Highland Gold looking for new highs

The Russian miner is in the middle of an expansion programme that will remove pricier ounces from its output and keep production moving beyond the 300,000 ounce (oz) milestone hit last year. Highland upped production in 2019, while making big strides on the new Kekura project, on which work really gets going this year.

The average gold price achieved last year was $1,344 an oz and Highland generated cash flow from operations of $138m. The cash generation was level with the previous year with lower gold prices as costs climbed from expansion spending. 

Gold at $1,700 an oz will not necessarily substantially boost cash flow for 2020 as spending will rise again from $89m last year to almost $200m, with $107m alone going into the Kekura project. Executive chairman Eugene Shvidler said the company could manage the spinning plates well enough to pay dividends, while making this heavy investment in expansion.

Highland has a minimum payout policy of 20 per cent cash flow from operations, before capital expenditure. It went above this last year, but management has indicated it will stick to the minimum level in the coming years because of the higher spending it has planned. 

On top of Kekura, the company is also upgrading the plant at the Novo project. There is also the Unkurtash project in Kyrgyzstan, which is at the scoping study stage; Highland is looking for a partner to take it further. 

One purchase where high spending is in the rear-view mirror is the Valunisty mine, which helped get the company over the 300,000 oz production mark last year. 

Extensive investment and dividend payouts lifted Highland’s net debt 18 per cent to $250m in 2019, but the company says it is ready to borrow more, with $340m in credit lines open. Fortunately, the company does not look like it is about to totter over from rising debt. Higher cash profits last year brought the net debt-to-cash profit ratio down from 1.38 times to 1.22 times. 

While Covid-19 has pushed gold prices higher, there is also a risk to miners from potential shutdowns. Russia has not told mines to close, but Highland chief executive Denis Alexandrov said the company had changed its worker-changeover schedule, extending its shifts out to 1 June, paying its workers more to stay on site far longer than usual. This comes after a dreadful year for fatalities, with five deaths in 2019, compared with one per year from 2016 to 2018.