GMSI Investment and Jonnagiri Update

27 November 2014

Kolar Gold Limited

("Kolar Gold" or the "Company")

Further investment in Geomysore Services India Private Limitedand commencement of new drilling programme at Jonnagiri

Further to the update given to shareholders in July, the Board of Kolar Gold is pleased to announce that an agreement has been entered into by the major shareholders of Geomysore Services India Private Limited ("GMSI"), Kolar Gold's exploration partner in India, for new working capital funding for GMSI. The agreement comprises up to INR 144.7 million (£1.49 million)* of equity funding for a drilling contract and up to INR 158.2 million (£1.63 million) of equity funding for exploration activities from its major shareholders including Kolar Gold. Kolar Gold intends to participate pro-rata to its shareholding, amounting to INR 42.6 million (£0.44 million), but it also has the option to subscribe for further shares to the extent that any of the other shareholders do not take up their pro-rata entitlements. Additionally, as part of the new funding arrangements, Kolar Gold has been granted an option ("the Kolar Gold Option") for 12 months from now to subscribe for a further INR 128.1 million (£1.32 million) in equity in GMSI at the same INR 1,098.0 million (£11.32 million) pre new money valuation at which shareholders would be subscribing for shares in this funding round.

This agreement will enable GMSI to continue a significant exploration drilling campaign for up to 15,800m of resource drilling at the Jonnagiri Mining Lease project in Andhra Pradesh that aims to extend the currently delineated ore bodies, which have a 710koz JORC defined resource and a validated 2-5Moz exploration target. The results of this drilling programme will enable pre-feasibility studies to commence to assess the viability of constructing a new gold mine. New procedures have also been put in place for the strengthening of the management team at GMSI and for the ongoing review of the drilling activities.

New Shareholders' Agreement and Subscription Agreements in GMSI

The major shareholders in GMSI have entered into a new shareholders' agreement and subscription agreement whereby they intend to subscribe for up to INR 158.2 million (£1.63 million) in new equity to provide GMSI with working capital for its exploration operations over the next nine months, pro rata to their current shareholdings, at a pre new money valuation for GMSI today of INR 1,098.0 million (£11.32 million). The INR 158.2 million (£1.63 million) funding will be undertaken in four tranches between November 2014 and May 2015. Any shareholder not subscribing in the first tranche can subscribe for subsequent tranches and shares not subscribed for in any tranche can be taken up instead by Kolar Gold and Thriveni Earth Movers Limited ("Thriveni"),a large Indian miner and a major shareholder in GMSI since November 2013.

GMSI will extend a two rig drilling contract for up to a further 15,800m to increase and upgrade the gold resource at the Jonnagiri mining lease area, at a total drill cost of up to INR 144.7 million (£1.49 million), to be funded by the subscription by Thriveni for further equity in GMSI, also at the same pre new money valuation for GMSI today of INR 1,098.0 million (£11.32 million), within the next 12 months.

Kolar Gold intends to subscribe for its pro-rata allocation of the INR 158.2 million (£1.63 million) fund raising totalling INR 42.6 million (£0.44 million). If all major GMSI shareholders take up their rights and the drilling contract is executed in full as anticipated, Kolar Gold's interest in GMSI would be 22.9 per cent, and if its INR 128.1 million (£1.32 million) option is exercised in full this would rise to 29.3 per cent. Thriveni has indicated that it is willing to subscribe for up to INR 79.1 million (£0.82 million) and AIR, a 36.7 per cent shareholder in GMSI, also intends to subscribe for its allocation.

The subscription will provide GMSI with access to working capital and enable it to take the next steps in determining the viability of the Jonnagiri deposit as a producing mine. The financing structure allows GMSI's shareholders to support and review the drilling on an on-going basis. The Kolar Gold Option gives Kolar Gold the ability to increase its stake in GMSI significantly within the next 12 months.

As part of these arrangements, the major shareholders are entering into a new shareholders' agreement to implement new procedures and controls especially with regard to the ongoing review of the drilling activities. Additionally, the management team of GMSI is to be strengthened with the recruitment of a new CEO and senior mining engineer and an increase in the size of the geological team. The current CEO of GMSI will be leaving GMSI at the end of December to concentrate on the role as CEO of Deccan Gold Mines Limited.

As at 30th June, 2014 Kolar Gold's shareholding in GMSI was 24.2 per cent. Since the year end GMSI's shareholders have funded further exploration and working capital costs through a rights issue, in which Kolar Gold participated slightly in excess of its pro rata entitlement by subscribing INR 17.3 million (£0.18 million), so that Kolar Gold currently holds 25.3 per cent of GMSI.

Kolar Gold expects to announce shortly its annual results for the year ended 30th June, 2014. These will show cash balances at the year-end of £3.4 million.

Commenting on the new funding agreement, Harvinder Hungin, Chairman of Kolar Gold, said:

"This agreement is a very important step for GMSI in its transformation from an exploration company to becoming ultimately one of the first new gold producing companies in India for 30 years. We are delighted to be working closely with GMSI and to be funding the company alongside its other major shareholders. Kolar Gold has a significant interest in GMSI and the option to increase this over the next 12 months. This is a major step forward in our India gold strategy and I look forward to reporting positive news regarding drill results to shareholders over the next few months."

For further information, please visit www.kolargold.com.au or contact:

-END-

* Based on exchange rate of INR97/£ as at 21 November 2014