2014 Final Results

HIGHLAND GOLD MINING LIMITED

22 April 2015

Full Year 2014 Audited Results

Highland Gold Mining Limited ("the "Company"), the AIM-quoted Russian gold producer, announces its final audited results for the year ended 31 December 2014.

FINANCIAL HIGHLIGHTS

The Company also announces that the Board has appointed non-executive Chairman Eugene Shvidler as Executive Chairman of Highland Gold with effect from today. The new position allows Mr Shvidler to take a more hands-on role in shaping the long-term strategy of the Company in this important stage of its development.

Commenting on the annual results, Mr Shvidler said: "In 2014, Highland Gold began commercial production at its third mine, Belaya Gora, while reaching record output at Novoshirokinskoye, continuing efforts to extend the life-of-mine at Mnogovershinnoye, and taking important steps in the process of bringing the Kekura project to fruition. The Company achieved record output while maintaining fiscal discipline, despite the ongoing challenges faced by the industry. While we recorded a net loss for the year due to one-off charges, the Company's underlying fundamentals remain sound even against the backdrop of lower gold prices. The Board and I are confident that 2015 will see further improvement in our operational performance."

KEY EVENTS

· Total production at Mnogovershinnoye (MNV), Novoshirokinskoye (Novo) and Belaya Gora rose 10.8% to a record 258,937 oz of gold and gold equivalents (2013: 233,696 oz)

· A 5.7% increase in total cash costs to US$645 per oz (2013: US$611 per oz) and a 3.8% decline in all-in sustaining costs to US$809 per oz (2013: US$842 per oz)

· Impairment of Klen goodwill and other long-term assets of US$11.4 million due to postponement of project development

· Net loss of US$24.8 million also influenced by US$9.6 million foreign exchange loss and US$49.4 million non-cash deferred tax charge. Adjusted net profit (free of impairment and abnormal foreign exchange, and applying a 33.3% effective income tax rate) was US$51.3 million (2013: US$54.7 million).

· Acquisition of licences for the North-Western Flank and Lower Horizon areas at MNV

· Mined and processed ore at Novo rose more than 15% to record levels in excess of 580,000 tonnes driven by improved efficiencies

· Completion at Belaya Gora of the second stage gravity circuit (to improve recovery rates) and on-site state-of-the-art assay laboratory

· Conclusion of advanced exploration programme at Kekura, and delivery of scoping study undertaken by consultants Hatch

· Design documentation for the Klen deposit development project received approval from the Main State Review Board

· Average realised price for gold and gold equivalents in 2014 of US$1,175 per oz (2013: US$1,291 per oz)

· Interim dividend of £0.025 per share paid in October 2014 (2013: Interim dividend of £0.025 per share)

· New US$50 million reserve credit facility arranged with UniCredit in September

· Net debt to EBITDA ratio maintained at 2.0 (2013: 1.9) in line with Board's policy

· Lost Time Incident (LTI) rate reduced to all time low of 0.27 in 2014 (2013: 0.28)

POST YEAR EVENTS

· Final dividend of £0.020 per share recommended, making a total distribution of £0.045 per share for the year to 31 December 2014 (2013: £0.050 per share)

· Documents for registration of Kekura reserves submitted to regulatory authorities

· Financing agreements signed with Alfa-Bank for US$60.0 million and Gazprombank for US$80.0 million in April 2015

2015 TARGETS

· Expand production in 2015 to between 270,000 - 285,000 oz of gold and gold equivalents (sourced from MNV, Novo and Belaya Gora)

· MNV -- Maintain stable levels of production while continuing to optimise cost controls

· Novo - Drive further increases in output through greater efficiencies

· Belaya Gora - Double output from 2014's 38,000 oz through further improvements in mining and processing operations

· Chukotka - Ongoing development of the Kekura project

· Exploration - Prioritise MNV's near mine exploration programme

CONFERENCE CALL DIAL-IN DETAILS

The Company will hold a conference call on Wednesday, 22 April 2014 hosted by Valery Oyf, CEO, to discuss the final results. The conference call will take place at 12:00 UK time (14:00 Moscow). The link for online registration is http://emea.directeventreg.com/registration/33006816

The Annual General meeting will be held on 26 May 2015.

FOR FURTHER INFORMATION PLEASE CONTACT:

CHAIRMAN'S STATEMENT

I am pleased to report that the quality of our Company's asset base together with the rigorous cost disciplines that are integral to our business culture, underwrote a generally solid performance in 2014, a year characterised by a distinctly challenging trading climate.

Our cost control endeavours in this regard, combined with the beneficial effect on costs of the weakness of the Rouble against the US Dollar, particularly during the second half of the year, are reflected in a decrease in 'all-in sustaining cash costs' by 3.8% to US$809. Total cash costs rose by 5.7%, influenced chiefly by the ramp-up of Belaya Gora and lower grades at MNV.

Despite the uptick in total cash costs, the Company remains near the median of our Russian and international peers in this indicator, and leads the pack in all-in sustaining costs. Management draws considerable encouragement from this achievement, which underlines the Company's 'low cost producer' status and our competitive standing.

Total production from our three mines in Russia -- Mnogovershinnoye (MNV), Novoshirokinskoye (Novo) and Belaya Gora in 2014 reached a record 258,937 oz of gold and gold equivalents. While somewhat lower than our projections at the beginning of the year, the figure still represents a substantial 10.8% increase from 2013.

Technical teething problems were encountered at Belaya Gora's mine and new processing plant during ramp up procedures and these, together with challenges caused by severe weather conditions in the Khabarovsk region, were the primary reasons for the less than anticipated growth in production.

The implementation of a series of measures designed to improve throughput and recoveries at Belaya Gora brought their rewards during the second half of 2014 when average monthly processing throughput amounted to 127,000 tonnes of ore: fully compatible with the plant's annual nameplate capacity of 1.5 million tonnes. In the event, gold output from Belaya Gora increased more than fivefold to some 38,000 oz and a doubling of this is targeted for the current year.

The contribution from MNV, although below the levels achieved in 2013, was once again substantial with gold production of more than 122,000 oz accounting for about 47% of total output.

Near mine exploration at MNV, designed to extend the life of the Company's oldest mine, was one of our operational priorities in 2014 and will remain so throughout 2015. In order to sustain such activity we acquired a licence for exploration and mining rights at the North-Western Flank of the MNV ore body in July, followed in October by the purchase of a similar licence for the Lower Horizons of the MNV deposit. We believe that both properties possess good potential for the delivery of additional resources.

Last but far from least, the Novo complex achieved an exceptional operating performance with above budget throughput translating into record production levels, details of which are set out in the Operations Report. Management is intent on fully capitalising on Novo's potential and, to this end, underground expansion is underway in order to gain access to new, lower horizons.

In the space of five years, Highland Gold's annual gold production has risen almost 60% from 163,000 oz in 2009 to 259,000 oz in the year under review. Consequent to this consistent expansion, the Company has emerged as the sixth largest gold producer in Russia which, in turn, is the world's second largest gold province and, supported by the effective devaluation of the Rouble against the US Dollar, the world's lowest cost producer of the metal.

Our JORC compliant resource base stands at 17.14 Moz, alongside a 2.04 Moz reserve base, while our reserve grade, at 6.2 g/t, is one of the highest among our Russian peers.

In 2015 we are budgeting for a further increase in production to between 270,000 and 285,000 oz of gold and gold equivalents which, in broad-brush terms, we expect to achieve through maintaining stable production at MNV, driving throughput at Novo and further refining mining and processing operations at Belaya Gora. Optimisation of cost controls will be common to all operations.

Once again, our development activity was firmly focused on the progression of our Kekura project, located in the challenging but investor-friendly region of Chukotka. The second half of the year witnessed the completion of an advanced exploration programme which provided the data necessary for the registration of reserves and a submission to this effect was made to regulatory authorities in Q1 2015.

The target date for commercial production at Kekura, which enjoys a JORC compliant resource of 2.9 Moz with an exceptionally high average grade of 8.7 g/t, is 2018 and, to this end, a draft scoping study carried out by the consultancy firm, Hatch, was delivered towards the end of the year.

In the light of these results, the Board is pleased to recommend a final dividend of £0.020 per share (2013: £0.025 per share) which, subject to approval at the forthcoming Annual General Meeting on 26 May 2015, will make a total distribution of £0.045 per share for the year to 31 December 2014 (2013: £0.050 per share).

The health and safety of our employees will always be of paramount importance and a new initiative in 2014 led to the establishment of new mine rescue teams at Novo, MNV and BG, each of which were certified by a special committee. Our Lost Time Incident (LTI) rate (defined as the number of lost time incidents for every 200,000 man hours worked) declined from 0.28 in 2013 to a new low of 0.27. In pursuit of our zero incident rate target, we continue to place considerable emphasis on the importance of safety education, particularly with regard to engendering a sense of personal responsibility among employees, and a series of specialised training courses were well attended. Meanwhile, it is with deep regret that I have to record one fatality during the year.

Looking to the future, from a currently challenging market place, the Directors are committed to achieving measured increases in production, hand in hand with the ongoing implementation of rigid cost disciplines designed to maintain or extend our cost advantage. The Board remains equally committed to ensuring that the rewards of such strategies find reflection in a continuation of regular dividend distributions.

I now take much pleasure, on behalf of the Board, in thanking all our employees for the hard work and commitment that was responsible for our achievements during 2014.

OPERATIONS REVIEW

The 10.8% increase in overall production to a record 258,937 oz of gold and gold equivalents in 2014 reflected further significant output from MNV, an above budget performance from Novo and, following initial ramp up challenges, a second half recovery in throughput at Belaya Gora's new processing plant. Cost optimisation, primarily comprised of disciplined capital allocation and the implementation of operating efficiencies, was prioritised Group-wide. The shortfall in production, compared to expectations at the beginning of the year, largely reflected the problems encountered at Belaya Gora.

This year we are budgeting for a further increase in production to between 270,000 - 285,000 oz of gold while, at the same time, continuing to focus on our development of the Kekura project, where commercial production is targeted for 2018, and our near mine exploratory activity at MNV. The latter will be sustained by the acquisitions, in 2014, of the North Western Flank and Lower Horizons licences.

MNOGOVERSHINNOYE (MNV) - Khabarovsk region, Russia

Process plant throughput in 2014 totalled 1,366,458 tonnes of ore which yielded 122,320 oz of gold. The recovery rate amounted to 91.8%.

Open-pit and underground ore production totalled 1,159,495 tonnes, while underground development increased from 7,996 metres in 2013 to 9,166 metres.

The average ore grade of 3.19 g/t was 13.8% below the level achieved in 2013. The decrease reflected a combination of mining complications and adverse geological conditions at the open pit of the Flank ore body, factors which led to a switch of mining operations to lower grade areas.

PRODUCTION COSTS

Total cash costs amounted to US$722 per ounce (2013: US$647 per ounce) and all-in sustaining costs were US$835 per ounce (2013: US$783 per ounce).

CAPITAL COSTS

A total of US$12.2 million was invested at MNV in 2014. This included: capitalised expenditures and construction (US$5.8 million), equipment purchases (US$5.0 million) and exploration (US$1.4 million).

OUTLOOK

An independent JORC compliant audit of MNV's resources as of 1 January 2013 (completed in H1 2014 and reflected in the updated resource/reserve statement released with the 2013 Annual Report & Accounts) indicated a near 80% increase in resources, effectively supporting the life of the mine to 2017. Near mine exploration, following 2014's new licence acquisitions, will remain a priority throughout 2015 in parallel with the implementation of further operational efficiencies designed to maintain stable production volumes.

NOVOSHIROKINSKOYE (NOVO) - Zabaikalsky region, Russia

Ore mining and processing at Novo continued to meet or exceed expectations in 2014 with mine output achieving a 15.8% increase versus 2013 to a record 583,472 tonnes of ore. A notable second half performance attained 110% of target. The average ore grade was 6.2 g/t (2013: 6.0 g/t), the recovery rate was 84.9% (2013: 83.8%) and the aforementioned volumes resulted in a rise of more than 20% in the production of gold and gold equivalents to 97,775 oz compared with 81,361 oz in 2013.

Underground development increased by almost 22% to 10,317 metres (2013: 8,478 metres).

The installation of additional flotation facilities enabled existing crushing and grinding capacity to be fully utilised, a development that resulted in mill throughputs and recoveries increasing by 16% and 1.3% respectively in H2 2014 compared with H2 2013.

*Approximate Au equivalent

(metal content in the mined ore = Au 3.53 g/t, Ag 75.81 g/t, Pb 2.54%, Zn 1.12%)

**Figures represent 100% of Novo output. Highland Gold's share is 97.7%.

PRODUCTION COSTS

Total cash costs amounted to US$429 per ounce (2013: US$542 per ounce) and all-in sustaining costs were US$517 per ounce (2013: US$667 per ounce).

CAPITAL COSTS

A total of US$8.0 million was invested at Novo in 2014. This included: capitalised expenditures and construction (US$3.4 million) and purchases of equipment (US$4.6 million).

OUTLOOK

In line with the mine's long-term development plan, the Company has commenced an underground expansion project designed to facilitate access to new, lower horizons. The Central Commission of Reserves has approved an intermediate mining stage related to annual ore output of some 600,000 tonnes.

BELAYA GORA - Khabarovsk region, Russia

The Company continued the process of ramping up production at Belaya Gora with activity in H2 2014 focused on improving throughputs and recoveries, including the commissioning of a second gravity stage.

As a result of these measures, average monthly processing throughput expanded to 127,000 tonnes in H2 2014, versus 77,000 tonnes in H1 2014, a level which is fully compatible with the plant's designed annual capacity of 1,500,000 tonnes. Mining operations were hindered by extreme weather conditions towards the end of the year which led to downtime. Despite this, total gold production increased from 7,077 oz in 2013 to 38,842 oz in FY 2014. The average grade of ore mined in 2H 2014 was 1.52 g/t, representing a 15.1% improvement over H1 2014 and an 11% improvement over the corresponding period of 2013.

A state-of-the-art on-site assay laboratory was commissioned at Belaya Gora during the second half of 2014, while work was also carried out on the CIL and elution circuits, which were completed in early 2015.

*ore processed at MNV

PRODUCTION COSTS

Total cash costs amounted to US$926 per ounce (2013: US$1,426 per ounce) and all-in sustaining costs were US$1,038 per ounce (2013: not applicable).

CAPITAL COSTS

During 2014, a total of US$21.1 million was invested at Belaya Gora. This included: capitalised expenditures and construction (US$14.5 million) and purchases of equipment (US$6.6 million).

OUTLOOK

Following upon the improved second half performance, a doubling of 2014's gold production of 38,842 oz is targeted for 2015. The Company has reviewed options with regard to advanced exploration at Belaya Gora. This process will continue in 2015 with the implementation of reverse circulation (RC) grade control drilling.

DEVELOPMENT PROJECTS

KEKURA - Chukotka region, Russia

A major facet of the work undertaken at Kekura in H2 2014 was the development of a scoping study, drafted by consultants Hatch. This involved estimates for the prospective development of open-pit and underground excavation operations and the evaluation of options for the positioning of facilities. Topographical and geotechnical surveys were carried out prior to the drafting of an environmental impact assessment.

The Hatch study, delivered in December 2014, was subsequently updated internally and finalised in early 2015.

Based on key figures from the scoping study, a technical design assignment was generated, a general design contractor appointed, and tenders carried out to select subcontractors for various infrastructure facilities. In November 2014, the general design contractor began work on a design study.

CAPITAL COSTS

A total of US$12.2 million was invested at Kekura in 2014.

KLEN - Chukotka region, Russia

In H2 2014, the Company received a positive conclusion from the Main State Review Board regarding design documentation for the Klen deposit development project.

CAPITAL COSTS

In 2014, a total of US$6.7 million was invested at Klen.

TASEEVSKOYE AND SREDNIY GOLGOTAY - Zabaikalsky region, Russia

The Company is conducting pilot tests on processing ore from the Sredniy Golgotay deposit at the Novoshirokinskoye mill. Ore samples are being transported from the site and testing will be monitored by Irgiredmet, which will also be responsible for drafting the flow sheet. This work will be completed in H1 2015.

CAPITAL COSTS

During 2014, a total of US$1.8 million was invested at Taseevskoye.

EXPLORATION

The Company completed a total of more than 28,500 metres of drilling in 2014, primarily at MNV, Kekura, Verkhne-Krichalskaya and Unkurtash. The Company's overall expenditure on exploration projects totalled US$18.0 million for the year, compared to US$16.0 million in 2013.

MNOGOVERSHINNOYE - Khabarovsk region, Russia

Near-mine exploration at MNV continued throughout 2014 as an operational priority, targeting additional resources in order to extend the life of the mine. In Q4, the Company acquired a licence in respect of exploration and mining rights for the Lower Horizon of the Mnogovershinnoye deposit, thereby extending the Company's current licence for MNV to depths beyond the lower levels of existing state-approved reserves. The Lower Horizon of MNV represents untapped mineral potential within the mine's immediate vicinity which may deliver new resources at MNV in the medium-term, utilising existing and extended underground infrastructure. The MNV North Western Flank licence, acquired in Q3, includes a large section of the Medvezhya zone which, with reported prognostic resources (P1 + P2) of circa 35 tonnes of gold, may also have the potential to deliver new resources.

Diamond core drilling activity for underground resource conversion in H2 2014 totalled 5,533 metres, following on 5,500 metres in H1.

At the MNV Western Flank licence, immediately adjacent to mining operations, the Company completed a detailed geochemical survey across the entire licence revealing an area with significantly elevated gold grades. This area, potentially marking a near surface resource, has been earmarked for follow-up exploration including trenching and drilling.

BLAGODATNOYE - Khabarovsk region, Russia

The Blagodatnoye site, located 30 kilometres to the southwest of Belaya Gora, is targeting a near-surface bulk mineable gold resource for a potential open-pit mining operation. In H1 2014, regulatory authorities approved the Company's report on exploration results to date, including a calculation of prognostic resources and C2 category reserves with C2 of 18.6 tonnes at ca. 2.0 g/t. In H2 2014, the Company compiled and received regulatory approval for a new exploration project outlining follow-up work and technical requirements for future C1+C2 reserve registration with regulatory authorities.

KEKURA - Chukotka region, Russia

Exploration work in 2014 was focused on fulfilling all technical requirements for an updated pre-feasibility study, including a C1+C2 category reserve calculation, which the Company submitted to regulatory authorities (GKZ) for review in Q1 2015. By year-end 2014, all required technical studies were completed including more than 5000 meters of infill drilling, metallurgical test work on multi-tonne composite ore samples, and development of an optimal processing flow sheet. A response from GKZ is expected in April 2015.

The Company also concluded an exploratory prospecting programme across the greater licence area which included geochemical surveys, mapping, and grab sampling at selected targets. Preliminary results indicate areas with significant gold mineralisation in the immediate vicinity of the Kekura deposit, highlighting near-mine upside potential and warranting follow-up exploration.

VERKHNE-KRICHALSKAYA - Chukotka region, Russia

The Verkhne-Krichalskaya (VK) exploration and mining licence incorporates the Klen licence and could hold upside potential for the Klen project. In 2014, the Company completed more than 11,000 metres of exploration drilling at several targets, including deeper levels of the Klen deposit and several gold prospects at VK identified during previous exploration programmes. Drilling results indicate limited potential at greater depths of the Klen deposit, while a preliminary resource calculation in relation to gold-mineralised vein structures at the VK prospects suggests additional resource potential for Klen.

UNKURTASH - Kyrgyzstan

The Unkurtash project holds a total JORC-compliant resource of 3.7 Moz of gold within three distinct prospects, Unkurtash, Sarytube and Karatube, located within the Company's single Kassan licence (36 km²). In consideration of registering C1+C2 category reserves for the entire Unkurtash project, the Company compiled a pre-feasibility study and reserve calculation which will be submitted to GKZ in the medium-term.

In H2 2014, the Company completed a geochemical survey and 1,441 metres of exploratory drilling to test the resource potential of the Baikonur prospect, a possible extension of the Unkurtash prospect. Drilling returned intersects, several metres in length, with grading up to 3.1 g/t, while results from the survey indicate a geochemical gold anomaly which warrants further testing.

Qualified Persons Statement: Mr. Werner Klemens, Head of Exploration at Highland Gold, has reviewed and verified the information contained in this release with respect to reserve and resource matters. Mr. Klemens holds a Ph.D. in Geology from the University of Toronto. He has more than 17 years' experience in mineral exploration and is a fellow of the Geological Association of Canada. A rigorous quality assurance programme complying with international standards is in effect at all exploration projects and includes duplicate sampling, insertion of standards, and check assaying at external laboratories.

HEALTH, SAFETY & ENVIRONMENT

The Company's focus on occupational safety and site risk management, supported by educational courses designed to encourage a sense of personal responsibility among employees with regard to workplace safety, continued throughout 2014.

One of the most important developments was the creation of auxiliary mine rescue teams, each of which was certified by a special committee at the Novo and MNV/Belaya Gora mining areas. This proactive measure has, in turn, served to raise risk awareness.

The Lost Time Incident ("LTI") rate (defined as the number of lost time incidents for every 200,000 man hours worked) showed a reduction from 0.28 in 2013 to a new low of 0.27, one of the features being a year-on-year decrease in Novo's LTIs from four to one.

Despite this decline, nine accidents were recorded Group-wide, one of which involved an employee of a contractor while another, regrettably, resulted in a fatality. The latter incident was fully investigated and reported to the Board, and the Company continues to improve and expand its safety training efforts to prevent future accidents.

Some 1,105 employees received a safety induction course (1 day), 424 employees received work safety training in respect of hazardous production risks (3-5 day courses) and 499 employees were trained and tested with regard to industrial safety (7-30 day programmes).

In September 2014, the Company's management division and the MNV unit underwent successful audits, carried out by international consultants DNV, to check compliance of the current environmental management systems with the ISO 14001 standard. Novo and Belaya Gora successfully completed similar audits in December 2014.

A total of 52 employees received specialised training in internal environmental audit, while environmental safety training was provided for 120 employees at MNV, Belaya Gora and Novo.

CONCLUSION

Our principal objectives in 2015, taking into account the current weakness of the marketplace, are to expand production in line with our forecast, significantly progress our Kekura development towards the targeted startup date of 2018 and continue to prioritise our near-mine exploratory activities at MNV. The retention of our 'low cost' advantage is of paramount importance and a disciplined approach will continue to be brought to bear with regard to capital allocation.

FINANCIAL REVIEW

The Group demonstrated solid financial performance in 2014 despite continued weakness in prices for precious metals, exemplified by a 12% decrease in the price of gold. An 11% increase in gold produced, the devaluation of the Russian Rouble versus the US Dollar, and ongoing efforts at cost control allowed us to deliver strong operational results.

The Group's key financial parameters, including total cash costs*, all-in sustaining costs** and EBITDA, for 2014 were competitive on a worldwide basis and demonstrate management's ability to accept challenges and mitigate external risks. They also indicate the Group's competitiveness in a volatile market.

Overall Group revenue was US$304.23 million in 2014 compared to US$304.21 million in 2013, remaining level despite a 12% decrease in gold prices. Stable revenue was not a result of hedging activity in 2014, but of higher sales volumes of gold and gold equivalents. The Group sold 259,027 ounces of gold and gold equivalents in 2014 compared to 237,271 ounces in 2013. MNV's share of sales at 127,734 oz showed a 13.6% decrease versus 2013, while Novo's share at 92,885 eq. oz registered a significant 13.1% advance. Belaya Gora sold 38,408 ounces in 2014 however revenue from the sale of 1,916 oz from Belaya Gora in Q1 2014 was netted off with costs of sales and capitalised into the cost of the plant as part of start-up work.

The average price of gold realised by MNV and Belaya Gora (net of commission) decreased by 10.1% to US$1,263 per ounce in 2014 compared to US$1,405 per ounce in 2013. The average price of gold equivalents realised by Novo in 2014 was US$1,018 per eq. oz, 5.4% below the level achieved in 2013. The average price at Novo is based on the spot price for metals contained in the concentrates (gold, lead, zinc and silver) and net of the fixed processing and refining costs at the Kazzinc plant. The Group's average realised price of gold and gold equivalents was US$1,175 per oz in 2014 compared to US$1,291 per oz in 2013, a decline of 9.0%.

The completion of start-up work at Belaya Gora led to the first-time recognition of its costs within the Group's cost of sales starting the second quarter of 2014. Despite commencing a new plant, the increase in the Group's cost of sales was limited to 12.2%, or US$24.9 million, at US$228.5 million in 2014 (2013: US$203.6 million).

Total cash costs (TCC) amounted to US$645 per oz in 2014, compared to US$611 per oz in 2013. In spite of a significant decrease in average grade (minus 17.8% in comparison with 2013) and mining at remote ore zones, the increase in TCC at MNV was limited to 11.6%, reaching US$722 per oz (2013: US$647 per oz). At Novo, the rise in production volumes by 15.4%, overall improvement in equipment efficiency, a reduction in the consumption of inputs, and a decrease in tariffs for transportation allowed us to reduce TCC by 20.9% to US$429 per eq. oz versus US$542 per eq. oz in 2013. In its first year of operation, BG had TCC at the level of US$926 per oz.

All-in sustaining costs (AISC) per ounce sold decreased from US$842 per ounce in 2013 to US$809 per ounce in 2014 and were among the lowest in the gold mining sector in the world.

The Group's EBITDA (defined as operating profit excluding depreciation and amortisation, impairment loss, movement in ore stockpile obsolescence provision, movement in raw materials and consumables obsolescence provision, result of disposal of a non-core entity and gain on settlement of contingent consideration) decreased by 6.9% to US$123.6 million in 2014 compared with US$132.8 million in 2013, chiefly due to lower gold prices. The EBITDA margin (defined as EBITDA divided by total revenue) decreased from 43.6% to 40.6%, within range of the most efficient gold miners. EBITDA margin was 41.9% at MNV and 53.4% at Novo. The EBITDA margin at BG was 21.3% due to its early stage of production.

In July 2014, management finalised the Kekura acquisition and settled the Group's outstanding contingent consideration for US$5.6 million less than the previously-provided amount. This figure was recognised as a gain on settlement of contingent consideration in the consolidated statement of comprehensive income.

Management has analysed any potential impairments as of 31 December 2014, and determined that the postponement of development activity at Klen indicated an impairment of goodwill and the assets. Goodwill at Klen was impaired in full by US$10.2 million and other assets were impaired by US$1.2 million.

In 2014, the Group recorded a net finance loss of US$0.8 million compared with net finance income of US$7.8 million in 2013. This was primarily due to recognition of unwinding costs totaling US$2.4 million (2013: US$1.4 million) and interest expense on bank loans in the amount of US$1.9 million in 2014. In 2013, interest expense was capitalised into the cost of development assets at BG and Kekura in full. In addition, there was a positive reassessment of fair value on coupon bonds of US$3.3 million in 2014 versus US$9.2 million in 2013.

A foreign exchange loss of US$9.6 million (2013: loss of US$2.8 million) resulted from the settlement of foreign currency transactions and the translation of monetary assets and liabilities denominated in currencies such as Russian Roubles and Pounds Sterling into US Dollars. The foreign exchange loss primarily reflected a 71.9% devaluation of the Russian Rouble during 2014 and a 5.8% devaluation of Pounds Sterling against US Dollars.

The income tax charge amounted to US$70.3 million in 2014 compared to US$27.4 million in 2013. The tax charge included US$20.7 million for current tax expenses (MNV: US$20.6 million, other: US$0.1 million), US$0.2 million of prior year tax adjustment and US$49.4 million in respect of deferred tax. The deferred tax charge is a non-cash item which resulted from the translation of the tax base denominated in foreign currency into US Dollars. The effective tax rate increased from 33.3% in 2013 to 154.6% in 2014, mainly due to foreign exchange movements and differences in the Russian tax and IFRS depreciation charges.

In 2014, the Group recorded a net loss after tax of US$24.8 million (2013: net profit after tax of US$54.7 million) and a loss per share of US$0.077 (2013: earnings per share of US$0.167), mainly caused by non-cash deferred tax expense, foreign exchange and impairment losses. Adjusted net profit (free of impairment losses and abnormal foreign exchange, and applying a 33.3% effective income tax rate) amounted to US$51.3 million (2013: US$54.7 million).

The Group's cash inflow from operating activities in 2014 rose by US$9.7 million to US$104.4 million, compared with to US$94.7 million in 2013.

During the year to 31 December 2014, the Group invested US$65.5 million in capital expenditures, versus US$143.7 million in 2013. Capital expenditures in 2014 included US$12.2 million at MNV, US$8.0 million at Novo, US$21.1 million at Belaya Gora, US$6.7 million at Klen and the adjacent Verchne-Krichalskaya area, US$12.2 million at Kekura, and US$5.3 million related to other entities within the Group. The required capital expenditures were funded by operating cashflow and debt.

The Group's net debt position as of 31 December 2014 amounted to US$247.2 million compared to a net debt position on 31 December 2013 of US$251.2 million. Net debt is defined as cash at bank, deposits and bonds, decreased by any bank borrowings. The present ratio of net debt to EBITDA is 2.0, which is in line with the Board's policy.

* Total cash costs include mine site operating costs such as mining, processing, administration, royalties and production taxes, but are exclusive of depreciation, depletion and amortisation, capital and exploration costs. Total cash costs are then divided by ounces sold to arrive at the total cash costs of sales. This data provides additional information and is a non-GAAP measure.

** In line with guidance issued by the World Gold Council, the formula used to define all-in sustaining cash costs measure commences with total cash costs per ounce sold and then adds sustaining capital expenditures, corporate general and administrative costs, mine site exploration and evaluation costs and environmental rehabilitation costs. This data seeks to represent the total costs of producing gold from current operations, and therefore it does not include capital expenditures attributable to projects or mine expansions, exploration and evaluation costs attributable to growth projects, income tax payments, interest costs or dividend payments.

*** Rounding of figures may result in computational discrepancies

EVENTS AFTER THE REPORTING PERIOD

In April 2015, the Group signed a financing agreement with Alfa-Bank for a US$60.0 million facility, with a draw period set until 31 December 2016. This facility will be used to finance The Group's development and operating activities.

Also in April, the Group signed a financing agreement with Gazprombank for a US$80.0 million facility with a draw period set until 31 December 2018. This facility will be used to refinance the existing debt of the Group.

DIVIDENDS

The Group paid an interim dividend of GBP 0.025 per share (2013: an interim dividend of GBP 0.025 per share) which resulted in an aggregate interim dividend payment of US$13.1 million (2013: US$13.0 million). The interim dividend was paid on 24 October 2014.

The final dividend for the year ending 31 December 2013 in the amount of US$13.7 million was paid on 30 May 2014.

The Board has recommended a final dividend of GBP 0.020 per share which, taking into account the interim dividend paid in October 2014, makes for a total dividend of GBP 0.045 per share for the year (2013: GBP 0.050 per share). The final dividend is expected to be paid on 29 May 2015 to shareholders on the register as of the close of business on 1 May 2015 (the record date). The ex-dividend date will be 30 April 2015.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31 December

The Group does not have any items of other comprehensive income or any discontinued operations.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

as at

The financial statements were approved by the Board of Directors on 21 April 2015 and signed on its behalf by:Valery Oyf and Olga Pokrovskaya.

CONSOLIDATED STATEMENT OF CASH FLOWS

for the year ended 31 December

SELECTED POLICIES AND NOTES TO THE FINANCIAL INFORMATION

Corporate information

The consolidated financial statements of Highland Gold Mining Limited for the year ended 31 December 2014 were authorised for issue in accordance with a resolution of the Directors on 21 April 2015.

Highland Gold Mining Limited is a public company incorporated and domiciled in Jersey. The registered office is located at 26 New Street, St Helier, Jersey JE2 3RA. Its ordinary shares are traded on the Alternative Investment Market (AIM).

The principal activity is building a portfolio of gold mining operations within the Russian Federation and Kyrgyzstan.

Basis of preparation

The consolidated financial statements have been prepared on a historical cost basis except for financial instruments carried at fair value through profit or loss and assets and liabilities acquired in business combination that have been measured at fair value. The consolidated financial statements are presented in US dollars, which is the parent company's functional and the Group's presentation currency. All values are rounded to the nearest thousand (US$000) except when otherwise indicated.

Statement of compliance

The consolidated financial statements of Highland Gold Mining Limited and all its subsidiaries (the Group) have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and the Companies (Jersey) Law 1991.

Basis of consolidation

The consolidated financial statements comprise the financial statements of Highland Gold Mining Limited and all its subsidiaries as at 31 December each year.

A subsidiary is an entity, including an unincorporated entity such as a partnership, that is controlled by another entity (known as the parent). Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases.

The financial statements of the subsidiaries are prepared for the same reporting year as the parent company, using consistent accounting policies.

All intra-group balances, transactions, unrealised gains and losses resulting from intra-group transactions are eliminated in full.

The accounting policies in Note 3 have been applied when preparing the consolidated financial statements.

Segment information

For management purposes, the Group is organised into business units based on the nature of their activities, and has four reportable segments as follows:

· Gold production;

· Polymetallic concentrate production;

· Development and exploration; and

· Other.

The gold production reportable segment comprises two operating segments, namely Mnogovershinnoye (MNV) and Belaya Gora (BG) at which level management monitors its results for the purpose of making decisions about resource allocation and evaluating the effectiveness of its activity.

The polymetallic concentrate production segment, namely Novoshirokinskoye (Novo), is analysed by management separately due to the fact that the nature of its activities differs from the gold production process.

The development and exploration segment contains entities which hold the licenses being in the development and exploration stage: Kekura, Klen, Taseevskoye, Unkurtash, Lubov, and related service entities: Zabaykalzolotoproyekt (ZZP) and BSC. In the consolidated financial statements as at 31 December 2013 ZZP was shown in the 'other' segment. In the consolidated financial statements as at 31 December 2014 ZZP has been reclassified from the 'other' segment to the development and exploration segment due to the nature of its activities (construction supervision and research) in the comparative segment information for 2013 to keep the presentation form consistent with 2014 presentation.

The "other" segment includes head office, management company and other non-operating companies which have been aggregated to form the reportable segment.

Segment performance is evaluated based on EBITDA (defined as operating profit/ (loss) excluding depreciation and amortisation, impairment losses, movement in ore stockpiles obsolescence provision, movement in raw materials and consumables obsolescence provision, result of disposal of a non-core entity and gain on settlement of contingent consideration). The development and exploration segment is evaluated based on the life-of-mine models in connection with the capital expenditure spent during the reporting period.

The following tables present revenue, EBITDA and assets information for the Group's reportable segments. The segment information is reconciled to the Group's profit/ (loss) for the year.

The finance costs, finance income, income taxes, foreign exchange gains/ (losses), other non-current assets and current assets are managed on a group basis and are not allocated to operating segments.

Transfer prices between operating segments are on an arm's length basis in a manner similar to transactions with third parties.

The accounting policies used by the Group in reporting segments internally are the same as those contained in Note 3 of the financial statements.

Revenue from several customers was greater than 10% of total revenues.

In 2014 the gold revenue of US$207.3 million reported in the gold production segment was received from sales to Gazprombank (2013: US$209.5 million) and the silver revenue of US$1.6 million reported in the gold production segment was received from sales to MDM Bank (2013: US$1.8 million) in the territory of the Russian Federation.

In 2014 the concentrate revenue reported in the polymetallic concentrate production segment in the amount of US$94.5 million was received from sales to Kazzinc (2013: US$88.3 million) in the territory of the Republic of Kazakhstan.

Other third-party revenues in both 2014 and 2013 were received in the territory of the Russian Federation.

Inter-segment revenues mostly represent management services.

* Capital expenditure is the sum of exploration and evaluation assets, mine properties and property, plant and equipment.

** Current assets include corporate cash and cash equivalents of US$12.9 million, investments of US$43.0 million, inventories of US$77.3 million, trade and other receivables of US$28.9 million and other assets of US$6.6 million. Eliminations relate to intercompany accounts receivable.

*** Capital expenditure - additions in 2014 - includes additions to property, plant and equipment of US$67.7 million (Note 16) and capitalised interest of US$11.0 million (Note 16) less prepayments previously made for property, plant and equipment of US$7.1 million.

Non-current assets for 2014 are located in the Russian Federation (US$1,032.4 million) and in the Kyrgyz Republic (US$42.7 million). Current assets for 2014 are located in the Russian Federation.

* Capital expenditure is the sum of exploration and evaluation assets, mine properties and property, plant and equipment.

** Current assets include corporate cash and cash equivalents of US$7.9 million, investments of US$50.2 million, inventories of US$70.7 million, trade and other receivables of US$53.1 million and other assets of US$9.0 million. Eliminations relate to intercompany accounts receivable.

*** Capital expenditure - additions in 2013 - includes additions to property, plant and equipment of US$195.8 million (Note 16) and capitalised interest of US$9.3 million (Note 16), less prepayments previously made for property, plant and equipment of US$30.7 million.

**** Non-cash capital expenditure includes unpaid accounts payable of US$8.6 million and inventories of US$1.0 million sold to contractor.

Non-current assets for 2013 are located in the Russian Federation (US$1,060.2 million) and in the Kyrgyz Republic (US$41.7 million). Current assets for 2013 are located in the Russian Federation.

Income tax

The major components of income tax expense for the years ended 31 December 2014 and 2013 are:

Deferred income tax

Deferred income tax at 31 December relates to the following:

Entity-specific deferred tax positions are presented below:

No deferred tax benefits are recognised in relation to site restoration provisions and obsolescence provisions. Restoration expenses are tax deductible when incurred. However, it is not certain that there will be sufficient income towards the end of the mine's life against which the restoration expenditure can be offset and therefore future tax relief has not been assumed.

The amount of the deductible temporary differences for which no deferred tax asset has been recognised in respect of the site restoration provision at 31 December 2014 is US$14.9 million (31 December 2013: US$18.6 million).

No deferred tax benefit is recognised in relation to the provision for obsolete inventory. These materials are unlikely to be used for production purposes in the future and therefore future tax relief is not assumed. The amount of the deductible temporary differences for which no deferred tax asset has been recognised in respect of the obsolescence provision at 31 December 2014 is US$15.3 million (31 December 2013: US$14.1 million).

The amount of the deductible temporary differences for which no deferred tax asset has been recognised in respect of the tax losses at 31 December 2014 is US$32.2 million (31 December 2013: US$7.9 million). The non-recognition of tax losses is due to insufficient expected future income against which these losses could be offset.

According to Russian tax legislation, tax losses expire if not utilised within 10 years of accruing. In 2012 the income tax in Kyrgyzstan was decreased to 0% for entities engaged in gold mining and gold selling.

The temporary differences associated with investments in subsidiaries, for which deferred tax liability in respect of withholding tax on dividends has not been recognised aggregate to US$321.8 million (2013: US$456.5 million). No deferred tax liability has been recognised in respect of these differences because the Group is able to control the timing of the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future.

The total deferred tax liabilities arising from these temporary differences should be between US$0 and US$16.1 million (2013: US$0 and US$22.8 million), depending on the manner in which the investments are ultimately realised.

Profits arising in the Company for the 2014 and 2013 years of assessment will be subject to Jersey tax at the standard corporate income tax rate of 0%.

Impairment testing of non-current assets

In accordance with the accounting policies and processes, each asset or CGU is evaluated annually at 31 December, to determine whether there are any indications of impairment. If any such indications of impairment exist, a formal estimate of the recoverable amount is performed.

Management has determined the recoverable amounts in 2014 and 2013 using fair value less costs of disposal (FVLCD) calculations. FVLCD is determined at the cash-generating unit level, in this case being the separate gold production and development and exploration assets, by discounting the expected cash flows estimated by management over the life of the mine:

· MNV till 2017;

· BG - 2022;

· Novo - 2024;

· Klen - 2029;

· Kekura - 2028;

· Taseevskoye - 2028;

· Unkurtash - 2035;

· Lubov - 2032.

The calculation of the FVLCD is sensitive to the following assumptions:

· Recoverable reserves and resources;

· Production volumes;

· Real discount rates;

· Metal prices; and

· Operating costs.

Recoverable reserves and resources are based on the proven and probable reserves and resources in existence at the end of the year.

Estimated production volumes are based on detailed life-of-mine plans and take into account development plans for the mines approved by management as part of the long-term planning process.

Metal prices are based on management judgement with reference to well-known analysts forecasts.

Operating costs are based on management's best estimate over the life of the mine.

Discount rates represent the current market assessment of the risks specific to each project, taking into consideration the time value of money and individual risks of the underlying assets that have not been incorporated in the cash flow estimates.

The table below shows the key assumptions used in the fair value calculation at 31 December 2014 and 2013.

* No income tax in Kyrgyzstan since 2012.

As a result of the recoverable amount analysis performed during the year, the following impairment losses were recognised:

The impairment loss was recognised in relation to the Klen project. The triggers for the impairment test were primarily the effect of changes to the mine plan which resulted in postponing the development activities at Klen. As part of the Group's annual impairment assessment, it was determined that due to the changes in estimates of the mine plan, the carrying amount of goodwill and mine properties exceeded their recoverable amounts. The carrying amount of goodwill allocated to Klen and representing a deferred tax liability has been reduced to Nil via the recognition of an impairment loss of US$10.2 million during the year ended 31 December 2014. Another US$1.2 million was recognised as an impairment loss in respect of mine properties at Klen.

Any rise in the post-tax discount rate, any decrease in gold prices below 1,200 per ounce or any increase in operating or capital costs at Klen would result in a further impairment of mine properties and equipment.

For impairment of property, plant and equipment and intangible assets, fair value less costs of disposal are determined by discounting the post-tax cash flows expected to be generated from future gold production net of selling costs taking into account assumptions that market participants would typically use in estimating fair values. These estimates are categorised within Level 3 of the fair value hierarchy. Post-tax cash flows are derived from projected production profiles for each asset taking into account forward market commodity prices over the relevant period and where external forward prices are not available the Group's Board approved life-of-mine model assumptions are used. As each asset has different reserve and resource characteristics and contractual terms, the post-tax cash flows for each asset are calculated using individual economic models which include assumptions around the amount of recoverable reserves, production costs, life of mine/ licence period and the selling price of the gold produced. Refer to Note 32 for fair value disclosures in respect of assets carried at fair value.