Production Update for the First Half of 2005

05.08.2005

Moscow. - Following our 24 June 2005 production update where we advised that the full year production for the group will fall significantly below earlier expectations, Highland Gold Mining Limited (“Highland Gold”, or the “Company”) announces its operating results for the 2005 first half ended 30 June 2005. Full financial results for the period and a complete update on our development projects will be released on 20 September 2005.

Highland Gold will hold a conference call hosted by Dmitry Korobov, Managing Director and Scott Yelland, Chief Operating Officer to discuss this production update at 10:00 am (UK time) on Friday, 5 August 2005. Participants may access the call at +44 (0) 1452 561 263.

FIRST HALF HIGHLIGHTS

  • Produced 63,749 ounces of gold
  • MNV implemented actions to address short-term operating issues that limited the availability of ore for the mill
  • Planned modifications completed on the Darasun mill
  • Strengthened operating management team

MNV MINE

The MNV mine produced a total of 51,979 ounces of gold during the first half of 2005, down from 96,986 ounces in the same period of 2004. The major short-term operating factors contributing to the lower gold output for the period were reduced ore deliveries to the mill and reduced gold grade. These factors were the result of inadequate development in both the open pit and underground operations with a consequential reduction in the availability of high grade ore sources. This situation was exacerbated by adverse weather conditions experienced in the first quarter. To respond to the current problems, the Company strengthened the management team, welcomed the recommendations of independent international experts, started to implement new planning and control procedures and provided new or additional equipment where necessary. Highland Gold is confident that these actions are properly addressing the development issues at MNV.

MNV Operating Statistics

  For the first half year ended June 30,
  Unit 2005 2004
Mine development      
Waste stripping Cubic Meters 640,609 856,298
Underground development Linear Meters 4,363 4,095
Mining      
Open pit Tonnes 156,615 173,961
  g/tonne 4.70 6.24
Underground Tonnes 180,619 213,880
  g/tonne 5.37 8.33
Total ore mined Tonnes 337,234 387,841
  g/tonne 5.06 7.39
Ore processed Tonnes 371, 403 466,262
  g/tonne 4.81 7.04
Including from stockpile Tonnes 34,169 78,421
  g/tonne 233 5.27
Recovery rate % 90.5 91.9
Gold recovered Ounces 51,979 96,986
Gold sold Ounces 55,426 94,055
Gold price received US$/ounce $426 $397

DARASUN MINE

Having been commissioned at the end of the first half of 2004, the Darasun mine produced a total of 4,870 ounces of gold in its first half year to December 2004 and 11,770 ounces in the first half of 2005. Notable improvements were made in underground mining that raised the average mined grade to 10.94 g/t for the first half of 2005 and to 13.21 g/t for the second quarter. In addition, open pit mining at the Talatui deposit intensified during the second quarter and the beginning of the third quarter with the commissioning of two new excavators. Whilst the processing plant has been experiencing sub standard performance in terms of throughput and recovery, the high grade ore from underground has been stockpiled and the mill feed has been from lower grade sources. Once the plant performance is optimised the high grade stockpile will be treated. This optimisation process has been proceeding according to schedule, and recently included a planned shut-down for the installation of new mill motors, improvements to the circulation process, a re-construction of the sorption columns and the implementation of new sampling procedures. We expect to begin processing higher grade ores in mid-August and to achieve design capacity in September.

Darasun Operating Statistics

 
For the first half year ended June 30,
Unit 2005 2004
Mine development      
  Waste stripping Cubic Meters 730,072 -
  Underground development Linear Meters 2,125 2,753
Mining      
  Open pit Tonnes 17,425 -
  g/tonne 6.43 -
  Underground Tonnes 55,084 39,875
  g/tonne 12.37 8.15
Total ore mined Tonnes 72,509 39,875
  g/tonne 10.94 8.15
Ore processed Tonnes 86,700 -
  g/tonne 5.84 -
Recovery rate % 72.3 -
Gold recovered Ounces 11,770 -
Gold sold Ounces 7,907 -
Gold price received US$/ounce $437 -

NEW APPOINTMENTS AND RESIGNATION

The Company has recently recruited Russell Tremayne to the position of Deputy Operations Director. Alexander Ivanov has also been appointed as the new Chief Engineer at the MNV mine.

Russell Tremayne has been appointed to the position of Deputy Operations Director for the group and will report to the Chief Operating Officer. Initially his time will be devoted to the MNV and Darasun mines, where he will assist the mine managers and their teams as they work towards the implementation of western best practices at the mines. Russell is a mining engineer with over 30 years experience, and has held positions at mines in the UK, Portugal, Zimbabwe, Greece, Bulgaria and Brazil. His most recent position has been Manager of Mining at Kinross Gold’s Kubaka gold mine in the Magadan region of North East Russia.

Alexander Ivanov has been appointed to the position of Chief Engineer at the MNV mine. Alexander received his degree in mine engineering from the Krasnoyarsk Institute of Non-Ferrous Metals. His 25 years of experience in Russian mining includes positions at the underground mines in Norilsk and in the Ural copper belt. His most recent position was as manager of the Dukat silver mine in the Magadan region of North East Russia.

As previously reported, Gennady Nevidomi has resigned his board and executive position as the group’s Production Director effective from 2 August 2005. Gennady played an important role in the formation of Highland Gold and we wish him well in his future activities.

EMPLOYEE STOCK OPTION PLAN

The Company advises that in line with the statement made at the time of Admission to the Alternative Investment Market in December 2002, it has now implemented an employee share option scheme. There are no participants at present and it will run in conjunction with the Company's Share Appreciation Rights scheme to allow flexibility when considering the employment incentives for executives. The scheme will be managed by the Remuneration Committee. At any one time no more than 10% of the issued Share Capital of the Company may be the subject of unexercised subscription options in aggregate and the total value of unexercised subscription options which an executive may hold at any one time must not exceed four times their remuneration package. The Company also announces that the Board have agreed that as part of James Cross's remuneration as non-executive Chairman he will be granted an option over 500,000 new ordinary shares in the Company exercisable at par after 9 December 2005 and a further 500,000 new ordinary shares in the Company at a price based on their current market value and exercisable after 9 December 2007.

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

“This first half of 2005 does not reflect the performance our assets are capable of delivering. The combination of short-term operating issues at MNV and remaining start-up issues at the new Darasun mill have severely impacted our results. While we are addressing these issues and making steady progress, I am not satisfied with our current performance and fully appreciate how difficult it has been for our shareholders. I am, however, confident that our efforts will soon translate into improved operating results.”

Enquiries: London : +44 (0) 207 851 6400
   
  Moscow : +7 (095) 777 5529
  E-mail: info@highlandgold.com
 

Dmitry Korobov, Managing Director

 

Dmitry Yakushkin, Director of Communications

  Grant Sinitsin, Director of Investor Relations