Proposed Sale of 50% of Novoshirokinskoye

05.10.2006

Highland Gold Mining Limited (“Highland Gold”, or the “Company”) is pleased to announce that it has agreed in principle to the sale of an interest of 48.3% in its development project at Novoshirokinskoye (“Novo”) to KazZinc, for a consideration of US$ 36 million in cash. The appropriate legal documents are expected to be signed next week and the agreement will be subject to receipt of Russian anti-monopoly clearance. The deal is expected to close by the end of 2006.

This interest being sold represents 50% of Highland Gold’s current holding of 96.6%. If further shares in Novo are purchased, they will be acquired equally between Highland Gold and KazZinc. KazZinc is based in Kazakhstan and is a large integrated zinc producer as well as a producer of copper, gold, silver and lead and develops deposits mostly in Eastern Kazakhstan.

Pursuant to the proposed joint venture agreement Highland Gold and KazZinc will work together to optimise the revenue from the production and sale of product from the Novo gold-polymetallic deposit. The net book value of the interest of 96.6% in Novo in the consolidated balance sheet of Highland Gold at 31 December 2005 was US$ 41 million. The capital expenditure required to bring the development project to production, which is expected to be in 2008, is relatively modest, forecast currently at approximately US$ 40 million for 2006-2008 inclusive. Half of this required capital will be funded by KazZinc.

For further information please contact:

   
Enquiries: London: +44 (0) 207 851 64 00
  Moscow: +7 (495) 777 31 55
  E-mail: info@highlandgold.com
 

Henry Horne, Managing Director

  Dmitry Yakushkin, Director of Communications
  Dominic Palmer-Tomkinson, Head of Investor Relations
  Or, WMC Communications, Alex Glover on +44 20 7930 9030
* * *

The deposit at Novoshirokinskoye (“Novo”), located in the Chita Region of Eastern Russia, was discovered in 1951 and extensively explored between 1956 and 1962. A development plan for a base metal mine was formulated in 1969 and construction of the project began in 1970. The construction work progressed slowly and was suspended in the 1970s. A modified development plan which proposed a production rate of 450,000 tonnes per annum of ore was approved in 1988, but construction was again suspended in 1994, after the majority of the construction work was complete, due to the prevailing economic conditions and the termination of centralised state funding. An extensive amount of mining infrastructure already exists on this project including equipped haulages and shafts (with winders) and a partially completed mill and processing facility. Novoshirokinskoye Mineral Resource Statement

    Tonnage
(kt)
  Au Grade
(g/t)
  Au Eq.
Ounces attributable to
Highland Gold
B (Measured)   680   9.1   192,000
C1 (Indicated)   5,200   5.1   827,000
C2 (Inferred)   3,480   3.3   357,000
Total   9,360   4.7   1,376,000

Notes: Novoshirokinskoye is a polymetallic deposit containing Gold, Silver, Lead, and Zinc in commercial quantities. For resource and reserve reporting and for future production accounting, only Gold and Silver will be included as gold equivalents. Lead and Zinc will be treated as by-products. In addition to 1.4 million ounces of gold equivalents adopted in the table above, the deposit also contains Resources of 349,650 tonnes of lead at a grade of 3.7 per cent and 165,900 tonnes of zinc at a grade of 1.8 per cent. Similar figures for the Resources recently submitted to GKZ for approval are 375,000 tonnes of lead at a grade of 4.1 per cent and 166,000 tonnes of zinc at a grade of 1.8 per cent.

    Tonnage
(kt)
  Au Grade
(g/t)
  Au Eq.
Ounces attributable to
Highland Gold
B (Proved)   820   6.7   171,000
C1 (Probable)   4,700   4.5   650,000
Total   5,520   4.8   821,000

Notes: Novoshirokinskoye is a polymetallic deposit containing Gold, Silver, Lead, and Zinc in commercial quantities. For resource and reserve reporting and for future production accounting, only Gold and Silver are included as gold equivalents. Lead and Zinc will be treated as by-products. In addition to 821,000 of gold equivalents adopted in the table above, the deposit also contains Reserves of 170,000 tonnes of lead at a grade of 3.1% and 75,000 tonnes of zinc at a grade of 1.4%t.