Highland Gold Mining : Q3 2017 Operating Results

Highland Gold Mining Limited ('Highland Gold' or the 'Company') today reports its operating results for the three months ended September 30, 2017 ('Q3 2017').

HIGHLIGHTS

• Q3 2017 production at Mnogovershinnoye (MNV), Novoshirokinskoye (Novo), and Belaya Gora was 71,767 oz of gold and gold equivalent versus 62,601 oz in Q3 2016, an increase of 14.6%.
• Total production for the first nine months of 2017 ('9M 2017') was 203,552 oz of gold and gold equivalent, up 6.6% from 190,873 in the first nine months of 2016.
• MNV and Novo improved on nine-month gold and gold equivalent production by 11.9% and 8.2%, respectively. Output fell year-on-year at Belaya Gora due to the planned continued processing of low-grade ore stockpiles.
• Progress continued on near-mine exploration at MNV, the drafting of development studies for Belaya Gora/Blagodatnoye, Kekura, and Klen, and preparations for the plant expansion at Novo and construction at Kekura.
• Average realised gold price of 1280 USD/oz.
• The Company expects total production of gold and gold equivalent for the year to be near the upper end of its guidance range of 255,000-265,000 oz.

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KHABAROVSK REGION, RUSSIA

Mnogovershinnoye (MNV)

• Higher grades resulted in increased gold output compared to Q3 2016.
• Total ore mined was down 9% compared to Q3 2016, mainly due to a lower volume of open pit mining, but fully in-line with MNV's mining plan for the year.

The Company's extensive near-mine exploration programme at MNV continued during the quarter, with 1,757 m of diamond drilling on the lower horizons of the underground Flank ore body and 2,701m of surface diamond drilling on the Bear zone.

Operational exploration drilling commenced on the flanks of several MNV ore bodies (Central, Intermediate, Upper, Northern, Southern) for a total of 6,759 metres. Another 900 metres was drilled at the mine's historic rock waste dumps in order to identify additional gold-bearing areas.

The flanks for the Intermediate ore body have shown particular promise. Early estimates show that the site could add Russian-standard reserves of up to 448.3k tonnes of ore at 4.45 g/t and 2 tonnes of gold (~65k oz) to MNV's operations. Evaluation of the remaining ore bodies will be completed after all of the exploration results are collated.

Over the course of Q3 2017, geochemical surveys were conducted at Kulibinskaya and Zamanchivaya, the Company's two new greenfield licences adjacent to MNV, and results are expected by year-end. In addition, state regulators have approved the Company's exploration programmes for these licences.

Belaya Gora

• Planned substantial year-on-year declines in waste stripping, ore mining, and average grade for Q3 2017 due to a 45% increase in ore supply from the BG-1 stockpile.
• Lower mined ore grade is due to the re-classification of some waste stripping following a decision by regulators to reduce the mine's cut-off grade from 0.7 g/t to 0.3 g/t.
• Processing plant throughput totalled 463,134 tonnes in Q3 2017, which is 14% higher YoY.
• The average recovery rate for Q3 2017 was 73%, which is a 6% increase compared to Q3 2016.

The Company has been treating ore from low-grade stockpiles at Belaya Gora while it examines options for processing plant improvements to boost recovery rates. Work continues on a pre-feasibility study (PFS) covering upgrades to the Belaya Gora mill, updated reserve estimates, and a joint mining schedule for Belaya Gora and the nearby Blagodatnoye site. The report is expected in Q4 2017.

An exploration programme on the lower levels and north-eastern flank of the Belaya Gora deposit was completed in Q3 2017. The programme included diamond drilling of 27 drill holes (3,318 metres) during the quarter, for a total of 111 drill holes (12,686 metres) over the course of the year.

The aim of the programme was to confirm reserves as well as to better delineate the mine's ore bodies and obtain material for process mapping. Results are now being collated for use in the Belaya Gora PFS.

Also in Q3 2017, preparations were made for exploration drilling on the Kolchanskoye ore body, located on the adjacent Belaya Gora Flanks licence. The Company plans about 1,500 metres of drilling at the site in the fourth quarter.

Blagodatnoye

The Blagodatnoye deposit is being targeted to augment the mineral resource base for the Belaya Gora operation. Earlier this year, results were collated from an extensive exploration programme carried out at the site in 2016, which included 18,000 metres of exploration drilling.

An additional exploration drilling programme of 2,400 metres, initiated in Q2 2017 and continuing into Q3 2017, is now completed. The results will be used for registering with regulators and, if possible, increasing the mine's measured and indicated reserves. They will be reported together with the Belaya Gora PFS.

ZABAIKALSKY REGION, RUSSIA

Novoshirokinskoye (Novo)

• Ore mining in Q3 2017 amounted to 220,755 tonnes, a 35% increase YoY.
• Novo's mill saw a 10% increase in ore throughput in Q3 2017 via the optimisation of technological processes.

Preparations continue for the expansion of Novo's ore processing capacity to 1.3 mtpa, with work in Q3 2017 focused on finalising design documentation. Grinding equipment that was purchased for the expanded mill has now arrived on site.

Baley Ore Cluster (Taseevskoye, Sredny Golgotay and ZIF-1)

The Company initiated a programme last year to de-water the existing Taseevskoye open pit with a view towards drilling the deposit to verify reserves. To date, 4.3 million cubic meters of water have been pumped into the nearby ZIF-2 tailings pond, resulting in a 10.05 m decrease in the pit's water level. Pumping is currently on hold as the receiving pond is full. In Q3 2017, the Company selected a specialised contractor to identify or design additional water storage options and that process is ongoing.

Highland Gold's Board of Directors has approved funding for design work on a potential heap leach operation at the ZIF-1 Tailings licence. A technological flowsheet drafted by Irgiredmet anticipates annual throughput of up to 840 kt of ore. A tender to select a contractor for developing design documentation was conducted and results are currently being finalised.

CHUKOTKA AUTONOMOUS DISTRICT, RUSSIA

Kekura

Contractor Fluor is now proceeding with work on a definitive feasibility study (DFS) for Kekura after receiving data for the study's mining section from SRK during Q3 2017. Delivery of the full DFS is expected during the fourth quarter.

In addition to the DFS mining section, SRK is carrying out an updated JORC-compliant reserve estimate that includes data from the 2016-2017 drilling program. The data obtained was used to prepare a new geological model for the deposit. The updated JORC reserve report is likewise expected in Q4 2017.

As part of its development strategy for the region, the Chukotka administration has included construction of the Bilibino-Kekura-Omsukchan power line in its infrastructure plans. During Q3 2017, the Company submitted design documentation for a 110/6 kV power substation, to be built at Kekura, for state expert review. Project approval by regulators is expected by the end of October 2017.

Rostek JSC was selected as contractor for the substation and, based on current project design documentation, has already ordered key equipment for the project. The equipment has been delivered to the port of Arkhangelsk and is scheduled to set sail for the Chukotka port of Pevek in mid-October so as to arrive before the end of the current Arctic navigation season.

Design work on a temporary assay laboratory began in Q3 2017. The planned lab is intended to support on-site mining operations and exploration work. Lab equipment was purchased during the period and will be shipped to Pevek during the current navigation season.

The design process for a fuel and lubricants warehouse also continued in Q3 2017, with construction expected to begin next year. The Company plans to submit documentation for the facility for state expert review in early Q4 2017.

Klen

Preparation of an updated pre-feasibility study, assembled by Hatch, continued in Q3 2017. SGS Vostok Chita finished additional test work in order to confirm certain parameters in the report. The first phase of R&D was completed, with preliminary results showing possible improved recoveries of over 90% and lower forecasted operating costs. Based on these positive results, a decision was made to continue with more R&D for the project.

Furthermore, the Company has decided to move ahead with additional exploration work to delineate any potential additional resources in the licence area. A contractor has been selected and the drilling programme is expected to begin in late Q1 2018.

HEALTH, SAFETY, AND ENVIRONMENT

Earlier this year, the Company adopted a new and improved HSE Policy, with even greater emphasis on ensuring occupational safety, managing operating risks, training employees and boosting safety awareness. In Q3 2017, it recorded only two lost-time incidents, both at Novo. MNV and Belaya Gora finished the quarter without incident.

Over the course of the past three months, 124 managers and specialists attended scheduled training courses on 'Efficient methods of safety management with elements of behavioural safety audit' (one and a half day seminar) and 98 managers and specialists were trained on 'Internal investigation of incidents' (one day seminar). The managing directors of each division, and their deputies, were instructed on carrying out inspections on a regular basis.

Regular mentoring is being conducted by HSE department employees during site visits. At the Moscow office, Novo, and MNV, safety committees are now in place and work groups have been assembled to ensure that new HSE policies are adopted across the board. Safety contests were arranged at Novo (children's drawing contest; best work space contest; contest for a safety slogan and logo) and MNV (children's drawing contest; contest for a safety slogan and logo).

One of the most efficient tools being implemented for continuous safety monitoring across the Company is a system of three-stage safety controls and inspections, overseen by each division's managing director. Managers, specialists and clerks are instructed to utilise a set of behavioural safety audit principles in their inspections, which are designed to have a positive impact on employees' personal attitudes towards safety, to encourage safe behaviour, and to help prevent hazardous situations.

Regulatory agencies carried out both scheduled and unscheduled environmental inspections at Novo and Kekura during Q3 2017. The Company has a system in place for following up on any recommendations resulting from these inspections.

Over the course of Q3 2017, 83 employees attended environmental safety training instruction. Some 67 specialists and managers attended a two-day course on the new ISO 1401-2015 standard.

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Glossary:

Russian Standard - Gosstandart of Russia (GOST), the national Russian standard on mining and minerals as published by the National Certification Body of the Russian Federation.

JORC - Widely accepted standard for reporting mineral resources and ore reserves established by the Australasian Joint Ore Reserves Committee.

Cut-Off Grade - A grade level below which the material is considered to be uneconomical to mine and process. The minimum grade of ore used to establish reserves.

Note: Waste stripping reported in tonnes as per standard industry practice. In previous years, the Company reported waste stripping in volume (m3).

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