HGM.L Regulatory News (HGM)

highland GOLD MINING LIMITED

Q1 2016 Operating Results

23 May 2016

Highland Gold Mining Limited ("Highland Gold" or the "Company") today initiates quarterly reporting on its operations with a review of results from the three months ended March 31, 2016 ('Q1'). The company will continue to report financial results on a half-yearly basis.

HIGHLIGHTS

· Total production at Mnogovershinnoye (MNV), Novoshirokinskoye (Novo) and Belaya Gora in Q1 2016 of 56,889 oz of gold and gold equivalents, compared to 57,421 oz in Q1 2015.

· Average realized gold price of 1,174 USD/oz.

· MNV and Novo exceeded internal production targets for the quarter.

· Processing optimization at the Belaya Gora mill is ongoing, with volumes rising by 32% versus the same period in 2015 but grades slightly below expectations.

· Work continued on a draft Kekura pre-feasibility study and JORC resource audit (finalized in Q2) including updated and detailed mine design and mill parameters. The development of design documentation continues.

· Scoping studies initiated for the Baley Cluster Projects (Taseevskoye, Sredny Golgotay and ZIF-1 tailings) and Unkurtash.

· The Company affirms its forecast for total production of gold and gold equivalents of 255,000-265,000 oz for the full year.

FOR FURTHER INFORMATION PLEASE CONTACT:

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OPERATIONAL REVIEW

Mnogovershinnoye (MNV), Khabarovsk region, Russia

In Q1 2016, MNV processed 298,725 tonnes of ore to produce 18,959 oz of gold.

Overall, open pit and underground production amounted to 316,296 tonnes of ore in the quarter. Open pit mining focused on low-grade stockpiles as per the Company's mining schedule for the quarter.

Underground development meterage rose by 67% versus Q1 2015 and totalled 2,939 m.

The average grade of ore mined was 2.16 g/t.

* Open pit mining in Q1 focused exclusively on ore stockpiles

Novoshirokinskoye (Novo), Zabaikalsky region, Russia

Ore mining and processing in Q1 continued to gain pace. Operational improvements enabled the production of 196,696 tonnes of ore in Q1 2016, which is 26% higher than Q1 2015. Ore processing amounted to 180,853 tonnes, which is 16% higher than Q1 2015.

* In gold equivalents at actual prices.

(metal grade of mined ore = Au 2.82 г/т, Ag 79.43 г/т, Pb 2.38 %, Zn 0.75 %)

Belaya Gora, Khabarovsk region, Russia

Ore production totalled 364,462 tonnes in Q1, which is 18% higher than the same period of 2015, albeit with lower average grades.

At the mill, work to improve plant productivity is ongoing and the setup of the phase 2 process plant SCADA automation system has been completed towards that end.

Sredny Golgotay, Zabaikalsky region, Russia

In the second half of last year, the Company commenced preparatory mining operations on the Kaftanovsky zone of the Sredny Golgotay deposit, part of the Baley group of licenses. This work involved re-entering the access adit, developing site infrastructure, and receiving regulatory approval for a 2016 mining plan for the extraction of 40 thousand tonnes of ore, to be processed at Novo.

The ore has not yet been processed.

DEVELOPMENT PROJECTS

Kekura, Chukotka region, Russia

In January-March, worked continued on finalization of an updated and detailed pre-feasibility report by WAI, with JORC resource estimate, as well as an updated Mine Design report with a feasibility study level of accuracy.

Key Kekura Figures (preliminary)

To further address mining issues, RungePincockMinarco is conducting a Fatal Flaw Review of the PFS for both open pit and underground mine to confirm viability of the in-situ mine plan.

Q1 2016 saw continuation of the development of design documentation for a mining and processing complex based on the Kekura deposit.

In parallel with that, a Russian design institute is developing the methodology for calculation of losses and dilution taking into account mineralization specifics at Kekura.

A processing flowsheet for the mill has been approved and the drafting of process regulations completed. Terms of Reference for packaged supply of capital processing plant equipment have been produced and approved, and a tender process initiated.

Baley Ore Cluster, Zabaikalsky Region, Russia

(Taseevskoye, Sredny Golgotay, ZIF-1 tailings licences)

Work commenced in Q1 on estimating gold reserves in oversized rocks at Taseevskoye in order to add reserves for a ZIF-1 tailings heap leaching initiative.

Additionally, contractor SGS Vostok Ltd. conducted process testwork for gold recovery using heap leaching from ZIF-1 tailings, including the use of oversized rocks from Taseevskoye and low grade ore from Sredny Golgotay.

Work also commenced on testing the amenability of Sredny Golgotay ores to XRT (Steinert) and XRF pre-concentration processes. This effort is aimed at improving ore mining efficiency for subsequent treatment of the pre-concentrated ore at the Novo process plant.

Lyubov, Zabaikalsky Region, Russia

During the first quarter, the Company made preparations to initiate the commercial development of Lyubov deposit. More details will be released when plans are finalized, but initial indications are that mining could commence in H2 2016.

Klen, Chukotka region, Russia

The Company is reviewing previous decisions on Klen and has begun to search for a viable scenario to develop the project under current market conditions. In Q1, terms of reference were produced for an updated pre-feasibility study for the processing plant and infrastructure.

EXPLORATION

The Company's exploration activities in 2016 are focused on confirming and preparing additional reserves for its operating mines (MNV, Belaya Gora) and for projects already under development (Kekura).

Mnogovershinnoye, Khabarovsk region, Russia

The exploration programme for the lower horizons of the Northern ore body, launched in 2015, continues this year with a planned 11,000 m of core drilling, of which 6500 m has been completed. According to a preliminary assessment of drilling results, at an ore zone interval of up to 600 m long, the average thickness is 1.2 m and average Au grade is 5.7 g/t at a depth of 100-150 metres below existing reserves.

Blagodatnoye, Khabarovsk region, Russia

In order to augment the mineral base of Belaya Gora operations, the Company has targeted further exploration of gold reserves at the Blagodatnoye deposit, located 40km away from Belaya Gora. Following exploration work in 2010-2012, preliminarily estimates of C2 reserves to be booked for open pit mining amount to approximately 10m tonnes of ore containing over 18 tonnes (578k oz) of gold. Process testwork on the ore supported a recovery rate of up to 93% during cyanide leaching of the ground ore. Blagodatnoye ore would be processed at Belaya Gora mill.

In Q1 2016, the Company made preparations for more detailed exploration at Blagodatnoye to obtain a comprehensive understanding of the deposit and to place its reserves on the state balance sheet for subsequent mining. About 1700 m of a total planned 15,000 m has been drilled.

Kekura, Chukotka region, Russia

The Kekura work programme for 2016 includes 25,000 m of exploration drilling in order to validate and potentially increase reserves intended for underground mining. An exploration grid of 40 х 40m is planned, with 6200 m already drilled. Preliminary gold assay results generally confirm the presence of commercial mineralization with high gold grades in the previously-explored ore zones intended for underground mining.

Sredny Golgotay, Zabaikalsky Region, Russia

An exploration drilling programme (23,000 m) was launched at Sredny Golgotay for resource validation in compliance with JORC Code, with 4159 m already drilled.

Qualified Persons Statement: Mr. Werner Klemens, special advisor to the CEO of 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 18 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.

HEALTH, SAFETY & ENVIRONMENT

In the first quarter, the Company continued efforts to ensure safe labour conditions, manage operational risks, train employees and enhance their personal responsibility for safety at workplace.

Nevertheless, the Lost Time Incident ("LTI") rate (defined as the number of lost time incidents for every 200,000 man-hours) rose to 0.43 during the period (0.13 in Q1 2015). Three incidents - one at MNV and two at Novo - were recorded during the quarter, all involving only minor injuries. By comparison, Novo only had one such incident in all of 2015.

A safety induction (1 day) course was given to 231 employees, while 150 employees received training on safe operating methods at hazardous industrial facilities (a course of 3-5 days) and 39 employees were trained and certified in the area of industrial safety (7-30 day programmes). Auxiliary mine rescue teams are kept ready at mine sites to address emergency localization and response.

An employee positioning system has been implemented underground at the Novo and MNV mines, enabling the transmission of staff positioning information to the Company's mine dispatchers.

In February, an internal industrial and occupational safety audit was conducted at Novo. The Company also continued implementing internal standards for health and occupational safety throughout the quarter.

With regard to the environment, an audit of the Company's Environmental Management System (EMS) was carried out by DNV in Q1, and a new certificate valid until 15.09.2018 was issued certifying that the Company's operations comply with environmental regulations.

Training courses on environmental safety and safe waste handling were attended by 230 and 210 employees, respectively. Environmental monitoring programmes for 2016 were developed and approved across all corporate units.