Update on GMSI - Drilling and Study

6 July 2016

"This announcement contains inside information"

Kolar Gold Limited

Update on GMSI: funding for further drilling and completion of economic feasibility study agreed

Kolar Gold Limited ("Kolar Gold" or the "Company"), the Indian focussed gold exploration and mine development company, provides the following update on its investment in Geomysore Mining Services (India) Private Limited ("GMSI").

On 30 March 2016 the Company issued its interim statement for the six months to 31 December 2015 (the "Interims") and stated that GMSI was in the process of raising US$2.2m (the "GMSI Fundraising") for additional drilling and to complete the economic feasibility study (the "EFS") in relation to the East Block open pit mine. At that time, the Company stated that it would not be able to participate in the GMSI Fundraising without raising further funds itself and, in not participating, its interest in GMSI would be diluted proportionately. 

Since the issue of the Interims, the four major shareholders that hold 95.6% of the issued shares have been in discussions regarding further investment in GMSI. GMSI has prepared a revised budget and exploration timescale. These discussions have now concluded, resulting in one of the four major shareholders in GMSI, Thriveni Earth Movers Private Limited ("Thriveni"), a leading Indian mining company and a drilling contractor to GMSI, agreeing (subject to an EGM of shareholders in GMSI to be held on 7 July 2016) to invest US$2.4 million into GMSI at a price per new share of INR 1,300 compared with the previous funding round of INR 1,444.5. Assuming completion of this investment, Kolar Gold's shareholding will reduce from 23.4% to 20.5% and Thriveni will become the largest shareholder in GMSI with 38.0%.

This funding is expected to enable GMSI to undertake the additional drilling of up to 10,000 metres in relation to the East Block open pit mine, complete the EFS and provide sufficient working capital to the end of 2016.

As at 31 December 2015, Kolar Gold valued its investment in GMSI at £3.02 million. This fundraising values Kolar Gold's investment at £3.3 million (based on the current sterling/rupee exchange rate).

All GMSI's shareholders retain their rights to subscribe for new shares in any subsequent fundraising on a pro rata basis.

Harvinder Hungin, Chairman of Kolar Gold Limited, commented:

"We are delighted that GMSI has agreed funding to undertake the additional drilling and to complete the feasibility in relation to the open pittable resource at Jonnigiri. This is another important step towards realising the possibility of building one of the first producing gold mines in India for decades."

For further information please contact:

Kolar Gold Limited

Harvinder Hungin +44 1481 702 400

N+1 Singer (Nomad and Broker)

James Maxwell / Jen Boorer +44 20 7496 3000

Tavistock

Ed Portman / Nuala Gallagher +44 20 7920 3150

About Kolar Gold Limited:

Kolar Gold is a partner and investor in an Indian gold exploration and mine development company in India, GMSI, and is also itself pursuing a gold project in the Kolar region in India, the privatisation of BGML. The company's shares are traded on the AIM market (Ticker: KGLD).

GMSI has a significant portfolio of gold permits and rights across India. It has rights to 32 known gold mineralised project areas including 22 granted Reconnaissance Permits, 2 Prospecting Licences and 1 mining lease area covering a total of 12,568 square kilometres in the states of Andhra Pradesh, Karnataka, Madhya Pradesh and Tamil Nadu. GMSI has a gold mining lease at Jonnagiri which was granted in October 2013.

Kolar Gold is also jointly pursuing, with the BGML mine employee unions, the acquisition and revival of the historic BGML gold mine in the Kolar Goldfields in Karnataka. The BGML gold mine had produced 25 million ounces of gold over 120 years until its closure in 2001.The Kolar Goldfields is one of the most prospective underdeveloped Archaean Greenstone Belts in the world and is considered comparable to the Archaean Greenstone Belts of South Africa, Canada and Western Australia in geology, structure and style of mineralisation.