Highland Gold to Acquire Klen Gold Deposit in Chukotka, Russia

01.06.2012

Highland Gold Mining Limited ("Highland Gold" or the "Company") has reached an agreement to acquire LLC Klen, which holds the mining and exploration rights to the Klen gold deposit and the surrounding Verkhne-Krichalskaya property located in the Chukotka autonomous region in north eastern Russia. The total consideration is US$69 million less any assigned loans. The consideration will be in cash and will be funded from the Company's cash resources. The acquisition is subject to approval by the Russian anti-monopoly authorities which is a condition precedent.

The assets are located in west-central Chukotka, approximately 250 km southwest of Bilibino. Chukotka is one of the fastest growing, investment friendly gold producing regions in Russia with immense exploratory potential.

Eugene Shvidler, Chairman of Highland Gold Mining, commented: "The Klen addition is an important extension of Highland's asset base and will have an immediate impact on the Company's resources. Production is scheduled to commence in 2015 and will benefit prospective output. We believe that the Klen operation could benefit significantly from the exploration potential of the Verkhne-Krichalskaya area."

The Klen gold deposit will be mined by open pit method, while production will employ conventional gravity and cyanidation processing technology. The Klen licence area encompasses approximately two square kilometres and hosts an epithermal vein-type gold deposit with similar geological characteristics to other gold deposits in the region. A total volume of 36,000 metres of drilling and 13,000 metres of trenching were completed during the principal exploration period between 1982 and 2011. Based on the results of this activity a C1+C2 reserve of 18.6 tonnes of gold at an average ore grade of 6.3 g/t was registered with the Russian GKZ. A JORC compliant resource audit (MICON, 2012) evaluated the deposit as containing potentially mineable gold resources of approximately 0.51 moz of Indicated and 0.04 moz of Inferred resources at an average ore grade of 5.14 g/t for the combined resources.

The Verkhne-Krichalskaya exploration and mining licence incorporates the Klen licence and encompasses an area of approximately 996 square kilometres, hosting a number of small placer gold deposits. Historic exploration work on the property recognised numerous other geological features, including wide areas of hydrothermal alteration and geochemical anomalies, which are indicative of the gold prospectivity of the property. Several exploration targets have been identified which the Company believes have the potential to substantially contribute to Klen's current resource base. In the course of the development of the Klen deposit the Company plans to systematically explore the prospects on the Verkhne-Krichalskaya licence.

LLC Klen is a subsidiary of an entity that is associated with Primerod International Limited ("Primerod"), a substantial shareholder in the Company. As such, this transaction is classified as a related party transaction under AIM Rule 13. With the exception of Eugene Shvidler, Olga Pokrovskaya and Eugene Tenenbaum, connected with Primerod, the Directors of the Company, having consulted with the Company's nominated adviser, Numis Securities Limited, consider that the terms of the said transaction are fair and reasonable insofar as the shareholders of the Company are concerned.

Mr. Werner Klemens, Head of Exploration at Highland Gold, has reviewed and verified the information contained in this release with respect to reserve and resource matters. Mr. Klemens holds a Ph.D. in Geology from the University of Toronto. He has 14 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 at external laboratories.

For further information please contact:

Highland Gold

Dmitry Yakushkin, Head of Communications + 7 495 424 95 21
Duncan Baxter, Director + 44 (0) 1534 814 202
   
Numis Securities Limited Alastair Stratton / Stuart Skinner, Corporate Finance - +44 (0) 207 260 1000
James Black, Corporate Broking - +44 (0) 207 260 1000