Highland Gold Mining Ltd.
Annual Report 2016

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Annual Report  
and Accounts 2016

 
 
 
 
 
 
 
 
 
 
 
INTRODUCTION

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HIGHLAND GOLD  
MINING IS A WELL-
ESTABLISHED GOLD 
PRODUCER WITH A WORLD 
CLASS RUSSIAN ASSET 
BASE OF PRODUCING, 
DEVELOPMENT AND 
EXPLORATION PROJECTS.  
IT HAS STRONG 
MANAGEMENT AND 
OPERATIONAL TEAMS 
WITH LOCAL AND 
INTERNATIONAL 
EXPERTISE, AND AN 
EXCITING PORTFOLIO OF 
JORC AUDITED RESOURCES.

 
CONTENTS

STRATEGIC REPORT 
2-21

2 

The Year in Review 

4  At a Glance

6  Chairman’s Statement

8  CEO’s Report

14  CFO’s Report

18  Principal Risks and Uncertainties

CORPORATE GOVERNANCE 
22-27

22  Board of Directors

24  Directors’ Report

ACCOUNTS 
28-64

28 

Independent Auditor’s Report

29  Consolidated Statement  

of Comprehensive Income

30  Consolidated Statement  
of Financial Position

31  Consolidated Statement of Changes  

in Equity

32  Consolidated Statement of Cash Flows

33  Notes to the Consolidated  
Financial Statements

65  Resources and Reserves

67  Group Companies

68  Notice of Annual General Meeting

IBC  Directors, Company Secretary  

and Advisers

www.highlandgold.com

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

1

 
THE YEAR IN REVIEW

KEY EVENTS

Total 2016 production of 261,159 oz of gold and gold 
equivalent, in the upper half of the guidance range for  
the year of 255-265k oz. (2015 production: 262,485 oz).

Average realised price for gold and gold equivalent in 2016 
was US$1,136 per oz (2015: US$1,062 per oz).

Total Cash Costs lowered by 5.5% to US$454 per oz and  
All-In Sustaining Cash Costs up by 1.8% to US$652 per oz.

Cash inflow from operating activities rose 28.9%  
to US$136.2 million (2015: US$105.6 million).

Net debt to EBITDA ratio reduced to 1.26 as of  
31 December 2016 from 1.74 in the previous year.

Interim dividend of £0.050 per share paid for H1 2016  
(2015: Interim dividend of £0.020 per share). 

Mnogovershinnoye (MNV) – An adjusted internal Life-
of-Mine model for MNV, based on ongoing near-mine 
exploration and reserve recalculations, now provides for 
production through at least 2022 (versus 2018 previously).

Novo – Project for expansion to 1.3 mtpa ore mining and 
processing capacity underway and on track for completion  
in late 2018.

Blagodatnoye – Extensive exploration drilling carried out  
to confirm resources.

Baley Hub – De-watering programme initiated for existing 
Taseevskoye open-pit with a view to de-risking the project and 
allowing for further reserve confirmation. Exploration work 
also carried out on Sredny Golgotay along with a pilot mining 
project at the Kaftan site on the Sredny Golgotay licence. 

FINANCIAL HIGHLIGHTS
US$ M (unless stated)

Production (gold and gold eq. oz) 

Total Cash Costs (US$/oz)

All-in Sustaining Costs (US$/oz)

261,159

2015: 262,485 oz

4542015: 480 US$/oz

6522015: 640 US$/oz

Revenue (US$ M)

305.9

2015: 276.2

Operating Profit (US$ M)

EBITDA* (US$ M)

69.4

2015: 22.4

162.5

2015: 133.3

*  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

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Highland Gold Mining Limited  |  Annual Report and Accounts 2016

2017 TARGETS

POST YEAR EVENTS 

Final dividend of £0.054 per share recommended,  
making a total distribution of £0.104 per share for  
the year to 31 December 2016 (2015: £0.045 per share).

Total production of gold and gold equivalent is expected  
to remain stable at 255,000-265,000 oz.

MNV – To continue extensive near-mine exploration 
programme throughout the year with a view towards  
further extending Life of Mine.

Novo – To proceed with design and construction work  
on mill expansion.

Belaya Gora – To complete a pre-feasibility study on 
processing plant upgrades and the inclusion of Blagodatnoye 
in Belaya Gora operations.

Kekura – To complete a definitive feasibility study and  
move forward with procurement, infrastructure and 
construction preparations.

Baley Hub – To continue de-risking Taseevskoye and to 
examine development options for the Baley Hub projects.

To complete updated JORC-compliant reserve estimations 
on key operating and development projects.

Net Cash Inflow from Operations (US$ M)

Net Profit/(Loss) (US$ M)

Profit/(Loss) Per Share (US$)

136.2

2015: 105.6

47.92015: (10.0)

0.145

2015: (0.032)

Capital Expenditure (US$ M)

Net Debt** (US$ M)

Debt/EBITDA Ratio (31 Dec.)

59.3

2015: 42.2

(205.5)

2015: (231.4) 

1.26

2015: 1.74

** Net debt is defined as cash and cash equivalent, financial assets, decreased by interest-bearing loans and borrowings and by liability under finance lease 

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

3

Strategic ReportAT A GLANCE

OUR VISION 

HIGHLAND’S VISION  
IS TO BECOME THE 
MOST PROFITABLE 
GOLD MINING 
COMPANY IN RUSSIA 
AND CENTRAL ASIA.

WITH A FIRM COMMITMENT TOWARDS SAFETY, HEALTH AND  
THE ENVIRONMENT, AND SOCIAL RESPONSIBILITY TOWARDS 
EMPLOYEES AND COMMUNITIES.

WHERE WE OPERATE

Highland Gold’s operations are located 
around three main hubs in the Khabarovsk, 
Zabaikalsky and Chukotka regions  
of Russia, as well as in Kyrgyzstan  
in Central Asia. 

   Operating Mine

   Development Project

   Exploration Project

MOSCOW

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Highland Gold Mining Limited  |  Annual Report and Accounts 2016

KLEN

KEKURA

RUSSIA

NOVOSHIROKINSKOYE

BELAYA GORA

TASEEVSKOYE

MNOGOVERSHINNOYE

SR.GOLGOTAY

ASTANA

KAZAKHSTAN

BLAGODATNOYE

LYUBOV

KYRGYZSTAN

UNKURTASH

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

5

Strategic ReportCHAIRMAN’S STATEMENT
EUGENE SHVIDLER

 “THE SOUND ACHIEVEMENTS  
OF 2016 BEAR WITNESS  
TO MANAGEMENT’S ONGOING 
PURSUIT OF ‘GOOD GROWTH 
POTENTIAL’…”

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Highland Gold Mining Limited  |  Annual Report and Accounts 2016

Dear Shareholder, 
I am pleased to report that our key short-term 
objectives of stabilising production, furthering 
the unlocking of our extensive resource base 
and enhancing our cost competitiveness, as 
outlined a year ago, met with considerable 
success during 2016.

A solid operating performance resulted in  
the overall production of 261,159 oz of gold 
and gold equivalent. This nudges the record  
output of 262,485 oz achieved in 2015 and  
sits comfortably within our official estimate  
of between 255,000 and 265,000 oz. We are 
repeating this guidance range in respect  
of 2017 when, once again, our intention  
is to balance stable production with the 
progression of our principal development  
and exploration projects.

Such projects are integral to your Company’s 
ongoing growth and, in line with this, activity 
at Kekura, our flagship development 
undertaking situated in the remote, mineral 
rich region of Chukotka, in the Far East  
of Russia, will gather further momentum 
during 2017 and beyond as we prepare  
for commercial production in 2020. 

The importance of this premier project to  
our medium-term production targets, the 
respective performances of our three operating 
mines – MNV, Belaya Gora and Novo – and 
the scale of additional development and 
exploration activities, are covered in detail  
in the Chief Executive’s Report and the 
subsequent Operational Review.

In view of this I will merely draw attention  
to the following: 
•  The life of MNV, our oldest mine, has been 
extended by four years to 2022 following  
a detailed reappraisal of each of the mine’s 
12 ore bodies and receipt of the regulatory 
approval of reserves under Russian  
(GKZ) classification;

•  Plans to significantly increase the mining 
and milling capacity of Novo, our largest 
producer, from 700,000 tonnes per annum 
to 1.3 million tonnes per annum by 2018  
are progressing well; and 

•  Mining and processing challenges at  
Belaya Gora, our youngest mine, are  
being addressed in conjunction with 
outside consultants.

 
I am pleased to record a 5.5% reduction  
in our Total Cash Costs to US$454 per oz in 
2016, while our All-In-Sustaining Cash Costs 
remained basically flat at US$652 per ounce. 
Strict expenditure controls, a higher gold 
price, efficiency improvements and the 
weakness of the Russian Rouble versus  
the US$ all served to drive these key 
performance indicators which illustrate  
the competitive advantage we enjoy  
as a low-cost gold producer.

The average gold and gold equivalent  
price realised during 2016 amounted  
to US$1,136 (2015: US$1,062 per oz) and 
should be viewed alongside our All-In-
Sustaining Cash Costs measurement. 

These factors were duly reflected in  
a 21.9% increase in 2016’s EBITDA to 
US$162.5 million and a consequential 
advance in our EBITDA margin to 53.1% 
(2015: 48.3%): a positive indication of 
operating profitability. 

Strong cash flow has been utilised, in part,  
to further reduce gearing and our net debt  
to EBITDA ratio at the year-end stood at  
a conservative 1.26 compared with 1.74  
as at 31 December 2015. 

Your Directors have constantly voiced the 
Company’s commitment to the return of 
profits to shareholders through dividend 
payments. Against the aforementioned 
background, the Board is pleased to 
recommend the payment of a final dividend 
of £0.054 per share (2015: £0.025 per share) 
which, subject to approval at the Annual 
General Meeting on 17 May 2017, will  
make a total distribution of £0.104 per  
share (2015: £0.045 per share) for the  
financial year to 31 December 2016. 

Management has, during the year under 
review, communicated more actively  
with the investment community, largely  
in response to the revival of interest in 
natural resource stocks: a trend that has been 
accompanied by a marked improvement  
in the stock liquidity of your Company  
and a strong share price performance. 

Shareholders may be interested to note  
that, on 23 May 2017, Highland Gold  
Mining will celebrate the 15th anniversary  
of its founding, having originally been 
incorporated in Jersey in 2002 ‘for the 
purpose of acquiring, consolidating and 
developing a portfolio of quality gold  
mining projects in the Russian Federation 
with good growth potential.’

The sound achievements of 2016 bear witness 
to management’s ongoing pursuit of ‘good 
growth potential’ and, irrespective of the 
inevitable challenges, your Board has every 
confidence that the unlocking of Highland’s 
valuable resource base over the ensuing 
years will yield further significant rewards 
for shareholders. 

At the time of incorporation Highland also 
demonstrated ‘a firm commitment towards 
safety, health and the environment and social 
responsibility towards employees and 
communities.’ As the Chief Executive’s 
Report and the Operational Review show, 
such perspectives are as much a part of 
Highland’s corporate culture today as they 
were in 2002. 

It is with deep regret that I have to record  
the occurrence of a fatality at our MNV  
mine on 10 September 2016. Additional 
safety measures have been implemented, 
details of which are to be found in the 
following sections. 

Finally, it gives me great pleasure to thank  
all our employees, on behalf of the Board,  
for the hard work and commitment that 
underwrote our achievements during 2016. 

Eugene Shvidler 
Executive Chairman 

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

7

Strategic Report “I HAVE EVERY CONFIDENCE  
THAT THE GROWTH POTENTIAL 
INHERENT IN OUR OPERATING 
ASSETS AND OUR HIGH GRADE 
DEVELOPMENT PROJECTS, 
TOGETHER WITH OUR 
COMPETITIVE COST DISCIPLINES, 
AUGUR WELL FOR THE FUTURE.”

Dear Shareholder, 
Highland Gold is in the midst of its 15th year 
as a publicly-quoted enterprise. While there 
have been many achievements over the years, 
our objective remains to constantly look for 
ways to realise the substantial potential of the 
Company’s asset base. With that in mind, we 
undertook several initiatives during the year 
under review.

Among these is the ‘cluster’ initiative, 
designed to drive the Company’s progress on 
multiple fronts by focusing our development 
around existing operations and milling 
capacity and maximising corporate synergies. 
As part of this effort, the Company appointed 
a Business Development Head for each of our 
key geographic regions:
•  Khabarovsk Cluster (MNV, Belaya Gora 

and Blagodatnoye);

•  Baikal Cluster (Novo, Lyubov and Baley 
Hub encompassing Taseevskoye, Sredny 
Golgotay and Baley ZIF-1 Tailings); and 

•  Chukotka Cluster (Kekura and Klen).

A key feature of 2016 was our extensive 
exploration activity designed to (i) provide 
additional resource for existing operations 
and (ii) advance identified development 
projects. The scale of such activity is reflected 
in more than 74,000 metres of exploration 
drilling across the Company’s portfolio 
during 2016 and a commensurate exploration 
spend of US$8.2 million.

CEO’S REPORT 
DENIS ALEXANDROV

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Highland Gold Mining Limited  |  Annual Report and Accounts 2016

 
As detailed below, exploration activity 
encompassed MNV, Belaya Gora, the 
Blagodatnoye and Sredny Golgotay deposits 
and Kekura, our premier development 
project. This work has already helped us  
to extend MNV’s life of mine and will help 
advance a Definitive Feasibility Study (DFS) 
for Kekura.

Alongside this with the aid of our 2016 
drilling results, we have initiated new, 
updated JORC reserve audits for our key 
operating and development assets, namely 
MNV, Novo, Belaya Gora, Blagodatnoye  
and Kekura. We aim to publish the results  
of these audits over the next 6 months. 

In 2016, we met our production guidance  
at a level of output that we are looking to 
maintain in 2017.

Novo proved the top performer with a 10% 
year-on-year increase in the production of 
gold and gold equivalent to a record 117,577 
oz. This represented 45% of total production 
and 55% of EBITDA. 

The average Au equivalent head grade was 
more than maintained at 5.61 g/t but the task 
ahead is to enhance throughput in order to 
offset the expected decline in average grade. 
To this end, plans to expand Novo’s ore 
processing capacity from 700,000 tonnes  
per annum to an annual 1.3 million tonnes  
are well advanced and we expect to reach 
targeted capacity in late 2018. 

MNV maintained stable output in 2016  
and the four-year extension of the mine’s  
life to 2022 is a valuable achievement. 
Management’s aim, however, is to extend  
the life of the mine beyond this and the  
near mine exploratory activity of 2016 will 
continue in 2017 and subsequent years 
utilising a US$3-5 million annualised budget. 

At Belaya Gora, outside consultants were 
engaged to assist in improving mine planning 
in order to address issues with dilution and 
irregular grade distribution. Work also 
continues on a project to expand cyanide 
leach (CIL) capacity to improve processing 
plant recovery rates. 

The Kekura licence, which enjoys an average 
reserve Au grade of 10.73 g/t, represents  
a world class gold deposit. A combination  
of open-pit and underground mining is 
envisaged, with a processing plant capacity 
of 800,000 tonnes per annum and a life of 
mine tentatively put at eight years.

Engineering and construction specialists 
Fluor Canada are developing a DFS in  
this regard which will consolidate various 
specifics including SRK’s new JORC resource 
estimation and mining schedule. Delivery  
of the DFS is anticipated in Q3 2017 and 
commercial production is set to begin in 2020.

The Kekura deposit sits on a very small  
part of our licence area, which encompasses 
approximately 1,500 sq km. We have 
identified several promising targets within 
this territory, providing significant upside 
potential for the Kekura operation.

Considerable activity was seen at our other 
development projects during the year. At 
Klen we initiated an updated PFS, which is 
scheduled for completion in the first half of 
2017. At the Baley Hub deposits, we worked 
to de-risk these brownfield projects in order 
to facilitate further analysis of available 
development options.

In Kyrgyzstan, our fourth region, a scoping 
study was completed for our Unkurtash 
project and delivered in Q1 2017. We are  
now reviewing various development options, 
including the possibility of entering into  
a partnership arrangement with an 
appropriate investor.

Our primary objectives during 2017 will 
essentially mirror those for the year under 
review as we:
•  Target stable levels of overall production 
from our three operating mines: MNV, 
Belaya Gora and Novo; 

•  Continue to implement rigorous cost 
disciplines and efficiencies in order  
to leverage our advantage as a low- 
cost producer; 

•  Progress Kekura, the expansion of  

Novo and the Belaya Gora upgrade; and

•  Maintain our focus on exploration 

adjacent to MNV in order to further 
extend the life-of-mine.

Our Kekura investment, together with  
the Novo expansion, inevitably signals  
a significantly higher capex spend during  
the current financial year. With the comfort  
of a sound balance sheet, we would expect  
to fund the majority of 2017’s capex through 
operating cash flow. 

With the successful implementation of  
our key objectives – extending MNV’s  
life of mine, expanding capacity at Novo, 
improving Belaya Gora’s operations, and 
bringing Kekura online – we aim to achieve 
annualised production of 500,000 ounces. 

I have every confidence that the growth 
potential inherent in our operating assets  
and our high grade development projects, 
together with our competitive cost 
disciplines, augur well for the future. 

All of these objectives are, of course, 
dependent upon the skills and expertise  
of our employees. We are totally committed  
to the welfare of our personnel and our 
activities in this regard and in relation  
to our environmental responsibilities  
appear in the Operational Review.

Denis Alexandrov
Chief Executive Officer

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

9

Strategic ReportCEO’S REPORT CONTINUED

Units

H1 2015

H2 2015

H1 2016

H2 2016

2015

2016

MNV

Waste stripping

Underground development

Waste dumps ore mined

Waste dumps ore grade

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

Belaya Gora

Waste stripping

Ore mined

Average grade

Ore processed

Average grade

Recovery rate

Gold produced

Novo

Underground development

Ore mined

Average grade1

Ore processed2

Average grade1

Recovery rate1

Gold produced1 2

Sredny Golgotay (Kaftan)

Underground development

Ore mined

Average Grade

Ore processed3

Average Grade

Gold produced3

Lyubov

Gold produced

Total Gold Production

m3

m

t

g/t

t

g/t

t

g/t

t

g/t

t

g/t

%

oz

m3

t

g/t

t

g/t

%

oz

m

t

g/t

t

g/t

%

oz

m

t

g/t

t

g/t

oz

oz

oz

1,780,663

1,573,547

305,900

1,462,897

3,354,210

1,768,797

4,287

6,163

289,420

2.08

330,329

2.21

619,749

2.15

705,493

2.08

89.0

448,548

1.85

434,890

2.52

883,438

2.18

707,326

2.49

91.5

42,451

52,107

5,863

276,312

1.06

22,067

3.02

351,336

3.20

649,715

2.28

672,600

2.28

90.93

44,929

5,518

2,801

1.21

383,426

1.89

388,576

2.92

10,450

–

–

712,073

2.01

765,219

2.38

11,381

279,113

1.06

405,493

1.95

739,912

3.05

774,803

1,477,292

1,424,518

2.41

2.20

2.35

708,363

1,412,819

1,380,963

2.44

91.9

2.29

90.4

2.36

91.5

51,259

94,558

96,188

1,557,257

885,314

1.63

674,985

1.87

75.89

30,157

5,312

327,629

5.4

3,294,701

2,212,572

2,160,512

1,337,790

1.32

876,303

1.47

74.9

955,385

1.22

833,509

1.29

72.7

605,349

1.24

3,717,769

2,223,104

1.45

5,507,273

1,560,734

1.23

809,637

1,551,288

1,643,146

1.14

70.0

1.64

75.4

1.21

71.4

31,149

25,349

20,560

61,306

45,909

5,625

373,790

5.7

5,808

401,983

5.5

331,551

359,733

371,945

5.4

85.3

5.8

86.6

5.6

86.5

48,634

57,288

57,960

–

–

–

–

–

–

–

–

5,722

4.50

699

–

766

13,103

2.50

4,501

3.6

433

–

5,444

359,131

5.75

386,026

5.63

85.28

59,617

0

6,396

3.07

10,794

3.05

882

170

10,937

701,419

5.56

691,284

5.58

85.98

11,251

761,114

5.61

757,971

5.62

85.88

105,922

117,577

–

–

–

5,722

4.50

699

766

19,499

2.69

15,295

3.22

1,315

170

121,242

141,243

128,671

132,488

262,485

261,159

1. Calculated in Au equivalent in actual prices (Metal grade of mined ore = Au 3.74 g/t, Ag 62.99 g/t, Pb 1.99 %, Zn 0.60 %)
2. Excluding Sredny Golgotay ore processed
3. 2015 ore processing and gold production previously reported as part of Novo production data

10

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

OPERATIONAL REVIEW
KHABAROVSK REGION, RUSSIA
Mnogovershinnoye (MNV)
Production of gold and gold equivalent at 
MNV in 2016 edged ahead from 94,558 oz  
to 96,188 oz representing a near 37% share of 
total production. The average grade showed  
a 3% improvement year-on-year from 2.29 g/t 
to 2.36 g/t, while the recovery rate rose from 
90.4% to 91.5%. Ore processed totalled 
1,380,963 tonnes (2015: 1,412,819 tonnes). 

A detailed reappraisal of each of the 12 ore 
bodies across the licence area continued  
into Q1 2017 and culminated in a four-year 
extension of the life of the mine to 2022 
following the regulatory approval of reserves 
under Russian (GKZ) classification. The 
primary target, however, is to extend the  
life of the mine beyond this (see ‘Outlook’).  
In total, more than 18,000 metres of drilling 
was carried out during 2016.

The evaluation of MNV’s historic rock dumps 
saw a total of 758,200 tonnes of ore identified 
during the course of 2016. This programme 
will continue in 2017.

PRODUCTION COSTS
Total cash costs amounted to US$607 per oz 
(2015: US$691 per oz) while all-in sustaining 
costs were US$765 per oz (2015: US$881  
per oz).

CAPITAL COSTS
A total of US$14.0 million was invested  
at MNV in 2016. This included capitalised 
expenditures and construction (US$4.1 
million), purchase of equipment (US$8.7 
million) and exploration (US$1.2 million).1

OUTLOOK 
The extensive near-mine exploration activity 
seen during 2016 will continue in 2017 with  
a view to further extending the life of the mine 
beyond 2022. Such activity will encompass: 
•  The lower horizons of the existing 

underground mine;

•  Areas in the vicinity of open-pit operations;
•  Near-mine Greenfield sites on adjacent 

licences; and 

•  Historic rock dumps. 

Specific targets, utilising an annual budget  
of US$3-5 million, will include the Southern, 
Flank, Upper, and Quiet ore zones and, 
additionally, the MNV North-Western  
Flank licence (Bear ore body). 

An updated JORC-compliant reserve audit  
of MNV is currently in progress, with results 
expected during Q2 2017.

Belaya Gora
With effect from Q3 2016 operations at Belaya 
Gora focused on the treatment of low-grade 
ore stockpiles (~1 g/t) while an operational 
reassessment was undertaken in response  
to irregular grade distribution, inconsistent 
mill performance and low recovery rates. 

In addition to focusing on prospective 
improvements to the processing flowsheet in 
order to increase recoveries, management is 
working with outside consultants on designs 
for the incorporation of additional cyanide 
leach (CIP) capacity at the mill. A programme 
designed to stabilise the mill input rate 
successfully lowered the tailings grade.

As a consequence, production of gold and 
gold equivalent recorded a 25% year-on-year 
reduction in respect of 2016 to 45,909 oz. This 
was accompanied by a fall in the recovery rate 
from 2015’s 75.4% to 71.4% and a decline in 
average grade from 2015’s 1.64 g/t to 1.21 g/t. 

Some 3,000 metres of drilling was conducted 
for the purpose of reserve confirmation. 

PRODUCTION COSTS
Total cash costs amounted to US$678 per oz 
(2015: US$465 per oz) while all-in sustaining 
costs were US$1,134 per oz (2015: US$551  
per oz).

CAPITAL COSTS
A total of US$6.1 million was invested at  
Belaya Gora in 2016. This included capitalised 
expenditures and construction (US$2.9 million) 
and purchase of equipment (US$3.2 million).

OUTLOOK 
The results of a comprehensive review of  
the processing plant flowsheet, carried out 
during the final quarter of 2016, are expected 
in the new financial year as is a new JORC- 
compliant reserve statement from SRK. 

Blagodatnoye
In order to augment Belaya Gora’s mineral 
resource base, management has targeted 
further exploration of resources at the 
Blagodatnoye gold deposit, located some  
40 km from Belaya Gora. The licence enjoys 
preliminarily measured С2 category reserves, 
suitable for open-pit mining, comprising 
some 10 million tonnes of ore. Initial 
metallurgical testwork has supported gold 
recovery of more than 90% via cyanidation.

CAPITAL COSTS
A total of US$2.0 million was invested  
at Blagodatnoye in 2016 and represented a 
capitalised exploration and evaluation asset.1 

OUTLOOK
A report on reserve estimates is expected to  
be submitted to the State Expert Review Panel 
during H1 2017. A JORC-compliant reserves 
statement is scheduled for publication within 
the same time frame. 

ZABAIKALSKY REGION, RUSSIA
Novoshirokinskoye (Novo)
Production of gold and gold equivalent at 
Novo in 2016 recorded a 10% increase from 
106,621 oz to 117,577 oz representing a 45% 
share of total production. The average grade 
showed a modest 0.7% improvement year- 
on-year from 5.58 g/t to 5.62 g/t, while the 
recovery rate shaded from 85.98% to 85.88%. 
Ore processed advanced by 9.6% to 757,971 
tonnes (2015: 691,284 tonnes). 

Plans to expand Novo’s annual ore processing 
capacity from 700,000 tonnes per annum  
to an annualised 1.3 million tonnes gathered 
momentum in Q4 2016. Geotechnical work was 
completed at construction sites together with 
inspections of buildings and various structures 
under renovation. 

PRODUCTION COSTS
Total cash costs amounted to US$254 per oz 
(2015: US$302 per oz) while all-in sustaining 
costs were US$274 per oz (2015: US$353  
per oz).2 

CAPITAL COSTS
A total of US$11.0 million was invested at Novo 
in 2016. This included capitalised expenditures 
and construction (US$6.4 million) and purchase 
of equipment (US$4.6 million).

OUTLOOK 
The preparation of design documentation in 
relation to the planned expansion is well under 
way and a selection process has commenced  
for contractors with regard to construction  
and installation work. The mine is expected to 
achieve targeted production capacity in late 2018.

A new JORC reserve statement is expected  
in Q2 2017. 

Following an extensive 15,000 metre  
reserve verification drilling programme 
earlier in the year, work at Blagodatnoye  
in Q4 focused on the collation and 
interpretation of exploration results. 

1 In the consolidated financial statements, capital costs  
for Blagodatnoye are reported together with MNV.

2 All figures quoted as per oz of gold equivalent 

production without any by-product credits and  
refining charges.

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

11

Strategic Report 
Preparations for the 2017 construction  
season are ongoing, including the procurement 
of construction materials and work with 
contractors with regard to key infrastructure 
facilities. A winter road to the site has  
already been constructed and shipments  
of diesel fuel and key commodity supplies  
are being transported from the ports of Pevek 
and Magadan. 

The results of a JORC-compliant resource 
re-evaluation are also expected in the second 
half of 2017.

Klen
Preparation of a revised pre-feasibility study 
(PFS) was ongoing throughout the second half 
of 2016. Contractor Hatch has provided data  
on mining methodology, processing plant 
design and infrastructure solutions together 
with a financial and economic model. Further 
clarification in respect of processing parameters 
is required and, following additional process 
testwork, an updated report is scheduled  
for 2017.

KYRGYZSTAN
Unkurtash
The Company is currently considering  
different development options, including 
potential partnership opportunities with  
regard to its Kyrgyzstan licence in which  
three prospects – Unkurtash, Sarytube and 
Karatube – have been the subject of extensive 
exploration activity. 

A scoping study, undertaken by SRK over the 
course of the year, was finalised and published 
in March 2017. 

CEO’S REPORT CONTINUED

Sredny Golgotay – Kaftan Site
The pilot mining project at the Sredny 
Golgotay (Kaftan site), designed to evaluate 
the provision of additional resources for the 
Novo mill versus a stand-alone operation, 
resulted in the processing of 15,295 tonnes  
of ore with an average grade of 3.22 g/t. 
Delivery to Novo and subsequent treatment 
yielded 1,315 oz of gold and gold equivalent.

During Q4 2016 the results of the grade 
control drilling programme conducted  
earlier in the year, totalling 7,330 metres,  
in conjunction with operating data, served  
to delineate ore bodies to facilitate any  
future mining at the Kaftan site. The  
drilling programme, designed to validate  
the quantity and quality of reserves in  
the area, was completed in July, having  
been performed from above and below  
the surface. The evaluation programme 
utilised 8,281 assay results. 

CAPITAL COSTS
A total of US$0.6 million was invested  
at Sredny Golgotay-Kaftan in 2016. 

Baley Ore Cluster (Taseevskoye, Sredny 
Golgotay and ZIF-1)
As at the 2016 year end, a de-watering 
programme at the Taseevskoye open-pit, 
initiated the previous May, had resulted  
in the removal of more than 2 million m3  
of water out of a total of 7 million m3. Water 
levels continue to decrease – there are no 
signs of inflow from the nearby Baley pit – 
and the pumping programme is scheduled  
to continue throughout 2017.

At Sredny Golgotay, R&D testwork continued 
regarding the advisability of utilising an 
X-ray fluorescence spectrometry (XRF) 
sorting plant to enable the pre-concentration 
of gold-bearing ores. The preliminary results 
of a pilot XRF operation, received in Q4 2016, 
fell short of expectations, primarily due to  
an insufficient level of the separation required 
to make the process viable. Nevertheless, the 
study continues utilising different equipment 
and finer grain sizes. 

Exploration work also continued at Sredny 
Golgotay – in addition to the aforementioned 
work at the Kaftan site – where 1,757 metres 
of trenching during Q4 2016 took the year’s 
total to 2,027 metres with logging completed 
in full. Some 1,985 samples were extracted 
during the final quarter taking the year’s  
total to 2,210 samples. Contractor SGS Chita 
delivered 311 fire assay results during Q4 
2016 with an additional 1,979 scheduled for 
subsequent delivery. 

Diamond drilling activity totalled 5,146 
metres in Q4 (with 5,695 samples extracted) 
and 15,919 metres for the year (with 16,508 
samples extracted). A total of 14,001 fire  
assay results were received with results  
for the remaining 3,410 samples scheduled  
for subsequent delivery. 

With the benefit of these results, work will 
continue in 2017 regarding the delineation  
of the licence’s ore bodies and the compilation 
of reserve estimates. 

CAPITAL COSTS
A total of US$5.1 million was invested at the 
three Baley area licences in 2016, excluding 
Sredny Golgotay-Kaftan.

Lyubov Ore Cluster (ZIF tailings)
An outside contractor was retained to  
oversee a resource verification project at 
Lyubov during the second half of 2016.  
The project entailed the trial processing of 
material from the Khaverginskoye, Lyubov 
and Nikolaevskoye tailings dams and waste 
dumps within the Lyubov licence area and 
involved 4,200 m3 of trenching and 96 metres 
of exploratory drilling to evaluate available 
resources. Sample selection was carried out 
by SGS Chita. A total of 5,680 tonnes of ore 
was treated, yielding 170 oz of gold.

CAPITAL COSTS
A total of US$0.2 million was invested  
at Lyubov in 2016. 

CHUKOTKA AUTONOMOUS  
DISTRICT, RUSSIA 
Kekura
Processing of results from the 25,000-metre 
Kekura exploration programme was 
completed during the fourth quarter of  
2016. Drilling activity had focused on the 
eastern flank of the deposit for the purpose  
of confirming resource and potentially adding 
reserves suitable for underground mining. 

The development of a definitive feasibility 
study (DFS) for the Kekura project by Fluor 
Canada commenced in October 2016. SRK 
was awarded a contract to draft the mining 
section of the DFS, a task that began two 
months later. The process will continue in 
2017 as Fluor consolidates the various 
sections of the DFS into a single report. 

Fluor is also involved in the tender process 
for processing plant equipment, and tenders 
have been received in respect of milling and 
crushing equipment, power generators and 
press filters. 

12

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

HEALTH, SAFETY AND THE ENVIRONMENT
The safety and welfare of our employees is  
of paramount importance and, sadly, a fatality  
at MNV during the year under review serves 
to underline the need for constant vigilance 
on the part of management and each and 
every member of the workforce. 

During 2016, one-day courses in safety 
induction and fire & electrical safety 
induction were attended by 1,367 employees. 
A total of 176 managers and specialists passed 
self-tuition courses and tests using OlimpOKS 
software and were certified in respect of 
industrial safety (7-30 day programmes). 

The auxiliary mine rescue crews, formed in 
2014 and located at the mine sites, remain in  
a state of readiness to respond to emergencies. 

The Company is committed to meeting all 
applicable environmental and regulatory 
requirements. Critical risks to the environment 
from operations are constantly evaluated  
and monitored in order to develop mitigation 
programmes. No environmental incidents 
were reported during the period.

Independent auditors DNV conducted  
a supervisory audit of the certified 
Environmental Management Systems (EMS) 
at Russdragmet, Belaya Gora and Novo 
during 2016 and confirmed respective 
compliance with international ISO 14001:2004 
standards. Environmental safety training was 
given to 966 employees, while 406 employees 
received training and passed tests on 
Category I-IV hazardous waste handling.

We have always placed considerable emphasis 
on the need for employees to assume a sense 
of responsibility for their safety and for the 
safety of others and, to this end, various  
staff training courses and workshops are  
held each year. In parallel with such activities 
there is constant focus on the need to maximise 
safety measures in order to minimise 
occupational risks. 

Our unvarying target is to achieve a zero 
incident rate, irrespective of the hazardous 
characteristics of the mining industry.  
In order to further these priorities a new 
Health and Safety Team was assembled last 
autumn for the specific purpose of improving 
the implementation of best safety practices 
across all operations. In line with our historic 
approach, the plan is to institute an 
occupational safety management system that 
prioritises the improvement of employees’ 
behaviour in respect of health and safety.

Senior staff from the Moscow management 
office Russdragmet (33 managers), Novo  
(18 managers) and MNV (19 managers), 
attended a highly informative course entitled 
“Conscious Safety Management” during the 
final quarter of 2016. At Novo, 36 managers, 
specialists and workers participated in  
a training course on “Internal Accident 
Investigation”. 

New corporate standards for Internal Incident 
Investigation, a methodology for Behavioural 
Safety Audits and rules and regulations in 
respect of Occupational Safety Committees 
have been developed. Tools for Behavioural 
Safety Audits and Leader Bypass were 
introduced at Novo and MNV.

Such developments, set to gather momentum 
in 2017, come in the wake of a sharp uptick  
in Lost Time Incidents (defined as the number 
of “LTI” for every 1,000,000 man-hours 
worked) to 2.80 in 2016 compared with  
1.85 the previous year. During the course  
of the year under review, 14 incidents were 
recorded across the Company including  
the aforementioned fatality, compared  
to 12 incidents, involving minor injuries,  
in 2015. Of these, six incidents occurred  
at MNV, three at Belaya Gora, four at Novo 
and one at Kekura.

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

13

Strategic ReportCFO’S REPORT
ALLA BARANOVSKAYA

I

E
F
F
C
E
N
T

I

S
T
R
U
C
T
U
R
E

 “HIGHLAND GOLD RETAINED ITS 
POSITION AMONG THE WORLD’S 
LOWEST COST GOLD PRODUCERS 
DURING THE YEAR.”

The Company demonstrated a solid financial 
performance in 2016 benefiting from favourable 
macroeconomic conditions which included 
higher gold prices, a weak Rouble and the 
availability of cheaper credit facilities for 
Russian companies. 

Highland Gold retained its position among  
the world’s lowest cost gold producers during 
the year. All of the Company’s operating assets 
generated positive free cash flow which served 
to achieve a 16% reduction in borrowings. 

Improvements in the Company’s key 
performance indicators alongside a 
strengthened balance sheet enabled the  
delivery of an enhanced dividend distribution 
for the financial year to 31 December 2016 
compared with 2015. 

Total revenue increased by 10.8% to  
US$305.9 million, primarily driven by higher 
average realised gold prices. In 2016, the 
average LBMA gold price recorded a y-o-y 
increase of 7.8% to US$1,251 (2015: US$1,160) 
per oz. During the reporting period the 
Company sold 267,330 oz of gold and  
gold equivalent, representing a 3.5%  
volume increase versus 2015. Novo and  
MNV increased their respective sales volumes. 
Novo’s sales rose 18.7% to 125,021 eq. oz y-o-y, 
accounting for 46.8% of the total, while MNV 
increased its sales volume by 4.2% to 96,899 oz 
representing a 36.2% share. BG, with a 17.0% 
share, saw its sales volume decline to 45,411 oz 
(2015: 59,971 oz), a decrease of 24.3%.

During 2016, the Group continued to pursue  
a “no hedge” policy. The Company’s average 
realised price of gold and gold equivalent 
increased by 7.0% to US$1,136 per oz compared 
with US$1,062 per oz in 2015. The average 
realised price of gold in respect of MNV and 
Belaya Gora (net of commission) was US$1,247 
per oz which was in line with the average 
market price. The improved quality of lead 
concentrates and higher prices for precious 
metals raised the average price of gold 
equivalent realised by Novo to US$1,0083  
per eq. oz against US$927 per eq. oz in 2015 
(+8.8% y-o-y). 

The Company’s cost of sales net of depreciation 
decreased by 2.4% to US$123.8 million  
(2015: US$126.8 million). The positive effect  
of the Russian Rouble devaluation enabled  
the Company to offset the negative impact  
of overall inflation (5.4%) encompassing  
an increase in energy prices. Depreciation 
amounted to US$60.2 million, down  
17.0% y-o-y largely due to the extension  
of life-of-mine at all operational assets.

14

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

 
Financial highlights

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

EBITDA1

Net profit/(loss)

Earnings/(loss) per share (US$)

Net profit before impairment losses

Net cash inflow from operations

Capital expenditure 

Net debt2

2016

261,159

652

454

305,901

69,361

162,491

47,909

0.145

70,741

136,164

59,349

2015

262,485

640

480

276,175

22,413

133,317

(10,019)

(0.032)

25,963

105,603

42,195

(205,465)

(231,442)

1  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

2  Net debt is defined as cash and cash equivalent, financial assets, decreased by interest-bearing loans and 

borrowings and by liability under finance lease 

Cash operating costs – breakdown

Cost of sales
– depreciation, depletion and amortisation

Cost of sales, net of depreciation, depletion 

2016 
US$000

183,995 
(60,212)

2015 
US$000

199,365 
(72,583)

y-o-y 
change, %

(7.7%)
(17.0%)

and amortisation

123,783 

126,782 

(2.4%)

Breakdown per item:
Labour
Consumables and spares
Power
Movement in ore stockpiles, finished goods 

and stripping assets
Maintenance and repairs
Taxes other than income tax 

42,261 
44,532 
9,639 

(12,902)
23,972 
16,281 

40,448 
48,127 
8,736 

(12,745)
26,286 
15,930 

4.5%
(7.5%)
10.3%

1.2%
(8.8%)
2.2%

The cost structure was little changed, other than a modest increase in labour costs. With the 
latter being Rouble denominated, the devaluation of the domestic currency offset the negative 
impact of salary increases, which reflected a shortage of qualified personnel, competition for 
labour with other mining companies and additional labour costs at Novo and BG in relation  
to increases in rock extraction and processing volumes.

Total cash costs4 (TCC) decreased by 5.5% to US$454 per oz, which is below the industry 
average. Breaking this down by business units, total cash costs at our low cost producer Novo 
fell by 16.1% to US$254 per eq. oz, reflecting the increase in production volumes and improved 
grades. MNV, our oldest mine, also achieved lower total cash costs of US$607 per oz (2015: 
US$691 per oz) due to improvements in the average grade and recovery rate. As a result  
of lower grades and a decrease in recovery rates, total cash costs at Belaya Gora rose from 
US$465 per oz to US$678 per oz. 

All-in sustaining costs5 (AISC) per oz increased by 1.8%, from US$640 per oz in 2015  
to US$652 per oz in 2016. 

3  Novo’s average price 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 third-party plants.

4  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.

5  In line with guidance issued by the World Gold 

Council, the formula used to define the all-in sustaining 
cash costs measurement 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.

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

15

Strategic ReportCFO’S REPORT CONTINUED

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 non-operating entities

Total cash costs (TCC)

 + 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)

2016 
US$000

2015 
US$000

y-o-y 
change, %

123,783 
(2,123)
(380)

126,782 
(2,374)
(392)

(2.4%)
(10.6%)
(3.1%) 

121,280 

124,016 

(2.2%)

14,293 

13,127 

8.9%

1,778 
9,869 
27,031 

2,541 
120 
25,561 

(30.0%)
8124.2%
5.8%

174,251 

165,365 

267,330 
454 
652 

258,292 
480 
640 

5.4%

3.5%
(5.5%)
1.8%

The Company’s administrative expenses increased by 8.9% y-o-y to US$14.3 million reflecting 
the changes in management structure and higher labour costs. 

Higher sales volumes, a supportive macro environment and cost control initiatives resulted  
in a 21.9% increase in the Company’s EBITDA to US$162.5 million with Novo and MNV 
remaining the principal contributors to such growth.

The EBITDA margin6 rose from 48.3% to 53.1%, which ranks the Company among the most 
efficient gold mining producers.

EBITDA Reconciliation to Operating Profit

Operating profit
Depreciation of mine properties and property, 

plant and equipment

Impairment losses related to cash-generating units
Individual impairment of property, plant and equipment  

and mine assets

Movement in ore stockpiles obsolescence provision
Movement in raw materials and consumables obsolescence provision
Gain on settlement of contingent consideration

EBITDA

6  EBITDA margin is defined as EBITDA divided by total revenue

EBITDA Bridge USD M

2016 
US$000

2015 
US$000

69,361

22,413

60,212
22,832

72,583
35,982

17
9,869
600
(400)

1,698
120
521
–

162,491

133,317

200

150

100

50

0

16

9

133

23

5

7

1

162

2015
Actual

Exchange
Rate

Metal
Prices

Volume
of Sales

Cost
of Sales

G&A

2016
Actual

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

The Company’s management analysed 
internal and external indicators of impairment 
as of 31 December 2016. An impairment loss 
was recognised in relation to the Belaya Gora 
project: BG’s goodwill was impaired by 
US$12.6 million and its property, plant and 
equipment, mine asset and stripping activity 
asset were impaired by US$10.3 million.  
The primary triggers for the impairment  
loss recognition were the effects of changes  
to the mine plan and higher prospective  
capital expenditure. 

In 2016, the Company recognised a net  
finance cost of US$5.0 million compared  
with US$4.2 million in 2015. The principal 
components were the interest expense on  
bank loans in the amount of US$2.2 million  
in 2016 (2015: US$3.3 million) and the negative 
effect of a fair value reassessment of bonds 
amounting to US$1.0 million due to a weaker 
Pound sterling. In September 2016, all bonds 
held by the Company were sold. 

A foreign exchange gain of US$1.9 million  
(2015: loss of US$4.3 million) resulted from  
the settlement of foreign currency transactions 
and the transfer of monetary assets and 
liabilities denominated in Russian Roubles  
into US Dollars. 

Income tax charges totalled US$18.3 million  
in 2016 compared with US$23.9 million in 
2015. Current tax expenses of US$36.6 million 
(US$22.1 million at Novo and US$14.5 million 
at MNV) and dividend withholding tax of 
US$3.1 million were partially offset by the 
release of US$21.4 million of deferred tax 
largely as a result of the Rouble appreciation  
at the end of the year and favourable change  
to the Russian Tax Legislation (tax losses 
generated after 2007 can now be utilised  
with no time limit).

Net profit for the financial year to 31 December 
2016 totalled US$47.9 million compared to  
a net loss of US$10.0 million in 2015. Earnings 
per share amounted to US$0.145 (2015: loss 
US$0.032). Net profit before impairment  
losses recorded a significant increase at 
US$70.7 million (2015: US$26.0 million). 

The Company’s cash inflow from operating 
activities registered a 28.9% advance from 
2015’s US$105.6 million to US$136.2 million 
driven by strong EBITDA and a reduction in 
working capital due to a decrease in inventories. 

The Company’s capital expenditure for the 
reporting period amounted to US$59.3 million 
versus US$42.2 million in respect of 2015. This 
largely reflected higher development CAPEX 

at MNV, regarding near-mine exploration 
designed to replace reserves, and the 
evolution of the Kekura project. 

Сapital expenditures included  
US$16.0 million at MNV, US$11.0 million  
at Novo, US$6.1 million at Belaya Gora, 
US$19.8 million at Kekura, US$ 0.6 million 
for Sredny Golgotay-Kaftan, US$5.1 million 
at the Baley hub projects (Taseevskoye, 
Sredny Golgotay, ZIF-1 tailings, excluding 
Kaftan) and US$0.7 million in respect of  
other exploration and development projects. 
Capital expenditures were entirely funded  
by operating cash flow.

The Company’s total debt is denominated  
in USD. The debt in relation to facility 
agreements with banks showed a decrease of 
16.5% to US$211.6 million as of 31 December 
2016 (2015: US$253.4 million) accompanied 
by a fall of 18.2% in the effective annual 
interest rate to 4.5% (2015: 5.5%). 

5.5%

$253.4

4.5%

$211.6

31.12.2015

31.12.2016

Gross Debt

Interest Rate

1.74

$231.4

1.26

$205.5

31.12.2015

31.12.2016

Net Debt

Net Debt /EBITDA

Cash Position Bridge USD M

200

180

160

140

120

100

80

60

40

20

0

136

59

6

12

42

24

32

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i

i

At the end of the reporting period, cash and 
cash equivalents amounted to US$8.7 million, 
compared with US$24.2 million as of 
31 December 2015. The Company’s net  
debt position including lease liabilities was 
US$205.5 million as of 31 December 2016, 
compared with US$231.4 million as of 
31 December 2015. 

The ratio of net debt to EBITDA was 1.26 as  
of the end of 2016. This is substantially lower 
than the 1.74 ratio as of the end of 2015 and is 
well within the Board of Directors’ debt policy. 

Taking into account the improvements in  
the Company’s target financial indicators  
and favourable market conditions, the Board  
is pleased to recommend a final dividend of 
GBP 0.054 per share. 

PAYMENT OF DIVIDENDS
The final dividend for the year ending 
31 December 2015 in the amount of  
US$11.9 million was paid on 19 May 2016. 

The Group paid an interim dividend of  
GBP 0.050 per share (2015: an interim  
dividend of GBP 0.020 per share) which 
resulted in an aggregate interim dividend 
payment of US$19.8 million (2015: US$10.0 
million). The interim dividend was paid  
on 13 October 2016. 

The Board has recommended a final dividend 
of GBP 0.054 per share which, taking into 
account the interim dividend paid in October 
2016, gives a total dividend of GBP 0.104 per 
share for the year (2015: GBP 0.045 per share). 
The final dividend will be paid on 19 May 2017 
to shareholders on the register at the close of 
business on 21 April 2017 (the record date). 
The ex-dividend date will be 20 April 2017.

EVENTS AFTER THE REPORTING PERIOD 
In March 2017, the Group signed a new 
long-term credit facility agreement with 
Gazprombank, with an overall limit of 
US$100.0 million, thereby providing  
an extension of the final maturity until  
March 2020.

Alla Baranovskaya
Chief Financial Officer

Rounding of figures may result  
in computational discrepancies

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

17

Strategic Report 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PRINCIPAL RISKS AND UNCERTAINTIES

The Group is exposed to a number of risks 
and uncertainties which 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 provide 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 utilise 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 is responsible for  
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 in respect of 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. 

Risk

Risk description

Mitigation

Movement

MARKET AND FINANCIAL RISKS

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 practice hedging in 2015 and 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. 

FINANCIAL  
RISKS

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

Please refer to Note 28 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 amount  
is incurred in Russian Roubles. 

In 2016 and 2015, 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. 

18

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

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 2016 and 2015 nor in prior periods.

 
Change in residual risk level assessment  
as compared to the similar risk in 2015:

  Increased
  No change
  Decreased

Risk

CREDIT  
RISK

INTEREST  
RATE RISK

LIQUIDITY RISK

Risk description

Mitigation

Movement

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

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.

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

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

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

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’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

RISKS  
ASSOCIATED WITH 
EXPLORATION 
ACTIVITIES 

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.

The Group conducts detailed exploration and assesses 
results in accordance with widely recognised methods 
of resources/reserves evaluation. 

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 65 to 66). 

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

THE GROUP’S 
DEPOSITS ARE 
SUBJECT TO 
EXPLORATION AND 
MINING LICENCES

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

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.

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

19

Strategic ReportPRINCIPAL RISKS AND UNCERTAINTIES CONTINUED

Risk

Risk description

Mitigation

Movement

OPERATING RISKS continued

PRODUCTION  
RISKS AND FAILURE 
TO DELIVER 
PRODUCTION  
PLANS

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.

NEW 
CONSTRUCTION 
PROJECTS

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. 

SKILLED 
WORKFORCE 
SHORTAGE

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 10 to 12.

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 
applies 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.

20

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

Change in residual risk level assessment  
as compared to the similar risk in 2015:

  Increased
  No change
  Decreased

Risk

Risk description

Mitigation

Movement

THE GROUP IS 
SUBJECT TO 
EXTENSIVE 
ENVIRONMENTAL, 
HEALTH AND  
SAFETY LAWS  
AND REGULATIONS

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 license to operate.

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 and 2016 successfully completed ISO 14001 
recertification audits. 

At Board level the Group’s HSE Committee considers 
and monitors all key HSE risks. 

STRATEGIC RISKS

AN ADEQUATE 
RESOURCE BASE 
NEEDS TO BE 
MAINTAINED  
FOR FUTURE 
OPERATIONS AND 
REPLACEMENT OF 
DEPLETED MINES

REGULATORY 
CHANGES AND 
GOVERNMENT 
ACTIONS

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.

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 undertakes exploration projects to sustain 
and increase the resource base. Comprehensive 
near-mine exploration plans are developed for all sites. 

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.

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

The Group’s operations in these jurisdictions are 
regulated by numerous laws, standards and guidelines. 
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.

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 2015 and 2016, 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.

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

21

Strategic ReportBOARD OF DIRECTORS

Eugene Shvidler
Executive Chairman

Duncan Baxter
Independent  
Non-Executive Director

Colin Belshaw
Independent  
Non-Executive Director

John Mann
Executive Director,  
Head of Communications

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 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 re-joined the Board  
in autumn 2008.

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 studied political science 
at Harvard University with a focus 
on Soviet history and politics. He  
has worked in the fields of public 
relations, public affairs and investor 
relations for 22 years, 20 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.

22

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

Valery Oyf
Non-Executive Director

Olga Pokrovskaya
Non-Executive Director

Terry Robinson
Senior Independent 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 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.

Chairman of the Audit Committee, 
Member of the Remco, Nomination 
an 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.

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

23

Corporate GovernanceDIRECTORS’ REPORT

G
O
O
D

G
O
V
E
R
N
A
N
C
E

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 2016. 

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, then and now,  
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 page 67 of the Report.  
The Chairman’s Statement and the Chief 
Executive Officer’s Report highlight the 
Company’s business developments during 
2016 and future opportunities. 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 2016 appears  
in the Chief Financial Officer’s Report on page 
14 of the Report. The Group achieved a profit 
for the year of US$ 47.9 million (2015: loss of 
US$10.0 million). 

The Directors recommend the payment  
of a final dividend on the ordinary shares  
of GBP 0.054 pence (2015: GBP 0.025) per  
share payable on 19 May 2017. 

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

Eugene Shvidler

Valery Oyf*

Duncan Baxter 

Ordinary shares 
At 31/12/2016 

Ordinary shares  
At 31/12/2015 

% Holding 
31/12/2016

40,853,660

14,507,453

20,000

36,916,144

14,196,653

20,000

12.56%

4.46%

0.01%

*  In the 2015 Annual Report, Mr Oyf’s shareholding  
was recorded in the “Substantial shareholdings”  
section below as one of the beneficial shareholders  
of Primerod International Limited.

Primerod International Limited (“Primerod”)  
is the holding vehicle through which certain 
individual persons, managers and connected 
parties of Millhouse LLC, including Valery Oyf, 
held a combined 32% interest in the Company. 
In November 2016, Primerod reorganised and 
simplified the shareholding by exchanging  
its Highland Gold shares in return for  
Primerod shares. Among the recipients of this 
reorganisation were Valery Oyf and Executive 
Chairman Eugene Shvidler. An announcement 
to this effect was made on 8 November 2016. 

No other Directors have an interest in the share 
capital of the Company. 

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. 
This has been updated in 2016 to incorporate 
the Market Abuse Regulation (MAR) 
implemented in July 2016.

24

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

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 April 
2016 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.

The Board
The Board is currently comprised of seven 
Directors, five of whom are non-executives. 
Three Non-Executive Directors, comprising 
Duncan Baxter, Colin Belshaw and Terry 
Robinson, bring an element of independence 
to the Board and provide a balance to those 
Directors who cannot be regarded as 
independent. The Board considers them  
to be independent in character and 
judgement. Eugene Shvidler, Valery Oyf  
and Olga Pokrovskaya are affiliated with 
Millhouse LLC which is associated with 
persons collectively holding 43.64% of  
the issued share capital of the Company, 
including Eugene Shvidler’s interest of 
12.56% and Valery Oyf’s interest of 4.46%. 

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 operational matters, 
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 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, having not witnessed many 
changes in the year, undertook a self-
assessment review in early 2017 from which 
no material issues arose, having considered 
the interaction with Committees, Executive 
Management and Corporate Governance 
matters. The Board will continue to undertake 

such reviews 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 2019.

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 within every three years 
and new appointments be confirmed at the 
following Annual General Meeting. Duncan 
Baxter, Valery Oyf and John Mann who  
retire by rotation will offer themselves for 
re-election at the Annual General Meeting to 
be held on 17 May 2017. The Remuneration 
and Nomination Committee has agreed  
and recommended these reappointments.

The profiles of the Directors are to be found 
on pages 22 and 23 of this Report. 

Audit Committee 
The Audit Committee in 2016 consisted of two 
Non-Executive Directors, Olga Pokrovskaya 
and Terry Robinson, and was chaired by 
Mr Robinson. The Audit Committee met three 
times during 2016 to consider the annual and 
interim financial statements and the internal 
and external audit programme. In April  
2017, the Audit Committee considered  
and reviewed the 2016 Financial Statements 
and the Annual Report statements as to the 
Company’s Principal Risk 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 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, and 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 discount rate,  
are the drivers of the separate mine forward 
financial models and value in use calculation. 

The Audit Committee recommended the 
Interim Half-Year Financial Statements and  
the 2016 full year audited Financial Statements 
to the Board for approval.

Finally, the Audit Committee undertakes, each 
year, a self-assessment of its own performance 
and that of Internal Audit and an extensive 
assessment of the external auditors which 
includes input from management’s assessment.

Following 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 2016, the Committee consisted of  
three Directors, all of which are non-executive, 
comprising Duncan Baxter, as Chairman, 
Valery Oyf and Terry Robinson. The Committee 
is responsible for reviewing the performance of 
executive management and, where appropriate, 
other senior executives, and for determining 
their appropriate levels of remuneration. 
Recommendations are made, as and when 
appropriate, with regard to appointments  
in respect of Directors, the Chairmanship  
of Committees, senior management and 
directors of Group subsidiary companies;  
the composition of the Board is monitored  
on an ongoing basis. The Committee makes 
recommendations to the Board, within defined 
terms of reference, which the Board reviews  
at least annually. The Committee, on the 
recommendations from management, examines 
fees in relation to non-executive remuneration 
and committee Chairmen. The Committee held 

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

25

Corporate Governance 
DIRECTORS’ REPORT CONTINUED

one meeting during the year. Details of  
the Directors’ remuneration are given on  
page 27. The Committee has considered and 
recommended to the Board the re-election  
of Duncan Baxter, Valery Oyf and John Mann 
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 and 
the retention of Valery Oyf as a Non-Executive 
Director after relinquishing his position  
as CEO, with effect from January 2016.

Health, Safety and Environmental Committee 
The Board has a Health, Safety and 
Environmental Committee which is chaired 
by Olga Pokrovskaya. The other members  
of the Committee during 2016 were Terry 
Robinson and Colin Belshaw. 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 Operational 
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 control and effectiveness 
in safeguarding the assets of the Group. 
Internal controls can provide reasonable,  
but not absolute assurance against material 
misstatements or loss. The processes used  
by the Board to review the effectiveness  
of the internal controls are carried out by  
the Audit Committee. There is an Internal 
Audit Charter, which can be seen on the 
website at www.highlandgold.com.

Relations with Shareholders
The Group’s website provides comprehensive 
information on the Company’s business,  
results and personnel and is used to update 
shareholders and the market in respect  
of key developments and announcements  
(www.highlandgold.com). Shareholders are 
encouraged to use the Annual General Meeting 
as a forum at which to communicate with 
Directors. Due notice of the Annual General 
Meeting is provided to all shareholders. The 
Company also utilises investor and public 
relations functions, webinars and road shows 
through brokers and the Nomad.

Shareholders passed a special resolution  
at the Annual General Meeting on 27 May 
2014 whereby the Directors were authorised  
to allot and grant rights to subscribe for,  
or convert securities into, shares in the 
Company up to a maximum nominal amount 
equivalent to 33% of the nominal amount  
of the authorised but unissued share capital 
of the Company, to such persons at such 
times and on such terms as they think proper 
without first making an offer to each person 
who holds shares in the Company. Such 
authority expires at the conclusion of the 
Company’s Annual General Meeting this year 
and a renewal of the authority is proposed  
by the Directors for a further three year 
period to the Company’s Annual General 
Meeting in 2020. A special resolution to this 
effect is contained within the Notice of the 
Annual General Meeting to be held on 
17 May 2017.

Substantial shareholdings
As at close of business on 28 February 2017, 
the Company had been notified of the 
following interests, other than Directors’ 
interests shown on page 24 of this Report, 
which amounted to three per cent or more  
of the issued share capital of the Company: 

Name of Holder

Denalot Worldwide Limited

Prosperity Capital Management

Primerod International Limited

Van Eck Associates

Erlinad Holdings Limited

Ivan Koulakov

Going concern
Having made relevant enquiries and on a 
thorough overview from the Audit Committee, 
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 17 May 2017  
at 26 New Street, St Helier, Jersey JE2 3RA.  
The notice convening the Annual General 
Meeting is set out on page 68 of the Report.

Statement of Directors’ responsibilities  
in relation to the Annual Report and  
financial statements
The Directors are responsible for preparing the 
Annual Report and the financial statements in 
accordance with applicable laws and regulations.

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.

Number

Percentage

32,519,690

32,242,289

26,025,310

22,989,868

14,390,653

13,500,000

9.99%

9.91%

8.00%

7.07%

4.52%

4.15%

26

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

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 Remuneration 
and Nomination Committee.

Basic salary takes into account the performance 
of the individual, any changes in responsibility 
and rates of market remuneration. 

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 2016  
was as follows:

No grants of options under the Unapproved 
share option scheme were made during  
2016 and management and employees  
were incentivised through a bonus scheme, 
currently of a discretionary nature with certain 
production KPIs. There were no options 
outstanding as of 31 December 2016 (2015: nil). 

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

Further information on the Remuneration and 
Nominations Committee can be found on page 
25 of this Report. 

By Order of the Board
07 April 2017

Fees and Remuneration

Bonus

US$
2016
audited

500,000

160,000

125,000

160,000

100,000

122,319

120,000

-

-

-

US$
2015
audited

500,000

160,000

125,000

160,000

100,000

1,239,081

80,000

33,333

177,689

101,554

US$
2016
audited

US$
2015
audited

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

36,496

3,318

Eugene Shvidler

Duncan Baxter

Olga Pokrovskaya

Terry Robinson

Colin Belshaw 

Valery Oyf

John Mann

Eugene Tenenbaum*

Alla Baranovskaya* 

Sergey Mineev*

*resigned in April 2015.

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

27

Corporate GovernanceINDEPENDENT AUDITOR’S 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 2016 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 31. 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 2016 and of its profit for the year then ended; 
•  have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union; and
•  have been prepared in accordance with the requirements of the Companies (Jersey) Law 1991.

Matters on which we are required to report by exception
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.

Andy Smyth
for and on behalf of Ernst & Young LLP, London

7 April 2017

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. 

28

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER

Revenue
Cost of sales

Gross profit

Administrative expenses 
Other operating income 
Other operating expenses 
Impairment losses

Operating profit

Foreign exchange gain/(loss)
Finance income
Finance costs

Profit before income tax

Current income tax expense
Withholding tax expense
Adjustments in respect of prior year income tax
Deferred income tax release/(expense)

Total income tax expense

Profit/(loss) for the year

Total comprehensive profit/(loss) for the year 

Attributable to:
Equity holders of the parent
Non-controlling interests

Profit/(loss) per share (US$ per share)
Basic, for the profit for the year attributable to ordinary equity holders of the parent
Diluted, for the profit for the year attributable to ordinary equity holders of the parent

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

Notes

7
8

9
10.1
10.2
5, 17

11
12.1
12.2

13
13
13
13

13

14
14

2016
US$000

305,901
(183,995)

121,906

(14,293)
1,255
(16,675)
(22,832)

69,361

1,909
145
(5,187)

66,228

(36,596)
(3,135)
–
21,412

(18,319)

47,909

47,909

47,235
674

0.145
0.145

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)

(10,316)
297

(0.032)
(0.032)

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

29

AccountsCONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT

ASSETS
Non-current assets 
Exploration and evaluation assets
Mine properties
Property, plant and equipment
Intangible assets
Inventories
Other non-current assets
Deferred income tax asset

Total non-current assets

Current assets
Inventories
Trade and other receivables
Income tax prepaid
Prepayments
Financial assets
Cash and cash equivalents
Other current assets

Total current assets

TOTAL ASSETS

EQUITY AND LIABILITIES 
Equity attributable to equity holders of the parent
Issued capital
Share premium
Assets revaluation reserve
Retained earnings

Total equity attributable to equity holders of the parent

Non-controlling interests

TOTAL EQUITY

Non-current liabilities
Interest-bearing loans and borrowings
Liability under finance lease
Long-term accounts payable
Provisions
Deferred income tax liability

Total non-current liabilities

Current liabilities
Trade and other payables
Interest-bearing loans and borrowings
Income tax payable
Liability under finance lease

Total current liabilities

TOTAL LIABILITIES

TOTAL EQUITY AND LIABILITIES 

31 December 
2016
US$000

31 December 
2015
US$000

Notes

15
15
15
16
19
18
13

19
20

29
21

22

22

23

24
25
13

24
23

85,459
567,762
295,019
57,802
8,989
4,151
– 

309,101
318,068
320,986
70,365
16,372
3,845
– 

1,019,182

1,038,737

56,140
32,296
1,032
1,975
– 
8,748
1,226

67,758
31,188
3,770
888
21,150
3,058
602

101,417

128,414

1,120,599

1,167,151

585
718,419
832
33,947

753,783

1,859

755,642

164,587
1,590
254
17,199
114,045

297,675

17,633
47,000
1,613
1,036

67,282

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

364,957

427,573

1,120,599

1,167,151

The financial statements were approved by the Board of Directors on 07 April 2017 and signed on its behalf by: John Mann and Alla Baranovskaya.

30

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

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

Assets 
revaluation 
reserve
US$000

Retained 
earnings 
US$000

Total
US$000

Non-
controlling 
interest
US$000

Total 
equity
US$000

At 31 December 2014

585

718,419

832

47,698

767,534

2,570

770,104

Total comprehensive (loss)/income for the year
Novo share purchase
Dividends paid to equity holders of the parent

At 31 December 2015

Total comprehensive income for the year
Novo share purchase
Dividends paid to equity holders of the parent

27
30

30

–
–
–

–
–
–

–
–
–

(10,316)
869
(20,075)

(10,316)
869
(20,075)

297
(1,301)
–

(10,019)
(432)
(20,075)

585

718,419

832

18,176

738,012

1,566

739,578

–
–
–

–
–
–

–
–
–

47,235
241
(31,705)

47,235
241
(31,705)

674
(381)
-

47,909
(140)
(31,705)

At 31 December 2016

585

718,419

832

33,947

753,783

1,859

755,642

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

31

AccountsCONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER

Notes

2016
US$000

2015
US$000

Operating activities
Profit before income tax

Adjustments to reconcile profit before income tax to net cash flows from operating activities:
Depreciation of mine properties and property, plant and equipment
Impairment losses related to cash-generating units
Movement in ore stockpiles obsolescence provision
Movement in raw materials and consumables obsolescence provision
Write-off of mine properties and property, plant and equipment
Individual impairment of property, plant and equipment and mine assets
Loss on disposal of property, plant and equipment
Bank interest receivable
Bonds fair value movement
Interest expense on bank loans
Accretion expense on site restoration provision
Gain on change in estimation – site restoration asset
Gain on settlement of contingent consideration
Net foreign exchange loss
Movement in provisions
Unwinding costs other
Other non-cash expenses/(income)

8
5, 17
10.2.1
10.2
10.2, 15
10.2.2
10.2
12.1
12.1, 12.2, 29
12.2
12.2
10.1
10.1
11

Working capital adjustments:
Increase in trade and other receivables and prepayments
Decrease in inventories
Increase in trade and other payables
Income tax paid

Net cash flows from operating activities

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

Net cash flows used in investing activities

Financing activities
Proceeds from borrowings
Repayment of borrowings
Dividends paid to equity holders of the parent
Payment under finance lease, including interest
Interest paid

Net cash flows used in financing activities

Net increase/(decrease) in cash and cash equivalents
Effects of exchange rate changes
Cash and cash equivalents at 1 January

Cash and cash equivalents at 31 December

32

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

5
5, 15
15

29
29
27
29

30

21

21

66,228

66,228

60,212
22,832
9,869
600
1,180
17
318
(138)
1,013
2,247
1,674
–
(400)
(1,909)
545
(7)
1

(5,313)
10,215
1,770
(34,790)

136,164

1,494
(59,349)
(9,624)
(5,884)
138
–
–
(138)
20,136

(53,227)

314,500
(356,450)
(31,705)
(1,277)
(2,132)

(77,064)

5,873
(183)
3,058

8,748

13,894

13,894

72,583
35,982
120
521
1,916
1,698
172
(75)
(1,246)
3,297
2,117
(2,104)
-
4,321
177
–
983

(8,295)
147
839
(21,444)

105,603

98
(42,195)
(12,359)
(9,399)
75
2,534
(3,818)
(432)
24,337

(41,159)

673,924
(724,472)
(20,075)
(827)
(3,087)

(74,537)

(10,093)
205
12,946

3,058

 
 
 
 
 
 
 
 
 
 
 
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.  Corporate information
The consolidated financial statements of Highland Gold Mining Limited for the year ended 31 December 2016 were authorised for issue  
in accordance with a resolution of the Directors on 07 April 2017. 

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.

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 such scenarios.

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.

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

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

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33

AccountsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

3.  Summary of significant accounting policies continued
Business combinations and goodwill continued
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 
2016

31 December 
2015

66.834
0.741

60.657
0.810

61.319
0.654

72.883
0.676

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

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

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

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

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.

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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 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. 

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 development 
expenditure is included into mine assets.

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. 

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

35

AccountsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

3.  Summary of significant accounting policies continued
Stripping costs
The Group incurs waste removal costs (stripping costs) during the production phase of surface mining operations. Further details 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 29.

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 29.

36

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

 
 
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 CGUs 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. 

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.

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37

Accounts 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

3.  Summary of significant accounting policies continued
Financial assets and liabilities continued
A financial liability is derecognised when the obligation under the liability is discharged or is cancelled or expires. Gains on derecognition  
are recognised within finance revenue and losses within finance costs. 

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

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

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. 

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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. Changes in the measurement of an existing decommissioning, 
restoration and similar liability that result from changes in the estimated timing or amount of the outflow of resources embodying economic 
benefits required to settle the obligation, or a change in the discount rate, shall be accounted as follow: changes in the liability shall be added to,  
or deducted from, the cost of the related asset in the current period; the amount deducted from the cost of the asset shall not exceed its carrying 
amount. If a decrease in the liability exceeds the carrying amount of the asset, the excess shall be recognised immediately in profit or loss. 

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 organized market (LME, London Metal Exchange; LBMA, 
London Bullion Market Association). A portion of the provisional invoice is settled within a few days (80%). The remaining amount (20%), 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 of metals adjustments resulting from the final assay is settled in 4 months after the date of the shipment for Kazzinc and is settled in  
3 months from July 2016 to 22 December 2016 and in 4 months from 23 December 2016 after the date of the delivery for Hyosung. For Kazzinc the 
title to the commodity passes to the buyer on shipment and for Hyosung the title to the commodity passes to the buyer on delivery to boundary 
railway station – border of the Russian Federation – the People’s Republic of China.

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 that requires separation at the date the sale is recognised. 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.

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. 

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.

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39

AccountsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

3.  Summary of significant accounting policies continued
Income taxes continued
Deferred income tax liabilities are recognised for all taxable temporary difference except:
•  where the deferred income tax liability arises from the initial recognition of goodwill, or the initial recognition of an asset or liability in  

a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit  
or loss; and

•  in respect of taxable temporary differences associated with investments in subsidiaries and interests in joint ventures, where the timing  
of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the  
foreseeable future.

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

•  in respect of deductible temporary differences associated with investments in subsidiaries and interests in joint ventures, deferred tax assets  

are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will  
be available against which the temporary differences can be utilised.

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 2016.

Changes to IFRS:
The following new standards and amendments became effective as of 1 January 2016:
• IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortisation – Amendments to IAS 16 and IAS 38
• Annual Improvements Cycle – 2012-2014
• IAS 1 Disclosure Initiative – amendments to IAS 1

The Group plans to apply IFRS 15, IFRS 16 and IFRS 9 starting from the dates effective in the European Union. At present the Group is in the 
process of analysis of the possible impact of the application of these standards on its consolidated financial statements, but the preliminary results 
show that the impact will not be significant.

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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;
•  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).

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 
written off in 2016 due to non-fulfilment of the contractual terms.

Functional currency
Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using 
that functional currency. USD is the functional currency of all entities both in 2015 and 2016.

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

41

Accounts 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

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

In calculating the recoverable amount, the estimated future cash flows are discounted to their present value using a post-tax discount rate that 
reflects current market assessments of the time value of money and the risks specific to the asset/CGU. In determining the recoverable amount, 
recent market transactions (where available) are taken into account. If no such transactions can be identified, an appropriate valuation model  
is used. These calculations are corroborated by valuation multiples and other available fair value indicators. Further details on how FVLCD  
is calculated are outlined in Note 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 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 26 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 2022 at MNV, in 2026 at BG, in 2029 at Novo, in 2029 at Klen and in 2029 at Kekura), expected site restoration 
activities (removal of waste, restoration of mine sites), and current prices for similar activities.

42

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

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) 
were used in the units of production calculation for depreciation in 2016, as management believes they represent the most accurate approximation 
of the reserves. 

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). 

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

43

AccountsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

5.  Segment information continued
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 and gain on settlement of contingent consideration). The development and exploration segment is evaluated based on the 
life-of-mine models in connection with the capital expenditure spent during the reporting period.

The following tables present revenue, EBITDA and assets information for the Group’s reportable segments. The segment information is reconciled 
to the Group’s profit/(loss) after tax for the year.

The finance costs, finance income, income taxes, foreign exchange losses 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 2016 the gold and silver revenue reported in the gold production segment was received from sales to Gazprombank (US$179.5 million) in the 
territory of the Russian Federation.

 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 2016 the concentrate revenue reported in the polymetallic concentrate production segment in the amount of US$97.8 million was received from 
sales to Kazzinc (2015: US$97.6 million) in the territory of the Republic of Kazakhstan and to Hyosung corporation in the territory of the People’s 
Republic of China in the amount of US$28.2 million (2015: Nil).

Other third-party revenues in both 2016 and 2015 were received in the territory of the Russian Federation.
Inter-segment revenues mostly represent management services.

44

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

Year ended 31 December 2016

Revenue
Gold revenue
Silver revenue
Concentrate revenue
Other third-party
Inter-segment

Total revenue

Cost of sales
EBITDA

Other segment information
Depreciation
Movement in ore stockpiles  

obsolescence provision

Movement in raw materials and  

consumables obsolescence provision

Impairment losses related to  

cash-generating units

Individual impairment of property,  

plant and equipment

Gain on settlement of contingent consideration
Finance income
Finance costs
Foreign exchange loss
Profit before income tax 

Income tax

Loss for the year

Segment assets at 31 December 2016
Non-current assets
Capital expenditure*
Goodwill
Other non-current assets
Current assets**

Total assets

Capital expenditure – additions  

in 2016***, including:

Stripping activity assets
Capitalised bank interest
Unpaid/(settled) accounts payable
Cash capital expenditure

Gold 
production 
segment
US$000

Polymetallic 
concentrate 
production 
segment
US$000

Development 
& Exploration
US$000

Other
US$000

Eliminations
US$000

Total
US$000

177,528 
1,985 
– 
138 
46 

179,697

133,959 
76,604 

–
– 
126,048 
181 
– 

126,229

49,531 
90,086 

– 
– 
– 
21 
– 

21

196 
(1,401)

– 
– 
– 
– 
12,228 

12,228

309 
(2,798)

(42,273)

(17,814)

(26)

(99)

(9,869)

(501)

(22,832)

– 
– 

183,937 
9,690 
9,571 
84,028 

27,365

5,884 
– 
860 
20,621 

– 

(99)

– 

– 
– 

– 

– 

– 

(17)
400

164,468 
5,134 
902 
29,217 

11,085

– 
– 
688 
10,397 

599,342 
42,978 
2,385 
5,847 

37,544

– 
9,624 
(365)
28,292 

–

–

–

–
–

493 
– 
282 
6,622 

41

– 
– 
2 
39 

– 
– 
– 
– 
(12,274)

(12,274)

– 
– 

– 

– 

– 

– 

–
–

– 
– 
– 
(24,297)

– 

– 
– 
– 
– 

177,528 
1,985 
126,048 
340 
– 

305,901

183,995 
162,491 

(60,212)

(9,869)

(600)

(22,832)

(17)
400 
145 
(5,187)
1,909 
66,228 

(18,319)

47,909 

948,240 
57,802 
13,140 
101,417 

1,120,599

76,035

5,884 
9,624 
1,185 
59,349 

*  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$8.7 million, inventories of US$56.1 million, trade and other receivables of US$33.3 million and other assets of 
US$3.3 million. Investments consisting of bonds of US$21.2 million was completely sold in their entirety during 2016. Eliminations relate to intercompany accounts receivable. 
***  Capital expenditure – additions in 2016 – includes additions to property, plant and equipment of US$66.1 million (Note 15), capitalised interest of US$9.6 million (Note 15) and 

prepayments made for property, plant and equipment of US$0.3 million.

  Non-current assets for 2016 are located in the Russian Federation (US$975.7 million) and in the Kyrgyz Republic (US$43.5 million). Current assets for 2016 are located in the 

Russian Federation.

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

45

Accounts 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

5.  Segment information continued

Year ended 31 December 2015

Revenue
Gold revenue
Silver revenue
Concentrate revenue
Other third-party
Inter-segment

Total revenue

Cost of sales
EBITDA

Other segment information
Depreciation
Movement in ore stockpiles  

obsolescence provision

Movement in raw materials and  

consumables obsolescence provision

Impairment losses related  
to cash-generating units

Individual impairment of property,  

plant and equipment

Finance income 
Finance costs
Foreign exchange loss
Profit before income tax

Income tax

Loss for the year

Segment assets at 31 December 2015
Non-current assets
Capital expenditure*
Goodwill
Other non-current assets
Current assets**

Total assets

Capital expenditure – additions  

in 2015***, including:

Stripping activity assets
Capitalised bank interest
Unpaid/(settled) accounts payable
Cash capital expenditure

Gold 
production 
segment
US$000

Polymetallic 
concentrate 
production 
segment
US$000

Development 
& Exploration
US$000

Other
US$000

Eliminations
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)

(51,276)

(21,185)

(37)

(85)

(120)

(518)

– 

– 

– 

(3)

– 

– 

– 

– 

(35,982)

(1,698)

– 

– 

– 

– 

– 
– 
– 
– 
(11,720)

(11,720)

– 
– 

– 

– 

– 

– 

– 

210,489 
22,253 
18,959 
83,545 

31,907

9,399 
– 
733 
21,775 

170,688 
5,134 
387 
26,101 

6,801

– 
– 
1,924 
4,877 

566,426 
42,978 
544 
4,098 

28,309

– 
12,359 
557 
15,393 

552 
– 
327 
28,656 

– 
– 
– 
(13,986)

86

– 
– 
(64)
150 

– 

– 
– 
– 
– 

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

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 intercompany 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.

46

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

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
2016
US$000

2015
US$000

Others

Total

2016
US$000

2015
US$000

2016
US$000

2015
US$000

575
11

586

575
18

593

– 
88

88

– 
75

75

575
99

674

575
93

668

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

2016
US$000

177,528
126,048
1,985
340

305,901

2015
US$000

176,625
97,602
1,519
429

276,175

*   Concentrate sales include a zero fair value movement (2015: a positive fair value movement of US$1.3 million) relating to an embedded derivative as described in note 28.

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*

Total cost of sales

*  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 5)
Legal and professional fees
Bank charges
Travel expenses of parent company
Allowance for doubtful prepayments and other receivables
Other administrative expenses

Total administrative expenses

2016 
US$000

2015 
US$000

33,611
(3,902)
211
(9,211)
42,261
60,212
44,532
16,281

35,022
(4,159)
813
(9,399)
40,448
72,583
48,127
15,930

183,995

199,365

2016 
US$000

2015 
US$000

9,393
850
1,260
674
873
320
351
545
27

8,716
819
1,158
668
842
374
359
177
14

14,293

13,127

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

47

AccountsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

10.   Other operating income and expenses
10.1. Other operating income 

Other operating income
Gain on settlement of contingent consideration
Accounts payable write-off
Change in estimation – site restoration asset (Note 15)

Total other operating income

10.2. Other operating expenses

Movement in ore stockpiles obsolescence provision (Note 19)
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
Other operating expenses

Total other operating expenses

2016 
US$000

2015 
US$000

831
400
24
– 

1,255

762
– 
16
2,104

2,882

2016 
US$000

2015 
US$000

9,869
1,180
17
1,608
318
1,082
600
2,001

16,675

120
1,916
1,698
832
172
397
521
2,514

8,170

10.2.1

10.2.2

10.2.1. Movement in ore stockpiles obsolescence provision
Stock-piled low grade ore at BG is tested for impairment annually. During 2016, the Company changed the technical project of BG and decreased 
the cut-off grade and the projected recovery rate. As a result, a portion of ore stockpiles in the amount of US$9.9 million was written down in 2016 
(2015: US$0.1 million).

10.2.2. Individual impairment of property, plant and equipment 
The recoverable amount of some non-current assets determined as at 31 December 2016 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.

11.   Foreign exchange gains and losses
The total amount of foreign exchange gain for the year ended 31 December 2016 was US$1.9 million (2015: loss of US$4.3 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
12.1. Finance income 

Bonds fair value movement (Note 29)
Bank interest
Other finance income

Total finance income 

12.2. Finance costs

Accretion expense on site restoration provision (Note 25)
Interest expense on bank loans
Bonds fair value movement (Note 29)
Interest expense on finance lease

Total finance costs 

48

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

2016 
US$000

2015 
US$000

–
138
7

145

1,246
75
10

1,331

2016 
US$000

2015 
US$000

1,674
2,247
1,013
253

5,187

2,117
3,297
– 
115

5,529

13.   Income tax
The major components of income tax expense for the years ended 31 December 2016 and 2015 are:

Consolidated statement of comprehensive income
Current income tax:
Current income tax charge
Withholding tax
Adjustments in respect of prior year tax
Adjustments in respect of prior year withholding tax

Deferred income tax:
Relating to origination of temporary differences

Income tax expense reported in the statement of comprehensive income

2016 
US$000

2015 
US$000

36,596
3,135
– 
– 

39,731

(21,412)

18,319

15,867
– 
804
738

17,409

6,504

23,913

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 years ended 31 December 2016 and 2015 is as follows:

Accounting profit before income tax 

At Russian statutory income tax rate of 20% 
Non-deductible expenses
Effect of translation of tax base denominated in foreign currency
Adjustments in respect of prior year tax
Adjustments in respect of prior year withholding tax
Withholding tax
Lower tax rates on overseas losses
Unrecognised losses
Loss/(gain) from other unrecognised temporary differences
Losses arising from goodwill impairment

Income tax expense at the effective tax rate of 28% (2015: 172%)

Income tax expense reported in the consolidated statement of comprehensive income

Deferred income tax
Deferred income tax at 31 December relates to the following:

2016 
US$000

66,228

13,247
4,679
(8,254)
– 
– 
3,135
6,575
(3,904)
328
2,513

18,319

18,319

2015 
US$000

13,894

2,779
2,748
8,758
804
738
– 
3,218
1,305
212
3,351

23,913

23,913

Consolidated statement  
of financial position

Consolidated statement  
of comprehensive income

2016
US$000

2015
US$000

2016
US$000

2015
US$000

Deferred income tax liability
Property, plant and equipment
Inventory
Accounts receivable and other debtors
Deferred financing costs

Deferred income tax assets
Accounts receivable and other debtors
Finance lease obligations
Trade accounts and notes payable
Tax losses

(138,754)
(3,377)
(993)
(83)

(143,207)

212
334
1,290
27,326

29,162

(146,570)
(9,384)
(710)
(25)

(156,689)

(60)
212
772
20,308

21,232

(7,816)
(6,007)
283
58

(13,482)

(272)
(122)
(518)
(7,018)

(7,930)

Net deferred income tax liabilities

(114,045) 

(135,457)

(21,412)

4,299
(496)
(93)
(33)

3,677

724
(212)
321
1,994

2,827

6,504

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

49

Accounts 
 
 
 
 
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

13.   Income tax continued
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 2016 is US$17.2 million (31 December 2015: US$15.3 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 2016 is US$15.6 million (31 December 2015: US$15.9 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 
2016 is US$21.7 million (31 December 2015: US$32.5 million). The non-recognition of tax losses is due to insufficient expected future income against 
which these losses could be offset.

Russian tax legislation in respect of treating tax losses was changed in 2016: tax losses generated after 2007 can be utilised with no time limit.

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$486.9 million (2015: US$298.2 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 not probable that the temporary 
differences will reverse in the foreseeable future.

The total deferred tax liabilities arising from these temporary differences should be between US$0 and US$73.0 million (2015: US$0 and  
US$14.9 million), depending on the manner in which the investments are ultimately realised.

Profits arising in the Company for the 2016 and 2015 years of assessment will be subject to Jersey tax at the standard corporate income tax  
rate of 0%.

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 2016 (2015: 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 

2016 
US$000

47,235

2015 
US$000

(10,316)

Thousands

Thousands

325,222

325,222

There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date  
of completion of these financial statements.

50

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

 
15.   Mine properties, exploration and evaluation assets, and property, plant and equipment
Reconciliation of fixed assets on period-by-period basis for the period ending 31 December 2016

Exploration 
and evaluation 
assets
US$000

Mine 
assets
US$000

Stripping 
activity assets
US$000

Freehold 
building
US$000

Plant and 
equipment*
US$000

Construction 
in progress
US$000

Total
US$000

Cost
At 31 December 2015

Additions
Transfers
Write-off**
Disposals
Capitalised depreciation 
Capitalised interest***
Change in estimation –  

site restoration asset****

323,117 

10,437 
(253,554)
–
– 
171 
5,288 

460,703 

16,636 
259,824 
(10,497)
(64)
6,888 
4,336 

17,225 

205,277 

218,437 

67,343 

1,292,102 

5,884 
– 
(1,804)
– 
333 
– 

– 
10,337 
(1,076)
– 
– 
– 

1,427 
16,470 
(6,791)
(352)
– 
– 

31,734 
(33,880)
(417)
(1,762)
979 
– 

66,118 
(803)
(20,585)
(2,178)
8,371 
9,624 

– 

(484)

– 

– 

– 

– 

(484)

At 31 December 2016

85,459 

737,342 

21,638 

214,538 

229,191 

63,997 

1,352,165 

Depreciation and impairment
At 31 December 2015

Provided during the year
Transfers
Write-off**
Impairment of property,  
plant and equipment  
and mine assets

Disposals
Capitalised depreciation
Reclass to inventory
BG Impairment
At 31 December 2016

Net book value:

At 31 December 2015

At 31 December 2016

14,016 

–
(14,016)
–

–
–
–
–
–
–

309,101 

85,459 

151,128 

23,618 
14,016 
(10,492)

17 
(62)
762 
–
1,478
180,465 

309,575 

556,877 

8,732 

3,180 
–
(1,804)

–
–
–
–
645
10,753 

8,493 

10,885 

65,935 

11,624 
(306)
(868)

–
–
2,927 
327 
4,594 
84,223 

139,342 

130,315 

102,565 

21,790 
(497)
(6,142)

–
(304)
4,682 
1,366 
3,401 
126,860 

115,872 

102,330 

1,571 

–
–
(99)

–
–
–
–
151 
1,623 

65,772 

62,374 

343,947 

60,212 
(803)
(19,405)

17 
(366)
8,371 
1,683 
10,269 
403,925 

948,155 

948,240 

*   Net book value of plant and equipment in the amount of US$2.9 million at 31 December 2016 relates to assets under finance lease at MNV and Novo: cost of US$4.3 million less 

accumulated depreciation of US$1.4 million.

**   Write-off for 2016 in the amount of US$1.2 million relates to retirement of old inefficient equipment and some buildings.
***  Capitalised interest for 2016 includes US$9.6 million of borrowing costs capitalised at Kekura at interest rates between 3.9% and 5.2%.

No plant and equipment has been pledged as security for bank loans in 2016.

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

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

51

Accounts 
 
 
 
 
 
 
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

15.   Mine properties, exploration and evaluation assets, and property, plant and equipment continued
Reconciliation of fixed assets on period-by-period basis for the period ending 31 December 2015

Exploration 
and evaluation 
assets
US$000

Mine  
assets
US$000

Stripping 
activity assets
US$000

Freehold 
building
US$000

Plant and 
equipment*
US$000

Construction 
in progress
US$000

Total
US$000

Cost
At 31 December 2014

Additions
Transfers
Write-off**
Disposals
Capitalised depreciation 
Capitalised interest***
Change in estimation –  

site restoration asset****

296,739 

438,385 

9,526 
(833)
– 
– 
5,326 
12,359 

6,892 
14,746 
(140)
(72)
732 
– 

36,032 

9,399 
– 
(28,206)
– 
– 
– 

– 

160 

– 

202,881 

204,545 

77,835 

1,256,417 

– 
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 

At 31 December 2015

323,117 

460,703 

17,225 

205,277 

218,437 

67,343 

1,292,102 

Depreciation and impairment
At 31 December 2014

Provided during the year
Transfers
Write-off**
Impairment of property,  
plant and equipment

Disposals
Capitalised depreciation
Change in estimation –  

site restoration asset****

Reclass to inventory
Kekura Impairment

At 31 December 2015

Net book value:
At 31 December 2014

At 31 December 2015

– 

– 
– 
– 

– 
– 
– 

– 
– 
14,016 

14,016 

296,739 

309,101 

124,372 

25,068 
1,971 
(117)

– 
(70)
76 

(172)
– 
– 

28,638 

8,300 
– 
(28,206)

– 
– 
– 

– 
– 
– 

43,209 

14,891 
(441)
(112)

1,565 
(7)
3,953 

– 
305 
2,572 

82,013 

24,324 
(2,978)
(7,037)

4 
(216)
4,577 

– 
607 
1,271 

151,128 

8,732 

65,935 

102,565 

573 

– 
– 
(500)

129 
– 
– 

– 
– 
1,369 

1,571 

314,013 

309,575 

7,394 

8,493 

159,672 

139,342 

122,532 

115,872 

77,262 

65,772 

278,805 

72,583 
(1,448)
(35,972)

1,698 
(293)
8,606 

(172)
912 
19,228 

343,947 

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 25) which exceeded the corresponding net book value in fixed assets by US$2.1 million. This excess was 

recognised in other operating income.

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

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

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

Operating expenses
Net cash from operating activities
Net cash used in investing activities

52

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

2016 
US$000

(515)
–
11,848

2015 
US$000

(1,113)
–
15,107

16.   Intangible assets
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 2016 intangible assets represented goodwill arising from the Barrick transaction (US$65.2 million), US$12.6 million of which 
relating to Belaya Gora was impaired in 2016, and from the acquisition of Novo (US$5.1 million). 

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 (Taseevskoye, Unkurtash and Lubov)

Balance at 31 December 

2016
US$000

9,690
–
5,134
42,978

57,802

2015
US$000

9,690
12,563
5,134
42,978

70,365

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 2016 and 2015 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 until 2022;
•  BG – 2026;
•  Novo – 2029;
•  Klen – 2029;
•  Kekura – 2030;
•  Taseevskoye – 2029;
•  Unkurtash – 2037;
•  Lubov – 2028.

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. 

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

53

AccountsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

17.   Impairment testing of non-current assets continued
The table below shows the key assumptions used in the fair value calculation at 31 December 2016 and 2015.

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

2016

7.25
8.25
7.25
9.25
9.25
9.25
9.25
9.25
1,200
1,250
16
1,800
2,200

2015

7.54
8.54
7.54
9.54
9.54
9.54
9.54
9.54
1,050
1,150
15
1,700
1,700

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

Goodwill
Exploration and evaluation assets
Mine assets
Stripping activity assets
Buildings
Property, plant and equipment
Construction in progress

Total impairment losses 

2016
US$000

2015
US$000

12,563
–
1,478
645
4,594
3,401
151

22,832

16,754
14,016
–
– 
2,572
1,271
1,369

35,982

An impairment loss was recognised in 2016 in relation to the Belaya Gora project. The triggers for the impairment loss recognition were primarily 
the effect of changes to the mine plan which resulted in lower recovery rate and higher future capital expenditure accompanied by higher costs  
due to a stronger Rouble. 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, mine assets, stripping activity assets, buildings, property, plant and equipment and construction  
in progress exceeded their recoverable amounts. The carrying amount of goodwill allocated to Belaya Gora has been reduced to Nil via the 
recognition of an impairment loss of US$12.6 million during the year ended 31 December 2016. US$10.2 million was recognised as an impairment  
loss in respect of other non-current assets. 

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 increase in the post-tax discount rate, any decrease in gold prices below US$1,200 per ounce in 2017 or any increase in operating or capital 
costs at Belaya Gora would result in a further impairment of mine properties and property, plant and equipment.

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

54

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

18.   Other non-current assets

Non-current prepayments*
Other non-current assets

Total other non-current assets

2016 
US$000

2015 
US$000

3,868
283

4,151

3,517
328

3,845

*  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.

19.   Inventories
Non-current*

Ore stockpiles
Ore stockpile obsolescence provision

Total inventories

*  The portion of the ore stockpiles that is to be processed in more than 12 months from the reporting date is classified as non-current inventory.

Current

Raw materials and consumables
Ore stockpiles
Gold in progress
Finished goods

Raw materials and consumables obsolescence provision
Ore stockpile obsolescence provision**

Total inventories

2016 
US$000

12,839
(3,850)

8,989

2015 
US$000

21,101
(4,729)

16,372

2016 
US$000

2015 
US$000

51,146
21,223
5,625
684

78,678

(11,789)
(10,749)

56,140

66,195
6,661
5,195
896

78,947

(11,189)
–

67,758

Movement in raw materials and consumables obsolescence provision amounted to US$0.6 million in 2016 (2015: US$0.5 million). No inventory  
has been pledged as security.

**  Stockpiled low-grade ore at BG is tested for impairment semi-annually. Movement in ore stockpile obsolescence provision amounted to US$9.9 million in 2016  

(2015: US$0.1 million).

20.   Trade and other receivables

VAT receivable
Other taxes receivable
Related party receivables (Note 27)
Trade receivables
Other receivables

2016 
US$000

2015 
US$000

16,056
1,188
6
12,917
2,129

32,296

15,563
454
35
13,480
1,656

31,188

The Group’s trade customers have no history of default. Other receivables are non-interest bearing and are generally on 30-90 days-term.

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

55

AccountsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

20.   Trade and other receivables continued
As at 31 December, VAT receivable was provided for as follows:

At 1 January
Additions/(utilisation)

At 31 December

2016 
US$000

2015 
US$000

20
5

25

45
(25)

20

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.

21.   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

22.   Issued capital and reserves
a)  Issued share capital

Authorised

Ordinary shares of £0.001 each

Ordinary shares issued and fully paid

At 31 December 2014
Ordinary shares issued

At 31 December 2015
Ordinary shares issued

At 31 December 2016

2016 
US$000

2015 
US$000

8,728
20

8,748

3,058
–

3,058

2016
Shares

2015
Shares

750,000,000

750,000,000

Shares

325,222,098
– 

325,222,098
– 

325,222,098

Amount
US$000

585
– 

585
– 

585

b) Nature and purpose of other reserves
Asset revaluation reserve
The asset revaluation reserve is used to record increases in the fair value of land and buildings and decreases to the extent that such decrease relates 
to an increase on the same asset previously recognised in equity. 

56

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

23.   Interest-bearing loans and borrowings

Effective interest rate 
%

Maturity

2016 
US$000

2015 
US$000

Current
Gazprombank loan(1)
Sberbank loan(2)
Gazprombank loan(3)
UniCredit loan(4)
Raiffaizen loan(6)
UniCredit loan(7)

Non-current
Gazprombank loan(1)
Gazprombank loan(3)
UniCredit loan(4)
Alfa-bank loan(5)
Raiffaizen loan(6)
UniCredit loan(7)

Total

4.8
4.2 
4.7
4.8
5.2
3.9

March 2017
September 2016
December 2018
December 2018
August 2019
October 2019

4.8 
4.7 (2015: 6.5)
4.8 (2015: 5.4)
4.5 (2015: 5.9)
5.2 
3.9

March 2017
December 2018
December 2018
December 2018
August 2019
October 2019

–
–
21,428
16,666
4,889
4,017

47,000

–
28,572
33,333
40,000
17,111
45,571

33,000
37,375
–
–
–
–

70,375

22,500
80,000
50,000
30,500
–
–

164,587

211,587

183,000

253,375

(1) The loan was repaid in October 2016.
(2) The loan was repaid in September 2016.
(3) In November 2015 the Group secured a revolving facility with Gazprombank at a 6.5% interest rate with the draw period set until 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 2016 is US$50.0 million (2015: US$80.0). The outstanding bank debt is subject to the 
following covenants: the ratio of total debt to EBITDA should be equal to or lower than 4.0 and the deficit of liquidity cannot exceed 5% of the annual revenue.

(4) In December 2015 the Group raised financing with UniCredit bank at a LIBOR USD 1M + 5.0% interest rate with the draw period set until 17 January 2016. In 2016 the interest  
rate decreased to LIBOR USD 1M + 4.0%. The loan is repayable in instalments between July 2017 and December 2018. The drawn down payable balance obtained under the 
agreement at 31 December 2016 is US$50.0 million (2015: US$50.0). The outstanding bank debt is subject to the following covenants: the ratio of net debt to EBITDA should  
be equal to or lower than 3.5 and the Group EBITDA to interest expense ratio should be equal to or higher than 4.0.

(5) In April 2015 the Group raised financing with Alfa-bank with the draw period set until 31 December 2018. The interest rate is set for every instalment separately. The date of 

repayment was shifted to 31 December 2019. The drawn down payable balance obtained under the agreement at 31 December 2016 is US$40.0 million (2015: US$30.5 million). 
The outstanding bank debt is subject to the following covenant: the ratio of total net debt to EBITDA should be equal to or lower than 4.0.

(6) In August 2016 the Group raised financing with Raiffaizen bank at a LIBOR USD 1M + 4.4% interest rate with the draw period set until 23 September 2016. The loan is repayable 
in August 2019. The drawn down payable balance obtained under the agreement at 31 December 2016 is US$22.0 million (2015: Nil). The outstanding bank debt is subject to  
the following covenants: the ratio of total net debt to EBITDA should be equal to or lower than 4.0; the ratio of EBITDA to interest expense should be equal to or higher than 4.0;  
the ratio of total debt to Equity should be lower than 0.6.

(7) In October 2016 the Group raised financing with UniCredit bank at a 3.55% interest rate adjusted for the upfront fee amounting to 0.9% with the draw period set until 

20 November 2016. The loan is repayable October 2019. The drawn down payable balance obtained under the agreement at 31 December 2016 is US$49.6 million (2015: Nil).  
The outstanding bank debt is subject to the following covenants: the ratio of net debt to EBITDA should be equal to or lower than 3.5; the ratio of EBITDA to interest expenses 
should be equal to or higher than 4.0.

The total outstanding bank debt of the Group at 31 December 2016 is US$211.6 million (2015: US$253.4 million). There were no covenant breaches 
as at 31 December 2016 (2015: none).

24.   Trade and other payables
Non-current

Pension liabilities

2016 
US$000

2015 
US$000

254

254

223

223

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

57

AccountsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

24.   Trade and other payables continued
Current

Contingent consideration liability
Trade payables
Salaries payable
Other taxes payable
Other current payables

2016 
US$000

2015 
US$000

–
6,126
7,403
3,691
413

17,633

400
10,366
5,814
3,166
455

20,201

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 3.

25.   Provisions

At 31 December 2014
Accretion
Utilisation of provision
Effect of changes in the discount and inflation rates
Effect of changes in estimated costs
Effect of exchange rate changes

At 31 December 2015
Accretion
Utilisation of provision
Effect of changes in the discount and inflation rates
Effect of changes in estimated costs
Effect of exchange rate changes 

At 31 December 2016

Site 
restoration 
provision 
US$000

15,699
2,117
(18)
1,613
2,599
(5,984)

16,026
1,674
(17)
(4,992)
(95)
4,603

17,199

Site restoration provision
In 2016 the Group performed a re-assessment of the site restoration provision at MNV, Novo, BG, Kekura and Klen. 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 2022, 2029, 2026, 2030 and 2029 respectively), with site restoration activities expected to be carried out in 2022, 2029, 2026, 2029 and 2029 
(removal of waste, restoration of mine sites).

Current prices for similar activities and risk-free RUR-denominated government bonds discount rate of 9.3% (2015: 10.2%) has been used to calculate 
the site restoration liability at MNV assuming its closure in 2022.

A risk-free RUR-denominated government bonds discount rate of 10.1% (2015: RUR-denominated government bonds rate of 11.5%) 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 8.4% (2015: RUR-denominated government bonds rate of 9.7%) has been used  
to calculate the site restoration liability at BG assuming its closure in 2026. 

A risk-free RUR-denominated government bonds discount rate of 10.1% (2015: RUR-denominated government bonds rate of 11.9%) has been used 
to calculate the site restoration liability at Klen and Kekura assuming site closure in 2029.

The increase in site restoration liability in the amount of US$4.6 million was due to appreciation of RUR against USD in 2016 (2015: decrease  
of US$6.0 million).

The total change in estimation of site restoration liability amounts to US$0.5 million in 2016 (2015: US$1.8 million).

58

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

26.   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 2016 was US$0.9 million  
(2015: US$0.8 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

2016 
US$000

2015 
US$000

892
231

1,122

935
1,209

2,144

Capital commitments
At 31 December 2016 the Group had commitments of US$15.1 million (2015: US$5.8 million) principally relating to development assets and  
US$1.0 million (2015: US$1.9 million) for the acquisition of new machinery.

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:

Within one year
After one year but not more than five years

Total minimum lease payments

Less amounts representing finance charges

Present value of minimum lease payments

Minimum payments

Present value of payments

2016 
US$000

2015 
US$000

2016 
US$000

2015 
US$000

1,037
1,589

2,626

(236)

2,390

917
1,735

2,652

(400)

2,252

1,090
1,300

2,390

–

2,390

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$2.1 million as at 
31 December 2016 (at 31 December 2015: US$2.3 million). In management’s view these possible tax claims will likely not result in a future  
outflow of resources, consequently no provision is required in respect of these matters.

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

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.

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

59

Accounts 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

27.   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

Subsidiary undertakings
Held by the ultimate parent
Stanmix Holding Limited
Highland Exploration Kyrgyzstan LLC (Unkurtash)
Held indirectly via subsidiaries
AO Mnogovershinnoye (MNV)
OAO Novo-Shirokinsky Rudnik (Novo)
OOO Belaya Gora (BG)
OOO Lubavinskoye (Lubov)
OOO Taseevskoye
OOO Klen
ZAO Bazovye Metally (Kekura)
OOO Russdragmet (RDM)
OOO BSC
OOO Zabaykalzolotoproyekt (ZZP)
OOO RDM-Resources – until 11 November 2014

Country of 
incorporation

Effective 
shareholding
%

Cyprus
Kyrgyzstan

Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia

100
100

100
99.13*
100
100
100
100
100
100
100
100
100

*  Direct shareholding in OJSC Novo-Shirokinsky Rudnik is 99.0%. In 2016 OJSC Novo-Shirokinsky Rudnik acquired treasury stock equal to 0.13% of outstanding shares for  

cash consideration of US$0.1 million, which resulted in a decrease in non-controlling interest of US$0.4 million. Effective control is therefore equivalent to a 99.13% 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. In November 2016, the persons behind Primerod International Limited reorganised and simplified their  
indirect holdings in the Company by exchanging their shares in Primerod for their pro rata shareholding in Highland Gold. These entities, and  
their shareholdings as of 31 December 2016, include: Primerod International Limited (8.00%), Denalot Worldwide Limited (9.99%), Erlinad Holdings 
Limited (4.52%), Matteson Overseas Limited (4.46%), New Evolution Trading Limited (2.10%), and Ms Irina Panchenko (2.00%, previously held via 
Frazar Worldwide Holdings). All of the above parties have agreed to be bound by the terms of the relationship agreement with Highland Gold entered 
into at the time of the original subscription by Primerod.

Eugene Shvidler, Executive Chairman of the Company, and persons connected with him owned 40,853,660 shares representing 12.56% of the total 
issued share capital of the Company as of 31 December 2016. Through his ownership of Matteson Overseas Limited, Non-Executive Director Valery 
Oyf controls 14,507,453 shares representing 4.46%of total issued share capital.

Prosperity Capital Management and affiliated entities held 13.79% of Highland Gold’s issued shares at 31 December 2016.

Terms and conditions of transactions with related parties
There were no related party transactions in 2016. 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 2016 (2015: Nil). There have been no guarantees provided or received for  
any related party receivables or payables. For the year ended 31 December 2016, the Group has not recorded any impairment of receivables relating 
to amounts owed by related parties (2015: 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.

Compensation of key management personnel of the Group

Short-term employee benefits

Total compensation paid to key management personnel

2016
US$000

5,223

5,223

2015
US$000

5,537

5,537

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
There is no share options plan. 

60

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

28.   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 2016 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 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 organized market (LME, London Metal Exchange; LBMA, 
London Bullion Market Association). A portion of the provisional invoice is settled within a few days (80%). The remaining amount (20%), 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 of metals adjustments resulting from the final assay is settled in 4 months after the date of the shipment for Kazzinc and is settled 
in 3 months from July 2016 to 22 December 2016 and in 4 months from 23 December 2016 after the date of the delivery for Hyosung. For Kazzinc 
the title to the commodity passes to the buyer on shipment and for Hyosung the title to the commodity passes to the buyer on delivery to boundary 
railway station – border of the Russian Federation – the People’s Republic of China. Pricing adjustment features that are based on quoted market 
prices for a date subsequent to the date of shipment or delivery of the commodity represent a derivative financial instrument once the commodity 
has been delivered. The derivative has a fair value, based on the pricing formula set out in the contract, which is based on quoted market prices.

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

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

2015

2016

Increase/
decrease in 
RUR rate

Effect on 
profit before 
tax 
US$000

Increase/
decrease in 
GBP rate

Effect on 
profit before 
tax 
US$000

10%
-10%

10%
-10%

758
(758)

496
(496)

5%
-5%

5%
-5%

1,106
(1,106)

208
(208)

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 immediately after the sale. Therefore, there are no trade receivables associated with the gold trade.

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 23 for the information on the financial covenants the Group is bound by.

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

61

Accounts 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

28.   Financial risk management objectives and policies continued
Liquidity risk continued
The table below summarises the maturity profile of the Group’s financial liabilities at 31 December 2015 and 31 December 2016 based  
on contractual undiscounted payments. 

Year ended 31 December 2015

Interest bearing loans and borrowings
Trade and other payables
Liability under finance lease
Contingent consideration liability

Year ended 31 December 2016

Interest bearing loans and borrowings
Trade and other payables
Liability under finance lease
Contingent consideration liability

On demand 
US$000

– 
– 
– 
– 

– 

On demand 
US$000

–
–
– 
– 

– 

< 1 year 
US$000

112,139
16,327
917
400

129,783

< 1 year 
US$000

60,819
13,726
1,037
– 

75,582

1-2 years 
US$000

2-5 years 
US$000

> 5 years 
US$000

94,444
– 
852
– 

95,296

66,608
– 
883
– 

67,491

– 
– 

– 

– 

1-2 years 
US$000

2-5 years 
US$000

> 5 years 
US$000

136,622
–
735
–

137,358

28,656
–
853
–

29,509

– 
–

–

– 

Total 
US$000

273,191
16,327
2,652
400

292,570

Total 
US$000

226,097
13,726
2,626
– 

242,448

Interest bearing loans and borrowings for the year ended 31 December 2016 with maturity of less than 1 year include revolving facilities secured 
with Alfa-bank: the amount of US$5.0 million outstanding at 31 December 2016 has been presented as non-current liabilities in the consolidated 
statement of financial position. Refer to Note 23 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 23. 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 2016 the Group has outstanding bank debt in the amount of US$211.6 million (2015: US$253.4 million). 

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

Increase/
decrease in 
prices, %

Effect on derivative

2016 
US$000

2015 
US$000

5%
-5%
5%
-5%
5%
-5%
5%
-5%

86
(86)
34
(34)
263
(263)
68
(68)

133
(133)
25
(25)
304
(304)
124
(124)

Lead

Zinc

Gold

Silver

62

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

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

current liabilities approximate their fair value.

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

Coupon bonds
During 2016 all bonds were sold and as a result of selling the Group received US$20.1 million (2015: US$24.3 million) and no coupon interest  
(2015: US$2.5 million). 

The bonds were 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 sets out movement in fair value of the bonds.

At 1 January
Fair value gain
Foreign exchange loss
Coupon interest income accrued

Bonds fair value movement

Coupon interest income received
Bonds sold
Bonds purchased

At 31 December 

2016 
US$000

2015 
US$000

21,150
(562)
(1,189)
738

(1,013)

–
(20,136)
–

–

42,957
14
(1,271)
2,503

1,246

(2,534)
(24,337)
3,818

21,150

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.

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

63

AccountsNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

29.   Financial assets and liabilities continued
Assets measured at fair value

Coupon bonds
Trade receivables (embedded derivative)

31 Dec 2015
US$000

21,150
1,261

Level 1
US$000

21,150
–

Level 2
US$000

–
1,261

In 2016, concentrate sales include a zero fair value movement (2015: a positive fair value movement of US$1.3 million) relating to an  
embedded derivative.

30.   Dividends
The Group paid an interim dividend of GBP 0.050 per share (2015: an interim dividend of GBP 0.020 per share) which resulted in an aggregate 
interim dividend payment of US$19.8 million (2015: US$10.0 million). The interim dividend was paid on 13 October 2016. 

The final dividend for the year ending 31 December 2015 in the amount of US$11.9 million was paid on 19 May 2016.

The Board has recommended a final dividend of GBP 0.054 per share which, taking into account the interim dividend paid in October 2016,  
gives a total dividend of GBP 0.104 per share for the year (2015: GBP 0.045 per share). The final dividend will be paid on 19 May 2017  
to shareholders on the register at the close of business on 21 April 2017 (the record date). The ex-dividend date will be 20 April 2017.

31.   Events after the reporting period
In March 2017, the Group signed a new long-term credit facility agreement with Gazprombank, with an overall limit of US$100.0 million,  
thereby providing an extension of the final maturity until March 2020.

64

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

 
MINERAL RESOURCES AS AT 31 DECEMBER 2016, REPORTED IN 
ACCORDANCE WITH JORC

Project Name 

Classification 

Ore, tonnes

Gold, g/t

Contained 
gold, ounces

Highland’s 
interest (%)

Gold ounces 
attributable 
to Highland

MNOGOVERSHINNOYE

Measured 

Indicated 

Measured +Indicated 

TASEEVSKOYE

UNKURTASH

Inferred 

Total

Indicated 

Inferred 

Total

Measured 

Indicated 

Measured +Indicated 

Inferred 

Total

NOVOSHIROKINSKOYE 

Measured 

BELAYA GORA 

KLEN

KEKURA

LYUBAVINSKOYE

TOTAL

Indicated 

Measured +Indicated 

Inferred 

Total

Measured 

Indicated 

Measured +Indicated 

Inferred 

Total

Indicated 

Inferred 

Total

Indicated 

Inferred 

Total

Measured 

Indicated 

Measured +Indicated 

Inferred 

Total

Measured 

Indicated 

Measured +Indicated 

Inferred 

Total

5,457,493

3,346,329

8,803,822

5,841,167

14,644,989

25,785,000

5,278,000

31,063,000

21,024,000

32,870,000

53,894,000

12,291,000

66,185,000

1,434,270

2,742,337

4,176,607

1,510,303

5,686,910

3,612,418

2,896,443

6,508,861

2,704,511

9,213,372

2,850,000

1,020,000

3,870,000

7,412,000

3,266,000

10,678,000

1,304,990

9,802,700

11,107,690

139,540

11,247,230

32,833,171

87,704,809

120,537,980

32,050,521

152,588,501

3.8

2.9

3.4

3.3

3.4

4.9

6.1

5.1

1.7

1.8

1.8

1.7

1.7

8.7

8.3

8.5

5.1

7.6

2.3

2.4

2.3

2.2

2.3

5.8

2.9

5.0

8.6

4.9

7.5

1.5

1.3

1.3

1.8

1.3

2.4

3.6

3.3

3.3

3.3

662,091

308,523

970,615

627,214

1,597,830

4,057,587

1,030,766

5,088,353

1,179,836

1,860,917

3,040,753

656,004

3,696,757

400,553

735,558

1,136,111

246,981

1,383,092

266,009

221,187

487,196

192,167

679,363

530,809

96,452

627,261

2,059,311

512,786

2,572,097

62,758

413,330

476,088

8,198

484,287

2,571,247

10,187,222

12,758,470

3,370,568

16,129,038

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

99.0%

99.0%

99.0%

99.0%

99.0%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

662,091

308,523

970,615

627,214

1,597,830

4,057,587

1,030,766

5,088,353

1,179,836

1,860,917

3,040,753

656,004

3,696,757

396,547

728,202

1,124,750

244,511

1,369,261

266,009

221,187

487,196

192,167

679,363

530,809

96,452

627,261

2,059,311

512,786

2,572,097

62,758

413,330

476,088

8,198

484,287

2,567,242

10,179,867

12,747,108

3,368,098

16,115,207

1.   MNV, Taseevskoye, Belaya Gora, Unkurtash, Klen and Lyubavinskoye resource estimations do not include a silver assessment.
2.   MNV, Novoshirokinskoye, Belaya Gora and Kekura Mineral Resources are inclusive of Mineral Reserves. 

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

65

MINERAL RESOURCES AS AT 31 DECEMBER 2016, REPORTED IN 
ACCORDANCE WITH JORC CONTINUED

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 are diluted and based upon a gold price of US$1,488 per ounce. Resources were evaluated with specific cutoff grade > 1.0 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 was confirmed by Micon International, 2012.
Resource estimate for Kekura was confirmed by Wardell Armstrong International (WAI), 2016.

5.   The Novoshirokinskoye resource estimate is performed for gold equivalent calculated as follows: Pb*0.510496+Zn*0.430005+Ag*0.01723 (WAI coefficients).
6.  Mineral resources at MNV, Novo and Belaya Gora have been estimated in accordance with JORC guidelines and include adjustments that have been made to reconcile  

the resources with annual production.

RESERVES AS AT 31 DECEMBER 2016, REPORTED IN ACCORDANCE 
WITH JORC

Project Name 

Classification

Ore, tonnes

Gold, g/t

Contained 
gold, ounces

Highland’s 
interest (%)

Gold Ounces 
attributable 
to Highland

MNOGOVERSHINNOYE

NOVOSHIROKINSKOYE 

BELAYA GORA 

KEKURA 

TOTAL

Proven

Probable

Proven + Probable

Proven

Probable

Proven + Probable

Proven

Probable

Proven + Probable

Proven

Probable

Proven + Probable

Proven

Probable

Proven + Probable

1,304,982

518,844

1,823,826

1,204,444

2,187,068

3,391,512

1,532,321

1,184,560

2,716,881

–

4,837,416

4,837,416

4,041,747

8,727,888

12,769,635

4.10

4.50

4.20

9.9

9.7

9.8

3.3

3.4

3.3

–

10.7

10.7

5.5

9.1

8.0

170,990

74,628

245,618

381,573

683,728

1,065,301

161,829

129,230

291,060

–

1,668,799

1,668,799

714,392

2,556,385

3,270,777

100%

100%

100%

99.0%

99.0%

99.0%

100%

100%

100%

–

100%

100%

170,990

74,628

245,618

377,757

676,891

1,054,648

161,829

129,230

291,060

–

1,668,799

1,668,799

710,576

2,549,548

3,260,124

–  MNV and BG reserves estimate does not include a silver assessment.
–  Novo reserves are calculated for Au equivalent and include Pb, Zn and Ag assessment.
–  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 for underground mining and 1.36 g/t for open cut.
–  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.
–  The Belaya Gora values shown are based upon a gold price of $ 850 per ounce and marginal cut-off 1.06 g/t.
–  Kekura Mineable Reserves are diluted and based upon a gold price of US$ 1,150 per ounce and marginal cut-off 2.2 g/t for open cut and 4.2 g/t for underground mining.
–  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.

The Company is in the process of producing updated mineral reserve estimates for all of its key operating mines and development projects to better 
reflect the latest geological data for each site and, in some cases, following the conversion of resources to reserves through additional exploration. 
This process includes new JORC reserve estimates for MNV, Novo, Belaya Gora, Kekura, and Blagodatnoye. Results are expected over the course  
of 2017 and will be released accordingly.

66

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

 
 
 
 
 
 
 
 
 
 
 
 
GROUP COMPANIES

100%

HIGHLAND
EXPLORATION LLC

HIGHLAND GOLD 
MINING LIMITED

100%

STANMIX HOLDING
LIMITED

100%

100%

100%

100%

100%

99%*

100%

100%

100%

100%

BSC

MNGOVERSHINNOYE
(MNV)

RDM

TASEEVSKOYE

NOVO-SHIROKINSKY RUDNIK 

LUBAVINSKOYE

KLEN

BAZOVIYE METALLY

BELAYA GORA

ZABAYKAL- 
ZOLOTOPROYEKT

*   Direct shareholding in OJSC Novo-Shirokinsky Rudnik is 99%. In 2016 OJSC Novo-Shirokinsky Rudnik acquired treasury stock equal to 0.1% of outstanding shares,  

which resulted in a decrease in non-controlling interest. Effective control is therefore equivalent to a 99.1% shareholding in the enterprise. There are no restrictions imposed  
by non-controlling interest on our ability to use assets and settle liabilities of Novo.

PRINCIPAL GROUP COMPANIES AS OF 31.12.2016

Highland Gold Mining Limited holds the equity share capital of the following companies:

Name

Stanmix Holding Limited
Highland Exploration LLC

%

100
100

Country of 
incorporation

Cyprus
Kyrgyzstan

Stanmix Holding Limited holds the equity share capital of the following companies:

Principal activity and place of business

Holding Company, Cyprus
Holder of Unkurtash and Kassan licences

Name

Russdragmet (RDM) (OOO)
Mnogovershinnoye (MNV) (AO)
Taseevskoye (OOO)
Zabaykalzolotoproyekt (OOO)
Novo-Shirokinsky Rudnik (Novo) (AO)
Belaya Gora (OOO)
Lubavinskoye (OOO)
Klen (OOO)
BSC (OOO)
Bazoviye metally (ZAO)

%

100
100
100
100
99
100
100
100
100
100

Country of 
incorporation

Principal activity and place of business

Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia

Management company
Holder of MNV and Blagodatnoye licences
Holder of Taseevskoye, ZIF-1 and Sredne-Golgotayskoye licences
Project engineering, Russia
Holder of Novo licence
Holder of Belaya Gora licence
Holder of Lubavinskoye licence
Holder of Klen licence
Service company, Russia, ChAO
Holder of Stadukhinsky Area licence

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

67

NOTICE OF ANNUAL GENERAL MEETING

HIGHLAND GOLD MINING LIMITED (the “Company”)
(Incorporated and Registered in Jersey under the Companies (Jersey) Law 1991, as amended, with registered number 83208)

NOTICE OF ANNUAL GENERAL MEETING
Notice is hereby given that the Annual General Meeting of Highland Gold Mining Limited (the Company) will be held on Wednesday 17 May, 2017 
at 26 New Street, St Helier, Jersey JE2 3RA at 11.00 am to consider and if thought fit, pass the following ordinary resolutions and special resolution; 

Ordinary Business (ordinary resolutions)
1.  To receive and adopt the Report of the Directors, the Audited Financial Statements and Auditor’s report for the year ended 31 December 2016.
2.  That a final dividend of £0.054 for each ordinary share of £0.001 in the Company be declared.
3.  That Duncan Baxter who retires by rotation as a Director of the Company be re-elected as a Director of the Company.
4.  That Valery Oyf who retires by rotation as a Director of the Company be re-elected as a Director of the Company.
5.  That John Mann who retires by rotation as a Director of the Company be re-elected as a Director of the Company.
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 Auditor’s remuneration.

Special Business (special resolution)
8.  That the Directors be and they are hereby generally and unconditionally authorised to allot, grant options or warrants over, offer or otherwise 
deal with up to 33% of the authorised but unissued share capital of the Company at the date of the passing of this resolution to such persons  
at such times and on such terms as they think proper without first making an offer to each person who holds ordinary shares in the Company, 
such authority to expire at the conclusion of the annual general meeting of the Company in 2020, save that the Directors may, notwithstanding 
such expiry, allot any ordinary shares or grant such rights under this authority in pursuance of any offer or agreement to do so made by the 
Company before the expiry of this authority.

By Order of the Board
28 April 2017

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 close of business 24 hours prior to the date of the meeting (or, in the cause of an adjournment, 
as at close of business 24 hours before the date 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.

68

Highland Gold Mining Limited  |  Annual Report and Accounts 2016

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

*   

 Chairman of the Nomination  
and Remuneration Committee; 
 Chairman of the Health, Safety  
and Environment Committee; 
***   Chairman of the Audit Committee

**  

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

DIRECTORS, COMPANY SECRETARY AND ADVISERS

CURRENT DIRECTORS 
Eugene Shvidler
Executive Chairman

Terry Robinson
Non-Executive Director***
Senior Independent Director

Duncan Baxter
Non-Executive Director*

Colin Belshaw
Non-Executive Director

John Mann
Executive Director
Head of Communications

Olga Pokrovskaya 
Non-Executive Director**

Valery Oyf
Non-Executive Director
(appointed 15 January 2016)
(previously Chief Executive Officer  
and Director)

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

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

SOLICITORS TO THE COMPANY 
as to Russian Law
PricewaterhouseCoopers
Kosmodamianskaya Nab. 52 Bld. 5, 
115054 Moscow, Russia

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

COMPANY SECRETARY
Ocorian 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

FINANCIAL CALENDAR 
Ex-Dividend Date:
20 April 2017

Record Date:
21 April 2017

Post 2016 Annual Report:
28 April 2017

Annual General Meeting:
17 May 2017

Dividend Payment Date:
19 May 2017

Listing Sector/Ticker Reuters:
HGM.L

Number of Shares in Issue:
325,222,098

 
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26 NEW STREET
ST. HELIER,  
JERSEY JE2 3RA 

HIGHLANDGOLD.COM