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. Last Updated: 07/27/2016

Highland Gold Suspends 2 Projects

Highland Gold Mining, part-owned by billionaire Roman Abramovich, is delaying two new projects as metal prices decline and the economic crisis makes financing harder to secure, sending shares down 18 percent.

Highland, the country's No. 5 gold miner, said Wednesday that it would delay the commissioning of its Novoshirokinskoye deposit until the first quarter of 2009. The mine, a joint venture with Kazakh zinc producer Kazzinc, was due to start production this month.

Highland said in a statement that it would also defer the majority of construction work at its Maiskoye project in the remote northeastern region of Chukotka until economic conditions and financing opportunities improve.

"Slowing down the development process of our projects is a logical decision in these circumstances," Highland chairman Duncan Baxter said.

Miners worldwide, including BHP Billiton and Freeport-McMoRan Copper & Gold, have lowered production forecasts and delayed expansion plans because of a sharp fall in metal prices and lower demand during the financial crisis.

Gold, trading at about $780 an ounce, has lost about one-quarter of its value since peaking at more than $1,000 an ounce in March, although its descent has been less steep than those of other metals and crude oil.

The decision to postpone the Novoshirokinskoye project is also related to the drop in zinc and lead prices, as the mine will produce both these metals as well as gold. Zinc has fallen about 60 percent and lead 70 percent since March.

Highland's license for the deposit in eastern Siberia requires that it begin production at the mine by Oct. 1, 2009. Most of the preparatory work has been completed, and the mine will be placed under care and maintenance, Highland said.

Highland, which last year produced 3 percent of the country's gold, said it remained on track to meet its 2008 production target of between 155,000 and 165,000 ounces of gold.

This will all be produced at the company's Mnogovershinnoye mine near the Pacific coast, which is mining high-grade ore in the current quarter.

Abramovich's company, Millhouse, owns a 32 percent stake in Highland. Barrick Gold, the world's largest gold miner, is also a shareholder.

Mikhail Stiskin, metals analyst at Troika Dialog, said the company had $309 million in cash on its books in mid-2008 and was able to fund Maiskoye for the next couple of years.

"Its economics should not have deteriorated recently, despite the lower gold price, due to cost deflation," he said.

"It may be due to the fact that Millhouse prefers to take an ultraconservative stance at this stage with regard to any long-term investment project with fragile economics," he said, adding that it might also prefer to use its cash for acquisitions.

Highland's London-traded stock fell to its lowest in more than a month, closing down 18 percent at 38 pence.