Barrick Agreement & Trading Update

28.01.2004

Highland Gold receives US$40m from a share issue to Barrick Gold and agrees the terms of a strategic partnership

Further to the announcement dated October 13th 2003, the Board of Highland Gold Mining Limited (“Highland Gold”) today announces that it has agreed a share issue and a strategic partnership with Barrick Gold Corporation (“Barrick”) of Canada. Barrick is a leading international gold producer with operations and development projects on four continents.

When Harmony Gold’s 31.7% stake in Highland Gold was placed on 13th October 2003, Highland Gold announced the terms of a proposed new share issue to Barrick. Under the terms of this original transaction Barrick acquired 10% of Highland Gold’s equity in the placing and conditionally agreed to subscribe for 29,577,322 new ordinary shares at a price of 235p per share. This would have given Barrick a stake of approximately 29% in Highland Gold. However Barrick has expressed a preference in investing directly in deposits to be developed, starting with Mayskoye, and consequently the principal terms of the revised deal are:

  • Highland Gold agrees to issue 9,312,439 new ordinary shares at a price of 235p per share (the price agreed under the terms of the original transaction) to Barrick raising gross proceeds of US$40m (£21.88m) for Highland Gold
  • The share issue will take Barrick’s total shareholding from approximately 10% to approximately 17% of the company’s enlarged issued share capital
  • The proceeds will be used to strengthen Highland Gold’s financial position and to accelerate the capital expenditure programme
  • Barrick has agreed that it will not dispose of its new ordinary shares for a period of six months
  • Highland Gold and Barrick are discussing the opportunity of establishing a joint venture at the Mayskoye deposit. In any event, Barrick will have a right of first refusal with respect to third party investment in the Mayskoye deposit
  • In addition, Highland Gold and Barrick will enter a four year strategic partnership, with a one-year rolling contract thereafter, to develop opportunities in the Russian gold sector, including:
    • An agreement on how Highland Gold and Barrick will co-operate in Russia, including the right but not the obligation, on an exclusive basis, for Barrick to participate in up to 50% of any acquisition made by Highland Gold in Russia and similar rights for Highland Gold for any acquisition made by Barrick in certain regions of Russia
    • An agreement to pursue the foundation of an exploration joint venture
  • Barrick will have the right to nominate one director to the Board of Highland Gold and to second certain personnel

The Directors of Highland Gold, having consulted with W.H. Ireland as Nominated Adviser to Highland Gold, consider that the terms of the revised transaction are fair and reasonable insofar as its shareholders are concerned.

Trading Update

Highlights

MNV

  • Production increased for the fifth consecutive year
  • 2003 production target of 194,000 oz of gold achieved (from 178,000 oz in 2002), at the time of the transition to a new ore body

Darasun

  • Capital expenditure programme on schedule and within budget
  • Mining has begun with a stockpile of ore built up ahead of the mill start-up date of May 2004

Novoshirokinskoye

  • The first stage of the feasibility study necessary to restart mine development and refurbish the mill has been completed

Mayskoye

  • The Mayskoye feasibility study has been commissioned and is expected to be finalised by the end of 2004

Mnogovershinnoye (MNV)

MNV increased production for the fifth consecutive year. The production target of 194,000 oz for 2003 was achieved, an increase of 9% from 178,000 oz in 2002. The transition to the new ore body is progressing as planned with no impact on production levels.

  Period ending
31st December
2003
Period ending
31st December
2002
Percentage
change
YOY
Tonnes of ore mined 800,000 762,761 4.9%
  Of which underground 474,767 374,852 26.7%
  Of which open pit 326,033 387,912 -16.0%
Tonnes released from stockpile 90,402 43,268  
Tonnes of ore milled at MNV's processing plant 891,202 806,029 10.6%
Average head grade, g/t 7.36 7.49  
  From underground ore 8.82 6.71  
  From open pit ore 6.05 8.32  
Gold produced 194,000 oz 178,000 oz 9.0%
Average recovery rate 92.02% 91.74%  

Darasun

At the beginning of 2003, Highland Gold started development at the Darasun deposits, including intensive mine preparation and development at the Darasun and Teremki underground mines. Mining has now begun in order to build a stockpile of ore for the planned mill start-up in May 2004. The construction of the flotation and hydrometallurgy buildings at the processing plant is nearing completion. The tailings facility was completed to accommodate five years of initial production. Highland Gold maintains its previously announced production target of 40,000 ounces of gold in 2004.Novoshirokinskoye The review of the mining data and the assessment of the technology to be used in the metallurgical process, which was commissioned in order to redevelop the mining deposit as a primarily gold-producing asset, have been completed. Details of the feasibility study will be available at the preliminary results.

Mayskoye

Following the acquisition of the Mayskoye deposit for US$34.9m, completed on November 4th 2003, the management of Highland Gold has moved the project forward as follows: a) It has commissioned a Magadan-based metallurgical institute to conduct the technical study, which is expected to be completed by the end of 2004. b) It has sent eleven tonnes of ore samples to a Moscow-based institute for further process testing with the results expected in the second half of 2004. c) It has accelerated the construction of camp accommodation and related infrastructure, which will now begin in the second half of 2004.

Commenting on the partnership with Barrick and the trading update, Peter Daresbury, Executive Chairman of Highland Gold, said:“I am pleased to be able to announce the terms of the agreement with Barrick. I am looking forward to our relationship with Barrick as both a shareholder and a strategic partner in the development of further opportunities in Russia and to the subsequent acceleration of our growth.

“These revised terms reflect a better understanding of both companies’ interests and objectives in Russia since the original announcement of Barrick’s interest in October 2003. This deal allows us to benefit from Barrick’s experience as well as from its recognised technical, financial and managerial expertise.

“I am also pleased to be able to update the market on the solid progress of our producing and development assets, including reaching our target production figures. I look forward to production starting at Darasun on time and within budget in May 2004.”

Commenting on the partnership with Highland Gold, Greg Wilkins, President and Chief Executive Officer, said,“This latest Highland transaction represents an important next step in the development of Barrick’s strategy in Russia – one of the most prospective gold regions anywhere in the world.”

Enquiries:  
Highland Gold  
Peter Daresbury / Denis Alexandrov +44 207 409 5600
Brunswick  
Alison Howard /Mark Antelme +44 207 404 5959
Barrick  
Vince Borg - Media contact +1 416 307 7477
Kathy Sipos - Investor Contact +1 416 307 7441