Trading Update for the First Half of 2009

06.08.2009

Highland Gold Mining Limited (“Highland Gold”, or the “Company”) is pleased to announce its trading update for the half year ended 30 June 2009. Full financial results for this period will be released on 22 September 2009.

HIGHLIGHTS

  • Mnogovershinnoye produced 78, 421 oz of gold, a 14% increase compared to H1 2008
  • Novoshirokinskoye mine to be commissioned by 1 October 2009
  • Taseevskoye development project doubles C1+C2 reserves after State Reserves Committee (GKZ) approves updated reserve model of 3.39 M ounces of gold
  • Belaya Gora exploration project moves to the development stage after GKZ approves C1+C2 reserves of 820, 000 ounces of gold

MNOGOVERSHINNOYE (MNV) – Khabarovsk Region, Russia

At the Mnogovershinnoye mine a significant improvement in ore processed and metal production was achieved compared to the same period in 2008. Gold production reached 78,421 ounces - this exceeded H1 2008 results by 14%. The higher production figures were as a result of stabilised ore feed to the process plant and improvements to the existing processing technology.

With the beginning of 2009, plans to optimise the entire process plant circuit were implemented along with upgrades of basic equipment and assaying of the ore in order to determine at an early stage the ore process characteristics. The efforts of our metallurgical specialists were focused on maximising recovery rates by extending the preliminary cyanidation period and at the same time reducing basic reagents and power consumption through intensified pre-cyanidation and deactivation.

The total ore tonnes processed in H1 was slightly above target with mill throughput in May and June achieving 100, 000 tonnes per month.

Mining at the Flank Ore Body which was originally planned to commence during Q3 2009 has already started thus providing added flexibility to the surface mining operations. The recent Upper Ore Body open pit re-optimisation also extended the life of this pit to 2011. Waste stripping of the upper benches within the commercial limits of this pit was initiated in order to access the ore blocks more efficiently.

Additional mobile mining equipment for both the underground and open pit operations was commissioned during H1 as planned. The first stage of the exploration drilling at the Pebble Deposit aimed at extending MNV’s surface ore reserves was initiated during H1. A total of US$1.3 million has been allocated to this initial drilling programme.

MNV

6 months ended 30 June

 

units

2008

2009

Mine development

   

Stripping

m3

1 293 831

1 338 069

Underground development

metres

4 752

4 289

Mining

   

Total ore mined

tonnes

492 079

464 949

Average grade

g/t

5.0

5.7

Ore processing

   

Ore processed

tonnes

484 092

540 327

Average grade

g/t

5.0

5.3

Recovery rate

%

88.1

88.6

Gold produced

ounces

68 813

78 421

DEVELOPMENT PROJECTS
NOVOSHIROKINSKOYE – Zabaikalsky Region, Russia

In H1 2009 the Company completed the construction and installation of facilities that had not been completed earlier, in particular setting up the equipment for start-up and operation. At the same time the economic model for the project was reassessed.

As a result of this reassessment and in agreement between the Company and its partner for the project Kazzinc a decision was made to commission the plant in compliance with licence terms which require starting operations by 1 October 2009.

It is planned that by the end of the year the mine will process up to 30 000 tonnes of low-grade ore accumulated in stockpiles. During this period equipment will go through start-up adjustment and the whole technological process will also be fine-tuned. Full scale ore processing will start with the beginning of mining operations in January 2010. Anticipated gold production over the life of mine, 2023, is expected to be 1.5 million ounces in gold and gold equivalents.

Necessary precommissioning works, demothballing and test-running of the equipment along with personnel recruitment activities have already started at the site.

TASEEVSKOYE - Zabaikalsky Region, Russia

In Q2 the State Committee for Reserves (GKZ) approved new C1+C2 reserve figures to be included into the state balance following a review of a revised cut-off grade study submitted by the Company. At a cut-off grade of 1.8 g/t approved C1+C2 in-pit reserves for the Taseevskoye open-pit amount to 3.39 M ounces of gold contained in 20.24 million tonnes of ore with an average gold grade of 5.22 g/t.

The updated reserve figures at Taseevskoye represent a more than twofold increase compared to the previously approved reserves of approximately 44.1 tonnes and are the result of an extensive exploration drilling program conducted in 2006 and 2007 for a total of more than 35,000 metres.

By the end of 2009 the Company plans to complete a bulk sampling programme and develop optimal processing flow sheets for ores from both the Taseevskoye deposit and the ZIF-1 tailings. The results of this work are expected to become available in H1 2010.

BELAYA GORA – Khabarovsk region, Russia

Early July 2009 the State Committee for Reserves (GKZ) passed a decision to approve a C1+C2 gold reserve at the Belaya Gora property which is located 66 km south from its operating Mnogovershinnoye mine. The reserve will be registered with the state balance.

Accordingly, at a cut-off grade of 0.7 g/t the in-pit C1+C2 reserves at Belaya Gora amount to 820,000 ounces of gold contained in 7,286,000 tonnes of ore with an average gold grade of 3.5 g/t. The Belaya Gora deposit is planned to be mined by open-pit which will cover the two adjoining prospects Stockworks and Pologoye.

Initial test work on two 300 kg bulk samples from Belaya Gora achieved high recovery rates of gold in the range of 85% to 87% by gravitational processing alone. Existing facilities at the Mnogovershinnoye mine will allow further processing of a gravitational gold concentrate from Belaya Gora.

The Company has started a feasibility study for Belaya Gora investigating various options for development.

With the transition of Belaya Gora to the development stage Highland Gold’s exploration teams are now refocusing their efforts on their other most advanced exploration projects:

LYUBOV – Zabaikalsky Region, Russia

As prescribed by the license the Company is compiling a summary report on exploration results to date including a calculation of a P1+C2 resource. An internal scoping study has been started which will form the basis for a new "Project" outlining our future exploration programme to be approved by regulatory authorities by the end of 2009.

UNKURTASH – Kyrgyzstan

In Q2 the Company continued with its drilling programmes at the three prospects Unkurtash, Sarytube and Karatube where in 2009 a total of 8,000 metres of RC and diamond drilling is planned for further defining the multi-million ounce potential of the property. Final assays with evaluation of results are expected to be completed by mid Q4 2009.

BOARD CHANGE

Alex Davidson has decided to retire from Barrick Gold Corporation with effect from the end of August and pursue other interests. Alex was a Barrick nominated director and he has been invaluable to Highland since his appointment in 2005. We are currently discussing with Barrick the replacement for Alex, under the terms of the Co-Operation Agreement, to maintain their interest and input in Highland. The other Barrick nominated Director is Nick Nikolakakis who remains on the Board. We take the opportunity to wish Alex well in his future endeavours and thank him for his assistance and support over the last four years.

ISSUED SHARE CAPITAL

The issued share capital and total number of voting rights of the Company at 30 July 2009 is 325,197,098 ordinary shares of £0.001 per share. The figure of 325,197,098 shares may be used by shareholders as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in the Company, under the FSA’s Disclosure and Transparency Rules.

For further information please contact:

Highland Gold Dmitry Yakushkin, Head of Communications +7 495 424 95 21
Duncan Baxter, Chairman +44 (0) 1534 814202
Fin Public Relations Alex Glover - +44 (0) 207 608 2280
Smith's Dominic Palmer-Tomkinson - +44 (0) 207 239 0140
J.P. Morgan Cazenove (Nominated Adviser) Michael Wentworth-Stanley, Managing Director
+Sam Critchlow - 44 (0) 207 588 2828