Agreement to Acquire the Mayskoye Gold Project

04.09.2003

The Board of Highland Gold Mining Limited today announces that its subsidiary Stanmix Holding Limited has entered into a conditional agreement with Deerfield Universal Inc to acquire a 100% interest in JSC Mayskoye, the holder of the licence for the high grade Mayskoye gold deposit in the Chukotka region of North East Russia, for a total consideration of US$34.9 million. On completion, the acquisition will increase the Group’s total gold reserves to 5.8 million ounces (B and C1 under the Russian classification system) and B, C1 and C2 resources to 16.9 million ounces of gold and gold equivalents.

The acquisition is expected to be completed within approximately one month and is conditional upon receiving the appropriate regulatory approvals and consents and finalisation of due diligence. Title to shares representing 100% of JSC Mayskoye will transfer to Stanmix Holding Limited on completion. The consideration will be paid in three instalments, an initial payment of $11.9 million on completion followed by two equal instalments of $11.5 million to be paid on the first and second anniversary of completion respectively.

The Mayskoye deposit has been extensively explored since its discovery in 1972 and has estimated mineable reserves in the C1-C2 category of 3.7 million ounces of gold at an average gold grade of 11.50g/t. Furthermore, resources at the deposit are calculated at 9 million oz of gold at an average grade of 11.4g/t at an average cut off grade of 5.0g/t. The current licence, initially granted in 1999, is valid until 2024.

Based on current estimates the Company expects that the capital requirement to bring the deposit into full production will be approximately $90 million with full production of approximately 180,000 ounces of gold per year from 2007 onwards at a mining rate of 550,000 tonnes of ore. Highland Gold intends to commission a full independent feasibility study post-completion and believes that, subject to the successful completion of this, the project can be brought into production before the end of 2006. Although there will be some open pit mining over the first three years, the majority of the ore will be extracted by underground development.

The majority of the ore at Mayskoye is of a refractory nature and it is anticipated that the ore will be processed by the established method of gravity flotation, with further bioxidation of the concentrate, although the Company is looking at a range of potential processing options. Previous metallurgical testwork has indicated a potential recovery rate of between 86% and 90% using bioxidation mthods.

Highland Gold estimates that, together with its existing operations at MNV and development projects at Darasun and Novoshirokinskoye, it is well placed to achieve a target annual production of 500,000 ounces in 2006. On current estimates, the Company expects total cash costs per ounce at Mayskoye to be in the region of $160-170 per ounce.

It is intended that both the acquisition costs and the costs of the feasibility study will be funded from a combination of the Company’s available debt facilities and cash generated from the Company’s ongoing operations. A range of options in respect of the capital development of the Mayskoye project is available to the Company. Highland Gold intends to review these options during the preparation of the feasibility study before making its final decision.

Peter Daresbury, Chairman, Highland Gold said:

“The acquisition of Mayskoye is a transforming transaction for the Group. We are acquiring a world class, long life, low cost deposit in a transaction which doubles the Group’s resource base. The acquisition of long term production potential complements the Group’s existing mining operations and ongoing production profile. Together with the development projects due to come on stream over the next two years, Mayskoye affords a clear path to a target production of 500,000 ounces of gold by 2006.”

Ivan Koulakov, Managing Director, Highland Gold said:

“The Mayskoye project provides a tremendous opportunity for the Highland Gold management team to apply its proven development skills to a world class deposit. Our team of geologists, mining engineers and technical specialists have examined Mayskoye in detail and are excited about developing the mine and look forward to developing our business in the Chukotka region."

Enquiries:    
Highland Gold Ivan Koulakov +7 095 777 3155
  Dmitri Korobov +44 (0) 161 832 2174
W.H. Ireland David Youngman  
  Laurie Beevers  
Brunswick Alison Howard +44 (0) 20 7404 5959
  Mark Antelme  


Notes to editors:

Mayskoye

The Mayskoye project is located in the Chaunski District of the Chukotka Autonomous Territory, in North East Russia, approximately 180km south of the port town of Pevek. At a latitude of 68.6 degrees north, the region has an Arctic climate with permafrost conditions. The population of the local area is approximately 6,000. Despite the remote location, there is good access to the deposit by road and there is access to Pevek by both air and sea.

The Mayskoye deposit was discovered in 1972 after many years of mapping and prospecting activities in the region. It is one of the more extensively explored deposits in Russia with more than 400km of drill holes and nearly 27km of underground workings completed between 1972 and 1986.

Results from these exploration programs led to a 1986 ore resource calculation of nearly 9 million ounces of gold at an average grade of 11.4g/t. This calculation was approved by the State Committee on Mineral Reserves. In 2002 the State Committee on Mineral Reserves approved an updated geological reserves estimate of 4.4 million ounces of gold in the C1 and C2 category an at an average grade of 16.3g/t based on an average cut off grade of 5g/t. The Company has calculated mineable reserves of 3.7 million ounces of gold at an average grade of 11.5g/t as indicated in the table below.

Mayskoye – Geological Reserves Calculated and Approved by GKZ in 2002

Russian classification of ore reserves
  Ore, kt Au, g/t Au, koz
C1 2,949 15.1 1,432
C2 5,412 16.9 2,941
Total - undiluted 8,361 16.3 4,373
Total – mineable * 9,950 11.5 3,680


* calculated by the Company

Additional exploration work at depth is required in order to reclassify C2 reserves to the C1 category and this will be carried out whilst mining continues at shallower depths. It is Highland Gold’s intention that ore reserves will be reclassified to the B category during the preparation of ore blocks for mining.

Highland Gold

Highland Gold, admitted to AIM in December 2002, is a leading Russian gold producer whose objective is to acquire and develop a portfolio of high quality gold mining projects with growth potential in the Russian Federation. The Company owns and operates the Mnogovershinnoye mine (MNV) which was Russia’s third largest producing mine in 2002. It also owns two advanced development projects, Darasun and Novoshirokinskoye, that are planned to be in production by 2004 and 2005 respectively.

Prior to completion of the Mayskoye acquisition, the Group has an aggregate resource base of 8.0 million oz of gold, comprising 7.2 million oz of gold and a further 0.8 million oz of gold equivalents at the Novoshirokinskoye gold and polymetallic deposit. On completion, the Group will have an aggregate resource base of 16.9 million oz of gold and gold equivalents (B, C1 and C2).

MNV is situated near to Nikolaevsk-na-Amur in the Khabarovsk Region of far-east Russia, approximately 650km north of the city of Khabarovsk. MNV was Russia’s third largest gold producing mine in 2002 and has reserves of 2.3 million oz of gold in the B-C1 category at an average grade of 8.9 g/t and resources of 3.0 million oz of gold at an average grade of 9.7 g/t. The Company owns 100% of ZAO MNV which owns the gold mining licence valid until the end of 2018. Operations at MNV consist of both underground and open-pit mining of several high grade gold deposits.

The Darasun project is situated in the Chita Region of Eastern Russia and consists of an existing, but currently non-operational, gold mining complex having open-pit and underground mining development and mineral processing facilities. It consists of three deposits, Darasun, Teremky and Talatui and has C1 reserves of 1.1 million ounces of gold at an average grade of 10.3g/t and resources of 3.1 million ounces of gold at an average grade of 10.3g/t. The Company holds a 100% interest in OOO Darasun which holds certain assets at the Darasun project including the gold mining licences at Darasun and Teremky which expire in 2023, and for the Talatui deposit, expiring in 2012. It is anticipated that mining production will commence in May 2004 with full production of an estimated 450,000 tonnes of ore and 120,000 ounces of gold in 2005.

The Novoshirokinskoye gold and polymetallic mining project, also located in the Chita region, contains a total of 1.8 million resource ounces of gold and gold equivalents at a gold equivalent grade of 6.1g/t. The Group holds an 87.08% interest in OAO Novoshirokinskoye, which holds certain key assets essential to the future development of this project. The remaining minority interests in the share capital of the company are held by a number of private individuals. Highland Gold continues to work with the local administration in Chita to ensure that the Group fully complies with all aspects of the gold mining licence at Novoshirokinskoye. The Company currently estimates that Novoshirokinskoye will be brought into production in 2005 and will mine approximately 350,000 tonnes of ore in 2006.

Forward looking statements
Certain statements within this announcement constitute forward looking statements. Such forward looking statements involve risks and other factors which may cause the actual results, achievements or performance of the Group to be materially different from any future results, achievements or performance expressed or implied by such forward looking statements. Such risks and other factors include, but are not limited to, general economic and business conditions, changes in government regulation, currency fluctuations (including the US$/RUR rate), the gold price, the Group’s ability to recover its reserves or develop new reserves, competition, changes in development plans and other risks. There can be no assurance that the results and events contemplated by the forward looking statements contained in this announcement will, in fact, occur. These forward looking statements are correct or represent honestly held views only as at the date of this announcement. The Company will not undertake any obligation to release publicly any revisions to these forward looking statements to reflect events, circumstances or unanticipated events occurring after the date of this announcement except as required by law or by any regulatory authority.