TORONTO,
ONTARIO--(Marketwire - April 29, 2009) -
(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 year ended December 31, 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 2008
Financial Results
- Net loss for 2008 was $57.4 million, or $0.16 per share, compared to
a net loss of $12.0 million, or $0.05 per share in 2007. Growth in
revenue was more than offset by higher mining costs and non-cash
expenses.
- Cash flow from operations was $25.6 million, up from ($4.9) million
last year.
- Cash and cash equivalents declined to $19.1 million from $38.0
million last year.
- Working capital declined to a deficit of ($42.1) million from $38.0
million last year.
- Current and long term debt levels increased to $188.1 million from
$175.3 million last year.
- 2008 gold production and costs were as follows:
--------------------------------------------------------- Production (ozs) Production (ozs) Cash Operating Costs (100%) (attributable) (US $/oz) -------------------------------------------------------------------------- Zun-Holba 69,551 59,076 649 -------------------------------------------------------------------------- Irokinda 74,365 63,166 511 -------------------------------------------------------------------------- Placer Operation 1,847 1,569 805 -------------------------------------------------------------------------- Taparko-Bouroum 30,667 27,600 806 -------------------------------------------------------------------------- Berezitovy 43,894(1) 43,455 734 -------------------------------------------------------------------------- Total 220,324 194,866 588 -------------------------------------------------------------------------- (1) includes 28,202 ounces produced prior to commercial production
Operations
- Zun-Holba and Irokinda
Underground Gold Mines:
-- Gold production (including placer operations) totalled 145,763
ounces (100%) at a cash operating cost of US $525 per ounce.
- Taparko-Bouroum Open-pit Gold Mine:
-- Gold production in 2008 totalled 30,667 ounces (100%) at a cash
operating cost of US $806 per ounce.
- Berezitovy Open-pit Gold Mine:
-- Total gold production in 2008 was 43,894 ounces, which included
28,202 ounces produced before commercial production was declared on
October 1, 2008. Cash operating costs, reflecting the post production
period, were US $734 per gold ounce.
- Bissa Gold Exploration Project:
-- A significant amount of preliminary feasibility work was completed
during the year, including an infill drilling and trenching programme,
resource estimation, metallurgical sampling etc.
- Prognoz Silver Project:
-- A NI 43-101 resource estimate, released in June 2008, established Prognoz as one of the largest and highest grade
undeveloped silver deposits in the world.
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. After extending the closing
of the transaction several times pending regulatory approval, on
December 4, 2008 the Company announced the termination of the agreement
to acquire the remaining 50% of the Prognoz
Silver Project, due to the need for both parties to reassess the terms
of the agreement in light of market conditions.
- 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.
- Mike Kelly, P. Eng., joined the Company as Executive Vice-President
and Chief Operating Officer, replacing Daniel Vanin
who left the Company. Mike Kelly and Don Whalen, Executive Vice
President, left the Company in December 2008. As well, in December
2008, Vladimir Baltsat, previously mine
manager of Peter Hambro Mining's Pokrovsky mine in Russia, joined the Company as
General Director of Buryatzoloto, replacing
Valery Dmitriev who left the Company.
- After announcing an agreement to spin out its 50% interest in the Prognoz Silver Project into a single-purpose
publicly traded corporate entity, High River decided not to proceed
with the spin-out after careful consideration of the views expressed by
certain shareholders.
- Six new directors (John Crow, Graham Farquharson,
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, and Vladimir Polevanov who did not stand for re-election. Subsequently,
Graham Farquharson, Robert Buchan, Murray
Sinclair, and Mark Rachovides resigned as
directors.
- 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. As a result of this
evaluation of strategic alternatives, on November 20, 2008, High River
announced a non-brokered private placement of 282 million shares at
$0.20/share, for proceeds of $56 million, to an affiliate of Severstal Resources ("Severstal").
Four new directors (Roman Deniskin, Nikolay Zelenskiy, Evgeny Tulubensky and
Oleg Pelevin) were appointed to the board of
directors of the Company on behalf of Severstal
Resources in place of resigning directors David Mosher and Valery Dmitriev. As well, David Mosher resigned as
President and Chief Executive Officer and Nikolay
Zelenskiy was appointed Chief Executive Officer.
Post-transaction, Severstal Resources held
approximately 53% of the outstanding shares of High River.
- High River was deleted from the S&P/TSX Composite, Global Gold,
Global Mining, and SmallCap Indices.
- On October 31, 2008, High River reported that debt covenants with
Royal Gold Inc. and Standard Bank Plc were in breach since October 1,
2008, and that the Company was experiencing liquidity problems. High
River indicated that its ability to continue as a going concern
remained dependent upon discussions and/or forbearance from its
lenders, accommodations from trade creditors, establishing steady
production at its two new mines and obtaining additional financings. On
November 27, 2008, Standard Bank was granted a corporate guarantee from
Severstal and the repayment date on its loans
was extended into 2010, in return for providing a waiver for the
covenants which had been breached. High River's Somita
subsidiary, which operates the Taparko-Bouroum
mine, continues to be in breach of loan covenants pursuant to the US$
35 million loan agreement with Royal Gold and discussions are ongoing
regarding a waiver of the covenant breaches.
- On November 16, 2008, the Company announced that it would 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 were subsequently addressed to the satisfaction of the
board of directors.
Events Subsequent to the Year-End
- High River advised Somita trade creditors
that it will slow down payments for accounts payable for a brief period
in light of lower than expected cashflows
from the group's operations, and that it planned to pay suppliers for
current purchases of goods and services. High River continues to pursue
discussions relating to additional debt and equity financing required
to ensure that it is able to meet its financial obligations.
- On March 17, 2009, High River announced the results of a NI 43-101
compliant gold reserve and resource estimate, as of December 31, 2007,
on the Zun-Holba and Irokinda
Gold mines.
- On March 25, 2009 High River reported that the acquisition of the Chaya Nickel Deposit will not be completed. An
initial payment of approximately US $4.15 million made in February
2008, which represents all acquisition costs incurred to-date, has been
written off as at the 2008 year end.
- On March 30, 2009, High River announced that Severstal
and a Special Committee comprised of High River independent directors
have been unable to agree on terms of any transaction whereby Severstal would acquire the remaining outstanding
common shares of High River and/or provide debt or equity financing to
High River. It was also announced that Terrence Lyons, Chairman of the
Board of High River and a member of the Company's Special and Audit
Committees, had tendered his resignation, effective March 31, 2009, due
to the demands of his other business interests.
- On April 8, 2009, High River announced the resignation of John W.
Crow from the Company's board of directors, and the appointment of Alexey Khudyakov and Karl
Glackmeyer to the board of directors. Alexey Khudyakov assumed the
role of Chairman of the board of directors.
- On April 20, 2009, High River announced that two loans, with a total
amount outstanding of approximately US$ 27million, were assigned by
Standard Bank Plc to Severstal, and continue to be in default. It was also announced
that Steven Poad, CFO of High River, was
appointed to the board of directors on an interim basis until the next
annual meeting of shareholders of High River.
DISCUSSION OF FINANCIAL RESULTS Selected Financial Results (in thousands of Canadian dollars except per share amounts) 2008 2007 ------------------------------------------------------------ ------------------------------------------------------------ Gold revenue $ 180,788 $ 115,641 Net loss 57,447 11,991 Net loss per share (basic) 0.16 0.05 Cashflow from operations 25,605 (4,853) Weighted average number of shares outstanding (basic) 354,923,765 261,676,314 ------------------------------------------------------------ ------------------------------------------------------------
Gold
revenue for the year was 56% higher than last year due to both higher
gold prices and a higher amount of gold ounces sold. The average gold
price realized on sales was US $862 per ounce during 2008, up 25% from
US $687 per ounce last year. Ounces sold increased by 24%, to 195,199
ounces, from 157,233 ounces last year, with the increase split roughly
evenly between the Taparko-Bouroum and Berezitovy Gold Mines.
The increase in net loss ($45 million) reflects higher revenues ($64
million), as discussed above, more than offset by: (a) higher mining
costs ($58 million) due largely to mine start-up problems, a stronger
rouble, and higher wage, materials, and energy costs; (b) higher
amortization and depletion ($10 million) related to higher production
levels and a full year of commercial production at Taparko-Bouroum;
(c) higher administrative costs ($9 million) largely related to
corporate restructuring; and (d) an increase in other expenses ($20
million) related to higher unrealized foreign exchange losses, a
write-down on the carrying value of the Chaya
nickel deposit, and losses on the sale of investments.
Cashflow from operations increased from last
year due to changes in non-cash working capital.
Working capital declined to a deficit of ($42.1) million from $38.0
million last year, largely due to an increase in current liabilities
related to a reclassification to current of the Royal Gold Inc. US $35
million loan and the Standard Bank US $27 million loans which were in
breach of covenants.
OVERVIEW OF OPERATIONS
Underground Mines
Zun-Holba Mine (Buryatia,
Russia)
In 2008, Zun-Holba produced (100%) 69,551
ounces of gold, virtually unchanged from last year's level. Increases
in tonnes milled and recovery were offset by a decline in head grade to
8.3 g/t from 8.9 g/t last year. Cash operating costs increased to US
$649 per ounce from US $422 per ounce in 2007. The increase in cost per
ounce was due largely to deeper underground workings, higher input
costs, a stronger rouble, and lower grade ore.
Irokinda Mine (Buryatia,
Russia)
Production levels (100%) at Irokinda, declined
marginally during 2008 to 74,365 ounces from 75,224 ounces of gold,
largely due to a decline in head grade to 8.3 g/t from 9.0 g/t last
year, as mill throughput and recoveries were both up. In 2008, cash
operating costs increased to US $511 per ounce compared to US $367 per
ounce in 2007. The increase in cost per ounce was mainly due to the
reasons cited for the Zun-Holba mine.
New Open Pit Mines
Taparko-Bouroum Mine (Burkina Faso)
Lower than expected production and higher than expected cash costs
resulted from numerous mill shutdowns throughout the year due to
excessive mill drive-train vibrations. Average mill utilization during
2008 was approximately 42%. Solutions proposed by various consultants
were implemented during the year with varying degrees of success. The
last change implemented during the year, the gearbox replacement in
November, resulted in smooth running of the drive-train for over 4
weeks, until vibrations, albeit at lower levels, returned. Analysis
completed by operating personnel and an on-site consultant resulted in
remedial actions undertaken during a 10 day mill shutdown in mid
January 2009. Work consisted of minor adjustments to the bull gear
positioning and a re-installation of the electric motor. The mill was
re-started on January 21, 2009, and vibrations were significantly down
in all components except the pinion/bull gear interface where they
remained above acceptable levels. In February 2009, a slight
re-grinding of the pinion/bull gear meshing surfaces with an abrasive compound
during continued operation improved gear meshing, but vibrations
re-occurred. Therefore, a two week shutdown took place in mid-March to
correct the problem. Remedial action included the installation of new
ball mill liners and an adjustment to a pinion bearing. High River
believes that the original design capacity of 1,000,000 tonnes per year
is not attainable, and that the mill throughput rate going forward is
likely limited to 800,000 tonnes per year, or approximately 100 tonnes
per hour assuming 92% mill availability.
Berezitovy Mine (Amur Oblast, Russia)
After the achievement of commercial production on October 1, 2008, Berezitovy mill throughput regularly exceeded 85%
of the design capacity with satisfactory recoveries. Later in the year,
throughput and recoveries at the mill suffered due to several problems.
Mining in the pit encompassing the old underground workings resulted in
fragments of the old timbers entering the process plant. Also the mill
had been producing too coarse a grind, which had also adversely
affected recoveries. Remedial action was taken to correct these
problems. To prevent timber fragments from entering the mill process,
an additional screen was installed, whereas timber fragments already in
the process circuit were removed. The coarse grind problem was
partially corrected with the installation of new liners in the ball
mill. As well, the disc filter plant continues to perform poorly,
despite the new filter cloth, and a permanent solution needs to be
implemented. On January 28, 2009, an unplanned one week shutdown of the
ball mill occurred to correct damage to the clutch disks.
Advanced Exploration Projects
Bissa Gold Project
A preliminary feasibility study was initiated in 2008 to evaluate the
economic viability of a mining and processing facility based on the
current Bissa resource area. A significant
amount of work related to this study was completed during the year. An
infill drilling and trenching programme, to define and upgrade existing
resources, completed 33 diamond drill holes (5,256 metres), 176 reverse
circulation holes (14,715 metres), and 45 trenches (5,009 metres). This
infill drilling occurred along three kilometres immediately adjacent
and along strike to the southwest of the Bissa
Resource Area which hosts the current resource. Other work conducted
for the preliminary feasibility study 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.
In addition to activity related to the preliminary feasibility study at
Bissa, exploration work occurred on other
areas within the Bissa Group Permits and on
other exploration concessions in Burkina Faso. On the Bissa Group Permits, a combination of rotary air
blast, reverse circulation, and diamond drilling was used to advance
drill targets such as Guibare, Wemstenga, and Lessa. On
other exploration concessions in Burkina Faso, work was done to advance
targets and to identify new targets through reconnaissance level work. Reverse
circulation and air core drilling occurred on Sakou,
20 kilometres northwest of Bissa, and diamond
drilling occurred at Labola, 425 kilometres
southwest of Bissa, while rock sampling at Zibtenga and Tyegana,
both approximately 75 kilometres southeast of Bissa,
identified new drill targets.
Prognoz Silver Project
In June 2008, High River announced the results of a NI 43-101 compliant
resource estimate on the Prognoz Silver Project:
----------------------------------------------------------- Indicated Resources ----------------------------------------------------------- Tonnage (t) Silver grade (g/t) Contained Silver (oz) ----------------------------------------------------------- 4,490,000 704 102 million ----------------------------------------------------------- ----------------------------------------------------------- Inferred Resources ----------------------------------------------------------- Tonnage (t) Silver grade (g/t) Contained Silver (oz) ----------------------------------------------------------- 4,870,000 659 103 million -----------------------------------------------------------
The
June mineral resource estimate almost doubled the previous resource
estimate announced in January 2008. The updated resource estimate is
based on drilling results from only two veins (Glavnoye
and Boloto) of over 30 identified so far on
the property, and on drilling completed only up to December 31, 2007.
During 2008, Buryatzoloto drilled 117 diamond
drill holes totalling 15,762 metres on Prognoz.
Approximately one-third of those holes were in-fill holes designed to
confirm historical Russian drill hole data and
to define/expand resources on the Glavnoye, Boloto and Yuzhnaya
veins. The balance consisted mainly of step-out and reconnaissance
holes which tested extensions of known mineralization and un-drilled
veins. As well, 20 hydrogeological and
engineering holes were completed for future mine development
requirements.
About High River
High River is a gold company with interests in producing mines 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 (Expressed in thousands of Canadian dollars) As at December 31, 2008 2007 --------------------------------------------------------------------------- --------------------------------------------------------------------------- Assets Current Assets Cash and cash equivalents $ 19,123 $ 51,491 Restricted cash - 69 Accounts receivable 14,546 25,339 Inventory 79,369 48,777 Other assets 11,401 4,318 --------------------------------------------------------------------------- 124,439 129,994 Investments 22,724 38,131 Property, plant and equipment 432,089 202,780 Exploration properties and deferred exploration 170,522 115,643 Development properties - 177,417 Other assets 3,335 2,090 --------------------------------------------------------------------------- Total Assets $ 753,109 $ 666,055 --------------------------------------------------------------------------- Liabilities Current Liabilities Accounts payable $ 29,842 $ 24,186 Loans and interest payable 136,699 67,793 --------------------------------------------------------------------------- 166,541 91,979 Loans and interest payable 51,446 107,470 Reclamation 10,078 7,866 Non-hedge derivatives 13,651 9,867 Future income taxes 15,884 13,062 --------------------------------------------------------------------------- 257,600 230,244 Non-controlling interest 18,467 17,830 --------------------------------------------------------------------------- Total Liabilities 276,067 248,074 --------------------------------------------------------------------------- Shareholders' Equity Share capital 543,244 453,225 Warrants 16,627 19,951 Contributed surplus 12,876 11,192 Debenture conversion option 538 538 Deficit (112,037) (57,494) Accumulated other comprehensive income (loss) 15,794 (9,431) --------------------------------------------------------------------------- Total Shareholders' Equity 477,042 417,981 --------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $ 753,109 $ 666,055 --------------------------------------------------------------------------- --------------------------------------------------------------------------- High River Gold Mines Ltd. CONSOLIDATED STATEMENTS OF OPERATIONS (Expressed in thousands of Canadian dollars except per share figures) For the years ended December 31, 2008 2007 --------------------------------------------------------------------------- --------------------------------------------------------------------------- Revenue Gold $ 180,788 $ 115,641 Silver 383 1,596 --------------------------------------------------------------------------- 181,171 117,237 --------------------------------------------------------------------------- Expenses Mining costs 125,099 75,908 Mine administrative costs 9,704 5,939 Mine amortization and depletion 27,908 17,486 Asset retirement obligation accretion 655 363 Standby costs 8,707 - --------------------------------------------------------------------------- 172,073 99,696 --------------------------------------------------------------------------- Income before the undernoted 9,098 17,541 Administrative costs (17,057) (8,394) Amortization (603) (691) Exploration expense (10,012) (6,636) Financing costs and investment income, net (14,428) (13,470) Other income/(expense) (14,384) 5,916 --------------------------------------------------------------------------- Loss before tax and non-controlling interest (47,386) (5,734) Income tax expense (9,424) (4,767) --------------------------------------------------------------------------- Loss before non-controlling interest (56,810) (10,501) Non-controlling interest in earnings of subsidiary (637) (1,490) --------------------------------------------------------------------------- Net loss for the year $ (57,447) $ (11,991) --------------------------------------------------------------------------- --------------------------------------------------------------------------- Net loss per share - basic and diluted $ (0.16) $ (0.05) --------------------------------------------------------------------------- --------------------------------------------------------------------------- High River Gold Mines Ltd. CONSOLIDATED STATEMENTS OF CASH FLOWS (Expressed in thousands of Canadian dollars) For the years ended December 31, 2008 2007 --------------------------------------------------------------------------- --------------------------------------------------------------------------- Operating Activities Net loss for the year $ (57,447) $ (11,991) Non-cash items: Non-controlling interest in earnings of subsidiary 637 1,490 Change in inventory 3,315 - Amortization and depletion expense 28,511 18,396 Asset retirement obligation accretion 655 363 Financial instrument accretion expense (210) 940 Fair value adjustments to financial instruments 4,697 6,200 Stock-based compensation expense 1,825 2,325 Writedown of carrying values 5,450 814 Loss on disposal of assets 181 449 Loss on sale of investments 7,733 - Future income taxes 3,633 (1,027) Unrealized foreign exchange gain (3,904) (3,505) Other (3,136) 190 --------------------------------------------------------------------------- Subtotal (8,060) 14,644 Change in non-cash working capital 33,665 (19,497) --------------------------------------------------------------------------- Net cash provided (used) by operating activities 25,605 (4,853) --------------------------------------------------------------------------- Investing Activities Property, plant and equipment (25,233) (15,370) Proceeds on disposal 7 4 Exploration properties and deferred exploration (32,134) (20,607) Development properties (28,352) (91,689) Purchase of investments (10,802) (9,726) Proceeds from sale of investments 2,715 - Allocation of restricted cash 72 - Increase in other long-term assets (204) (69) --------------------------------------------------------------------------- Net cash used by investing activities (93,931) ( 137,457) --------------------------------------------------------------------------- Financing Activities Loans received 46,409 72,590 Loans repaid (98,666) (38,584) Dividends paid by subsidiary to non-controlling interest - (1) Common shares issued 86,491 124,592 Warrants issued - 921 --------------------------------------------------------------------------- Net cash provided by financing activities 34,234 159,518 --------------------------------------------------------------------------- 1,724 (1,333) --------------------------------------------------------------------------- (32,368) 15,875 Cash and cash equivalents - Beginning of year 51,491 35,616 --------------------------------------------------------------------------- Cash and cash equivalents - End of year $ 19,123 $ 51,491 --------------------------------------------------------------------------- ---------------------------------------------------------------------------
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