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. Last Updated: 07/27/2016

High Costs Hit Gold Miner's Profits

Highland Gold said Wednesday that it would cut close to 10 percent of its work force of 3,600 in a bid to reduce costs after posting a loss last year.

The company posted a loss of $7.17 million in 2005, hit by an increase in costs of close to 50 percent and a drop in production at its main mine in Khabarovsk. The British-listed company recorded a net profit of $5 million in 2004.

The company also said chief financial officer Denis Alexandrov would step down with effect from May 1.

"2005 was a difficult year for us, especially in the first half," Ivan Koulakov, corporate director and shareholder, said in a conference call Wednesday.

Highland's results follow a fall in profit Monday at rival gold-mining company Peter Hambro, which also blamed the decline on high energy and equipment costs.

Highland's job cuts come as its main unit, Mnogovershinnoye, which is in Khabarovsk, suffered a drop in production of almost one-quarter in the first half of last year.

At its second mine in the Chita region, Darsun, technical problems delayed the start of production until the fall.

The company started restructuring its business last summer, when it brought in several foreign executives to strengthen the company's exploration and financial teams, Koulakov said.

For 2006, the company said it expected better results as gold trades close to 25-year highs. "The results for 2006 will probably correlate with the growing price for gold," Henry Horne, Highland's recently appointed CEO, said Wednesday. The company may augment production to as much as 215,000 ounces this year. Production fell last year by almost 20 percent to 160,216 ounces.

But Vladimir Katunin, a metals analyst with Aton, said the planned increase in production this year would bring Highland back only to 2004 production levels. "The company's development has been stunted by a bad 2005, and investor attractiveness may have taken a knock," he said.

In addition to its Khabarovsk and Chita mines, Highland Gold also has a 50-50 Taseyevskoye production joint venture in Chita with Canada's Barrick Gold. Barrick owns 20 percent of the firm, with the Fleming family holding a further 19.5 percent. Nearly half of Highland's shares trade publicly in London, with company management owning the remainder.

The company's stock in London fell by about 5 percent Wednesday.