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Highland Gold: H1 2012 Interim Results — The worst is past

Contributed by Fox-Davies Capital

Highland Gold has released its interim results for the half year ending 30 June 2012. The company reported a net profit after tax of $58.OM on revenues of $531/oz in H1 2011. Highland Gold also announced a special interim dividend of US$0.048.

This was a disappointing half year for Highland Gold, with profits dropping from the $85M reported for the previous corresponding half year. Despite being below our expectations, the company had made it very clear that the cash costs would be significantly impacted by higher stripping rates at MNV, and this duly occurred, pushing the cash costs at MNV up to $846/oz whereas in H1 11 cash costs were $514/oz. This was the main factor in driving up the cash costs and reducing net profit.

The good news is that the stripping ratio peaked at MNV in the first half and has now dropped. Cash costs during July and August have dropped by around $100/oz. With the strip ratio forecast to stay flat going forward, this should be a permanent cost reduction.

After the current half year, Highland Gold will be regarded as a growth stock, with 2013 featuring the start-up of Belaya Gora and Novoshirokinskoye expanding by just under 25% to 550Kt pa. There are several projects in the pipeline to sustain this momentum, namely Klen, Lyuboz, Blagodatnoye and Taseevskoye. The period leading towards the end of 2012 should also be good for news flow, with several updated JORC resource figures due for release.