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TORONTO, ONTARIO--(CCNMatthews - May 16, 2005) - (All currency figures are in Canadian dollars unless otherwise noted)
High River Gold Mines Ltd. (TSX:HRG)("High River" or the "Company") today reported its financial results and operational highlights for the first quarter of 2005. The Consolidated Financial Statements and related Notes along with the Management's Discussion and Analysis have been filed with SEDAR (www.sedar.com) and can be viewed on the Company's website at http://www.hrg.ca.
Highlights for the First Quarter of 2005
- Attributable gold production of 30,542 ounces at a total cash cost of US $274 per ounce
- Consolidated net loss of $0.9 million ($ 0.01 per share) after non-cash expenses of $2.5 million
- Operating cash flow of $4.5 million (before working capital changes)
- Received Russian regulatory approval for the acquisition of a further 30% interest in
OJSC Buryatzoloto
- Signed initial construction contract of US $8.1 million for Taparko-Bouroum gold project
- Signed an agreement to acquire a further 14% interest in Jilbey Gold Exploration Ltd.
- Acquired the prospective Novophirsovskoye Ore Field exploration and mining license in
Russia for US $5.1 million
- Placed the New Britannia Mine on care and maintenance
Subsequent Events
- Received approval for the exploitation permit of the Bouroum deposits
- Closed the share purchase agreement to acquire an additional 14% in Jilbey Gold Exploration Ltd.
High River met its production and cost estimates for the quarter and is on track to meet its annual target objective," said David Mosher, President and Chief Executive Officer. "During the quarter, we have made significant progress in the construction phase of our two gold projects, scheduled to start production in the first half of 2006. With the successful development of these projects, High River anticipates producing over 300,000 ounces of gold annually."
RESULTS OF OPERATIONS
The Company reported cash flow from operating activities before changes in non-cash working capital of $4.5 million for the first quarter of 2005 compared to $5.2 million for the corresponding period in 2004. The decrease was primarily a result of lower gold production due to the closure of the New Britannia Mine. Cash flow used in operations after changes in non-cash working capital was $1.1 million compared to a cash inflow of $3.1 million for the same quarter of 2004.
The net loss for the quarter was $930,000 ($0.01 per share) compared to net earnings of $1.2 million ($0.01 per share) during the corresponding quarter of 2004. With the Company's Russian operations continuing to perform according to plan, the loss in the first quarter of 2005 resulted primarily from non-cash accounting adjustments of $2.2 million: (1) a $860,000 final write-down of High River's residual investment in the New Britannia Mine as the future cash flow was determined to be nil, (2) a $589,000 mark-to-market decrease in the value of the put option contract entered into during the fourth quarter of 2004 for the project loan of Taparko-Bouroum, (3) a $372,000 for stock option expense, and (4) a $387,000 financing cost associated with the New Britannia venture obligation.
The Company's consolidated gold revenues for the first quarter of 2005 amounted to $19.6 million compared to $24.1 million for the same period of 2004. Although the Company realized a higher gold price on gold sales, the number of ounces sold decreased by 16%, from 45,050 ounces over the first quarter of 2004 to 37,295 ounces over the first quarter of 2005 as a result of the suspension of production at the New Britannia Mine in September 2004. The average gold price realized on sales was US $429 per ounce during the period, up from US $406 per ounce for the first quarter of 2004. The Company remains unhedged and continues to sell its gold production at spot prices.
Investing activities consumed $20.0 million of cash in the first quarter of 2005 compared to $8.4 million for the same period in 2004. The significant increase was due to the planned capital expenditures on the construction of the Taparko-Bouroum and Berezitovy projects, which amounted to $17.6 million for the quarter. The Company's investment in property, plant and equipment decreased to $1.7 million from $3.1 million as a result of a decrease in development expenditures at the Russian operations.
Working capital at March 31, 2005 amounted to $29.8 million, of which $21.6 million was in cash, compared to $42.7 million at the end of 2004, of which $40.7 million was in cash.
REVIEW OF OPERATIONS AND DEVELOPMENT PROJECTS
High River, through its Russian subsidiary OJSC Buryatzoloto ("Buryatzoloto"), is producing gold at the Zun-Holba and Irokinda underground mines, both located in southern Siberia, Russia. There was no production from the New Britannia Mine in the first quarter of 2005 as the mine was placed under care and maintenance in early January. With the Company's increased interest to 84.1% in Buryatzoloto (given effect in the accounts from January 1, 2005), the Company's attributable gold production increased to 30,542 ounces in the first quarter of 2005 from 25,604 ounces in the corresponding period of 2004 (with included 6,707 ounces from the New Britannia Mine).
Buryatzoloto Operations
Buryatzoloto continues to be profitable and achieved its production objectives for the first quarter of 2005 with 36,316 ounces of gold at an estimated total cash cost of approximately US $274 per ounce compared to 34,930 ounces of gold at a total cash cost of US $259 per ounce in the first quarter of 2004. The increased total cash cost reflects, in part, consumable price and labour wage increases as well as expanded stope preparation activities at the Irokinda Mine. Efforts are continuing on the implementation of procedures and processes to optimize the Buryatzoloto operations with the goal of increasing reserves and reducing operating costs.
Buryatzoloto Operational and Financial Data
Three Months Ending
March 31,
2005 2004
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Tonnes milled 123,692 121,366
Head grade (g/t) 9.55 9.50
Recovery (%) 94.4 94.3
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Gold production (oz) (100%) 36,316 34,930
High River share of production (oz) 30,542 18,897
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Direct mining cost (US $/oz) 243 233
By-product credits (US $/oz) - -
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Mine operating cost (US $/oz) 243 233
Royalty expense and production tax (US $/oz) 31 26
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Total cash cost (US $/oz) 274 259
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Zun-Holba Mine
The Zun-Holba Mine is an underground operation with a cyanidation and carbon-in-pulp (CIP) processing plant. In the first quarter of 2005, the mine produced 15,832 ounces of gold compared to 15,958 ounces of gold in the same period of 2004. The mill processed 53,356 tonnes of ore at an average grade of 9.6 g/t gold. In the first quarter of 2005, direct mining costs decreased to US $253 per ounce (total cash cost of US $283 per ounce) from US $268 per ounce (total cash cost of US $297 per ounce) in the same corresponding period of 2004. The decrease in operating cost in the first quarter was mainly due to a lower volume of mine development compared to the same period in 2004.
During the first quarter, approximately 48% of the tonnage mined was by undercut-and-fill, 41% by shrinkage stoping and the remainder using timber support. Fewer tonnes were processed than mined during the quarter due to repairs being made to the ball mill in one of the circuits.
Zun-Holba Operational Data
Three Months Ending
March 31,
2005 2004
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Tonnes mined 63,257 59,176
Tonnes milled 53,356 55,993
Head grade (g/t) 9.6 9.5
Recovery (%) 93.0 93.8
Gold production (oz) 15,832 15,958
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Irokinda Mine
The Irokinda Mine is an underground operation with a processing plant comprised of a conventional crushing grinding circuit followed by gravity separation and flotation of all ores. The gravity concentrate is refined to a dore on site while the flotation concentrate is dried and then transported to the CIP plant at Zun-Holba for further processing.
In the first quarter of 2005, Irokinda produced 20,484 ounces of gold, exceeding budget by 12%, compared to 18,973 ounces for the same period in 2004. The mill processed 70,336 tonnes of ore at an average grade of 9.5 g/t gold. During the period, direct mining costs increased to US $236 per ounce (total cash cost of US $267 per ounce) compared to direct mining costs of US $188 per ounce (total cash cost of US $215 per ounce) in 2004. The rise in operating costs was mainly the result of consumable price and labour wage increases as well as expanded stope preparations activities. Approximately 7,600 tonnes of lower grade material was sorted from the mined ore and stockpiled for processing at the seasonal circuit of the mill. This circuit starts to operate in May.
Irokinda Operational Data
Three Months Ending
March 31,
2005 2004
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Tonnes mined 82,459 69,248
Tonnes milled 70,336 65,373
Head grade (g/t) 9.5 9.5
Recovery (%) 95.5 94.6
Gold production (oz) 20,484 18,973
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New Britannia Mine
At New Britannia, High River and joint venture partner, Kinross Gold Corporation ("Kinross"), took the decision to suspend operations in September 2004 and placed the mine on care and maintenance in January 2005. Exploration efforts during the last half of 2004 were not successful in defining an extension of the ore body sufficient to support further mining. By the end of the first quarter of 2005, all salvageable underground equipment had been removed from the mine and moved to surface. Disposal of equipment has continued during the quarter with proceeds being utilized to fund closure activities.
High River has determined that the future cash flow to the Company from the mine is nil and accordingly has written down the carrying value of its residual investment amounting to $860,000.
Project Development
Berezitovy Project, Russia
Development work at Berezitovy during the first quarter of 2005 included site clearing and surface preparation for concrete foundation work to start in the second quarter of 2005; improvement and upgrading of access roads to the mine site; continued construction of the powerline, which is now 95% complete and scheduled to be energized in early June; final disassembly of the Mill 4 Gold Ore Processing Facility ("Mill 4") and shipment to the port of Everett, near Seattle, USA; start of construction of a 1600 KW diesel generator station for backup power; and continued detailed engineering by several Russian consulting firms. A large part of the cost-effective modular camp, purchased in Budapest Hungary, has arrived at the railway station of Skovorodino and will be assembled on site during the second quarter of this year.
The Company is continuing with the permitting process and advancing the due diligence work with the European Bank for Reconstruction and Development ("EBRD") for a project loan of US $32 million. Purchasing of mobile and construction equipment is 50% complete with some of the equipment already on site. The majority of the Mill 4 components is scheduled for shipping in May and expected to arrive on site in July.
In the past year, the mining industry as a whole has been facing increasing costs for consumables (fuel, reagents, etc.), mining equipment and maintenance parts (mainly due to the increase in the price of steel). In this regard, High River has mitigated many of these higher costs by purchasing quality second-hand equipment and maximizing its resources. The Company does not anticipate that its budgeted capital expenditures will increase by more than 10%, which were estimated at US $59 million (including VAT) in the June 2004 bankable feasibility study. As at March 31, 2005, the Company has spent approximately US $24.5 million on the development and construction of the project.
Taparko-Bouroum Project, Burkina Faso
The Company released a separate news release (May 11, 2005) on the development progress at the Taparko-Bouroum project. A summary of the press release is outlined below.
For the construction of the Taparko-Bouroum project, the Company's subsidiary in Burkina Faso, Somita SA ("Somita"), is finalizing its arrangements with Absa Corporate and Merchant Bank ("ABSA") for project financing. It is expected that the first drawdown under the US $36.0 million debt facility will occur in June 2005.
As part of the continuation of the construction of the project, Somita entered into a "soft start" construction contract of US $8.1 million with Metallurgical Design and Management (Pty) Ltd. ("MDM") of South Africa. Under this contract, MDM is proceeding with the detailed engineering, the construction of prefabricated modular camp infrastructure units, and the purchase of some long-lead items and equipment. This contract is expected to form part of a larger lump sum turnkey contract for the construction of plant and other facilities, which are to be financed substantially by project debt.
The selection and hiring of all senior personnel was completed in the first quarter of 2005. The Company is now proceeding with the selection and hiring of local equipment operators. Most of the mining equipment purchased is on site (e.g. trucks, shovel, bulldozer, and service vehicles). High River started the construction of the water reservoir in early April with completion expected in June. The pipeline material and pumps have been purchased and are scheduled to arrive by the end of May. Pumping from the Yalogo dam, located 9 kilometres from the project, to the project site water containment area is expected to start in July.
SRK Consulting (Canada) Inc. ("SRK) is currently finalizing an optimization study of the mine plan using a US$ 400 per ounce gold price and incorporating current prices for fuel, consumables and reagents to update the mine operating costs. The final report from SRK is expected in June; initial results from the study indicate:
- Higher gold production levels in the early years of the mining operation, starting at 100,000 oz in year 1 and ramping up to over 140,000 oz in years 3 and 4 of production
- 16% increase in mineral reserves to 826,500 oz
- Approximate 20% increase in operating costs
- Annual milling rate increase of 50% to 1.5 million tonnes with minimal investment
High River has been diligent and able to mitigate the upward pressure on capital expenditures by buying quality second-hand equipment and maximizing its resources. The Company purchased a second-hand ball mill from the Philippines, which is expected to arrive on site by mid-year. To mitigate the impact of rising fuel prices, High River has invested in new heavy fuel oil power generators that are expected to lower operating costs by approximately US $14 million over the life of mine, compared to using diesel generators. The mining equipment purchased was more costly than indicated in the feasibility study by approximately 20%. At this time, High River does not expect more than a 10% increase in capital costs for the project, which were estimated at US $52 million in the June 2004 bankable feasibility study. As at March 31, 2005, the Company has spent approximately US $12.1 million on the development and construction of the project.
Somita received notice from the Burkina Faso Government that the exploitation permit for the Bouroum deposit will be issued following signing of the decree by the President of Burkina Faso.
OUTLOOK
The Company expects to maintain its current level of gold production at its two Russian operations with a 2005 production target of approximately 147,000 ounces (124,800 ounces attributable to High River) at an estimated total cash cost of US $280 per ounce. High River and Buryatzoloto will maintain their focus on optimizing these operations with the objective of increasing reserves and reducing operating costs.
High River's two key development projects continue to be advanced towards production scheduled for the first half of 2006. Management believes the Company will be able to fund a majority of its capital requirements for its two development projects with the finalization of the loan facilities and its current working capital. However, the Company may require additional financing during the year if drawdowns of the project loans are delayed or to meet other corporate objectives. The successful start-up of both projects will have a significant impact on the Company as it would increase its gold production profile to over 300,000 ounces by 2007.
In Burkina Faso, the Company is spending US $450,000 for exploration on four of its properties in the month of April and May. Drilling has started at the Labola property located in southwestern Burkina Faso. Approximately 1,500 metres of reverse circulation drilling and 1,430 metres or RAB drilling are underway to test a series of parallel quartz veins over a strike length of 11 kilometres. Random sampling of the mineralized quartz vein structure, mostly taken from rejects brought to the surface by artisanal miners, returned an average gold grade of 5.4 g/t from 110 samples with an additional 52 samples of the host rock averaging 0.8 g/t gold. Results of the drilling programme are expected at the end of May.
FORWARD LOOKING STATEMENTS
This press release contains forward-looking statements based on current expectations. These forward-looking statements entail various risks and uncertainties that could cause actual results to differ materially from those reflected. Risk and uncertainties about the Company's business are more fully discussed in the Management's Discussion and Analysis published in the Company's Annual Report and in the Annual Information Form.
HIGH RIVER GOLD MINES LTD.
CONSOLIDATED BALANCE SHEETS
(Thousands of Canadian dollars)
March 31, December 31,
(unaudited) 2005 2004
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Assets
Current Assets
Cash and cash equivalents $ 21,576 $ 40,709
Restricted cash 2,185 2,021
Accounts receivable 5,750 5,301
Inventory 15,105 13,369
Other assets 128 116
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44,744 61,516
Investments 9,314 8,980
Property, plant and equipment 78,032 65,799
Exploration properties and
deferred exploration 4,533 4,111
Development properties 80,611 64,151
Other assets 996 1,289
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Total Assets $ 218,230 $ 205,846
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Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable $ 8,771 $ 14,274
Loans and interest payable 6,211 4,560
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14,982 18,834
Loans and interest payable 12,173 12,048
Reclamation 1,348 2,029
Venture obligation 33,043 29,881
Future income taxes 2,710 2,713
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64,256 65,505
Non-controlling interest 14,839 41,994
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Total Liabilities 79,095 107,499
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Shareholders' Equity
Share capital 177,553 177,084
Shares to be issued 40,141 -
Agent special warrants and options 8,620 8,620
Contributed surplus 5,037 4,664
Cumulative translation adjustment (19,723) (20,458)
Deficit (72,493) (71,563)
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139,135 98,347
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Total Liabilities and Shareholders' Equity $ 218,230 $ 205,846
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HIGH RIVER GOLD MINES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands of Canadian dollars, except for income per share and
number of shares)
Three Three
Months Ended Months Ended
March 31, March 31,
(unaudited) 2005 2004
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Revenue
Gold $ 19,607 $ 24,132
Other 340 748
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19,947 24,880
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Expenditures
Mining costs 13,436 18,380
Amortization and depletion 2,511 1,477
Exploration 63 23
Administrative costs 930 506
Financing costs 315 358
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17,255 20,744
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Income before the under noted 2,692 4,136
Financing costs on venture obligation (387) (385)
Stock-based compensation (372) (250)
Write-down of carrying value (860) -
Unrealized derivatives loss (589) -
Non-controlling interest in earnings
of subsidiary (304) (845)
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180 2,656
Income tax expense 1,110 1,463
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Net (loss) income for the period $ (930) $ 1,193
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Net (loss) income per share
- basic $ (0.01) $ 0.01
- diluted $ (0.01) $ 0.01
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Weighted average number of common
shares outstanding
- basic 170,014,607 105,973,788
- diluted 170,014,607 107,361,890
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CONSOLIDATED STATEMENTS OF DEFICIT
(Thousands of Canadian dollars)
Three Three
Months Ended Months Ended
March 31, March 31,
(unaudited) 2005 2004
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Deficit - Beginning of period $ (71,563) $ (70,179)
Change in accounting policy - 1,363
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As restated (71,563) (68,816)
Net income for the period (930) 1,193
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Deficit - End of period $ (72,493) $ (67,623)
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HIGH RIVER GOLD MINES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Canadian dollars)
Three Three
Months Ended Months Ended
March 31, March 31,
(unaudited) 2005 2004
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Cash provided by (used in):
Operating activities
Net income for the period $ (930) $ 1,193
Non-cash items:
Non-controlling interest in earnings
of subsidiary 304 845
Financing cost on venture obligation 387 -
Amortization and depletion 2,511 1,477
Write-down of carrying value 860 -
Unrealized derivative loss 589 -
(Gain) loss on disposal of assets 99 (5)
Stock-based compensation 372 250
Future income taxes (32) 1,452
Other 349 (17)
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Subtotal 4,509 5,195
Change in non-cash working capital (5,635) (2,073)
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Total operating (1,126) 3,122
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Investing Activities
Property, plant and equipment (1,700) (3,129)
Exploration properties and deferred
exploration (422) (2,527)
Development properties (17,639) -
(Increase) decrease in investments (130) (1,909)
Allocation to restricted cash (141) (818)
Decrease in other long term assets - 15
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Total investing (20,032) (8,368)
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Financing Activities
Dividends paid by subsidiary to
non-controlling interest (72) -
Increase (decrease) in loans
and interest payable 1,446 (723)
Issuance of common shares 469 5
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Total financing 1,843 (718)
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Effect of exchange rate changes on cash
held in foreign currencies 182 (492)
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Increase (decrease) in cash and cash
equivalents during the period (19,133) (6,456)
Cash and cash equivalents
- Beginning of period 40,709 8,257
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Cash and cash equivalents - End of period $ 21,576 $ 11,801
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FOR FURTHER INFORMATION PLEASE CONTACT:
High River Gold Mines Ltd.
Don Whalen
Executive Chairman
(416) 947-1440
(416) 360-0010 (FAX)
or
High River Gold Mines Ltd.
Laurie Gaborit
VP Investor Relations & Corporate Secretary
(416) 947-1440
(416) 360-0010 (FAX)
info@hrg.ca
http://www.hrg.ca
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