-bearing loans and borrowings Income tax payable Liability under finance lease Totalcurrentliabilities Totalliabilities Totalequityandliabilities 15 15 15 16 20 18 13 20 21 22 31 23 24 24 25 26 27 13 26 25 309,101 318,068 320,986 70,365 16,372 3,845 – 1,038,737 67,758 31,188 3,770 888 21,150 3,058 602 128,414 1,167,151 585 718,419 832 18,176 738,012 1,566 739,578 183,000 1,526 223 16,026 135,457 336,232 20,201 70,375 16 749 91,341 427,573 1,167,151 296,739 321,407 359,466 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 22,134 157,658 3,418 – 183,210 473,692 1,243,796 The financial statements were approved by the Board of Directors on 19 April 2016 and signed on its behalf by: Denis Alexandrov and Alla Baranovskaya. ANNUAL REPORT & ACCOUNTS 2015 35 CONSOLIDATED FINANCIAL STATEMENTS 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 interest US$000 Total equity US$000 At31December 2013 Total comprehensive (loss)/income for the year Dividends paid to equity holders of the parent At31December 2014 Total comprehensive (loss)/income for the year Novo share purchase Dividends paid to equity holders of the parent At31December 2015 32 29 32 585 718,419 832 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 – – – – – – – (10,316) (10,316) 297 (10,019) – – 869 869 (1,301) (432) (20,075) (20,075) – (20,075) 585 718,419 832 18,176 738,012 1,566 739,578 36 HIGHLAND GOLD MINING LIMITED CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 31 December OPERATING ACTIVITIES Profitbeforeincometax Notes 2015 US$000 2014 US$000 13,894 45,487 10.2.3 8 5, 17 10.2.1 10.2 10.2, 15 10.2.2 10.2 12.1 12.1, 31 12.2 12.2 10.1 4 11 Adjustmentstoreconcileprofitbeforeincometaxtonetcashflowsfromoperatingactivities: 72,583 Depreciation of mine properties and property, plant and equipment 35,982 Impairment losses related to cash-generating units 120 Movement in ore stockpiles obsolescence provision 521 Movement in raw materials and consumables obsolescence provision 1,916 Write-off of mine properties and property, plant and equipment 1,698 Individual impairment of property, plant and equipment 172 Loss on disposal of property, plant and equipment (75) Bank interest receivable (1,246) Bonds fair value movement 3,297 Interest expense on bank loans 2,117 Accretion expense on site restoration provision (2,104) Gain on change in estimation – site restoration asset – Gain on settlement of contingent consideration 4,321 Net foreign exchange loss 177 Movement in provisions – Loss from disposal of an entity Other non-cash expenses/(income) 983 Workingcapitaladjustments: (Increase)/decrease in trade and other receivables and prepayments Decrease in inventories Increase/(decrease) in trade and other payables Income tax paid Netcashflowsfromoperatingactivities INVESTING ACTIVITIES Proceeds from sale of property, plant and equipment Purchase of property, plant and equipment Capitalised interest paid Increase in stripping activity assets Interest received from deposits Interest received from bonds Purchase of investments – bonds Novo shares purchase Sale of investments – bonds Netcashflowsusedininvestingactivities FINANCING ACTIVITIES Proceeds from borrowings Repayment of borrowings Dividends paid to equity holders of the parent Payment under finance lease, including interest Interest paid Netcashflowsusedinfinancingactivities Net (decrease)/increase in cash and cash equivalents Effects of exchange rate changes Cash and cash equivalents at 1 January Cashandcashequivalentsat31December 673,924 (724,472) (20,075) (827) (3,087) (74,537) (10,093) 205 12,946 3,058 98 (42,195) (12,359) (9,399) 75 2,534 (3,818) (432) 24,337 (41,159) (8,295) 147 839 (21,444) 105,603 5 5, 15 15 31 31 29 31 23 23 32 25 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 (71,091) 136,560 (140,896) (26,804) – (1,502) (32,642) 689 4,319 7,938 12,946 ANNUAL REPORT & ACCOUNTS 2015 37 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 2015 were authorised for issue in accordance with a resolution of the Directors on 19 April 2016. 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. 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. 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 38 HIGHLAND GOLD MINING LIMITED 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. Further information is contained in Note 16. 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: Average RUR GBP Closing RUR GBP 31 December 2015 31 December 2014 61.319 0.6542 72.883 0.6755 39.038 0.607 56.258 0.644 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. ANNUAL REPORT & ACCOUNTS 2015 39 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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. 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 the depleted estimated proven and probable reserves and a portion of resources expected to be converted into 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. 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. Exploration and evaluation assets contain a mixture of tangible and intangible assets. 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. Exploration and evaluation assets are not depreciated. General and administrative and overhead costs directly attributable to the exploration and evaluation activities are included in exploration and evaluation assets’ cost. The restoration provision cost does not form part of exploration and evaluation assets. 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. 40 HIGHLAND GOLD MINING LIMITED 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. 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. 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. 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. Mine properties contain a mixture of tangible and intangible 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. 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. These criteria are disclosed in Note 4. 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 31. ANNUAL REPORT & ACCOUNTS 2015 41 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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. 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 31. impairment At each reporting date, management assesses whether there is any indication of impairment within the categories of property, plant and equipment (annual impairment test is performed on cash-generating units to which goodwill has been allocated irrespective of whether any indications exist). 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 other than goodwill 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 and if there is an indication that the impairment loss may no longer exist or may have decreased. 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. 42 HIGHLAND GOLD MINING LIMITED 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 with a corresponding liability at an amount equal to 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. 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. 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 ANNUAL REPORT & ACCOUNTS 2015 43 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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. Inventory items that represent significant parts of property, plant and equipment are capitalised as non-current assets and are depreciated separately. An existing part should be derecognised when it is replaced, with the book value of the replaced part written down through the depreciation charge. 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; and • 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. 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. 44 HIGHLAND GOLD MINING LIMITED 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 a semi-annual basis for changes in cost estimates or lives of operations. 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. A portion of the provisional invoice is settled within a few days (85% from January to August 2015, 80% since September 2015). The remaining amount (15% from January to August 2015, 20% since September 2015), 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 volume adjustments resulting from the final assay, is settled in four 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 an embedded derivative financial instrument closely related to the host sales contract and therefore not separated. 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. Any adjustments to pricing resulting from the embedded derivative as well as volume adjustments are recognised in revenue from concentrate sales and accounts receivable when incurred, based on quoted market prices. 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. 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). ANNUAL REPORT & ACCOUNTS 2015 45 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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, 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. 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 46 HIGHLAND GOLD MINING LIMITED • 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. 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. new standards, interpretations and amendments adopted by the group In the preparation of consolidated financial statements, the Group followed the same accounting policies and methods of computation as compared with those applied in the previous year, except for the adoption of new standards and interpretations and revision of the existing standards as of 1 January 2015. The Group has applied the improvements effective for annual periods beginning on or after 1 January 2015 for the first time in these consolidated financial statements. These amendments issued in course of Annual Improvements to IFRSs 2010-2012 and Annual Improvements to IFRSs 2011-2013 mostly related to IFRS 3 Business Combinations, IFRS 13 Fair Value Measurement, IFRS 2 Share-based Payment, IFRS 8 Operating Segments and did not have an impact on the financial position or performance of the Group. Revised standard with effect on disclosures – IFRS 8 Operating Segments The amendments are applied retrospectively and clarify that: • An entity must disclose the judgements made by management in applying the aggregation criteria in paragraph 12 of IFRS 8, including a brief description of operating segments that have been aggregated and the economic characteristics (e.g., sales and gross margins) used to assess whether the segments are ‘similar’. • The reconciliation of segment assets to total assets is only required to be disclosed if the reconciliation is reported to the chief operating decision maker, similar to the required disclosure for segment liabilities. The Group has applied the aggregation criteria in IFRS 8.12. Please refer to Note 5 for details. The Group has presented the reconciliation of segment assets to total assets in previous periods and continues to disclose the same in Note 5 in these financial statements as the reconciliation is reported to the chief operating decision maker for the purpose of decision making. new standards and interpretations not yet adopted The Group has not early adopted any standard, interpretation or amendment that was issued but is not yet effective. The list below includes only standards and interpretations that could have an impact on the consolidated financial statements of the Group: Standards not yet effective for the financial statements for the year ended 31 December 2015 Effective for annual periods beginning on or after Amendments to IAS 1 – Disclosure Initiative Amendments to IFRS 11 – Accounting for Acquisitions of Interests in Joint Operations Annual Improvements to IFRSs 2012-2014 Cycle Amendments to IAS 7 – Disclosure Initiative Amendments to IAS 12 – Recognition of Deferred Tax Assets for Unrealised Losses IFRS 9 Financial Instruments IFRS 15 Revenue from Contracts with Customers IFRS 16 Leases 1 January 2016 1 January 2016 1 January 2016 1 January 2017* 1 January 2017* 1 January 2018* 1 January 2018* 1 January 2019* * Subject to EU endorsement. ANNUAL REPORT & ACCOUNTS 2015 47 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS IFRS 9 Financial Instruments The application of IFRS 9 may change the measurement and presentation of many financial instruments, depending on their contractual cash flows and the business model under which they are held. The impairment requirements will generally result in earlier recognition of credit losses. The new hedging model may lead to more economic hedging strategies meeting the requirements for hedge accounting. The Group will monitor the discussions of the IFRS Transition Resource Group for Impairment of Financial Instruments (ITG). The Group is currently estimating the potential effect of IFRS 9 on its financial statements for the reporting periods on and after 1 January 2018. IFRS 15 Revenue from Contracts with Customers IFRS 15 is more prescriptive than the current IFRS requirements for revenue recognition and provides more application guidance. The core principle is that an entity will recognise revenue at an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to a customer. The standard also specifies how to account for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract. The disclosure requirements are also more extensive. This standard is applied using either a full retrospective approach, with some limited relief provided, or a modified retrospective approach. The Group is currently estimating the potential effect of IFRS 15 on its financial statements for the reporting periods on and after 1 January 2018. IFRS 16 Leases Under the new standard, a lease is a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration. To be a lease, a contract must convey the right to control the use of an identified asset, which could be a physically distinct portion of an asset such as a floor of a building. A contract conveys the right to control the use of an identified asset if, throughout the period of use, the customer has the right to: • obtain substantially all of the economic benefits from the use of the identified asset; and • direct the use of the identified asset (i.e., direct how and for what purpose the asset is used). The lessor accounting is substantially unchanged. The lessees will recognise most leases on their balance sheets. The new standard permits lessees to use either a full retrospective or a modified retrospective approach on transition for leases existing at the date of transition, with options to use certain transition reliefs. The Group is currently estimating the potential effect of IFRS 16 on its financial statements for the reporting periods on and after 1 January 2017. 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). 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; 48 HIGHLAND GOLD MINING LIMITED • costs can be measured reliably; and • the Group can identify the component of the ore body for which access has been improved. 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. 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. 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 reasonably possible scenarios, the Group also concluded that no covenants are breached in any 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. gain on settlement of Contingent Consideration In 2013, the Group acquired a 100% share in ZAO Bazovye Metally (Kekura). Part of contingent consideration recognised in this business combination was payable upon the completion of various contractual terms. In July 2014 an agreement was signed stating that several contractual terms had not been met. Therefore, US$5.6 million of the contingent consideration would no longer be payable and 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 2016. ANNUAL REPORT & ACCOUNTS 2015 49 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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 2015 of US$21.2 million (2014: US$43.0 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. US Dollar is the functional currency of all entities both in 2014 and 2015. 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 cash-generating unit (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 17. 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. 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 50 HIGHLAND GOLD MINING LIMITED 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. Please refer to Note 17 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 17 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 28 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 are 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 13. 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 2018 at MNV, in 2023 at BG, in 2029 at Novo, in 2030 at Klen and in 2029 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 and a portion of resources expected to be converted into reserves (as indicated in the detailed life-of-mine plans) have been used in the units of production calculation for depreciation since October 2015, as management believes they represent a more accurate approximation of the reserves that will ultimately be recovered (proven and probable reserves were previously used in the units of production calculation for depreciation). Had no change in estimate occurred, depreciation provided during 2015 would have been US$2.4 million higher. The amount of the effect in future periods is not disclosed because estimating it is impracticable. ANNUAL REPORT & ACCOUNTS 2015 51 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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, addition to or reduction of reserves as a result of exploration works, production costs or recovery rates may change the economic status of reserves and may ultimately result in the reserves being restated. Mine development expenditure Mine development costs are, upon commencement of production, depreciated using a unit of production method based on the estimated proven and probable reserves and a portion of resources expected to be converted into reserves to which they relate or are written off if the property is abandoned. Mine properties Mine assets and mineral rights are amortised using the units-of-production method based on estimated proven and probable reserves and a portion of resources expected to be converted into reserves. Note 17 contains information on the life of mines that is in line with the present assessment of the economically recoverable reserves. Please refer to the Resources and Reserves section for the detailed information on the mineral resources and reserves. 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. 5. SEGMENT INFORMATION For management purposes, the Group is organised into business units based on the nature of their activities, and has four reportable segments as follows: • gold production; • polymetallic concentrate production; • development and exploration; and • other. The gold production reportable segment comprises two operating segments, namely Mnogovershinnoye (MNV) and Belaya Gora (BG) at which level management monitors its results for the purpose of making decisions about resource allocation and evaluating the effectiveness of its activity. MNV and BG have been aggregated into one reportable segment as they exhibit similar long-term financial performance and have similar economic characteristics: nature of products (gold and silver), nature of the production processes, type of customer for their products (banks), methods used to distribute their products and nature of the environment (both are located in the Khabarovsk region). The polymetallic concentrate production segment, namely Novoshirokinskoye (Novo), is analysed by management separately due to the fact that the nature of its activities differs from the gold production process. The development and exploration segment contains entities which hold licenses in the development and exploration stage: Kekura, Klen, Taseevskoye, Unkurtash, Lubov and related service entities: Zabaykalzolotoproyekt (ZZP) and BSC. The ‘other’ segment includes head office, management company and other non-operating companies which have been aggregated to form the reportable segment. Segment performance is evaluated based on EBITDA (defined as operating profit/(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 52 HIGHLAND GOLD MINING LIMITED and gain on settlement of contingent consideration). The development and exploration segment is evaluated based on the life-of-mine models in connection with the capital expenditure spent during the reporting period. The following tables present revenue, EBITDA and assets information for the Group’s reportable segments. The segment information is reconciled to the Group’s loss after tax for the year. The finance costs, finance income, income taxes, foreign exchange 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 2015 the gold and silver revenue reported in the gold production segment was received from sales to Gazprombank (US$178.1 million) in the territory of the Russian Federation. In 2014 the gold and silver revenue reported in the gold production segment was received from sales to Gazprombank (US$207.3 million) and MDM Bank (US$1.6 million) in the territory of the Russian Federation. In 2015 the concentrate revenue reported in the polymetallic concentrate production segment in the amount of US$97.6 million was received from sales to Kazzinc (2014: US$94.5 million) in the territory of the Republic of Kazakhstan. Other third-party revenues in both 2015 and 2014 were received in the territory of the Russian Federation. Inter-segment revenues mostly represent management services. ANNUAL REPORT & ACCOUNTS 2015 53 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Year ended 31 December 2015 Revenue Gold revenue Silver revenue Concentrate revenue Other third-party Inter-segment Totalrevenue Cost of sales EBITDA Othersegmentinformation Depreciation Movement in ore stockpiles obsolescence provision Movement in raw materials and consumables obsolescence provision Impairment losses related to cash- generating units Individual impairment of property, plant and equipment Finance income Finance costs Foreign exchange loss Profitbeforeincometax Income tax Lossfortheyear Segmentassetsat31December2015 Non-current assets Capital expenditure* Goodwill Other non-current assets Current assets** Totalassets Gold production segment US$000 Polymetallic concentrate production segment US$000 Development & exploration US$000 Other Eliminations US$000 US$000 Total US$000 176,625 1,519 – 221 76 178,441 145,201 77,285 – – 97,602 186 – 97,788 53,202 62,816 – – – 22 5 27 873 (4,558) – – – – 11,639 11,639 89 (2,226) – – – – (11,720) (11,720) – – (51,276) (21,185) (37) (85) (120) (518) – – – (3) – – – – (35,982) (1,698) – – – – – – – – – 210,489 22,253 18,959 83,545 170,688 5,134 387 26,101 566,426 42,978 544 4,098 552 – 327 28,656 – – – (13,986) 176,625 1,519 97,602 429 – 276,175 199,365 133,317 (72,583) (120) (521) (35,982) (1,698) 1,331 (5,529) (4,321) 13,894 (23,913) (10,019) 948,155 70,365 20,217 128,414 1,167,151 Capitalexpenditure–additionsin 2015***,including: Stripping activity assets Capitalised bank interest Unpaid/(settled) accounts payable Cash capital expenditure 31,907 9,399 – 733 21,775 6,801 – – 1,924 4,877 28,309 – 12,359 557 15,393 86 – – (64) 150 – – – – – 67,103 9,399 12,359 3,150 42,195 * 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$3.1 million, investments of US$21.2 million, inventories of US$67.8 million, trade and other receivables of US$31.2 million and other assets of US$5.1 million. Eliminations relate to inter-company accounts receivable. *** Capital expenditure – additions in 2015 – includes additions to property, plant and equipment of US$54.5 million (Note 15), capitalised interest of US$12.4 million (Note 15) and prepayments made for property, plant and equipment of US$0.2 million. Non-current assets for 2015 are located in the Russian Federation (US$995.7 million) and in the Kyrgyz Republic (US$43.0 million). Current assets for 2015 are located in the Russian Federation. 54 HIGHLAND GOLD MINING LIMITED Year ended 31 December 2014 Revenue Gold revenue Silver revenue Concentrate revenue Other third-party Inter-segment Totalrevenue Cost of sales EBITDA Othersegmentinformation Depreciation Movement in ore stockpiles obsolescence provision Movement in raw materials and consumables obsolescence provision Impairment losses related to cash- generating units Individual impairment of construction in progress Gain on settlement of contingent consideration Loss from disposal of an entity Finance income Finance costs Foreign exchange loss Profitbeforeincometax Income tax Lossfortheyear Segmentassetsat31December2014 Non-current assets Capital expenditure* Goodwill Other non-current assets Current assets** Totalassets Gold production segment US$000 Polymetallic concentrate production segment US$000 Development & exploration US$000 Other Eliminations US$000 US$000 Total US$000 207,326 1,571 – 314 107 209,318 166,925 78,291 – – 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) (664) (605) – – – 96 – – – – (11,401) (500) – – – – – – – – – 231,553 22,253 8,060 111,555 185,696 5,134 357 35,225 559,811 59,732 1,446 7,216 552 – 463 50,327 – – – (35,584) 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 Capitalexpenditure–additionsin 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 – – (132) 7,961 25,256 – 9,281 (8,197) 24,172 106 – – (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 inter-company accounts receivable. *** Capital expenditure – additions in 2014 – includes additions to property, plant and equipment of US$67.7 million (Note 15) and capitalised interest of US$11.0 million (Note 15) 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. ANNUAL REPORT & ACCOUNTS 2015 55 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 6. 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 2015 US$000 575 18 593 2014 US$000 673 19 692 Others Total 2015 US$000 – 75 75 2014 US$000 – 94 94 2015 US$000 575 93 668 2014 US$000 673 113 786 7. 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 Totalrevenue 2015 US$000 176,625 97,602 1,519 429 276,175 2014 US$000 207,326 94,521 1,571 812 304,230 * Concentrate sales include the positive fair value movement of an embedded derivative in the amount of US$1.3 million (2014: a negative fair value movement of US$0.4 million). 8. COST OF SALES Operating costs Movement in ore stockpiles and gold in progress 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* Totalcostofsales * Other taxes include mineral extraction tax, property tax, transport tax, etc. 9. ADMINISTRATIVE EXPENSES Management company administrative expenses Minimum lease payments recognised as an operating lease expense Salaries and wages of parent company Auditors’ remuneration (Note 6) Legal and professional fees Bank charges Travel expenses of parent company Allowance for doubtful receivables Other administrative expenses Totaladministrativeexpenses 2015 US$000 35,022 (4,159) 813 (9,399) 40,448 72,583 48,127 15,930 199,365 2015 US$000 8,716 819 1,158 668 842 374 359 177 14 13,127 2014 US$000 42,990 14,808 (1,543) (6,084) 52,101 59,392 47,403 19,451 228,518 2014 US$000 11,203 1,131 1,145 786 726 265 192 – 16 15,464 56 HIGHLAND GOLD MINING LIMITED 10. OTHER OPERATING INCOME AND EXPENSES 10.1 other operating inCome Other operating income Reversal of allowance for doubtful debts Accounts payable write-off Change in estimation – site restoration asset (Note 15) Totalotheroperatingincome 10.2 other operating expenses Movement in ore stockpiles obsolescence provision (Note 20) Mine properties and property, plant and equipment write-off Individual impairment of property, plant and equipment Donations to local communities 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 operating expenses Totalotheroperatingexpenses 10.2.1 10.2.2 10.2.3 2015 US$000 2014 US$000 762 – 16 2,104 2,882 831 146 122 7,535 8,634 2015 US$000 2014 US$000 120 1,916 1,698 832 172 397 521 – – 2,514 8,170 664 393 500 1,239 781 – 509 918 617 1,627 7,248 10.2.1 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$0.1 million was written down in 2015 (2014: US$0.7 million). 10.2.2 Individual impairment of property, plant and equipment The recoverable amount of several property, plant and equipment items determined as at 31 December 2015 was lower than their carrying amount because the Group does not expect to derive future cash flows from the assets. The assets were considered impaired and were written down to their recoverable amount. 10.2.3 Disposal of an entity In 2013 the Group sold Trade House Mnogovershinnoye (TH MNV) to a non-related party. 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. FOREIGN EXCHANGE GAINS AND LOSSES The total amount of foreign exchange loss for the year ended 31 December 2015 was US$4.3 million (2014: loss of US$9.6 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. 12. FINANCE INCOME AND COSTS finanCe inCome Bonds fair value movement (Note 31) Bank interest Other finance income Totalfinanceincome 2015 US$000 1,246 75 10 1,331 2014 US$000 3,265 160 32 3,457 ANNUAL REPORT & ACCOUNTS 2015 57 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS finanCe Costs Accretion expense on site restoration provision (Note 27) Interest expense on bank loans Interest expense on finance lease Totalfinancecosts 2015 US$000 2,117 3,297 115 5,529 2014 US$000 2,355 1,871 – 4,226 13. INCOME TAX The major components of income tax expense for the years ended 31 December 2015 and 2014 are: Consolidatedstatementofcomprehensiveincome Current income tax: Current income tax charge Adjustments in respect of prior year tax Adjustments in respect of prior year withholding tax Deferredincometax: Relating to origination of temporary differences Incometaxexpensereportedinthestatementofcomprehensiveincome 2015 US$000 2014 US$000 15,867 804 738 17,409 6,504 23,913 20,677 249 – 20,926 49,404 70,330 The majority of the Group entities are Russian tax residents. 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 2015 and 2014 is as follows: Accountingprofitbeforeincometax 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 Adjustments in respect of prior year withholding tax Lower tax rates on overseas losses Unrecognised losses Loss/(gain) from other unrecognised temporary differences Losses arising from goodwill impairment Incometaxexpenseattheeffectivetaxrateof172%(2014:155%) Incometaxexpensereportedintheconsolidatedstatementof comprehensiveincome 2015 US$000 2014 US$000 13,894 2,779 2,748 8,758 804 738 3,218 1,305 212 3,351 23,913 23,913 45,487 9,097 2,143 52,204 249 – 2,293 4,874 (530) – 70,330 70,330 58 HIGHLAND GOLD MINING LIMITED Deferred income tax Deferred income tax at 31 December relates to the following: Deferredincometaxliability Property, plant and equipment Inventory Accounts receivable and other debtors Deferred financing costs Deferredincometaxassets Accounts receivable and other debtors Finance lease obligations Trade accounts and notes payable Tax losses Netdeferredincometaxliabilities Consolidated statement of financial position 2014 US$000 2015 US$000 Consolidated statement of comprehensive income 2014 US$000 2015 US$000 (146,570) (9,384) (710) (25) (156,689) (60) 212 772 20,308 21,232 (135,457) (142,271) (9,880) (803) (58) (153,012) 664 – 1,093 22,302 24,059 (128,953) 4,299 (496) (93) (33) 3,677 724 (212) 321 1,994 2,827 6,504 36,639 6,641 644 (34) 43,890 376 – (251) 5,389 5,514 49,404 Entity-specific deferred tax positions are presented below: Deferred income tax assets Deferred income tax liabilities Deferredtaxliabilitiesnet 2015 US$000 – (135,457) (135,457) 2014 US$000 82 (129,035) (128,953) 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 2015 is US$15.3 million (31 December 2014: US$14.9 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 2015 is US$15.9 million (31 December 2014: US$15.3 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 2015 is US$32.5 million (31 December 2014: US$32.2 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 ten years of accruing. 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$298.2 million (2014: US$321.8 million). No 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$14.9 million (2014: US$0 and US$16.1 million), depending on the manner in which the investments are ultimately realised. Profits arising in the Company for the 2015 and 2014 years of assessment will be subject to the Jersey tax at the standard corporate income tax rate of 0%. ANNUAL REPORT & ACCOUNTS 2015 59 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 14. 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. There is no effect of dilution in 2015 (2014: none) as the remaining share options expired in 2014. The following reflects the income and share data used in the basic loss per share computations: Net loss attributable to ordinary equity holders of the parent Weighted average number of ordinary shares 2015 US$000 (10,316) Thousands 325,222 2014 US$000 (24,942) Thousands 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. 60 HIGHLAND GOLD MINING LIMITED 15. MINE PROPERTIES, EXPLORATION AND EVALUATION ASSETS, AND PROPERTY, PLANT AND EQUIPMENT Reconciliation of fixed assets on a period-by-period basis for the period ending 31 December 2015 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        At31December2014 296,739 438,385 36,032 202,881 204,545 77,835 1,256,417 Additions Transfers Write-off** Disposals Capitalised depreciation Capitalised interest*** Change in estimation – site restoration asset**** At31December2015 9,526 (833) – – 5,326 12,359 – 6,892 14,746 9,399 – (140) (28,206) (72) 732 – 160 – – – – – 2,850 (406) (48) – – – 4,004 18,686 (8,427) (371) – – – 24,638 (36,897) (709) (72) 2,548 – – 54,459 (1,448) (37,888) (563) 8,606 12,359 160 323,117 460,703 17,225 205,277 218,437 67,343 1,292,102 Depreciationandimpairment At31December 2014 Provided during the year Transfers Write-off** Impairment of property, plant and equipment Disposals Capitalised depreciation Change in estimation – site restoration asset**** Kekura Impairment Reclass to inventory – – – – – – – – 124,372 28,638 43,209 82,013 573 278,805 25,068 8,300 14,891 1,971 (117) – (28,206) – (70) 76 (172) – – – – – – – – (441) (112) 1,565 (7) 3,953 – 2,572 305 24,324 (2,978) (7,037) – – 72,583 (1,448) (500) (35,972) 4 129 1,698 (216) 4,577 – 1,271 607 – – – (293) 8,606 (172) 1,369 19,228 – 912 14,016 – At31December2015 14,016 151,128 8,732 65,935 102,565 1,571 343,947 Netbookvalue: At31December2014 296,739 314,013 At31December2015 309,101 309,575 7,394 8,493 159,672 139,342 122,532 115,872 77,262 65,772 977,612 948,155 * Net book value of plant and equipment in the amount of US$2.5 million at 31 December 2015 relates to assets under finance lease at MNV and Novo: cost of US$3.0 million less accumulated depreciation of US$0.5 million. ** Write-off for 2015 in the amount of US$1.9 million relates to retirement of old inefficient equipment. *** Capitalised interest for 2015 includes US$12.4 million of borrowing costs capitalised at Kekura at interest rates between 4.0% and 7.0%. **** During 2015 there was a reduction in the rehabilitation estimate (Note 27) which exceeded the corresponding net book value in fixed assets by US$2.1 million. This excess was recognised in other operating income. No plant and equipment has been pledged as security for bank loans in 2015. 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 2015 61 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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        At31December2013 Reclassification Additions Transfers Write-off* Disposals Capitalised depreciation Capitalised interest** Change in estimation – site restoration asset*** At31December2014 Depreciationandimpairment At31December2013 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 At31December2014 Netbookvalue: At31December2013 At31December2014 443,270 – 10,199 5,133 (383) – 1,370 1,714 – (22,918) 270,287 (2,202) 14,742 (1,188) – – 5,819 9,281 296,739 28,701 – 5,554 – – – 1,777 – – 99,736 2,060 – 101,179 – (94) – – – 154,777 (2,290) 1,308 53,406 (2,175) (481) – – – 197,608 857 35,893 (161,333) (192) (896) 1,194,379 (1,575) 67,696 (2,803) (2,750) (1,471) 5,898 14,864 – – 10,995 (22,918) – – – – – – – – – – – – 438,385 36,032 202,881 204,545 77,835 1,256,417 110,516 – 23,448 – 25,171 (777) 22,945 4,881 12,066 (1,095) (368) – – – – – – (479) – – (8) 654 309 7,236 (9,476) 1,196 – – – – – – – 59,391 (798) 19,500 (1,229) (1,989) 73 – – – – 218,599 (1,575) 59,392 (2,803) (2,357) – 500 500 (352) 6,665 – – 825 – – – – – (360) 14,864 (9,476) 1,196 825 124,372 28,638 43,209 82,013 573 278,805 332,754 314,013 5,253 7,394 74,565 159,672 95,386 122,532 197,535 77,262 975,780 977,612 270,287 296,739 * 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 27) 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. 62 HIGHLAND GOLD MINING LIMITED 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 16. INTANGIBLE ASSETS Cost At31December2013 Additions At31December2014 Additions At31December2015 Impairment At31December2013 Provided during the year At31December2014 Provided during the year At31December2015 Netbookvalue: At31December2014 At31December2015 2015 US$000 (1,113) – 15,107 2014 US$000 (328) – 19,738 Goodwill US$000 97,324 – 97,324 – 97,324 – 10,205 10,205 16,754 26,959  87,119 70,365 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 2015 intangible assets represented goodwill arising from the Barrick transaction (US$65.2 million) and from acquisition of Novo (US$5.1 million). Goodwill from acquisition of Kekura in the amount of US$16.8 million was impaired in full in 2015. Goodwill allocated to Klen in the amount of US$10.2 million was impaired in full in 2014. 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 (Kekura) Balanceat31December 2015 US$000 9,690 12,563 5,134 42,978 – 70,365 2014 US$000 9,690 12,563 5,134 42,978 16,754 87,119 ANNUAL REPORT & ACCOUNTS 2015 63 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 17. 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 2015 and 2014 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 2018; • BG – 2023; • Novo – 2029; • Klen – 2030; • Kekura – 2029; • Taseevskoye – 2029; • Unkurtash – 2036; and • Lubov – 2027. The calculation of the FVLCD is sensitive to the following assumptions: • Recoverable reserves and resources; • Production volumes; • Real discount rates; • Metal prices; • Capital expenditure; and • Operating costs. Recoverable reserves and resources are based on the proven and probable reserves and a portion of resources expected to be converted into reserves 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 2015 and 2014. 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), % 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 year Gold price, US$ per ounce in the year after the next 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. 2015 7.54 8.54 7.54 2014 9.35 10.35 10.35 9.54 11.35 9.54 11.35 9.54 11.35 9.54 11.35 9.54 11.35 1,050 1,150 15 1,700 1,700 1,200 1,200 16 2,200 2,200 64 HIGHLAND GOLD MINING LIMITED As a result of the recoverable amount analysis performed during the year, the following impairment losses were recognised: Goodwill Exploration and evaluation assets Property, plant and equipment Mine properties Totalimpairmentlosses 2015 US$000 16,754 14,016 5,212 – 35,982 2014 US$000 10,205 – – 1,196 11,401 An impairment loss was recognised in 2015 in relation to the Kekura project. The triggers for the impairment loss recognition were primarily the effect of lower gold price assumption and changes to the mine plan which resulted in postponing the development activities at Kekura. 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 exploration and evaluation assets exceeded their recoverable amounts. The carrying amount of goodwill allocated to Kekura has been reduced to Nil via the recognition of an impairment loss of US$16.8 million during the year ended 31 December 2015. US$14.0 million was recognised as an impairment loss in respect of exploration and evaluation assets at Kekura and US$5.2 million was recognised as an impairment loss in respect of property, plant and equipment at Kekura. Any rise in the post-tax discount rate, any decrease in gold prices below US$1,150 per ounce or any increase in operating or capital costs at Kekura would result in a further impairment of mine properties and equipment. An impairment loss was recognised in 2014 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 was 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. 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 31 for fair value disclosures in respect of assets carried at fair value. 18. OTHER NON-CURRENT ASSETS Non-current prepayments* Other non-current assets Totalothernon-currentassets 2015 US$000 3,517 328 3,845 2014 US$000 3,177 403 3,580 * 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. ANNUAL REPORT & ACCOUNTS 2015 65 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 19. SHARE-BASED PAYMENT PLANS employee share option plan Options for 25,000 shares were forfeited in 2014 because of the retirement of certain participants. Options for 450,000 shares expired in 2014. Currently there are no participants of the scheme. 20. INVENTORIES non-Current* Ore stockpiles Ore stockpile obsolescence provision Totalinventories 2015 US$000 21,101 21,101 (4,729) 16,372 2014 US$000 11,273 11,273 (4,609) 6,664 * The portion of the ore stockpiles that is to be processed in more than 12 months from the reporting date is classified as non- current inventory. Stockpiled low-grade ore at BG is tested for impairment semi-annually. Movement in ore stockpile obsolescence provision amounted to US$0.1 million in 2015 (2014: US$0.7 million). Current Raw materials and consumables Ore stockpiles Gold in progress Finished goods Raw materials and consumables obsolescence provision Totalinventories 2015 US$000 66,195 6,661 5,195 896 78,947 (11,189) 67,758 2014 US$000 68,771 12,821 4,704 1,709 88,005 (10,668) 77,337 Movement in raw materials and consumables obsolescence provision amounted to US$0.5 million in 2015 (2014: US$0.5 million). No inventory has been pledged as security. 21. TRADE AND OTHER RECEIVABLES VAT receivable Other taxes receivable Related party receivables (Note 29) Trade receivables* Other receivables 2015 US$000 15,563 454 35 13,480 1,656 31,188 2014 US$000 18,548 94 104 7,895 2,248 28,889 * As at 31 December 2015, a positive price and volume adjustment was booked to trade receivables in the amount of US$1.5 million (2014: a negative adjustment in the amount of US$2.4 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. 66 HIGHLAND GOLD MINING LIMITED As at 31 December, VAT receivable was provided for as follows: At 1 January Utilisation At31December 2015 US$000 45 (25) 20 2014 US$000 242 (197) 45 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. 22. PREPAYMENTS Prepayments 2015 US$000 888 888 2014 US$000 2,000 2,000 Prepayments include advances given to suppliers for raw materials and consumables. 23. CASH AND CASH EQUIVALENTS Cash at bank earns interest at fixed rates based on daily bank deposit rates. The fair value of cash and cash equivalents is equal to the carrying value. Cash in hand and at bank Short-term deposits 24. ISSUED CAPITAL AND RESERVES a) Issued share capital Authorised Ordinary shares of £0.001 each Ordinary shares issued and fully paid At 31 December 2013 Ordinary shares issued At 31 December 2014 Ordinary shares issued At 31 December 2015 b) Nature and purpose of other reserves asset revaluation reserve 2015 US$000 3,058 – 3,058 2014 US$000 12,759 187 12,946 2015 Shares 2014 Shares 750,000,000 750,000,000 Shares 325,222,098 – 325,222,098 – 325,222,098 Amount US$000 585 – 585 – 585 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. ANNUAL REPORT & ACCOUNTS 2015 67 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 25. INTEREST-BEARING LOANS AND BORROWINGS Current Gazprombank loan (1) Gazprombank loan (2) Gazprombank loan (3) Sberbank loan (4) Non-current Gazprombank loan (1) Gazprombank loan (2) Gazprombank loan (3) Sberbank loan (4) Gazprombank loan (5) UniCredit loan (6) Alfa-bank loan (7) Total Effective interest rate % Maturity 2015 US$000 2014 US$000 4.0, 7.0 from 18 March 2015 5.0, 7.0 from 18 March 2015 4.8 4.2  June 2015 August 2015 March 2017 September 2016  4.0, 7.0 from 18 March 2015 5.0, 7.0 from 18 March 2015 4.8 4.2 6.5 5.4 5.9  June 2015 August 2015 March 2017 September 2016 December 2018 December 2018 December 2018    – – 33 000 37,375 70,375 – – 22,500 – 80,000 50,000 30,500 183,000 253,375 88,714 19,111 – 49,833 157,658 22,179 7,963 77,926 37,375 – – – 145,443 303,101 (1) In March 2015 the interest rate was changed to 7.0%. The loan was repaid in June 2015. (2) In March 2015 the interest rate was changed to 7.0%. The loan was repaid in August 2015. (3) 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. 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 drawn down payable balance obtained under the agreement at 31 December 2015 is US$55.5 million (2014: US$77.9 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. (4) 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 (at a 4.2% effective interest rate) with the draw period set till 2 September 2016. The loan is repayable in instalments between December 2014 and September 2016. The drawn down payable balance under the agreement at 31 December 2015 is US$37.3 million (2014: US$87.2 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. (5) In November 2015 the Group secured a revolving facility with Gazprombank at a 6.5% interest rate with the draw period set till 18 February 2016. The interest rate is set for every instalment separately. The loan is repayable in instalments between April 2017 and December 2018. The loan is secured by future gold sales at market prices at the time of sale. The drawn down payable balance obtained under the agreement at 31 December 2015 is US$80.0 million (2014: 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. (6) In December 2015 the Group raised financing with UniCredit bank at a LIBOR USD 1M + 5.0% interest rate with the draw period set till 17 January 2016. The loan is repayable in instalments between July 2017 and December 2018. The drawn down payable balance obtained under the agreement at 31 December 2015 is US$50.0 million (2014: Nil). The outstanding bank debt is subject to the following covenant: the ratio of net debt to EBITDA should be equal to or lower than 3.5. (7) In April 2015 the Group raised financing with Alfa-bank with the draw period set till 31 December 2018. The interest rate is set for every instalment separately. The loan is repayable in December 2018. The drawn down payable balance obtained under the agreement at 31 December 2015 is US$30.5 million (2014: 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. The total outstanding bank debt of the Group at 31 December 2015 is US$253.4 million (2014: US$303.1 million). There were no covenant breaches as at 31 December 2015. 68 HIGHLAND GOLD MINING LIMITED 26. TRADE AND OTHER PAYABLES Non-current Non-current portion of pension liabilities Current Contingent consideration liability Trade payables Salaries payable Other taxes payable Other current payables 2015 US$000 223 223 2015 US$000 400 10,366 5,814 3,166 455 20,201 2014 US$000 305 305 2014 US$000 400 10,220 6,735 4,367 412 22,134 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 regarding contingent consideration, refer to Note 4. 27. PROVISIONS At31December2013 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 At31December2014 Accretion Utilisation of provision Effect of changes in the discount and inflation rates Effect of changes in estimated costs Effect of exchange rate changes At31December2015 Current 2014 Non-current 2014 Current 2015 Non-current 2015 Site restoration provision US$000 Legal provision US$000 34,402 2,355 – (81) (4,362) 1,307 (17,922) 15,699 2,117 (18) 1,613 2,599 (5,984) 16,026 – 15,699 15,699 – 16,026 16,026 18 – (18) – – – – – – – – – – – – – – – – – Total US$000 34,420 2,355 (18) (81) (4,362) 1,307 (17,922) 15,699 2,117 (18) 1,613 2,599 (5,984) 16,026 – 15,699 15,699 – 16,026 16,026 ANNUAL REPORT & ACCOUNTS 2015 69 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS site restoration provision In 2015 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 2018), site restoration activities expected to be carried out in 2018 (removal of waste, restoration of mine sites), current prices for similar activities and risk-free Russian Rouble (RUR)-denominated government bonds discount rate of 10.2% (2014: RUR-denominated government bonds rate of 13.4% for 2016 and 15.4% for 2017). A risk-free RUR-denominated government bonds discount rate of 11.5% (2014: RUR-denominated government bonds rate of 14.9%) has been used to calculate the site restoration liability at Novo assuming its closure in 2029. A risk-free RUR-denominated government bonds discount rate of 9.7% (2014: RUR-denominated government bonds rate of 14.4%) has been used to calculate the site restoration liability at BG assuming its closure in 2023. A risk-free RUR-denominated government bonds discount rate of 11.9% (2014: RUR-denominated government bonds rate of 13.3%) has been used to calculate the site restoration liability at Klen assuming site closure in 2030. A risk-free RUR-denominated government bonds discount rate of 9.6% (2014: RUR-denominated government bonds rate of 13.3%) has been used to calculate the site restoration liability at Kekura assuming site closure in 2029. The decrease in site restoration liability in the amount of US$6.0 million was due to devaluation of RUR against the US Dollar (USD) in 2015 (2014: decrease of US$17.9 million). The total change in estimation of site restoration liability amounts to US$1.8 million in 2015 (2014: US$21.0 million). legal provision The legal provision represents management’s best estimate of the amounts required to settle various claims against the Group. 28. 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 2015 was US$0.8 million (2014: 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 Capital Commitments 2015 US$000 935 1,209 2,144 2014 US$000 815 2,144 2,959 At 31 December 2015 the Group had commitments of US$5.8 million (2014: US$9.8 million) principally relating to development assets and US$1.9 million (2014: US$1.6 million) for the acquisition of new machinery. 70 HIGHLAND GOLD MINING LIMITED finanCe lease and hire purChase Commitments The Group has finance leases contracts for various items of plant and equipment at MNV and Novo at interest rates between 7.9% and 9.9%. Future minimum lease payments under finance lease and present value of the net minimum lease payments are presented below: Minimum payments Present value of payments 2015 US$000 2014 US$000 2015 US$000 2014 US$000 Within one year After one year but not more than five years Totalminimumleasepayments Less amounts representing finance charges Presentvalueofminimumleasepayments 917 1,735 2,652 (400) 2,252 – – – – – 845 1,407 2,252 – 2,252 – – – – – Contingent liabilities Management has identified possible tax claims within the various jurisdictions in which the Group operates totalling US$2.3 million as at 31 December 2015 (at 31 December 2014: US$3.1 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. 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. ANNUAL REPORT & ACCOUNTS 2015 71 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 29. 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 Subsidiaryundertakings Heldbytheultimateparent Stanmix Investments Limited Stanmix Holding Limited Highland Exploration Kyrgyzstan LLC (Unkurtash) Heldindirectlyviasubsidiaries 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) OOO RDM-Resources – till 11 November 2014 Country of incorporation Effective shareholding % Cyprus Cyprus Kyrgyzstan Russia Russia Russia Russia Russia Russia Russia Russia Russia Russia Russia 100 100 100 100 98.85* 100 100 100 100 100 100 100 100 100 * Direct shareholding in OJSC Novo-Shironkinsky Rudnik is 97.9%. In 2015 OJSC Novo-Shirokinsky Rudnik acquired treasury stock equal to 0.95% of outstanding shares for cash consideration of US$0.4 million, which resulted in a decrease in non- controlling interest of US$1.3 million. Effective control is therefore equivalent to a 98.85% shareholding in the enterprise. 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 2015. 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 16.28% of Highland Gold at 31 December 2015. terms and Conditions of transaCtions with related parties There were no related party transactions in 2015. The sales to and purchases from related parties are generally made at normal market prices and arm’s length terms. There are no outstanding balances at 31 December 2015 (2014: Nil). There have been no guarantees provided or received for any related party receivables or payables. For the year ended 31 December 2015, the Group has not recorded any impairment of receivables relating to amounts owed by related parties (2014: 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. 72 HIGHLAND GOLD MINING LIMITED Compensation of key management personnel of the Group Short-term employee benefits Totalcompensationpaidtokeymanagementpersonnel 2015 US$000 5,537 5,537 2014 US$000 5,131 5,131 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. 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. 30. 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 2015 as well as in prior years, the Group continued its no hedge policy in relation to the gold price. embedded derivative Novo as a concentrate producer and seller 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. A portion of the provisional invoice is settled within a few days (85% from January to August 2015, 80% since September 2015). The remaining amount (15% from January to August 2015, 20% since September 2015), 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 volume adjustments resulting from the final assay, is settled in four 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. 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 Euro (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). ANNUAL REPORT & ACCOUNTS 2015 73 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2014 2015 Increase/ decrease in RUR rate Effect on profit before tax US$000 Increase/ decrease in GBP rate Effect on profit before tax US$000 17% -17% 10% -10% (447) 447 758 (758) 6% -6% 5% -5% 2,714 (2,714) 1,106 (1,106) 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 reputable financial institutions. 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. 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 25 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 2014 Interest-bearing loans and borrowings Trade and other payables Contingent consideration liability Year ended 31 December 2015 Interest-bearing loans and borrowings Trade and other payables Liability under finance lease Contingent consideration liability On demand US$000 <1 year US$000 1-2years 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 – – – – – – – – On demand US$000 <1 year US$000 1-2years US$000 2-5 years US$000 >5 years US$000 – – – – – 112,139 94,444 66,608 16,327 917 400 – 852 – – 883 – 129,783 95,296 67,491 – – – – – 313,769 17,265 400 331,434 Total US$000 273,191 16,327 2,652 400 292,570 Interest-bearing loans and borrowings for the year ended 31 December 2015 with maturity of less than one year include revolving facilities secured with Gazprombank and Alfa-bank: the amount of US$29.5 million 74 HIGHLAND GOLD MINING LIMITED outstanding at 31 December 2015 has been presented as non-current liabilities in the consolidated statement of financial position. Refer to Note 25 for further details. 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 25. 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 mostly at fixed rates. The Group’s treasury function performs analysis of current interest rates and in case of changes in market fixed or floating interest rates management may consider the refinancing of a particular debt on more favourable terms. As at 31 December 2015 the Group has outstanding bank debt in the amount of US$253.4 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: Bonds Bonds Effect on profit before tax Increase/decrease in prices, % 5% -5% 2015 US$000 1,084 (1,084) 2014 US$000 2,240 (2,240) The following table demonstrates the sensitivity of the embedded derivative to a reasonably possible change in metal prices: Lead Zinc Gold Silver Increase/decrease in prices, % 5% -5% 5% -5% 5% -5% 5% -5% Effect on derivative 2015 US$000 133 (133) 25 (25) 304 (304) 124 (124) 2014 US$000 91 (91) 35 (35) 253 (253) 85 (85) ANNUAL REPORT & ACCOUNTS 2015 75 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31. 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. Financialassets Cash and cash equivalents Financial instruments at fair value through profit or loss (coupon bonds) Trade receivables (including embedded derivative) Other receivables Financialliabilities Interest-bearing loans and borrowings Trade and other payables Liability under finance lease Contingent consideration Carrying amount Fair value 2015 US$000 2014 US$000 2015 US$000 2014 US$000 3,058 21,150 13,480 1,691 253,375 16,635 2,275 400 12,946 42,957 7,895 2,352 303,101 17,367 – 400 3,058 21,150 13,480 1,691 253,375 16,635 2,275 400 12,946 42,957 7,895 2,352 303,101 17,367 – 400 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, interest-bearing loans and borrowings and other current liabilities approximate their fair value. • The fair value of the derivative is based on quoted market prices. Coupon bonds During 2015 the Group received US$24.3 million as a result of selling some bonds (2014: US$6.5 million) and US$2.5 million of coupon interest (2014: US$4.1 million). The bonds are treated as financial assets at fair value through profit or loss. Fair value of those bonds was determined based on quoted bid prices (source: Bloomberg). The table below contains bonds fair value movement. At1January Fair value gain Foreign exchange loss Coupon interest income accrued Bonds fair value movement Coupon interest income received Bonds sold Bonds purchased At31December 2015 US$000 42,957 14 (1,271) 2,503 1,246 (2,534) (24,337) 3,818 21,150 2014 US$000 50,199 2,013 (2,512) 3,764 3,265 (4,058) (6,449) – 42,957 76 HIGHLAND GOLD MINING LIMITED 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 Interest-bearing loans and borrowings Interest-bearing loans and borrowings 31 Dec 2014 US$000 42,957 (383) 31 Dec 2015 US$000 21,150 1.261 Level 1 US$000 42,957 – Level 1 US$000 21,150 – 31 Dec 2014 US$000 303,101 31 Dec 2015 US$000 253,375 Level 2 US$000 – (383) Level 2 US$000 – 1.261 Level 3 US$000 303,101 Level 3 US$000 253,375 There have been no transfers between fair value levels during the reporting period. 32. DIVIDENDS The Group paid an interim dividend of GBP0.020 per share (2014: an interim dividend of GBP0.025 per share) which resulted in an aggregate interim dividend payment of US$10.0 million (2014: US$13.1 million). The interim dividend was paid on 12 October 2015. The final dividend for the year ending 31 December 2014 in the amount of US$10.1 million was paid on 21 May 2015. The Board has recommended a final dividend of GBP0.020 per share which, taking into account the interim dividend paid in October 2015, gives a total dividend of GBP0.040 per share for the year (2014: GBP0.045 per share). The final dividend will be paid on 29 May 2016 to shareholders on the register at the close of business on 1 May 2016 (the record date). The ex-dividend date will be 30 April 2016. 33. EVENTS AFTER THE REPORTING PERIOD No events occurred after the reporting date that had a material impact on the financial position or financial performance of the Group. ANNUAL REPORT & ACCOUNTS 2015 77 RESERVES AND RESOURCES MINERAL RESOURCES AS AT 31 DECEMBER 2015 REPORTED IN ACCORDANCE WITH JORC METHODOLOGY Project Name Classification Ore, tonnes Gold, g/t Contained gold, ounces Highland’s interest (%) MNOGOVERSHINNOYE TASEEVSKOYE UNKURTASH NOVOSHIROKINSKOYE BELAYA GORA KLEN KEKURA LYUBAVINSKOYE TOTAL Total Total Total Total Total Total Total Total 15,082,032 31,063,000 66,185,000 6,340,702 10,587,941 3,870,000 10,350,000 11,247,230 Total 154,725,905 3.4 5.1 1.7 7.6 2.3 5.0 8.7 1.3 3.4 1,653,989 5,088,353 3,696,757 1,539,851 783,369 627,261 2,891,767 484,287 16,765,633 Gold ounces attributable to Highland 1,653,989 5,088,353 3,696,757 100% 100% 100% 98.9% 1,522,143 100% 100% 100% 100% 783,369 627,261 2,891,767 484,287  16,747,926 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). 78 HIGHLAND GOLD MINING LIMITED ORE RESERVES AS AT 31 DECEMBER 2015 REPORTED IN ACCORDANCE WITH JORC METHODOLOGY Project Name MNOGOVERSHINNOYE* NOVOSHIROKINSKOYE BELAYA GORA TOTAL Classification Proven + Probable Proven + Probable Proven + Probable Proven+ Probable Ore, tonnes Gold, g/t Contained gold, ounces Highland’s interest (%) Gold Ounces attributable to Highland 2,306,779 4.00 296,848 100% 296,848 4,152,626 3,400,971 9,860,376 9.1 3.2 5.9 1,211,593 98.9% 1,197,660 346,916 100% 346,916 1,855,358  1,841,424 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 US$850 per ounce. 5. Mineral reserves at MNV, Novo and Belaya Gora have been estimated in accordance with JORC guidelines and include adjustments that have been made to reconcile the reserves with annual production. MNV JORC figures do not reflect ongoing reserve recalculations being conducted by the Company on all targets within the MNV licence area, based on updated geological information and recent exploration results. An updated JORC audit is planned for 2016 and is expected to confirm additional mineable reserves. ANNUAL REPORT & ACCOUNTS 2015 79 PRINCIPAL GROUP COMPANIES HIGHLAND GOLD MINING LIMITED 100% 100% 100% HIGHLAND EXPLORATION LLC STANMIX INVESTMENT STANMIX HOLDING LIMITED LIMITED 100% 100% * 97.9% 100% BSC RDM NOVO-SHIROKINSKY RUDNIK KLEN 100% 100% 100% 100% BELAYA GORA MNOGOVERSHINNOYE (MNV) TASEEVSKOYE LUBAVINSKOYE 100% 100% BAZOVIYE METALLY ZABAYKAL- ZOLOTOPROYEKT * Direct shareholding in OJSC Novo-Shironkinsky Rudnik is 97.9%. In 2015 OJSC Novo-Shirokinsky Rudnik acquired treasury stock equal to 0.95% of outstanding shares for cash consideration of US$0.4 million, which resulted in a decrease in non- controlling interest of US$1.3 million. Effective control is therefore equivalent to a 98.85% shareholding in the enterprise. There are no restrictions imposed by non-controlling interest on our ability to use assets and settle liabilities of Novo. 80 HIGHLAND GOLD MINING LIMITED 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 Cyprus Cyprus Principal activity and place of business 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) (AO) Taseevskoye (OOO) Zabaykalzolotoproyekt (OOO) % 100 100 100 100 Country of incorporation Russia Principal activity and place of business Management company Russia Holder of MNV and Blagodatnoye licences Russia Russia Holder of Taseevskoye, ZIF-1 and Sredne-Golgotayskoye licences Project engineering, Russia Novo-Shirokinsky Rudnik (Novo) (OAO) 97.9 Russia Holder of Novo licence Belaya Gora (OOO) Lubavinskoye (OOO) Klen (OOO) BSC (OOO) Bazoviye metally (ZAO) 100 100 100 100 100 Russia Russia Russia Russia Holder of Belaya Gora licence Holder of Lubavinskoye licence Holder of Klen licence Service company, Russia, ChAO Russia Holder of Stadukhinsky Area licence ANNUAL REPORT & ACCOUNTS 2015 81 DIRECTORS, COMPANY SECRETARY AND ADVISERS DIRECTORS, COMPANY SECRETARY AND ADVISERS Current direCtors Eugene Shvidler Executive Chairman (appointed Executive Chairman on 22 April 2015) (previously Non-Executive Chairman) Terry Robinson Non-Executive Director*** Olga Pokrovskaya Non-Executive Director** Valery Oyf Non-Executive Director (appointed 15 January 2016) (previously Chief Executive Officer and Director) Duncan Baxter Non-Executive Director* Colin Belshaw Non-Executive Director John Mann Head of Communications (appointed 9 April 2015) past direCtors Sergey Mineev Head of Exploration & Capital Projects Development (resigned 9 April 2015) Alla Baranovskaya Chief Financial Officer (resigned 9 April 2015) Eugene Tenenbaum Non-Executive Director (resigned 9 April 2015) All of: 26 New Street St Helier Jersey JE2 3RA * Chairman of the Remuneration and Nomination Committee; ** Chairman of the Health, Safety and Environmental Committee; *** Chairman of the Audit Committee 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 SOLICITORS TO THE COMPANY astoRussianLaw PricewaterhouseCoopers Kosmodamianskaya Nab. 52 Bld. 5, 115054 Moscow, Russia astoJerseyLaw Bedell Cristin PO Box 75 26 New Street St Helier Jersey JE4 8PP 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 FINANCIAL CALENDAR Ex-Dividend Date: 28 April 2016 Record Date: 29 April 2016 Post 2015 Annual Report: 6 May 2016 Annual General Meeting: 25 May 2016 Dividend Payment Date: 27 May 2016 Listing Sector/Ticker Reuters: HGM.L Number of Shares in Issue: 325,222,098 82 HIGHLAND GOLD MINING LIMITED NOTICE OF ANNUAL GENERAL MEETING HIGHLAND GOLD MINING LIMITED (THE “COMPANY”) (INCORPORATED AND REGISTERED IN JERSEY UNDER THE COMPANIES (JERSEY) LAW 1991, 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 Wednesday 25 May 2016 at 26 New Street, St Helier, Jersey JE2 3RA at 11.00 am 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 2015. 2. That a final dividend of £0.025 for each ordinary share of £0.001 in the Company be declared. 3. That Eugene Shvidler who retires by rotation as a Director of the Company be re-elected. 4. That Terry Robinson who retires by rotation as a Director of the Company be re-elected. 5. That Colin Belshaw who retires by rotation as a Director of the Company be re-elected. 6. That Ernst & Young LLP be re-elected as Auditors of the Company, to hold office until the conclusion of the next Annual General Meeting. 7. That the Directors be authorised to fix the Auditors’ remuneration. ByOrderoftheBoard 06 May 2016 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 1, 34 Beckenham Road, Beckenham, BR3 4ZF 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. ANNUAL REPORT & ACCOUNTS 2015 83 NOTES 84 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 L R E P O R T & A C C O U N T S 2 0 1 5 26 NEW STREET ST. HELIER, JERSEY JE2 3RA REGISTERED NO 83208           

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