High River Gold Mines Ltd.
TSX : HRG

High River Gold Mines Ltd.

March 31, 2006 19:04 ET

High River Gold Reports 2005 Year-End Results

TORONTO, ONTARIO--(CCNMatthews - March 31, 2006) - High River Gold Mines Ltd. ("High River","Company") (TSX:HRG) is pleased to report its financial results and operations for the year ended December 31, 2005 (all currency figures are in Canadian dollars unless otherwise noted). 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, and will also be included in the Company's annual report, which will be mailed to our shareholders.

Highlights for 2005

- Attributable gold production of 133,544 ounces at a total cash cost of US $266 per ounce

- Consolidated net loss of $1.0 million ($0.01 per share)

- Operating cash flow of $8.2 million

- Construction continued at the Taparko-Bouroum and Berezitovy projects

- Equity financing (bought deal) for gross proceeds of $30 million

- Acquisition of Jilbey Gold Exploration Ltd.

- Project financing of US $35 million arranged for the Taparko-Bouroum project

- Bridge loan for US $9 million arranged for the Berezitovy project
(closing of the project financing expected in the second quarter of 2006)

- US $2.4 million exploration programme completed at Bissa

- Acquisition of the Novophirsovskoye exploration and mining license in Russia

Subsequent Events

- Entered into a Strategic Alliance Agreement with Goldrush Resources Ltd.

- Approximately $19 million raised from the early exercise of warrants

2005 Financial Results

The Company incurred a net loss of $1.0 million ($0.01 per share) in 2005 compared to a net loss of $112,000 ($0.00 per share) in 2004. The loss for the year was mainly due to higher operating costs at the Company's underground operations in Russia, a non-cash financing cost on the New Britannia joint venture of $1.5 million and a non-cash stock-based compensation expense of $1.4 million. In 2004, the loss was largely the result of the closing of the New Britannia Mine in Canada, a lower contribution from Buryatzoloto due to higher operating costs and an increase in non-cash expenses, including stock option expenses, and financing costs for New Britannia.

The Company's consolidated gold revenues for 2005 were $82.2 million compared to $95.6 million in 2004. Consolidated revenues declined due to fewer ounces sold and a weaker US dollar partially offset by higher metal prices.

The Company's attributable gold production increased by 24% to 133,544 ounces compared to 107,644 ounces in 2004. Despite the closure of the New Britannia Mine, the Company realized an increase in attributable gold production as a result of an increase in its ownership interest in Buryatzoloto. Attributable gold sales were 129,705 ounces in 2005 compared to 110,252 in 2004. The average realized gold price was US $442 per ounce in 2005, up from US $405 per ounce in 2004. The Company remains unhedged and continues to sell its gold production at spot prices.

Exploration expenses increased from $2.6 million to $3.8 million in 2005 and general and administrative expenses in 2005 increased to $4.0 million compared to $3.5 million in 2004. The year over year increase in these expenses reflect an accelerated level of activity of the Company.

Cash flow from operating activities decreased in 2005 to $8.2 million compared to $19.4 million in 2004. The decrease is mainly due to changes in non-cash working capital accounts. The pace of development activities continued to increase in 2005 resulting in an increase in payables and accruals at year-end.

Investing activities consumed $88.1 million of cash in 2005 compared to $49.1 million in 2004. The significant increase is due to development expenditures on the construction of the Taparko-Bouroum and Berezitovy projects. The Company's investment in continuing operations decreased due to lower development expenditures at the Russian operations. Deferred exploration increased from $0.7 million in 2004 to $11.0 million in 2005 as a result of activity on the Bissa property and the acquisition of the Novophirsovskoye license.

In 2005, High River raised gross proceeds of $30 million in a bought deal financing. In 2004, the Company completed two financings raising gross proceeds of $64.8 million. The proceeds from these transactions were added to cash resources to fund the development of the Berezitovy and Taparko-Bouroum projects.

Working capital at December 31, 2005 amounted to a deficiency of $6.8 million and cash decreased by $32.2 million compared to working capital of $42.7 million at the end of 2004, of which $40.7 million was in cash. Short-term debt increased by $19 million in 2005. Some of the short-term debt will be replaced by long-term project financing in 2006.

Fourth Quarter 2005 Review

For the fourth quarter of 2005, the Company realized a net profit of $1.0 million compared to a net loss of $4.3 million in 2004. Revenue was higher in Q4 2005 than in the preceding quarters. Gold revenue increased to $22.8 million from $20.7 million in the same period of 2004. Realized gold prices increased and some inventoried gold was sold. The US dollar weakened against the Canadian dollar which slightly offset the higher price and sales volume. Operating costs increased slightly due to the inventory drawdown. The per-share figures also reflect the large increase in the number of outstanding shares in 2005 compared to 2004.

The Company's investing activities during the fourth quarter totaled $19.6 million mainly associated with the construction and development of its two major projects. During the fourth quarter, the Company raised gross proceeds of $11 million, primarily debt, to finance the development of its two projects.

Review of Operations

OJSC Buryatzoloto Operations

In early 2005, High River increased its ownership interest in its Russian operating subsidiary, OJSC Buryatzoloto ("Buryatzoloto") from 51.4% to 84.6%. Buryatzoloto is one of Russia's leading gold producers and operates two 100%-owned underground mines located in the Republic of Buryatia in southern Siberia, Russia as well as a small placer operation. In 2005, Buryatzoloto exceeded its mine plan target and produced 157,910 ounces of gold at a total cash cost of approximately US $266 per ounce compared to 155,253 ounces of gold at a total cash cost of $251 per ounce in 2004. Gold production from the small placer operation was 4,785 ounces compared to 4,752 ounces in 2004. Buryatzoloto is unhedged and realized an average price of US $442 per ounce for gold sales during the year compared to US $405 in 2004.

High River's objective going forward is to maintain production at current levels from these two mines (approximately 150,000 ounces per year) and to capitalize on the excellent infrastructure of both operations by extending mine life through exploration success in each mine and within trucking distance of each mill. Both mines are year-round accessible by road and are connected to the low-cost regional power grid. High River intends to capitalize on the expertise and excellent reputation throughout Russia of the Buryatzoloto management and operating team by identifying and acquiring new, advanced precious metal projects in Russia.

Buryatzoloto's capital expenditures for the year totaled $16.6 million.



Buryatzoloto Operating and Financial Data

2005 2004
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Tonnes milled 541,275 533,335
Head grade (g/t) 9.2 9.3
Recovery (%) 94.2 94.4
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Gold production (oz) (100%) 157,910 155,253
High River share of production (oz) 133,544 83,992
High River share of gold sales (oz) 129,705 83,628
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Direct mining cost (US $/oz) 243 227
By-product credits (US $/oz) (6) (4)
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Mine operating cost (US $/oz) 237 223
Royalties (US $/oz) 29 28
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Total cash cost (US $/oz) 266 251
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New Britannia Mine (50%)

High River has a 50% direct, joint venture interest in the underground New Britannia Mine, under the operatorship of Kinross Gold Corporation ("Kinross"). The mine was placed on care and maintenance in January 2005 and there was no gold production for 2005. The Company is considering various opportunities to build upon the exploration potential of the region and the existing mine infrastructure.

Development Update

Taparko-Bouroum Project (90%)

The Company provided an update on the Taparko-Bouroum project on February 15, 2006. The construction contract was signed with Senet CC of South Africa whose team is on site. Construction of the process plant is scheduled to be completed by year-end with the first gold pour in the first quarter of 2007. Capital costs were revised to US $70.6 million. As of the end of February 2006, approximately US $32 million has been spent on the project, of which US $13.7 million was provided by Royal Gold Inc. as part of the US $35 million project financing.

Berezitovy Project (99%)

A revised feasibility study and mine plan was presented to the federal authorities of the Russian Federation during the third quarter of 2005; approvals and construction permits were received late in the year. The new mine plan is based on mining fewer tonnes at higher grade resulting in an increased average annual gold production rate exceeding 120,000 ounces at a lower than originally planned operating cost per ounce.

Capital expenditures for the project have been revised upward to approximately US $76 million plus VAT. To the end of February 2006 a total of US $47 million has been spent on the development activities, financed mainly by equity. Project financing for approximately US $49 million to be provided by The European Bank for Reconstruction and Development ("EBRD") and the Russian bank, Nomos Bank, is expected to close shortly with drawdown occurring in April and May.

Significant progress has been made to date on infrastructure, including completion of a 101 kilometre powerline connecting the site to the low cost power grid and preparation for the mill site and tailings area. Pre-stripping of the pit is scheduled to start in April 2006. Full scale construction of the plant and processing facilities will largely take place during 2006 with commissioning of the project scheduled for the second quarter of 2007.

Exploration Status

On the Bissa project in Burkina Faso, High River has completed a 31,000 metre drilling programme and is confident that its objective to establish a one million ounce gold resource will be met. SRK Consulting (Canada) Inc. has been contracted to perform an independent resource calculation and their report is expected in April.

High River plans to allocate approximately US $2.0 million per quarter to exploration in Burkina Faso starting in mid-2006, with a primary focus on expanding the mineral resources at the Bissa project. In addition, High River's strategic alliance partner, Goldrush Resources Ltd., is aiming to undertake a US $2.2 million exploration work programme.

In Russia, High River will continue exploration work at the Novophirsovskoye property with an estimated 2006 budget of US $1.5 million. Approximately US $5.0 million has been budgeted for exploration in and around the Zun-Holba and Irokinda mines.

Outlook

During 2006, High River will focus its efforts on closing the project financing for the Berezitovy project and completing the development of both the Taparko-Bouroum and Berezitovy gold projects. The successful start-up of both projects will have a significant impact on the Company, moving it to mid-tier producing status.

The Company intends to extend the mine life of its two Russian operations through exploration, and High River and Buryatzoloto will continue to work towards optimizing these operations and containing operating costs.

The Company has set an objective of increasing its resource base to approximately 6 million ounces of gold during 2006 through exploration and acquisition. A large part of the resource growth is expected to come from the Bissa project. High River plans to capitalize on its Buryatzoloto investment to acquire additional projects in Russia. In addition, the Company is working to broaden the institutional investor base to enhance the company's valuation and will continue to evaluate new opportunities.

FORWARD-LOOKING STATEMENTS

This press release contains certain forward-looking statements relating but not limited to the Company's expectations, intentions, plans and beliefs. Forward-looking information can often be identified by forward-looking words such as "anticipate", "believe", "expect", "goal", "plan", "intend", "estimate", "may" and "will" or similar words suggesting future outcomes, or other expectations, beliefs, plans, objectives, assumptions, intentions or statements about future events or performance. Forward-looking information may include reserve and resource estimates, estimates of future production, unit costs, costs of capital projects and timing of commencement of operations, and is based on current expectations that involve a number of business risks and uncertainties. Factors that could cause actual results to differ materially from any forward-looking statement include, but are not limited to, failure to establish estimated resources and reserves, the grade and recovery of ore which is mined varying from estimates, capital and operating costs varying significantly from estimates, delays in obtaining or failures to obtain required governmental, environmental or other project approvals, inflation, changes in exchange rates, fluctuations in commodity prices, delays in the development of projects and other factors. Forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from expected results.

Potential shareholders and prospective investors should be aware that these statements are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those suggested by the forward-looking statements. Shareholders are cautioned not to place undue reliance on forward-looking information. By its nature, forward-looking information involves numerous assumptions, inherent risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and various future events will not occur. High River undertakes no obligation to update publicly or otherwise revise any forward-looking information whether as a result of new information, future events or other such factors which affect this information, except as required by law.



High River Gold Mines Ltd.
Consolidated Balance Sheets
As at December 31
(Thousands of Canadian dollars)


2005 2004
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Assets
Current Assets
Cash and cash equivalents $ 8,524 $ 40,709
Restricted cash 2,087 2,021
Accounts receivable 4,587 5,301
Inventory 13,688 13,369
Other assets 980 116
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29,866 61,516
Investments 5,950 8,980
Property, plant and equipment 71,584 65,799
Exploration properties and deferred
exploration 61,292 4,111
Development properties 134,202 64,151
Other assets 1,304 1,289
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Total Assets $ 304,198 $ 205,846
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Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable $ 13,163 $ 14,274
Loans and interest payable 23,532 4,560
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36,695 18,834
Loans and interest payable 8,316 12,048
Reclamation 1,378 2,029
Venture obligation 31,422 29,881
Future income taxes 10,966 2,713
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88,777 65,505
Non-controlling interest 14,955 41,994
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Total Liabilities 103,732 107,499
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Shareholders' Equity
Share capital 276,575 177,084
Warrants 11,827 8,620
Contributed surplus 7,721 4,664
Cumulative translation adjustment (23,050) (20,458)
Deficit (72,607) (71,563)
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200,466 98,347
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Total Liabilities and Shareholders' Equity $ 304,198 $ 205,846
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High River Gold Mines Ltd.
Consolidated Statements of Operations
For the years ended December 31
(Thousands of Canadian dollars except per
share figures)

2005 2004
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Revenue
Gold $ 82,156 $ 95,557
Other 1,672 1,707
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83,828 97,264
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Expenditures
Mining costs 56,836 70,233
Amortization and depletion 11,275 9,083
Exploration 3,832 2,647
Administrative costs 3,975 3,456
Financing costs 1,767 2,125
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77,685 87,544
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Income before the under noted 6,143 9,720
Financing costs on venture obligation (1,541) (1,385)
Stock option benefit expense (1,378) (1,756)
Loss on sale of assets (352) (512)
Gain on sale of investments 539 -
Other (231) -
Non-controlling interest in earnings
of subsidiary (841) (3,166)
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2,339 2,901
Income tax expense 3,383 3,013
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Net loss for the year $ (1,044) $ (112)
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Net loss per share - basic $ (0.01) $ (0.00)
- diluted $ (0.01) $ (0.00)
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Weighted average
number of
common shares
outstanding - basic 188,819,268 112,140,824
- diluted 188,819,268 112,140,824
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Consolidated Statements of Deficit
For the years ended December 31
(Thousands of Canadian dollars)

2005 2004
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Deficit - Beginning of year $ (71,563) (71,451)
Net loss for the year (1,044) (112)
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Deficit - End of year $ (72,607) $ (71,563)
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High River Gold Mines Ltd.
Consolidated Statements of Cash Flows
For the years ended December 31
(Thousands of Canadian dollars)

2005 2004
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Cash provided by (used in):
Operating Activities
Net loss for the year $ (1,044) $ (112)
Non-cash items:
Non-controlling interest in earnings
of subsidiary 841 3,166
Financing cost on venture obligation 1,541 1,385
Reclamation - (355)
Amortization and depletion 11,275 9,083
Loss on disposal of assets 352 512
Gain on sale of investments (539) -
Stock option benefit expense 1,378 1,756
Future income taxes 1,289 240
Other 261 (3,530)
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Subtotal 15,354 12,145
Change in non-cash working capital (7,146) 7,256
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Total operating 8,208 19,401
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Investing Activities
Property, plant and equipment (9,454) (12,500)
Exploration properties and deferred
exploration (10,976) (653)
Development properties (64,202) (30,334)
Purchase of subsidiary net of cash acquired (480) -
Decrease (increase) in investments 338 (4,079)
Allocation of restricted cash (790) (1,517)
Decrease in other long-term assets (2,549) -
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Total investing (88,113) (49,083)
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Financing Activities
Dividends paid by subsidiary to
non-controlling interest (65) (350)
Increase (decrease) in loans and
interest payable 16,454 (6,417)
Issuance of common shares 32,045 61,035
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Total financing 48,434 54,268
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Effect of exchange rate changes on cash held
in foreign currencies (714) (2,134)
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(Decrease) increase in cash and cash
equivalents during the year (32,185) 22,452
Cash and cash equivalents - Beginning of year 40,709 18,257
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Cash and cash equivalents - End of year $ 8,524 $ 40,709
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Contact Information

  • High River Gold Mines Ltd.
    Don Whalen
    Executive Chairman
    (416) 947-1440
    (416) 360-0010 (FAX)
    or
    High River Gold Mines Ltd.
    David Mosher
    President & Chief Executive Officer
    (416) 947-1440
    (416) 360-0010 (FAX)
    info@hrg.ca
    www.hrg.ca