Trading Update for the First Half of 2014

12.08.2014

Highland Gold Mining Limited ("Highland Gold," "Highland" or the "Company") announces its trading update in respect of the half year ended 30 June 2014. Full financial results for this period will be released on or around 23 September 2014.

HIGHLIGHTS

  • Total production of gold and gold equivalents amounted to 120,121 oz - a 13.7% increase compared to H1 2013. This represents the combined contributions from the Mnogovershinnoye ("MNV"), Novoshirokinskoye ("Novo") (97.9% interest) and Belaya Gora mines
  • With Novo operating to budget expectations during H1 2014, annual mill throughput at the mine is expected to reach 550,000 tonnes of ore by the end of 2014
  • Work on the enhancement of production facilities at the Belaya Gora plant continued
  • Steady progress in the development of the Chukotka projects - Klen and Kekura
  • Production guidance for FY2014 maintained at more than 300,000 oz of gold and gold equivalents

OPERATIONS

Mnogovershinnoye (MNV) - Khabarovsk region, Russia

Process plant throughput during the six months ended 30 June 2014 totalled 629,854 tonnes of ore, yielding 61,761 oz of gold. The recovery rate amounted to 92.5%.

Open-pit and underground ore production amounted to 593,446 tonnes. Underground development recorded a 22% increase to 5,151 metres compared with the first half of 2013.

The average grade in the ore mined was 3.42 g/t, which is 5% less than the average for the same period of 2013. This reflected complicated mining conditions at the boundaries of the ore bodies and the greater depth of mining operations.

It is anticipated that there will be an increase in production during H2 2014, through the commencement of mining at the Valunistoye and Vodorazdelnoye ore bodies which contain higher gold grades. In preparation for mining, necessary waste stripping was carried out during the reporting period.

MNV 100% Unit H1 2013 H2 2013 H1 2014
Waste stripping

1,914,210

2,429,865

1,194,036

Underground development M

3,833

4,163

5,151

Open pit ore mined T

241,292

459,349

300,569

Open pit ore grade g/t 3.8 3.7 3.71
Underground ore mined T

368,518

352,462

292,877

Underground ore grade g/t 3.5 3.6 3.11
Total ore mined T

609,810

811,811

593,446

Average grade mined g/t 3.6 3.7 3.42
Ore processed T

670,654

657,527

629,854

Average grade processed g/t 3.5 3.9 3.31
Recovery rate % 91.9 92.1 92.5
Gold produced Oz

68,996

76,263

61,761

Novoshirokinskoye (Novo) - Zabaikalsky region, Russia

Ore production met planning expectations. Ore mining and processing technology were continually optimised during the reporting period and, in the wake of this, annual ore production is expected to reach 550,000 tonnes by the end of the year. Underground development designed to gain access to new and deeper ore levels was successfully completed. In line with the anticipated increase in mill throughput, the Company plans to invest in new flotation equipment during the second half of the year in order to maintain the current gold grade and recovery rates.

Novo 100% Unit H1 2013 H2 2013 H1 2014
Underground development m

4,485

3,993

5,162

Ore mined t

245,775

258,151

280,987

Average grade mined* g/t 5.5 6.4 5.6
Ore processed t

244,907

260,178

281,137

Average grade processed* g/t 5.5 6.4 5.6
Recovery rate* % 84.3 83.8 84.3
Gold produced (100%)* oz

36,634

44,727

42,949

*approximate Au equivalent
(mined ore metal content breakdown = Au 3.34 g/t, Ag 59.34 g/t, Pb 1.84%, Zn 0.88%)

Belaya Gora – Khabarovsk region, Russia

Belaya Gora 100% Unit H1 2013 H2 2013 H1 2014
Waste stripping

963,278

672,562

767,690

Ore mined T

815,585

1,011,095

465,610

Average grade mined g/t 1.4 1.4 1.32
Ore processed T **

291,962

462,333

Average grade processed g/t ** 1.2 1.81
Recovery rate % ** 64.0 62.79
Gold produced oz **

7,077

15,411

The Belaya Gora process plant continued in ramp-up mode during the first half of the year. Nameplate production parameters were achieved in crushing and grinding facilities.

In order to improve the process flow and recovery rates, activities focused on achieving optimal performance in the gravity separation facility and the sorption and elution plant.

The decrease in mining activities was a direct result of the harsh weather conditions which led to the suspension of operating activities during the late winter/spring period. The average grade in mined ore was 1.32 g/t, or 3% lower than in 2013. Efforts are focused on optimising grade control measures in order to reduce ore dilution and maximise head grade.

Higher production volumes are budgeted for the second half of the year in line with the significant increases anticipated in ore throughput and recovery rates. In addition, it is expected that higher grade ore will be mined during the period. The refinement and enhancement of all aspects of production is scheduled for completion by the year-end.

DEVELOPMENT PROJECTS

Klen - Chukotka region, Russia

All project design documentation was finalised and formally approved. Options with regard to optimising the financial and economic model were reviewed in-house, an exercise that is expected to be completed in 2H 2014. Exploration works were conducted at the Verkhne-Krichalskaya licence and at the deep levels at Klen, the common aim being to increase the mineral reserve base for future development.

Kekura - Chukotka region, Russia

Preparation of the pre-feasibility study compliant with GKZ requirements continued and is expected to be completed in 2H 2014. Site locations for pit, process plant and mine facilities were established and geodetic, geological and environmental surveys completed. Additional studies of a number of samples from throughout the ore body were carried out for the purpose of defining ore characteristics and developing of an optimal processing route.

Taseevskoye - Zabaikalsky region, Russia

Project documentation was prepared according to regulatory requirements. The State Examination Board approved the mine design for the 1st and 3rd ore zones of the Taseevskoye deposit and issued a construction permit.

Lyubov - Zabaikalsky Region, Russia

Work commenced on amendments to the technical design in accordance with the State Examination Board's recommendations. In 2014 the Company expects to receive the results of a project review conducted by state authorities.

EXPLORATION

Mnogovershinnoye - Khabarovsk region, Russia

Near-mine exploration at MNV will remain one of the Company's operational priorities throughout 2014 targeting additional resources in order to enhance the life of the mine.

In H1 2014 an independent consultancy completed a JORC-compliant resource audit at MNV as of 1 January 2013, the results of which are reflected in the updated resource/reserve statement released with the Company's 2013 Annual Report & Accounts.

Diamond core drilling activity in respect of underground resource conversion in H1 2014 totalled 5,500 metres.

At the MNV Western Flank licence, immediately adjacent to the mining operations, results from a drilling programme completed in 2013 at the historic Chaynoye prospect define an open-pit mineable resource for which resource modelling is underway. Further exploration works planned for 2014 are designed to evaluate the resource potential of the entire licence area and will include a geochemical survey with a follow-up trenching programme.

On 23 July 2014, the Company also acquired the MNV North-Western Flank licence. This includes a large section of the Medvezhya zone which, with reported prognostic resources (P1 + P2) of circa 35 tonnes of gold, is believed to have the potential to deliver new resources at MNV. It is anticipated that the Medvezhya zone will be explored through a combination of surface drilling and underground activity, utilising MNV's existing underground infrastructure.

Blagodatnoye - Khabarovsk region, Russia

The Blagodatnoye project is located 30 kilometres to the southwest of the Belaya Gora project and is targeting a near-surface bulk mineable gold resource for a potential open-pit mining operation. In H1 2014 the regulatory authorities approved the Company's report on exploration results to date including a calculation of prognostic P1 resources and C2 category reserves of P1+C2 18.4 tonnes at ca. 2.0 g/t.

A new Exploration Project outlining future technical requirements for C1+C2 reserve registration with GKZ is under compilation and will be submitted for regulatory approval before year-end 2014.

Verkhne - Krichalskaya - Chukotka region, Russia

The Verkhne-Krichalskaya (VK) exploration and mining licence incorporates the Klen licence and is believed to hold upside potential with regard to the Klen operation.

The Company's previous exploration programme defined several gold anomalies and exploration targets at VK. In H1 2014 the Company completed a total of 7,996 metres of drilling at several targets with the objective of prospecting for new mineralisation zones and defining continuity of gold mineralisation along strike and depth of previously identified zones. Preliminary drilling results indicate several steeply dipping gold mineralised vein zones ranging from 200 to 1,200 metres in length and from 2.0 to 5.0 metres in width which yielded several high-grade intersects.

Additional drilling planned for H2 2014 at VK includes assessment of the resource potential of the deeper levels of the Klen deposit and testing in respect of the potential extension of the deposit to the southeast.

Kekura - Chukotka region, Russia

Exploration works planned for 2014 are focused on fulfilling all technical requirements for an updated pre-feasibility study which is expected to be submitted to the regulatory authorities (GKZ) by year-end 2014. In this respect, the Company completed 4,210 metres of drilling with exploratory, hydrogeological and geotechnical objectives. Metallurgical studies on multi-tonne composite ore samples are underway, aimed at defining ore characteristics and the development of a processing flow sheet. Exploratory prospecting on the greater licence area in H2 2014 will include geochemical surveys at selected targets and the evaluation of several promising near-mine gold prospects.

Unkurtash - Kyrgyzstan

The Unkurtash project holds a total JORC-compliant resource of 3.7 Moz of gold within three distinct prospects, Unkurtash, Sarytube and Karatube, located within the Company's single Kassan licence (63 km²). In order to facilitate registration of the entire Unkurtash project's C1+C2 category with the Kyrgyz GKZ, the Company completed a reserve calculation update in 2013. Project economics were further refined during H1 2014 and submission of the necessary documentation for reserve registration to GKZ is targeted for Q4 2014.

In H2 2014 the Company plans to complete a 1,500 metre drilling programme which will test the resource potential at the Baikonur prospect, the potential extension of the Unkurtash prospect.

HEALTH, SAFETY AND ENVIRONMENT

The Company is dedicated to ensuring the safety of employees and, accordingly, combines rigorous precautionary measures throughout the production process with comprehensive staff training programmes which place particular emphasis on the importance of encouraging employee responsibility for work safety. In the wake of such actions, the Lost Time Incident ("LTI") rate (defined as the number of lost time incidents for every 200,000 man hours worked) fell by 17% to 0.30 in 1H 2014 (representing five LTI's across the Group) compared with 0.36 in 1H 2013. Some 569 employees received a safety induction course (one-day), 359 employees received work safety training in respect of hazardous production risks (3-5 day courses) and 265 employees were trained and tested in respect of industrial safety (7-30 day programmes).

The Company's environmental practices remain fully compliant with the regulatory authorities' legislative requirements. The ISO 14001 accredited environmental management system is duly being extended to the Belaya Gora and Novoshirokinskiy mines where final audit inspections, to check compliance with the ISO 14001 standard, are scheduled for September and December 2014 respectively. To this end, 46 employees of the Belaya Gora and Novoshirokinskoye mines received training (developed by an external adviser) in internal environmental audit. Environmental safety training was given to 74 employees of MNV, Belaya Gora and Novo, with two MNV specialists attending a five-day course at Khabarovsk University.

Highland Gold

Dmitry Yakushkin, Head of Communications
+ 7 495 424 95 21
Duncan Baxter, Non-Executive Director
+ 44 (0) 1534 814 202
Numis Securities Limited
(Nominated Adviser and broker)
John Prior, Nominated Adviser
+44 (0) 207 260 1000
James Black, Corporate Broking
+44 (0) 207 260 1000
Peat & Co
(Joint Broker)
Charlie Peat
+44 (0) 207 104 2334