Trading Update for the Second Half of 2012

30.01.2013

Highland Gold Mining Limited (“Highland Gold” or the “Company”) announces its trading update for the half year ended 31 December 2012.

HIGHLIGHTS

  • Group wide production for FY2012 improved 18% to a record 216,885 oz of gold and gold equivalents from the Mnogovershinnoye, Novoshirokinskoye and Belaya Gora mines, thereby exceeding guidance estimates
  • Construction of the Belaya Gora processing facility continues to make good progress with commissioning expected in Q1 2013 and production of first gold scheduled for April 2013
  • Increase of 2.2 Moz in total JORC compliant resource base to more than 13.0 Moz (compared with stated level as of 31 December 2011) reflecting contributions from the Unkurtash, Klen and Lyubov projects
  • Acquisition of Klen and adjacent VK licence adds near-production resources and prospective exploration targets
  • Acquisition of Western Flank licence adds near-mine exploration property with significant potential for the delivery of new resources at MNV
  • Positive exploration results received from three targets within MNV licence corroborate potential for the supply of additional resources to the mine during its current life
  • Exploration results at Blagodatnoye indicate good potential for new contributions to the Company’s resource base
  • Interim special dividend of 4.8 pence per share declared towards the end of Q3 2012
  • The Company’s net cash position amounted to US$52.6 million as at 31 December 2012
  • Production for the year to 31 December 2013 (MNV, Novo and Belaya Gora) is forecast to be in the range of 225,000 – 240,000 oz of gold and gold equivalents

OPERATIONAL REVIEW

Production

Mnogovershinnoye (MNV) – Khabarovsk region, Russia

During H2 2012 a total of 79,742 ounces of gold was produced from the combined open-pit and underground operations at MNV, representing an 11% increase in output compared with the same period in 2011. Process plant throughput achieved a 6% improvement to 669,195 tonnes compared with the corresponding period of 2011. Both open-pit and underground mined volumes improved while the average grade showed a slight increase to 4.1 g/t. Operational focus during 2013 will remain on open-pit waste stripping in order to access near surface reserve ore blocks, while the underground operations will continue to maximise lateral development in order to access and upgrade resources at depth in addition to exploring new zones along strike.
Process plant recoveries improved substantially over that for the first half of the year, a development that was attributable to process grinding and gravity circuit upgrades. Recoveries are expected to remain at 90% or better going forward. New mobile equipment introduced during the year provided the opportunity to rationalise the underground fleet, thereby retiring some older, less productive units. This, in turn, helped to maintain target productivity levels and maintenance costs. An independent JORC compliant audit is currently underway at MNV with results expected in Q2 2013.

MNV 100% Units H2 2011 H2 2012 H1 2012 FY 2011 FY 2012
Waste stripping 1,562,903 1,732,726 1,825,697 2,353,800 3,558,423
U/G development metres 2,816 3,864 3,479 5,731 7,343
Open pit ore mined tonnes 372,485 376,813 272,351 744,643 649,164
Open pit ore grade g/t 3.9 4.5 4.2 4.0 4.4
U/G ore mined tonnes 293,378 306,157 274,322 527,660 580,479
U/G ore grade g/t 4.2 3.5 4.0 4.7 3.7
Total ore mined tonnes 665,863 682,970 546,673 1,272,303 1,229,643
Avg. grade mined g/t 4.0 4.1 4.1 4.3 4.1
Ore processed tonnes 629,586 669,195 611,036 1,128,668 1,280,231
Processed grade g/t 3.9 4.0 4.0 4.5 4.0
Recovery rate % 88.2 91.9 88.9 88.0 90.4
Gold produced oz 71,938 79,742 68,751 143,864 148,493

Novoshirokinskoye (Novo) – Zabaikalsky region, Russia

Production during H2 2012 amounted to 32,408 oz of gold equivalents with solid increases seen in both mined and processed ore tonnes. Equivalent grades were marginally lower as new ore blocks improved plant feed blending, the result being a 10% increase in processed tonnes compared with the first half performance. Underground development metres remained largely in line with that for the first half with full year 2012 development exceeding the previous year by 5%.

Novo 100% Units H2 2011 H2 2012 H1 2012 FY 2011 FY 2012
Underground development metres 3,501 3,726 3,724 7,115 7,450
Ore mined tonnes 220,390 252,922 231,267 439,368 484,189
Average grade mined * g/t 5.1 4.8 5.1 5.9 4.9
Ore processed tonnes 220,390 254,145 231,267 438,343 485,412
Processed grade* g/t 5.1 4.8 5.1 5.9 4.9
Recovery rate * % 82.4 82.7 84.7 83.5 83.7

Gold produced *

oz 29,716 32,408 32,030 68,930 64,438
48.3% (applies to 2011 only) oz 14,353 - - 33,293 -

*approximate Au equivalent

DEVELOPMENT AND EXPLORATION PROJECTS

Belaya Gora – Khabarovsk region, Russia

Focus throughout the second half of the year remained on plant construction where major infrastructure and ancillary installations made good progress. Waste for construction purposes was mined and utilised while ore continued to be stockpiled. Residual oxide ore stockpiles that were previously delivered to MNV were systematically processed and resulted in 2,035 oz of gold production in respect of the second half of the year. The full year’s production of 49,812 tonnes of ore from Belaya Gora yielded 3,954 oz of gold. Open-pit mining operations and the accumulation of ore stockpiles continued in advance of the anticipated stand-alone operations.

Belaya Gora 100%
Units H2 2011 H2 2012 H1 2012 FY 2011 FY 2012
Waste stripping 87,390 648,978 480,660 289,660 1,129,638
Ore mined tonnes 162,661 159,620 117,486 417,984 277,106
Average grade mined g/t 2.1 1.8 1.4 2.1 1.6
Ore processed at MNV tonnes 30,926 28,132 21,680 61,386 49,812
Processed grade g/t 5.5 2.6 3.2 4.0 2.8
Recovery rate % 87.3 87.3 87.3 87.3 87.3
Gold produced oz 4,754 2,035 1,919 6,945 3,954

Klen – Chukotka region, Russia

The acquisition of the Klen and VK licences was completed in July 2012, a transaction that furnished the Company with a defined near-surface gold resource of approximately 0.63 Moz for accelerated project development, together with a prospective exploration area of almost 1000 km². Prior to the year end, deliveries of heavy equipment and materials, including a construction camp designed to accommodate more than 100 employees, arrived at the Arctic port of Pevek. Onward delivery to site, scheduled for early 2013, will utilise a winter roadway in advance of the anticipated commencement of ground work and preliminary construction activity. The envisaged project encompasses an open-pit operation allied to a conventional gravity and cyanidation process plant with initial gold production targeted for 2015. After achieving nameplate throughput, production is expected at a rate of 50,000 – 60,000 oz of gold per annum, derived from 300,000 – 400,000 tonnes of processed ore with a head grade of 5.1 g/t.

Taseevskoye – Zabaikalsky region, Russia

Project design work continued in H2 2012 and utilised new data from a drilling programme concluded during the early part of the year. This programme was aimed at verifying existing resources and ore block characteristics and providing representative sample material for metallurgical test work on different mineralised zones within the potential pit limits. The project design work is expected to continue during H1 2013.

EXPLORATION

Mnogovershinnoye – Khabarovsk region, Russia

In H2 the Company reported positive results from three exploration targets at MNV (Quiet, Pebble and Watershed) following the completion of a diamond core drilling and surface trenching programme designed to identify additional resources in order to extend the life of MNV’s open-pit operations.

At the Quiet – Pebble mineralised zone, drilling confirmed historic exploration results at each prospect and also intersected new areas of prospective mineralisation which are expected to increase the zone's resource potential. Resource modelling for the Quiet prospect is underway and initial mining has commenced at Pebble. Exploitation of both prospects is expected to enhance the existing open-pit operations at MNV.

The Watershed prospect is adjacent to MNV's Upper open-pit and hosts high-grade gold mineralisation. More than 2,900 metres of diamond core drilling and 1,600 metres of surface trenching were completed in H2 2012. The results corroborate historic exploration data and indicate the potential to substantially increase the resource base attributed to this prospect.

Diamond core drilling activity in respect of underground resource conversion totalled 16,255 metres for the full year and was in line with budget.

The Company is planning to continue with its near-mine exploration efforts at MNV with the goal of verifying and further increasing the known mineralised prospects to add value to the operation. As such, all exploration prospects within the MNV licence area are currently undergoing an independent JORC compliant audit with results expected to be received during Q2 2013.

Western Flank Mnogovershinnoye – Khabarovsk region, Russia

In December the Company acquired a licence for exploration and mining rights at the Western Flank, a prospective property immediately adjacent to MNV’s mining operations. The licence area includes the Chaynoye zone which is believed to have good potential for the delivery of new resources at MNV. Chaynoye has been partially explored in the past and has an historical reported prognostic resource of 3.5 tonnes (112,500 oz) of gold. The Company is planning a trenching and drilling programme at Chaynoye during 2013 with a view to upgrading the resource potential for future exploitation via the Company's operations at MNV.

Unkurtash – Kyrgyzstan

The Unkurtash project hosts four distinct prospects, three of which, Unkurtash, Sarytube and Karatube have been the focus of the Company’s extensive exploration activities.

In 2012 the drilling programme concentrated on the deeper levels of the Unkurtash prospect down to a depth of 450 metres with the objective of increasing the entire project’s currently defined JORC compliant mineral resource base of ca. 3.0 Moz Au (94% Measured and Indicated). During the second half, 11,315 metres of reverse circulation drilling were completed extending down to the extensive underground exploration development drives which were completed in H1 2012.

An independent JORC compliant resource update is planned for H1 2013 in conjunction with the registration of additional C1+C2 category reserves with the State Committee on Reserves (GKZ) of the Kyrgyz Republic.

Mining permits for the Unkurtash and Karatube prospects, which provide the rights for exploitation of subsoil gold reserves and outline project development timelines, were granted in early H2. The Company intends to proceed with engineering studies in respect of a planned large-scale open-pit operation.

Lyubov – Zabaikalsky Region, Russia

The Lyubov project is targeting a near surface bulk-mineable gold resource for a potential open-pit mining operation. The property licence includes the Evgraf prospect which has been the focus of the Company’s previous exploration activities, including more than 20,000 metres of diamond core drilling.

An independent resource audit for the Evgraf prospect was completed in H2 2012 and defines a total mineral resource of 0.48 Moz (98% measured and indicated).

In Q4 2012 the State Committee on Reserves of the Russian Federation (GKZ) approved a C1+C2 category in-pit reserve of 0.42 Moz Au contained in 6.99 million tonnes of ore at an average grade of 1.88 g/t.

The Lyubov project is entering the development stage and engineering studies in relation to conventional processing options, including heap leaching, have been initiated.

Blagodatnoye – Khabarovsk region, Russia

At Blagodatnoye, the Company completed an exploration programme of 9,840 metres of diamond core drilling and more than 1,100 metres of trenching. Assay results received to date outline two distinct gold mineralised zones of sizeable footprint and vertical continuity thereby underpinning the project’s potential to host a substantial near surface resource grading from 1.5 to 2.0 g/t. Preliminary results from initial metallurgical test work indicated favourable metallurgy and gold recovery levels via conventional milling and cyanidation processing methods.

Additional exploration of the property is planned in order to verify and further increase the known mineralised prospects, while the completion of all technical requirements for reserve registration with the Russian state authorities will precede the initiation of an independent JORC compliant resource audit.

HEALTH, SAFETY & ENVIRONMENT

The provision of a safe working environment, the management of production risks, the training of personnel and the assumption of personal responsibility for site safety, is of paramount importance to the Company. We are pleased to note that the lost time incident (“LTI”) rate (defined as the number of lost time incidents in relation to every 200,000 man hours worked) was substantially reduced to a level of 0.31 in 2012 compared with 0.57 in 2011. Zero lost time injuries, on a Group wide basis, were reported for six of the year’s 12 months. A total of 1,320 employees participated in introductory (one-day) safety training exercises, 592 employees attended a safety work performance / production safety course (3-5 days) while 468 employees completed industrial safety certification training courses (7-30 days). To ensure the maintenance of specific skills, a further 14 MNV employees received training on mobile heavy equipment, while 70 MNV and Belaya Gora employees completed light vehicle driving tests.

Environmental compliance remained in good standing with the regulatory authorities. In particular, environmental audit procedures were implemented throughout all of the Company’s sites during the year. Training in respect of environmental safety requirements was provided to 59 employees at MNV, Belaya Gora and Taseevskoye. The Company continued its efforts towards the implementation of an accredited environmental management system (ISO 14001 compliant) Group wide with final auditing and compliance expected in February 2013. To this end 45 employees received internal audit training at MNV and Russdragmet (RDM), while an additional 27 MNV employees were provided with an environmental risks and assessments training course developed by an external environmental consultant. A group of 16 managers and specialists from MNV, Novo and Belaya Gora attended a five-day course on environmental safety provisions at local universities in Khabarovsk and Chita.

Qualified Persons Statement: Werner Klemens, Head of Exploration at Highland Gold has reviewed and verified the information contained in this release with respect to drilling and resource / reserves matters. Mr. Klemens holds a Ph.D. in Geology from the University of Toronto. He has over 15 years of experience in mineral exploration and is a fellow of the Geological Association of Canada. A rigorous quality assurance programme complying with international standards is in effect at all exploration projects and includes duplicate sampling, insertion of standards and check assaying with external laboratories.

 

For further information please contact:

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 Joint Broker)
Alastair Stratton / Stuart Skinner, 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