Award of Long-Term Mining Licences for Talatui and Novoshirokinskoye

28.07.2004

Highland Gold, the Russian gold producer, has been successful in an open tender for 20 year licences to operate the Talatui and Novoshirokinskoye gold deposits. Highland Gold acquired the assets at Talatui and Novoshirokinskoye in 2002 and has previously been relying on temporary licences whilst drawing up plans to bring these assets back into production. The sites are located in Chita, one of Russia's most promising gold producing regions. The licenses are awarded on the basis of technical and economic proposals and are expected to be formally issued by the Russia Federal Ministry of Natural Resources within the next few weeks.

Talatui
A study by SRK Consulting estimates mineral resources at Talatui, part of the Darasun area, at 1.2m oz (37.5 tonnes) at an average grade of 7 g/tonne. When the mine is fully operational the company expects to extract ore at a rate of 150,000 tonnes per annum. Because of the geographic proximity, Highland Gold will be able to process the ore from the Talatui deposit at the Darasun gold recovery plant with consequent efficiency gains.

Novoshirokinskoye
Current approved estimates of mineable reserves at Novoshirokinskoye stand at 1.0m oz (31.1 tonnes) of gold equivalent at an average grade of 5.8 g/tonne and mineral resources of 1.8m oz (55.9 tonnes) of gold equivalent at an average grade of 6.1 g/tonne. A feasibility study is currently underway at Novoshirokinskoye which is expected to be completed in November 2004. Following the results of the pre-feasibility study, on the basis of current assumptions, estimated reserves of gold equivalent at Novoshirokinskoye stand at 1.54m oz (48.0 tonnes) of gold at an estimated grade of 5.1g/tonne, 31.5m oz (980.0 tonnes) of silver at an estimated grade of 104 g/tonne, 177,000 tonnes of zinc at an estimated grade of 1.9% and 396,000 tonnes of lead at an estimated grade of 4.2%.

Volume of gold bearing ore is 302,000m oz, amounting to more than 84.0 tonnes in terms of gold equivalent at an average grade of more than 9 g/tonne. These findings indicate the possibility of a material increase in the Novoshirokinskoye reserves, once the State Committee for Reserves has approved the re-estimated results. Highland Gold is proceeding with approval procedures.

The Novoshirokinskoye deposit is currently under dry conservation with the majority of equipment being stored ready for use. Project work, including the reconditioning of some equipment is now being undertaken. Following the thorough inspection of the workings of the mine carried out in 2003, the underground sections are ready for production to begin. To optimise processing of the complex polymetallic ores at the Novoshirokinskoye deposit a decision was made to upgrade the ore processing cycle with an additional pyrometallurgical phase. This will enable production efficiency to increase and it will now be higher than previously envisaged with an internal rate of return increasing to 30% with a pay back period not exceeding four years.

The Novoshirokinskoye mill will be the first ore processing plant in the region with capacity to process ore not only from Novoshirokinskoye but also from other polymetallic deposits in the region. The rehabilitation of the existing production facilities and commencement of construction of the ore mining and processing complex, with the pyrometallurgical plant, is scheduled for late 2004 and early 2005.

The processing capacity of Novoshirokinskoye is now projected to be 450,000 tonnes of ore a year. The estimated average rate of recovery will be 86% for gold, 91% for silver, 79% for zinc and 87% for lead. In total the mine is expected to produce 55,000 oz of gold, 1.05m oz of silver, 13.5 tonnes of lead and 11.3 tonnes of zinc concentrate annually.

The award of the two licenses follows the start of gold production at Darasun, Highland Gold's other major deposit in the Chita Region. The start of production at Darasun has put Highland Gold on track to increase overall production next year by 60% to 320,000 oz from 194,000 oz in 2003.

Peter Daresbury, Executive Chairman of Highland Gold commented:

“We have recently demonstrated with Darasun our ability to convert development projects into producing assets. We now look forward to moving quickly towards unlocking the immense potential at both Talatui and Novoshirokinskoye.”

For further information:

Andrew Garfield, Mark Antelme, Brunswick, +44 207 404 5959