Highland Gold Mining Limited Announces Its Trading Update

OREANDA-NEWS. August 17, 2012. Highland Gold Mining Limited (“Highland Gold,” “Highland” or the “Company”) announces its trading update in respect of the half year ended 30 June 2012. Full financial results for this period will be released on or around 19 September 2012.

HIGHLIGHTS

Combined production of gold and gold equivalents from Mnogovershinnoye (“MNV”), Novoshirokinskoye (“Novo”) (97.5% interest) and Belaya Gora totalled 101,900 oz – a 9.5% increase compared with H1 2011 

A fully unhedged average gold sale price of USD 1,641/oz represented a 13% increase compared with the corresponding period last year

A 16% increase in total JORC compliant resources to 12.9 Moz, through exploration and acquisition, compared with stated figures as at 31 December 2011

On track to produce 200,000 – 215,000 oz of gold and gold equivalents in 2012

Construction of the Belaya Gora stand-alone processing facility remains on track for commissioning in Q4 2012

Exploration programme at MNV continued to target potential resources adjacent to existing operations (Watershed, Pebble/Quiet zones) 

Production ramp up at Novo resulted in a 6% increase in processed tonnes compared with H1 2011

Continuation of exploratory drill works and underground development at Unkurtash designed to expand the resource base. Approval of mining licence by the Kyrgyzstan Government authorities paves the way for project development 

Submission of Lyubov documentation to GKZ regulatory authorities and the commencement of an independent JORC resource audit

Exploratory drilling and trenching at Blagodatnoye continued to deliver positive results with an increased mineralised zone developing along strike and at depth

POST HALF YEAR EVENTS

Production profile expanded through purchase of the Klen and Verkhne-Krichalskaya licences with initial gold production scheduled for 2015

OPERATIONS

Mnogovershinnoye (MNV) – Khabarovsk region, Russia

Overall production at MNV was in line with Company targets. Process plant throughput during the six months to 30 June 2012 totalled 611,036 tonnes of ore and yielded 68,751 oz of gold. Recovery rates, benefiting from major hydrocyclone and pump upgrades at the plant, improved during the latter part of the period and are expected to remain at a level of 90% during the second half of 2012.

Open pit waste stripping volumes were increased during the first half in order to ensure continued mining access to the Flank pit where pit wall conditions were affected by the spring thaw. This increase will have an impact on cash costs, details of which will be reported in September. Ore tonnes mined, in respect of both open pit and underground operations, were on target. Underground development at 3,479 metres recorded a 19% improvement over H1 2011 performance. New underground capital mining equipment, introduced in 2011 and early 2012, helped to maintain production targets and will facilitate the retirement of older less efficient production units. The ‘near mine’ exploration programme, involving drilling and trenching operations close to existing mine workings, continued. These activities are designed to further the conversion of resources into reserves and to discover new resources to help offset depletion. Independent expertise has also been deployed in order to maximise this potential.

MNV 100%	Units	H1 2011	H2 2011	H1 2012
Waste stripping	mі	790,897	1,562,903	1,825,697
Underground development	metres	2,915	2,816	3,479
Open pit ore mined	tonnes	372,158	372,485	272,351
Open pit ore grade	g/t	4.2	4.0	4.2
Underground ore mined	tonnes	234,282	293,378	274,322
Underground ore grade	g/t	5.3	4.0	4.0
Total ore mined	tonnes	606,440	665,863	546,673
Average grade mined	g/t	4.6	4.0	4.1
Ore processed	tonnes	499,082	629,586	611,036
Average grade processed	g/t	5.2	3.9	4.0
Recovery rate	%	87.7	88.2	88.9
Gold produced	oz	71,926	71,938	68,751

Novoshirokinskoye (Novo) – Zabaikalsky region, Russia

During the six month period, underground ore production, waste development metres and processed ore throughput all met or exceeded their respective targets. Output improvements in both ore mining and processing are anticipated with production of approximately 450,000 tonnes of ore expected by the year end. Components for a SAG mill upgrade have been ordered with the retrofit expected during the second half of the year. With regard to underground development, access to additional stoping blocks will continue to provide flexibility in respect of ongoing ore supply to the process plant.

Novo 100%	Units	H1 2011	H2 2011	H1 2012
Underground  development	metres	3,614	3,501	3,724
Ore mined	tonnes	218,978	220,390	231,267
Average grade *	g/t	6.6	5.1	5.1
Ore processed	tonnes	217,953	220,390	231,267
Average grade *	g/t	6.6	5.1	5.1
Recovery rate *	%	84.9	82.4	84.7
Gold Produced (100%)*	oz	39,214	29,719	32,030
HGML (48.3%) interest as of 31.12.11	oz	18,940	14,353	-
HGML (97.5%) interest as of 30.06.12	oz	-	-	31,230

*approximate Au equivalent

DEVELOPMENT PROJECTS

Belaya Gora – Khabarovsk region, Russia

Belaya Gora 100%	Units	H1 2011	H2 2011	H1 2012
Waste stripping	mі	202,310	87,390	468,973
Ore mined	tonnes	255,319	162,661	117,486
Average grade mined	g/t	2.1	2.1	1.4
Ore processed at MNV	tonnes	30,460	30,926	21,680
Average grade processed	g/t	2.6	5.5	3.2
Recovery rate	%	87.3	87.3	87.3
Gold produced	oz	2,191	4,754	1,919

At Belaya Gora the construction of the stand-alone processing plant proceeded on target with vertical planning, major foundations, steel work, and ancillary works all making good progress. All integral items such as mills, drives and steel frames are currently on site or in transit. Open pit ore and waste mining operations continued in accordance with plans to use waste stripping material for the construction of the tailings storage facility dam and roadways, with ore being stockpiled for future plant feed. During the six month period, 21,680 tonnes of ore were processed at the MNV plant producing 1,919 ounces of gold. The focus will remain on the construction project with ore processing limited to the stockpile already delivered to the MNV plant. Full grade ore currently being mined will be stockpiled for the purpose of feeding the new plant post commissioning which is expected during Q4 2012.

Taseevskoye – Zabaikalsky region, Russia

The drilling programme initiated during H1 2011 for confirmation of resources and ore characterisation was finalised during the first half of 2012. This programme was delivered to verify the existing resource and to ensure that the planned semi-industrial pilot test work will be completed using fully representative samples from each of the varying ore zones located within the potential open pit. Tests are currently underway and are expected to be completed during H2 2012. The potential to advance the project to the definitive feasibility stage will be considered following the conclusion of the current review process.

POST HALF YEAR EVENTS

Klen – Chukotka region, Russia
The purchase of Klen and the adjacent Verkhne-Krichalskaya (VK) properties in July 2012 provided Highland with an opportunity to expand its production profile through additional resource ounces (0.63 Moz) with initial production targeted for 2015. Preliminary studies indicate a 300,000 to 400,000 tonnes per annum open pit operation allied to a conventional gravity and cyanidation process plant to produce 50,000 to 60,000 ounces of gold per annum.

Geochemical work has been expedited on the adjacent 996 kmІ VK licence during 2012 in order to delineate additional drilling and trenching targets for the 2013 field season and beyond. Preliminary estimates indicate the potential for significant organic resource growth.  

EXPLORATION

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 H1 2012 the independent consultancy IMC Montan completed a JORC compliant resource audit at the Sarytube prospect which increased the previously reported resources of the Unkurtash project by 1.1 Moz to a total of 3.0 Moz (94% Measured and Indicated).

In July 2012 mining permits were received for the Unkurtash and Karatube prospects which provide the rights for the exploitation of subsoil gold reserves and the timelines for project research, engineering design and the commencement of construction in respect of a planned large scale open pit operation.

The Company’s 2012 exploration programme is focused on the deeper level of the Unkurtash prospect up to a depth of 450 metres with the objective of substantially enlarging the currently defined mineral resource. In H1 2012 a total of 850 metres of underground development at the 1,640 metre horizon (above sea level) was completed as planned. More than 11,000 metres of deep drilling are budgeted for completion by the year end.

An independent JORC compliant resource update is planned during the second half of 2012 in addition to preparatory work towards the registration of additional reserves with the Kyrgyzstan GKZ scheduled for H1 2013.

Lyubov – Zabaikalsky Region, Russia

In Q2 2012 the Company submitted a pre-feasibility study in respect of the Evgraf target, including a reserve calculation, to the Russian Federation’s (GKZ) State Committee on Reserves.

Accordingly, at the Evgraf target alone, a C1+C2 category reserve of approximately 0.5 Moz of gold contained in 8.35 million tonnes of ore at an average grade of 1.88 g/t is to be considered for reserve registration, approval of which is anticipated in Q3 2012.

A JORC compliant independent resource audit which commenced in Q1 2012 is expected to be completed in H2 2012. The Company has initiated engineering studies in relation to conventional processing options, including heap leaching.

Blagodatnoye – Khabarovsk region, Russia

Results from the Company’s 2011 drilling campaign at Blagodatnoye, located close to the Belaya Gora mine, indicated that this property has the potential to host a significant near surface resource grading 1.5 – 2.0 g/t.

The Company has allocated 7,300 metres of drilling and 2,500 metres of trenching and additional geochemical and geophysical surveys throughout the Blagodatnoye licence area in respect of 2012 with a view to identifying further resource potential. By the end of H1 2012 more than 2,100 metres of drilling and 1,100 metres of trenching, as well as geochemical sampling over an area of 17.8 km2, had been completed. Final analytical results are expected in Q4 2012.

Mnogovershinnoye – Khabarovsk region, Russia

Throughout H2 2012 the Company will continue its systematic ‘near-mine’ exploration programme at MNV with the objective of delineating additional resources for future open pit exploitation.

H1 2012 saw the completion of 2,500 metres of drilling at the Quiet target which is part of the two kilometre long Quiet (Tikhoye) – Pebble (Valunistoye) zone hosting an internally estimated 190,000 oz of gold, grading more than 3.0 g/t.

At the Watershed (Vodorazdelnoye) target a trenching programme completed in 2011 returned initial high-grade gold intersects which warrant further drilling to delineate resource potential at depth and along strike. In H1 2012, preparatory earth works were completed at Watershed which will be followed by a staged exploration drilling programme allocating up to 6,000 metres depending on results.

Diamond core drilling activity in respect of underground resource conversion totalled 6,873 metres.

HEALTH, SAFETY & ENVIRONMENT

Safety operations, designed to achieve improvement across all of the Company’s sites, focused on safety awareness and training courses. As a result of this, the lost time incident (LTI) rate (based on the number of lost time incidents in respect of every 200,000 man hours worked) halved from 0.84 during H1 2011 to 0.42 for H1 2012. A total of 740 employees attended introductory (one day) safety training classes, 317 employees completed courses in safe working methods, labour protection and industrial safety training (3/5 days) while 267 employees participated in industrial safety certification through RosTechNadzor. In addition, 70 drivers received vehicle safety and driving training with particular emphasis on vehicular incident mitigation.

Notwithstanding these Group wide improvements in health and safety measures it is with deep regret that we have to report the occurrence of two employee fatalities in April and May 2012 respectively. The first incident, at MNV, was caused by a collapse of ground, while the second incident, at Novo, was the result of an underground tram accident.

Environmental compliance remained in good standing with all the relevant regulatory authorities. Environmental safety training was provided to 59 employees at MNV, Novo, Belaya Gora and Taseevskoye. Of these trainees, 10 employees at the Novo mine completed their environmental safety skills improvement courses at Trans Baikal State University. The Company has also progressed its programme of Environmental Management Systems (EMS) with the assistance of an independent specialist in ISO 14001 standards. As a result, preliminary audits were carried out at site during the first half of 2012. This programme will continue until the completion of certification at the year end.

In accordance with Russian Federation legal requirements, 35 hazard production items across all Company enterprises were insured, against the risks of causing harm to third parties in the event of an incident.