Production Results for the Second Half of 2008

05.02.2009

HIGHLIGHTS

  • In H2 2008 Mnogovershinnoye (MNV) produced 90,002 ounces of gold bringing the yearly production to 158,885 ounces – which is within the forecasted range and exceeds the 2007 production figure by 1.5%
  • At the end of 2008 due to the fall in metal prices and to conserve cash it was decided together with our joint venture partner to delay the commissioning of the Novoshirokinskoye mine, and to slow down the development of the Mayskoye and Taseevskoye projects
  • All the works at the exploration sites of the Company planned for 2008 have been accomplished

Chairman, Duncan Baxter said, “We are maintaining our cautious approach to expenditure while the markets remain volatile. When a sustained recovery is apparent, we will reassess this situation and consider the resumption of activities that have been slowed down or put on hold. During the last three months of 2008 the new management team has put in substantial efforts to reduce costs which should positively affect the Company’s performance in 2009. Work on increasing the Company’s efficiency will continue. We would also like to note that the recent recovery of the gold price is encouraging and the Board continues to keep a close eye on potential acquisitions of producing assets.”

OPERATIONS

MNOGOVERSHINNOYE (MNV) – Khabarovsk region

The Mnogovershinnoye mine produced 158,885 ounces of gold in 2008 with a total of 1,036, 851 tonnes of ore mined. In order to contain operational costs the main focus was on open pit mining with the production of 635,855 tonnes of ore – about 1.5 times more than in 2007. Ore production from underground mining was deliberately lower to enable operations needed for additional underground development and to delineate ore blocks for future mining.

In 2008 the construction of the main fan unit was initiated and is scheduled for commissioning in Q1 2009. The enhanced ventilation will allow us to expand the Company’s fleet of underground mining equipment and therefore increase underground production capacity.

A recalculation of reserves for the Upper Ore Body with a change of the cut-off grade from 2 g/t to 1 g/t will increase the tonnage capacity of the open pit. In 2008 overburden stripping started at the Flank Ore Body which is scheduled for development in 2009.

The process plant treated 1,039,977 tonnes of ore with an average recovery rate of 88.1%. In Q3 2008 the process plant was supplemented by a separate gravitational recovery circuit with the subsequent cyanidation of gravity concentrates. This facilitates the treatment of a greater amount of refractory ore and maintains a stable throughput recovery figure.

In 2008 a third heavy-duty thickener for the process plant was contracted and designed. The installation of this thickener in 2009 will allow us to increase the throughput gold recovery and also facilitate the upgrading of the two existing thickeners.

MNV

6 months ended

6 months ended

12 months ended

30 June

31 December

31 December

 

Unit

2008

2007

2008

2007

2008

2007

Mine development

Waste stripping

m3

1 293 831

867 000

1 055 964

1 119 000

2 349 795

1 986 000

Underground

metres

4 752

4 740

4 607

5 059

9 359

9 799

Mine production

Open pit ore

tonnes

312 258

141 086

323 597

344 061

635 855

485 147

 

g/t

5.0

5.74

6.4

7.25

5.70

6.81

Underground ore

tonnes

179 821

261 189

221 175

339 250

400 996

600 439

 

g/t

4.6

4.79

4.6

3.68

4.60

4.16

Total Ore Mined

 

tonnes

492 079

402 275

544 772

683 311

1 036 851

1 085 586

 

g/t

5.0

5.12

5.6

5.48

5.3

5.35

Processing

 

tonnes

484 092

381 201

555 885

595 938

1 039 977

977 139

Average grade

g/t

5.0

5.2

5.7

5.77

5.4

5.54

Recovery rate

%

88.1

91.26

88.1

88.91

88.1

89.84

Gold recovered

ounces

68 813

58 196

90 002

98 294

158 885

156 474

Gold sold

ounces

81 036

62 643

83 180

86 768

164 216

149 411

Gold price received Price

US$/oz ounce

909

655

832

747

870

708

In 2009 it is planned to maintain the ore mining volume at MNV at the levels achieved in 2008. Due to the development of blocks with high grade ore, primarily the Flank Ore Body, gold production in 2009 is again forecast in the range of 155,000 – 165,000 oz.

DEVELOPMENT PROJECTS

NOVOSHIROKINSKOYE – Zabaikalsky Region

In H2 2008 most of the preparatory works for the mine commissioning were completed. However, due to the dramatic fall in world metal prices, it was decided to postpone the commissioning. On January 1 2009, in accordance with the Shareholders Agreement, the operational management of the mine was taken over by Kazzinc, Highland Gold’s partner for the project. The start-up licence date is October 2009 and in the event it is not appropriate to commission, management will look at obtaining an extension.

Micromine Consulting has completed a reserves reconciliation for the Novoshirokinskoye mine and we are pleased to announce the following JORC compliant figures. Mineral resources (JORC):

Category

Ore

Average grade

Resources

Pb

Zn

Au

Ag

Pb

Zn

Au

Ag

Thousand Tons

%

%

g/t

g/t

t

t

kg

kg

Measured (Ñ1)

768

3.35

1.52

4.13

79.2

25 691

11 688

3 168

60 795

Indicated (Ñ2)

7 361

3.13

1.38

3.85

85.82

230 179

101 871

28 373

631 683

Inferred (Ð1)

288

2.31

1.54

2.88

50.53

6649

4 436

828

14 557

Total:

8 417

3.12

1.40

3.85

84.00

262 519

117 995

32 369

707 035

Ore reserves (JORC):

Category

Ore

Au (equiv.)

Pb

Zn

Au

Ag

Au (equiv.)

 

Thousand tonnes

g/t

%

%

g/t

g/t

kg

Proven (Ñ1+Ñ2)

745

7.48

2.85

1.29

3.51

67.32

5 760

Probable (Ð1)

7 140

7.15

2.66

1.17

3.27

72.95

52 759

Total:

7 885

7.18

2.68

1.18

3.29

72.42

58 519

MAYSKOYE – Chukotka Region

In 2008 the underground mine development totaled 7,665m3 focusing on two declines and a shaft raise. Underground development for 2009 is planned to increase to 30,000m3 moving forward the development of the mine and its infrastructure. Currently the technical aspects of the project are being updated in order to maximise its economic feasibility.

TASEEVSKOYE – Zabaikalsky Region

For the Taseevskoye development project the Company completed the full volume of the 2008 programme mostly consisting of metallurgical testing. The cut-off grade study for the ZIF-1 tailings was submitted for approval to the State Reserves Committee for the Zabaikalsky Region with approval expected in Q2 2009.

EXPLORATION

Highland Gold’s exploration teams completed work programmes on six projects; highlights from the most advanced projects include:

Belaya Gora – Khabarovsk Region

In compliance with the licence schedule the reserve report and cut-off grade study have been submitted to the State Committee on Reserves of the Russian Federation (GKZ) for review. Depending on ore grades from 2.5 to 3.5 g/t the calculated reserves range from 26.8 to 30.4 tonnes of gold for which an approval in the С1+С2 Russian reserve category is expected during Q2 2009.

Lyubov – Zabaikalsky Region

The 2008 drilling programme at the Evgraf target totalling 9,350m has been completed and assay results are substantiating a geological resource potential of 29m tonnes 1.45g/t. Initial metallurgical testwork completed on a 300kg composite ore sample indicates more +80% recovery by gravitational processing.

Unkurtash – Kyrgyzstan

In H2 the Company completed 5,200 metres of RC drilling and 1,500 metres of diamond drilling at the two prospects Unkurtash and Karatube, concluding a total drilling volume of 8,400 metres in 2008. Positive assay results received to date corroborate our previous model that the combined potential of the whole project amounts to no less than 100 tonnes of gold for average ore grading between 1.5 - 1.8g/t of gold.

HEALTH & SAFETY

In H2 2008 the Company continued to work on providing safe working conditions at all of its sites. 1,526 employees attended safety training courses. Over 500 employees were certified in industrial safety.

The lost time incident rate (the LTI rate is the number of lost time incidents for every 200,000 man hours) was 0.60 in 2008, which is 10% higher than the forecasted figure (0.55).

In March and September 2008 no LTI incidents were registered at all sites of the Group.

The Taseevskoye project completed 12 months with zero LTI incidents. All in all it has been 40 months since the last registered LTI at the site.

Mr. Werner Klemens, Head of Exploration at Highland Gold has reviewed and verified the information contained in this release in respect of drilling and resource matters. Mr. Klemens holds a Ph.D. in Geology from the University of Toronto. He has 12 years of experience in mineral exploration and is a fellow of the Geological Association of Canada.

Financial results for the year to 31 December 2008 will be announced late April 2009.

For further information please contact:

Highland Gold
Duncan Baxter, Chairman - + 44 1534 814202
Dmitry Yakushkin, Head of Communications - +7 495 4249521

Fin Public Relations
Alex Glover - +44 (0) 207 608 2280

Smith’s – Investor Relations
Dominic Palmer-Tomkinson - +44 (0) 207 239 0140

JPMorgan Cazenove (Nominated Adviser)
Michael Wentworth-Stanley, Managing Director
Sam Critchlow - +44 (0) 207 588 2828
www.highlandgold.com