HGM.L Regulatory News (HGM)

23 April 2013 - Highland Gold Mining Limited ("Highland Gold", the "Company" or the "Group" AIM: HGM) announces its final audited results for the year ended 31 December 2012.

FINANCIAL HIGHLIGHTS

Eugene Shvidler, Chairman of Highland Gold Mining, commented: "Solid progress was achieved across the Group's operations during 2012 as rigorous efficiencies led to a 17.8% increase in total production. Cost containment measures brought second half benefits, the construction of the Belaya Gora processing plant proceeded to the final stages and our exploration projects yielded a series of encouraging results. This was accompanied by further M&A activity which, earlier this month, culminated in the US$223.0 million acquisition of the Kekura licence, a transaction which significantly strengthens our prospective production profile. We remain confident that such developments leave the Company well positioned to advance its growth strategy."

2012 KEY EVENTS

·; Group wide production rose 17.8% to a record 216,885 oz of gold and gold equivalents (2011: 184,102 oz) thereby exceeding guidance estimates. This represents the combined contribution from the Group's three operating mines: Mnogovershinnoye, Novoshirokinskoye and Belaya Gora

·; 3.0% increase in EBITDA to US$161.8 million (2011: US$157.1 million) reflecting higher sales volumes

·; Total cash costs of US$749 per ounce remained competitive versus peer group (2011: US$594 per ounce)

·; 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 Verkhne-Krichalskaya (VK) licence adds near-production resources and significant exploration targets

·; Acquisition of Western Flank licence adds near-mine exploration property with strong potential for the delivery of additional resources at MNV, thereby extending the life of the mine beyond 2016

·; Exploration results from three targets within the MNV licence corroborate potential for the supply of further resources to the mine

·; Positive exploration results at Blagodatnoye confirm potential for additional contributions to the Company's resource base

·; Interim special dividend of 4.8 pence per share paid in October 2012

·; Net cash and cash equivalents (including shares and bonds) totalled US$52.6 million as of 31 December 2012 (2011: US$126.7 million)

POST YEAR EVENTS

·; Final dividend of 3.0 pence per share recommended, making a total distribution of 7.8 pence for the year (2011: 5.0 pence)

·; US$223.0 million acquisition of the Kekura licence extends Company's interest in the investment friendly region of Chukotka and adds approximately 2.89 million JORC compliant resource ounces to the mid-term pipeline

·; Construction of several key components of the Belaya Gora stand-alone processing facility completed in April 2013

·; ISO 14001 (2004) certification of the environmental management systems at the Mnogovershinnoye mine and Russdragmet (RDM) LLC, the Moscow-based management company, awarded

2013 TARGETS

·; Total production in 2013 is forecast to be in the range of 225,000 - 240,000 oz of gold and gold equivalents (derived from MNV, Novo and Belaya Gora)

·; First gold at Belaya Gora to be poured in May 2013

·; Kekura project development to be fast tracked in parallel with a targeted 40,000 metre exploration drilling programme scheduled for 2013/14

·; Klen project development planned during 2013-2015 accompanied by the commencement of a major exploration programme within the VK licence

·; Unkurtash - continue exploration programme in order to unlock full potential

·; MNV - maintain steady production levels while containing costs. Exploration will focus on near-surface drilling at the recently purchased Western Flank licence

·; Novo - improve efficiencies and increase plant throughput following a scheduled mid-year mill upgrade

·; Continued focus on health, safety and environmental best practice standards, including preparations at Novo and Belaya Gora for ISO 14001 (2004) certification

CONFERENCE CALL DIAL-IN DETAILS

The Company will hold a conference call on Tuesday, 23 April 2013 hosted by Valery Oyf, CEO to discuss the final results. The conference call will take place at 10.00 UK time (13.00 Moscow). The dial-in information for each conference call is set out below:

10.00 UK time (13.00 Moscow)

Telephone number: +44 (0) 1452 555 566

Conference ID: 50094499

For further information please contact:

Highland Gold

Dmitry Yakushkin, Head of Communications +7 495 4249521

Numis Securities Limited

Stuart Skinner, Corporate Finance +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

The Annual General meeting will be held on 11 June 2013

www.highlandgold.com 

CHAIRMAN'S STATEMENT

It gives me great pleasure to report to you on a year that witnessed a continuation of our growth strategy and leaves your Company well positioned to capitalise in the short- to medium-term on opportunities to enhance shareholder value.

Throughout 2012 considerable application was brought to bear on achieving improvements in the efficiency of our business at all levels. In particular, management sought to:

·; Optimise current production operations

·; Progress our project development and exploration programmes

·; Refine financial and procurement practices, including internal audit procedures

·; Analyse and, where value adding, action potential M&A transactions

·; Attract and retain skilled personnel through the utilisation of competitive terms and incentives and

·; Ensure continuous improvement through the education of employees in relation to Health, Safety and Environmental issues

Accomplishments in respect of the above benefited from the Directors' decision to introduce a more active 'hands on' management approach at Board level, a course of action that was duly implemented through the appointment of four senior managers as Executive Directors in the summer of 2012, details of which are referred to below.

We saw a return to stable production at our flagship Mnogovershinnoye (MNV) mine (Khabarovsk region, Russia) in the wake of the challenging experiences of 2011 and registered records in both mined and processed volumes at the Novoshirokinskoye (Novo) mine (Zabaikalsky region, Russia).

In line with this I am pleased to report a 17.8% increase in annual attributable production to a record 216,885 oz of gold and gold equivalents, thereby exceeding our full year guidance estimates. This was achieved through a combination of rigorous management controls and efficiency improvements. We are budgeting for further growth in the current financial year and reiterate our forecast, issued in January, of an increase in output to between 225,000 - 240,000 oz of gold and gold equivalents in respect of 2013.

Management of the final construction phase of the stand-alone processing facility at the Belaya Gora complex (Khabarovsk region) represented an operating priority throughout 2012. Significant progress to date will see the plant soon coming on stream and providing resultant benefits towards the end of H1 2013.

Further expansion of the Company's resources was reflected in a year-on-year increase of 2.2 Moz to more than 13.0 Moz in our Joint Ore Reserves Committee (JORC) compliant resource base. This encompassed both organic and acquisitive contributions, with the Unkurtash (Kyrgyzstan) and Lyubov (Zabaikalsky region) projects representing the former and the Klen deposit (Chukotka region) the latter.

In July we finalised the purchase of the Klen gold deposit and the adjacent Verkhne-Krichalskaya (VK) property located in the investment friendly gold mining region of Chukotka in north eastern Russia. The total consideration of US$69 million was funded through the Company's cash resources. Project development investment in the new properties commenced immediately with equipment and materials delivered to the seaport of Pevek, situated on the coast of the East Siberian Sea, towards the end of 2012. Initial production of gold at Klen is scheduled for H2 2015 and operations could benefit significantly from the potential of the VK property where exploration is ongoing.

The subsequent purchase of the Western Flank licence, immediately adjacent to MNV, represents an effective 'bolt on' acquisition with the potential, particularly through the property's promising Chaynoye zone, to deliver additional near-surface resources, thereby prolonging the life of our primary producer.

In April 2013 the Company significantly extended its presence in the Chukotka region through the acquisition of the mining and exploration rights to the Kekura gold deposit and surrounding licence area for a total consideration of US$223.0 million, funded via a new debt facility of US$250 million with Gazprombank. A JORC compliant resource audit carried out by Micon International in 2012 estimated the Kekura deposit resources at approximately 2.89 Moz (Indicated & Inferred) at an average ore grade of 8.69 g/t. The mine is expected to be fully operational by 2017 with an anticipated production range of 180,000 - 220,000 oz of gold per annum over a minimum ten year life span.

We are delighted to have secured the Kekura deposit which represents a major addition to our resource base and, as such, is expected to feature prominently in Highland Gold's mid to long-term production profile. In order to realise this potential, Kekura will represent a central aspect of our project development strategy during H2 2013 and beyond. We are also pleased to have created an effective operational hub in Chukotka and we expect the proximity of Kekura to the Klen and VK projects to yield various synergies in terms of logistics and administration.

The completion of the Klen and Western Flank acquisitions in 2012 and the subsequent addition of Kekura to our portfolio has served to substantially strengthen our asset base and fully illustrates our declared strategy of pursuing both organic and acquisitive growth.

The Group has maintained a positive net cash position during recent years but, in order to fully develop our newly acquired and ongoing current projects, additional financing will be required. The policy of the Board is not to exceed a net debt to EBITDA ratio of 2.0, although we expect this ratio to begin declining in 2014.

All of the Company's exploration programmes, the drivers of organic growth, performed according to plan during 2012. Positive results from three prospects within the MNV licence area were particularly notable. Similarly, exploratory activity at Blagodatnoye (Khabarovsk region) indicates significant resource potential.

Management's focus on across-the-board efficiencies was rewarded with a reduction in the Group's total cash costs for the second half of 2012 compared with the preceding six months. Total cash costs of US$749 per ounce for the full year were higher than in 2011 but remained competitive against our gold mining peer group. For the first time the Company also reveals a new cost measure - all-in sustaining cash costs per ounce sold. In 2012 they were US$973 per ounce (2011: US$837), better reflecting the Company's total costs of producing gold.

The Board's policy continues to be to pay dividends as regularly as possible, with the level of such dividends dependent upon the gold price, cash flows and capital requirements. In light of such considerations the Board is recommending the payment of a final dividend of 3.0 pence per share which, taking into account the interim special dividend of 4.8 pence per share, results in a total distribution of 7.8 pence per share in respect of 2012 compared with 5.0 pence per share in 2011.

Diligent implementation of our Health, Safety and Environmental policies was in evidence throughout the year, the principal focus being on Group-wide training and educational courses. It is with the deepest regret that I must note the occurrence of two previously announced fatalities, in April and May 2012, in spite of the continued improvements seen in health and safety practices Group wide. Efforts to date resulted in a major improvement in the Lost Time Injury Frequency Rate (defined as the number of lost time injuries in relation to every 200,000 man hours worked) which reduced from 0.57 in 2011 to 0.31 in 2012. Audits confirmed the compliance of our Environmental Management Systems with ISO 14001 and relevant certification was approved at MNV and Russdragmet (RDM), our Moscow-based management company, on 1 March 2013.

With regard to the Boardroom changes referred to earlier Valery Oyf, Chief Executive Officer, Alla Baranovskaya, Chief Financial Officer, Sergey Mineev, Head of Exploration & Capital Projects Development and Andrey Solovyov, Head of Human Resources & Administration, were appointed Executive Directors of the Company with effect from 11 July 2012.

The Board welcomes these appointments and also the appointment of Peat & Co as joint broker, in addition to our Nominated Adviser and broker Numis Securities, with effect from 22 November 2012.

By way of conclusion I would like to reiterate that the consolidation of operations during 2012, hand in hand with management's focus on productivity and the progression of our organic and acquisitive expansion, leaves us strongly placed to accelerate our primary objective of growing our business into a highly profitable mid-tier producer within the Russian gold mining industry.

I also welcome this opportunity to thank all our employees for the hard work and dedication that was integral to our achievements during 2012.

CHIEF EXECUTIVE OFFICER'S REPORT

During 2012 the Company succeeded in achieving stable operational and delivery performances at its mines, while continuing to focus on the construction of the stand-alone processing plant at Belaya Gora, the third such unit within the Group. The realisation of production targets at our flagship Mnogovershinnoye (MNV) mine resulted in the delivery of 148,493 oz Au, while Novoshirokinskoye (Novo), our second mine, provided 64,438 oz Au equivalent. In addition, Belaya Gora contributed 3,954 oz Au via the systematic processing of stockpiled ore at the MNV plant. Total production of 216,885 oz Au and Au equivalents was 17.8% higher than the comparative figure in 2011 and exceeded our 2012 guidance estimate.

The mid-year purchase of the Klen and surrounding Verkhne-Krichalskaya (VK) property licences in Chukotka and the end of year purchase of Western Flank, adjacent to MNV, represented the culmination of another asset acquisitive year. Encouraging results from our exploration operations were reflected in an updated JORC compliant resource audit which served to raise the scale of resources at our Unkurtash project in Kyrgyzstan while also incorporating the maiden resource at our Lyubov property in the Zabaikalsky region. Significant exploration work was also undertaken at MNV where the focus remained on near-surface targets designed to extend the life of the open-pit operations.

Revenue benefited from a 3.7% increase in the average spot gold price received during 2012. We are budgeting for increased production from our three mines in 2013 which will include initial gold contributions from the new processing facility at Belaya Gora.

CORPORATE & SOCIAL RESPONSIBILITY

In order to further our objectives with regard to social responsibility we continued to develop constructive working relationships with local communities and the relevant authorities in the regions in which we operate. Our effort is primarily focused on initiating and/or assisting in the advancement of social development programmes in cooperation with local and regional authorities. Working in partnership we identify which projects require the most urgent action. Our participation in socioeconomic programmes encompasses education, health, culture and sport.

Through the pursuit of this aspect of our corporate culture we have helped to maintain and upgrade the infrastructure in communities that are home to many of our employees. We also act responsibly through the due settlement of all appropriate taxes and charges, thereby contributing to local and state budgets.

In addition to Social Partnership Agreements with the Nikolaevsk district, the year 2012 saw us renew our Agreements with the respective Governments of the Khabarovsk and Zabaikalsky regions. Pursuant to this we provided assistance with local road repairs, fuel purchase, construction and renovation work in respect of educational and medical facilities, and the general improvement of public amenities. The Company has provided similar assistance, albeit on a smaller scale, to the local communities in the surrounding areas of our exploration projects, in particular the Chukotka and Zabaikalsky regions of Russia and the Unkurtash deposit in Kyrgyzstan.

Our customary participation in various national charity programmes continued during 2012 and our support of the charity foundation "Illustrated books for visually impaired children" provided numerous children with specialised reading material.

HEALTH, SAFETY & ENVIRONMENT

The number of employees at Highland Gold at year end 2012 amounted to 3,009 compared with 2,848 in respect of 2011. This largely reflected workforce requirements in relation to the increased construction and mining activity at Belaya Gora in addition to the purchase of the Klen development project.

The need for constant improvement was a key safety driver as we focused on the provision of a safe working environment, mitigation of production risks and employee training, while emphasising the importance of an individual sense of responsibility with regard to site safety. As a result we are pleased to note that the Lost Time Injury Frequency Rate (designed to calculate the number of lost time injuries in respect of every 200,000 man hours worked) showed a substantial reduction to 0.31 in 2012 compared with 0.57 in 2011.

A total of 1,320 employees attended introductory (1 day) safety training classes, 592 employees attended a work performance/production safety course (3-5 days) and 468 employees completed industrial safety certification training programmes (7-30 days). In addition, training was provided to 14 MNV employees in the use of heavy mobile equipment, while 70 MNV and Belaya Gora employees completed light vehicle driving proficiency tests.

Despite the Company's ongoing efforts and proactive approach to health and safety issues, certain aspects of risk are inherent to the mining industry and, as previously reported, we deeply regret the occurrence of two employee fatalities during the year.

The Company's environmental compliance remained in good standing with the regulatory authorities and all sites within the portfolio attained an environmental audit during the year. Environmental safety training was provided to 59 employees encompassing MNV, Belaya Gora and Taseevskoye.

The Company continued its progression towards accreditation of its environmental management system (ISO 14001 compliant) and compliance audits were recently concluded at MNV and Russdragmet (RDM) with both entities certified as compliant with effect from 1March 2013. Prior to this, 45 employees received internal audit training at MNV and RDM, while an additional 27 MNV employees received specialised training, developed by an external consultant, with regard to environmental risk assessment. During the year under review 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.

OPERATIONS

MNOGOVERSHINNOYE (MNV), Khabarovsk region, Russia

Mining operations during 2012 continued to exploit the Upper and Flank open-pits where ore production at 649,164 tonnes and waste stripping at 3,558,423 m³ both exceeded internal targets. Improved open-pit grades were achieved during the second half of the year. The Intermediate, Northern, and Deer underground zones contributed a combined 580,479 tonnes of ore production, while underground development increased substantially to 7,343 metres. Off-balance ore from old surface stockpiles continued to be tested for their economic potential as prospective low grade plant feed.

Process plant recoveries showed a substantial improvement during the second half of the year, a development that was attributable to process grinding and gravity circuit upgrades. This improvement in recovery along with increased process tonnage underpins the success of ongoing continuous improvement initiatives and recoveries are expected to remain at 90% or more 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. The processing of 1,280,231 tonnes of ore from MNV in 2012 represented a record level of throughput.

PRODUCTION COSTS

Cash operating costs in 2012 totalled US$644 per ounce, total cash costs amounted to US$755 per ounce (2011: US$574 per ounce) and total production costs were US$869 per ounce. This was largely due to the substantial increase in open pit waste stripping volumes and higher levels of processed ore tonnage delivered at lower grades.

CAPITAL COSTS

During 2012 a total of US$19.7 million was invested at MNV. This included: capitalised expenditures and construction (US$6.3 million), purchase of equipment (US$7.5 million) and exploration (US$5.9 million).

OUTLOOK

Capital expenditure in respect of the replacement of several underground mobile units helped to improve productivity and assisted in containing maintenance costs. The surface drilling programme identified additional resources to facilitate the extension of open-pit mining beyond the projected 2014 time frame, while underground mining is expected to continue until, at the least, the end of 2016.

NOVOSHIROKINSKOYE (NOVO), Zabaikalsky region, Russia

Operations at Novo's underground mine and processing plant met our budget forecasts in 2012. Processed production totalled 485,412 tonnes to yield 64,438 ounces of gold and gold equivalents.

Ore mined at 484,189 tonnes and waste development at 7,450 metres remained much on target as additional ore blocks were accessed and prepared for production.

*calculated approximate Au equivalent

PRODUCTION COSTS

Cash operating costs in 2011 totalled US$591 per ounce, total cash costs amounted to US$671 per ounce (2011: US$639 per ounce) and total production costs were US$923 per ounce. This increase primarily reflected a 6.6% reduction in the volume of equivalents sold, reflecting the negative impact of lower silver and base metal prices versus the gold price ratio.

CAPITAL COSTS

During 2012 a total of US$7.1 million was invested at Novo. This included: capitalised expenditures and construction (US$2.4 million), purchase of equipment (US$3.4 million) and exploration (US$1.3 million).

OUTLOOK

The mine is expected to produce ca. 500,000 tonnes of ore in 2013 and planned milling upgrades are expected to improve throughput to ca. 550,000 tonnes per annum in 2014 and beyond. Technical studies will be undertaken to assess the scope for productivity improvements at both the mining and processing operations.

BELAYA GORA, Khabarovsk region, Russia

Management's focus throughout the year remained firmly fixed on plant construction with good progress made in relation to major infrastructure and ancillary installations. Waste mined during pre-stripping was utilised for roadway construction, while ore continued to be stockpiled in preparation for commissioning of the stand-alone process plant. Residual oxide ore stockpiles, which had previously been delivered to MNV, were systematically processed with 49,812 tonnes of ore yielding 3,954 oz of gold.

PRODUCTION COSTS

Cash operating costs in 2012 totalled US$1,530 per ounce, total cash costs amounted to US$1,701 per ounce (2011: US$834 per ounce) and total production costs were US$2,355 per ounce. This increase reflects the allocation of higher fixed costs against lower gold sales.

CAPITAL COSTS

During 2012 a total of US$70.6 million was invested at Belaya Gora. This included: capitalised expenditures and construction (US$61.0 million) and purchase of equipment (US$9.6 million).

OUTLOOK

The immediate objective is to complete and commission the stand-alone processing plant with first gold expected in May 2013. Mining operations will continue with ore blending scheduled to commence once the plant is operational.

DEVELOPMENT PROJECTS

Kekura - Chukotka region, Russia

The post year end acquisition of the 2.89 Moz Kekura deposit, via the purchase of CJSC Bazovye Metally, the licence holding entity, adds an important advanced-stage development project to the Company's mid to long-term pipeline and firmly establishes Highland Gold's presence in the Chukotka region. The average resource grade at Kekura is 8.69 g/t (MICON, 2012) and preliminary studies at Kekura have indicated favourable ore metallurgy and confirm that extraction can be achieved through open pit mining. Conventional gravity and CIL processing technology will be utilised in production. 

Camp facilities for employees and contractors, together with an independent diesel power unit and ancillary systems, are in place at Kekura. A pilot plant, with a capacity of 150,000 tonnes per annum, is expected to be commissioned during H2 2013 and is scheduled to operate through to the completion of the construction and commissioning of the envisaged primary processing facility. It is anticipated that the latter will be fully operational by 2017 with production estimated at between 180,000 - 220,000 oz of gold per annum via 800,000 - 1,000,000 tonnes of annually processed ore over a minimum ten year production period.

Kekura is expected to be a substantial contributor to Highland Gold's production volumes and will develop into a strategically important, low cost, long life mining operation. It is anticipated that cost savings will be achieved through synergies with the neighbouring Klen project.

CAPITAL COSTS

The consideration for the purchase of CJSC Bazovye Metally, which holds the mining and exploration rights to the Kekura gold deposit and the surrounding licence area, amounted to US$223.0 million.

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 commenced during Q1 2013 utilising a winter roadway in advance of preliminary construction activity. The envisaged project utilises an open-pit operation allied to a conventional gravity and CIL process plant with initial gold production targeted for 2015. After achieving nameplate throughput, production is expected to attain 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.

CAPITAL COSTS

During 2012 a total of US$10.1 million was invested at Klen. This included; capitalised expenditures and construction (US$5.7 million) and purchase of equipment (US$4.4 million).

TASEEVSKOYE, Zabaikalsky region, Russia

Project design work, utilising new data from a drilling programme concluded during the early part of 2012, continued throughout the year. The aforementioned programme was designed to verify existing resources and ore block characteristics and provide representative sample material for metallurgical test work on different mineralised zones within the potential pit limits. This work is expected to continue during 2013.

CAPITAL COSTS

During 2012 a total of US$6.4 million was invested at Taseevskoye in relation to capitalised expenditures and construction.

EXPLORATION

Positive results from Unkurtash and Lyubov, our advanced exploration projects, led to a substantial addition of approximately 1.6 Moz of gold resource to the Company's portfolio with Unkurtash now representing a world-class deposit of more than 3.0 Moz. The acquisitions of the VK licence surrounding Klen and the Western Flank licence adjacent to MNV adds further quality exploration properties to the Company's project portfolio and demonstrates our commitment to organic resource growth and the extension of the working life of MNV.

During the year a total of almost 27,000 metres of drilling was completed across three exploration sites, namely Unkurtash, Blagodatnoye and MNV. The Company's overall expenditure on exploration projects, including Unkurtash and near-mine works at MNV, amounted to US$20.5 million in 2012 compared with a US$24.8 million spend in 2011.

Mnogovershinnoye - Khabarovsk region, Russia

Exploration at MNV remained an operational priority for the Company in 2012 and included diamond core drilling and surface trenching programmes designed to delineate additional resources in order to enhance existing open-pit operations.

In H2 2012 the Company reported positive results from three exploration targets at MNV (Quiet, Pebble and Watershed) thereby highlighting the ongoing exploration potential, which management continues to focus on, within the MNV licence area.

Some 2,500 metres of drilling was completed at the Quiet target, part of the two kilometre long Quiet-Pebble mineralised zone. This programme 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 close to completion, while initial mining has commenced at Pebble.

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 intends to continue its near-mine exploration efforts at MNV with a view to verifying and further increasing the mineralised prospects, thereby adding value to the operation. Accordingly, all exploration prospects within the MNV licence area are currently undergoing an independent JORC compliant audit with results anticipated during Q2 2013.

Western Flank Mnogovershinnoye - Khabarovsk region, Russia

In December 2012 the Company acquired a licence for the exploration and mining rights at Western Flank, a prospective property immediately adjacent to MNV's mining operations. The licence area includes the Chaynoye zone which is believed to hold good potential for the delivery of new resources at MNV. Chaynoye has been partially explored in the past, the legacy of which is a reported prognostic resource of 3.5 tonnes (112,500 oz) of gold. The Company plans to undertake a trenching and drilling programme at Chaynoye during 2013 with a view to upgrading the resource potential for future exploitation via MNV's operations.

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 during the past three years.

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 currently defined JORC compliant mineral resource base of ca. 3.0 Moz Au at an average grade of 1.8 g/t (94% Measured and Indicated) which encompasses the overall project. More than 11,315 metres of reverse circulation drilling was carried out, extending down to the extensive underground exploration drives, some 850 metres of which were completed in 2012.

An independent JORC compliant resource update in respect of the entire project is planned for H1 2013 and data required for the prospective registration of additional C1+C2 category reserves is expected to be submitted to the State Committee on Reserves (GKZ) of the Kyrgyz Republic during the second half of 2013.

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 2012. 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 with a view to a potential open-pit mining operation. The property licence includes the Evgraf prospect, a feature of the Company's previous exploration activities, involving more than 20,000 metres of diamond core drilling.

An independent resource audit of the Evgraf prospect, which defines a total mineral resource of 0.48 Moz at an average grade of 1.34 g/t (98% measured and indicated), was completed in H2 2012.

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 focused on conventional processing options, including heap leaching, have been initiated.

Blagodatnoye - Khabarovsk region, Russia

An exploration programme at Blagodatnoye, which entailed 9,840 metres of diamond core drilling and more than 1,100 metres of trenching, was completed during 2012. 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 indicate favourable metallurgy and gold recovery levels via conventional milling and cyanidation processing methods.

Further 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.

Verkhne-Krichalskaya - Chukotka region, Russia

The sizeable Verkhne-Krichalskaya (VK) exploration and mining licence (996 km2) incorporates the Klen licence and hosts a number of small placer gold deposits. Several exploration targets at VK have been identified which the Company believes have the potential to substantially contribute to Klen's current resource base. In 2012 a soil geochemical survey covering the western half of the VK licence was completed in order to delineate drilling and trenching targets for the 2013 field season and beyond.

In the course of the development of the Klen deposit the Company plans to systematically explore the prospects within the VK licence and has allocated an initial 10,000 metres of diamond drilling in 2013.

EXPLORATION OUTLOOK

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 reserve and resource matters. Mr. Klemens holds a Ph.D. in Geology from the University of Toronto. He has more than 15 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 at external laboratories.

CONCLUSION

Management's strategy during 2013 will be to build upon the Company's key achievements of the preceding year, namely enhanced metal delivery and the organic and acquisitive growth of our production base, progress that was accompanied by JORC compliant confirmation that our exploration and development properties possess sufficient resource to underwrite future pipeline growth.

Post the commissioning of the Belaya Gora processing facility, first gold is expected to be poured in May followed by a ramp up to nameplate capacity by the year end.

Project development is already underway at Klen and initial construction activity during 2013 represents the first step towards a projected processing plant commissioning date of 2015. Plans have been initiated to mobilise contractors at the newly acquired Kekura site, also located in the Chukotka area and commence a ca. 40,000 metre diamond core drilling programme to facilitate resource conversion and reserve development.

The success of our exploration programme in 2012 and the consequent impact on the Company's resource base serves to underpin further extensive exploratory activity in 2013 when particular focus will be brought to bear on the new acquisitions, Kekura and Klen/VK in Chukotka, and Western Flank adjacent to MNV. We are confident that these objectives will appreciably enhance the Company's prospective growth potential.

CHIEF FINANCIAL OFFICER'S REPORT

Highland Gold Mining's revenues rose 17.2% to a record US$351.8 million in 2012 compared with US$300.2 million in 2011. This reflected Group sales of 215,917 ounces of gold and gold equivalents during the year compared with 190,655 ounces in 2011. The Group benefited from its increased interest in Novo where sales of gold and gold equivalents totalled 64,497 eq. oz (100%) reflecting a 1.9% increase in the volume of metals. MNV's share of sales at 146,983 oz decreased by 2.7% compared with 2011. The "no hedge" policy permitted the Group to fully participate in firmer gold prices.

The average price (net of commission) of gold realised by MNV and Belaya Gora rose to US$1,660 per oz in 2012 compared with US$1,563 per oz in 2011. The average price of gold equivalents realised by Novo registered a 2.6% increase from US$1,374 per oz in 2011 to US$1,410 per oz in 2012 due to higher spot market prices. The average price at Novo is based on the spot price for metals contained in the concentrates, net of processing and refining costs at the Kazzinc plant. The average price of gold and gold equivalents realised by the Group in 2012 was US$1,586 per oz compared with US$1,530 per oz in 2011.

The Group's cost of sales rose by 41.1%, or $59.9 million, to US$205.6 million in 2012 (2011: US$145.7 million). This largely reflected the higher share of operating expenses at Novo which accounted for US$30.9 million of the Group's increase in cost of sales. Operating expenses at MNV rose by 24.3% due to the additional volume of open pit waste stripping and an increase in processed ore tonnage. Other factors included the indexation of salaries and wages, an increase in third party services in relation to equipment repairs and higher overhead expenses at Belaya Gora.

Total Group cash costs* rose to US$749 per oz in 2012 (2011: US$594 per oz). Total cash costs at MNV increased to US$755 per oz (2011: US$574 per oz) primarily due to a substantial rise in waste stripping volumes and an increase in processed ore tonnage delivered at lower grades. Total cash costs at Novo increased to US$671 per eq. oz (2011: US$639 per eq. oz). This primarily reflected a 6.6% reduction in the volume of gold equivalents sold which, in turn, was principally due to the negative impact of lower silver and base metal prices versus the gold price ratio. Novo's total cash costs were also affected by lower ore grades delivered to the plant. Total cash costs at Belaya Gora advanced from US$834 per oz in 2011 to US$1,701 per oz in 2012 reflecting the allocation of increased fixed costs against lower gold sales. The Group also incurred higher royalty costs linked to the increase in the spot gold price.

In line with best practice, the Company has also adopted a new cost measure - all-in sustaining cash costs per ounce sold** - which better reflects the total costs of producing gold. All-in sustaining cash costs per ounce sold increased from US$837 per ounce in 2011 to US$973 per ounce in 2012.

This measure also reflects how we manage our business and is consistent with our objectives of generating higher returns and increased free cash flow.

The Group's EBITDA (defined as operating profit excluding depreciation, amortisation and ore stockpile obsolescence provision) recorded a 3.0% increase to US$161.8 million in 2012 (2011: US$157.1 million) due to higher revenues from sales of gold and concentrates. The EBITDA margin (defined as EBITDA divided by total revenue) decreased from 52.3% to 46.0%.

In 2012 the Group recorded net finance income of US$24.2 million compared with net finance costs of US$5.6 million in 2011, primarily reflecting the positive reassessment of fair value on coupon bonds and shares.

A foreign exchange gain of US$4.4 million (2011: US$5.5 million - loss) resulted from the settlement of foreign currency transactions and the translation of monetary assets and liabilities denominated in currencies such as Russian Roubles and Pounds Sterling into US Dollars. The foreign exchange gain was principally affected by a 5.7% strengthening of the Russian Rouble during 2012 (2011: 5.6% devaluation).

The income tax charge amounted to US$30.7 million in 2012 compared with US$28.3 million in 2011. The tax charge comprises US$23.4 million in respect of current tax expenses (MNV: US$23.3 million and Stanmix Investments: US$0.1 million) and US$7.3 million in respect of deferred tax. The effective tax rate decreased from 21.4% in 2011 to 20.0% in 2012 which corresponds to the Russian income tax rate of 20.0%.

Net profit after tax increased by 18.5% to US$123.0 million compared with US$103.8 million in 2011 and resulted in earnings per share of US$0.378 (2011: US$0.319)

Cash inflow from the Group's operating activities during 2012 was US$14.3 million higher at US$131.2 million compared with the US$116.9 million generated in 2011. The increase in cash inflow reflected the higher revenues from sales of gold and concentrates.

On 9 July 2012, the Group acquired a 100% interest in Klen from Aristus Holdings Limited for a total consideration of US$69 million less any assigned loans.

During 2012 the Group invested US$125.0 million in capital expenditure (2011: US$65.6 million). This comprised US$19.7 million at MNV, US$70.6 million at Belaya Gora, US$7.1 million at Novo, US$27.5 million in respect of development and exploration projects and US$0.1 million in relation to other entities within the Group. Capital expenditure was funded through operating cash inflow, the Company's existing cash balances and a new US$8.8 million financing facility.

The net cash position of the Group as at 31 December 2012 amounted to US$52.6 million versus US$126.7 million as at 31 December 2011. The net cash of the Group is defined as cash at bank, deposits and bonds, decreased by any bank borrowings.

*Total cash costs per sold ounces are calculated in accordance with a standard developed by The Gold Institute. Total cash costs include mine site operating costs such as mining, processing, administration, royalties and production taxes, but are exclusive of depreciation, reclamation, capital and exploration costs. Total cash costs are then divided by ounces sold to arrive at the total cash costs of sales. The measure, along with sales, is considered to be a key indicator of a company's ability to generate operating earnings and cash flow from its mining operations. This data is furnished to provide additional information and is a non-GAAP measure.

**Our current definition of all-in sustaining cash costs commences with total cash costs per ounce sold and then adds sustaining capital expenditures, corporate general and administrative costs, mine site exploration and evaluation costs and environmental rehabilitation costs. This measure seeks to represent the total costs of producing gold from current operations, and therefore it does not include capital expenditures attributable to projects or mine expansions, exploration and evaluation costs attributable to growth projects, income tax payments, interest costs or dividend payments.

PAYMENT OF DIVIDENDS

In September the Board declared an interim special dividend of 4.8 pence per share in view of the favourable impact of the gold price on revenues (2011: 5.0 pence per share). The interim special dividend, which represented an aggregate distribution of US$25.1 million, was paid on 15 October 2012.

The Board has recommended a final dividend of 3.0 pence per share which, taking into account the interim dividend paid in October 2012, gives a dividend total of 7.8 pence per share for the year. The final dividend will be paid on Friday 14 June 2013 to shareholders on the register at the close of business on Friday 3 May 2013 (the record date). The ex-dividend date will be Wednesday 1 May 2013.

POST YEAR EVENTS

On 2 April 2013, the Group announced the acquisition of 100% of CJSC Bazovye Metally, which holds the mining and exploration rights to the Kekura gold deposit and surrounding licence area, for a total consideration of US$223.0 million. US$5.0 million is the amount of contingent consideration payable in the second half of 2013 as long as there are no third-parties' claims. In addition, up to US$11.0 million will be paid in the second half of 2013 upon the successful launch of the pilot plant which is currently being completed. The consideration of US$207.0 million was satisfied in cash and was funded via a new debt facility.

In March 2013, the Group signed a new financing agreement with Gazprombank in respect of a US$207 million facility at a 5.17% interest rate with the draw period extending to 21 June 2013.

The Group also agreed a new financing agreement with Gazprombank in respect of a US$43 million facility at a 5.17% interest rate.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31 December 2012

The Group does not have any items of other comprehensive income or any discontinued operations.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

as at 31 December 2012

The financial statements were approved by the Board of Directors on 22 April 2013 and signed on its behalf by: Alla Baranovskaya and Olga Pokrovskaya

CONSOLIDATED CASH FLOW STATEMENT

for the year ended 31 December 2012

Selected Policies and Notes to the Financial Information

Corporate information

Highland Gold Mining Limited, is a public company incorporated and domiciled in Jersey. Its ordinary shares are traded on the Alternative Investment Market ("AIM").

The principal activity is building a portfolio of gold mining operations within the Russian Federation and Kyrgyzstan.

The financial information presented in this preliminary announcement was authorised for issue by the Board of Directors of Highland Gold Mining Limited on 22 April 2012.

The audited financial statements will be released on the Company's website www.highlandgold.com in due course. The audit report on those financial statements was unqualified.

Basis of preparation

The consolidated financial statements have been prepared on a historical cost basis except for financial instruments carried at fair value through profit or loss and assets and liabilities acquired in business combination that have been measured at fair value. The consolidated financial statements are presented in US dollars, which is the parent company's functional and the Group's presentation currency. All values are rounded to the nearest thousand (US$000) except when otherwise indicated.

Statement of compliance

The consolidated financial statements of Highland Gold Mining Limited and all its subsidiaries (the "Group") have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union and Companies (Jersey) Law 1991.

Basis of consolidation

The consolidated financial statements comprise the financial statements of Highland Gold Mining Limited and all its subsidiaries as at 31 December each year.

A subsidiary is an entity, including an unincorporated entity such as a partnership, that is controlled by another entity (known as the parent). Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases.

The financial statements of the subsidiaries are prepared for the same reporting year as the parent company, using consistent accounting policies.

All intra-group balances, transactions, unrealised gains and losses resulting from intra-group transactions are eliminated in full.

The accounting policies have been applied when preparing the consolidated financial statements.

Business combinations

Acquisition of LLC Klen

On 9 July 2012, the Group acquired a 100% share in LLC Klen from Aristus Holdings Limited in order to improve the proven and probable reserves base and to increase the gold and gold equivalents production.

This transaction is classified as a related party transaction. The Directors of the Company, having received approval from 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.

The Group determined that this transaction represents a business combination.

From total consideration the amount allocated to loan was US$15.4 million based on the fair value of the loan. The payment was made on 16 July 2012.

Assets acquired and liabilities assumed

The estimated fair value of the identifiable assets and liabilities of Klen as at the date of acquisition was as follows:

The goodwill balance is the result of the requirement to recognise a deferred tax liability calculated as the difference between the tax effect of the fair value of the assets and liabilities acquired and their tax bases.

From the date of acquisition, Klen has contributed US$0.0 million to revenue and loss of US$0.3 million to the net profit before tax of the Group in 2012. If the combination had taken place at the beginning of the year 2012, revenue of the Group would have been US$351.8 million and profit before tax of the Group would have been US$153.6 million.

Prior year acquisition of share in the Open Joint Stock Company Novo-Shirokinskiy Rudnik

The Group had a 48.3% interest in Novo according to a contractual agreement with Kazzinc which represented a joint venture entity. On 26 December 2011, the Group acquired an additional 48.3% share in Novo from its joint venture partner Kazzinc in order to improve the proven and probable reserves base and to increase the gold and gold equivalents production. This acquisition resulted in the Company's stake in Novo increasing to 96.6%.

From total consideration the amount allocated to loan was $58.8 million based on the fair value of the loan. $42.2 million plus contingent consideration of $8.5 million were allocated to the acquisition of the 48.3% of shares of Novo amounting to a total consideration for the shares of $50.7 million. The additional cash payment to Kazzinc of US$9.0 million, payable in January 2013 was recognised at the fair value of US$8.5 million as a contingent consideration. A 5.5% discount factor was applied.

The existing holding of 48.3% was revalued at fair value which was determined to be US$50.7 million. The revaluation resulted in a gain of US$13.5 million which is recorded in a separate line in the statement of comprehensive income.

Assets acquired and liabilities assumed

The fair value of the identifiable assets and liabilities of Novo as at the date of acquisition were as follows:

The Group has elected to measure the non-controlling interest in the acquiree at the proportionate share of its interest in the acquiree's identifiable net assets amounting to US$3.4 million which is 3.4% of US$99.7 million.

Goodwill of US$5.1 million comprises the value of expected synergies arising from the acquisition. Goodwill is allocated entirely to the polymetallic concentrate production segment. None of the goodwill recognised is expected to be deductable for income tax purposes.

The existing intercompany loan given to Novo by Stanmix Investment was treated as a pre-existing relationship and therefore considered as settled at fair value. No gain or loss was recorded at settlement.

In 2011 Novo has contributed US$46.2 million of revenue and US$9.3 million of the profit before tax of the Group. If the combination had taken place at the beginning of the year 2011, revenue of the Group would have been US$349.6 million and profit before tax of the Group would have been US$132.8 million. From the date of acquisition, Novo has contributed US$0.0 million of revenue and US$0.0 million to the net profit before tax of the Group in 2011.

Business combination subsequent to the year ended 31 December 2012

On 29 March 2013, the Group acquired from Union Mining Holdings Limited a 100% share in CJSC Bazovye Metally which holds the mining and exploration rights to the Kekura gold deposit and surrounding licence area. Kekura's resource base will contribute to the long-term production profile of the Group and represents a solid foundation for the Group's further growth.

The Group determined that this transaction represents a business combination.

From total consideration of US$223.0 million, US$207.0 million was paid in cash. US$5.0 million is the amount of contingent consideration payable in the second half of 2013 as long as there are no third-parties' claims. In addition, up to US$11.0 million of contingent consideration will be paid in the second half of 2013 upon the successful launch of the pilot plant which is currently being completed. US$207.0 million was funded via a new debt facility with Gazprombank.

In addition to the information disclosed in respect of this acquisition, IFRS 3 Business Combinations requires the Group to disclose the amounts to be recognised at the acquisition date for each class of the acquiree's assets, liabilities and contingent liabilities. It is impracticable to disclose this information and calculate the resultant goodwill arising from the acquisition because the Group has not completed the valuation exercise in accordance with IFRS 3.

Segment information

For management purposes, the Group is organised into business units based on the nature of their activities, and has four reportable segments as follows:

·; Gold production;

·; Polymetallic concentrate production;

·; Development and exploration; and

·; Other.

The gold production reportable segment comprises two operating segments, namely Mnogovershinnoye (MNV) and Belaya Gora (BG) at which level management monitors its results for the purpose of making decisions about resource allocation and evaluating the effectiveness of its activity.

The polymetallic concentrate production segment, namely Novoshirokinskoye (Novo), is analysed by management separately due to the fact that the nature of its activities differs from the gold production process. Novo profit and loss was accounted using the proportionate (48.3%) method during 2011 when it was classified as a joint venture. Following the stepped acquisition in December 2011, the results and balances of Novo have been fully consolidated.

The development and exploration segment contains the entities which hold the licenses being in the development and exploration stage. Following the acquisition in July 2012, the development and exploration segment also includes the results and balances of Klen.

The "other" segment includes head office, management company, trade house and other companies which have been aggregated to form the reportable segment.

Segment performance is evaluated based on EBITDA (defined as operating profit/(loss) excluding depreciation and amortisation, impairment gain/(loss) and movement in WIP provision). The development and exploration segment is evaluated based on the life of mine models in connection with the capital expenditure spent during the reporting period.

The following tables present revenue, EBITDA and asset information for the Group's reportable segments. The segment information is reconciled to the Group's profit for the year.

The Highland Gold financing (including finance costs and finance income), income taxes, foreign exchange gains/(losses), other non-current assets and current assets are managed on a group basis and are not allocated to operating segments.

Revenue from several customers was greater than 10% of total revenues. In 2012 the gold and silver revenue was received from sales to Gazprombank (US$107.9 million), VTB Bank (US$91.7 million), Sberbank (US$51.9 million) and MDM Bank (US$2.4 million). In 2011 the gold and silver revenue was received from sales to Gazprombank (US$104.6 million), VTB Bank (US$49.3 million) and MDM Bank (US$93.8 million). In 2012 the concentrate revenue in the amount of US$90.9 million was received from sales to Kazzinc (2011: US$45.8 million).

* Capital expenditure is the sum of exploration and evaluation assets, mine properties and property, plant and equipment.

** Current assets include corporate assets not directly attributable to operating segments. Such unallocated assets include corporate cash and cash equivalents of US$7.3 million, investments of US$54.1 million, inventories of US$64.8 million, trade and other receivables of US$50.4 million and other assets of US$7.2 million.

*** Cash capital expenditure include additions to property, plant and equipment of US$90.3 million and prepayments given for property, plant and equipment of US$34.7 million, including US$32.3 million relating to the construction of a stand-alone process plant at BG.

* Capital expenditure is the sum of exploration and evaluation assets, mine properties and property, plant and equipment.

** Current assets include corporate assets not directly attributable to operating segments. Such unallocated assets include corporate cash and cash equivalents of US$90.6 million, investments of US$36.1 million, inventories of US$61.8 million, trade and other receivables of US$28.6 million and other assets of US$9.0 million.

*** Cash capital expenditure include additions to property, plant and equipment of US$64.0 million and prepayments given for property, plant and equipment of US$1.6 million.

All revenue and assets for both 2012 and 2011 are located in the Commonwealth of Independent States.

Income tax

The major components of income tax expense for the years ended 31 December 2012 and 2011 are:

Deferred income tax

Deferred income tax at 31 December relates to the following:

No deferred tax benefits are recognised in relation to site restoration provisions and obsolescence provisions. Restoration expenses are tax deductible when incurred. However, it is not certain that there will be sufficient income towards the end of the mine's life against which the restoration expenditure can be offset and therefore future tax relief has not been assumed.

The amount of the deductible temporary differences for which no deferred tax asset has been recognised in respect of the site restoration provision at 31 December 2012 is US$13.4 million (31 December 2011: US$10.1 million).

No deferred tax benefit is recognised in relation to the provision for obsolete inventory. These materials are unlikely to be used for production purposes in the future and therefore future tax relief is not assumed. The amount of the deductible temporary differences for which no deferred tax asset has been recognised in respect of the obsolescence provision at 31 December 2012 is US$11.7 million (31 December 2011: US$12.0 million).

The amount of the deductible temporary differences for which no deferred tax asset has been recognised in respect of the tax losses at 31 December 2012 is US$4.8 million (31 December 2011: US$17.8 million). The non-recognition of tax losses is due to insufficient expected future income against which these losses could be offset.

According to Russian tax legislation, tax losses expire if not utilised within 10 years of accruing. In 2012 the income tax in Kyrgyzstan was decreased to zero for entities engaged in gold mining and gold selling.

The temporary differences associated with investments in subsidiaries, for which deferred tax liability in respect of withholding tax on dividends has not been recognised aggregate to US$389.1 million (2011: US$306.4 million). No deferred tax liability has been recognised in respect of these differences because the Group is able to control the timing of the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future.

The total deferred tax liabilities arising from these temporary differences should be between US$0 and US$19.5 million (2011: US$0 and US$30.6 million), depending on the manner in which the investments are ultimately realised.

Profits arising in the Company for the 2012 and 2011 years of assessment will be subject to tax at the standard rate of 0%.

Events after the reporting period

On 29 March 2013, the Group acquired from Union Mining Holdings Limited a 100% share in CJSC Bazovye Metally which holds the mining and exploration rights to the Kekura gold deposit and surrounding licence area . Kekura's resource base will contribute to the long-term production profile of the Group and represents a solid foundation for the Group's further growth.

On 21 March 2013, the Group signed a new financing agreement with Gazprombank for a US$207 million facility at a 5.17% interest rate with the draw period set till 21 June 2013. This facility will be used to finance development needs and operating activity of the Group. The loan is repayable in monthly installments between December 2013 and March 2016.

In March 2013 the Group also agreed a new financing agreement with Gazprombank for a US$43 million facility at a 5.17% interest rate.

Additional AIM Disclosures

Pursuant to AIM Rule 17 and Schedule 2 Annex III, Highland also confirms that in addition to previously announced directorships, Eugene Tenenbaum is also a director of Fordstam Limited and Looklight Limited.