PRESS CLIPPING CONTENT
RUSSIA
SEPTEMBER 07 2006

• Henry Horne, Managing Director, Highland Gold Mining: “Despite favorable market situation, gold production remains a capital-intensive and long-term business in terms of returns” - PRIME-TASS
• Chukotka’s gold output up 7% to over 3.5 tonnes, silver output up 12% to 6.2 tonnes in Jan-Aug - PRIME-TASS
• Rosnedra to auction Nov. 14 gold and diamond exploration and mining license for Olondinskaya area, Chita region on - ROSBUSINESSCONSULTING
• Deutsche Bank secured 4.01% interest in Peter Hambro Mining - INTERFAX

Henry Horne, Managing Director, Highland Gold Mining: “Despite favorable market situation, gold production remains a capital-intensive and long-term business in terms of returns”

PRIME-TASS – 06.09.2006

Question: You joined Highland Gold in October 2005, what has changed since then?
Answer: Last year was perhaps the most difficult period in the history of the company. Highland Gold was one of the pioneers in the industry and any company would envy the growth it demonstrated in 1998-2004. But the strenuous work we had been doing to develop the company in those years prevented the management from focusing on some important strategic issues. Besides force majeure events, such as bad whether, plus mistakes in planning and getting prepared to launch production at the Mnogovershinnoe deposit, the key production asset of the company, made the situation complicated. As a result Highland missed the full-year target first time in seven years of operations. This made us to rethink our approach to the management and development of the company. I think every company has such moment in its history and the task of the management to identify potential problems in time and redirect efforts to fix the situation. This is a sort of test for reliability that in many ways determines the future of the company.
Q: But what did Highland eventually do to sort things out?
A: First of all we changed the management, optimized the personnel number and structure at the managing company and the other units and paid more attention to careers and personnel trainings. We gave our units more freedom, while toughened requirements to reporting and technical discipline. But, the most important, we became very serious about planning, as never before.
As for results, the main achievement we made recently is the restored stable production at Mnogovershinnoe. Gold output at this deposit in the first half of 2006 rose by 43 percent year-on-year. Although we have not yet completed restructuring Mnogovershinnoe, we survived a milestone period there.
Q: And this is despite that the average grade of the deposit decreased this year to 5.7 gr a tonne from 7.39 gr a tonne in 2004. Do you plant to revise the deposit’s development program?
A: We are working on the operation plan for 2007 that will include the updated resource estimation on Mnogovershinnoe. It will be the basis for a long-term deposit mining forecast.
As for comparing results with 2004’s, that year was one of the best for the company but then came very difficult 2005. We had already mined out ore blocks with the highest grade by that time, while failed to get prepared for further mining of high gold-grade ore. We also became more conservative as regards forecasts on ore production, gold grade and gold production at Mnogovershinnoe
Q: In 2005, cost of gold production at the Darasun mine was $1.171 an ounce, which is much more than the average gold production costs, has the situation changed this year?
A: At Darasun we bear constant expenses, while gold production is quite moderate that is why the production costs there are high. But they will be decreasing as production will be increasing. High production costs at the start of production are a common case. In our case, we also faced technical problems after the start-up of the mill in addition to high production costs. We solved most of the problems at the mill during this year and now it can process over 1,000 tonnes of ore a day.
Restructuring of Darasun is underway at the moment. We did a cost-benefit analysis of the project and decided to stop production at Teremky and South-West mines. To have a clear picture of further mining development at the deposit, we are launching a drilling program to delineate the deposit body to further confirm and increase its resource.
Q: This year, you planned to audit JORC resource of the MNV and Taseeyevskoye deposits, are there any results ready yet?
A: We expect to have the resource of both deposits estimated in accordance with the JORC standards by the end of the year. Updating of resource estimates was put off when we decided to carry out additional exploration drilling at the Darasun deposit to confirm its resources. This helps us and our advisers to focus on the MNV and Taseevskoye.
Q: Last year, Highland Gold bought exploration licenses for Belaya Gora, Lyubavinskoye and Sovinoye deposits, what have you done on these projects to date?
A: We completed preliminary works at the Sovinoye deposit. We built there all necessary living quarters, warehouses and office facilities. Trenching and drilling were started in August.
At the Lyubavinskoye deposit, we completed a magnetic study and started trenching and drilling also in August.
At the Belaya Gora deposit, we did a field survey and built up drilling pads in the first half of this year, started drilling and trenching. At the moment we are preparing to sign partnership agreements with Barrick Gold to set up joint ventures for all three projects.
Q: What are the sources of financing for your projects, your own funds, loans, issue of additional shares or bonds? Are you planning a share placing on Russian stock exchanges?
A: We, as a public company, can use all the financial instruments you named. The choice of the particular one depends on the market situation, current demands and the particular project. For instance, we are going to hold talks with financial institutions over project financing of the Mayskoye project before we have the feasibility study on it completed and the same with Taseevskoye. To start up Novoshirokinskoye project won’t require significant financing, as the deposit has most of infrastructure already.
Q: What is the size of capital expenditures you planned in 2006?
A: Total capital expenditures projected in 2006 exceed $40 million. About a half of the amount is slated to be spent on the Mayskoye project, about $4.6 – on exploration works. This is only our part of expenditures, excluding the expenditures of Barrick Gold, our partner in the JV. In 2005, we invested $56.1 million in construction and acquisitions.
Q: Does Highland Gold plans to look for partners to develop Mayskoye and if it does, do you have somebody in view in particular?
A: The future of Mayskoye will be detailed in the bankable feasibility study that we expect to be completed in the first quarter of 2007. Our decision as to develop the project independently or in partnership will depend on the results of the study. Generally speaking, we are ready and welcome any negotiations and offers regarding the development of our assets, which will benefit the company and shareholders.
Q: The feasibility study on the Mayskoye project was earlier planned to be completed by the third quarter of 2006. Why the planes have changed?
A: According to a JORC resource estimate by MICON Int, the measured and indicated resource of the deposit is 7 million tonnes of ore and inferred resource is about 15 tonnes. We decided, based on MICON’s recommendation, to carry out additional drilling to confirm some of the inferred resource into indicated resource before we go on with the feasibility study. The drilling has already been started. In parallel with that, we are working with international advisers to complete the bankable feasibility study for Mayskoye that will be comprehensible to and acceptable for Western banks.
Q: You said you are looking for a partner to develop the Novoshirokinskoye project, has anybody came forward?
A: We actually have a potential partner who is interested in the project. Novoshirokinskoye is the lead and zinc deposit, while our specialization is gold production. Therefore we decided to look for a partner with experience and know-how in production of lead and zinc concentrates. At the moment our would-be partner is carrying out and independent technical and legal study into the project. Other companies that could contribute to the certain synergistic effect of the project development also expressed interest in entering a JV to develop Novoshirokinskoye.
Q: According to the 2005 report, Highland Gold owns 96.5 pecent of the Novoshirokinskoye project, who owes the rest of it?
A: A 3.5 percent interest in the project is held by private minority shareholders.
Q: What Highland Gold does with the gold it produces? What do you think about hedging?
A: We sell all our gold to a number of Russian commercial banks. We think it is the best way for the time being, given our moderate output. We also follow the non-hedging policy, since we think hedging is inexpedient for us now when gold prices are growing steadily.
Q: What Highland Gold plans for the short term? Do you plan to acquire any deposits?
A: One of Highland’s strengths is the capability to find new potentially promising projects. We are not going to abandon this part of our activities, although the company is at the moment more focused on developing and commissioning the assets acquired earlier. But no company can develop and expand without acquisitions and we will keep looking for economically interesting options in future.
Q: How do you see the Russian gold mining industry in 5-10 years and the place of Highland Gold in it?
A: I think that today there is a global trend towards consolidation of the industry. There are few available gold deposits with good potential left in the world. In the long run, the major gold miners that need to maintain strong production figures and replenish exhausting resources will be striving to have those vacant sites. In this context, Russia and China are the most promising regions having major unexplored and undeveloped deposits. So, I have no doubts, the Russian gold mining industry will be growing very fast.
I think Highland Gold will make a considerable contribution to the growth of the Russian gold mining industry. We have a rich resource base for further development of our projects and exploration. We also have good opportunities for assessment and acquisition of new assets. I think we will stay among the leaders in the sector.
Q: Rising gold prices stimulated exploration all around the world. For how long they will stay high and can supply exceed demand in a few years when production will be started at the deposits that are at the development stage now?
A: High prices sure ignite exploration. Gold is a perfect and always profitable long-term investment instrument. In this connection, gold demand is the same as money demand. And it unlikely will ever exceed supply in the global market. Besides, industrial demand for gold grows every year.
Q: What is your forecast for gold prices in the next several years?
A: I, as well as everybody in the business, follow the gold market, read various forecasts and I am aware of the expectations. I personally think we will see stable prices with a trend towards slow growth over the next few years. But, as I connected with the production of gold in the first place, my biggest worry is about restraining the cost of gold production. Fuel, chemical, metal and equipment costs are increasing in the world and therefore one of the most important factors for us is the ability to keep costs under control while ramping up production and improving efficiency.
Despite favorable market situation, gold production remains a capital-intensive and long-term business in terms of returns.
Highland Gold Mining Limited registered in Jersey on May 23, 2002 was founded to acquire, consolidate and develop Russia-based gold-mining projects with strong growth potential. The first acquisition of Highland was ZAO Mnogovershinnoye running the Mnogovershinnoye mine in Khabarovsk Territory. In November 2002, Highland founded OOO Rusdragmet to manage its Russian assets. In December 2002, Highland floated on London’s AIM. The company owns and operates the Mnogovershinnoe mine (MNV) in Khabarovsk Territory, Darasun mine, Sredne-Golgotayskoye deposit, Baley ZIF-1 tails, Novoshirokinskoye, Vozdvizhenskoye and Mayskoye projects. In 2005, Highland Gold also got exploration licenses for the Belaya Gora, Malo-Fedorovskoye and Sovinoye projects. The Taseevskoye deposit, Belaya Gora, Sovinoye, Malo-Fedorovskoye and Lyubavinskoye projects are 50-50 joint development projects with strategic partner Barrick Gold.
Henry Horne, Managing Director, Highland Gold Mining Ltd., General Director, OOO Rusdragmet
Henry Horne holds a degree in Financial Accounting and Business Economics from the University of Stellenbosch (South Africa) and has more than 25 years experience in the mining industry. This experience has been gained around the world and includes postings at mines in Namibia, South Africa, Ghana, Bulgaria, Chile and Russia. He started his carrier in Tsumeb Corporation Ltd. (Gold Fields Group), where he worked in 1982-1991 on various posts. In 1991-1999, he continued working in different units of Gold Fields in South and West Africa. In 1999, he was appointed Finance and Sales Executive Officer in Bulgarian copper and gold-mining Navan Chelopech and Bimak AD, were he had been working until 2003. His most recent position has been as Deputy General Director and Chief Finance Officer for Omolon Gold Mining Company, Kinross Gold’s Kubaka operation in the Magadan Region of North East Russia.

Chukotka’s gold output up 7% to over 3.5 tonnes, silver output up 12% to 6.2 tonnes in Jan-Aug

PRIME-TASS – 06.09.2006

Mineral miners of Russia’s Chukotka Autonomous District produced over 3.5 tonnes of gold in January-August 2006, up by 226 kg y-o-y and 6.2 tonnes of silver, up by 672 kg y-o-y, according to a press release of local authorities.
Despite that placer gold output still accounts for the biggest share of region’s production, an increase in production was secured by lode gold output of AS Chukotka that produced over 1.368 tonnes of precious metal.
Most of gold (nearly 1.684 tonnes) in the reporting period was produced by gold miners of Chaunskiy area of the region, followed by gold miners of Schmidtovsky area with 1.398 tonnes of gold and gold miners of Bilibinsky area with 453 kg.
6 tonnes out of total region’s silver output in the reporting period was produced by AS Chukotka.
In 2005, total region’s gold output rose by 4.7 percent y-o-y to 4.6638 tonnes and silver production grew by 14 percent to 9.8149 tonnes. Russia’s gold output last year fell by 3.5 percent y-o-y to 168.032 tonnes, including primary gold production of 152.026 tonnes, 11.122 tonnes from by-product non-ferrous production and 4.884 tonnes from scrap and waste processing.
In 2006, national gold production is expected to fell by 1.21 percent to 166 tonnes, including primary gold production of 150 tonnes. Chukotka’s gold miners plan to produce over 5 tonnes of gold.

Rosnedra to auction Nov. 14 gold and diamond exploration and mining license for Olondinskaya area, Chita region on.

ROSBUSINESSCONSULTING – 06.09.2006

Russia’s Federal Agency for Natural Resources Use (Rosnedra) will auction on November 14, 2006 a placer and lode gold and diamond exploration and mining license for Olondinskaya area, Chita region.
According to the Chita region Natural Resources Use Agency, the license area is located in Kalarsky district 38 km from railway station Khani on the right bank of the Chara river. 800 km2 area has inferred lode gold resource of 90 tonnes at grade of 10 g/t. The area also has placer gold mineralization signs, including valley and surfacial gold placers with topsoil height of 4 m, bed height of 12 m and average gold grade of 1.4 g/m3. Inferred resource of the area is 1.1 tonnes of placer gold. Additionally deposit has some signs of gold in nuggets. There are also wide diamondiferous assemblages in area’s slopes. Inferred diamond resource of the area is 5 million carats. Over 45 0.5-1.7 mm diamonds were found at the area.

Deutsche Bank secured 4.01% interest in Peter Hambro Mining.

INTERFAX – 07.09.2006

UK’s Peter Hambro Mining, operating gold mines in Russia, said Deutsche Bank had become an owner of a 4.01 percent interest in the company. The share in the gold miner earlier held by Deutsche Bank was not specified.
In 2005, Peter Hambro’s net income fell by 13 percent y-o-y to $13.3 million due to an increase in development and power expenses, gold production rose by 19 percent to 249,000 ounces.
Peter Hambro Mining is the majority shareholder of Russia’s АО Pokrovsky Rudnik (Pokrovsky Mine), the biggest gold miner of Russia’s Amur region. The company also owns the Pioner gold deposit in Amur region.