Interim Results Announcement for H1 2015

HIGHLAND GOLD MINING LIMITED

Interim Results Announcement for H1 2015

23 September 2015

Highland Gold Mining Limited ("Highland Gold", the "Company" or "Group") announces its unaudited financial results and production figures for the half year ended 30 June 2015.

FINANCIAL SUMMARY

* Net profit as previously reported for H1 2014 has been re-presented to exclude a one-off gain on settlement of contingent consideration amounting to US$5.6 million.

The interim condensed consolidated financial statements of Highland Gold for the six months ended 30 June 2015 are set out below.

H1 2015 HIGHLIGHTS

Financial & Operations

· Total H1 2015 production of 121,242 oz of gold and gold equivalents at Mnogovershinnoye ("MNV"), Novoshirokinskoye ("Novo"), and Belaya Gora, a 0.9% increase from 120,121 oz in H1 2014.

· H1 2015 EBITDA was US$54.9 million, an increase of 13.5% compared to H1 2014, driven mainly by RUR devaluation and strong cost performance and negatively adjusted by lower gold prices. EBITDA margin of 42.0% (34.0% in H1 2014).

· Total first half revenue fell by 8.1%, reflecting lower metals spot market prices during the period (average realised price for gold and gold equivalents of US$1,088 per oz in H1 2015 compared to US$1,210 in H1 2014).

· All-in sustaining costs (AISC) per ounce were 21.1% lower, helped by weakness in the Russian Rouble and increased throughput at Belaya Gora and Novo. Total cash costs (TCC) down by 21.8%. Both indicators demonstrate that the Group is one of the lowest-cost gold producers.

· Net debt to EBITDA ratio reduced to 1.8 as of 30 June 2015 from 2.0 a year earlier.

· Effective tenor of debt portfolio extended from 11 months to 22 months.

· Free cash flow (defined as net cash flows from operating activities less cash flows used in investing activities) was US$37.7 million compared to US$21.9 million h-o-h as the Company remained focused on free cash flow generation.

· Continued optimisation of operations at the Belaya Gora processing plant in H1, with gold recovery rates reaching 75.9% on average (20.9% higher than in H1 2014) and 80.9% in June.

· Steady operations at Novo, with ore processing volumes set to rise to an annual rate of 630,000 - 650,000 tonnes by year-end.

Development & Exploration

· Work on Kekura progressed as planned, including state approval of Russian-compliant reserves, finalisation of processing studies; and initiation of work on technical design documentation.

POST HALF YEAR EVENTS

· Exploration program, designed in H1, underway at MNV Lower Horizons licence.

· JORC audit of Kekura reserves in progress with results expected in H2.

· Interim dividend of £0.020 per share (H1 2014: Interim dividend of £0.025 per share)

CONFERENCE CALL DETAILS

The Company will hold a conference call on Wednesday, 23 September 2015, hosted by Valery Oyf, CEO, to discuss the interim results. The conference call will take place at 11 a.m. UK time (13:00 Moscow). To participate in the conference call, please dial one of the following toll-free numbers:

UK Free Call 0800 694 0257

UK Local Call 0844 493 3800

UK Standard International +44 (0) 1452 5555 66

Russian Federation 8 499 677 1040 \\ 8 800 775 68 18

USA Free Call 1866 966 9439

Conference ID 47083314

A replay of the presentation will be accessible shortly afterwards on Company's website.

FOR FURTHER INFORMATION PLEASE CONTACT:

INTERIM OPERATIONAL REVIEW

PRODUCTION

Mnogovershinnoye (MNV) - Khabarovsk Region, Russia

Processing plant throughput for the first six months of 2015 was 705,493 tonnes of ore, yielding 42,451 oz of gold. Recovery rates averaged 89%, a slight decrease from the same period in 2014. The dip was due to changes in the mineral composition of the ore and a decline in gold grades.

Open-pit and underground ore production totalled 619,749 tonnes. Underground development recorded a 7% increase to 4,287 metres from the previous six months.

The average ore grade was 2.15 g/t, which is 37% less than the same period of 2014. The reduction is due to the commencement of mining at the Verkhneye, Tikhoye, and Valunistoye ore bodies, which have slightly lower gold grades.

Novoshirokinskoye (Novo) - Zabaikalsky Region, Russia

Novo continued to meet expectations in terms of ore production. Work was carried out over the reporting period to optimise mining and processing technology, the result of which will be an increase in ore processing to an annual rate of 650,000 tonnes by the end of the year. Furthermore, the Company is successfully implementing a project for the extension of underground operations, and stoping operations have commenced at the 700 metre horizon.

In order to handle increased throughput, a new flotation circuit will be installed in H2 with the goal of maintaining the 85.3% recovery rate achieved in the first half, which is 1.1% higher than in the same period last year.

* Approximate Au equivalent

Mined ore metal content breakdown = Au 2.92 g/t, Ag 67.48 g/t, Pb 2.12%, Zn 0.84% **

** The Company has re-estimated the Novo deposit's ore reserves based on the results of mining and grade control drilling as of January 01, 2014. The recalculation has received approval from Russian regulatory authorities, however, updated JORC Ore Reserves have not yet been determined. Total Russian-classification reserves increased by 77% from 9.42 million tonnes of ore to 16.69 million tonnes. The figure includes lower reserves of Pb (down 4% from 348.7 kt to 334.8 kt) and Zn (down 6% from 169.9 kt to 159.1 kt), but increased reserves of Au (up 25% from 30.8 kt to 38.4 kt) and Ag (up 18% from 811.1 kt to 959.7 kt).

Belaya Gora - Khabarovsk Region, Russia

First-half ore production at Belaya Gora reached 885,314 tonnes, an increase of 91% from the same period of 2014 and in line with project forecasts. The average ore grade was 1.63 g/t, a 23% increase over the same period last year.

The Belaya Gora plant saw the full commissioning of its first processing stage in H1, with nameplate production parameters achieved at most of the plant's equipment. Ore processing reached 674,985 tonnes, which is 46% higher than in the same period last year. The average recovery rate was 76%, which is 21% higher than in H1 2014 and also in line with project parameters. The recovery rate reached 80.9% in June of this year.

The process of commissioning the plant's second stage continues, with all equipment in place and optimisation of the process flow underway. Design documentation and a tender process have been completed for the installation of automated process control systems. Additional Knelson separators were also delivered to site.

RC grade control drilling was introduced for the first time at Belaya Gora during the first half of the year. This will allow the Company to reduce dilution as well as to clarify ore contours, thus providing improved production forecasting accuracy going forward.

The government's Main Ecological Expert Review Panel issued a positive ruling on design documentation for the construction of a solid waste landfill in the vicinity of the nearby village of Chlya. Project materials are currently undergoing the Main State Expert Review, and a construction contractor is being selected.

DEVELOPMENT PROJECTS

Kekura - Chukotka Autonomous District, Russia

The Kekura project site took delivery of 6,300 tonnes of materials and equipment in the first half of 2015, ensuring supplies for ongoing activities and preparations for construction.

A scoping study was completed in H1, and work is now being finalised on a process study by Irgiridmet, including the selection of an optimal system for processing Kekura ores and subsequent delivery of a Processing Flow Sheet. Furthermore, VNIMI has completed calculations for the ideal parameters for dump location and open pit wall stability.

Work has also commenced on drafting technical design documentation for mining the Kekura deposit. The general engineering contractor is Zabaikalzolotoproyekt LLC. Design documentation is expected to be submitted to the Main State Expert Review by the end of 2015.

Preparation for large-scale construction work during the 2016 construction season is currently in progress.

Taseevskoye - Zabaikalsky Region, Russia

In H1 2015, Zabaikalzolotoproyekt worked on the Technical and Economic Calculation (TEC) of the viability of mining and processing ores from the Taseevskoye deposit, Sredny Golgotay deposit, and Baley ZIF-1 tailings. The TEC is being carried out as per recommendation from regulators Rosnedra in order to update the conditions of subsoil use licences for these deposits. TEC-related deliverables are currently being reviewed.

Preparation work for the development of a scoping study for joint development of the Baley area ore deposits is currently underway. A tender was completed and a contractor, Amec Foster Wheeler, selected. A service agreement is currently being finalised.

In the first half of 2015, the Company received regulatory permission and conducted a pilot test for batch processing of ores from Sredny Golgotay and Novo using the existing gravity-flotation process at Novo. Based on these test results, a flowsheet for processing the two types of ore at the Novo processing plant has been developed.

The Company also received mining schedule approval for Sredny Golgotay from Rosnedra, along with an extension in license terms.

Lyubov - Zabaikalsky Region, Russia

In order to maintain compliance with licence requirements, the Company submitted technical design for the Lyubov project for state review. In the first half of the year, Rosnedra approved the documentation and extended licence terms.

EXPLORATION

Mnogovershinnoye - Khabarovsk region, Russia

Throughout 2015, the Company is focused on near-mine exploration at MNV to clarify existing resources and target additional resources in order to enhance life of mine for both underground and open-pit operations.

At the Lower Horizon Mnogovershinnoye licence, the Company received regulatory approval for an underground exploration drilling programme of 9,300 metres at the lower horizons of Severnoye ore body to delineate additional resources in the vicinity of existing underground infrastructure. Drilling commenced in late Q2 2015 and will be completed in H2 2015.

At the Western Flank Mnogovershinnoye license, immediately adjacent to the mine operations (Chaynoye prospect), a follow-up exploration programme of 2,000 metres of trenching was designed in H1 2015, with plans to execute in H2 2015 in order to investigate a potential open pit resource at the site of a prominent gold anomaly identified in 2014.

Kekura - Chukotka region, Russia

In Q1 2015, the Company submitted a TEO study to the State Committee on Reserves (GKZ) for registration of reserves with the state. In Q2 2015, GKZ approved (C1+C2) category reserves of 62.1 tonnes (1.99 million oz) of gold, including open-pit mineable reserves of 45.6 tonnes (1.47 million oz) and 16.5 tonnes (0.53 million oz) destined for underground mining. The reserve approval marks significant progress in the mine's development, facilitating detailed project design according to Russian mining regulations

In H1 2015, the Company also initiated an updated independent JORC-compliant resource/ reserve evaluation by an international consultancy, with final results expected in Q3 2015.

Final results from an exploratory prospecting programme completed in 2014 were received in H1 2015 and indicate areas with significant gold mineralization in the immediate vicinity of the Kekura deposit, highlighting near-mine upside potential which the Company plans to pursue with follow-up exploration in the future.

In addition, the Company also initiated a small exploration programme for alluvial gold at selected prospects on the license area which is planned to be completed in autumn 2015.

Other Projects

No field work was conducted in H1 2015 at the Belaya Gora Flanks, Blagodatnoye, Verkhne-Krichalskaya and Unkurtash projects as the Company prioritised other projects.

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, AND ENVIRONMENT

The Company remains dedicated to ensuring the safety of its employees and to managing production risks as well as training staff and encouraging employee responsibility for work safety.

The Lost Time Incident ("LTI") rate (defined as the number of lost time incidents for every 200,000 man hours worked) fell by 16% to 0.25 in H1 2015 compared to 0.30 in H1 2014. A total of four lost time incidents were recorded across the Company during the period versus five incidents in H1 2014.

Some 932 employees attended a one-day safety induction course, 190 employees received workplace safety training regarding hazardous production risks (3-5 day courses), and 166 employees were trained and tested on industrial safety (7-30 day programmes).

Incoming inspection of overalls, footwear, and personal protective equipment was carried out at Mnogovershinnoye JSC (MNV) and Novoshirokinsky Rudnik OJSC (Novo) with the involvement of a specialized organization to check their compliance with the Company's PPE Standard. A company-wide standard, entitled "Key Rules of Behavioural Safety", was enacted.

The Company's environmental practices remain fully compliant with regulatory and legislative requirements. The ISO 14001 accredited environmental management system has been successfully implemented at the management company offices and the Mnogovershinnoye, Belaya Gora and Novoshirokinskoye mines. Certificates have been obtained to confirm the Company's compliance with environmental requirements. Environmental safety training was given to 160 employees at MNV, Belaya Gora and Novo, and 122 employees received training relating to safe methods for handling production waste.

Valery Oyf

Chief Executive Officer

INTERIM FINANCIAL REVIEW

CHIEF FINANCIAL OFFICER'S REPORT

The Company demonstrated stable financial results, notwithstanding continued weakness in the precious metals market, economic uncertainty and higher cost of financing for Russian operations. Reaching nameplate capacity at the Belaya Gora (BG) plant, along with the scheduled increase in production volume at Novo, enabled the Company to offset lower production at depleting MNV and to create the basis for future growth and cost reduction.

Despite falling prices for our mined metals during the period, including a decrease of 6.6% on gold and 18.5% on silver, the Company's revenue for the first half of 2015 totalled US$130.7 million (US$142.2 million in H1 2014). The negative impact of metal prices, mitigated by a 2.3% increase in sales volume, resulted in a 8.1% decrease in revenue. In the reporting period, the Company sold 119,277 ounces of gold and gold equivalents compared to 116,567 ounces in H1 2014. Novo and BG considerably increased their proportion of the Group's total sales volume. Novo's share grew to 49,710 eq. oz (up 14.3% h-o-h) and accounted for 41.7% of total sales. Belaya Gora sold 27,675 ounces compared to 10,010 ounces in H1 2014, increasing its share to 23.2%. MNV, with its share of 35.1%, remained a significant contributor to total sales volume with 41,891 ounces.

The average price of gold realised by MNV and Belaya Gora (net of commission) was US$1,202 per oz in H1 2015, in line with the average market price (average H1 2015 LBMA price was US$1,207 per oz) and down from US$1,288 per oz in H1 2014. The average price of gold equivalents realised by Novo was US$928 per eq. oz in H1 2015, compared to US$1,075 per eq. oz in H1 2014. The average price at Novo is based on the spot price for metals contained in the concentrates (gold, lead, zinc and silver), net of fixed processing and refining costs at the KazZinc plant. The Company's average realised price of gold and gold equivalents amounted to US$1,088 per oz in H1 2015, compared with US$1,210 per oz in H1 2014, a decline of 10.1%.

The Company's cost of sales net of depreciation decreased by 20.6% in H1 2015 and amounted to US$65.6 million (H1 2014: US$82.6 million). Depreciation was US$36.1 million, up 33.2% h-o-h resulting from the BG plant launch.

The Company benefited from the positive effects of the Russian Rouble devaluation, which was partially offset by increased purchase prices for some major consumables (cyanide, grinding balls, hypochlorite) and the negative impact of inflation (15.3% h-o-h).

Total cash costs (TCC) decreased by 21.8% to US$538 per oz, in line with our peer group. Breaking it down by business unit, total cash costs at Belaya Gora halved from US$1,031 per oz to US$489 per oz h-o-h resulting from economies of scale, devaluation of the Russian Rouble and improved grades and recovery rates. Total cash costs at Novo were US$335 per eq. oz, falling by 34.6% from the previous period, largely reflecting the rise in production volumes and devaluation of the Russian Rouble. Depleting MNV saw increased total cash costs of US$813 per oz (H1 2014: US$757 per oz) mainly as a result of a 37.2% decrease in average grade, increased transportation costs due to shift to remote mines, and higher volume of repairs.

All-in sustaining costs (AISC) per ounce showed a significant 21.1% reduction, from US$900 per oz in H1 2014 to US$710 per oz in H1 2015.

TCC and AISC Calculation

The Group's EBITDA (defined as operating profit excluding depreciation and amortisation, impairment losses, movement in ore stockpiles obsolescence provision, movement in raw materials and consumables obsolescence provision and gain on settlement of contingent consideration) increased by 13.5% in H1 2015 to US$54.9 million, compared with US$48.4 million in H1 2014. The EBITDA margin (defined as EBITDA divided by total revenue) increased from 34.0% to 42.0%.

In H1 2015, the Group recorded a net finance loss of US$0.4 million compared with net finance income of US$4.6 million in H1 2014. During the period, the bonds fair value increased by US$2.1 million whereas in H1 2014 the gain was even higher (US$6.2 million). Interest expense on bank loans was recognised in the amount of US$1.4 million in H1 2015 versus US$0.4 million in H1 2014. No interest was capitalised at BG against US$1.4 million of interest expense that formed part of development assets at BG in the corresponding period of 2014.

A foreign exchange loss of US$1.8 million (H1 2014: loss of US$1.5 million) resulted from the settlement of foreign currency transactions and the transfer of monetary assets and liabilities denominated in currencies such as Russian Roubles and Pounds Sterling into US Dollars.

Income tax charges totalled US$2.1 million for the first half of 2015 compared with US$9.1 million in the corresponding period of 2014. The tax figure is comprised of US$9.8 million of current tax expenses (US$3.8 million at MNV and US$6.0 million at Novo), offset by US$7.7 million of tax release from deferred tax. The effective tax rate decreased from 31.0% in H1 2014 to 12.9% in H1 2015, mainly due to the fact that deferred tax charge previously recognised was partly converted into current tax expense.

Net profit after tax reached US$14.5 million and was 1.5% lower in comparison with the normalised net profit of US$14.7 million in H1 2014 (free of a US$5.6 million gain on settlement of Kekura acquisition). Earnings per share amounted to US$0.044 (H1 2014: US$0.062).

The Group's cash inflow from operating activities of US$56.5 million in H1 2015 was US$8.0 million lower than the US$64.5 million generated in H1 2014 due to lower prices for metals.

During the six months ended 30 June 2015, the Group invested US$18.2 million in capital expenditures compared to US$36.4 million in the prior period. This decline was a result of lower spending on BG, strict controls on capital allocation and the Russian Rouble devaluation.

Capital expenditures included US$3.3 million at MNV, US$3.3 million at Novo, US$3.8 million at Belaya Gora, US$6.4 million at Kekura and US$1.4 million related to other exploration and development projects within the Group. Capital expenditures were funded by operating cash flow.

The Company's gross USD-denominated debt was US$271.0 million at 30 June 2015:

The Group's net debt position as of 30 June 2015 was US$231.0 million, compared to US$247.2 million as of 31 December 2014. 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 1.8, which is in line with the Board's policy. This ratio is defined by dividing net debt by the aggregate amount of EBITDA in H1 2015 and H2 2014.

EVENTS AFTER THE REPORTING PERIOD

In September 2015 the Group signed an additional agreement with Alfa-bank regarding a limit increase of the non-current loan from US$60.0 million up to US$100.0 million and an extension of the final maturity until December 2018.

PAYMENT OF DIVIDENDS

The Board has approved an interim Dividend of £0.020 per share. The interim dividend will be paid on 16 October 2015 to shareholders on the register at the close of business on 2 October 2015, the record date and the ex-dividend date will be 1 October 2015.

PRINCIPAL RISKS AND UNCERTAINTIES

The Group is exposed to a number of risks and uncertainties which in most cases are relevant to the entire gold mining industry. These risks and uncertainties could cause actual results to differ materially from expected or historical results.

Main risks and uncertainties are disclosed in the Group's 2014 Annual Report (Pages 19-22) and have not changed during the first half of 2015. The Group's management considered these risks likely to be the same risks faced for the rest of 2015 and the Group at the moment does not foresee any additional principal risks.

Alla Baranovskaya

Chief Financial Officer

23 September 2015

Interim consolidated statement of comprehensive income

for the six months ended 30 June

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

Interim consolidated statement of financial position

as at

Interim consolidated statement of changes in equity

for the six months ended 30 June 2015

for the six months ended 30 June 2014

Interim consolidated cash flow statement

for the six months ended 30 June

1. Corporate information

These interim condensed consolidated financial statements of Highland Gold Mining Limited for the six months ended 30 June 2015 were authorised for issue in accordance with a resolution of the Directors on 22 September 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.

2. Basis of preparation and accounting policies

Basis of preparation

The interim condensed consolidated financial statements for the six months ended 30 June 2015 have been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union. The annual financial statements of the Group for the year ended 31 December 2014 were prepared in accordance with International Financial Reporting Standards as adopted by the European Union and Companies (Jersey) Law 1991.

The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements as at 31 December 2014.

Having made relevant enquiries, the Directors believe that it is appropriate to adopt the going concern basis in the preparation of the interim condensed consolidated financial statements in view of the fact that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future.

The impact of seasonality or cyclicality on operations is not considered significant to the interim condensed consolidated financial statements.

Changes in accounting policies and presentation rules

The accounting policies adopted in the preparation of the consolidated interim financial statements are consistent with those applied in the preparation of the consolidated financial statements for the year ended 31 December 2014, except for the adoption of new standards and interpretations effective as of 1 January 2015. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

The nature and the effect of these changes are disclosed below. Although these new standards and amendments apply for the first time in 2015, they do not have a material impact on the interim condensed consolidated financial statements of the Group and are not expected to have a material impact on the annual consolidated financial statements of the Group. The nature and the impact of each new standard or amendment are described below:

Amendments to IAS 19 Defined Benefit Plans: Employee Contributions

This amendment is not relevant to the Group, since none of the entities within the Group has defined benefit plans with contributions from employees or third parties.

Annual Improvements 2010-2012 Cycle

These improvements are effective from 1 July 2014 and the Group has applied these amendments for the first time in these interim condensed consolidated financial statements. They include:

IFRS 2 Share-based Payment

This amendment is not relevant to the Group, since share options were forfeited during the first half of 2014.

IFRS 3 Business Combinations

The amendment is applied prospectively and clarifies that all contingent consideration arrangements classified as liabilities (or assets) arising from a business combination should be subsequently measured at fair value through profit or loss whether or not they fall within the scope of IFRS 9 (or IAS 39, as applicable). This is consistent with the Group's current accounting policy, and thus this amendment does not impact the Group's accounting policy.

IFRS 8 Operating Segments

The amendments are applied retrospectively and clarify that:

· An entity must disclose the judgements made by management in applying the aggregation criteria in paragraph 12 of IFRS 8, including a brief description of operating segments that have been aggregated and the economic characteristics (e.g., sales and gross margins) used to assess whether the segments are 'similar'.

· The reconciliation of segment assets to total assets is only required to be disclosed if the reconciliation is reported to the chief operating decision maker, similar to the required disclosure for segment liabilities.

The Group has applied the aggregation criteria in IFRS 8.12. The Group has presented the reconciliation of segment assets to total assets in previous periods and continues to disclose the same in Note 3 in these financial statements as the reconciliation is reported to the chief operating decision maker for the purpose of decision making.

IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets

The amendment is applied retrospectively and clarifies in IAS 16 and IAS 38 that the asset may be revalued by reference to observable data by either adjusting the gross carrying amount of the asset to market value or by determining the market value of the carrying value and adjusting the gross carrying amount proportionately so that the resulting carrying amount equals the market value. In addition, the accumulated depreciation or amortisation is the difference between the gross and carrying amounts of the asset. The Group did not record any revaluation adjustments during the current interim period.

IAS 24 Related Party Disclosures

The amendment is applied retrospectively and clarifies that a management entity (an entity that provides key management personnel services) is a related party subject to the related party disclosures. In addition, an entity that uses a management entity is required to disclose the expenses incurred for management services. This amendment is not relevant for the Group as it does not receive any management services from other entities.

Annual Improvements 2011-2013 Cycle

These improvements are effective from 1 July 2014 and the Group has applied these amendments for the first time in these interim condensed consolidated financial statements. They include:

IFRS 3 Business Combinations

The amendment is applied prospectively and clarifies for the scope exceptions within IFRS 3 that:

· Joint arrangements, not just joint ventures, are outside the scope of IFRS 3.

· This scope exception applies only to the accounting in the financial statements of the joint arrangement itself.

The Group is not a joint arrangement, and thus this amendment is not relevant for the Group and its subsidiaries.

IFRS 13 Fair Value Measurement

The amendment is applied prospectively and clarifies that the portfolio exception in IFRS 13 can be applied not only to financial assets and financial liabilities, but also to other contracts within the scope of IFRS 9 (or IAS 39, as applicable). The Group does not apply the portfolio exception in IFRS 13.

IAS 40 Investment Property

This amendment is not relevant to the Group, since none of the entities within the Group has investment property.

3. 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. MNV and BG have been aggregated into one reportable segment as they exhibit similar long-term financial performance and have similar economic characteristics: nature of products (gold and silver), nature of the production processes, type of customer for their products (banks), methods used to distribute their products and nature of the environment (both are located in the Khabarovsk region).

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 licenses in the development and exploration stages: Kekura, Klen, Taseevskoye, Unkurtash, Lyubov, and related service entities: Zabaykalzolotoproyekt (ZZP) and BSC.

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 excluding depreciation and amortisation, impairment losses, movement in ore stockpiles obsolescence provision, movement in raw materials and consumables obsolescence provision 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 after tax for the period.

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 2 of the interim condensed consolidated financial statements.

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

In the first half of 2015 the gold and silver revenue reported in the gold production segment was received from sales to Gazprombank (US$84.4 million) in the territory of the Russian Federation.

In the first half of 2014 the gold and silver revenue reported in the gold production segment was received from sales to Gazprombank (US$94.1 million) and MDM Bank (US$0.9 million) in the territory of the Russian Federation.

In the first half of 2015 the concentrate revenue reported in the polymetallic concentrate production segment in the amount of US$46.1 million was received from sales to KazZinc (H1 2014: US$46.8 million) in the territory of the Republic of Kazakhstan.

Other third-party revenues in both H1 2015 and H1 2014 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 at 30 June 2015 include corporate cash and cash equivalents of US$6.2 million, investments of US$33.6 million, inventories of US$58.5 million, trade and other receivables of US$29.5 million and other assets of US$6.6 million. Eliminations relate to intercompany accounts receivable.

*** Capital expenditure for the first half of 2015 includes additions to property, plant and equipment of US$24.8 million (Note 7) and capitalised interest of US$6.3 million (Note 7), less prepayments previously made for property, plant and equipment of US$0.5 million.

Non-current assets at 30 June 2015 are located in the Russian Federation (US$1,034.9 million) and in the Kyrgyz Republic (US$42.9 million). Current assets for the first half of 2015 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 at 31 December 2014 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 for the first half of 2014 includes additions to property, plant and equipment of US$36.7 million (Note 7) and capitalised interest of US$5.8 million (Note 7), less prepayments previously made for property, plant and equipment of US$4.4 million.

Non-current assets at 31 December 2014 are located in the Russian Federation (US$1,032.4 million) and in the Kyrgyz Republic (US$42.7 million). Current assets for the first half of 2014 are located in the Russian Federation.

4. Other operating expenses

5. Finance income and costs

5.1 Finance income

5.2 Finance costs

6. Income tax

The major components of income tax expense in the interim consolidated statement of comprehensive income are:

There are no tax amounts recognised directly in equity during the first half of 2015 (H1 2014: Nil).

Tax for the six months ended 30 June 2015 is charged at 13.0% (H1 2014: 31.0%), representing the best estimate of the average annual effective tax rate expected for the full year, applied to the pre-tax income of the six months period. The effective tax rate in the first half of 2015 is lower than the statutory rate of 20% due to foreign exchange differences.

The actual tax expense differs from the amount which would have been determined by applying the statutory rate of 20% for the Russian Federation to profit before income tax as a result of the application of relevant jurisdictional tax regulations, which disallow certain deductions which are included in the determination of accounting profit.

7. Mine properties, exploration and evaluation assets, and property, plant and equipment

Reconciliation of fixed assets on period-by-period basis for the period ending 30 June 2015