Taseevskoye Resource Update and Initiation of Scoping Study

30.06.2005

Highland Gold Mining Limited (“Highland Gold”) is pleased to announce an updated resource estimate for the Taseevskoye project and the initiation of a scoping study to determine the parameters of a revised feasibility study. We also announce the formalisation of our 50-50 Joint Venture Arrangements with Barrick Gold Corporation (“Barrick”) on the project.

Resource estimate

The updated resource estimate was completed by independent engineering firm, Snowden Mining Industry Consultants Inc. (“Snowden”) of Vancouver, B.C., Canada and has been reported in accordance with JORC (2004) guidelines. Snowden had completed an earlier resource estimate in 1997. The current measured, indicated and inferred resource of 3.37 million ounces at a grade of 3.49 g/t is reported at a cut-off grade of 1 g/t and is lower than the comparable estimates reported in 1997 of 5.05 million ounces at a grade of 3.17 g/t. The updated estimate is higher than the 1.41 million ounces at a grade of 3.1 g/t reported on the company’s resource statement at 31 December 2004 and approved by Russia’s State Committee for Reserves. Resource Comparison, 1 g/t Au cutoff (100%)

 

1997 (1996 JORC)

2005 (2004 JORC)

 

Tonnage
Mt

Au
g/t

Ounces
Million

Tonnage
Mt

Au
g/t

Ounces
Million

Measured

13.7

4.80

2.11

-

-

-

Indicated

28.1

2.38

2.15

25.2

3.35

2.72

Inferred

7.8

3.14

0.79

4.8

4.20

0.65

Total

49.6

3.17

5.05

30.0

3.49

3.37

The resource differences can be explained by changes in reporting requirements adopted by JORC in 2004 and by the application of current standards of data verification. Specifically, Snowden has made two new judgements that account for the classification changes and the reduction in reported resources. First, it was judged that the deeper levels of the mine that were uneconomic for open pit mining in the 1997 feasibility study did not have reasonable prospects for eventual economic extraction and could not be included as a resource. This excluded all estimated blocks below the 1997 open pit design, though Snowden also noted that additional resource could be defined provided access to the lower levels can be achieved and underground economics can be demonstrated. Second, a classification modification was judged to be necessary to reflect the uncertainty in the stope models and the grades assigned to the stope fill because it is not possible to verify the historic underground sample data due to lack of access. This is despite the fact that historic records show that sampling practices were of high quality. Therefore, Snowden has downgraded the Measured component of the resource to the Indicated category. A thorough analysis of mining and processing costs is required to determine an appropriate cut-off grade for resource reporting. In the interim, Snowden has determined a cut-off grade of 1 g/t of gold is a reasonable basis for resource reporting at this stage of the project. Variations to the resource at differing cutoff grades can be seen in the following table.

2005 Indicated and Inferred Resource estimates (100%)

 

0.7 g/t Cutoff

1.0 g/t Cutoff

2.0 g/t Cutoff

 

Tonnage
Mt

Au
g/t

Ounces
Million

Tonnage
Mt

Au
g/t

Ounces
Million

Tonnage
Mt

Au
g/t

Ounces
Million

Indicated

35.6

2.6

3.00

25.2

3.4

2.72

13.3

5.1

2.21

Inferred

6.3

3.4

0.69

4.8

4.2

0.65

3.0

5.9

0.56

Total

41.9

2.7

3.69

30.0

3.5

3.37

16.3

5.3

2.77

The independent resource estimates reported by Snowden were prepared by Competent Person A.F. Ross MSc, FAusIMM (CP), Snowden Mining Industry Consultants Inc., Vancouver, B.C., Canada.Scoping Study Highland Gold is now in the process of initiating work on a scoping study designed to re-examine prior work done on the project, including the results of the 1997 Feasibility Study. The initial step will be to review the selection of process technology and to optimise the plant capacity based on the new resource base. In parallel, new estimates of operating and capital costs will be developed taking into account current labour productivities and costs. The results of this scoping work will be available in the last quarter of 2005 and will contribute towards a decision on an updated feasibility study.

Barrick Joint Venture Arrangement

In February 2005, we announced that Barrick had confirmed its intention to exercise its early participation rights on the Taseevskoye project under the Participation Agreement entered into in early 2004. This early participation by Barrick further confirmed our confidence in this quality asset. Under the Participation Agreement, Barrick is only required to pay for its share of Highland Gold’s acquisition costs associated with acquiring the project once a joint venture corporation has been established to own and operate the Taseevskoye project.

While this legal work is progressing, in an effort to advance the scoping study and other aspects of the project, Highland Gold and Barrick have reached an agreement whereby Barrick will make an advance payment of US$13.3 million (representing half of the original purchase price paid by Highland Gold) for its 50% interest in the project and will also contribute to its share of future project related expenditures.

As the payments by Barrick are being made in advance of the final ownership structure for the project being established, Highland Gold has agreed to grant Barrick warrants to purchase unissued shares at an exercise price of US$3.10 per share covering the full value of the payments. The warrants are exercisable at the option of Barrick if the ownership structure is not established by 1 June 2006 (or such later date as Barrick may determine) and Highland Gold has not repaid the full value of the payments in cash. The warrants expire on 1 June 2011. As Barrick’s shareholding in Highland Gold is in excess of 10%, Barrick is treated as a related party under the AIM Rules.

The Directors of Highland Gold consider that, having consulted with JPMorgan Cazenove, its Nominated Adviser, the arrangement above with Barrick is fair and reasonable insofar as shareholders in Highland Gold are concerned.

About the Taseevskoye Project

The Taseevskoye gold deposit is located two kilometres south of the town of Baley (Population: 15,000) in the Chita region, Eastern Siberia. It lies 56 kilometres south by paved road from the Trans Siberian Railway station at Priiskovaya. Chita, the regional capital, is located 320 kilometres to the west of Baley. The deposit was discovered in 1941 and during the period 1948 to 1994 produced 6.4 million ounces of gold from 16.3 million tonnes of ore at an average gold grade of 12.2 g/t. Highland Gold acquired 100% of the project in September 2004 at a cost of US$26.6 million.

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

“While the new resource estimate and the initiation of scoping work on the Taseevskoye project is our first step towards advancing this exceptional project, it is also an important step in the development of Highland Gold. On the resource side, it represents our commitment to providing full restatements on all of our resources and reserves in accordance with the widely recognised JORC guidelines. On the scoping study, we will be working closely with our partners and international consultants to ensure the project receives the benefits of each party’s extensive experiences in Russia and other parts of the world.”

Enquiries: London : +44 (0) 20 7851 6400
Moscow : +7 (095) 777 3155
 
Highland Gold Dmitry Korobov, Managing Director
Dmitry Yakushkin, Director of Communications
Grant Sinitsin, Director of Investor Relations