Trading Update for the Second Half of 2010

26.01.2011

Highland Gold Mining Limited ("Highland Gold", or the "Company") is pleased to announce its trading update for the half year ended 31 December 2010.

HIGHLIGHTS

  • The Company met its 2010 production guidance by producing 200,028 oz of gold and gold equivalents from Mnogovershinnoye ("MNV"), Novoshirokinskoye ("Novo") (48.3%) and its newly commissioned third mine, Belaya Gora, a 23% increase year-on-year
  • At Unkurtash initial C1+C2 reserves estimate (1.70 Moz) submitted to Kyrgyzstan GKZ for approval, with JORC compliant audit results expected during H1 2011
  • JORC compliant audit confirms original Belaya Gora GKZ reserve (0.82 Moz)
  • Novo continues to ramp up mining and processing levels
  • 12,000 metres of resource conversion drilling completed at Lyubov
  • Group currently is debt free after fast tracking loan repayments, with a cash and cash equivalent position of US$ 235 million at 31 December 2010
  • Production in 2011 (MNV, Novo and Belaya Gora) is forecast in the range of 210,000 - 220,000 oz of gold and gold equivalents

OPERATIONS

Mnogovershinnoye (MNV) - Khabarovsk region, Russia

At the MNV mine, actual production exceeded targeted production during the second half of 2010 as process plant throughput increased substantially to 622,604 tonnes of ore processed and 94,585 oz of gold produced. Process plant recoveries remained in-line with those of the first half. Process grinding and gravity upgrades are underway and expected to improve recoveries going forward. Mined ore tonnes and grades remained consistent from both open pit and underground sources. New capital equipment introduced during the first half has improved productivity levels while helping to control operating costs.

MNV   H2 2010 H2 2009 2010 2009
Mine development        
Stripping 1,220,558 900,568 1,933,948 2,238,637
Underground development metres 3,098 4,396 6,725 8,635
Mining        
Total ore mined tonnes 642,878 544,435 1,192,896 1,009,384
Average grade g/t 5.1 5.2 5.1 5.4
Ore processing        
Ore processed tonnes 622,604 541,278 1,144,459 1,081,605
Average grade g/t 5.4 5.2 5.3 5.2
Recovery rate % 87.4 88.4 87.6 88.3
Gold produced oz 94,585 84,787 170,356 163,208

Novoshirokinskoye - Zabaikalsky region, Russia

Since shipping initial concentrates in February 2010 production has continued to be ramped up as planned. Productivity improvements were seen in both mining and process operations with 397,075 tonnes of ore processed during the year. Second half underground ore production and waste development metres remained on target while processed throughput exceeded target.

Novoshirokinskoye 100% H2 2010 H1 2010
Mine development    
Underground development Metres 3,221 3,143
Mining    
Ore mined Tonnes 223,989 121,748
Average grade * g/t 6.48 6.12
Processing    
Ore processed Tonnes 233,752 163,323
Average grade * g/t 6.34 5.38
Recovery rate * % 81.0% 78.0%
Gold Produced *

HGML (48.3%) interest
oz

oz
38,662

18,654
20,741

10,018

*calculated Au equivalent

Belaya Gora - Khabarovsk region, Russia

The review of synergies between Belaya Gora and nearby MNV resulted in the mobilisation of equipment and personnel for the commencement of select mining oxide ores for delivery to the MNV processing plant early in H2 2010. The actual start of mining was delayed until November due to permit requirements. In total, 10,971 tonnes of ore from Belaya Gora were milled, yielding 1,000 oz of gold with a considerable stockpile of ore accumulated. Mining operations now continue on target with expected production of approximately 1,000 oz of gold per month throughout 2011. In addition, the construction of a stand-alone processing facility with an anticipated commissioning date of mid-2012 has been initiated.

Belaya Gora Nov & Dec 2010
Mining  
Waste Stripping 226,000
Ore mined tonnes 76,000
Average grade g/t 1.66
Select Ore to MNV tonnes 26,700
Average grade g/t 2.41
Processing at MNV  
Ore processed tonnes 10,971
Average grade g/t 3.25
Recovery rate % 87.3
Gold Produced oz 1,000

DEVELOPMENT PROJECTS

Taseevskoye - Zabaikalsky region, Russia

The Company is currently conducting semi-industrial pilot testing concentrating on pressure oxidation (POX) specific processing technology. The aim of this testing is to develop all the design documentation and produce a comprehensive production flow sheet, with a full feasibility study to be produced by the year ending 2011. In the coming year, reviews will be undertaken on the ZIF-1 and Sredne-Golgotayskoye deposits, in an effort to calculate the net benefits of introducing these two additional resources into the current economic model.

EXPLORATION

Mnogovershinnoye (MNV) - Khabarovsk region, Russia

At MNV, encouraging drilling results have been achieved from the near-mine exploration programme intended to discover additional reserves for open-pit exploitation over the short term. The focus in 2010 was on surface exploration which included more than 6,200 metres of drilling at 4 exploration targets within the MNV license area. As a result, pit optimisation is now underway for the Pebble (Valunistoye) prospect which is part of Quiet (Tikhoye) - Pebble zone is estimated to host 190,000 oz of gold contained in open-pit mineable ore grading between 3.0 - 5.0 g/t. Positive drilling results obtained from other targets warrant follow-up work and highlight the considerable exploration potential that still remains at MNV.

During 2011 the near-mine exploration budget anticipates 8,000 metres of surface drilling with an additional 16,000 metres allocated to underground exploration.

Unkurtash - Kyrgyzstan

At Unkurtash, a pre-feasibility study for registration of preliminary C1+C2 category reserves of 1.71 million oz has been submitted to the State Committee on Reserves of the Kyrgyz Republic (GKZ) and represents a major step towards future mine development. The audit, in compliance with JORC standards, is planned to be completed by mid-2011.

Exploration activities continue at the three adjoining prospects - Unkurtash, Sarytube and Karatube. Over 13,000 metres of reverse circulation (RC) and core drilling has been completed in addition to underground exploration at Unkurtash where 430 metres of old workings were rehabilitated and 142 new metres developed. Drilling results continue to support the potential for hosting a large open-pit mineable stockwork-type resource at Unkurtash in addition to a smaller satellite deposit at Karatube.

A substantial increase in budgeted annual exploration expenditure underpins the Company's confidence in realising the potential of this project. Over 30,000 metres of RC and core drilling has been allocated at the three targets in addition to 3,000 metres of underground exploration development planned at Unkurtash during 2011.

Lyubov - Zabaikalsky region, Russia

At Lyubov, 12,000 metres of resource definition drilling has been completed at the Evgraf granitic stock and its surrounding shale with the objective of increasing the C1+C2 category reserves potential through conversion of adjacent prognostic P1 resources.

As previously reported to the regulatory authorities, the Evgraf target (exclusive of Evgraf West) was estimated to contain C2+P1 resources of 43.3 tonnes of gold (1.67 million oz) at an average grade of 1.83 g/t and a cut-off grade of 0.75 g/t (unaudited in-house estimate). To date 95% of drilling results have been received and are in-line with the Company's own resource model. Final assays with evaluation of results are expected to be completed by Q1 2011.

During 2011 the Company plans to complete additional drilling and other work, which will fulfill critical requirements for a pre-feasibility study. Together with a reserve calculation, it is planned to be submitted for approval to the State Committee on Reserves of the Russian Federation (GKZ) in H2 2011. A JORC compliant resource audit is expected prior to the year end 2011.

Blagodatnoye - Khabarovsk region, Russia

At Blagodatnoye, a resampling programme of old trench workings was completed in H2 2010. Overall this has returned positive results, which define several continuous intercepts of gold mineralisation. Blagodatnoye has a reported prognostic resource estimate of 161,000 oz of gold and features stockwork-type gold mineralisation with reported average gold grades in the range of 1.5-2.0 g/t.

The exploration programme planned for 2011 aims to increase the reported resource substantially and includes 10,000 metres of drilling to confirm continuity of mineralisation at depth.

Qualified Persons Statement: Mr. 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 13 years 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.

HEALTH, SAFETY & ENVIRONMENT

The provision of a safe working environment, management of production risks, training of personnel and improvement of personal responsibility for site safety, remains of paramount importance to the Company. As a result of this work the lost time incident ("LTI") rate (the LTI rate is the number of lost time incidents for every 200,000 man hours worked) decreased to 0.37 during 2010 (0.55 in 2009). During the year all sites worked 6 specific months with zero LTI incidents reported. 1,258 employees went through introductory (1 day) safety training, 477 employees went through a course of introductory hazardous work (5 days) safety training and 111 employees were involved in industrial safety certification and training courses.

Environmental compliance remained in good standing with regulatory authorities. In particular, environmental audit procedures for all sites of the Company were implemented during the year. Environmental safety requirement training was provided to 68 employees at MNV and Taseevskoye, while an additional 24 MNV employees were provided with environmental risks and assessments training and 42 employees passed their best practices of environmental protection training.

The Company has also initiated efforts towards implementation of an accredited environmental management system (ISO 14001 compliant) Group wide with final compliance auditing targeted by YE 2012.

For further information please contact:

Highland Gold Dmitry Yakushkin, Head of Communications + 7 495 424 95 21
  Duncan Baxter, Chairman + 44 (0) 1534 814 202
   
Matrix Robin Henshall, +44 (0) 20 3206 7172
(Nominated Adviser and broker) Tim Graham, +44 (0)20 3206 7206
   
Fin Public Relations Alex Glover + 44 (0) 20 7608 2280