Trading Update for the First Half of 2006

02.08.2006

Moscow. - Highland Gold Mining Limited (“Highland Gold”, or the “Company”) announces an update on its trading for the half year ended 30 June 2006. Financial results for the period will be released on 21 September 2006. Highland Gold will hold a conference call hosted by Ivan Koulakov, Deputy Chairman, Henry Horne, Managing Director and Scott Yelland, Chief Operating Officer to discuss this trading update. The conference call will take place at 2:00pm UK time (5:00 pm Moscow) on Wednesday, 02 August 2006. To participate in the conference call, please dial one of the following numbers:

0800 953 1444 U.K. toll-free number
8108 0021 651 012 Russia toll-free number
1866 220 1452 USA toll-free number
+44 (0) 1452 542 300 International dial in number

Participants will be asked of their full names and the Conference ID which is 3946520#. A replay of the conference will be available after the call’s completion for a period of one week by calling one of the numbers below and quoting Conference ID 3946520#:

0800 953 1533 U.K. toll-free number
1866 247 4222 USA toll-free number
+44 (0) 1452 550 000 International dial in number

A Wav file of the recorded conference call will be available at www.highlandgold.com.

FIRST HALF HIGHLIGHTS

  • HGML’s total attributable production of 91,205 ounces of gold is a 43% increase on the first half of 2005 (63,749 ounces)
  • MNV produced 79,444 ounces of gold, 53% up on the same period for 2005
  • Unit costs at MNV were contained during the first six months of the year despite the upward pressure on operating costs
  • The restructuring of Darasun mine and the reduction of costs is ongoing. We will also embark on a drilling programme to delineate the deposit and further verify and increase the reserves
  • Further strengthening of our operating management team by employing quality Russian and expatriate specialists
  • The Management Company restructuring process was successfully completed
  • Further progress achieved on all our Development Projects and we are on target to complete the scoping study for Taseevskoye by end of this year and the bankable feasibility study for Mayskoye by the first quarter 2007
  • Ongoing progress on all our Exploration Projects with exploration drilling and trenching started
  • Improved efficiencies
  • Taseevskoye Barrick joint venture finalized

Commenting on today’s announcement Ivan Koulakov, Deputy Chairman, said:“We consider these first half year results as a very important contribution to the further development of the Company enabling it to pursue successfully its long term growth strategy”.

Henry Horne, Managing Director, said:“We are satisfied with the production results at MNV, which demonstrates operational stability of this mine and confirm the choice of recovery measures implemented by the Company’s management since the second half of last year. Unit operating costs at MNV were generally contained despite the above average increases in energy costs and the real Rouble appreciation. This serves as proof of the focused efforts and dedication of our management and all employees at MNV. We are also encouraged by the progress achieved during the first half of this year at our Development Projects all of which remain on target as per the Company’s expectations. Drilling and trenching is progressing to plan at the recently acquired exploration sites.Due to the restructuring at Darasun, our combined forecasted annual gold production from both operations for this year is now in the range of 180,000 - 185,000 ounces of gold. It is essential that the pace of development of our projects is maintained and that the agreed restructuring process at Darasun be continued as defined by the Company”.

MNOGOVERSHINNOYE MINE (MNV) - Khabarovsk Region, Russia

The MNV mine produced a total of 79,444 ounces of gold during the first half of 2006 (53% up from 51,979 ounces in the same period of 2005) and above the Company’s 2006 forecast. Due to technological improvements in the mill, the gold in process was reduced by 4,534 oz Au during the first half of the year. Mill throughput treated averaged 2,823 tonnes per day. Despite adverse weather conditions, which resulted in a number of production delays in the open pit and restricted access to the underground operations, production and associated development in the first half of the year were in line with the mining plan. We view this as an excellent outcome. Cash Operating Costs were US$304 per ounce at MNV, in line with the Company’s expectations. In the first half of 2006, over 5,100m of exploration drilling was completed at MNV, increasing the reserve. In the Upper ore body of the open pit two holes identified grades of 18.1g/t Au and 10.6g/t Au, over widths of 16.1m and 40.8m respectively. In the underground in the Northern ore body there were intersections of 15.4m and 14.0m grading 19.2g/t Au and 15.7g/t Au, and in the Flank zone, one hole intersected mineralization over 22m, with an average grade of 39.1g/t Au. The Company expects that the performance in the first half of 2006 will follow through into the second half and reach the top end of the MNV production guidance for 2006 of 150,000 to 160,000 ounces of gold.MNV Operating Statistics:

  For the first half year ended June 30,
  Unit 2006 2005
Mine development      
Waste stripping Cubic Meters 751,845 640,609
Underground development Linear Meters 4,609 4,363
Mining      
Open pit Tonnes 205,896 156,615
  g/tonne 5.90 4.70
Underground Tonnes 209,255 180,619
  g/tonne 5.90 5.37
Total ore mined Tonnes 415,151 337,234
  g/tonne 5.90 5.06
Ore processed Tonnes 485,561 371, 403
  g/tonne 5.60 4.81
Including from stockpile Tonnes 70,410 34,169
  g/tonne 3.83 2.33
Recovery rate % 90.9 90.5
Gold recovered Ounces 79,444 51,979
Gold sold Ounces 81,235 55,426
Gold price received US$/ounce $599 $426

DARASUN MINE – Chita Region, Russia

Gold production for the first half of 2006 was below the Company’s plan due to the production shortfalls from both the underground and open pit operations. This shortfall was partly made up by processing over 46,193 tonnes of low grade, historical stockpiled material. Mill throughput during the second quarter 2006 improved averaging over 30,700tpm, an improvement of over 53% on the first quarter 2006 production results. The shortfall in underground production can be attributed to inadequate stope development and a shortage of experienced development miners. Underground grades were lower, due to higher than planned dilution in undulating, irregular ore bodies. The shortfall in the open pit waste stripping was due to the non-availability of the three drill rigs, a result of a shortage of spares and poor maintenance. A service and maintenance agreement has now been signed with the equipment supplier, which should ensure equipment availability.

During the latter part of the first half of 2006, the management team at Darasun was strengthened with the appointment of an experienced Mine Manager, Underground Manager, Chief Geologist and a number of experienced managers/supervisors from the MNV operation. We have also managed to attract skilled and experienced Russian specialists from other Russian mining operations.

Darasun Operating Statistics:

 
For the first half year ended June 30,
Unit 2006 2005
Mine development      
  Waste stripping Cubic Meters 541,754 730,072
  Underground development Linear Meters 2,242 2,125
Mining      
  Open pit Tonnes 47,369 17,425
  g/tonne 3.11 6.43
  Underground Tonnes 64,523 55,084
  g/tonne 6.73 12.37
Total ore mined Tonnes 111,892 72,509
  g/tonne 5.17 10.94
Ore processed Tonnes 158,085 86,700
  g/tonne 3.40 5.84
Including from stockpile Tonnes 46,193 14,191
  g/tonne 0.90 1.10
Recovery rate % 68.1 72.3
Gold recovered Ounces 11,761 11,770
Gold sold Ounces 8,028 7,907
Gold price received US$/ounce $671 $437

The continuing restructuring and the economic viability of certain shafts have been reviewed and, as a result, the following actions are being taken:

  1. Cease production at the marginal shafts, South West and Teremky, while maintaining them on a care and maintenance basis.
  2. Commence with an exploration drilling programme to confirm and extend the underground geological resources, verify the reserves and delineate the orebody. An estimated 600,000oz Au of C1 and C2 Resources are situated below the 717 level in the South West Shaft and the 646 level in the East Shaft. These resources have been interpolated in line with Russian classifications, from the levels above and diamond drill information.
  3. The drilling programme will allow time to prepare and develop underground mining blocks
  4. Maintain production from the Central underground section
  5. Optimize production from the Talatui Open Pit.
  6. Reduce the potential cash drain, by decreasing manpower and operating costs
  7. Continue the implementation of the previously identified cost saving initiatives (e.g. back filling of waste underground, introduction of mechanized support, change of explosive types, purchase of suitable equipment and consumables etc.)
  8. To attract skilled and experienced Russian specialists to Darasun

TASEEVSKOYE DEVELOPMENT PROJECT – Chita Region, Russia

The first assay results from the drilling programme at Taseevskoye are in line with our expectations, and will be announced in due course. The sampling of the ZIF-1 tailings dam was completed in March of this year. A total of 908 metres of auger samples were taken which confirmed the average grade of the tailings dam to be in the order of 1.12g/t. A detailed exploration programme to confirm the Taseevskoye mineral resources commenced in March with one drill rig. At present there are five drill rigs on site and it is planned to start the sixth drill rig in early August. To date, nearly 11,000 metres have been drilled out of the planned drilling programme of 28,500 metres. Hydrology studies are well advanced to determine the source of water which is flowing into the Taseevskoye pit and the most suitable way of de-watering the pit. Negotiations are underway to commence the Environmental Impact Assessment and Resettlement Action Plan studies for the Taseevskoye Site. We expect the scoping study to be completed by the end of this year.

MAYSKOYE DEVELOPMENT PROJECT – Chukotka Region, Russia

The Mayskoye Feasibility Study is progressing satisfactorily and completion is anticipated by the end of the first quarter of 2007. Variability tests have commenced in Lakefield Laboratories in South Africa. The initial flotation tests on these samples, taken from various parts of the Mayskoye multiple orebodies, confirmed the previous findings that the Mayskoye ores respond favourably to flotation and that a high percentage of the gold in the sulphide ore will be recovered to a float concentrate. Lakefield Laboratories have also commenced a comprehensive test programme on samples from Mayskoye’s oxidised ore zone, in order to find a process that could improve gold recovery from the oxidised ore. Biox innoculem is now being prepared and Biox tests, under the direction of Goldfields, will commence towards the middle of August. Essential site construction is continuing at a controlled pace. An improved camp has now been completed for the workers and site management. A workshop and a vehicle shelter have also been built. Preliminary work has started on an all-weather road from Komsomolsky to Mayskoye. A survey for the high-voltage power line construction linking Komsomolsky and the Mayskoye mine has commenced.

NOVOSHIROKINSKOYE DEVELOPMENT PROJECT – Chita Region, Russia

We have reviewed several options for the future development of the Novoshirokinskoye polymetallic deposit. Economic evaluations of the Novoshirokinskoye gold, silver, lead, zinc project have shown that the project would be viable if a solution could be found to sell the gold rich lead flotation concentrates that will be produced by the mine on the international metal market. Having studied these options we are holding discussions with a prospective partner to jointly develop this polymetallic asset. This potential partner is currently in the process of carrying out a technical and legal due diligence. Other companies, which would bring synergy to the Project, have also expressed interest in entering into a joint venture to exploit the Novoshirokinskoye deposit.EXPLORATIONSovinoye – Chukotka Region, Russia During the first half of 2006, a camp has been established at Sovinoye, trenching is underway and drilling will start in August. The agreements with Barrick on a joint venture are being finalized.Lubov – Chita Region, Russia Accommodation and site facilities have been established at Lubov during the first half of 2006 and magnetic surveys have been completed. Drilling and trenching operations are scheduled to start in August 2006.

Belaya Gora – Khabarovsk Region, Russia

Construction of the accommodation and site facilities was started in June 2006. Topographical mapping has been completed and drilling pads established. Drilling and trenching has started. The agreements with Barrick on a joint venture are being finalized.

NEW PEOPLE

The Company has continued to strengthen its management team. Mr. Sergei Lysakov was appointed the new Managing Director of MNV. He graduated from the Technical Institute of Irkutsk as a surveyor. Prior to joining ZAO Mnogovershinnoye in 1998 he worked for a number of Russian mining companies and until March 2006 was the Chief Surveyor at MNV. Mr. Paul Clarke joined us as a Group Technical Director. He has a bachelor degree in mining engineering from Cardiff University, Wales, with 32-years worldwide mining experience. He held the position of mine manager at Kumtor mine in Kyrgyzstan and was also instrumental in the design and construction of the mine.

Mr. Alexander Arisanov joined us as Group Ore Reserve Manager. He has a master’s degree in geology and has been the Chief Geologist at Chelopech Mining EAD - a copper-gold operation situated in central Bulgaria. Mr. Vladimir Milekhin joined us as Chief Geologist at Darasun. Prior to joining Darasun he worked for more then 10 years as geologist and then as Chief Geologist with Omolon Gold Mining Company at its Kubaka operation in the Magadan region of Russia. We have also managed to attract skilled Russian specialists from other Russian operations, who will contribute to the increase of the overall skills level in the Company.

GOLD PRICE

The average realized gold price for the period was US$ 608/oz. The Company has a policy not to hedge or to sell forward long term.

For further information please contact: London : +44 (0) 207 851 6400
   
  Moscow : +7 (495) 777 5529
  E-mail: info@highlandgold.com
 

Henry Horne, Managing Director

 

Dmitry Yakushkin, Director of Communications