27.01.2016

HIGHLAND GOLD MINING LIMITED

Trading Update for the Second Half of 2015

27 January 2016

Highland Gold Mining Limited ('Highland Gold' or the 'Company') today announces its trading update for the half year ended 31 December 2015.

HIGHLIGHTS

· Total production at Mnogovershinnoye (MNV), Novoshirokinskoye (Novo) and Belaya Gora for the full year 2015 of 262,495 oz of gold and gold equivalents, a 3,558 oz (1.4%) increase from 258,937 oz in 2014.

· Average realized gold price of 1,154 USD/oz in FY 2015.

· Lower-than-expected grades at Belaya Gora in H2 2015 resulted in shortfall versus full-year production guidance of 270,000 oz.

· Belaya Gora - Processing plant optimization continues, with recovery rates averaging 74.9% in the second half, a 13% increase year-on-year. Phase 2 plant construction and equipment installation completed during the period. Design of solid waste landfill approved by regulatory and environmental agencies.

· Novo - Steady performance in 2015, with ore processing rising to 691,284 tonnes for the full year, a 19% increase from 582,822 t in 2014. Pre-feasibility study initiated on major operational upgrades to potentially nearly double current mine production and mill throughput.

· Kekura - Geotechnical studies, pre-design surveys, and calculations for the selection of a processing flowsheet completed. Processing plant design work is underway.

· Preparation of a Scoping Study initiated for the Baley Ore Cluster Projects (Taseevskoye, Sredny Golgotay and ZIF-1).

· Total production of gold and gold equivalents in 2016 expected to remain stable at 255,000-265,000 oz as the natural decline at MNV is offset by improvements at Belaya Gora in the 2nd half.

FOR FURTHER INFORMATION PLEASE CONTACT:

Highland Gold	John Mann, Head of Communications + 7 495 424 95 21 Duncan Baxter, Non-Executive Director + 44 (0) 1534 814 202
Numis Securities Limited (Nominated Adviser and Broker)	John Prior, James Black Paul Gillam +44 (0) 207 260 1000
Peat & Co (Joint Broker)	Charlie Peat +44 (0) 207 104 2334

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OPERATIONAL REVIEW

Mnogovershinnoye (MNV), Khabarovsk region, Russia

In the second half of 2015, the MNV plant processed 707,326 tonnes of ore, producing 52,107 oz of gold. There was a slight decline in the recovery rate from the same period of 2014, to 91.5%, due to changes in mineral composition and lower gold grades.

Open-pit and underground ore production totalled 883,438 tonnes during the period. Underground development increased by 53% compared to the second half of 2014, reaching 6,163 m.

The average grade of mined ore in H2 was 2.17 g/t, which is 26% less than in the second half of 2014. The decrease was due to mining complications at the Flank ore body open pit, which resulted in the redistribution of mining operations to other areas.

MNV	Units	H1 2014	H2 2014	H1 2015	H2 2015	2014	2015
Waste stripping	m	1,194,036	1,310,227	1,780,663	1,573,547	2,504,263	3,354,210
Underground development	m	5,151	4,015	4,287	6,163	9,166	10,450
Open-pit ore mined	t	300,569	249,270	289,420	448,548	549,839	737,968
Open-pit ore grade	g/t	3.71	3.2	2.08	1.85	3.5	1.94
Underground ore mined	t	292,877	316,779	330,329	434,890	609,656	765,219
Underground ore grade	g/t	3.11	2.7	2.21	2.52	2.91	2.38
Total ore mined	t	593,446	566,049	619,749	883,438	1,159,495	1,503,187
Average grade	g/t	3.42	2.94	2.15	2.18	3.19	2.17
Ore processed	t	629,854	736,604	705,493	707,326	1,366,458	1,412,819
Average grade	g/t	3.31	2.81	2.08	2.49	3.04	2.29
Recovery rate	%	92.5	91.1	89.0	91.5	91.8	90.4
Gold produced	oz	61,761	60,559	42,451	52,107	122,320	94,558

Novoshirokinskoye (Novo), Zabaikalsky region, Russia

Ore mining and processing at Novo exceeded expectations in the second half of 2015. Process optimisation, carried out throughout the year, increased full-year mine output to 701,419 tonnes in 2015, a 20% increase from 2014. Ore processing totalled 691,284 tonnes for the full year, a solid 19% increase from 582,822 tonnes in 2014.

The Company is currently expanding underground mining operations in accordance with its long-term model for Novo. With a view toward likewise increasing the processing plant's throughput capacity, Novo installed and launched new inter-circuit flotation equipment and ramped up Zn flotation capacity in H2 2015. This helped improve the recovery rate to 86.6%, which is 1.5% higher than in the same period in 2014.

In order to reduce mining costs, Novo began on-site production of granulated explosives in H2.

Novo	Units	H1 2014	H2 2014	H1 2015	H2 2015	2014	2015
Underground development	m	5,162	5,155	5,312	5,625	10,317	10,937
Ore mined	t	280,987	302,485	327,629	373,790	583,472	701,419
Average grade *	g/t	5.6	6.6	5.4	5.7	6.2	5.6
Ore processed	t	281,137	301,685	331,551	359,733	582,822	691,284
Average grade *	g/t	5.6	6.6	5.4	5.8	6.2	5.6
Recovery rate *	%	84.3	85.3	85.3	86.6	84.9	86.0
Gold produced *	oz	42,949	54,826	48,634	57,987	97,775	106,621

* in gold equivalents at actual prices.

(metal grade of mined ore = Au 2.85 g/t, Ag 90.40 g/t, Pb 2.77 %, Zn 0.75 %)

Belaya Gora, Khabarovsk region, Russia

Ore mining in the second half of 2015 totalled 1,337,790 tonnes, a 119% increase compared to the same period in 2014. Ore mining for the full year more than doubled to 2,223,104 tons.

The average grade of mined ore in H2 was 1.32 g/t, a significant decrease from the first half of the year. The decline was due, in part, to changes in mining plans necessitated by a severe weather event in Q4 that resulted in the temporary partial flooding of the open pit.

Commissioning of the second stage of the Belaya Gora processing plant earlier last year enabled the facility to reach its designed throughput capacity. Ore processing totalled 876,303 tonnes in H2, which is 15% higher than in the same period in 2014. The recovery rate reached 74.9%, a 13% year on year increase.

Design work for plant automation systems was carried out during the period and installation is currently underway. Additional Knelson concentrators were also installed and are now operational.

The Company initiated preliminary construction work on a solid waste storage facility near Chlya. The land has been cleared, and site grading has begun. Completion is expected in 2016.

Belaya Gora	Units	H1 2014	H2 2014	H1 2015	H2 2015	2014	2015
Waste stripping	m	767,690	1,137,601	1,557,257	2,160,512	1,905,291	3,717,769
Ore mined	t	465,610	611,457	885,314	1,337,790	1,077,067	2,223,104
Average grade	g/t	1.32	1.52	1.63	1.32	1.43	1.45
Ore processed	t	462,333	764,972	674,985	876,303	1,227,305	1,551,288
Average grade	g/t	1.81	1.45	1.87	1.47	1.58	1.64
Recovery rate	%	62.79	61.6	75.89	74.9	61.7	75.4
Gold produced	oz	15,411	23,431	30,157	31,149	38,842	61,306

Sredny Golgotay, Zabaikalsky region, Russia

In the second half of 2015, the Company commenced preparatory mining operations on the Kaftanovsky zone of the Sredny Golgotay deposit, part of the Taseevskoye group of licenses. This work involved re-entering the mineshaft, developing site infrastructure, and receiving regulatory approval for a 2016 mining plan.

The mining plan calls for the extraction of 40 thousand tonnes of ore in 2016, which would be processed at Novo, producing flotation concentrate.

DEVELOPMENT PROJECTS

Kekura, Chukotka region, Russia

The main focus for the Kekura project in the second half of 2015 was the development of design documentation for the mine and processing plant. The design consists of two parts:

· Mining complex and infrastructure - Pre-design studies and surveys have been completed, and public hearings were held regarding the design documentation.

· Processing plant and auxiliary facilities - Process studies were completed and calculations were made for the selection of a processing flowsheet. A final decision on the flowsheet is expected in 2016.

A draft independent report with estimates of JORC reserves, conducted by Wardell Armstrong, was received in the second half of 2015. The proposed parameters are currently being adjusted and developed in further detail to the level of Mining Feasibility Study. Publication of the report is expected in Q1 2016.

In 2016, work at Kekura will focus on receiving approval of first-stage mining design and documentation from relevant state mining and environmental agencies; obtaining a construction permit; completing design documentation for the second stage of project development and submitting it for regulatory approval; and preparing for the commencement of construction work.

Taseevskoye, Zabaikalsky region, Russia

In the second half of 2015, the Company initiated a Scoping Study for the Baley Ore Cluster projects - Taseevskoye, Sredny Golgotay and ZIF-1 Tailings. This work is in progress and should be completed by mid-2016.

Klen, Chukotka region, Russia

The Klen project site is on care and maintenance.

EXPLORATION

Mnogovershinnoye - Khabarovsk region, Russia

Throughout 2015, the Company retained its focus on near-mine exploration at MNV, upgrading existing resources and targeting additional resources in order to enhance life of mine for both underground and open-pit operations.

At the Lower Horizon MNV license, the Company initiated in late Q2 2015 an underground exploration drilling programme at the lower horizons of the Severnoye ore body to delineate additional resources in the vicinity of existing underground infrastructure. By the end of 2015, approximately 9,300 metres of drilling had been completed which intersected ore grade gold mineralisation. Results to date warrant a follow-up programme of more than 10,000 metres of drilling planned to be completed in 2016.

Diamond core drilling activity for all underground resource conversion in H2 2015 totalled 8,273 metres.

At the Western Flank Mnogovershinnoye license, immediately adjacent to the mine's operations (Chaynoye prospect), the Company compiled and submitted to the regulator a report on its exploration results to date. A follow-up trenching and drilling programme is planned for 2016, targeting a potential open pit resource at the site of a prominent gold anomaly identified over the course of the Company's 2014 exploration activities.

Kekura - Chukotka region, Russia

Aligned with its ongoing development studies at Kekura, the Company in H2 2015 advanced an updated JORC-compliant resource/reserve evaluation by an international consultancy, with final results expected in Q1 2016. A substantial resource conversion drilling programme is planned for 2016 for sections of the deposit set for underground mining.

A multi-year exploration programme targeting near-mine upside potential at identified prospects adjacent to the Kekura deposit has been designed and is planned to be submitted for regulatory approval in Q1 2016.

At selected prospects in vicinity of the Kekura deposit, the Company in H2 2015 also completed a small exploration programme for alluvial gold.

Other Projects

No field work was conducted in H2 2015 at the Belaya Gora Flanks, Blagodatnoye, Verkhne-Krichalskaya and Unkurtash projects as the Company prioritised other projects.

HEALTH, SAFETY & ENVIRONMENT

The Company continues to focus on occupational safety, risk management on site, staff training and raising the level of personal responsibility for safety at the work place. In the second half of 2015, the Lost Time Incident ('LTI') rate (defined as the number of lost time incidents for every 200,000 man-hours) increased by 33%, reaching 0.36 (vs. 0.27 in the second half of 2014).

There were 8 incidents recorded across the Group in H2 2015, and a total of 12 for the full year (including 1 incident with an employee of a contractor). One incident at MNV was considered serious. At MNV, 3 injuries were recorded in 2015 (vs. 7 in 2014). At Belaya Gora, 4 incidents were recorded in 2015 (vs. 1 in 2014). At Novo, the number of LTIs increased from 1 in 2014 to 5 in 2015.

In all, 1,546 employees attended an induction safety course (1 day), 1,176 received training in safe operating methods at hazardous facilities (3-5 days course), and 380 received a 7-30-day training courses in industrial safety with subsequent certification. The Company retains mine rescue crews prepared to contain and eliminate emergency situations in mining areas.

In H2 2015, MNV received a license for safe operation of explosion, fire, and chemically-hazardous production facilities. Novo received a license for production of industrial-grade explosives.

The Company continues to focus on meeting all of the requirements of environmental laws and implementing the recommendations of supervising authorities. In November 2015, MNV and management company Russdragmet successfully completed re-certification audits for the adherence of in-situ environmental management systems to the ISO 14001 standard. The audits confirmed the Company's compliance with environmental regulations.

The Company continues to share its accumulated experience, and implemented a certified environmental management system under the ISO 14001 standard at Belaya Gora and Novo.

Overall, environmental protection courses were provided to 530 employees, and 625 employees received training in safe handling of industrial waste.

In October 2015, public hearings were successfully conducted in Bilibino, Chukotka region, for discussion of the design of the Kekura Mining Complex and Infrastructure, and materials relating to assessments of the project's environmental impact.

CORPORATE FINANCE

On December 17, 2015, the Company signed a landmark loan agreement between OJSC Novo-Shirokinsky Rudnik (Novo) and UniCredit Bank for the sum of USD 50 million. The credit is designed as pre-export financing for a period of 3 years with an 18 month grace period and an annual interest rate of LIBOR+5%. The Company used the loan to refinance existing debt.

The agreement marks the first time Highland Gold has structured a loan as pre-export financing, thus opening up a new option for future deals with Russian and international banks. The loan's interest rate and tenor demonstrate banks' ongoing confidence in the Company's financial health.