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Edited Transcript of HGM.L earnings conference call or presentation 12-Apr-19 9:00am GMT

Full Year 2018 Highland Gold Mining Ltd Earnings Call

SAINT HELIER Apr 25, 2019 (Thomson StreetEvents) -- Edited Transcript of Highland Gold Mining Ltd earnings conference call or presentation Friday, April 12, 2019 at 9:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Alla Baranovskaya

Highland Gold Mining Limited - CFO

* Denis Alexandrov

Highland Gold Mining Limited - CEO

* Grant Sinitsin

Highland Gold Mining Limited - Director of IR

* John Anthonio Mann

Highland Gold Mining Limited - Head of Communications and Executive Director

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Conference Call Participants

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* Boris Sinitsyn

VTB Capital, Research Division - Equities Analyst

* Justin Chan

Numis Securities Limited, Research Division - Analyst

* Nikolay Sosnovskiy

Prosperity Capital Management Ltd - Director of Metals, Mining & Chemicals

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Presentation

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Grant Sinitsin, Highland Gold Mining Limited - Director of IR [1]

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Hello, everyone. Thanks for dialing in. You're listening to the 2018 Full Year Annual Results Conference Call for Highland Gold Mining. With me today are Denis Alexandrov, our CEO; and Alla Baranovskaya, our CFO. And they will take you through the results, and then we will open it up to questions. So without further ado, I will pass the word on to Denis Alexandrov.

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Denis Alexandrov, Highland Gold Mining Limited - CEO [2]

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Good morning, ladies and gentlemen. Thanks for joining us on this conference call related to our annual results for 2018. Usual disclaimer on Page 2 for those who're looking through the presentation, as we are a public company, hence the need of the forward-looking statements.

Starting with Page 3: Highland Gold Today. As a reminder for those who joined in for the first time, we have 4 operating mines with a total production of around 300,000 ounces a year in 3 regions of Russia, a pipeline of high-grade development projects and -- with the biggest of them being Kekura in the Chukotka region. We're a low-cost producer with all-in sustaining costs of $682 per ounce and a track record -- a strong record of paying dividends.

Our highlights for 2018 are on Page 4. 2018 production of 270,000 ounces was within guidance range of 265,000, 275,000. It was a stronger operational year for MNV and plus a new JORC compliance reserve audit was completed that extended the project life of mine to 2022 -- 2029, which is a big milestone achievement. I will talk about that a bit later in the presentation.

Belaya Gora output rose driven by better recoveries and a pre-feasibility study was published regarding upgrades to the processing plant, which will allow us to process ore from the nearby Blagodatnoye deposit. Novo expansion to 1.3 million tonnes per annum continues in order to offset expected decrease in the grade. Our cost remained stable at $506 an ounce TCC despite growth in expenses for fuel, energy and labor. The acquisition of Valunisty mine was closed in December 2018, and construction of Kekura project commenced following the completion of the definitive feasibility study.

The net cash flow from moderations increased from $130 to $136 in 2018, and this was due to the strict controls on the working cash flow, which allowed us to release around $6 million from the inventory. Net debt decreased to $194 million, taking our net debt-to-EBITDA ratio below 1.3.

Over to Page 5. Commitment to dividends. The total dividend for 2018 declared at GBP 0.134 per share, representing a yield of around 9.1% based on average price for the year. This translates into paying $215 for each mine produced in 2018 or if you look over the past 8 years, we have paid on average $134 from each asset produced. The future dividend is secured by the dividend policy, which was set at the beginning of 2018, and basically, we said that we target a minimum payout of 20% of net operating cash flow before any tax.

Going to our strategy, which, again, we announced 3 years ago, and that's on Page 6. It's all about unlocking the value in order to: a, deliver the growth; b, control costs; and deliver returns to the shareholders. All this is achieved through focusing on maximizing the upside potential of each of our operating assets; second is focus on corporate development in the regions of our presence and the new with Valunisty I think supports that; thirdly, developed assets at the PFS/DFS stage into the production, and that's what we have started to do with our Kekura deposit this year; and derisk and convert additional resources into reserves; focus on operational efficiency and continuous improvement; and all of these tasks are not possible without commitment to the workplace safety and protecting the environment.

Now let me talk about our key adds. I'll start with our recent acquisition, Valunisty, which was value-accretive. We're on Page 7 now. In December 2018, we completed the transaction on the acquisition of Valunisty mine and related assets for $85.9 million in shares and assumed debt. And we have paid $68.1 million in shares and assumed $13.7 million of debt as of 27 December 2018. The key advantages of that is it's located in the existing operating region of Chukotka where we have 2 of our other mines, Kekura and Klen. It increases annual production of Highland Gold by 11%. The acquisition was value-accretive for the shareholders. The assets purchased include Valunisty itself, which is an established operating mine, a license called KAP, which is 831 square kilometers license surrounding Valunisty, with several satellite deposits and exploration targets, including the recently commissioned Gorny mine. And Kayen license, which is 1,200 square kilometer exploration area located around 130 kilometers away from Kupol, which is the second largest gold mine in Russia.

The mine itself has a life of mine of until 2028. It's an open pit -- 100% open pit operation currently. We will go underground in several years' time. The growth of methodology -- technology is gravity plus cyanide leaching, with a new capacity of 250,000 tonnes per annum. The resource is 1.6 million ounce at 3 grams a tonne, which includes the reserve of P&P category of 503,000 ounces at 5.2 grams a tonne. Production of the mine in 2018 was 38,000 ounces with an average head grade at the mill of 4.7 grams a tonne and 96% recovery. Has a total cash flow of $752 an ounce. In terms of upside potential, the key there for us for the midterm is to move underground in order to reach higher-grade ore, increase the processing plant expansion to 350,000 tonnes per annum and also realize substantial opportunities for resource to reserve-to-reserve conversion on the KAP license.

We're open to Page 8: MNV. 3 years ago, our key challenge was to find additional reserves to extend the life of mine, which at that time was until 2018. Back in 2017, we extended the life of mine to 2022. And in 2018, we're proud to say that we extended the life of mine to 2029, which basically is a big milestone achievement for the company. We continue to do ongoing extensive near-mine exploration. We acquired 3 adjacent greenfield license, and we continue to the read the mine's historic rock waste dumps, out of which, during the 3 years' time, we took 675,000 tonnes of ore as about 1 gram a tonne to the mill.

Our capital commitment in terms of exploration there is between $3 million and $5 million a year, and we believe that near-mine exploration program will continue to deliver new reserves to the mine. So MNV plant has a processing capacity of 1.4 million tonnes per annum. Reserves -- new reserves at 787,000 ounces at 2.7 grams a tonne. In 2018, the MNV produced 113,000 ounces, with an average head grade at the mill of 2.9 grams a tonne with a 92.3% recovery and TCC of $600 an ounce.

Going to Novo, which is our polymetallic mine located in Sredny Golgotay region. The key challenge for us was the increased throughput and to remain to increase throughput to offset an expected decline in grades. And just as a reminder, back in 2014, we recalculated reserves of Novo, which, due to the new economic environment, decreased (inaudible) grade, which resulted in an increase of tonnage in the reserves but decreased in the average grade. So the solution to that was to expand the mine and processing capacity from 800,000 tonnes per annum to 1.3 million tonnes per annum, and we are doing it in 2 stages. Stage 1 is to increase the mine capacity expansion and most of the infrastructure is already built or under construction and will be completed over this year. The stage 2 will be to expand the processing plant, and we have decided that we're going to go with a certain route using the X-ray transmission, XRT technology, and currently this is under the design. And we expect stage 1 and stage 2 to be completed in 2020 and commission -- and complete the expansion in 2020.

The reserves of Novo, our in-gold equivalent are 1.5 million ounces at 3 grams a tonne. Last year, in 2018, it produced 113,000 ounces of gold equivalent with an average head grade of 5.2 grams a tonne, again, of gold equivalent, the recoveries of 80% and the total cash cost of $323 an ounce. Owing to include the processing cost to make it on a like-to-like basis, it was $399 an ounce.

Belaya Gora, which is 100% open pit deposit, 60 kilometers away from MNV. The key challenge was to increase recoveries at the processing plant and also to find a way on how we can commission the nearby deposit, Blagodatnoye and extend the life of mine of Belaya Gora. The solutions were found by adding a carbon-in-pulp circuit to the processing plant, which should improve -- increase recoveries from 75% current recoveries to around 90% and also will allow us to process the ore from nearby Blagodatnoye deposit. We published the pre-feasibility for this in the middle of 2018. We're now in the design stage for the CIP circuit. The capital commitment for this project is around $15 million to bring the factory -- the mill to around 90% recoveries. And then for us to grow the Blagodatnoye deposit, including upgrade of the roads and equipment -- open pit equipment and some crush equipment is around $21 million, but that expense will be after 2023.

So currently, we're doing the design for the mill, and we expect commissioning of the CIP circuit again in 2020. Current reserves of Belaya Gora and Blagodatnoye combined is around 1 million ounces, 1.4 grams a tonne. Belaya Gora itself produced in 2018 44,000 ounces at an average head grade of 1.13 grams a tonne and with recoveries just short of 75%. The total cash cost for 2018 was $724 million an ounce.

Going now to Kekura, our key development project. We released the definitive feasibility study in 2018, which basically assumes a processing capacity of 800,000 tonnes per annum using gravity and cyanide leaching. It will be open pit for the first 8 years with resources of 2.46 million ounces at 8.1 grams a tonne and -- including reserves of 2 million ounces at 7 grams a tonne after dilution of losses. The production for the first 8 years is expected to be 172,000 ounces a year and the TCC, just north of $500 an ounce. This project will require about $230 million of pre-commissioning expense -- capital expense. Several key infrastructure facilities are already built or been finalized, namely the power substation, the assay lab, the fuel storage, the shovel assembly, communication tower and roads. We do have a camp and the pilot processing plant on site. The government is building the power line to the site, which we expect to come during the summertime, and we are ready to start receiving the power from the grid by Q3. So by the end of 2019, we should be on the power grid receiving electricity from the nearby power station.

The key steps for 2019 is to commission northern pit and start pretreatment in the fourth quarter of 2019. For that, we will need to build the whole infrastructure required to open mine inauguration. Also, the full processing plant scheduled for completion -- sorry, the full processing plant, the 800,000 tonnes per annum growth in the plant is scheduled for completion by 2023. We are looking now at possibilities to commission the pilot processing plant once the open pit is up and running.

In terms of upside potential, Kekura was included in the project eligible for the government's new Chukotka Advanced Special Economic Zone, which basically offers tax incentives that add more than $100 million of NPV to the project. And also, we continue exploration on several of the 12 additional targets, which located on our license in the broader Kekura license. And we view this as a possibility to add additional reserves as we go forward.

Now, I would like to pass the word to Alla Baranovskaya, our CFO, who will take you through the financial performance of the company in 2018.

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Alla Baranovskaya, Highland Gold Mining Limited - CFO [3]

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Good morning, everyone. I would like to present to you the results for 2018. I would like to draw your attention to the tax. They didn't include the financial data of Rudnik Valunisty into this presentation because review was finalized at the end of December.

Slide 13 show the company highlight. Certainly, stable production at 270,000 ounces and we keep other productions given for 2018. Secondly, revenue totaled $311 million, decreased by 2% compared to previous year due to some part of gold concentrate remained in the stock. EBITDA slightly decreased to $153 million, reflecting lower revenue. The company had no impairment indicated. It did not recognize the impairment of 2 development project located in Chukotka, Kelan and Kekura, again, include in the various company, which can be granted resident status of Chukotka Special Economic Zone. Such status which leads to tax incentives and will benefit the implementation of projects in period. Total cash cost and all-in sustaining costs were $506 per ounce and $682, respectively, and below the industry median. Net debt-to-EBITDA ratio was 1.3. EBITDA margin was 49%. Dividend declared by company increased by 29% to $58 million.

Slide 14 presents the glance of the global market during 2018. Despite the fluctuation between the rate $1,200 and $1,300-plus per ounce, where average gold price was $1,268, an increase of 1% versus 2017. The average realized gold price of company was $1,258. The prices of lead and zinc traded around their highest level for 3 years, while rise in the ruble favorably influenced our financial indicator and drove costs down. You can find the revenue breakdown by unit and metals in the pie chart, where share of gold remained unchanged and were 86%. Our position in (inaudible) group is presented in the Slide 15. In 2018, company rated in the top of the -- one of the world's largest gold producer and remained a strong cash position. Slide 16 described by [6] total cash costs and were led down by it. Total cash costs were unchanged, $506 per ounce. The positive influx of the weaker ruble was offset by 5% increase in MNV's share of volume of sales, replacing less costly Novo ounces. MNV decreased its total cash cost to $600 per ounce. Belaya Gora reduced TCC to $724 per ounce due to improved grade and recovery rate as the rest by (inaudible) with cheaper current ore. At Novo, TCC adjusted by processing costs decreased by 8% to $399 per ounce. Novo own costs increased by 11% resulting from decline in production. All-in sustaining costs showed a slight increase to $682 per ounce as a result of growth in supporting CapEx and administrative expense.

EBITDA analysis is presented in Slide 17. EBITDA slightly decreased to $153 million against $155 million in 2017. The negative impact of the lower sales volume was compensated by weaker ruble. EBITDA margin 49%. Broken down by business units, EBITDA margin was 49% at MNV, 67% at Novo, 42% at BG. The next slide show the CapEx breakdown. In 2018, CapEx amounted to $62 million. This was the (inaudible) price supporting CapEx at MNV for replacement equipment, expense for Novo, 1.3 million tonne project, and development of Kekura. CapEx includes $21 million at MNV, $14 million at Novo, about $5 million at Belaya Gora, $18 million at Kekura. Capital expenditure were funded from operational cash flow.

Debt portfolio is presented in Slide 19. Company total debt is denominated in dollars. Highland's net debt at the end of 2018 was $196 million. Effective interest rate was 4.18%. But to mitigate where a rise in cost of the debt management continues to switch from floating to fixed interest rates. The proportion over fixed-rate liabilities was 75%. Thank you for your attention.

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Denis Alexandrov, Highland Gold Mining Limited - CEO [4]

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Thank you, Alla. I'm now at Page 21, and to complete this presentation, just a few words of the key tasks and targets for 2019.

Our 2019 production forecast will be in the range of 290,000 to 300,000 ounces of gold and gold equivalent. We will continue to advance projects designed to improve operations at the existing mines, namely: We will focus on the exploration around MNV, we'll continue to focus on that; construction of phase 1 and phase 2 of Novo expansion; design work and some construction work for the processing plant upgrades at Belaya Gora; the ramp-up construction of Kekura. We should begin the initial stripping and mining in Q4 this year. Another that is to integrate the recently acquired Valunisty mine and the related operations and to begin studies on potential upgrades, which I mentioned above. The total capital expenditure budget for this year is $116 million, and just below 50% of that is related to Kekura. So you can see how Kekura starts kicking in in terms of capital expenditures.

And last but not least is the rollout of our new programs for health and safety operations, for the operational efficiency and continuous improvement programs that we have started last year, and we're rolling out now on each of the company's operations during 2019. Thank you for attention. Now we can go to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And we have a couple of questions that came through over the phone lines. Your first question comes from the line of Justin Chan.

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Justin Chan, Numis Securities Limited, Research Division - Analyst [2]

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Congratulations on another really strong year. My first question is just on Novo. Last year in Q4, grades were down a little bit and I was wondering if you could update us on how grades have been so far this year and what your expectations are from Novo production this year. And a related note, MNV had a really strong second half. And what are your expectations? Has this year been a continuation of that and might -- within your 290,000 to 300,000 ounce guidance, is MNV going to have a more prominent role this year and maybe Novo taking a step back?

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Denis Alexandrov, Highland Gold Mining Limited - CEO [3]

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Yes, Justin. Thank you very much. First of all, the Novo grade, as you can see in the presentation, the average equivalent grade of reserve is now 3 grams a tonne, and we continue the mine at higher grade of north of 5 grams a tonne. And we continue to do that in anticipation of increasing the throughput of the mill to 1.3 million tonnes per annum. So the decrease in grades and decrease in production is kind of expected. It was expected. So I don't think Novo is doing badly. I think Novo is continuing to be our key cash cow with the TCC below $400 an ounce. It produced 113,000 ounces of gold equivalent last year. For this year, for 2019, we expect it to be in the range of 100,000 to 105,000, so slightly lower. At the same time, MNV will pick up to about 115,000 ounces. BG will be slightly higher than current year, just below 50,000 ounces. And then we're going to add Valunisty mine in the region of 30,000 to 35,000 ounces.

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Justin Chan, Numis Securities Limited, Research Division - Analyst [4]

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Okay. Perfect. That's very helpful. And I just have 2 more. My first one's on Kekura. What, in the way of production, should we expect from the pilot plant?

Would it be at all material before the main processing plant starts up in '23? And on Taseev, I noticed you have some language there about plans for a heap leach. And I was wondering how advanced or early stage are those plans. How much CapEx and production hypothetically we'd be looking at? And what's the timing there?

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Denis Alexandrov, Highland Gold Mining Limited - CEO [5]

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Well, Kekura processing pilot plant, we don't expect any production this year, 2019, from the pilot plant. We're looking at the ways if we can commission that. The pilot -- the current pilot plant there has the capacity of about 100,000 tonnes per annum, with only really the circuit. So the recoveries there will be relatively low, but it will reduce the concentrate that will be -- that we will be able to treat at the bigger plant once it's commissioned. So I think for 2019, we expect 0 production from this pilot plant. For 2020, I think there will be some incremental production time. But again, I don't expect anything major. But as we start to do open pit and as we will have the ore on the surface, we think that for us it's worth to start the process, therefore, through the pilot plant to understand better the recoveries, to understand better the mining operations and so on. So I think that will give us a good opportunity to have our team on the ground, operating open pits, operating the mill, although will be reduced from what steel operating the mill. And basically, through all our 3 operational procedures as we can observe the mine, the operation team will start to build around these 2 operations.

Regarding the heap leach operation, I think as what you all know this one thing, since the [Belaya], which we kind of flagged last year that we are working on the design for those. The design is now completed. We've sent it to the Russian authorities for review. We expect the review to come out by summertime -- let's say during the summertime. Once we have permission to construct, we'll come back to the market with this project. Currently, it's not in our budget for this year, we believe, in the permission to construct. In summary, the project assumes CapEx of around $18 million over a 2-year period and then production of roughly 700 kilograms a year. So again, not major but a pretty good cash flow. And because we're talking about processing of tailings, that means very easy and limited mining operations, although geologically. And the heap leach itself, I can see they've already got a low metallurgical reef as well. But again, the decision is not made yet. We are working on the design. And I think by -- during the summertime, we can come back to the market with some more news on that.

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Justin Chan, Numis Securities Limited, Research Division - Analyst [6]

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Okay. And just to confirm, the CapEx is 18, as in 1-8 million?

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Denis Alexandrov, Highland Gold Mining Limited - CEO [7]

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Yes, 1-8.

So while people are on the phone, we have a question through the web asking about how we're going to fund the Kekura.

The answer is we're going to fund Kekura from the current operating activities and from the debt. We currently have a debt of $194 million, but we can -- we have open credit line for almost $500 million. So we think we can easily finance it out of existing debt -- existing debt facilities, which will -- which could take our net debt-to-EBITDA of around 2 in 2020 and up to about 2.4 in closer to commissioning. But then again, this is an investment into the new EBITDA. So I think -- the short answer is we can fund it from debt and existing cash flows.

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Operator [8]

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The next question comes from the line of Boris Sinitsyn.

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Boris Sinitsyn, VTB Capital, Research Division - Equities Analyst [9]

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It's Boris Sinitsyn from VTB Capital. A couple of questions from our side. Firstly, on the cash cost outlook for 2019. Can you please provide like your estimated -- expected (inaudible) year-on-year? Secondly, in terms of timing of ramp-ups, firstly for Kekura given the commission in 2023, which would be like a rough estimate of ramp-up timing to full capacity. And the same for Valunisty if expansion plans are approved? And last question on your -- on like on the, first, on potential partnership with MNV on greenfields, do you plan anything in the, like, in the short to medium term? And what form could it be if yes?

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Denis Alexandrov, Highland Gold Mining Limited - CEO [10]

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I think -- I'll start with the partnership, I think that's an easy part. We are open to any partnerships. It's not a secret that we're trying to market a partnership as our own (inaudible) deposit income needed. We believe that this is a good and large deposit of 3.7 million kind of resource. And it will require hundreds of millions of dollars of investment, which we don't feel we should do ourselves. So we are open to any conversation regarding that deposit. And we actually actively promote or looking for partnerships throughout the book for this particular deposit. I think another area where we are open to look for partnership is Baley Cluster, which includes the ZIF-1 tailings processing, which I mentioned, answering the question from Justin. And a big, let's say, deposit of 5 million ounce in resource. We are open for partnerships there and actually looking for partnerships there. I think other deposits, the new operations, they don't require partnerships. Kekura, we are sure we can develop ourselves, so no partnership opportunities there as well.

Going back to your TCC questions, I think we -- what we see is a strong pressure on the costs in ruble terms, namely on electricity in certain areas, especially Khabarovsk. In 2018, we had an unexpected bump in cost of fuel of almost 20%, which we have to offset through different measures basically. Also, Valunisty comes to production at a higher TCC of around $7.50 an ounce, which will negatively affect our average TCC for the group. So overall, I think our TCC for the group will increase by about 10% to 15%, I would say in this range. But I believe they will still be very competitive, considering where we are today.

We budgeted 2019 at a gold price of $12.50 and a ruble exchange rate of RUB 65, just for those who are updating their models.

Talking about CapEx, development CapEx and the schedules. Basically, BG, Belaya Gora, we expect final design by sort of midsummer. And then we can start working on the foundations for the initial equipment we need for the leaching. So I expect we will do the foundations before winter, and then the equipment will be coming next year with an installation probably during summertime. So for BG, although it's early to say, but our retail target terms to commission BG is around third quarter 2020.

A similar situation is for Novo. For Novo, the underground expansion is almost done. We are left to do only the ventilation circuits, the new ventilation. And again, the equipment is already purchased. We just need to build the on-surface infrastructure for that, and then it will be done. And also the new heat and cold power station, but that is already ordered as well. So that shouldn't delay the project at all.

And then with the new XRT, we're doing the design now as we speak. We're going to put 3 or 4 XRT machines in the building edges and to Novo existing mill. We're now doing the foundations, calculations to what foundations we need to do. And again, during the summer, we will start laying down the foundations. And then in the autumn time, we can put the building walls on that foundation. And then installations, we'll begin the equipment installation, probably, it will take first half of 2020. So again, commissioning in second half 2020.

On Kekura, our key task for this year is to start open pit. And in order for us to start open pit, we have to build quite a lot of infrastructure. We have to build -- we'll have to complete construction of fuel storage. We need to build the laboratory. We will need to build the impairment show, the warehouses for explosives. We will need -- we already have excavators, 3 heavy trucks, which will start doing the open pit themselves, but we will need to bring the explosives and all the materials on-site.

So that's the biggest target. But to achieve that target, to start this period, we have to build quite a lot of infrastructure at the site. Did that answer your question?

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Boris Sinitsyn, VTB Capital, Research Division - Equities Analyst [11]

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Yes. Well, just 1 follow-up on Valunisty. So what will be the first year of full capacity of 350 kilotonnes?

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Denis Alexandrov, Highland Gold Mining Limited - CEO [12]

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Yes. Sorry, I missed the Valunisty part. With Valunisty, I cannot give you the date yet because we are now in the research stage. So now the Russian Institute, together with the International Engineering Company, are looking at different ways how we can increase the capacity for the mill. And there are different ways there. So once we have that answer, we know we will be able to do that. The question is how. So once we have that, I think in middle of this year, we can report to the market in terms of how much it will cost, what's the timeline for that and so on. I think it will be much earlier than in 2 years' time. But that's about what I can say.

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Boris Sinitsyn, VTB Capital, Research Division - Equities Analyst [13]

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Yes. Fair enough. One follow-up on a different topic. So in terms of Kekura CapEx. Taking into account on what is already spent and your budget of roughly $230 million, what is the amount to be spent in 2019 going forward? And is the pre-stripping amount included into this number?

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Denis Alexandrov, Highland Gold Mining Limited - CEO [14]

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Pre-stripping is not included in $230 million if that's the question. So precommission CapEx doesn't include the pre-stripping. CapEx for this year for Kekura is around $45 million, which includes some exploration on the slides, very limited though. Most of that is the project construction. So I think, yes, that's it. So $45 million this year. $230 million doesn't include the pre-stripping as a working capital measure. With -- once we have the full design for the bigger mill, which is again expected by third quarter this year, then we can update the market in terms of CapEx to commissioning. But currently, we're working on the assumption of the definitive feasibility study, which is $230 million.

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Boris Sinitsyn, VTB Capital, Research Division - Equities Analyst [15]

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Okay. Just to again follow up on this. So if the total number to be spent so far is $230 million and roughly $20 million was spent in 2018, so like it implies that in 2019 and onwards so far, you have to spend $210 million in total. Is that right?

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Denis Alexandrov, Highland Gold Mining Limited - CEO [16]

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Yes.

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Operator [17]

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We have another question over the phone, and this comes from the line of Nikolay Sosnovskiy.

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Nikolay Sosnovskiy, Prosperity Capital Management Ltd - Director of Metals, Mining & Chemicals [18]

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I've got the majority of my questions already been answered. But just on the financial front, in 2018, you declared a quite generous CapEx. But next year, as you pointed out, CapEx will increase quite dramatically, basically double over -- year-over-year. And this assumes probably that your free cash flow generation would be quite different year-over-year. And the question is what do you expect in terms of dividend distribution? What changes should we expect?

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Denis Alexandrov, Highland Gold Mining Limited - CEO [19]

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Thank you, Nikolay. I think as we said, the dividend -- future dividend is secured by the dividend policy. And the dividend policy states that we're going to pay at least 20% of the net cash flow from operating activity before any CapEx, either maintenance CapEx or development CapEx. So this is what this -- what the policy says, and that's what we're going to do. Any extra dividend will be -- will depend on how the company performs, what the gold price will be, what the TCC will be, what the free cash flow will be and what the cash needs will be for 2020 and beyond. So I think this will lead to generate any expectation. All we can say is with the dividend policy.

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Nikolay Sosnovskiy, Prosperity Capital Management Ltd - Director of Metals, Mining & Chemicals [20]

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Okay. And probably kind of adjacent question to this one. This remaining CapEx of Kekura, have you studied any opportunities to fund it from new borrowings? Because your balance sheet looks pretty good at the moment. And borrowing rates are not very high. So can you secure some sort of directed financing? I'm not saying about project finance, but some sort of credit line, which would allow to spend this CapEx without producing dividends too much.

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Denis Alexandrov, Highland Gold Mining Limited - CEO [21]

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Well, that's an option for us. And as I mentioned, we have currently credit lines open for almost $500 million, out of which we used just below $200 million. So there is another $300 million available to us from different banks at an interest rate -- the current interest rate is around 4.2% per annum all-in. So it's not LIBOR plus 4.2%. It's 4.2% all-in. So it's quite a cheap debt. At the same time, we do look at other opportunities in the market to finance Kekura development through kind of a project finance, which will mean that we can pay an excess 2%, 2.5% per annum. But the loans would be secured to the project. So we're looking at these opportunities. Whether we're going to go that route or not, I think depends again on the financial situation. And currently, we are quite happy with an interest rate of 4.2%. Whether we should weigh an extra 2%, 2.5% in this case, I don't know. I think we'll see how the market will perceive Kekura and where the interest rates, in general, are going to go.

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Operator [22]

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And there are no further questions that came through at this time, sir. Please continue.

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John Anthonio Mann, Highland Gold Mining Limited - Head of Communications and Executive Director [23]

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We have more questions from online from [Dennis from Prime]. Hi, [Dennis]. He asks can you please provide breakout CapEx for 2019 with targets?

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Denis Alexandrov, Highland Gold Mining Limited - CEO [24]

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Yes. So the overall CapEx, as I've mentioned, is $116 million. That includes around $30 million of exploration. And the key numbers there, the key targets there are MNV, Klen, Valunisty and our Unkurtash deposit in Kyrgyzstan. So that $30 million will be spent mainly on those 4 deposits and some on Kekura as well. Then MNV maintenance CapEx is $21 million, which is relatively high if you look at what was spent in the previous years. And that is explained by the new reserve number and extension of life of mine to 2029. So now we feel more comfortable that we can commit more capital expenses to equipment renewal, with the maintenance and some capital expenses related to the buildings and old equipment. So MNV has around $20 million there. BG is relatively small, about $4 million and $42 million for the new project for the expansion. And Novo, $22 million, including $12 million for the expansion project. Kekura, as I said, around $44 million. And Valunisty, a total of $7 million including $2.5 million for design works for the expansion project. And the other assets included in Taseev and Baley Cluster is around $5 million.

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John Anthonio Mann, Highland Gold Mining Limited - Head of Communications and Executive Director [25]

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Great. Thank you. Do we have any other questions on the line?

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Operator [26]

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No further questions over the phone line, sir. Please continue.

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John Anthonio Mann, Highland Gold Mining Limited - Head of Communications and Executive Director [27]

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Great. We'd like to thank everyone once again for dialing in and for joining us online. All of our materials are available on the website. And I'd like to thank Denis Alexandrov and Alla Baranovskaya for participating. If you have any more questions, please feel free to contact us. We are available on the phone all day today. Thank you very much.

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Denis Alexandrov, Highland Gold Mining Limited - CEO [28]

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Thank you.