Proposed Transaction to Increase Barrick's Shareholding in Highland Gold

02.11.2006

Highland Gold (“Highland” or the “Company”) announces that Highland and Barrick have reached preliminary agreement regarding the principle terms for increased Barrick participation in Highland’s business:

  • Barrick to increase its shareholding in Highland to 34% in exchange for shares of Barrick subsidiaries which hold:
    • Barrick’s 50% interest in the existing joint venture companies
    • Four further gold exploration interests owned by Barrick
  • Appointment of senior Barrick personnel as executives of Highland
  • Appointment of two additional Barrick representatives to the Board of Highland
  • Secondment of other senior Barrick personnel to Highland

Completion of the transaction is subject to, inter alia, execution of formal documentation, regulatory approvals in Russia and the approval of Highland shareholders. As part of this transaction, Highland will review financing options to raise up to US$50 million to continue the development of its business. James Cross, Chairman of Highland Gold, said: “This transaction consolidates our respective interests and will assist in continuing our activities in Russia. Barrick has proven to be a valuable partner with extensive expertise and we look forward to working with their personnel.” JPMorgan Cazenove is acting as financial adviser to Highland Gold in relation to the proposed transaction. Background to the transaction Barrick has had a long collaborative relationship with Highland and first acquired a holding of existing shares equivalent to 10% of Highland in July 2003. In January 2004, Barrick and Highland entered into agreements under which Barrick subscribed for further shares in Highland taking its holding to 17%. These agreements also provided mutual back-in rights to equity participation in acquisitions in specified areas of Russia. In July 2005, Barrick subscribed for a further 11.4 million shares in Highland taking the holding to 20% of the then enlarged share capital. Highland has received technical support and advice from Barrick since its initial subscription and Barrick has exercised its back-in rights over three properties acquired by Highland since 2004. Alex Davidson, Barrick Executive Vice President, Exploration and Corporate Development, sits on the board of Highland as a non-executive director, and in addition, the executives of Highland and Barrick based in Moscow have developed a close working relationship. Reasons for the transaction Barrick and Highland believe that it is in the interests of both companies to develop this relationship further and to combine the ownership of the mining interests which have been successfully acquired by Highland since 2001 with the world class technical skills of Barrick. Highland’s mining interests include the producing mines at MNV and Darasun, the gold deposit at Mayskoye (at pre-feasibility stage), 50% of the polymetallic deposit at Novoshirokinskoye (for which a joint development with Kazzinc has been announced) and 50% of the gold deposit at Taseevskoye (at pre-feasibility study stage). Highland believes that the combination will provide a stronger platform to develop and grow its mining business in the Former Soviet Union. Board, management and operational changes Rene Marion will join Highland as Chief Operating Officer and Scott Perry will join Highland as Chief Financial Officer. Barrick will also appoint two additional representatives to the Highland Board. Following these appointments, three of the ten Board members will be Barrick appointees. Rene Marion has been associated with Barrick for more than 14 years and is currently Barrick’s Regional Vice President, Russia and Central Asia. His background combines 21 years of mining experience in operations, operation management and mine engineering in North America with acquisition evaluations, feasibility studies, development and mergers all over the world. Prior to appointment to his current position in 2005 he held various senior posts in Barrick’s corporate headquarters in Toronto, Canada including Vice President, Technical Services. Scott Perry has been associated with Barrick for 8 years and is currently Barrick’s Director, Finance, Russia and Central Asia. His experience before coming to Russia in January 2006 includes financial reporting, management and analysis for Barrick’s two biggest business units which are North America and Australia/Pacific. Prior to Barrick Scott worked for Normandy Mining Ltd., which is now part of the Newmont group. He is a qualified practicing accountant and a member of Australian Association of Certified Practicing Accountants. Henry Horne will remain Managing Director of Highland. In addition, other Barrick personnel based in Moscow will be seconded to Highland. The offices in Moscow of Barrick and Russdragmet, the management company for Highland interests, will be combined. Details of interests being acquired from Barrick Highland shall acquire Barrick’s interest in the following companies which hold the interests described:

  • Barrick’s shares in Taseevskoye Netherlands B.V., the holder of Barrick’s 50% joint venture interests in Taseevskoye;
  • 100% of Barrick’s shares in HB Ventures Netherlands B.V., and its rights in the Sovinoye, Belaya Gora and Malo Fedorov licenses (the other 50% already held by Highland in each case)
  • 100% of the shares in Barrick Resources LLC, the holder of the Lyubov, Maya-Inikan, and Sarasa Licenses; and
  • 100% of the shares in Barrick Gold Kyrgyzstan LLP, the holder of the Unkurtash and Kassan Licenses in Kyrgyzstan.

The consideration for the acquisition of these interests will be satisfied by the issue to Barrick of 34,492,305 million ordinary shares in Highland. Further information on the gold exploration interests is given below: Unkurtash:

  • Advanced exploration project with open-pit bulk-mineable potential in northwestern Kyrgyzstan.
  • Barrick's 2005 trenching and diamond drilling program identified significant grades over a wide area.
  • A follow-up bulk sampling program led to improved grades and confirmed bulk-mineable potential.
  • Barrick's RC drilling program planned for 2006 is aimed at further delineating continuity and grade of gold mineralization.

Kassan:

  • Large grassroot exploration property in the Kassan region, Northwestern Kyrgyzstan.
  • Kassan hosts two prospects with Unkurtash-style gold mineralization which area included for testing in the 2006 Unkurtash drilling program.

Sarasa:

  • 400 km sq. grassroot exploration property in the Altay region, Russia.
  • Property is located in renowned mercury mining district which is underexplored for gold but features indicators for Carlin-type gold mineralization.
  • Barrick's 2006 stream-sampling program at Sarasa identified geochemical gold anomalies which are currently being evaluated.

Maya-Inikan:

  • Large grass-root exploration area (3,733 km sq) in the Khabarovsk region with a long history of exploration dating back to 1930 which includes the two adjoining licenses Maya and Inikan.
  • Properties located in geologically very prospective area in vicinity of the now exploited Tas-Yuryakh high-grade mine.
  • In 2006, Barrick completed a stream-sediment survey covering the entire license areas and assaying is now in progress.
  • Evaluation of a large area is underway using sampling and multi-element analysis.

Funding requirements As part of this transaction, Highland will review financing options to raise up to US$50 million to continue the development of its business. Barrick has indicated that, in principle and in the event that part or all of this amount is raised by the issue of equity, it would intend to participate to maintain its increased shareholding of 34% in Highland.

Co-operation agreement

As part of the proposed transaction, it is expected that Barrick and Highland will enter into a Co-operation Agreement which will regulate the ongoing relationship between Highland and Barrick.

Takeover Code

Although the Company has its registered office in Jersey, the place of central management and control of the Company is currently located outside the UK, the Channel Islands and the Isle of Man. Accordingly, the Takeover Panel has confirmed that the Company is not subject to the Takeover Code and Highland Gold shareholders will not be afforded any protections under the Takeover Code. If circumstances change, including if further changes to the Board are made, the Company will consult with the Takeover Panel to ascertain whether this will affect the central management and control of the Company. If the Takeover Panel determines that, as a result of such changes, the place of central management and control of the Company is located in the UK, the Channel Islands or the Isle of Man such that the Takeover Code then becomes applicable to the Company, an announcement will be made. As Highland Gold is not currently a company subject to the Takeover Code, investors should be aware that shareholders (including Barrick) are currently able to increase their interests in voting rights in Highland Gold to 30% or more without having to make a mandatory offer under the Takeover Code.

Next steps

Following the execution of definitive agreements, an Extraordinary General Meeting will be convened to approve, inter alia, the issue of additional shares to Barrick. Completion of the proposed transaction is expected to take place by the end of the year.

JPMorgan Cazenove is acting for Highland and no one else in connection with the proposed transaction and will not be responsible to anyone other than the Company for providing the protections afforded to the clients of JPMorgan Cazenove, nor for providing advice in relation to the proposed transaction.

   
For further information please contact: Henry Horne, Managing Director
  Dmitry Yakushkin, Director of Communications
  Moscow: +7 (495) 777 31 55
 

Dominic Palmer-Tomkinson, Head of Investor Relations

  London: +44 (0) 207 851 64 00
  Or, WMC Communications, Alex Glover on +44 20 7930 9030