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HIGHLAND GOLD MINING LIMITED Interim Results Announcement for H1 2016 26 September 2016 Highland Gold Mining Limited (“Highland Gold”, the “Company” or “Group”) today reports its unaudited financial results and production figures for the half year ended 30 June 2016 ("H1"). FINANCIAL SUMMARY

IFRS, US$000 (unless stated) H1 2016 H1 2015

Gold sold (gold and gold eq. oz) 127,697 119,277

Total Group cash costs (US$/oz)* 444 538

Group all-in sustaining costs (US$/oz)* 609 710

Revenue 147,097 130,740

Operating profit 50,420 18,778

Net profit 37,052 14,466

EBITDA* 79,720 54,885

EBITDA margin (%)* 54% 42%

Earnings per share (US$) 0.113 0.044

Net cash inflow from operations 78,378 56,523

Capital expenditure 18,814 18,153

Net debt position* 197,900 232,427

* Definitions for non-IFRS terms are provided in the glossary to the Chief Financial Officer's Report below.

The interim condensed consolidated financial statements of Highland Gold for the six months ended 30 June 2016 are set out below. H1 2016 HIGHLIGHTS Financial

Total first half revenue rose 13% year-on-year to US$147.1 million, reflecting improved metals prices and increased sales volumes during the period.

H1 2016 EBITDA was US$ 79.7 million, an increase of 45% over H1 2015, while EBITDA margin rose to 54%.

All-in sustaining costs (AISC) per ounce fell by 14% to US$609/oz, assisted by ongoing weakness in the rouble and strict cost controls.

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Free cash flow (defined as net cash flows from operating activities less cash flows used in investing activities) was US$60.7 million

Net debt to EBITDA ratio reduced to 1.3 as of 30 June 2016 versus 1.7 as of 31 December 2016 as the Company directed free cash flow to debt repayment.

Operations

Total H1 2016 production of 128,671 oz of gold and gold equivalent at Mnogovershinnoye (MNV), Novoshirokinskoye (Novo), Belaya Gora, and Sredny Golgotay (Kaftan site), an increase of 6% from 121,242 oz in H1 2015.

MNV and Novo exceeded internal production targets for the quarter, while at Belaya Gora efforts to optimise operations were ongoing.

Exploration work continued on the Northern ore body at MNV, with reserves expected to receive approval from regulators by year-end.

Work commenced on the planned expansion of processing capacity at the Novo mill.

Pre-feasibility study completed for Kekura, and a subsequent fatal flaw review supported open pit and underground mine design plans.

Scoping studies initiated for the Baley Cluster Projects (Taseevskoye, Sredny Golgotay and ZIF-1 tailings) and Unkurtash, and a revised pre-feasibility study initiated for Klen.

POST HALF YEAR EVENTS

Interim Dividend of £0.05 per share approved by the Board of Directors

The Company affirms its forecast for total production of gold and gold equivalent of 255,000-265,000 oz for the full year.

CONFERENCE CALL DETAILS The Company will hold a simultaneous webcast and conference call to discuss the results, hosted by CEO Denis Alexandrov, on Monday, 26 September 2016 at 10:00 UK time (12:00 Moscow). This event is being streamed. It is recommended that you listen via your computer speakers. The link for online registration is: http://engage.vevent.com/rt/webcasting/index.jsp?seid=746 To register to participate by telephone and to receive local dial-in numbers, please follow this link: http://emea.directeventreg.com/registration/87650126 FOR FURTHER INFORMATION PLEASE CONTACT: Highland Gold John Mann, Head of Communications

+ 7 495 424 95 21 Duncan Baxter, Non-Executive Director + 44 (0) 1534 814 202

Numis Securities Limited (Nominated Adviser and Broker)

John Prior, James Black Paul Gillam +44 (0) 207 260 1000

Peat & Co (Joint Broker)

Charlie Peat +44 (0) 207 104 2334

***

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CEO STATEMENT Denis Alexandrov, CEO of Highland Gold, said: "Sadly, I have to begin by stating that, after the reporting period, on 10 September, the Company witnessed a fatality at our MNV underground mine. In light of this accident and an increase in minor incidents this year, we have undertaken urgent measures to strengthen and expand our HSE team and to update our safety standards across all of our operations. We have also initiated safety inspections of all underground shafts at MNV and Novo. Overall, the Company witnessed a positive first half of 2016, with increased production, stronger gold prices, cost controls, and the weak rouble together contributing to improved earnings, lower costs and higher margins. At the core of this progress were MNV and Novo, which both exceeded their six-month production targets. Work on reassessing MNV's reserves, as well as exploration of near-mine targets, continued apace with a target of extending life of mine. Novo increased mining and processing throughput while also advancing plans to expand the mill's capacity to 1.3 million tons over the next two years. Belaya Gora continued to face challenges with both geology and metallurgy during the half, despite higher ore production and a reduction in tailings grade. The Company has initiated work, together with consultants SRK, to reassess the mine's reserves, to study the combined processing of Belaya Gora ores with those of the nearby Blagodatnoye deposit, and to upgrade the mill with CIL technology. This work will continue throughout the second half and be finalised early next year. The Company also saw progress in its exploration and development projects, with over US$ 10 million spent on drilling programs at MNV, Kekura, Sredne Golgotay, and Blagodatnoye, as well as on a pre-feasibility study (PFS) for Klen, open pit dewatering at Taseevskoye, and a scoping study for Unkurtash. A PFS for Kekura was delivered in the second quarter and preparations for construction at the site are already underway. These efforts are laying the foundations for production growth in the years to come." OPERATIONAL REVIEW Mnogovershinnoye (MNV), Khabarovsk Region, Russia

A re-evaluation of MNV's historical waste dumps resulted in 300,000 tonnes of ore being put on the balance sheet at a grade of just over 1.0 g/t.

Significant improvement was seen in mined grades during H1.

Improvement in ore mining, recovery and total gold production over H1 2015 figures.

MNV Units H1 2015 H2 2015 H1 2016

Waste stripping m3 1,780,663 1,573,547 305,900

Underground development m 4,287 6,163 5,863

Open-pit ore mined t 289 420 448,548 22 067

Open-pit ore grade g/t 2.08 1.85 3.02

Waste dumps ore mined t – - 276 312

Waste dumps ore grade g/t – - 1.06

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Underground ore mined t 330,329 434,890 351,336

Underground ore grade g/t 2.21 2.52 3.20

Total ore mined t 619,749 883,438 649,715

Average grade g/t 2.15 2.18 2.28

Ore processed t 705,493 707,326 672,600

Average grade g/t 2.08 2.49 2.28

Recovery rate % 89.0 91.5 90.93

Gold produced oz 42,451 52,107 44,929

Novoshirokinskoye (Novo), Zabaikalsky Region, Russia

Underground development, ore mining and processing continued to trend upward versus the previous two halves.

Recovery rates remain stable at over 86%.

Novo Units H1 2015 H2 2015 H1 2016

Underground development m 5,312 5,625 5,808

Ore mined t 327,629 373,790 401,983

Average grade * g/t 5.4 5.7 5.5

Ore processed t 331,551 359,733 371,945

Average grade * g/t 5.4 5.8 5.6

Recovery rate * % 85.3 86.6 86.5

Gold produced * oz 48,634 57,987 57,960

* In gold equivalents at actual prices. (Metal grade of mined ore = Au 3.09 g/t, Ag 86.08 g/t, Pb 2.63 %, Zn 0.71 %)

Preparatory construction work has commenced on the planned expansion of Novo's processing capacity to 1.3 million tonnes per annum. Geotechnical construction studies are being finalised at the site and design documentation is being developed. The mine and mill are expected to reach the new, increased capacity in late 2018. Belaya Gora, Khabarovsk Region, Russia

Higher H1 processing volumes versus H1 2015 were offset by a fall in grades.

The percentage recovery rate fell slightly due to the lower grades, but improvements in mill performance meant the amount of gold sent to tailings was actually reduced to 0.35 g/t from 0.45 g/t for the first half.

Belaya Gora Units H1 2015 H2 2015 H1 2016

Waste stripping m3 1,557,257 2,160,512 3,294,701

Ore mined t 885,314 1,337,790 955,385

Average grade g/t 1.63 1.32 1.22

Ore processed t 674,985 876,303 833,509

Average grade g/t 1.87 1.47 1.29

Recovery rate % 75.89 74.9 72.7

Gold produced oz 30,157 31,149 25,349

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Studies continued on avenues for improving recovery rates at the mill, while outside consultants have been brought in to assist in optimising mining operations and reassessing gold reserves. Sredny Golgotay (Kaftan Site), Zabaikalsky Region, Russia A pilot project to mine ore from the Kaftan site of the Sredny Golgotay licence, initiated in Q1 of this year, resulted in 4,501 tonnes of ore being transported to the Novo mill for processing. The ore had an average grade of 3.6 g/t, somewhat below initial expectations. To help to better understand the quantity and quality of reserves at Kaftan, contractor Sosnovgeo carried out part of a 7,900 metre grade control drilling programme at the site. As of June 30, 6,654 linear metres were drilled. Assay results were obtained for 6,610 samples. The drilling was completed in July and results are expected later this year.

Sredny Golgotay (Kaftan) Units H1 2015 H2 2015 H1 2016

Underground development m – – 766

Ore mined t – – 13,103

Average Grade g/t – – 2.50

Ore processed t – – 4,501

Average Grade g/t – – 3.6

Gold produced oz - - 433

DEVELOPMENT PROJECTS Kekura, Chukotka Autonomous District, Russia Work carried out at Kekura in H1 included completion of a pre-feasibility study (PFS) drafted by Wardell Armstrong; development by a Russian design institute of a methodology for calculation of losses and dilution; and development of design documentation for a mining and processing complex. A Fatal Flaw Review of the Kekura PFS by RungePincockMinarco resulted in a positive opinion on mine designs for both the open pit and underground scenarios. Ore reserves were determined to be of high quality and the project was recognised as having a low sensitivity towards gold prices. The work produced by RungePincockMinarco identified a pathway forward for further optimisation of technical solutions and improvement of the project's economic viability. Preparations for 2017 construction and installation are underway, including the procurement of construction materials and the selection of contractors to build key infrastructure facilities. In the second half of the year, the Company will focus on obtaining approval of project documentation from the main environmental and state expert review panels; receiving approval of design documentation; obtaining permits for construction; and further preparing for the commencement of construction and installation work. Klen, Chukotka Autonomous District, Russia In H1, the Company initiated a review of previous decisions on Klen with a view towards identifying a viable scenario to develop the project under current market conditions. International consultants Hatch were selected via tender to draft a new pre-feasibility study for a processing plant and

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infrastructure facilities at Klen. Initial indications are that opportunities do exist to improve and optimise previous options considered for the project. The Company expects to receive a full financial and economic model for Klen and to make a decision on further project development in the second half of this year. Lyubov, Zabaikalsky Region, Russia. During the first half, the Company signed an agreement with an outside contractor to process ore from existing tailings at the Lyubov site. Impoundments, water intake and drainage ditches have been arranged, a processing plant has been installed, and commissioning is underway, with all of the necessary equipment and materials delivered to the site. A pilot programme to test the project's production potential is expected to commence in the third quarter of this year. Baley Ore Cluster, Zabaikalsky Region, Russia. (Taseevskoye, Sredny Golgotay and ZIF-1 tailings licences) At Taseevskoye, a programme was initiated in H1 to evaluate oversized rock stockpiles with a view to confirming reserves for a potential heap leaching initiative. The Company drilled 19 holes for a total of 208.7 metres drilled in Q2. Results indicated that the rock massif is likely waste from previous mining and the resource has been estimated at 700,000 tonnes at an average grade of 0.8 g/t. On May 10, the Company began the process of dewatering the existing Taseevskoye open pit in order to provide drill platforms necessary for further evaluation, initially removing approximately 135,000 m3 of water. The programme will continue up until mid-November of this year. At Sredny Golgotay, testwork was carried out on the first phase of R&D work on the development

of a pilot X-ray fluorescence spectrometry (XRF) plant, which would enable the pre-concentration

of gold-bearing ores from the site. Initial results indicate that XRF might be a feasible and effective solution, and a decision was made to continue to the second and third phases of the R&D programme. EXPLORATION Mnogovershinnoye, Khabarovsk Region, Russia. The Company is close to completing the second stage of its exploration drilling programme at the Northern ore body (MNV Lower Horizon licence), which called for 11,000 m of diamond drilling this year. An ore zone of approximately 600 m in length with an average thickness of 1.2 m and average grade of 5.7 g/t has been identified on the Eastern flank of this ore body. An initial resource estimate from this drilling programme is expected in the fourth quarter. Drilling and evaluation of the new reserves are ongoing. An additional 2,000 m on a 50x50 m grid were added to the programme to evaluate the Western flank of the ore body. Also in H1, exploration drilling at underlying levels of the Southern and Flank ore bodies were initiated. At the Chaynoye ore body (MNV Western Flank licence), trenching has commenced to verify anomalies identified during earlier exploration efforts.

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Blagodatnoye, Khabarovsk Region, Russia. In order to augment the mineral resource base for Belaya Gora, the Company has targeted further exploration of gold reserves at the nearby Blagodatnoye gold deposit. The licence has preliminarily measured С2 category reserves for open pit mining of about 10 million tonnes of ore and approximately 525,000 oz of gold. Initial metallurgical test work has supported gold recovery of up to 93% via cyanidation. An exploration drilling programme of 15,000 m extended throughout H1 for the purpose of registering reserves with regulators and potentially adding measured and indicated reserves. Completion of the programme is expected in the fourth quarter. Additionally, processing samples of 3.1 tonnes of ore were extracted to develop a flowsheet for processing at the Belaya Gora mill. Kekura, Chukotka Autonomous District. A 25,000-metre exploration drilling programme, initiated early this year, continued throughout H1 with the goal of confirming and potentially increasing reserves intended for underground mining, which were not included in the JORC reserve audit results announced earlier this year. As of June 30, a total of 16,900 metres had been drilled. Preliminary gold assay results continue to confirm the presence of commercial mineralisation with high gold grades in previously-explored ore zones. The programme is scheduled for completion in the fourth quarter. Sredny Golgotay, Zabaikalsky Region, Russia. An exploration drilling programme of 15,000 m commenced in Q2 in order to validate state-registered reserves across the Sredny Golgotay licence; to check for potential additional resources from low-grade halos surrounding high-grade veins; and to identify reserves suitable for open pit mining. The results are expected by year-end. HEALTH, SAFETY, AND ENVIRONMENT The Company remains dedicated to ensuring occupational safety and managing production risks, as well as offering relevant training for its employees and encouraging them to take personal responsibility at the workplace. The Lost Time Incident (“LTI”) factor (defined as the number of lost time incidents for every 200,000 man hours) in the first half of this year was 0.31 (0.25 in H1 2015). Five incidents were recorded across the Company, including three at MNV and two at Novo. All of them were minor injuries. By mid-year, a safety induction (1 day) course was given to 688 employees in 2016. Meanwhile, 98 managers and specialists passed self-tuition courses and testing using OlimpOKS software (without work disruption) and were certified on industrial safety (7-30 day programmes). Auxiliary mine rescue teams are kept ready at mine sites to address emergency localisation and response. The Company continues to observe environmental and regulatory requirements and no environmental incidents were reported. In 2016, environmental safety training had been provided to 688 employees as of 30 June.

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INTERIM FINANCIAL REVIEW CHIEF FINANCIAL OFFICER’S REPORT Strong operational performances at Novo and MNV resulted in a 6.1% growth in production in the first half of 2016. Favourable macroeconomic conditions, such as improving gold prices, the weak Rouble and better access to liquidity in Russia, allowed the Company to demonstrate sustained growth, increased margins and robust cash flow. Highland Gold continues to keep production costs low and to adhere to its goals of maintaining a strong cash position and paying dividends. Overall Group revenue was US$147.1 million in H1 2016 compared to US$130.7 million in H1 2015. A 7.1% increase in the sales volume of gold and gold equivalents (GE), accompanied by slightly higher gold prices, resulted in 12.5% growth in revenue. Over the reporting period, the Company sold 127,697 ounces of gold and gold equivalents compared to 119,277 ounces in H1 2015. Novo and MNV increased their sales volumes, with Novo’s sales growing to 57,787 eq. oz (up 16.2% y-o-y), accounting for 45.3% of the total, while MNV increased its sales volume by 7.2% to 44,902 ounces in H1 2016 for a 35.2% share. BG, with its share at 19.6%, saw its sales volume slip to 25,008 ounces (H1 2015: 27,675 oz), a decrease of 9.6%. The Group continued its “no hedge” policy in H1 2016. The average realised price of gold for MNV and Belaya Gora (net of commission) was US$1,225 per oz, in line with the average market price (average H1 2016 LBMA price was US$1,222 per oz) and a slight increase of 1.9% y-o-y. Due to higher gold prices and the improved quality of concentrates, the average price of gold equivalents realised by Novo increased to US$1,044 per eq. oz in H1 2016, compared to US$928 per eq. oz in H1 2015. 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 third-party plants. The Company’s cost of sales net of depreciation decreased by 11.7% to US$58.0 million in H1 2016 (H1 2015: US$65.6 million). The positive effect of the Russian Rouble's weakness enabled the Company to offset the negative impact of overall inflation and an increase in prices for energy and some major consumables. Depreciation was US$28.8 million, down 20.3% y-o-y, mainly resulting from the extension of life-of-mine at all operational assets. Cash Operating Costs

H1 2016 H1 2015 y-o-y

US$000 US$000 change, %

Cost of sales 86,737 101,699 (14.7%)

- depreciation, depletion and amortisation (28,753) (36,057) (20.3%)

Cost of sales, net of depreciation, depletion and amortisation 57,984 65,642 (11.7%)

Breakdown per item:

Labour 20,472 20,918 (2.1%)

Consumables and spares 22,350 23,976 (6.8%)

Power 4,264 4,368 (2.4%)

Movement in ore stockpiles, finished goods and stripping assets (8,503) (4,696) 81.1%

Maintenance and repairs 11,289 12,435 (9.2%)

Taxes other than income tax 8,112 8,641 (6.1%) Total cash costs1 (TCC) decreased by a significant 17.6% to US$444 per oz, some 16.5% below the industry average. Breaking it down by business unit, total cash costs at our low-cost producer Novo were US$248 per eq. oz, falling by 25.9% from the first half of the previous year and reflecting the rise in production volumes, and improved grades and recoveries. MNV, our oldest mine, also saw considerably lower total cash costs of US$602 per oz (H1 2015: US$813 per oz)

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due to increases in the average grade and recovery rate. As a result of lower grades and recovery rates, total cash costs at Belaya Gora increased from US$489 per oz to US$613 per oz y-o-y. All-in sustaining costs2 (AISC) per ounce dropped by 14.3% to US$609 in H1 2016 from US$710 in H1 2015. TCC and AISC Calculations

H1 2016 H1 2015 y-o-y

US$000 US$000 change, %

Cost of sales, net of depreciation, depletion and amortisation 57,984 65,642 (11.7%)

- сost of other sales (1,312) (1,424) (7.9%)

Total cash costs (TCC) 56,672 64,218 (11.8%)

+ administrative expenses 7,048 6,652 6.0%

+ accretion and amortisation on site restoration provision 827 1,153 (28.3%)

+ sustaining capital expenditure 13,195 12,708 3.8%

Total all-in sustaining costs (AISC) 77,742 84,731 (8.2%)

Gold sold (gold and gold eq.oz) 127,697 119,277 7.1%

TCC (US$/oz) 444 538 (17.6%)

AISC (US$/oz) 609 710 (14.3%)

The Group’s administrative expenses grew by 6.0% y-o-y, to $7.0 million. Higher sales volumes, cost control initiatives and the weaker Rouble resulted in a 45.2% increase in EBITDA3, to US$79.7 million in H1 2016 from US$54.9 million in H1 2015. The EBITDA margin4 rose from 42.0% to 54.2%, within range of the world's most efficient gold miners. Broken down by business unit, EBITDA margin was 73.5% at Novo (H1 2015: 59.7%), 40.8% at MNV (H1 2015: 24.8%) and 49.1% at BG.

The Company analysed internal and external indicators of impairment or reversal of previously recognised impairment losses. Management came to the conclusion that there were no such items as of 30 June 2016.

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In H1 2016, the Group recorded a net finance loss of US$3.5 million compared to a US$0.4 million loss in H1 2015. The fair value of bonds held by the Company decreased by US$1.4 million (mainly due to a weaker Pound sterling) whereas in H1 2015 the company recognised a gain of US$2.1 million. Interest expense on bank loans was recorded in the amount of US$1.3 million in H1 2016 versus US$1.4 million in H1 2015. A foreign exchange gain of US$1.9 million (H1 2015: loss of US$1.8 million) resulted from the settlement of foreign currency transactions and the transfer of monetary assets and liabilities denominated in currencies such as Russian Roubles into US Dollars. Income tax charges totalled US$11.8 million in H1 2016 compared to US$2.1 million in H1 2015. The tax figure is comprised of US$17.5 million of current tax expenses (US$9.9 million at Novo, US$7.5 million at MNV and other US$0.1 million) and US$5.7 million (H1 2015: release of US$7.7 million) of deferred tax release. Net profit for the first half of 2016 was US$37.1 million, compared to a profit of US$14.5 million in H1 2015, mainly reflecting higher revenue, lower cost of sales and foreign exchange gain due to the devaluation of the Russian Rouble. Earnings per share more than doubled to US$0.113 (H1 2015: US$0.044). The Group's cash inflow from operating activities totalled US$78.4 million (H1 2015: US$56.5 million). Capital expenditures in H1 remained flat y-o-y, totalling US$18.8 million versus US$18.2 million in H1 2015. They included US$6.0 million at MNV, US$3.8 million at Novo, US$1.3 million at Belaya Gora, US$5.4 million at Kekura, US$1.6 million at Taseevskoye, and US$0.7 million related to other exploration and development projects within the Group. Capital expenditures were funded by operating cash flow. The amounts drawn down under the bank facilities decreased by 15.0% to US$215.5 million as of 30 June 2016 (31 December 2015: US$253.4 million). The Company’s debt is denominated in USD with an effective annual interest rate of 5.09%. Despite the higher LIBOR, the interest rate was reduced by 0.40% since the end of 2015. Gross Debt Breakdown, thousand USD

The Group’s net debt position5 as of 30 June 2016 was US$197.9 million, compared to US$231.4 million as of 31 December 2015. Cash and cash equivalents (GBP-denominated bonds) as of 30 June 2016 amounted to US$19.8 million, compared to US$24.2 million as of 31 December 2015. The ratio of net debt to EBITDA was 1.3 on 30 June 2016, which is substantially lower than the ratio of 1.7 as of 31 December 2015 and well within the Board of Directors' debt policy.

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Management reaffirms its intention to continue operational improvements and to improve margins, therefore allowing us to maintain a strong cash position and to continue to pay dividends. EVENTS AFTER THE REPORTING PERIOD In August 2016, the Group signed additional agreements with Alfa Bank and Raiffeisen Bank. The new agreements are long-term credit facilities with an overall limit of US$102.0 million, providing an extension of the final maturity until December 2019. PAYMENT OF DIVIDENDS The Board has approved an interim dividend of £0.05 per share. The interim dividend will be paid on 21 October 2016 to shareholders on the register at the close of business on 7 October 2016. The ex-dividend date is 6 October 2016. 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 2015 Annual Report (Pages 18-23) and have not changed during the first half of 2016. The Group’s management considered these risks likely to be the same risks faced for the rest of 2016 and the Group at the moment does not foresee any additional principal risks. Rounding of figures may result in computational discrepancies Glossary

1 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. 2 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.

24 20

78 19 6 7

38

12

0

30

60

90

120

150

Cash &bonds

01.01.2016

Net cashflows fromoperations

Cashcapital

expenditure

Increase instrippingactivityassets

Interestand leasing

Net loanrepayment

Dividendspaid

Cash &bonds

30.06.2016

Cash position bridge, USD m

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3 EBITDA is 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 4 EBITDA margin is defined as EBITDA divided by total revenue

5 Net debt is defined as cash at bank, deposits and bonds, decreased by any bank borrowing and lease obligations

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Interim consolidated statement of comprehensive income

for the six months ended 30 June

Notes

2016 unaudited

US$000

2015 unaudited

US$000

Revenue 3 147,097 130,740

Cost of sales 3 (86,737) (101,699)

Gross profit 60,360 29,041

Administrative expenses (7,048) (6,652)

Other operating income 197 173

Other operating expenses (3,089) (3,784)

Operating profit 50,420 18,778

Foreign exchange gain/ (loss) 1,928 (1,781)

Finance income 4.1 70 2,175

Finance costs 4.2 (3,579) (2,558)

Profit before income tax 48,839 16,614

Current income tax expense 5 (17,452) (9,847)

Deferred income tax release 5 5,665 7,699

Total income tax expense 5 (11,787) (2,148)

Profit for the period 37,052 14,466

Total comprehensive income for the period 37,052 14,466

Attributable to:

Equity holders of the parent 36,815 14,160

Non-controlling interests 237 306

Earnings per share (US$ per share)

Basic, for the profit for the period attributable to ordinary equity holders of the parent

14 0.113 0.044

Diluted, for the profit for the period attributable to ordinary equity holders of the parent

14 0.113 0.044

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

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Interim consolidated statement of financial position

as at

Notes

30 June 2016

unaudited

31 December 2015

audited

30 June 2015

unaudited

US$000 US$000 US$000

Assets

Non-current assets

Exploration and evaluation assets 6 84,922 309,101 309,413

Mine properties 6 559,080 318,068 326,715

Property, plant and equipment 6 308,912 320,986 337,776

Intangible assets 3 70,365 70,365 87,119

Inventories 9 15,020 16,372 13,487

Other non-current assets 2,970 3,845 3,252

Deferred income tax asset 4 - 18

Total non-current assets 1,041,273 1,038,737 1,077,780

Current assets

Inventories 9 59,307 67,758 58,541

Trade and other receivables 33,751 31,188 29,518

Income tax prepaid 133 3,770 2,591

Prepayments 1,706 888 3,576

Financial assets 7 7,779 21,150 33,618

Cash and cash equivalents 10 11,995 3,058 6,164

Other current assets 439 602 422

Total current assets 115,110 128,414 134,430

Total assets 1,156,383 1,167,151 1,212,210

Equity and liabilities

Equity attributable to equity holders of the parent

Issued capital 12 585 585 585

Share premium 718,419 718,419 718,419

Assets revaluation reserve 832 832 832

Retained earnings 43,764 18,176 51,762

Total equity attributable to equity holders of the parent 763,600 738,012 771,598

Non-controlling interests 1,072 1,566 2,876

Total equity 764,672 739,578 774,474

Non-current liabilities

Interest-bearing loans and borrowings 11 121,651 183,000 193,959

Provisions 19,142 16,026 19,971

Liability under finance lease 1,364 1,526 978

Long-term accounts payable 260 223 318

Deferred income tax liability 129,795 135,457 121,272

Total non-current liabilities 272,212 336,232 336,498

Current liabilities

Trade and other payables 23,330 20,201 23,325

Interest-bearing loans and borrowings 11 93,807 70,375 76,852

Liability under finance lease 852 749 420

Income tax payable 1,510 16 641

Total current liabilities 119,499 91,341 101,238

Total liabilities 391,711 427,573 437,736

Total equity and liabilities 1,156,383 1,167,151 1,212,210

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Interim consolidated statement of changes in equity

for the six months ended 30 June 2016

Attributable to equity holders of the parent

Issued capital

Share premium

Asset revaluation

reserve

Retained earnings

Total Non-controlling

interest

Total equity

Notes US$000 US$000 US$000 US$000 US$000 US$000 US$000

At 31 December 2015

585 718,419 832 18,176 738,012 1,566 739,578

Total comprehensive income for the period

- - - 36,815 36,815 237 37,052

Novo shares purchase

13 - - - 643 643 (731) (88)

Dividends paid to equity holders of the parent

- - - (11,870) (11,870) - (11,870)

At 30 June 2016 (unaudited)

585 718,419 832 43,764 763,600 1,072 764,672

for the six months ended 30 June 2015

Attributable to equity holders of the parent

Issued capital

Share premium

Asset revaluation reserve

Retained earnings

Total Non-controlling

interest

Total equity

US$000 US$000 US$000 US$000 US$000 US$000 US$000

At 31 December 2014

585 718,419 832 47,698 767,534 2,570 770,104

Total comprehensive income for the period

- - - 14,160 14,160 306 14,466

Dividends paid to equity holders of the parent

- - - (10,096) (10,096) - (10,096)

At 30 June 2015 (unaudited)

585 718,419 832 51,762 771,598 2,876 774,474

4

Interim consolidated cash flow statement

for the six months ended 30 June

2016 unaudited

2015 unaudited

Notes US$000 US$000

Operating activities

Profit before income tax 48,839 16,614

Adjustments to reconcile profit before income tax to net cash flows from operating activities:

Depreciation of mine properties and property, plant and equipment 6 28,753 36,057

Movement in raw materials and consumables obsolescence provision 9 562 50

Write-off of mine properties and property, plant and equipment 6 218 1,236

(Gain)/ loss on disposal of property, plant and equipment (22) 107

Bank interest receivable 4.1 (64) (45)

Bonds fair value movement 4.1, 7 1,381 (2,123)

Interest expense on bank loans 4.2 1,286 1,442

Accretion expense on site restoration provision 4.2 801 1,096

Net foreign exchange (gain)/ loss (1,928) 1,781

Other non-cash expenses 220 918

Working capital adjustments:

Increase in trade and other receivables and prepayments (4,436) (4,195)

Decrease in inventories 9,960 12,454

Increase in trade and other payables 4,688 1,198

Income tax paid (11,880) (10,067)

Net cash flows from operating activities 78,378 56,523

Investing activities

Proceeds from sale of property, plant and equipment 57 16

Purchase of property, plant and equipment 3 (18,814) (18,153)

Capitalised interest paid 3, 6 (5,288) (6,290)

Increase in stripping activity assets 6 (5,554) (5,865)

Interest received from deposits 64 45

Interest received from bonds 7 - 1,373

Purchase of investments – bonds 7 - (3,818)

Novo shares purchase 13 (88) -

Sale of investments – bonds 7 11,990 13,907

Net cash flows used in investing activities (17,633) (18,785)

Financing activities

Proceeds from borrowings 177,500 311,424

Repayment of borrowings (215,500) (344,453)

Dividends paid to equity holders of the parent (11,870) (10,096)

Payment under finance lease, including interest (533) -

Interest paid (1,284) (1,385)

Net cash flows used in financing activities (51,687) (44,510)

Net (decrease)/ increase in cash and cash equivalents 9,058 (6,772)

Effects of exchange rate changes (121) (10)

Cash and cash equivalents at 1 January 3,058 12,946

Cash and cash equivalents at 30 June 11,995 6,164

5

1. Corporate information

These interim condensed consolidated financial statements of Highland Gold Mining Limited for the six months ended 30 June 2016 were authorised for issue in accordance with a resolution of the Directors on 23 September 2016.

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 2016 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 2015 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 2015.

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 interim condensed consolidated financial statements are consistent with those applied in the preparation of the consolidated financial statements for the year ended 31 December 2015, except for the adoption of new standards and interpretations effective as of 1 January 2016. Although these new standards and amendments apply for the first time in 2016, 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 Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

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, Lubov, 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.

6

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) 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 described 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 2016 the gold and silver revenue reported in the gold production segment was received from sales to Gazprombank (US$86.6 million) in the territory of the Russian Federation.

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 2016 the concentrate revenue reported in the polymetallic concentrate production segment in the amount of US$60.3 million was received from sales to Kazzinc in the territory of the Republic of Kazakhstan (H1 2016: US$53.6 million; H1 2015: US$46.1 million) and to Hyosung corporation in the territory of the People's Republic of China (H1 2016: US$6.7 million; H1 2015: Nil).

Other third-party revenues in both H1 2016 and H1 2015 were received in the territory of the Russian Federation.

Inter-segment revenues mostly represent management services.

7

Period ended 30 June 2016 Gold

production segment

Polymetallic concentrate production

segment Development & exploration Other Eliminations Total

US$000 US$000 US$000 US$000 US$000 US$000

Revenue

Gold revenue 85,620 - - - - 85,620

Silver revenue 995 - - - - 995

Concentrate revenue - 60,320 - - - 60,320

Other third-party 76 78 8 - - 162

Inter-segment 24 - - 5,586 (5,610) -

Total revenue 86,715 60,398 8 5,586 (5,610) 147,097

Cost of sales 62,798 23,631 255 53 - 86,737

EBITDA 37,717 44,416 (554) (1,859) - 79,720

Other segment information

Depreciation (19,376) (9,310) (16) (51) - (28,753)

Movement in raw materials and consumables obsolescence provision

(562) - - - - (562)

Individual impairment 15

Finance income 70

Finance costs (3,579)

Foreign exchange gain 1,928

Profit before income tax 48,839

Income tax (11,787)

Profit for the period 37,052

Segment assets at 30 June 2016

Non-current assets

Capital expenditure* 207,178 165,763 579,467 506 - 952,914

Goodwill 22,253 5,134 42,978 - - 70,365

Other non-current assets 15,464 1,666 566 298 - 17,994

Current assets** 80,394 37,027 4,577 9,736 (16,624) 115,110

Total assets 1,156,383

Capital expenditure - addition during the first half of 2016***, including:

13,942 4,463 13,015 7 - 31,427

Stripping activity assets 5,554 - - - - 5,554

Capitalised interest - - 5,288 - - 5,288

Unpaid/ (settled) accounts payable

1,072 664 83 (48) - 1,771

Cash capital expenditure 7,316 3,799 7,644 55 - 18,814

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

** Current assets at 30 June 2016 include corporate cash and cash equivalents of US$12.0 million, investments of US$7.8 million, inventories of US$59.3 million, trade and other receivables of US$33.8 million and other assets of US$2.2 million. Eliminations relate to intercompany accounts receivable.

*** Capital expenditure for the first half of 2016 includes additions to property, plant and equipment of US$26.9 million (Note 7) and capitalised interest of US$5.3 million (Note 7), less prepayments previously made for property, plant and equipment of US$0.8 million.

Non-current assets at 30 June 2016 are located in the Russian Federation (US$ 998.1 million) and in the Kyrgyz Republic (US$43.2 million). Current assets at 30 June 2016 are located in the Russian Federation.

8

Period ended 30 June 2015 Gold

production segment

Polymetallic concentrate production

segment Development & exploration Other Eliminations Total

US$000 US$000 US$000 US$000 US$000 US$000

Revenue

Gold revenue 83,640 - - - - 83,640

Silver revenue 801 - - - - 801

Concentrate revenue - 46,110 - - - 46,110

Other third-party 101 81 7 - - 189

Inter-segment 47 - 62 5,900 (6,009) -

Total revenue 84,589 46,191 69 5,900 (6,009) 130,740

Cost of sales 74,215 26,983 461 40 - 101,699

EBITDA 31,679 27,588 (2,909) (1,473) - 54,885

Other segment information

Depreciation (25,726) (10,271) (22) (38) - (36,057)

Movement in raw materials and consumables obsolescence provision

(50) - - - - (50)

Finance income 2,175

Finance costs (2,558)

Foreign exchange loss (1,781)

Profit before income tax 16,614

Income tax (2,148)

Profit for the period 14,466

Segment assets at 31 December 2015

Non-current assets

Capital expenditure* 210,489 170,688 566,426 552 - 948,155

Goodwill 22,253 5,134 42,978 - - 70,365

Other non-current assets 18,959 387 544 327 - 20,217

Current assets** 83,545 26,101 4,098 28,656 (13,986) 128,414

Total assets 1,167,151

Capital expenditure - addition during the first half of 2015***, including:

13,293 3,423 13,902 14 - 30,632

Stripping activity assets 5,865 - - - - 5,865

Capitalised interest - - 6,290 - - 6,290

Unpaid/ (settled) accounts payable

443 77 (91) (105) - 324

Cash capital expenditure 6,985 3,346 7,703 119 - 18,153

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

** Current assets at 31 December 2015 include corporate cash and cash equivalents of US$3.1 million, investments of US$21.2 million, inventories of US$67.8 million, trade and other receivables of US$31.2 million and other assets of US$5.1 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 31 December 2015 are located in the Russian Federation (US$995.7 million) and in the Kyrgyz Republic (US$43.0 million). Current assets at 30 June 2015 are located in the Russian Federation.

9

4. Finance income and costs

4.1 Finance income

For the six months ended 30 June

2016 2015

US$000 US$000

Bonds fair value movement (Note 8) - 2,123

Bank interest 64 45

Other finance income 6 7

Total finance income 70 2,175

4.2 Finance costs

For the six months ended 30 June

2016 2015

US$000 US$000

Accretion expense on site restoration provision 801 1,096

Interest expense on bank loans 1,286 1,442

Interest expense on finance lease 111 20

Bonds fair value movement (Note 8) 1,381 -

Total finance costs 3,579 2,558

10

5. Income tax

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

For the six months ended 30 June

2016 2015

US$000 US$000

Current income tax

Current income tax charge 17,452 9,847

Adjustments in respect of prior year current/deferred tax - -

Deferred income tax

Relating to origination of temporary differences (5,665) (7,699)

Income tax expense 11,787 2,148

There are no tax amounts recognised directly in equity during the first half of 2016 (H1 2015: Nil).

The majority of the Group entities are Russian tax residents. Tax for the six months ended 30 June 2016 is charged at 24.6% (H1 2015: 12.9%), 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 2016 is higher than the statutory rate of 20% mainly due to the lower tax rates on overseas losses.

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.

11

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

Reconciliation of fixed assets for the period ending 30 June 2016

Mining assets

Exploration and

evaluation assets

Freehold building

Plant and

equipment

Construction in progress

Stripping

activity assets

Total

US$000 US$000 US$000 US$000 US$000 US$000 US$000

Cost

At 31 December 2015 460,703 323,117 205,277 218,437 67,343 17,225 1,292,102

Additions 4,455 6,846 - 1,325 8,673 5,554 26,853

Transfers 253,856 (252,151) 892 6,295 (9,325) - (433)

Write-off* 2 - (591) (2,396) - - (2,985)

Disposals - - - (299) - - (299)

Capitalised depreciation 553 1,822 - - 406 64 2,845

Capitalised interest** - 5,288 - - - - 5,288

Change in estimation – site restoration asset***

2,328 - - - - - 2,328

At 30 June 2016 721,897 84,922 205,578 223,362 67,097 22,843 1,325,699

Depreciation and impairment

At 31 December 2015 151,128 14,016 65,935 102,565 1,571 8,732 343,947

Provided during the period 10,444 - 6,156 11,138 - 1,015 28,753

Transfers 14,016 (14,016) (7) (311) (115) - (433)

Write-off* - - (565) (2,202) - - (2,767)

Disposals (264) (264)

Capitalised depreciation 325 - 971 1,549 - - 2,845

Capitalised to inventory - - 125 593 - - 718

Other adjustments - - - - (14) - (14)

At 30 June 2016 175,913 - 72,615 113,068 1,442 9,747 372,785

Net book value:

At 31 December 2015 309,575 309,101 139,342 115,872 65,772 8,493 948,155

At 30 June 2016 545,984 84,922 132,963 110,294 65,655 13,096 952,914

* Write-off for the first half of 2016 in the amount of US$0.2 million relates to retirement of old inefficient equipment.

** Capitalised interest for the first half of 2016 includes US$5.3 million of borrowing costs capitalised at Kekura at interest rates between 4.2% and 6.5%.

*** During the first half of 2016 there was a change in the rehabilitation estimate associated with the change in volumes of expected site restoration activities, discount and inflation rates. The net present value of the increase in the cost estimate is US$2.3 million (increase of US$0.8 million at MNV, increase of US$0.7 million at Novo, increase of US$0.7 million at BG and increase of US$0.1 million at Kekura) which was booked as an increase to mining assets and non-current provisions.

No plant and equipment has been pledged as security for bank loans in the first half of 2016.

Mine properties in the interim consolidated statement of financial position comprise mining assets and stripping activity assets.

Property, plant and equipment in the interim consolidated statement of financial position comprise freehold building, plant and equipment and construction in progress.

12

Reconciliation of fixed assets for the period ending 30 June 2015

Mining assets

Exploration and

evaluation assets

Freehold building

Plant and

equipment

Construction in progress

Stripping

activity assets

Total

US$000 US$000 US$000 US$000 US$000 US$000 US$000

Cost

At 31 December 2014 438,385 296,739 202,881 204,545 77,835 36,032 1,256,417

Additions 3,002 4,598 - 1,605 9,710 5,865 24,780

Transfers 10,272 (668) (6,899) 3,544 (7,497) - (1,248)

Write-off* (132) - (284) (3,435) (592) (3,646) (8,089)

Disposals - - (5) (99) (76) - (180)

Capitalised depreciation 408 2,454 - - 1,219 - 4,081

Capitalised interest** - 6,290 - - - - 6,290

Change in estimation – site restoration asset***

3,186 - - - - - 3,186

At 30 June 2015 455,121 309,413 195,693 206,159 80,599 38,251 1,285,236

Depreciation and impairment

At 31 December 2014 124,372 - 43,209 82,013 573 28,638 278,805

Provided during the period 10,773 - 8,216 12,378 - 4,690 36,057

Transfers 1,904 - (374) (2,778) - - (1,248)

Write-off* (117) - - (2,590) (500) (3,646) (6,853)

Disposals - - (4) (53) - - (57)

Capitalised depreciation 43 - 2,000 2,038 - - 4,081

Capitalised to inventory - - 155 373 - - 528

Other adjustments - - - - 19 - 19

At 30 June 2015 136,975 - 53,202 91,381 92 29,682 311,332

Net book value:

At 31 December 2014 314,013 296,739 159,672 122,532 77,262 7,394 977,612

At 30 June 2015 318,146 309,413 142,491 114,778 80,507 8,569 973,904

* Write-off for the first half of 2015 in the amount of US$1.2 million relates to retirement of old inefficient equipment.

** Capitalised interest for the first half of 2015 includes US$6.3 million of borrowing costs capitalised at Kekura at a 5.2% interest rate.

*** During the first half of 2015 there was a change in the rehabilitation estimate associated with the change in volumes of expected site restoration activities, discount and inflation rates. The net present value of the increase in the cost estimate is US$3.2 million (increase of US$0.6 million at MNV, increase of US$1.4 million at Novo, increase of US$1.0 million at BG, increase of US$0.1 million at Klen and increase of US$0.1 million at Kekura) which was booked as an increase to mining assets and non-current provisions.

No plant and equipment has been pledged as security for bank loans in the first half of 2015.

Mine properties in the interim consolidated statement of financial position comprise mining assets and stripping activity assets.

Property, plant and equipment in the interim consolidated statement of financial position comprise freehold building, plant and equipment and construction in progress.

13

7. Financial assets and liabilities

Fair values

The current values of the financial assets and financial liabilities approximate their fair values. The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The following methods and assumptions were used to estimate the fair values:

The carrying amounts of financial instruments, such as cash and short-term deposits, short-term accounts receivable and payable and other current liabilities approximate their fair value.

Fixed-rate interest-bearing loans and borrowings are evaluated based on current market interest rates.

The fair value of the embedded derivative is based on quoted market prices

Coupon bonds

During the first half of 2016 the Group received US$12.0 million as a result of selling some bonds.

The bonds are treated as financial assets at fair value through profit or loss. Fair value of those bonds was determined based on quoted bid prices (source: Bloomberg). The table below contains bonds fair value movement.

30 June 2016 31 December 2015 30 June 2015

unaudited audited unaudited

US$000 US$000 US$000

Fair value of bonds at the beginning of the period 21,150 42,957 42,957

Fair value (loss)/ gain (840) 14 234

Foreign exchange (loss)/ gain (1,174) (1,271) 404

Coupon interest income accrued 633 2,503 1,485

Bonds fair value movement (1,381) 1,246 2,123

Coupon interest income received - (2,534) (1,373)

Bonds sold (11,990) (24,337) (13,907)

Bonds purchased - 3,818 3,818

Fair value of bonds at the end of the period 7,779 21,150 33,618

14

Fair value hierarchy

The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities

Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly

Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.

Assets measured at fair value 30 June 2016 Level 1 Level 2

US$000 US$000 US$000

Coupon bonds 7,779 7,779 -

Trade receivables (embedded derivative) 2,068 - 2,068

31 Dec 2015 Level 1 Level 2

US$000 US$000 US$000

Coupon bonds 21,150 21,150 -

Trade receivables (embedded derivative) 1,261 - 1,261

30 June 2015 Level 1 Level 2

US$000 US$000 US$000

Coupon bonds 33,618 33,618 -

Trade receivables (embedded derivative) (2,402) - (2,402)

There have been no transfers between fair value levels during the reporting period.

8. Commitments and contingencies

Capital commitments

At 30 June 2016, the Group had commitments of US$10.2 million (at 31 December 2015: US$5.8 million, at 30 June 2015: US$11.0 million) principally relating to development assets and US$4.9 million (at 31 December 2015: US$1.9 million, at 30 June 2015: US$1.4 million) for the acquisition of new machinery.

Contingent liabilities

Management has identified possible tax claims within the various jurisdictions in which the Group operates totalling US$3.4 million at 30 June 2016 (at 31 December 2015: US$2.3 million, at 30 June 2015: US$3.1 million).

15

9. Inventories

Non-current*

30 June 2016

unaudited

31 December 2015

audited

30 June 2015

unaudited

US$000 US$000 US$000

Ore stockpiles 16,986 21,101 18,096

16,986 21,101 18,096

Ore stockpile obsolescence provision (1,966) (4,729) (4,609)

Total non-current inventories 15,020 16,372 13,487

* The portion of the ore stockpiles that is to be processed in more than 12 months from the reporting date is classified as non-current inventory.

30 June 2016

unaudited

31 December 2015

audited

30 June 2015

unaudited

Current US$000 US$000 US$000

Raw materials and consumables 53,027 66,195 57,796

Ore stockpiles 14,531 6,661 4,118

Gold in progress 5,121 5,195 6,465

Finished goods 783 896 880

73,462 78,947 69,259

Raw materials and consumables obsolescence provision (11,392) (11,189) (10,718)

Ore stockpile obsolescence provision (2,763)

Total current inventories 59,307 67,758 58,541

Movement in raw materials and consumables obsolescence provision amounted to US$0.6 million in the first half of 2016 (H1 2015: US$0.05 million). US$0.4 million of materials provided in prior periods were sold in H1 2016. No inventory has been pledged as security.

10. Cash and cash equivalents

Cash at bank earns interest at fixed rates based on daily bank deposit rates. Short-term deposits are made for varying periods of between one day and three months depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates. The deposits are placed with banks with credit rating Ba2 (Moody's). The fair value of cash and cash equivalents is equal to the carrying value.

For the purpose of the interim consolidated cash flow statement, cash and cash equivalents comprise the following:

30 June 2016

unaudited

31 December 2015

audited

30 June 2015

unaudited

US$000 US$000 US$000

Cash in hand and at bank 7,638 3,058 4,164

Short term deposits 4,357 - 2,000

11,995 3,058 6,164

16

11. Interest-bearing loans and borrowings

Effective interest rate % Maturity

30 June 2016

unaudited

US$000

31 December 2015

audited

US$000

30 June 2015

unaudited

US$000

Current

Sberbank loan (1) 4.2 September 2016 12,458 37,375 49,833

Gazprombank loan (2) 4.0 March 2017 46,000 33,000 9,500

Gazprombank loan (3) 5.0, 7.0 from 18 March 2015

August 2015 - - 17,519

Gazprombank loan (5) 6.5, 5.7 from 30 June 2016

December 2018 32,571 - -

UniCredit loan (6) 5.5 December 2018 2,778 - -

93,807 70,375 76,852

Non-current

Sberbank loan (1) 4.2 September 2016 - - 12,458

Gazprombank loan (2) 4.0 March 2017 - 22,500 60,000

Gazprombank loan (4) 7.9 November 2015 - - 80,000

Gazprombank loan (5) 6.5, 5.7 from 30 June 2016

December 2018 39,429 80,000 -

UniCredit loan (6) 5.5 December 2018 47,222 50,000 -

Alfa-bank loan (7) 5.3 December 2018 35,000 30,500 41,501

121,651 183,000 193,959

Total 215,458 253,375 270,811

(1) In September 2013 the Group raised financing with Sberbank at a 3.8% interest rate (at a 4.2% effective interest rate) with the draw period set till 2 September 2016. The loan is repayable in instalments between December 2014 and September 2016. The drawn down loan payable balance under the agreement at 30 June 2016 is US$12.5 million. The outstanding bank debt is subject to the following covenant: the ratio of net debt to EBITDA should be equal to or lower than 4.0.

(2) In March 2014 the Group secured a revolving facility with Gazprombank with the draw period set till 31 March 2016. The interest rate is set for every instalment separately. Every instalment is repayable in one year, with the final repayment in March 2017. The drawn down loan payable balance under the agreement at 30 June 2016 is US$46.0 million. The outstanding bank debt is subject to the following covenant: the ratio of total debt to EBITDA should be equal to or lower than 4.0.

(3) In March 2015 the interest rate was changed to 7.0%. The loan was repaid in August 2015.

(4) The loan was repaid in November 2015.

(5) In November 2015 the Group raised financing with Gazprombank at a 6.5% interest rate with the draw period set till 18 February 2016. In June 2016 the interest rate was changed to 5.7%. The loan is repayable in instalments between April 2017 and December 2018. The drawn down loan payable balance under the agreement at 30 June 2016 is US$72.0 million. The outstanding bank debt is subject to the following covenant: the ratio of total debt to EBITDA should be equal to or lower than 4.0.

(6) In December 2015 the Group raised financing with UniCredit bank at a LIBOR USD 1M + 5.0% interest rate with the draw period set till 17 January 2016. The loan is repayable in instalments between June 2017 and December 2018. The drawn down payable balance obtained under the agreement at 30 June 2016 is US$50.0 million. The outstanding bank debt is subject to the following covenant: the ratio of net debt to EBITDA should be equal to or lower than 3.5.

(7) In April 2015 the Group raised financing with Alfa-Bank with the draw period set till 31 December 2018. The interest rate is set for every instalment separately. The loan is repayable in December 2018. The drawn down loan payable balance under the agreement at 30 June 2016 is US$35.0 million. The outstanding bank debt is subject to the following covenant: the ratio of net debt to EBITDA should be equal to or lower than 4.0.

The total outstanding bank debt of the Group at 30 June 2016 is US$215.5 million. There were no covenant breaches as at 30 June 2016.

17

12. Share Capital

The total amount of the authorised ordinary shares of £0.001 each remained unchanged and equalled 750,000,000.

Ordinary shares issued and fully paid amounted to 325,222,098 shares, representing US$585 thousand.

13. Related party transactions

During the first half of 2016 the Group acquired 0.54% of OJSC Novo-Shirokinsky Rudnik’s shares for cash consideration of US $88 thousand, which resulted in a decrease of non-controlling interest of US $731 thousand.

14. Earnings per share

Basic earnings per share amounts are calculated by dividing profit for the period attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period.

Diluted earnings per share amounts are calculated by dividing the profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period plus the weighted average number of ordinary shares that would be issued on the exercise of share options into ordinary shares.

The following reflects the income and share data used in the basic and diluted earnings per share computations:

For the six months ended 30 June

2016 2015

US$000 US$000

Net profit attributable to ordinary equity holders of the parent 36,815 14,160

Thousands Thousands

Weighted average number of ordinary shares for basic earnings per share 325,222 325,222

Weighted average number of ordinary shares adjusted for the effect of dilution 325,222 325,222

There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of these financial statements.

15. Impairment of goodwill and non-current assets

In accordance with the Group’s accounting policy, goodwill is tested for impairment annually and when circumstances indicate the carrying value may be impaired.

When there is an indicator of impairment of non-current assets within a cash-generating unit (CGU) or a group of CGUs containing goodwill, non-current assets are tested for impairment first at each CGU and any impairment loss on the non-current assets is recognised before testing the groups of CGUs for a potential goodwill impairment. Impairment is recognised when the carrying amount exceeds the recoverable amount.

Non-current assets are tested for impairment when events or changes in circumstances suggest that the carrying amount may not be recoverable. The assessment is done at the CGU level, which is the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets.

In the first half of 2016 there was no indicator of impairment of non-current assets, including goodwill.

16. Events after the reporting period

In August 2016, the Group signed additional agreements with Alfa Bank and Raiffeisen Bank. The new agreements are long-term credit facilities with an overall limit of US$102.0 million, providing an extension of the final maturity until December 2019.

The Board has approved an interim dividend of £0.05 per share (H1 2015: £0.02 per share). The interim dividend will be paid on 21 October 2016 to shareholders on the register at the close of business on 7 October 2016. The ex-dividend date will be 6 October 2016.