Production Update

24.06.2005

At the time of Highland Gold's full year results which were released to the market on 19 April 2005, Highland Gold advised the market of the severe weather conditions that had been experienced at its main operating mine, MNV, in the early part of 2005 and mechanical problems at Darasun encountered at commissioning. At the time, despite the short-term negative impact on production, the board expected that the shortfall experienced in the first part of the year would be made up later in the year.

The Board of Highland Gold has engaged an independent international mining expert to review the mining operations at both MNV and Darasun. Whilst the final report from this work has not yet been received, the preliminary report indicates that the amount of underground development and overburden stripping undertaken at the two mines has not reached the level required to support the production targets and that additional development and stripping will need to be undertaken.

In the light of this preliminary report and having now received the most recent production report, MNV will for the first time not reach its annual production target. The board believes that the full year production for the group will fall significantly below its earlier expectations. Pending receipt of the full report, the board is not in a position to assess the impact that this additional development will have on either the production plans or the associated costs. The board and management have taken the necessary steps to address the issues identified in the report to ensure that production at MNV and Darasun return to the projected monthly capacity as soon as possible. A further update will be provided at the time of the half-year trading statement which will be released in early August 2005.

Commenting on today’s announcement Dmitry Korobov, Managing Director, said:

“While the first half of 2005 has proved to be extremely difficult, I believe we have taken the necessary steps to strengthen our operating management and controls in order to minimise the future recurrence of issues related to forward planning and ore development. MNV is an excellent operation and I have full confidence that our operating team, under the new leadership of Scott Yelland, will advance development work to a more normal state during the second half. At Darasun, I am also confident that our team is improving the situation day-by-day and, with new mill motors recently having arrived on site, we are entering the final phase of implementation needed to reach design capacity.”

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  Moscow: +7 (095) 777 3155
   
Highland Gold Dmitry Korobov, Managing Director
  Dmitry Yakushkin, Director of Communications
  Grant Sinitsin, Director of Investor Relations