HGM.L Regulatory News (HGM)

HIGHLAND GOLD MINING LIMITED

Q2 2016 Operating Results

09 August 2016

Highland Gold Mining Limited ("Highland Gold" or the "Company") today reports its operating results for the three months ended June 30, 2016 ('Q2').

HIGHLIGHTS

· Total Q2 2016 production of 71,782 oz of gold and gold equivalent at Mnogovershinnoye (MNV), Novoshirokinskoye (Novo) and Belaya Gora, an increase of 12% from 64,091 oz in Q2 2015.

· Average realized gold price of 1,264 USD/oz over the reporting period.

· MNV and Novo exceeded internal production targets for the quarter, while at Belaya Gora efforts to optimise operations were ongoing.

· Exploration work continued on the Northern ore body at MNV, with reserves expected to receive approval from regulators by year-end.

· Work commenced on the planned expansion of processing capacity at the Novo mill.

· A Fatal Flaw Review of the pre-feasibility study for Kekura, completed by RungePincockMinarco, supported open pit and underground mine design.

FOR FURTHER INFORMATION PLEASE CONTACT:

OPERATIONAL REVIEW

Mnogovershinnoye (MNV), Khabarovsk Region, Russia

· A re-evaluation of MNV's historical waste dumps resulted in 300,000 tonnes of ore being put on the balance sheet at a grade of just over 1.0 g/t.

· Overall grades at the mill improved by 16% year-on-year for the second quarter and 9.6% for the first half due to substantially higher grades from underground mining.

· Recovery rates rose to over 91% in Q2.

* In a table footnote in the Company's Q1 operating results, waste dumps were mislabelled as "stockpiles".

Novoshirokinskoye (Novo), Zabaikalsky Region, Russia

· Ore mining and processing continued to gain pace in the second quarter, with ore production rising by 19% versus Q2 2015 and processing up some 13% from the same period last year.

· Average grades were nearly 11% higher year-on-year in Q2, while recovery rates also improved during the period.

* In gold equivalents at actual prices.

(Metal grade of mined ore = Au 3.09 g/t, Ag 86.08 g/t, Pb 2.63 %, Zn 0.71 %)

Preparatory construction work has commenced on the planned expansion of Novo's processing capacity to 1.3 million tonnes per annum. Geotechnical construction studies are being finalised at the site and design documentation is being developed. The mine and mill are expected to reach the new, increased capacity in late 2018.

Belaya Gora, Khabarovsk Region, Russia

· Ore processing totalled 450,278 tonnes in Q2, an increase of 17% over Q2 2015.

· Higher processing volumes were offset by a fall in grades, which were 35% lower in Q2 compared to the same period last year.

· The percentage recovery rate fell slightly due to the lower grades, but improvements in mill performance meant the amount of gold sent to tailings was actually reduced to 0.33 g/t from 0.42 g/t in Q2, and to 0.35 g/t from 0.45 g/t for the first half.

Studies continued on avenues for improving recovery rates at the mill, while outside consultants have been brought in to assist in optimising mining operations and reassessing gold reserves.

Sredny Golgotay (Kaftan Site), Zabaikalsky Region, Russia

A pilot project to mine ore from the Kaftan site of the Sredny Golgotay licence, initiated in Q1 of this year, continued in the second quarter with 4,501 tonnes of ore transported to the Novo mill for processing. The ore had an average grade of 3.6 g/t, somewhat below initial expectations.

To help to better understand the quantity and quality of reserves at Kaftan, contractor Sosnovgeo carried out part of a 7,900 metre grade control drilling program at the site throughout Q2. As of June 30, 6,654 linear metres were drilled. Assay results were obtained for 6,610 samples. The drilling was completed in July and results are expected in the third quarter.

DEVELOPMENT PROJECTS

Kekura, Chukotka Autonomous District, Russia

A Fatal Flaw Review of the Kekura pre-feasibility study, completed by RungePincockMinarco during the quarter, resulted in a positive opinion on mine designs for both the open pit and underground scenarios. Ore reserves were determined to be of high quality and the project was recognized as having a low sensitivity towards gold prices.

The work produced by RungePincockMinarco identified a pathway forward for further optimisation of technical solutions and improvement of the project's economic viability.

Preparations for 2017 construction and installation are underway, including the procurement of construction materials and the selection of contractors to build key infrastructure facilities.

In the second half of the year, the Company will focus on obtaining approval of project documentation from the main environmental and state expert review panels; receiving approval of design documentation; obtaining permits for construction; and further preparing for the commencement of construction and installation work.

Klen, Chukotka Autonomous District, Russia

International consultants Hatch were selected via tender to draft a new pre-feasibility study for a processing plant and infrastructure facilities at Klen. Initial indications are that opportunities do exist to improve and optimise previous options considered for the project.

The Company expects to receive a full financial and economic model for Klen and to make a decision on further project development in the second half of this year.

Lyubov, Zabaikalsky Region, Russia.

During the second quarter, the Company signed an agreement with an outside contractor to process ore from existing tailings at the Lyubov site. Impoundments, water intake and drainage ditches have been arranged, a processing plant has been installed, and commissioning is underway, with all of the necessary equipment and materials delivered to the site. A pilot programme to test the project's production potential is expected to commence in the third quarter of this year.

Baley Ore Cluster, Zabaikalsky Region, Russia.

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

At Taseevskoye, work continued on a programme to evaluate oversized rock stockpiles with a view to confirming reserves for a potential heap leaching initiative. The Company drilled 19 holes for a total of 208.7 metres drilled in Q2. Results indicated that the rock massif is likely waste from previous mining and the resource has been estimated at 700,000 tonnes at an average grade of 0.8 g/t.

On May 10, the Company began the process of dewatering the existing Taseevskoye open pit in order to provide drill platforms necessary for further evaluation, initially removing approximately 135,000 m3 of water. The programme will continue up until mid-November of this year.

At Sredny Golgotay, testwork was carried out on the first phase of R&D work on the development of a pilot XRF plant, which would enable the pre-concentration of gold-bearing ores from the site. Initial results indicate that XRF might be a feasible and effective solution, and a decision was made to continue to the second and third phases of the R&D programme.

EXPLORATION

Mnogovershinnoye, Khabarovsk Region, Russia.

The Company is close to completing the second stage of its exploration drilling programme at the Northern ore body (MNV Lower Horizon licence), which called for 11,000 m of diamond drilling this year. An ore zone of approximately 600 m in length with an average thickness of 1.2 m and average grade of 5.7 g/t has been identified on the Eastern flank of this ore body. An initial resource estimate from this drilling program is expected in the fourth quarter.

Drilling and evaluation of the new reserves are ongoing. An additional 2,000 m on a 50x50 m grid were added to the programme to evaluate the Western flank of the ore body.

Also in the second quarter, exploration drilling at underlying levels of the Southern and Flank ore bodies were initiated.

At the Chaynoye ore body (MNV Western Flank licence), trenching has commenced to verify anomalies identified during earlier exploration efforts.

Blagodatnoye, Khabarovsk Region, Russia.

In order to augment the mineral resource base for Belaya Gora, the Company has targeted further exploration of gold reserves at the nearby Blagodatnoye gold deposit. The licence has preliminarily measured С2 category reserves for open pit mining of about 10 million tonnes of ore and approximately 525,000 oz of gold. Initial mettalurgical testwork has supported gold recovery of up to 93% via cyanidation.

An exploration drilling programme of 15,000 m continued during Q2 for the purpose of registering reserves with regulators and potentially adding measured and indicated reserves. So far, 9,300 linear metres have been drilled, with completion of the program expected in the fourth quarter. Additionally, processing samples of 3.1 tonnes of ore were extracted to develop a flowsheet for processing at the Belaya Gora mill.

Kekura, Chukotka Autonomous District.

A 25,000-metre exploration drilling programme, initiated in Q1, continued during the second quarter with the goal of confirming and potentially increasing reserves intended for underground mining, which were not included in the JORC reserve audit results announced earlier this year.

As of June 30, a total of 16,900 metres had been drilled. Preliminary gold assay results continue to confirm the presence of commercial mineralization with high gold grades in previously-explored ore zones. The program is scheduled for completion in the fourth quarter.

Sredny Golgotay, Zabaikalsky Region, Russia.

An exploration drilling programme of 15,000 m commenced in Q2 in order to validate state-registered reserves across the Sredny Golgotay licence; to check for potential additional resources from low-grade halos surrounding high-grade veins; and to identify reserves suitable for open pit mining. The results are expected by year-end.

HEALTH, SAFETY, AND ENVIRONMENT

The Company remains dedicated to ensuring occupational safety and managing production risks, as well as offering relevant training for its employees and encouraging them to take personal responsibility at the workplace.

The Lost Time Incident ("LTI") factor (defined as the number of lost time incidents for every 200,000 man hours) in the first half of this year was 0.31 (0.25 in H1 2015). Five incidents were recorded across the Company, including three at MNV and two at Novo. All of them were minor injuries.

By mid-year, a safety induction (1 day) course was given to 688 employees in 2016. Meanwhile, 98 managers and specialists passed self-tuition courses and testing using OlimpOKS software (without work disruption) and were certified on industrial safety (7-30 day programmes).

Auxiliary mine rescue teams are kept ready at mine sites to address emergency localisation and response.

The Company continues to observe environmental and regulatory requirements and no environmental incidents were reported. In 2016, environmental safety training was given to 688 employees as of June 30.