High River Gold Mines Ltd.
TSX : HRG

High River Gold Mines Ltd.

May 15, 2006 17:47 ET

High River Reports First Quarter 2006 Results

TORONTO, ONTARIO--(CCNMatthews - May 15, 2006) -

(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 three month period ended March 31, 2006. 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 First Quarter of 2006

- Attributable gold production of 29,693 ounces at a total cash cost of US $347 per ounce

- Consolidated net profit of $226,000 ($0.00 per share)

- Cash flow from operating activities of $5.0 million (before working capital changes)

- Formed strategic alliance with Goldrush Resources Ltd. ("Goldrush") in Burkina Faso

- Significant gold discovery at the Bissa Project in Burkina Faso

- Early warrant exercise raised $19.0 million

- Senet CC ("Senet") appointed construction contractor for the Taparko-Bouroum Project in Burkina Faso

- US $9.0 million interim project financing loan from Nomos Bank for Berezitovy project

Subsequent Event

- An additional US $40.0 million financing secured for the Berezitovy Project in Russia plus a US $5.0 million standby contingency facility



Selected Financial Results

(in thousands of Canadian dollars Three Months Ending
except per share amounts) March 31,
2006 2005
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Gold revenue $22,523 $19,607
Net income (loss) (1) 226 (930)
Net income (loss) per share (basic) 0.00 (0.01)
Cash flow from operations (2) 5,020 4,509
Weighted average number of shares
outstanding (basic) (3) 223,176,530 170,014,607
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(1) The net income in the first quarter of 2006 includes non-cash
accounting adjustments of $1.5 million (Q1 2005 - $2.2 million).
(2) Before changes in non-cash working capital.
(3) Includes shares to be issued in 2005 for the Company's increased
interest in Buryatzoloto.


RESULTS OF OPERATIONS

The Company reported net income of $226,000 ($0.00 per share) in the first quarter of 2006 compared to a net loss of $930,000 ($0.01 per share) during the corresponding quarter of 2005. The Company benefited from higher realized gold prices offset by higher operating costs at OJSC Buryatzoloto ("Buryatzoloto"). The current quarter was adversely impacted by non-cash accounting factors totalling $1.5 million compared to $2.2 million in the same corresponding period in 2005. The 2006 non cash adjustment includes the following:

- $1.0 million stock-based compensation cost (Q1 2005 - $372,000)

- $462,000 financing cost associated with the New Britannia venture obligation
(Q1 2005 - $387,000)

The Company's consolidated gold revenues for the first quarter of 2006 increased to $22.5 million from $19.6 million for the same period of 2005. Although the Company realized a higher gold price on gold sales, the number of ounces sold decreased by 2%, from 37,295 ounces over the first quarter of 2005 to 36,555 ounces over the first quarter of 2006. Refined gold in inventory did not change in the quarter and is 7,382 ozs (Q1 2005 - 1,864 ozs). The average gold price realized on sales was US $533 per ounce during the period, up from US $429 per ounce for the first quarter of 2005. The Company remains unhedged and continues to sell its gold production at spot prices.

Cash flow provided by operating activities for the quarter ended March 31, 2006 was $2.8 million compared to a use of funds of $1.1 million in 2005. The increase was primarily a result of the change in working capital. Cash flow provided by operations before changes in working capital was $5.0 million compared to a $4.5 million for the same quarter of 2005. The increase was due to higher income at Buryatzoloto.

Investing activities consumed $21.9 million of cash in the first quarter of 2006 compared to $20.0 million for the same period in 2005. Funds were used primarily on the construction of the Taparko-Bouroum and Berezitovy Projects, which amounted to $20.3 million for the quarter. The Company's investment in property, plant and equipment increased to $2.6 million from $1.7 million as a result of an increase in development expenditures at Buryatzoloto.

In March, the Company entered into a strategic alliance agreement with Goldrush exchanging early-stage exploration permits in Burkina Faso for an equity interest in Goldrush valued at $1.3 million and a convertible debenture with a principal value of $2.0 million and back-in rights on mineral discoveries.

Financing activities during the first quarter of 2006 included the following:

- Nomos Bank (Russia) lent Berezitovy $8.2 million for project development

- Royal Gold Inc. advanced $8.5 million for the Taparko-Bouroum project development

- The Company received $19.8 million from the exercise of warrants and stock options

In May, the Company was advised that the Board of Director's of the European Bank for Reconstruction and Development ("EBRD") had approved a US $20.0 million project loan plus a US $5.0 million standby contingency facility to fund the Berezitovy project construction. As well, in early May, an agreement was finalized with Nomos Bank securing an additional US $20.0 million for the project.

The Company ended the first quarter of 2006 with cash and cash equivalents of $23.3 million and working capital of $11.3 million as compared to cash and cash equivalents of $8.5 million and a working capital deficiency of $6.8 million at the end of 2005.

REVIEW OF OPERATIONS, DEVELOPMENT PROJECTS AND EXPLORATION ACTIVITIES

High River, through its Russian subsidiary Buryatzoloto, produces gold at the Zun-Holba and Irokinda underground mines, both located Russia. The Company's attributable gold production from its 84.6% interest in Buryatzoloto decreased to 29,693 ounces in the first quarter of 2006 from 30,542 ounces in the corresponding period of 2005. High River is developing new open pit mines in Burkina Faso and Russia with production scheduled to start in 2007.

Buryatzoloto Operations

Buryatzoloto continues to be profitable and achieved its production objectives for the first quarter of 2006 with 35,111 ounces of gold produced at an estimated total cash cost of US $347 per ounce as compared to 36,316 ounces of gold produced at a total cash cost of US $274 per ounce in the first quarter of 2005. The increased total cash cost reflects labour wage increases, including performance bonus initiatives. Efforts are continuing on the implementation of procedures and processes to optimize the Buryatzoloto operations with the goal of replacing reserves and containing operating cost increases. Gold production is on budget in the quarter.

The Company's total cash costs are calculated in accordance with the Gold Institute Production Cost Standards and include operating costs such as mining, milling, refining and transportation, by-product credits, royalties and production taxes, and administration but exclude depreciation, reclamation and mine closure, and foreign exchange. Calculated unit costs are based on ounces of gold produced.



Buryatzoloto Combined Operational and Financial Data

Three Months Ending
March 31,
2006 2005
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Tonnes mined 139,606 145,716
Tonnes milled 122,289 123,692
Head grade (g/t) 9.3 9.6
Recovery (%) 94.7 94.4
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Gold production (oz) (100%) 35,111 36,316
High River share of production (oz) 29,693 30,542
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Direct mining cost (US $/oz) 304 213
By-product credits (US $/oz) - -
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Mine operating cost (US $/oz) 304 213
Royalty expense and production tax (US $/oz) 43 61
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Total cash cost (US $/oz) 347 274
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Project Development

Berezitovy Project, Russia

Construction was restricted in the first quarter due the unavailability of funds while the project loans were being negotiated. During March, US $7.0 million was received from Nomos Bank as part of a US $9 million interim project loan. The balance of the loan was received in April. During the quarter, work began on the explosives magazine, an equipment repair shop and ground preparation for the main mill building. Pouring concrete for the mill foundations began in April.

Taparko-Bouroum Project, Burkina Faso

In February, a construction contract was signed with Senet of South Africa and representatives of Senet have been on site since that time. Construction of the first stage of the tailings pond retaining wall was completed and the pond liner installation commenced in April. Pre-stripping of the first two pits to be mined at Taparko was nearly complete at the end of the first quarter. Some excavation at the 3/5 pit will continue during the second quarter to provide material for other construction purposes. Pouring the concrete pad for the CIL tank foundations began in April and it is anticipated that the mill foundation will start to be poured in June. Construction of the permanent camp was nearly complete at quarter end. Construction of the pipeline and pumping station is anticipated to be completed by June. Water necessary to fill the Taparko reservoir will be pumped to the plant site during the summer rainy season.

Exploration Activities

During the first quarter of 2006, the Company conducted exploration activities in Burkina Faso and Russia.

Bissa Project, Burkina Faso

The final assays from the 31,500 metre drilling program were received. The drilling, which was designed to extend the known gold mineralization at Bissa, encountered significant gold intersections. An independent resource estimate on the Bissa Project prepared by SRK Consulting, compliant with NI 43-101 standards, is expected in the second quarter of 2006.

The Company is planning its next exploration drilling programme for 2006. Exploration work is continuing over an additional 25 kilometres of strike length of the Sabce deformation corridor. In addition, the program will include high priority targets at Bouly, Rofo-Lessa, Liliga and Gougre, all located within 10 to 15 kilometres of Bissa. Drilling is expected to start in June. The Company intends to spend up to US $4.0 million on exploration at Bissa in 2006.

Novophirsovskoye Ore Field Project, Russia

The Company plans to issue a press release shortly describing the results of the first phase of exploration and the plans for phase two.

OUTLOOK

The Company expects to maintain its current level of gold production at its two Russian operations with a 2006 production target of approximately 150,000 ounces. High River and Buryatzoloto will maintain their focus on optimizing these operations with the objective of replacing reserves and containing operating cost increases.

High River's two key development projects continue to be advanced towards production scheduled for the first half of 2007. The successful start-up of both projects will have a significant impact on the Company as it would increase its attributable, annualized gold production rate to over 350,000 ounces by mid-2007.

FORWARD LOOKING STATEMENTS

This press release contains forward-looking statements based on current expectations. These forward-looking statements entail various risks and uncertainties that could cause actual results to differ materially from those reflected. Risk and uncertainties about the Company's business are more fully discussed in the Management's Discussion and Analysis published in the Company's Annual Report and in the Annual Information Form.



HIGH RIVER GOLD MINES LTD.
CONSOLIDATED BALANCE SHEETS
(Thousands of Canadian dollars)

March 31, December 31,
(unaudited) 2006 2005
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Assets
Current Assets
Cash and cash equivalents $ 23,272 $ 8,524
Restricted cash 47 2,087
Accounts receivable 5,278 4,587
Inventory 16,104 13,688
Other assets 891 980
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45,592 29,866
Investments 9,254 5,950
Property, plant and equipment 71,513 71,584
Exploration properties and deferred
exploration 61,184 61,292
Development properties 155,564 134,202
Other assets 261 1,304
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Total Assets $ 343,368 $ 304,198
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Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable $ 16,039 $ 13,163
Loans and interest payable 18,268 23,532
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34,307 36,695
Loans and interest payable 26,975 8,316
Reclamation 1,412 1,378
Venture obligation 31,884 31,422
Future income taxes 11,037 10,966
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105,615 88,777
Non-controlling interest 15,314 14,955
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Total Liabilities 120,929 103,732
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Shareholders' Equity
Share capital 296,723 276,575
Warrants 12,479 11,827
Contributed surplus 8,537 7,721
Cumulative translation adjustment (22,919) (23,050)
Deficit (73,381) (72,607)
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222,439 200,466
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Total Liabilities and Shareholders' Equity $ 343,368 $ 304,198
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HIGH RIVER GOLD MINES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands of Canadian dollars, except for income per share and
number of shares)

Three Three
Months Ended Months Ended
March 31, March 31,
(unaudited) 2006 2005
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Revenue
Gold $ 22,523 $ 19,607
Other 91 340
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22,614 19,947
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Expenditures
Mining costs 15,388 13,436
Amortization and depletion 2,900 2,511
Exploration 65 63
Administrative costs 767 831
Financing costs 401 315
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19,521 17,156
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Income before the under noted 3,093 2,791
Financing costs on venture obligation (462) (387)
Stock-based compensation (1,002) (372)
Loss on sale of assets (7) (99)
Write-down of carrying value - (860)
Unrealized derivatives loss - (589)
Non-controlling interest in earnings
of subsidiary (358) (304)
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1,264 180
Income tax expense 1,038 1,110
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Net income (loss) for the period $ 226 $ (930)
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Net income (loss) per share
- basic $ 0.00 $ (0.01)
- diluted $ 0.00 $ (0.01)
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Weighted average number of common
shares outstanding
- basic 223,176,530 170,014,607
- diluted 226,558,685 170,014,607
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Consolidated Statements of Deficit
(Thousands of Canadian dollars)

Three Three
Months Ended Months Ended
March 31, March 31,
(unaudited) 2006 2005
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Deficit - Beginning of period $ (72,607) $ (71,563)
Net income (loss) for the period 226 (930)
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Deficit - End of period $ (72,381) $ (72,493)
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HIGH RIVER GOLD MINES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Canadian dollars)

Three Three
Months Ended Months Ended
March 31, March 31,
(unaudited) 2006 2005
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Cash provided by (used in):
Operating activities
Net income (loss) for the period $ 226 $ (930)
Non-cash items:
Non-controlling interest in earnings
of subsidiary 358 304
Financing cost on venture obligation 462 387
Amortization and depletion 2,900 2,511
Write-down of carrying value - 860
Unrealized derivative loss - 589
Loss on disposal of assets 7 99
Stock-based compensation 1,002 372
Future income taxes 65 (32)
Other - 349
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Subtotal 5,020 4,509
Change in non-cash working capital (2,188) (5,635)
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Total operating 2,832 (1,126)
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Investing Activities
Property, plant and equipment (2,574) (1,700)
Exploration properties and deferred
exploration (1,132) (422)
Development properties (20,250) (17,639)
(Increase) in investments - (130)
Allocation to restricted cash 2,042 (141)
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Total investing (21,914) (20,032)
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Financing Activities
Dividends paid by subsidiary to
non-controlling interest (1) (72)
Increase in loans and interest payable 13,911 1,446
Issuance of common shares 19,818 469
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Total financing 33,728 1,843
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Effect of exchange rate changes on cash
held in foreign currencies 102 182
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Increase (decrease) in cash and cash
equivalents during the period 14,748 (19,133)
Cash and cash equivalents - Beginning
of period 8,524 40,709
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Cash and cash equivalents - End of period $ 23,272 $ 21,576
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Contact Information

  • High River Gold Mines Ltd.
    Don Whalen
    Executive Chairman
    (416) 947-1440
    (416) 360-0010 (FAX)
    info@hrg.ca
    www.hrg.ca