| December 18, 2008 |
| High River Gold Reports Third Quarter 2008 Results |
TORONTO, ONTARIO--(Marketwire - Dec. 18, 2008) -
(All currency figures are in Canadian dollars unless otherwise noted)
High River Gold Mines Ltd. ("High River" or the "Company") (TSX:HRG) today reported its financial results and operational highlights for the nine month period ended September 30, 2008. 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 www.hrg.ca.
HIGHLIGHTS FOR THE THIRD QUARTER OF 2008
Financial Results
- Gold Revenue of $34.9 million, an increase of 31% from Q3 2007.
- Cashflow from Operations of $4.7 million, up from $1.3 million last year.
- Net loss of $15.3 million ($.05 per share) compared to a net loss of $4.7 million ($.02 per share) in Q3 2007.
- Attributable gold production declined 2.5% to 33,460 ounces. Cash cost per ounce increased 42% to US $546 per ounce (excluding cash costs from Berezitovy which was commissioned after the quarter end).
- Cash and cash equivalents declined to $4.1 million from $51.5 million last year.
- Working capital declined to a deficit of ($86.5) million from $38.0 million as at December 31, 2007.
- Current and long term debt levels rose to $ 193.4 million from $ 175.3 million as at December 31, 2007.
Operations
- Zun-Holba and Irokinda Gold Mines
-- Gold production of 38,787 ounces (100%) at a cash operating cost of US$541 per ounce.
- Taparko-Bouroum Gold Mine
-- Gold production realized in the third quarter was from material in process at the end of the second quarter as ongoing mechanical problems with the ball mill drive-train resulted in a continuing mill shutdown. A new custom-made gear box was installed early in November and the mill was re-started.
- Berezitovy Gold Mine
-- Gold production during the quarter totalled 14,293 ounces (100%), with an average plant capacity utilization rate of 72%.
- Bissa Gold Exploration Project
-- Substantial work for the Bissa preliminary feasibility study was completed during the quarter, including an infill drilling programme designed to expand and upgrade existing National Instrument ("NI") 43-101 compliant resources.
- Prognoz Silver Project
-- Drilling, designed to define/expand existing resources and to discover/develop potential new resources, continued on some of the 30 vein systems identified to date at Prognoz.
Corporate
- High River entered into an agreement to acquire the remaining 50% interest in the Prognoz Silver Project for 34.1 million common shares of the Company. The closing of the transaction was extended to October 31, 2008 pending regulatory approval.
- The Company entered into an agreement to issue up to 160 million shares at $1.79 per share through a non-brokered private placement for proceeds of up to $286.4 million, to the Alfa Group Consortium, one of Russia's largest privately-owned financial/industrial organizations. This strategic investment agreement was subsequently terminated due to market conditions.
- Four new directors (Murray Sinclair, Robert Buchan, Terrence Lyons, and Stephen Polakoff) joined the Company's board, replacing Michael Chieng, Laurence Curtis, David Davidson and Donald Whalen who resigned. A Special Committee of the Board of Directors was established to increase shareholder value through the evaluation of strategic alternatives for the Company. Financial advisors were retained by the Special Committee to assist in this matter.
- High River was deleted from the S&P/TSX Composite, Global Gold, Global Mining, and SmallCap Indices.
Events Subsequent to the Quarter
- On October 6, 2008 High River announced that the Berezitovy Gold Mine achieved commercial production effective October 1, 2008.
- On October 31, 2008, the Company announced that the closing of the agreement to acquire the remaining 50% of the Prognoz Silver Project was extended to November 30, 2008. On December 4, 2008, the Company announced the termination of the agreement to acquire the remaining 50% of the Prognoz Silver Project.
- On October 31, 2008, High River reported that debt covenants with Royal Gold Inc. and Standard Bank Plc were in breach since October 1, 2008, and that the Company was experiencing liquidity problems. High River indicated that its ability to continue as a going concern remained dependent upon discussions and/or forbearance from its lenders, accommodations from trade creditors, establishing steady production at its two new mines and obtaining additional financings. The Company also reported the resignation of two directors, Graham Farquharson and Robert Buchan.
- On November 10, 2008, the Company announced the re-start of the Taparko mill. High River also announced the resignation of two directors, Murray Sinclair and Mark Rachovides.
- On November 16, 2008, the Company announced that it will be late in filing its interim financial statements for the nine month period ended September 30, 2008 due to concerns raised by the board of directors regarding the reliability of financial information that High River had received from its 85% owned subsidiary, OJSC Buryatzoloto. Those concerns have been subsequently addressed to the satisfaction of the board of directors.
- On November 20, 2008, High River announced a non-brokered private placement of 282 million shares at $0.20/share, for proceeds of $56 million, to an affiliate of Severstal Resources. Four new directors (Roman Deniskin, Nikolay Zelenskiy, Evgeny Tulubensky and Oleg Pelevin) were appointed to the board of directors of the Company on behalf of Severstal Resources in place of resigning directors David Mosher and Valery Dmitriev. As well, David Mosher resigned as President and Chief Executive Officer and Nikolay Zelenskiy was appointed Chief Executive Officer. Post-transaction, Severstal Resources held 53% of the outstanding shares of High River.
2008 GOLD PRODUCTION GUIDANCE
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Mine 2008 (100%) 2008 (Attributable)
(000's of ozs) (000's of ozs)
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Irokinda 72 61
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Zun-Holba 73 62
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Taparko-Bouroum 32 29
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Berezitovy 41 40
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Total 218 192
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DISCUSSION OF FINANCIAL RESULTS
Selected Financial Results
(in thousands of Canadian Three Months Ended Nine Months Ended
dollars except per share September 30, September 30,
amounts) 2008 2007 2008 2007
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Gold revenue $ 34,939 $ 26,572 $ 123,375 $ 84,819
Net income
(loss) (15,348) (4,657) (22,382) (3,495)
Net income
(loss) per
share (basic) (0.05) (0.02) (0.07) (0.01)
Cashflow from
operations 4,673 1,333 7,092 3,183
Weighted
average number
of shares
outstanding
(basic) 307,905,158 260,709,088 307,865,853 253,941,944
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Gold revenue for the quarter was 31% higher than last year largely due to higher gold prices. The average gold price realized on sales was US $864 per ounce during Q3/08, up 30% from US $664 per ounce last year. Ounces sold increased by 2%, to 38,891 ounces, due to ounces sold from production at the Taparko-Bouroum Gold Mine.
The net loss reflects higher revenues offset by higher mining costs (wage, material and energy inflation in Russia), costs at Taparko-Bouroum not offset by production revenue (standby costs), and an increase in other expenses related to an unrealized foreign exchange loss resulting from a weaker Burkina Faso currency (CFA) effect on US dollar denominated debt at Taparko-Bouroum.
Cashflow from operations increased from the third quarter last year due to changes in non-cash working capital.
Gold production (100%) was 39,358 ounces for the quarter at a cash operating cost of US $546 per ounce (excluding cash costs Berezitovy, which was commissioned just after the end of the quarter), compared to 40,403 ounces at a cash operating cost of US $398 per ounce a year ago.
Working Capital decreased to a deficit of ($86.5) million from $38.0 million as at September 30, 2007 largely due to a decline in cash and cash equivalents ($47.4 million) and an increase in current loans and interest payable ($74.8 million). The increase in current loans and interest payable was largely due to increased drawdowns on working capital facilities, and the re-classification of the Royal Gold debt facility as current since certain loan covenants are in breach and restructuring negotiations are underway.
OVERVIEW OF OPERATIONS
Operating Mines
Zun-Holba Gold Mine (Russia)
Zun-Holba produced 17,651 ounces of gold (100%) in the third quarter, up slightly from 17,440 ounces last year. Cash operating costs for the quarter increased to US $616 per ounce from US $453 per ounce last year due to wage and material cost inflation and lower grades mined.
Irokinda Gold Mine (Russia)
Gold production at the Irokinda Mine totalled 19,957 ounces (100%) during the quarter, down slightly from 20,806 last year. Cash operating costs increased to US $413 per ounce compared to US $323 per ounce last year, for the same reasons cited for the Zun-Holba Mine.
Taparko-Bouroum Gold Mine (Burkina Faso)
The Taparko mill was re-started early in November 2008, after the installation of a new gearbox. Excessive vibration in the Taparko mill drive train resulted in the mill remaining idle during the third quarter. The re-started mill is being closely monitored to ensure that the vibration problem has indeed been resolved. In the event vibration reoccurs, the mill may need to be shut down for further remedial actions. In 2009, at the latest, the Company will study whether a further shutdown and further work are required to ensure that the mill continues to be in good operating condition.
Gold production during the quarter totalled 571 ounces and was entirely from gold already in the circuit at the beginning of Q3. Cash operating costs were US $920 per ounce and reflected the low production volume. An ore stockpile of approximately 200,000 tonnes will be used to feed the process plant. Mining operations are scheduled to resume by January 2009. During the nine months ending September 30, 2008, Taparko-Bouroum produced 23,538 gold ounces on a 100% basis. Whole year 2008 attributable gold production for Taparko-Bouroum is expected to total approximately 29,000 ounces.
Berezitovy Gold Mine (Russia)
Numerous plant upgrades and repairs prior to and during the third quarter resulted in increasing mill throughput rates and the achievement of criteria established for commercial production (i.e. mill throughput equal to or exceeding 60% of design capacity over a 30 day period). Commercial production was declared effective October 1, 2008. Gold production, on a 100% basis, totalled 14,293 ounces during the third quarter and 28,202 ounces during the nine month period ending September 30, 2008. Attributable gold production at Berezitovy for 2008 is expected to be approximately 40,000 ounces.
At the end of the quarter, 390,000 tonnes of ore have been stockpiled, which approximates 3.5 months of production.
Exploration Projects
Bissa Project
A significant amount of work related to the Bissa preliminary feasibility study was completed during the quarter. An infill drilling and trenching programme, consisting of 33 Diamond drill holes (5,256 metres), 176 reverse circulation holes (14,715 metres), and 45 trenches (5,009 metres), to define and upgrade existing resources, ended during the quarter. Other work conducted during the quarter included three dimensional modeling, resource estimation, geotechnical mapping, metallurgical sampling (10 samples totalling approximately 2,000 kg), heap leach testwork, topographical surveying, and environmental baseline work.
Prognoz Project
Exploration
Drilling continued during the third quarter with 44 Diamond drill holes completed totalling 6,621 metres. During the nine months ending September 30, 2008, 117 holes were completed (15,465 metres).
Strategic Investment Transaction with Alfa Group Terminated
On August 1, 2008 High River announced a strategic investment transaction with an indirect wholly-owned subsidiary of the Alfa Group Consortium, one of Russia's largest privately owned financial/industrial organizations. High River was to issue up to 160 million common shares at $1.79 per share by means of a non-brokered private placement for proceeds of up to approximately $286.4 million. Proceeds of the financing were to be used for development of the Prognoz Silver Project, to acquire and consolidate advanced projects in Russia and Africa, and to reduce debt.
On August 26, 2008 the Company announced that the transaction was terminated after the Alfa Group reassessed its overall investment strategy and plans in light of the severe decline in precious metals producer equity values and the market in general.
Acquisition of the Remaining 50% of the Prognoz Silver Project Terminated
On July 31, 2008, High River announced that it had entered into an arm's-length agreement to acquire the remaining 50% interest in the Prognoz Silver Project not already owned by High River. Under the agreement, High River was to issue 34.1 million common shares, representing 9.9% of the issued capital of the Company, and assume debt obligations totalling approximately US $16 million related to past exploration expenditures on the Prognoz property. Approximately US $13.5 million of these debt obligations are owed to High River's 84.9%-owned subsidiary Buryatzoloto. The closing date of this transaction was extended twice during the quarter, first to October 31, 2008 and then to November 30, 2008, pending regulatory approval.
As at November 30, 2008, the required approval of the Ministry of the Russian Federation for Anti-Monopoly Policy and Support of Businesses had not yet been received. However, a further extension to the closing date of the transaction was not negotiated as the parties to the transaction were unable to agree to mutually satisfactory terms for the extension of the transaction agreement. As a result, on December 4, 2008 the Company announced the termination of the agreement to acquire the remaining 50% of the Prognoz Silver Project.
About High River
High River is a gold company with interests in producing mines, mines under development, and advanced exploration projects in Burkina Faso and Russia.
FORWARD LOOKING INFORMATION
This release and subsequent oral statements made by and on behalf of the Company may contain forward-looking statements. Wherever possible, words such as "intends", "expects", "scheduled", "estimates", "anticipates", "believes", and similar expressions or statements that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved, have been used to identify these forward-looking statements. Although the forward-looking statements contained in this release reflect management's current beliefs based upon information currently available to management and based upon what management believes to be reasonable assumptions, High River cannot be certain that actual results will be consistent with these forward-looking statements. A number of factors could cause events and achievements to differ materially from the results expressed or implied in the forward-looking statements. These factors should be considered carefully and prospective investors should not place undue reliance on the forward-looking statements. Forward-looking statements necessarily involve significant known and unknown risks, assumptions and uncertainties that may cause High River's actual results, event, prospects and opportunities to differ materially from those expressed or implied by such forward-looking statements. Although High River has attempted to identify important risks and factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors and risks that cause actions, events or results not to be anticipated, estimated or intended. There can be no assurance that the forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, prospective investors should not place undue reliance on forward-looking statements. Any forward-looking statements are made as of the date of this release, and High River assumes no obligation to update or revise them to reflect new events or circumstances, unless otherwise required by law.
HIGH RIVER GOLD MINES LTD.
CONSOLIDATED BALANCE SHEETS
(Thousands of Canadian dollars)
September 30, December 31,
(unaudited) 2008 2007
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Assets
Current Assets
Cash and cash equivalents $ 4,073 $ 51,491
Restricted cash -- 69
Accounts receivable 13,043 25,339
Inventory 57,193 48,777
Available-for-sale securities 5,341 --
Other assets 9,671 4,318
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89,321 129,994
Available-for-sale securities 33,045 38,131
Property, plant and equipment 207,006 202,780
Exploration properties and
deferred exploration 142,399 115,643
Development properties 213,762 177,417
Due from joint venture partner 17,632 --
Other assets 936 2,090
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Total Assets $ 704,101 $ 666,055
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Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable $ 33,245 $ 24,186
Loans and interest payable 142,556 67,793
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175,801 91,979
Loans and interest payable 50,848 107,470
Reclamation 8,485 7,866
Non-hedge derivatives 11,553 9,867
Future income taxes 12,475 13,062
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259,162 230,244
Non-controlling interest 19,280 17,830
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Total Liabilities 278,442 248,074
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Shareholders' Equity
Share capital 490,226 453,225
Warrants 13,680 19,951
Contributed surplus 12,800 11,192
Debenture conversion option 538 538
Deficit (76,971) (57,494)
Accumulated other comprehensive
income (loss) (14,614) (9,431)
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Total Shareholders' Equity 425,659 417,981
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Total Liabilities and
Shareholders' Equity $ 704,101 $ 666,055
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HIGH RIVER GOLD MINES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands of Canadian dollars except per share figures)
Three months ended Nine Months Ended
September 30, September 30,
(unaudited) 2008 2007 2008 2007
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Revenue
Gold $ 34,939 $ 26,572 $ 123,375 $ 84,819
Silver 1 (7) 70 241
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34,940 26,565 123,445 85,060
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Expenses
Mining costs 21,812 17,048 81,211 49,751
Mine administrative costs 1,816 1,338 6,274 4,344
Mine amortization and
depletion 5,576 3,837 16,840 11,677
(12) 32 264 100
5,805 - 5,805 -
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34,997 22,255 110,394 65,872
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Income before the undernoted (57) 4,310 13,051 19,188
Administrative costs (3,089) (1,842) (8,467) (6,260)
Amortization and depletion (177) 23 (546) (85)
Exploration expense (3,269) (2,094) (7,952) (2,254)
Financing costs and investment
income, net 330 (5,657) (8,237) (10,674)
Other income/(expense) (9,578) 1,076 (3,879) 1,943
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Income (loss) before tax and
non-controlling interest (15,840) (4,184) (16,030) 1,858
Income tax expense (322) (330) (4,902) (3,621)
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(16,162) (4,514) (20,932) (1,763)
Non-controlling interest in
earnings of subsidiary 814 (143) (1,450) (1,732)
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Net loss for the period $ (15,348) $ (4,657) $ (22,382) $ (3,495)
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- basic and diluted $ (0.05) $ (0.02) $ (0.07) $ (0.01)
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HIGH RIVER GOLD MINES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Canadian dollars)
Three Months Ended Nine Months Ended
September 30, September 30,
(unaudited) 2008 2007 2008 2007
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Operating Activities
Net loss for the period $ (15,349) $ (4,657) $ (22,382) $ (3,495)
Non-cash items:
Non-controlling interest in
earnings of subsidiary (813) 143 1,450 1,732
Amortization and depletion 5,101 4,382 17,385 12,265
Asset retirement obligation
accretion (184) 32 264 100
Debenture accretion 1 87 144 257
Financial instrument accretion 84 717 830 1,760
Fair value adjustments to
derivatives (2,108) 3,263 1,686 4,718
Stock option benefit expense 959 558 1,940 1,823
Loss on disposal of assets 41 154 145 174
Future income taxes (188) (465) 182 (228)
Unrealized foreign
exchange loss 7,668 - 4,594 -
1,877 (1,328) 2,836 (1,326)
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Subtotal (2,911) 2,886 9,074 17,780
Change in non-cash
working capital 7,584 (1,553) (1,982) (14,597)
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Net cash provided by operating
activities 4,673 1,333 7,092 3,183
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Investing Activities
Property, plant and equipment (9,897) (3,482) (21,668) (11,121)
Proceeds on disposal 6 -- 6 5
(9,947) (2,756) (28,448) (12,799)
Development properties 975 (30,230) (28,409) (77,331)
(Increase)/decrease
in investments - (1,186) (10,802) (1,186)
Allocation of restricted cash 3 (190) 72 (263)
145 2,059 (704) 1,992
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Net cash used by investing
activities (18,715) (35,785) (89,953) (100,703)
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Financing Activities
Loans received 13,246 25,590 43,387 61,402
Loans repaid (12,251) (4,301) (38,421) (14,423)
Common shares issued - 23,313 30,334 27,741
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995 44,602 35,300 74,720
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Effect of exchange rate
changes on cash held in
foreign currencies (69) (2,605) 143 (2,925)
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Increase/(decrease) in cash
and cash equivalents during
the period (13,116) 7,545 (47,418) (25,725)
Cash and cash equivalents -
Beginning of period 17,189 2,346 51,491 35,616
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Cash and cash equivalents -
End of period $ 4,073 $ 9,891 $ 4,073 $ 9,891
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