HGM.L Regulatory News (HGM)

HIGHLAND GOLD MINING LIMITED

18 September 2013 - Highland Gold Mining Limited ("Highland Gold," "Highland" or the "Company") announces its unaudited financial results and production figures for the half year ended 30 June 2013.

FINANCIAL SUMMARY

H1 2013 KEY EVENTS

Financial & Operations

· Production guidance in respect of FY2013 maintained at 225,000 - 240,000 oz of gold and gold equivalents

· Total cash costs were a highly competitive US$717 per ounce reflecting the cost reduction programme initiated in H2 2012

· Combined production of gold and gold equivalents from Mnogovershinnoye ("MNV") and Novoshirokinskoye ("Novo") mines reached 105,630 oz - a 3.7% increase compared with H1 2012

· Optimisation of Novo's production operations resulted in a6% increase in processed tonnes versus H1 2012

·  Interim dividend of £0.025 per share (H1 2012: Interim special dividend of £0.048 per share)

· Company's assets remained unimpaired despite significant declines in metal prices

·  Investment strategy refined in the light of adverse market conditions

· Group JORC compliant resources registered a 25% increase to 16.5 Moz (compared with 13.2 Moz stated at 31 December 2012) as a result of the Kekura licence purchase and an independent resource audit update at Unkurtash

Development and Exploration

· Construction of Belaya Gora processing facility and wet testing completed with ore feed tests and process adjustments underway

· Commencement of preliminary construction work at Klen project following ongoing equipment deliveries

· Construction of Kekura pilot plant making good progress with commissioning expected in Q4

· MNV's Western Flank exploration programme underway, targeting potential near surface resources adjacent to existing operations

POST HALF YEAR EVENTS

· The official opening of Belaya Gora's process plant by the Governor of the Khabarovsk Region and other dignitaries was held on 22 July 2013 accompanied by a viewing of all the facilities and operations

· Upgrade of SAG mill at Novo completed in July 2013

· Appointment of Colin Belshaw as an Independent Non-Executive Director with effect from 10 September 2013

· New US$100.0 million financial agreement with Sberbank signed in September 2013

CONFERENCE CALL DETAILS

The Company will hold a conference call on Wednesday, 18 September 2013, hosted by Valery Oyf, CEO, to discuss the interim results. The conference call will take place at 9 a.m. UK time (12.00 Moscow). To participate in the conference call, please dial one of the following toll-free numbers:

UK Free Call 0800 694 0257UK Local Call 0844 493 3800UK Standard International +44 (0) 1452 55 55 66USA Free Call 1866 966 9439Conference ID 64440355

A replay of the presentation will be accessible shortly afterwards by dialing one of the following numbers:

International Dial In +44 (0) 1452 55 00 00UK Local Dial In 0844 338 66 00USA Free Call Dial In 1866 247 4222

INTERIM OPERATIONAL REVIEW

Production

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 2013 amounted to 670,654tonnes of ore to yield 68,996 oz of gold. Plant recovery rates benefited from last year's major process upgrades and achieved an outcome of 91.9% which was in line with the second half of 2012. Open-pit waste stripping rates were maintained during the first half of the year to ensure continued mining at the Flank pit as well as the commencement of mining operations at the Pebble satellite pit. Ore tonnes mined, in respect of both open-pit and underground operations, were on target at 609,810 tonnes. Underground development at 3,833 metres recorded a 10% increase over the H1 2012 performance. New underground capital mining equipment, introduced during 2012, helped to maintain production targets and keep maintenance costs in check. The 'near mine' surface exploration programme, involving diamond core drilling adjacent to existing mining operations, continued throughout the half year with a focus on the Western Flank licence which was purchased at an open auction during December 2012. Underground exploration continued with the goal of converting existing resources into reserves and the discovery of new resources to help offset depletion. An independent audit of resources and reserve calculations is currently underway and is expected to be completed during Q3 2013.

Novoshirokinskoye (Novo) - Zabaikalsky region, Russia

During H1 2013 underground ore production and processed ore throughput both achieved their respective targets. The improvements in ore mining and processing seen during the half year is expected to provide annualised production of ca. 500,000 tonnes of ore by the year end. With regard to underground development, record development metres were reported thereby providing access to additional stoping blocks and flexibility in respect of ongoing ore supply to the plant. The mine deepening project to access three additional levels commenced during the half year and is making good progress. The upgrade of one grinding mill in order to duplicate the milling streams and provide maintenance efficiencies and improved plant throughput capacity was achieved during the third quarter 2013.

*approximate Au equivalent

(mined ore metal content breakdown = Au 2.9g/t, Ag 68.9g/t, Pb 2.3%, Zn 1.1%)

DEVELOPMENT PROJECTS

Belaya Gora - Khabarovsk region, Russia

*Ore toll processed at the MNV plant

**All ore mined during the half year has been strategically stockpiled in anticipation of future plant feed requirements

At Belaya Gora, construction and wet testing of the stand-alone process plant was completed for all major components. Ore testing and processing regulation adjustments are currently underway with ramp up to design capacity expected in the second half of the year. Open-pit waste stripping operations increased substantially in preparation for accessing ore zones in accordance with budgeted plans. Much of this waste continued to be utilised for various construction activities such as roadways and dam construction.

Kekura - Chukotka region, Russia

The purchase of the Kekura project provides a large resource base of 2.89 Moz with an average grade of 8.69 g/t Au. Production is expected to commence in 2018 and output indicators envisage ca. 800,000 - 1,000,000 tonnes of ore feed per annum which, with recovery levels of 90%, would result in an annual pouring of between 180,000 - 220,000 ounces of gold. Construction of the 150,000 tonnes per annum pilot plant made further progress during the first half and is now expected to reach the commissioning stage during the fourth quarter. Site personnel remain focused on the delivery of the pilot plant which will facilitate comprehensive testing of the optimal ore processing methodology prior to finalising process plant engineering designs.

Klen - Chukotka region, Russia

The Klen project saw the delivery of mobile and fixed equipment and materials from the Pevek seaport to project site being accomplished by winter roadway during the first quarter of 2013. As a result of these deliveries initial ground works, surveying and vertical planning commenced. Preliminary construction of building foundations and roadways between the pit and infrastructural links also made progress during the latter part of the period. The Klen purchase in 2012 provides Highland with an opportunity to expand its production profile through additional resource ounces (0.63 Moz). Preliminary studies indicate a 300,000 to 400,000 tonnes per annum open-pit operation allied to a conventional gravity and cyanidation process plant with anticipated production of ca. 50,000 to 60,000 ounces of gold per annum.

Taseevskoye - Zabaikalsky region, Russia

Development activities and design documentation continued during the first half with the objective of advancing the project within the regulatory mandated timelines for state review. This included geotechnical and hydrogeological studies, general infrastructural layouts, a pit dewatering process, relocation plans and environmental impact assessments.

Lyubov - Zabaikalsky Region, Russia

The Company's previous exploration activities at the Evgraf prospect defined a total JORC compliant gold resource of approximately 0.48 Moz with the potential for an open-pit mining operation. Following GKZ approval for a C1+C2 category in-pit reserve the Lyubov project has entered the development stage. Engineering studies in relation to conventional processing options, including heap leaching, continued during the first half of 2013.

EXPLORATION

Mnogovershinnoye - Khabarovsk region, Russia

Throughout 2013 the Company will continue with its near-mine exploration efforts at MNV targeting additional resources in order to enhance existing open-pit mine life.

In H1 2013 mining commenced at the Pebble prospect while, at the Quiet and Watershed prospects, work began on fulfilling technical and administrative requirements in respect of future mining operations.

Diamond core drilling activity in respect of underground resource conversion in H1 2013 totalled 9,438 metres in line with budget.

All exploration prospects within the MNV licence area are currently undergoing an independent JORC compliant audit with results expected in H2 2013.

At the Western Flank Mnogovershinnoye licence, immediately adjacent to the mine operations and hosting the Chaynoye prospect, the Company has allocated 2,900 metres of diamond core drilling of which 460 metres were completed during H1 2013. Final results are expected in Q4 2013.

Verkhne Krichalskaya - Chukotka region, Russia

The Verkhne-Krichalskaya (VK) exploration and mining licence incorporates the Klen licence. The 2012 exploration programme defined several gold anomalies and exploration targets at VK. In H1 2013 the Company focused on two targets and completed an initial shallow-depth reconnaissance drilling programme totalling 7,350 metres with final results expected in Q4 2013. A detailed geochemical survey at a selected gold anomaly is expected to be completed in Q3 with final results anticipated in Q4 2013.

Kekura - Chukotka region, Russia

Following the acquisition of the Kekura project in Q2 2013, management initiated an exploration programme allocating 40,000 metres of diamond core drilling aimed at upgrading resources and completing requirements for future additional reserve registration with the Russian GKZ. Accordingly, 8,124 metres of core drilling was completed in H1 2013. Preliminary results are in line with the previous resource model, with final results expected in Q1 2014.

Unkurtash - Kyrgyzstan

The Unkurtash Project includes three distinct prospects, Unkurtash, Sarytube and Karatube, located within the Company's single Kassan licence (63 km²) which in H1 2013 was merged with the previous Unkurtash-Andagul (12 km²) licence.

Towards the end of H1 2013 an independent JORC compliant resource audit (IMC Montan) updated the project's total resource by ca. 0.68 Moz to approximately 3.7 Moz which includes the deeper level of the Unkurtash prospect and is based on the results of the drilling and underground development programmes undertaken in 2012. In consideration of registering the entire Unkurtash project's C1+C2 category reserves with the Kyrgyz GKZ, the Company initiated a reserve calculation and compilation of the required documentation in H1 2013 with submission to the regulatory authorities targeted for H2 2013.

Belaya Gora Flanks - Khabarovsk region, Russia

The Belaya Gora Flanks licence encapsulates the Belaya Gora deposit and represents near-mine exploration potential which could serve to increase Belaya Gora's open-pit resource base.

In 2013 the Company resumed field-based exploration at the property allocating 1,000 metres of trenching and 3,500 metres of diamond core drilling at two exploration targets (Pavlovsky, Kolchanka). Field work completed at the Pavlovsky target during the period included 335 metres of trenching and 300 metres of drilling. Final results are expected in Q3 2013. No field work was conducted at the near-by Blagodatnoye licence during the reporting period.

INTERIM FINANCIAL REVIEW

Despite unfavourable market conditions throughout the first half of 2013 the Group's underlying financial performance was positive. This reflected the quality of the Group's asset portfolio and the effectiveness of the cost saving measures implemented by management to mitigate the effects of the sharp decline in the gold price during H1 2013. In particular, a refinement of the Company's investment strategy led to specific focus on the potential growth of resources at MNV and Belaya Gora in addition to the mine deepening project at Novo. Similarly, capital expenditure in respect of development activity was concentrated on completing the construction of the Belaya Gora plant and maintaining progress at the Chukotka projects. Such endeavours met with a largely supportive response from contractors and suppliers alike, many of which adjusted payment terms and prices to the Group's advantage in the light of the market setback. The Company's all-in sustaining costs, applicable to the operational assets and detailed below, remained significantly below the average spot market prices of the respective metals.

The Group's overall revenue decreased by 2.7% to US$157.0 million during the first half of 2013 compared with US$161.5 million in H1 2012. This decline reflected the fall in precious and other metal spot market prices during the period, despite higher sales volumes of gold and gold equivalents. The Group sold 110,423 ounces of gold and gold equivalents in H1 2013 compared to 102,036 ounces in H1 2012. MNV's share of sales (73,349 oz) increased by 8.4%, while Novo's share (36,858 eq. oz) advanced by 15.4%. The Company did not carry out any hedging activity in H1 2013.

The average price of gold realised by MNV and Belaya Gora (net of commission) decreased by 6.7% to US$1,531 per oz in H1 2013 compared with US$1,641 per oz in H1 2012. The average realised price of gold equivalents sold by Novo in H1 2013 was US$1,080 per eq. oz which was 17.5% below the level achieved in H1 2012. The average price at Novo is based on the spot price for metals contained in the concentrates (gold, lead, zinc and silver) net of the fixed processing and refining costs at the Kazzinc plant. The Group's average realised price of gold and gold equivalents amounted to US$1,381 per oz in H1 2013 compared with US$1,537 per oz in H1 2012, a decline of 10.2%.

In 2013 the Group adopted IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine. This led to a restatement by US$3.7 million in the previously reported cost of sales in respect of H1 2012. Further information is contained in Note 2 in the interim condensed consolidated financial statements.

The Group's cost of sales rose by 8.3% to US$108.0 million in H1 2013 (H1 2012-restated: US$99.8 million). This primarily reflected an 8.2% increase in the volume of ounces sold compared to H1 2012.

Total Group cash costs decreased by 4.1% to US$717 per oz in H1 2013 (H1 2012-restated: US$747 per oz). Total cash costs at MNV were effectively maintained at US$765 per oz (H1 2012-restated: US$760 per oz) despite a 17.9% increase in the average stripping ratio (7.9 m3/t in H1 2013 vs 6.7 m3/t in H1 2012) and a 9.8% increase in ore tonnes processed (670,654 tonnes in H1 2013 vs 611,036 tonnes in H1 2012) with grades down by 12.5% (3.5 g/t in H1 2013 vs 4.0 g/t in H1 2012). Total cash costs at Novo decreased to US$617 per eq. oz (H1 2012: US$667 per eq. oz) largely reflecting the higher ore grades and tonnes delivered to the plant.

In line with guidance issued by the World Gold Council, the Group has adopted a new cost measure - all-in sustaining costs. All-in sustaining costs per ounce sold decreased from US$981 per ounce in H1 2012 to US$912 per ounce in H1 2013 which remains highly competitive.

The Group's EBITDA (defined as operating profit excluding depreciation, amortisation and movement in ore stockpile obsolescence provision) declined 11.5% to US$63.3 million in H1 2013 compared with US$71.5 million in H1 2012 as a result of reduced sales revenues due to lower metal prices. The EBITDA margin (defined as EBITDA divided by total revenue) decreased from 44.3% to 40.3%.

Despite the decrease in metal prices, the Group's assets remained unimpaired. To perform impairment testing the Group utilised the following average price assumptions for the whole life of mine: gold at US$1,300 per ounce, silver at US$20 per ounce, lead at US$1,731 per tonne and zinc at US$1,642 per tonne.

In H1 2013 the Company recorded net finance income of US$0.1 million compared to US$8.5 million in H1 2012. This primarily reflected the reassessment of fair value on coupon bonds and shares and lower levels of interest earned on deposits.

A foreign exchange loss of US$2.4 million (H1 2012: US$1.3 million - gain) 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 loss was primarily affected by a 7.7% devaluation of the Russian Rouble during H1 2013.

The income tax charge amounted to US$16.2 million in the first half of 2013 compared with US$13.0 million (restated) for the corresponding period of 2012. The tax charge comprises US$13.6 million in respect of current tax expenses (MNV: US$11.9 million; Novo: US$1.7 million) and US$2.6 million in respect of deferred tax. The effective tax rate increased from 21.3% in H1 2012 to 48.9% in H1 2013 largely due to an increase in non-deductible expenses (including inventory write-down and foreign exchange losses).

In H1 2013 the Company recorded a net profit after tax amounting to US$17.0 million (H1 2012-restated: US$48.0 million) and earnings per share of US$0.052 (H1 2012-restated: US$0.148).

Cash inflow from the Company's operating activities during the first half of 2013 was US$71.6 million compared to US$70.8 million (restated) in H1 2012. MNV and Novo generated positive cash flow.

During the six months ended June 30 2013, the Company invested US$67.9 million in terms of capital expenditure compared with US$47.1 million in H1 2012. Capital expenditure in H1 2013 comprised US$4.6 million at MNV, US$3.5 million at Novo, US$34.7 million at Belaya Gora and US$25.1 million in respect of development and exploration projects. Capital expenditure has been funded through operating cash inflow and debt.

On 29 March 2013, the Group acquired 100% of CJSC Bazovye Metally, which holds the mining and exploration rights to the Kekura gold deposit and the surrounding licence area, for a consideration of US$212.0 million. An additional US$11.0 million is to be paid to a contractor in H2 2013 upon the successful commissioning of the pilot plant which is currently approaching completion. The total consideration was funded via a new debt facility.

The Company's net debt position as at 30 June 2013 amounted to US$177.6 million compared to a net cash position as at 31 December 2012 of US$52.6 million. The net debt is defined as cash at bank, deposits and bonds, decreased by any bank borrowings. The ratio of the net debt to annualised EBITDA is 1.4 which is in line with the Board's policy.

Non-current loans represent a US$160.3 million loan from Gazprombank at 5.0% per annum with maturity from 2015 to 2016 and a loan from UniCreditBank of US$8.7 million at LIBOR 1 month + 3.7% per annum. Current loans from Gazprombank at 5.0% per annum amount to US$55.5 million.

* Rounding of figures may result in computational discrepancies.

EVENTS AFTER THE REPORTING PERIOD

In September 2013 the Group signed a new financing agreement with Sberbank in respect of a US$100.0 million facility at a 3.8% interest rate with the draw period set until January 2014. This facility, which is repayable in instalments between December 2014 and June 2016, will be used to finance development and operating activities within the Group.

DIVIDENDS

The Board has approved an interim dividend of £0.025 per share and will continue to take into account the capital requirements necessary to support the expansion of the Group in relation to the payment of dividends. The interim dividend will be paid on 18 October 2013 to shareholders on the register at the close of business on 27 September 2013. The ex dividend date will be 25 September 2013.

PRINCIPAL RISKS AND UNCERTAINTIES

The Group is exposed to a number of risks and uncertainties which exist in the gold mining industry. These risks and uncertainties could cause the actual results to differ materially from expected or historical results.

Risks and uncertainties are disclosed in the Company's 2012 Annual Report (Pages 24-29) and have not changed during the first half of 2013. However, the following update is provided in respect of those risks which proved particularly relevant to the Group's performance during the first half of the current financial year and are expected to remain so for the rest of the year:

Adverse price fluctuations

During the six months ended 30 June 2013, the Group experienced adverse price fluctuations. The Group's profitability depends on the respective metal prices of gold, silver, lead and zinc. The prices of these metals are affected by numerous factors including sales/purchases of gold and silver by central banks and financial institutions, interest rates, exchange rates, inflation/deflation, global economic conditions and, consequently, investors' expectations regarding such indicators. A decrease in the market price of gold from $1,664/oz to $1,203/oz* during the first half of 2013 had a negative effect on the results of the Group's operations in respect of the same period. The Company practices a 'no hedge' policy and metal price fluctuations will continue to affect the Group's profits in the future.

In order to mitigate the aforementioned factors, management constantly monitored metal prices, implemented cost reduction measures, assessed the prospective profitability of the Group's exploration and development projects portfolio and, where appropriate, revised certain investment plans and schedules.

Liquidity risk (financial risk)

During the past 12 months the Group was an active participant in the M&A market and utilised external financing to fund such transactions. The annualised net debt/EBITDA ratio is currently 1.4 which is considered by management to be comparable with the Company's peer group. The increased debt level and restrictive debt covenants attached to the financing agreements have served to limit the Group's liquidity and access to financing.

The ability of the Group to comply with restrictive covenants depends on the macroeconomic situation, inflation, interest rates and market prices in respect of the Group's products (primarily gold and silver). Currently, the Group complies with all debt covenants and monitors them on a constant basis. The Group's projections do not indicate any breach of covenants in the future.

HEALTH, SAFETY & ENVIRONMENT

The Company's Health and Safety operations, designed to achieve constant improvements across all of the Company's sites, continued to focus on the growth of safety awareness among employees and the promotion of extensive training courses. As a result of this ongoing focus, the lost time incident (LTI) rate (based on the number of lost time incidents in respect of every 200,000 man hours worked) registered an improvement to 0.36 (0.42 in H1 2012) which equates to a 14% reduction. A total of 888 employees attended introductory (one day) safety training classes, 445 employees completed courses in safe working methods, labour protection and industrial safety training while 322 employees participated in industrial safety certification through RosTechNadzor.

With regard to the environment, Highland is pleased to note the successful implementation of ISO 14001 Environmental Management Systems (EMS) certification at its MNV operations and the Russdragmet corporate office. This achievement represents the culmination of more than two years focused environmental compliance activity spanning preliminary gap analysis audits in 2010 through implementation and final compliances in late 2012. The Company is now reviewing the additional steps necessary to achieve similar compliance at the Novo and Belaya Gora operations. Group wide environmental compliance remained in good standing with all the relevant regulatory authorities. Environmental safety training was provided to 64 employees at MNV, Novo, Belaya Gora and Taseevskoye. Of these trainees, five employees at the Novo mine completed their environmental safety skills improvement courses at the Trans Baikal State University.

APPOINTMENTS

In September 2013, Highland announced the appointment of Colin Belshaw to the Board of Directors as an Independent Non-Executive Director. Mr. Belshaw has held numerous operating and corporate positions, including responsibility for Kinross Gold Corporation's Kubaka and Birkachan mining operations in Russia. The Directors are pleased to welcome Colin to the Board where his extensive experience with various international mining companies will make a valuable contribution to Highland's technical and operational development.

Eugene Shvidler

Non-Executive Chairman

17 September 2013

Interim consolidated statement of comprehensive income

for the six months ended 30 June 2013

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

* The amounts shown do not correspond to the interim condensed consolidated financial statements for the six months ended 30 June 2012 and reflect adjustments made in connection with the obligatory change in the accounting policies (Note 2).

Interim consolidated statement of financial position

as at 30 June 2013

* The amounts shown do not correspond to the interim condensed consolidated financial statements for the six months ended 30 June 2012 and to the consolidated financial statements for the year ended 31 December 2012 and reflect adjustments made in connection with the obligatory change in the accounting policies (Note 2).

Interim consolidated statement of changes in equity

for the six months ended 30 June 2013

for the six months ended 30 June 2012 (restated*)

* The amounts shown do not correspond to the interim condensed consolidated financial statements for the six months ended 30 June 2012 and reflect adjustments made in connection with the obligatory change in the accounting policies (Note 2).

** The compulsory share purchase from non-controlling shareholders in accordance with the Russian legislation resulted in the Company's stake in Novo increasing from 96.6% at 31 December 2011 to 97.5% at 30 June 2012 and to 97.9% at 31 December 2012.

Interim consolidated cash flow statement

for the six months ended 30 June 2013

* The amounts shown do not correspond to the interim condensed consolidated financial statements for the six months ended 30 June 2012 and reflect adjustments made in connection with the obligatory change in the accounting policies (Note 2).

1. Corporate information

These interim condensed consolidated financial statements of Highland Gold Mining Limited for the six months ended 30 June 2013 were authorised for issue in accordance with a resolution of the Directors on 18 September 2013.

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.

2. Basis of preparation and accounting policies

Basis of preparation

The interim condensed consolidated financial statements for the six months ended 30 June 2013 have been prepared in accordance with IAS 34 'Interim Financial Reporting'. The annual financial statements of the Group for the year ended 31 December 2012 were prepared in accordance with International Financial Reporting Standards as adopted by the European Union and Companies (Jersey) Law 1991.

The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements as at 31 December 2012.

Having made relevant enquiries, the Directors believe that it is appropriate to adopt the going concern basis in the preparation of the interim condensed consolidated financial statements in view of the fact that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future.

The impact of seasonality or cyclicality on operations is not considered significant to the interim condensed consolidated financial statements.

Changes in accounting policies and presentation rules

The accounting policies adopted in the preparation of the consolidated interim financial statements are consistent with those applied in the preparation of the consolidated financial statements for the year ended 31 December 2012, except for the adoption of new standards and interpretation as of 1 January 2013, noted below.

The changes in accounting policies were made in accordance with the applicable transitional provisions.

IFRS 13 Fair Value Measurement

IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. The application of IFRS 13 has not materially impacted the fair value measurements carried out by the Group.

IFRS 13 also requires specific disclosures on fair values, some of which replace existing disclosure requirements in other standards, including IFRS 7 Financial Instruments: Disclosures. Some of these disclosures are specifically required for financial instruments by IAS 34.16A(j), thereby affecting the interim condensed consolidated financial statements. The Group provides these disclosures in Note 9.

IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine

In October 2011 IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine was issued. IFRIC 20 sets out the accounting for overburden waste removal (stripping) costs in the production phase of a mine. Total stripping costs can generate two types of benefits accruing to the entity from the stripping activity: usable ore that can be used to produce inventory and improved access to further quantities of material that will be mined in future periods.

The Group has adopted IFRIC 20 effective 1 January 2013. Upon adoption of IFRIC 20, the Group assessed the deferred stripping balance as at 1 January 2012 and determined that this balance can be associated with identifiable components of ore bodies. Therefore no adjustments were made as at 1 January 2012.

The adoption of IFRIC 20 has resulted in increased capitalisation of stripping costs and reduced cost of sales in 2012. If the Group had not adopted the standard, the net income and capitalised stripping costs for current and comparative periods would have decreased. The quantitative impact of adopting IFRIC 20 on the interim condensed consolidated financial statements for the six months ended 30 June 2012 and on the consolidated financial statements for the year ended 31 December 2012 is presented in the tables below.

Adjustments to the consolidated statements of comprehensive income:

Adjustments to the consolidated statements of financial position:

Adjustments to the consolidated cash flow statements:

3. Business combinations

Acquisition of CJSC Bazovye Metally

On 29 March 2013, the Group acquired from Union Mining Holdings Limited a 100% share in CJSC Bazovye Metally (Kekura) 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$222.8 million, US$189.3 million was paid in cash and US$17.7 million represented the fair value of the loan payable assigned to the Group. This amount of US$207.0 million was funded via a new debt facility with Gazprombank.

The additional payment of US$5.0 million is the amount of contingent consideration payable in December 2013 as long as there are no third-parties' claims. It was recognised at the fair value of US$4.9 million, a 2.6% discount factor was applied.

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. It was recognised at the fair value of US$10.9 million, a 2.2% discount factor was applied.

Assets acquired and liabilities assumed

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

The goodwill balance of US$16.8 million 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. Goodwill is allocated entirely to the development and exploration company (Kekura). None of the goodwill recognised is expected to be deductable for income tax purposes.

From the date of acquisition, Kekura has contributed US$0.0 million to revenue and loss of US$0.2 million to the profit before tax of the Group in the first half of 2013. If the combination had taken place at the beginning of the year 2013, revenue of the Group in the first half of 2013 would have been US$157.0 million and profit before tax of the Group would have been US$33.2 million.

4. Segment information

For management purposes, the Group is organized 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.

The development and exploration segment contains the entities which hold the licenses being in the development and exploration stage: Klen, Taseevskoye, Unkurtash, Lubov. Following the acquisition on 29 March 2013, the development and exploration segment also includes the results and balances of Kekura.

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 and movement in ore stockpile obsolescence 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 assets information for the Group's reportable segments. The segment information is reconciled to the Group's profit for the period.

The Highland Gold financing (including finance costs and finance income), income taxes, foreign exchange gains/ (losses) 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 the first half of 2013 the gold and silver revenue was received from sales to Gazprombank (US$112.6 million) and MDM Bank (US$1.1 million). In the first half of 2012 the gold and silver revenue was received from sales to VTB Bank (US$66.2 million), Gazprombank (US$48.9 million) and MDM Bank (US$1.1 million). In the first half of 2013 the concentrate revenue in the amount of US$39.8 million was received from sales to Kazzinc (H1 2012: US$41.8 million).

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

** Current assets at 30 June 2013 include corporate cash and cash equivalents of US$2.7 million, investments of US$44.1 million, inventories of US$51.7 million, trade and other receivables of US$47.7 million and other assets of US$9.9 million.

*** Non-cash capital expenditure includes reclassification of prepayments to property, plant and equipment of US$30.5 million, unpaid accounts payable of US$12.4 million, inventories of US$2.8 million sold to contractor and capitalised interest of US$2.9 million.

**** Cash capital expenditure for the first half of 2013 includes additions to property, plant and equipment of US$48.5 million and prepayments given for property, plant and equipment ofUS$19.4 million.

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

** Current assets at 31 December 2012 include corporate cash and cash equivalents of US$7.3 million, investments of US$54.1 million, inventories of US$67.0 million, trade and other receivables of US$50.4 million and other assets of US$7.2 million.

*** Cash capital expenditure for the first half of 2012 includes additions to property, plant and equipment of US$29.7 million and prepayments given for property, plant and equipment ofUS$17.4 million.

All revenue and assets for both 2013 and 2012 are located in the Commonwealth of Independent States.

5. Finance income and costs

5.1 Finance income

5.2 Finance costs

6. Income tax

The major components of income tax expense in the interim consolidated statement of comprehensive income are:

There are no tax amounts recognised directly in equity during the first half of 2013 (H1 2012: Nil).

Tax for the six months ended 30 June 2013 is charged at 48.9% (H1 2012: 21.3%), representing the best estimate of the average annual effective tax rate expected for the full year, applied to the pre-tax income of the six months period.

The actual tax expense differs from the amount which would have been determined by applying the statutory rate of 20% for the Russian Federation to profit before income tax as a result of the application of relevant jurisdictional tax regulations, which disallow certain deductions which are included in the determination of accounting profit. Among others these deductions include foreign exchange losses recognized in IFRS.

7. Property, plant and equipment

Reconciliation of fixed assets on period-by-period basis for the period ending 30 June 2013

* Additions include non-cash capital expenditure of US$48.6 million (H1 2012: Nil). Further information is contained in Note 4.

** In the first half of 2013 US$1.0 million (H1 2012: US$0.6 million) write-off relates to retirement of old inefficient equipment.

*** During the first half of 2013 there was a change in the rehabilitation estimate. The net present value of the decrease in the cost estimate is US$3.9 million (decrease of US$2.3 million at MNV, decrease of US$1.8 million at Novo and increase of US$0.2 million at BG) which was booked as a decrease to mining assets and non-current provisions.

Reconciliation of fixed assets on period-by-period basis for the period ending 30 June 2012