HGM.L Regulatory News (HGM)

HIGHLAND GOLD MINING LIMITED

23 September 2014 - 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 2014.

FINANCIAL SUMMARY

The interim condensed consolidated financial statements of Highland Gold for the six months ended 30 June 2014 are set out below.

H1 2014 KEY EVENTS

Financial & Operations

· Half-year financial results demonstrate the Group's ability to drive performance during a period of weaker gold prices

· The Belaya Gora plant, operating in ramp-up mode, helped deliver a 14% overall increase in Group production as compared to H1 2013. Total output of gold and gold equivalents was 120,121 oz

· Total cash costs decreased by 4% and All-in sustaining costs decreased by 1%, to levels near the median of Russian and international peers.

· Net Debt to EBITDA ratio maintained at the level of 2.0

· Interim dividend of £0.025 per share (H1 2013: Interim dividend of £0.025 per share)

Development & Exploration

· Work on improving production facilities at the Belaya Gora plant continued

· Klen project design documentation was finalised and formally approved

· International consultants nearing completion of a pre-feasibility study for the Kekura project

POST HALF YEAR EVENTS

· Acquisition of the North-Western Flank licence in July 2014 with the potential to deliver new resources at MNV

· New credit facility signed in September 2014 with UniCredit for US$50.0 million as reserve credit line

TARGETS FOR H2 2014

· Organic production growth is expected at Novo. Annual mill throughput is expected to reach 550,000 tonnes of ore by year end, with preparations for a further production increase next year already underway

· Updated production guidance for FY 2014 of 280-291 thousand ounces of gold and gold equivalents, representing at least a 20% increase in output year-on-year.

· Management remains focused on maintaining achieved efficiency, increasing performance, and delivering dividends to shareholders

CONFERENCE CALL DETAILS

The Company will hold a conference call on Tuesday, 23 September 2014, 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 5707UK Local Call 0844 871 9461UK Standard International +44 (0) 1452 54 10 03Russian Federation +7 499 677 1040

USA Free Call 1866 254 0808Conference ID 8597712

A replay of the presentation will be accessible shortly afterwards on Company's website.

For further information please contact:

INTERIM OPERATIONAL REVIEW

Production

Mnogovershinnoye (MNV) - Khabarovsk region, Russia

Processing plant throughput during the six months ended 30 June 2014 totalled 629,854 tonnes of ore, yielding 61,761 oz of gold. The recovery rate was 92.5%.

Open-pit and underground ore production was 593,446 tonnes. Underground development recorded a 34% increase to 5,151 metres compared with the first half of 2013.

The average grade of the ore mined was 3.42 g/t, which is 5% less than the average for the same period of 2013. This reflected complicated mining conditions at the boundaries of the ore bodies and the greater depth of mining operations.

An increase in production is expected in H2 2014 through mining activities at the Valunistoye, Vodorazdelnoye and Flank, and the commencement of mining at the Tikhoye ore body, which contain higher gold grades. In preparation for mining, necessary waste stripping was carried out during the reporting period.

Novoshirokinskoye (Novo) - Zabaikalsky region, Russia

Ore production met planning expectations. Ore mining and processing technology were continually optimised during the reporting period and, in the wake of this, annual ore production is expected to reach 550,000 tonnes by the end of the year. Underground development designed to gain access to new and deeper ore levels was successfully completed. Alongside the anticipated increase in mill throughput, the Company plans to invest in new flotation equipment during the second half of the year in order to maintain the current gold grade and recovery rates.

*approximate Au equivalent(mined ore metal content breakdown = Au 3.34 g/t, Ag 59.34 g/t, Pb 1.84%, Zn 0.88%)

Belaya Gora - Khabarovsk region, Russia

The Belaya Gora processing plant continued in ramp-up mode during the first half of the year. Nameplate production parameters were achieved at the crushing and grinding facilities.

In order to improve the process flow and recovery rates, activities focused on achieving optimal performance in the gravity separation facility and the sorption and elution plant.

The decrease in mining activities was a direct result of the harsh weather conditions which led to the suspension of operations during the late winter/spring period on the Pologaya ore zone. The average grade in mined ore was 1.32 g/t, or 6% lower than in 2013. Efforts are focused on optimising grade control measures in order to reduce ore dilution and maximise head grade.

Higher production volumes are planned for the second half of the year in line with significant increases in ore throughput and recovery rates. In addition, expectations are that higher grade ore will be mined at the Pologaya ore zone during the period. Efforts to refine and enhance all aspects of production are scheduled for completion by the year-end.

DEVELOPMENT PROJECTS

Klen - Chukotka region, Russia

All project design documentation was finalised and formally approved. Options for optimising the financial and economic model were reviewed in-house, an exercise that is expected to be completed in 2H 2014. Exploration work was carried out at the Verkhne-Krichalskaya licence and at deep levels at Klen, the common aim being to explore the possibility of increasing the mineral reserve base for future development.

Kekura - Chukotka region, Russia

Preparation of a pre-feasibility study compliant with GKZ requirements continued and is expected to be completed in 2H 2014. Site locations for pit, processing plant and mine facilities were established and geodetic, geological and environmental surveys completed. Additional studies on a number of samples from throughout the ore body were carried out for the purpose of defining ore characteristics and developing an optimal processing route.

Taseevskoye - Zabaikalsky region, Russia

Project documentation was prepared in accordance with regulatory requirements. The State Examination Board approved the mine design for the 1st and 3rd ore zones of the Taseevskoye deposit and issued a construction permit.

Lyubov - Zabaikalsky Region, Russia

Work commenced on amendments to the technical design in accordance with the State Examination Board's recommendations. In 2014 the Company expects to receive the results of a project review conducted by government authorities.

EXPLORATION

Mnogovershinnoye - Khabarovsk region, Russia

Near-mine exploration at MNV will remain one of the Company's operational priorities throughout 2014 targeting additional resources in order to enhance the life of the mine.

In H1 2014 an independent consultancy completed a JORC-compliant resource audit at MNV as of 1 January 2013, the results of which are reflected in the updated resource/reserve statement released with the Company's 2013 Annual Report & Accounts.

Diamond core drilling activity for underground resource conversion in H1 2014 totalled 5,500 metres.

At the MNV Western Flank licence, immediately adjacent to mining operations, results from a drilling programme completed in 2013 at the historic Chaynoye prospect define an open-pit mineable resource for which resource modelling is underway. Further exploration works planned for 2014 are designed to evaluate the resource potential of the entire licence area and will include a geochemical survey with a follow-up trenching programme.

On 23 July 2014, the Company acquired the MNV North-Western Flank licence from an open auction at a bid price of ca USD 284,500. This includes a large section of the Medvezhya zone which, with reported prognostic resources (P1 + P2) of circa 35 tonnes of gold, is believed to have the potential to deliver new resources at MNV. It is anticipated that the Medvezhya zone will be explored through a combination of surface drilling and underground activity, utilising MNV's existing underground infrastructure.

Blagodatnoye - Khabarovsk region, Russia

The Blagodatnoye project is located 30 kilometres to the southwest of the Belaya Gora project and is targeting a near-surface bulk mineable gold resource for a potential open-pit mining operation. In H1 2014, regulatory authorities approved the Company's report on exploration results to date including a calculation of prognostic P1 resources and C2 category reserves of P1+C2 18.4 tonnes at ca. 2.0 g/t.

A new Exploration Project outlining future technical requirements for C1+C2 reserve registration with GKZ is being compiled and will be submitted for regulatory approval before year-end 2014.

Verkhne-Krichalskaya - Chukotka region, Russia

The Verkhne-Krichalskaya (VK) exploration and mining licence incorporates the Klen licence and is believed to hold upside potential with regard to the Klen operation.

The Company's previous exploration programme defined several gold anomalies and exploration targets at VK. In H1 2014 the Company completed a total of 7,996 metres of drilling at several targets with the objective of prospecting for new mineralisation zones and defining continuity of gold mineralisation along strike and depth of previously identified zones. Preliminary drilling results indicate several steeply dipping gold mineralised vein zones ranging from 200 to 1,200 metres in length and from 2.0 to 5.0 metres in width which yielded several high-grade intersects.

Additional drilling planned for H2 2014 at VK includes assessment of the resource potential of the deeper levels of the Klen deposit and testing of the potential extension of the deposit to the southeast.

Kekura - Chukotka region, Russia

Exploration work planned for 2014 is focused on fulfilling all technical requirements for an updated pre-feasibility study which is expected to be submitted to regulatory authorities (GKZ) by year-end 2014. The Company completed 4,210 metres of drilling with exploratory, hydrogeological and geotechnical objectives. Metallurgical studies on multi-tonne composite ore samples are underway, with the aim of defining ore characteristics and developing a processing flow sheet. Exploratory prospecting on the greater licence area in H2 2014 will include geochemical surveys at selected targets and the evaluation of several promising near-mine gold prospects.

Unkurtash - Kyrgyzstan

The Unkurtash project holds a total JORC-compliant resource of 3.7 Moz of gold within three distinct prospects, Unkurtash, Sarytube and Karatube, located within the Company's single Kassan licence (63 km²). In order to facilitate registration of the entire Unkurtash project's C1+C2 category with the Kyrgyz GKZ, the Company completed a reserve calculation update in 2013. Project economics were further refined during H1 2014 and submission of the necessary documentation for reserve registration to GKZ is targeted for Q4 2014.

In H2 2014 the Company plans to complete a 1,500 metre drilling programme which will test the resource potential of the Baikonur prospect, the potential extension of the Unkurtash prospect.

Valery Oyf

Chief Executive Officer

22 September 2014

INTERIM FINANCIAL REVIEW

CHIEF FINANCIAL OFFICER'S REPORT

Half-year financial results demonstrate Group's ability to drive performance during a period of weaker gold prices. Increased production volumes along with the ongoing focus on improving efficiency should allow us to deliver strong full year results.

Group revenue for the first half of 2014 decreased by 9.4% to US$142.2 million compared to US$157.0 million in H1 2013. This decline reflected the fall in precious and other metals spot market prices during the period, despite higher gold and gold equivalents sales. The Group sold 116,567 ounces of gold and gold equivalents in H1 2014, compared to 110,423 ounces in H1 2013. MNV's share of sales at 63,048 oz decreased by 14.0%, while Novo's share at 43,509 eq. oz showed a significant 18.0% increase compared to H1 2013. Belaya Gora sold 10,010 oz in Q2 2014. Revenues from the sale of 1,916 oz from Belaya Gora in Q1 2014 were netted off with costs of sales and capitalised into the cost of the plant as part of start-up work. The Group did not carry out any hedging activity in the first half of 2014.

The average price of gold realised by MNV and Belaya Gora (net of commission) decreased to US$1,288 per oz in H1 2014, compared with US$1,531 per oz in H1 2013. The average price of gold equivalents realised by Novo was US$1,075 per eq. oz in H1 2014, compared to US$1,080 per eq. oz in H1 2013. The average price at Novo is based on the spot price for metals contained in the concentrates (gold, lead, zinc and silver), net of fixed processing and refining costs at the Kazzinc plant. The Group's average realised price of gold and gold equivalents amounted to US$1,210 per oz in H1 2014, compared with US$1,381 per oz in H1 2014, a decline of 12.5%.

Cost of sales at the principal operating entities, MNV and Novo, were effectively maintained at a low level. The completion of start-up work at Belaya Gora led to the first-time recognition of its costs within the Group's cost of sales in the second quarter of 2014. This resulted in a slight 1.5% increase in costs to US$109.7 million in H1 2014 compared to US$108.0 million in H1 2013.

Total Group cash costs amounted to US$689 per oz, compared to US$717 per oz in H1 2013. Despite depletion and lower grades at MNV, its total cash costs remained at a consistent level to 2013 of US$757 per oz (H1 2013: US$765 per oz) due to the devaluation of the Russian Rouble, a decrease in Royalty payments, and the effect of a cost reduction programme. Total cash costs at Novo decreased to US$511 per eq. oz (H1 2013: US$617 per eq. oz), largely reflecting the rise in production volumes, devaluation of the Russian Rouble, the start-up of a new coal boiler house, and a reduction in tariffs for transportation. Total cash costs at Belaya Gora decreased from US$1,426 per oz in H1 2013 to US$1,031 per oz due to the ramping-up of the BG plant and increased volumes produced.

All-in sustaining costs (AISC) per ounce sold remained well contained and only slightly changed from US$912 per oz in H1 2013 to US$900 per oz in H1 2014 - in line with the AISC of the world's major gold producers.

The Group's EBITDA (defined as operating profit/ (loss) excluding depreciation and amortisation, impairment gain/ (loss), movement in ore stockpiles obsolescence provision and gain on settlement of contingent consideration) decreased by 23.6% in H1 2014 to US$48.4 million, compared with US$63.3 million in H1 2013, due to lower gold prices. The EBITDA margin (defined as EBITDA divided by total revenue) decreased from 40.3% to 34.0%. EBITDA margin was 36.3% at MNV and 44.9% at Novo, in line with industry standards. The EBITDA margin at BG was 12.1% due to the early stage of production.

In July 2014, management finalised the Kekura acquisition and settled the Group's outstanding contingent consideration for US$5.6 million less than the previously-provided amount. This figure was recognised as a gain on settlement of contingent consideration in the interim consolidated statement of comprehensive income.

Net finance income increased to US$4.6 million in H1 2014 from US$0.1 million in H1 2013, primarily due to the positive reassessment of fair value of bonds.

A foreign exchange loss of US$1.5 million (H1 2013: loss of US$2.4 million) resulted from the settlement of foreign currency transactions and the transfer of monetary assets and liabilities denominated in currencies such as Russian Roubles and Pounds Sterling into US Dollars.

The income tax charge amounted to US$9.1 million for the first half of 2014 compared with US$16.2 million in the corresponding period of 2013. The tax charge was comprised of US$10.0 million for current tax expenses (MNV: US$6.9 million and Novo: US$3.1 million), US$2.0 million of tax release from deferred tax, and US$1.1 million of prior year tax adjustment. The effective tax rate decreased from 48.9% in H1 2013 to 31.0% in H1 2014, mainly due to foreign exchange movements and differences in the Russian tax and IFRS depreciation rules.

Net profit after tax increased to US$20.3 million (H1 2013: US$17.0 million) and resulted in earnings per share of US$0.062 (H1 2013: US$0.052).

The Group's cash inflow from operating activities of US$64.5 million in H1 2014 was US$7.1 million lower than the US$71.6 million generated in H1 2013.

During the six months ended June 30 2014, the Group invested US$36.4 million in capital expenditures compared to US$67.9 million in the prior period. H1 2014 capital expenditure comprised US$7.2 million at MNV, including US$4.3 million of developing underground mine, US$2.9 million at Novo, US$11.9 million at Belaya Gora, US$6.4 million at Klen and adjacent Verchne-Krichalskaya area, US$7.2 million at Kekura, and US$0.8 million related to other entities within the Group. The required capital expenditure was funded by operating cash inflow and debt.

The Group's net debt position as of 30 June 2014 was US$239.2 million, compared to a net debt position on 31 December 2013 of US$251.2 million. Net debt is defined as cash in the bank, deposits, and bonds, minus any bank borrowing. The present ratio of net debt to EBITDA is 2.0, which is in line with the Board's policy. This ratio is defined by dividing net debt by the aggregate amount of EBITDA in H1 2014 and H2 2013.

EVENTS AFTER THE REPORTING PERIOD

In September 2014 the Group signed a revolving credit agreement with UniCreditBank for a US$50.0 million facility with the drawdown period set until March 2016. This facility will be drawn down in case of cash deficit if gold prices decline rapidly, and will be used to finance development and operating activities within the Group.

PAYMENT OF DIVIDENDS

The Board has approved an interim Dividend of £0.025 per share and intends to pay future dividends bearing in mind the capital requirements necessary to support the expansion of the group. The interim dividend will be paid on 24 October 2014 to shareholders on the register at the close of business on 03 October 2014, the record date, and the ex dividend date will be 01 October 2014.

PRINCIPAL RISKS AND UNCERTAINTIES

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

The principal risks and uncertainties are disclosed in the Group's 2013 Annual Report (Pages 16-21) and have not changed during the first half of 2014. However, the following update is provided with regard to those risks that have proven particularly relevant during the reporting period:

Potential government actions (changes in geopolitical situation)

During the reporting period, the U.S. and E.U. have imposed sanctions and restrictions on certain Russian officials, businessmen, and companies (including Gazprombank and Sberbank, banks that provide financing to the Group). Rating agencies downgraded Russia's sovereign rating and changed its outlook to negative.

The Group has not been subject to any sanctions or restrictions. However, if further extended, these events may adversely affect the Russian economy through reduced access to international capital, restrictions on imports of various goods and services, a weakening Rouble, and other economic consequences.

The Group is monitoring the situation on an ongoing basis, however, future developments and the likelihood of additional sanctions and restrictions are unclear at the moment.

HEALTH, SAFETY AND ENVIRONMENT

The Company is dedicated to ensuring the safety of employees and, accordingly, combines rigorous precautionary measures throughout the production process with comprehensive staff training programmes which place particular emphasis on the importance of encouraging employee responsibility for work safety. As a result of these policies, the Lost Time Incident ("LTI") rate (defined as the number of lost time incidents for every 200,000 man hours worked) fell by 17% to 0.30 in 1H 2014 (representing five LTI's across the Group) compared with 0.36 in 1H 2013. Some 569 employees received a safety induction course (one-day), 359 employees received work safety training on hazardous production risks (3-5 day courses) and 265 employees were trained and tested on industrial safety (7-30 day programmes).

The Company's environmental practices remain fully compliant with regulatory authorities' legal requirements. The ISO 14001 accredited environmental management system is being extended to the Belaya Gora and Novoshirokinskiy mines where final audit inspections, to check compliance with the ISO 14001 standard, are scheduled for September and December 2014 respectively. To this end, 46 employees of the Belaya Gora and Novoshirokinskoye mines received training (developed by an external adviser) in internal environmental audit. Environmental safety training was given to 74 employees of MNV, Belaya Gora and Novo, with two MNV specialists attending a five-day course at Khabarovsk University.

Alla Baranovskaya

Chief Financial Officer

22 September 2014

Interim consolidated statement of comprehensive income

for the six months ended 30 June

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

Interim consolidated statement of financial position

as at

* Certain line items have been reclassified in the consolidated statement of financial position as at 31 December 2013 and 30 June 2013. Refer to Note 2 for further details.

Interim consolidated statement of changes in equity

for the six months ended 30 June 2014

for the six months ended 30 June 2013

Interim consolidated cash flow statement

for the six months ended 30 June

1. Corporate information

These interim condensed consolidated financial statements of Highland Gold Mining Limited for the six months ended 30 June 2014 were authorised for issue in accordance with a resolution of the Directors on 22 September 2014.

Highland Gold Mining Limited is a public company incorporated and domiciled in Jersey. The registered office is located at 26 New Street, St Helier, Jersey JE2 3RA. 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 2014 have been prepared in accordance with IAS 34 'Interim Financial Reporting'. The annual financial statements of the Group for the year ended 31 December 2013 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 2013.

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.

Reclassifications

Certain line items have been reclassified in the consolidated statement of financial position as at 31 December 2013 and 30 June 2013 to keep the presentation form consistent with 2014 presentation. As a result of the reclassifications, as at 31 December 2013 inventories were decreased by US$0.3 million (30 June 2013: nil), trade and other receivables were decreased by US$0.5 million (30 June 2013: US$0.6 million) and other current assets were increased by US$0.8 million (30 June 2013: US$0.6 million),

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 2013, except for the adoption of new standards and interpretation as of 1 January 2014, noted below.

Several new standards and amendments apply for the first time in 2014. However, they do not impact the interim condensed consolidated financial statements of the Group. These new standards and amendments are described below.

Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27)

These amendments provide an exception to the consolidation requirement for entities that meet the definition of an investment entity under IFRS 10 Consolidated Financial Statements. The exception to consolidation requires investment entities to account for subsidiaries at fair value through profit or loss.

Offsetting Financial Assets and Financial Liabilities - Amendments to IAS 32

These amendments clarify the meaning of 'currently has a legally enforceable right to set-off' and the criteria for non-simultaneous settlement mechanisms of clearing houses to qualify for offsetting.

Novation of Derivatives and Continuation of Hedge Accounting - Amendments to IAS 39

These amendments provide relief from discontinuing hedge accounting when novation of a derivative designated as a hedging instrument meets certain criteria.

Recoverable Amount Disclosures for Non-Financial Assets - Amendments to IAS 36

These amendments remove the unintended consequences of IFRS 13 Fair Value Measurement on the disclosures required under IAS 36 Impairment of Assets. In addition, these amendments require disclosure of the recoverable amounts for the assets or cash-generating units (CGUs) for which an impairment loss has been recognised or reversed during the period.

IFRIC 21 Levies

The new interpretation clarifies when to recognise a liability for a levy imposed by governments (including government agencies and similar bodies) in accordance with laws and regulations. The IASB implementation date is for periods beginning on or after 1 January 2014 whereas the interpretation becomes mandatory in the EU only for annual periods beginning on or after 17 June 2014. Income taxes in accordance with IAS 12, fines and other penalties and liabilities arising from trading schemes are not covered by this interpretation.

The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

3. Business combinations

Acquisition of ZAO Bazovye Metally

On 29 March 2013, the Group acquired from Union Mining Holdings Limited a 100% share in ZAO 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 amount of US$17.1 million, representing the carrying value of the loan assigned at the date of acquisition, was paid on 29 March 2013.

The additional payment of US$5.0 million represented 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. This part of contingent consideration was settled in full in 2013.

In addition, at the date of acquisition, up to US$11.0 million in contingent consideration was payable upon the completion of various contractual terms. At the acquisition date, the contingent consideration was recognised at a fair value of US$10.9 million applying a 2.2% discount factor. As of 31 December 2013, US$0.5 million was paid in advance and up to US$10.5 million remained outstanding and was expected to be paid in 2014.

In June 2014 management became aware that several contractual terms agreed as part of the acquisition were not met. Therefore, US$5.6 million of the contingent consideration would no longer be payable. This was subsequently formalised in an agreement in July 2014. The release of this provision was recognised as a gain on settlement of contingent consideration in the interim consolidated statement of comprehensive income. US$3.8 million was paid in July 2014, with the remaining US$0.4 million to be paid in November 2014.

Assets acquired and liabilities assumed

The 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 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.

The development and exploration segment contains entities which hold the licenses being in the development and exploration stage: Kekura, Klen, Taseevskoye, Unkurtash, Lubov, and related service entities: Zabaykalzolotoproyekt (ZZP) and BSC. In the interim financial statement as at 30 June 2013 ZZP was shown in the 'other' segment. In the interim financial statements as at 30 June 2014 ZZP has been reclassified from the 'other' segment to the development and exploration segment in the comparative segment information for 2013 to keep the presentation form consistent with 2014 presentation.

The 'other' segment includes head office, management company and other non-operating 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), movement in ore stockpiles obsolescence provision and gain on settlement of contingent consideration). 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 finance costs, 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 the first half of 2014 the gold and silver revenue reported in the gold production segment was received from sales to Gazprombank (US$94.1 million) and MDM Bank (US$0.9 million) in the territory of the Russian Federation.

In the first half of 2013 the gold and silver revenue reported in the gold production segment was received from sales to Gazprombank (US$112.6 million) and MDM Bank (US$1.1 million) in the territory of the Russian Federation.

In the first half of 2014 the concentrate revenue reported in the polymetallic concentrate production segment in the amount of US$46.8 million was received from sales to Kazzinc (H1 2013: US$39.8 million) in the territory of the Republic of Kazakhstan.

Other third-party revenues in both H1 2014 and H1 2013 were received in the territory of the Russian Federation.

Inter-segment revenues mostly represent management services.

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

** Current assets at 30 June 2014 include corporate cash and cash equivalents of US$9.8 million, investments of US$55.0 million, inventories of US$62.1 million, trade and other receivables of US$44.3 million and other assets of US$6.9 million. Eliminations relate to intercompany accounts receivable.

*** Capital expenditure for the first half of 2014 includes additions to property, plant and equipment of US$36.7 million (Note 8) and capitalised interest of US$5.8 million (Note 8), less prepayments previously made for property, plant and equipment of US$4.4 million.

**** Non-cash capital expenditure includes settled accounts payable of US$6.3 million.

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

** Current assets at 31 December 2013 include corporate cash and cash equivalents of US$7.9 million, investments of US$50.2 million, inventories of US$70.7 million, trade and other receivables of US$53.1 million and other assets of US$9.0 million. Eliminations relate to intercompany accounts receivable.

*** Capital expenditure for the first half of 2013 includes additions to property, plant and equipment of US$101.7 million (Note 8), capitalised interest of US$2.9 million (Note 8) and prepayments previously made for property, plant and equipment of US$19.5 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 and inventories of US$2.8 million sold to contractor.

All assets for both 2014 and 2013 are located in the Russian Federation and in the Kyrgyz Republic.

5. Other operating expenses

6. Finance income and costs

6.1 Finance income

6.2 Finance costs

7. 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 2014 (H1 2013: Nil).

Tax for the six months ended 30 June 2014 is charged at 31.0% (H1 2013: 48.9%), 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 recognised in IFRS.

8. Mine properties, exploration and evaluation assets, and property, plant and equipment

Reconciliation of fixed assets on period-by-period basis for the period ending 30 June 2014