Highland Gold Mining Ltd. Annual Report 2015

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FY2015 Annual Report · Highland Gold Mining Ltd.

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ANNUAL REPORT & ACCOUNTS 2015

HIGHLAND GOLD
MINING LIMITED

HIGHLAND GOLD MINING LIMITED

Mine Locations

Financial Review

The Year in Review

Financial Highlights

Operational Review

Chairman’s Statement

CONTENTS
2
3
4
6
8
14
18 Principal Risks and Uncertainties
24 Directors’ Report
29 Report on Remuneration
30 Board of Directors
32
Independent Auditors’ Report
34 Consolidated Financial Statements
38 Notes to the Consolidated Financial Statements
78 Reserves and Resources
80 Principal Group Companies
82 Directors, Company Secretary and Advisers
83 Notice of Annual General Meeting

ANNUAL REPORT & ACCOUNTS 2015

FINANCIAL HIGHLIGHTS

IFRS, US$000 (unless stated)

Production (gold and gold eq. oz)

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

Total Group cash costs (US$/oz)

Revenue

Operating profit

EBITDA

Net loss

Loss per share (US$)

Adjusted net profit*

Net cash inflow from operations

Capital expenditure

Net debt position

2015

2014

262,485

258,937

640

480

276,175

22,413

133,317

(10,019)

(0.032)

49,570

105,603

42,195

809

645

304,230

55,855

123,617

(24,843)

(0.077)

51,340

104,422

65,538

(229,167)

(247,198)

* Free of impairment and exchange rate losses and with a normalised tax rate (please see page 16)

HIGHLAND GOLD MINING LIMITED

THE YEAR IN REVIEW

KEY EVENTS
• Total production at Mnogovershinnoye (MNV),

Novoshirokinskoye (Novo) and Belaya Gora for the
full year 2015 of 262,485 oz of gold and gold
equivalents, an increase of 1.4% compared with
258,937 oz in 2014.

• Average realised price for gold and gold equivalents
in 2015 was US$1,062 per oz (2014: US$1,175 per oz).

• Total Cash Costs reduced by 25.6% to US$480 per
oz and All-In Sustaining Cash Costs lowered by
20.9% to US$640 per oz.

• Interim dividend of £0.020 per share paid for H1 2015

(2014: Interim dividend of £0.025 per share).

• Lost Time Incident Rate (LTI) rate edged up slightly

from 2014’s all-time low of 0.27 to 0.30.

POST YEAR EVENTS
• Denis Alexandrov appointed Chief Executive Officer
of Highland Gold's Moscow-based management
company, Russdragmet LLC, effective January 18.
Outgoing CEO Valery Oyf remains with the Company
as Non-Executive Director.

• Despite lower prices, strong cost performance

facilitated a 7.8% increase in EBITDA to US$133.3
million (2014: US$123.6 million), while EBITDA margin
reached 48.3% versus 40.6% in 2014.

• Updated registration of Russian category reserves for
12 ore bodies within the MNV licence with regulatory
authorities is underway and is expected to result in an
extension of the life of the mine.

• Net loss of US$10.0 million compared to net loss

• Final dividend of £0.025 per share recommended,

of US$24.8 million in 2014, primarily due to
impairment of Kekura due to delayed project
development and non-cash deferred tax charges
related to currency fluctuations.

• Adjusted net profit, free of impairment and exchange
rate loss and with a normalised tax rate, amounted to
US$49.6 million (2014: US$51.3 million).

• Project development activity focused on

advancement of the Kekura project including the
completion of geotechnical studies, pre-design
surveys, and data calculation for selection of a
processing flowsheet, together with the
commencement of design work for the processing
plant. A scoping study for the Baley Ore Cluster
projects (Taseevskoye, Sredny Golgotay and ZIF-1)
was also initiated.

making a total distribution of £0.045 per share for the
year to 31 December 2015 (2014: £0.045 per share).

TARGETS FOR 2016
• Maintain stable total production of gold and gold

equivalents in the range of 255,000-265,000 oz, as
the natural decline at MNV, as it approaches the end
of mine life, is offset by improvements at Belaya Gora
in the second half.

• MNV – Continue efforts to expand the resource

base in order to keep the mill in operation for years
to come.

• Belaya Gora – Further increase gold output by

seeking improvements in mining operations and
processing recovery rates.

• Exploration efforts focused on promising near-mine

targets at MNV designed to extend life of mine.

and processing plant under plans to boost throughput
to 1.3 mtpa.

• Novo – Complete studies for expansion of the mine

• New US$50 million three-year pre-export loan

• Ongoing development of the flagship Kekura project

agreement concluded between Novo and UniCredit
Bank: to be used to refinance existing debt.

alongside steps to advance other development
projects currently in the pipeline.

• Net debt to EBITDA ratio reduced to 1.7 as of
31 December 2015 from 2.0 a year earlier.

ANNUAL REPORT & ACCOUNTS 2015

CHAIRMAN’S STATEMENT

Dear Shareholder,

I am pleased to report that 2015 witnessed significant
progress across all the key elements of Highland’s
production and resource base which, in view of a
challenging trading backdrop, were prioritised during
the latter part of the preceding year.

The importance of Highland’s low cost producer
status, in relation to the gold price dynamic, cannot
be overstated and a 25.6% reduction in our Total Cash
Costs to US$480 per oz, accompanied by a 20.9%
fall in All-In Sustaining Cash Costs to US$640 per oz,
underlines our acknowledged credentials as one of
the lowest cost producers of gold in Russia which,
in turn, is the lowest cost producer of the metal in
the world.

The drivers of these key performance indicators
were: (i) management’s dual focus on optimising costs
and maximising throughput across the Company’s
operations; and (ii) the devaluation of the Russian
Rouble against the US$.

The average gold and gold equivalents price realised
during 2015 amounted to US$1,062 per oz (2014:
US$1,175 per oz) and should be seen against our
All-In Sustaining Cash Costs measurement.

These factors were also reflected in a 7.8% increase
in 2015’s EBITDA to US$133.3 million, a performance
which translates into an EBITDA margin of 48.3% (2014:
40.6%): a comforting litmus test of operating profitability.

Overall production from our three mines in Russia –
Mnogovershinnoye (MNV), Novoshirokinskoye (Novo)
and Belaya Goya – recorded a modest year-on-year
increase from 258,937 oz of gold and gold equivalents
in 2014 to a record 262,485 oz, albeit less than our
original expectations. This means that, in the space
of six years, management has expanded output by
more than 60% compared to the 163,208 oz recorded
in 2009: a compound annual growth rate of 7%.

Management continues to focus on extending the
life of MNV and further near-mine exploratory activity
was pursued during the year with a view to enhancing
both the underground and open-pit operations. A
reassessment of reserves is under way, the outcome
of which is expected to indicate an extension of MNV’s
life expectancy beyond the JORC-compliant resource
estimate of 2017.

Completion of the second stage of the processing
plant at Belaya Gora, our youngest mine, enabled the
facility to process 1,551,288 tonnes of ore, a 26.4%
improvement versus 2014, thereby achieving its annual
nameplate capacity of 1.5 million tonnes. Lower than
expected grades at Belaya Gora and related issues
with below-forecast recovery rates during the latter
part of 2015 were chiefly responsible for the shortfall
against our overall production estimate of 270,000 oz
but, despite this, the higher throughput led to a 57.8%
increase in the mine's gold production to 61,306 oz.

Novo proved the star performer with a record 691,284
tonnes of processed ore, representing a 18.6%
increase over 2014’s throughput, yielding a record
106,621 oz of gold and gold equivalents. We are intent
on driving our ambitious long-term optimisation model
for Novo and underground expansion, designed to
access new horizons, is under way, hand in hand with
plans to almost double annual processing capacity
to 1.3 million tonnes by the end of 2018.

The advancement of our Kekura development,
situated in the Chukotka region of North East Russia,
gathered momentum. Pre-design studies and surveys
were completed in respect of the mining complex and
design work commenced on the processing plant.

Kekura’s favourable metallurgy, combined with
the utilisation of open-pit and underground mining
techniques, could form the basis for a ‘low cost’
operation. We remain positive about the project,
despite having to take an impairment charge on
the asset for 2015.

Although the output of MNV, our original flagship mine,
is in natural decline the old workhorse, so to speak,
still accounted for some 36.0% of total output with a
contribution of 94,558 oz of gold.

In the Zabaikalsky region, where Novo is located,
management has initiated a scoping study on the joint
development of our Baley Ore Cluster projects which
comprise the Taseevskoye and Sredny Golgotay
deposits and ZIF-1 tailings. This is being conducted

HIGHLAND GOLD MINING LIMITED

by Amec Foster Wheeler and is scheduled for
completion during 2016. Meanwhile, a pilot
programme is under way to mine ore at Sredny
Golgotay for processing at Novo.

Your Board has constantly emphasised its
commitment, subject to all prudent provisions,
to the return of profits to shareholders by way of
dividend payments. Accordingly, the Board is pleased
to recommend the payment of a final dividend of
£0.025 per share (2014: £0.020 per share) which,
subject to approval at the Annual General Meeting
on 25 May 2016, will make a total distribution of £0.045
per share (2014: £0.045 per share) for the financial
year to 31 December 2015.

The health and safety of our employees is paramount
and management is ever-conscious of the risks
and hazards associated with the mining industry
as we endeavour to achieve a zero incident rate.
Education has always been central to our approach
and considerable emphasis is placed on the need
for employees to develop a sense of responsibility for
the safety of themselves and others. To this end, a
series of specialised training courses were once again
well attended. The mine rescue teams, established at
MNV, Novo and Belaya Gora in 2014, remain on call in
the event of an emergency. Despite such measures,
our Lost Time Incident Rate (LTI) rate (defined as the
number of lost time incidents for every 200,000 man
hours worked) edged up slightly from 2014’s all time
low of 0.27 to 0.30.

With regard to Highland’s environmental
responsibilities, the Company is committed to
minimising the impact of its operations. In keeping
with this, management continued to meet all
applicable environmental laws and implement all
relevant recommendations from the supervisory
authorities throughout 2015.

as a Non-Executive Director. Mr Alexandrov was the
former CEO of Auriant Mining AB, a Swedish company
engaged in gold exploration and production in Russia,
and is also a former Finance Director of Highland. It
gives me much pleasure to welcome Mr Alexandrov
back to Highland.

I also wish to record the Board’s thanks to Mr Oyf for
his excellent stewardship of Highland during an eight-
year tenure that witnessed the establishment of Novo
and Belaya Gora, substantial growth and an ultra-
competitive cost base.

Directors Alla Baranovskaya and Sergey Mineev,
together with Non-Executive Director Eugene
Tenenbaum, stepped down from the Board in the
spring of 2015, although Ms Baranovskaya and
Mr Mineev continue to play key roles as part of the
Company’s executive management team. I would
like to thank them all, on behalf of the Board, for their
valuable contributions to Highland’s development.

At the same time, John Mann, the Company’s Head
of Communications, was appointed an Executive
Director. John is widely versed in public relations,
public affairs and investor relations and his experience
leaves him admirably qualified to liaise directly with the
investment community on behalf of the Board.

Our approach to output levels in 2016, taking into
account the run down at MNV, will focus on ‘stability’
with an approximate target of 255,000 to 265,000
oz of gold and gold equivalents. We are intent on
progressing the achievements of 2015 and, to this
end, our priorities will be to: pursue our near-mine
exploration programme at MNV; accelerate the
expansion of Novo; refine Belaya Gora’s mining and
processing operations; and advance our Kekura and
Taseevskoye/Baley projects. Your Board remains
confident that Highland is well positioned to achieve
these value creating objectives.

The composition of the Board and management
team has undergone considerable change since my
last statement, the most significant aspect of which
occurred in January 2016, post the period under
review, with the appointment of Denis Alexandrov
as Chief Executive Officer of Highland's Moscow-
based management company, Russdragmet LLC,
in succession to Valery Oyf who remains on the Board

It now gives me much pleasure, on behalf of the
Board, to thank all our employees for the hard work
and commitment that brought about the achievements
of 2015.

EugeneShvidler
Executive Chairman

ANNUAL REPORT & ACCOUNTS 2015

MINE LOCATIONS

R U S S I A

MOSCOW

ASTANA

K A Z A K H S T A N

K Y R G Y Z S T A N

Unkurtash

HIGHLAND GOLD MINING LIMITED

Klen

Kekura

Novoshirokinskoye

Belaya Gora

Taseevskoye

MNV

Sr.Golgotay

Blagodatnoye

Lyubov

Operating Mine

Development Project

Exploration Project

ANNUAL REPORT & ACCOUNTS 2015

OPERATIONAL REVIEW

Management’s focus on minimising costs and maximising operational throughput, together with the weak
Rouble, brought considerable rewards during 2015, the most important of which was an extension of the
advantage Highland enjoys as one of the lowest cost gold producers in the world.

The priorities in 2016 will be to build on the successes of the year under review – particularly the above-budget
performance of Novo and the attainment of nameplate processing capacity at Belaya Gora – and embark on the
next stage of our flagship development project, Kekura.

The near-mine exploratory activity at MNV will continue during 2016 as the Company pursues its stated objective
of extending the life of the mine beyond 2017: a prospect that waits on a current reassessment of reserves.

Output totals will represent something of a balancing act between the run down at MNV – which still accounted
for more than a third of 2015’s peak production of 262,485 oz of gold and gold equivalents – and envisaged
output from the two sister mines. Against this backdrop, management is looking to achieve a stable production
outcome of between 255,000 and 265,000 oz of gold and gold equivalents in 2016.

We will also endeavour to further extend our cost advantage over our international and domestic peers, primarily
through judicious capital allocation, the utilisation of rigorous cost disciplines and the implementation of
innovative operating efficiencies.

MNOGOVERSHINNOYE (MNV), KhabarovsK region, russia
Process plant throughput at MNV totalled 1,412,819 tonnes of ore to yield 94,558 oz of gold in 2015 compared
with 122,320 oz in 2014. A decline in the recovery rate from 2014’s 91.8% to 90.4% reflected changes in mineral
composition and lower gold grades.

Open-pit and underground ore production registered a near 30% increase to 1,503,187 tonnes year-on-year,
while underground development increased from 2014’s 9,166 metres to 10,450 metres following a 53.5%
increase in second half activity to 6,163 metres versus H2 2014.

The average grade of mined ore at 2.17 g/t was 32.0% below the level achieved in 2014. This reflected open-
pit mining complications at the Flank ore body which led to the redeployment of operations to lower grade-
bearing areas.

MNV

Waste stripping
Underground
development
Open-pit ore mined
Open-pit ore grade
Underground ore mined
Underground ore grade
Total ore mined
Average grade
Ore processed
Average grade
Recovery rate
Gold produced

Units

t
g/t
t
g/t
t
g/t
t
g/t
%
oz

H1 2014

H2 2014

H1 2015

H2 2015

2014

2015

1,194,036

1,310,227

1,780,663

1,573,547

2,504,263

3,354,210

5,151

4,015

4,287

6,163

9,166

10,450

300,569
3.71
292,877
3.11
593,446
3.42
629,854
3.31
92.5
61,761

249,270
3.2
316,779
2.7
566,049
2.94
736,604
2.81
91.1
60,559

289,420
2.08
330,329
2.21
619,749
2.15
705,493
2.08
89.0
42,451

448,548
1.85
434,890
2.52
883,438
2.18
707,326
2.49
91.5
52,107

549,839
3.5
609,656
2.91
1,159,495
3.19
1,366,458
3.04
91.8
122,320

737,968
1.94
765,219
2.38
1,503,187
2.17
1,412,819
2.29
90.4
94,558

HIGHLAND GOLD MINING LIMITED

PRODUCTION COSTS
Total cash costs amounted to US$691 per ounce (2014: US$722 per ounce) while all-in sustaining costs were
US$881 per ounce (2014: US$835 per ounce).

CAPITAL COSTS
A total of US$10.3 million was invested at MNV in 2015. This included capitalised expenditures and construction
(US$3.1 million), purchase of equipment (US$6.2 million) and exploration (US$1.0 million).

OUTLOOK
The acquisitions of the North Western Flank and Lower Horizon licences in 2014 were specifically designed to
supplement MNV’s resource base, thereby extending the life of the mine. To further this objective, the near-mine
exploration activity of 2015 continues in 2016. Targeted resources encompass both the underground and open-
pit operations and the anticipated reassessment of reserves has the potential to extend the life of the mine well
beyond the current JORC-compliant resource estimate of 2017.

NOVOSHIROKINSKOYE (NOVO), ZabaiKalsKy region, russia
The optimisation of mining and processing technology at Novo led to an above budget performance for the year
which ultimately resulted in a 9.0% increase in production to a record 106,621 oz of gold and gold equivalents.
Mine output achieved a year-on-year increase of 20.2% to 701,419 tonnes, while processed ore recorded a
18.6% advance to 691,284 tonnes: record levels in both instances.

In order to facilitate immediate and prospective increases in throughput, new inter-circuit flotation equipment
was installed during H2 2015 with Zn flotation capacity ramped up. This benefited the recovery rate which
improved to 86.6% in H2 2015 compared with 85.3% for the corresponding period of 2014.

Onsite production of granulated explosives commenced in H2 2015: a development designed to reduce costs.

Novo

Underground
development
Ore mined
Average grade *
Ore processed
Average grade *
Recovery rate *
Gold produced *

Units

H1 2014

H2 2014

H1 2015

H2 2015

2014

2015

t
g/t
t
g/t
%
oz

5,162

5,155

5,312

5,625

10,317

10,937

280,987
5.6
281,137
5.6
84.3
42,949

302,485
6.6
301,685
6.6
85.3
54,826

327,629
5.4
331,551
5.4
85.3
48,634

373,790
5.7
359,733
5.8
86.6
57,987

583,472
6.2
582,822
6.2
84.9
97,775

701,419
5.6
691,284
5.6
86.0
106,621

In gold equivalents at actual prices
(metal grade of mined ore = Au 2.85 g/t, Ag 90.40 g/t, Pb 2.77%, Zn 0.75%).

PRODUCTION COSTS
Total cash costs amounted to US$302 per ounce (2014: US$429 per ounce) while all-in sustaining costs were
US$353 per ounce (2014: US$517 per ounce).

CAPITAL COSTS
A total of US$4.9 million was invested at Novo in 2015. This included capitalised expenditures and construction
(US$2.2 million) and purchase of equipment (US$2.7 million).

OUTLOOK
Significant expansion is planned at Novo in accordance with our long-term model and the extension of
underground mining operations, designed to access new horizons, will continue during 2016. In the wake of
studies initiated in H2 2015, plans have been approved for a near-doubling of processing capacity to 1.3 million
tonnes per annum by the end of 2018.

ANNUAL REPORT & ACCOUNTS 2015

OPERATIONAL REVIEW

BELAYA GORA, KhabarovsK region, russia
Total production of gold and gold equivalents at Belaya Gora recorded a 57.8% increase to 61,306 oz in 2015
compared with 38,842 oz in 2014. The scale of increase in activity is reflected in the quantity of ore mined which
more than doubled to 2,223,104 tonnes in 2015 following a second half increase of 118.8% to 1,337,790 tonnes
versus H2 2014.

The commissioning of the second stage gravity circuit of the Belaya Gora processing plant enabled the facility
to attain its nameplate capacity of 1.5 million tonnes. Processed ore totalled 1,551,288 tonnes: a 26.4% increase
compared with 2014’s 1,227,305 tonnes. The year-on-year recovery rate showed a 22.2% improvement to 75.4%.

Partial flooding of the open-pit in Q4 2015, due to severe weather conditions, disrupted the mining plan and was
partly responsible for a significant decline in the average grade of mined ore to 1.32 g/t in H2 2015 compared
with 1.63 g/t in the first half. This, in turn, contributed to the shortfall against the Company’s overall production
target of 270,000 oz of gold and gold equivalents in respect of 2015.

Design work on plant automation systems made good progress and installation is currently underway, aimed
at maintaining steady state operations and optimising reagent consumption. Additional test and design work is
underway for further modifications to the circuit in order to improve overall plant recoveries.

Preliminary work has commenced on the construction of a solid waste storage facility near Chlya, located some
12 kilometres to the west of the plant. The land has been cleared, site grading has begun and completion is
expected in 2016.

Belaya Gora

Waste stripping
Ore mined
Average grade
Ore processed
Average grade
Recovery rate
Gold produced

Units

m3
t
g/t
t
g/t
%
oz

H1 2014

767,690
465,610
1.32
462,333
1.81
62.79
15,411

H2 2014

H1 2015

H2 2015

2014

2015

1,137,601
611,457
1.52
764,972
1.45
61.6
23,431

1,557,257
885,314
1.63
674,985
1.87
75.89
30,157

2,160,512
1,337,790
1.32
876,303
1.47
74.9
31,149

1,905,291
1,077,067
1.43
1,227,305
1.58
61.7
38,842

3,717,769
2,223,104
1.45
1,551,288
1.64
75.4
61,306

PRODUCTION COSTS
Total cash costs amounted to US$465 per ounce (2014: US$926 per ounce) while all-in sustaining costs were
US$551 per ounce (2014: US$1,038 per ounce).

CAPITAL COSTS
A total of US$11.5 million was invested at Belaya Gora in 2015. This included capitalised expenditures and
construction (US$9.2 million) and purchase of equipment (US$2.3 million).

OUTLOOK
Following the increased throughput figures recorded at Belaya Gora in the year under review the focus in 2016
will be on improving grade control and achieving a further increase in recovery rates. The installation of a new
crushing unit in Q4 2015 is expected to facilitate a more stable mill operation.

SREDNY GOLGOTAY, ZabaiKalsKy region, russia
Preparatory mining operations commenced on the Kaftanovsky zone of the Sredny Golgotay deposit, part
of the Taseevskoye group of licences, during the second half of 2015. Initial activity included re-entering and
refurbishing the audit access, development of the site infrastructure and gaining regulatory approval for 2016’s
mining plan.

HIGHLAND GOLD MINING LIMITED

CAPITAL COSTS
A total of US$0.7 million was invested at Sredny Golgotay in 2015. This included capitalised expenditures
and construction.

OUTLOOK
The aforementioned mining plan calls for the extraction of 40,000 tonnes of ore in 2016 to be processed at Novo
for the purpose of producing flotation concentrate.

DEVELOPMENT PROJECTS
KEKURA, ChuKotKa region, russia
More than 6,000 tonnes of material and equipment were delivered to the Kekura site during H1 2015 to facilitate
ongoing activities and pave the way for construction.

The first half of the year also brought approval from the State Committee on Reserves (GKZ) in respect of
62.1 tonnes (1.99 million oz) of compliant (C1+C2 category) gold reserves at the project.

The principal focus during the second half of 2015 was the development of design documentation in respect
of the mine and the processing plant.

Progress on the respective designs was as follows:
• Mining complex and infrastructure – Pre-design studies and surveys were completed and public hearings held

regarding the design documentation.

• Processing plant and auxiliary facilities – Process studies were completed and calculations made for the

selection of a processing flowsheet. The process flowsheet, selected in early 2016, consists of single stage
crushing, SAG and ball mill, single stage gravity recovery, with CIL.

A draft report relating to an independent estimate of JORC reserves, conducted by Wardell Armstrong, was
received during H2 2015. The proposed parameters in the draft are currently being adjusted and developed
in further detail to the level of a Mining Feasibility Study. Publication of the report is expected in mid-2016.

The priorities at Kekura during 2016 will be: (i) to receive approval of first-stage mining design and
documentation from the relevant state mining and environmental agencies; (ii) obtain a construction permit; (iii)
complete design documentation for the second stage of project development and apply for regulatory approval;
and (iv) prepare for the onset of construction work.

TASEEVSKOYE, ZabaiKalsKy region, russia
During the second half of 2015 we initiated a Scoping Study for the Baley Ore Cluster projects comprised of:
Taseevskoye, Sredny Golgotay and ZIF-1 Tailings. This work is expected to be completed by mid-2016.

KLEN, ChuKotKa region, russia
With Kekura the priority in the Chukotka region, the Klen site is on care and maintenance.

ANNUAL REPORT & ACCOUNTS 2015

OPERATIONAL REVIEW

EXPLORATION
The Company completed more than 28,800 metres of exploration drilling in 2015, primarily at MNV. Overall
expenditure on exploration projects totalled US$8.5 million for the year, compared with US$18.0 million in 2014.

MNOGOVERSHINNOYE – KhabarovsK region, russia
The Company’s focus on near-mine exploration at MNV, designed to extend the life of the mine’s underground
and open-pit operations, continued throughout 2015 and encompassed the upgrading of existing resources and
targeting of additional resources.

In late Q2 2015, at the Lower Horizon MNV licence, management initiated an underground exploration drilling
programme at the lower horizons of the Severnoye ore body to delineate additional resources in the vicinity
of existing underground infrastructure. By the end of 2015, approximately 9,300 metres of drilling had been
completed which intersected ore grade gold mineralisation. Results warranted a follow-up programme with more
than 10,000 metres of drilling scheduled for completion in 2016.

Diamond core drilling activity in respect of all underground resource conversion in 2015 totalled 17,961 metres.

At the Western Flank MNV licence, immediately adjacent to the mine’s operations (Chaynoye prospect),
management compiled and submitted to the regulator a report on the exploration results to date. A follow-up
trenching and drilling programme is planned for 2016, targeting a potential open-pit resource at the site of a
prominent gold anomaly identified during 2014’s exploration activities.

KEKURA – ChuKotKa region, russia
The Company, in line with its ongoing development studies at Kekura, advanced an updated JORC-compliant
resource/reserve evaluation by an international consultancy, with final results released in Q2 2016.

A substantial resource conversion drilling programme is planned in 2016 for sections of the deposit designated
for underground mining.

A multi-year exploration programme targeting near-mine upside potential at identified prospects adjacent to the
Kekura deposit has been devised and awaits regulatory approval.

A modest exploration programme for alluvial gold, carried out at selected prospects in the vicinity of the Kekura
deposit, was completed in H2 2015.

OTHER PROJECTS
Reflecting the prioritisation of other projects, no field work was conducted at the Belaya Gora Flanks,
Blagodatnoye, Verkhne-Krichalskaya and Unkurtash projects during 2015.

HIGHLAND GOLD MINING LIMITED

HEALTH, SAFETY & ENVIRONMENT
The Company continued to focus on occupational safety and risk management on site throughout 2015 as we
strived towards our goal of zero workplace incidents. Various staff training courses were properly attended and,
as is customary, employees were encouraged to assume a sense of personal responsibility for their safety and
for the safety of their colleagues.

A total of 12 incidents (2014: nine) were recorded across the Group during the year: three were attributable to
MNV (one of which was serious); five to Novo; and four to BG (one of which involved a contractor). Regrettably,
our Lost Time Incident (LTI) rate (defined as the number of lost time incidents for every 200,000 man-hours
worked) increased slightly from 2014’s all-time low of 0.27 to 0.30.

A total of 1,546 employees attended an induction safety course (1 day), 1,176 received training in safe
operating methods at hazardous facilities (3-5 day course), and 380 received a 7-30 day training course in
industrial safety with subsequent certification. We have retained the auxiliary mine rescue crews, formed in 2014,
as an additional resource in the event of an emergency.

During H2 2015, MNV received a licence for the safe operation of explosive, fire and chemically-hazardous
production substances. Novo was granted a licence for the production of industrial-grade explosives.

The Company is totally committed to meeting all applicable environmental laws and implementing all relevant
recommendations from the supervising authorities. In November 2015, MNV and Russdragmet (Moscow office)
successfully completed recertification audits for the adherence of in-situ environmental management systems to
the ISO 14001 standard. The audits confirmed compliance with environmental regulations.

In addition, the Company successfully implemented a certified ISO 14001 standard environmental management
system at Belaya Gora and Novo.

Environmental protection courses were provided to 530 employees, while 625 employees received training with
regard to the safe handling of industrial waste.

Public hearings were successfully held in Bilibino, Chukotka region, during October, to discuss the design of
the Kekura mining complex and infrastructure, together with the materials involved, in order to assess the impact
on the environment.

ANNUAL REPORT & ACCOUNTS 2015

FINANCIAL REVIEW

In an environment of lower prices for precious and base metals in 2015, the Company succeeded in maintaining
a stable level of production while keeping costs under control, reducing debt, and paying competitive dividends.

Overall Group revenue was US$276.2 million in 2015 compared to US$304.2 million in 2014. The negative impact
of lower metals prices resulted in a 9.2% decrease in revenue. Over the reporting period, the Company sold
258,292 ounces of gold and gold equivalents compared to 257,111 ounces in 2014. Novo and BG considerably
increased their share in the Group’s total sales volume, with Novo’s sales growing to 105,299 eq. oz (up 13.4%
y-o-y) and accounting for 40.8% of the total, while Belaya Gora sold 59,971 ounces in 2015 for a 23.2% share.
MNV, with its share of 36.0%, remained a significant contributor to total sales volume with 93,022 ounces.

The Group continued to practice a “no hedge” policy in 2015. The average price of gold realised by MNV and
Belaya Gora (net of commission) was US$1,154 per oz, in line with the average market price (average 2015
LBMA price was US$1,160 per oz) and down by 8.6% y-o-y. The average price of gold equivalents realised by
Novo was US$927 per eq. oz in 2015, compared to US$1,018 per eq. oz in 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$1,062 per oz in 2015, compared with US$1,175 per oz in 2014, a decline of 9.6%.

The Company’s cost of sales net of depreciation decreased by 25.0% to US$126.8 million in 2015 (2014:
US$169.1 million). The positive effect of the Russian Rouble's devaluation enabled the Company to offset
the negative impact of the overall inflation (12.9%) and an increase in prices for energy and some major
consumables. Depreciation was US$72.6 million, up 22.2% y-o-y, largely resulting from the BG plant launch.

Cash operating Costs

Costofsales
– depreciation, depletion and amortisation

2015
US$000

199,365
(72,583)

2014
US$000

228,518
(59,392)

y-o-y
change, %

(12.8%)
22.2%

Costofsales,netofdepreciation,depletionandamortisation

126,782

169,126

(25.0%)

Breakdownperitem:
Labour
Consumables and spares
Power
Movement in ore stockpiles, finished goods and stripping assets
Maintenance and repairs
Taxes other than income tax

40,448
48,127
8,736
(12,745)
26,286
15,930

52,101
47,403
11,785
7,181
31,205
19,451

(22.4%)
1.5%
(25.9%)
(277.5%)
(15.8%)
(18.1%)

Total cash costs (TCC)1 decreased by a significant 25.6% to US$480 per oz, some 20.0% below the industry
average. Breaking it down by business unit, total cash costs at Belaya Gora halved from US$926 per oz to
US$465 per oz y-o-y as a result of economies of scale, improved grades and recovery rates. Total cash costs
at Novo were US$302 per eq. oz, falling by 29.5% from the previous year, largely reflecting the rise in production
volumes. MNV, our oldest mine, also saw decreased total cash costs of US$691 per oz (2014: US$722 per oz)
despite a considerable 24.7% reduction in average grade.

All-in sustaining costs (AISC)2 per ounce dropped by 20.9% to US$640 per oz in 2015 from US$809 per oz
in 2014.

HIGHLAND GOLD MINING LIMITED

TCC and aISC CalCulaTIonS

Cost of sales, net of depreciation, depletion and amortisation
– cost of by-products and other sales
– taxes other than income tax at other entities

2015
US$000

126,782
(2,374)
(392)

2014
US$000

169,126
(2,962)
(307)

y-o-y
change, %

(25.0%)
(19.9%)
27.7%

Total cash costs (TCC)

124 016

165 857

(25.2%)

+ administrative expenses
+ accretion and amortisation on site restoration provision
+ movement in ore stockpiles obsolescence provision
+ sustaining capital expenditure
Total all-in sustaining costs (AISC)

Gold sold (gold and gold eq.oz)
TCC (US$/oz)
AISC (US$/oz)

13,127
2,541
120
25,561
165,365

258,292
480
640

15,464
3,704
664
22,324
208,013

257,111
645
809

(15.1%)
(31.4%)
(81.9%)
14.5%
(20.5%)

0.5%
(25.6%)
(20.9%)

The Group’s administrative expenses fell by 15.1% y-o-y to $13.1 million, owing to the weaker Rouble and
expense optimisation measures.

The Group’s EBITDA3 increased by 7.8% in 2015 to US$133.3 million, compared to US$123.6 million in 2014. The
EBITDA margin4 increased from 40.6% to 48.3%, within range of the most efficient gold miners. Broken down by
business unit, EBITDA margin was 34.1% at MNV (2014: 41.9%) and 64.2% at Novo (2014: 53.4%). The EBITDA
margin at BG showed significant growth from 21.5% to 57.7% due to increased production volume.

EBITda BrIdgE, uS$ mIllIon

133

124

133

150

100

2013
Actual

2014
Actual

Price
of Sales

Volume
of Sales

Cost
of Sales

2015
Actual

The Company analysed any potential impairments as of 31 December 2015 and determined that there were,
in fact, indicators of impairment loss at Kekura, namely the effect of lower gold price assumptions and changes
to the mine plan. Kekura’s goodwill was impaired by US$16.8 million, its exploration and evaluation assets were
impaired by US$14.0 million and its property, plant and equipment were impaired by US$5.2 million.

In 2015, the Group recorded a net finance loss of US$4.2 million compared to a loss of US$0.8 million in 2014.
During the period, the fair value of bonds increased by US$1.2 million whereas in 2014 the gain was higher
(US$3.3 million). Interest expense on bank loans was recorded in the amount of US$3.3 million in 2015 versus
US$1.9 million in 2014. This increase resulted from zero capitalisation of BG interest due to the launch of the
plant, while US$1.7 million of interest expense was capitalised at this business unit in 2014.

ANNUAL REPORT & ACCOUNTS 2015

FINANCIAL REVIEW

A foreign exchange loss of US$4.3 million (2014: loss of US$9.6 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$23.9 million in 2015 compared to US$70.3 million in 2014. The tax figure is
comprised of US$15.9 million of current tax expenses (US$9.7 million at MNV, US$6.1 million at Novo and other
US$0.1 million), US$1.5 million of prior year tax adjustment and US$6.5 million of deferred tax. The reduction of
income tax was primarily a result of decreased foreign exchange movement.

A lower net loss of US$10.0 million for the year, compared to a net loss of US$24.8 million in 2014, reflects a
substantial reduction in foreign exchange fluctuations compared to 2014, which in that year resulted in a large
deferred tax charge, but were somewhat offset by higher impairment charges. Loss per share amounted to
US$0.032 (2014: US$0.077).

Adjusted Net Profit5 CAlCulAtioN

Loss for the year
- impairment losses
+ foreign exchange loss
+ normalisation of income tax
Adjusted net profit

2015
US$000
(10,019)
35,982
4,321
19,286
49,570

2014
US$000
(24,843)
11,401
9,599
55,183
51,340

y-o-y
change, %
(59.7%)
215.6%
(55.0%)
(65.1%)
(3.4%)

The Group's cash inflow from operating activities totalled US$105.6 million (2014: US$104.4 million) despite
falling metal prices.

The Company invested US$42.2 million in capital expenditures over the course of 2015, compared to
US$65.5 million in the prior year. This decline was a result of lower spending on BG, strict controls on
capital allocation, and the Russian Rouble devaluation. Сapital expenditures included US$10.3 million at
MNV, US$4.9 million at Novo, US$11.5 million at Belaya Gora, US$11.8 million at Kekura, US$2.8 million at
Taseevskoye and US$0.9 million related to other exploration and development projects within the Group.
Capital expenditures were funded by operating cash flow.

Debt decreased by 16.4% to US$253.4 million as of 31 December 2015. The Company’s debt is denominated
in USD with an effective annual interest rate of 5.49%. The interest rate increased by 1.0% due to a lack of bank
liquidity and overall higher borrowing costs in Russia.

Capitalised interest for 2015 includes US$12.4 million of borrowing costs capitalised at Kekura at interest rates
between 4.0% and 7.0%.

GROSS DEBT BREAKDOWN
BY BUSINESS UNITS, US$ thousand

GROSS DEBT BREAKDOWN
BY BANKS, US$ thousand

Novo
$118,000
46%

MNV
$55,500
22%

BG
$80,000
32%

Gazprombank
$135,500
53%

Sberbank
$37,500
15%

Alfa-bank
$30,500
12%

UniCredit
$50,000
20%

The Group’s net debt position6 as of 31 December 2015 was US$229.2 million, compared to US$247.2 million
as of 31 December 2014. Cash and GBP-denominated bonds as of 31 December 2015 amounted to
US$24.2 million, compared to US$55.9 million as of 31 December 2014.

HIGHLAND GOLD MINING LIMITED

The present ratio of net debt to EBITDA is 1.7, which is in line with the Board’s policy.

Cash position bridge, us$ million
42

105

150

100

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Management demonstrated its ability to deliver stable financial results despite exacting market trends during the
reporting year.

PAYMENT OF DIVIDENDS
A final dividend for the year ending 31 December 2014 in the amount of US$10.1 million was paid on 21 May 2015.

The Group paid an interim dividend of GBP 0.020 per share (2014: an interim dividend of GBP 0.025 per share),
which resulted in an aggregate interim dividend payment of US$10.0 million (2014: US$13.1 million). The interim
dividend was paid on 12 October 2015.

The Board has recommended a final dividend for 2015 of GBP 0.025 per share which, taking into account the
interim dividend paid in October 2015, makes a total dividend of GBP 0.045 per share for the year (2014: GBP
0.045 per share). The final dividend will be paid on 27 May 2016 to shareholders on the register at the close of
business on 29 April 2016 (the record date). The ex-dividend date will be 28 April 2016.

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.

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. Adjusted net profit is defined as net profit/(loss) free of impairment losses and foreign exchange, and applying a 33.3%

effective income tax rate (consistent with prior years in order to remove the foreign exchange effect related to deferred tax)

6. Net debt is defined as cash at bank, deposits and bonds, decreased by any bank borrowings.

Rounding of figures may result in computational discrepancies.

ANNUAL REPORT & ACCOUNTS 2015

PRINCIPAL RISKS AND UNCERTAINTIES

PRINCIPAL RISKS AND
UNCERTAINTIES

The Group is exposed to a number of risks and uncertainties that 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. The main challenge is to manage them effectively. The Group recognises that dealing with
risks is an integral part of managing its operations and is fundamental to the Group’s business success.

The Group’s risk management system is designed to be a consistent and clear framework for managing and
reporting the most significant operational risks to the Board of Directors. The Board is responsible for maintaining
the Group’s risk management system, defining risk appetite and monitoring the most significant risks.

The Audit Committee supports the Board of Directors in monitoring the Group’s risk exposures and is
responsible for reviewing the effectiveness of the risk management system. The risk register is presented to the
Audit Committee following periodic updates by the executive management. The risk register and framework use
the Group’s risk matrix and universal risk prioritisation and rating scale, which grade and prioritise perceived
and known risks based on the probability of the adverse event occurring and scale of consequences from a
risk occurrence. The risk register defines a responsible body or individuals who are charged with monitoring,
managing and mitigating these risks.

Executive management performs the risk identification, assessment and mitigation throughout various areas of
the Group’s business, ranging from detailed assessment of environmental risk at the operational level of each
mine, to the monitoring of delivery risks with respect to each major capital project and the assessment and
mitigation of risks at executive management and Board levels through the internal control system and specific
risk management actions. At an operational level, all mines identify, prioritise and directly engage stakeholder
groups that have the potential to affect their operational, sustainability or financial performance.

The Group’s principal risks are set out below and, for the most part, are typical of the risks associated with
other companies in the gold mining industry. We consider that, in general, the Group was affected by the same
risks as in prior periods, although the precise implications of certain risks may have changed together with our
remedial actions.

The Group takes into account known risks but there may be additional risks unknown to the Group and other
risks, currently believed to be immaterial, which could develop into material risks. Therefore, the Group’s risks
listed below do not represent a complete register of the risks and uncertainties.

HIGHLAND GOLD MINING LIMITED

MARKET AND FINANCIAL RISKS

RISK NAME

RISK DESCRIPTION

MITIGATION

The Group constantly monitors price trends and
forecasts, maintains a cost-cutting programme,
checks the viability of exploration and
development projects based on the current and
projected price levels and, if necessary, revises
specific investment plans and schedules. The
Group regularly reviews possibilities for hedging
against commodity price changes.

Commodity
prices

The Group’s product prices are subject to
international supply and demand and can be
volatile.

A significant and/or prolonged fall in the
commodity prices of the metals produced by the
Group (primarily Au and to a lesser extent Pb, Zn
and Ag) could have an adverse impact on sales
and profits. The Group did not use hedging in
2015 or prior periods and price fluctuations had
an effect on the Group’s profits.

The capability to invest in growth projects is
limited during periods of low commodity prices
– which may, in turn, affect future performance.
Furthermore, the financial viability of the
Group’s exploration, development projects and
production operations is sensitive to price levels
and may become questionable in an environment
of decreasing prices. Management may have
to reassess the economic model and recognise
impairment losses.

Financialrisks

Adverse economic conditions or uncertainties that affect global and Russian finance markets can
give rise to risks which may negatively impact the Group’s operations and results.

Please refer to Note 30 to the Consolidated Financial Statements for further details explaining the
implications and management of financial risks.

CurrenCy risK
Adverse fluctuations in Russian Rouble/USD and
GBP/USD exchange rates. The Group collects
the majority of revenues in US Dollars and also
obtains financing in US Dollars. The majority
of costs are linked to US Dollars although a
significant portion is incurred in Russian Roubles.

In 2015 and 2014, the Group benefited from
the devaluation of the Russian Rouble. The
negative aspect of Rouble depreciation was that
the Group’s net monetary assets denominated
in Roubles lost value and these losses were
recognised.

Credit risKs
Risk of loss related to a counterparty’s failure to
perform its contractual obligations or transactions
in a certain timeframe and, as a result, certain
financial assets (including assets with high
liquidity) may be impaired.

interest rate risK
Interest rates are affected by geopolitical
and macroeconomic events. An increase in
interest rates may adversely affect the Group’s
financial results and its ability to demonstrate the
economic viability of certain assets.

The Group uses natural hedging and matches
revenue and debt denominated in US Dollars,
and reviews other possible ways to hedge
exchange rate fluctuations if appropriate. The
Group did not use currency hedges in 2015 and
2014 nor in prior periods.

The Group places cash in reputable and highly
rated financial institutions and constantly
monitors the financial/economic situation.

The Group sells commodities to creditworthy
and reliable customers.

The majority of the Group’s loans and
borrowings have fixed rates at the date of debt
drawdown.

ANNUAL REPORT & ACCOUNTS 2015

PRINCIPAL RISKS AND UNCERTAINTIES

Financialrisks
(continued)

liquidity risK
Failure to accurately forecast, manage or
maintain sufficient liquidity and credit could
impact our ability to operate and result in financial
loss.

An event such as a significant operational
incident or geopolitical events may potentially
increase financing costs and limit access to
financing that could put pressure on the Group’s
liquidity.

The Group uses a short-term, medium-term
cash planning system and long-term cash flow
forecasts are prepared in line with strategic
planning.

The Group’s centralised treasury function
ensures that there is sufficient liquidity for day-
to-day operations at each location and reviews
the need to attract additional external financing.
Opportunities to secure loans at appropriate
rates are constantly monitored by the Group.

OPERATING RISKS

RISK NAME

RISK DESCRIPTION

MITIGATION

Risksassociatedwith
explorationactivities

The Group’s estimates of ore reserves and
mineral resources are subject to a number
of assumptions and approximations,
including geological, metallurgical and
technical factors, future commodity prices
and production costs. Fluctuations in any
of these variables could result in lower than
expected revenues, higher costs and lower
operating profits and could lead to reductions
in estimated reserves and resources.

The Group makes significant investments in
exploration activities performed at greenfield
sites to develop the business and at
brownfield sites to extend the life of mines.

For various reasons, including geological
and economic factors, such activities may
prove unsuccessful and may not result in
an increase in Group resources. The failure
to discover new resources could adversely
affect the Group’s future performance.

TheGroup’sdeposits
aresubjectto
explorationand
mininglicences

Group companies must comply with mineral
exploration and mining licence requirements.
Non-compliance with licence requirements or
major licence changes may result in a loss of
licence and mineral rights or significant costs
to ensure compliance with new requirements.

The Group conducts detailed exploration and
assesses results in accordance with widely
recognised methods of resources/reserves
evaluation.

In-house geologists have a proven track
record of successful exploration work and
a history of exploration projects moved
to the next stage (i.e. mine development
and production). The Group engages
internationally recognised external consultants
to confirm its resources and reserves
estimates (information regarding the Group’s
mineral resources and reserves, reported
in accordance with JORC, is presented on
pages 78-79).

The Board reviews exploration projects on
a regular basis and approves all exploration
activities and costs based on indicative
economic probabilities.

A review of the Group’s exploration activities
is presented in the Exploration section on
page 12.

Compliance with licence requirements is
constantly monitored at management level.
To diminish risks, measures are developed to
meet or renegotiate the terms and conditions
of licence agreements. The Group’s senior
management and the Board are regularly
informed as to compliance with licence
agreements.

HIGHLAND GOLD MINING LIMITED

RISK NAME

RISK DESCRIPTION

MITIGATION

Productionrisks
andfailuretodeliver
productionplans

Newconstruction
projects

Skilledworkforce
shortage

The Group’s mining operations are affected
by numerous risk factors not wholly within
the Group’s control, including flooding, pit
slope and rim slide, unexpected/unusual
geological variations or technical issues,
extreme weather conditions and natural
disasters. Such factors could adversely
affect production volumes and costs or
damage electricity supply facilities and/
or other necessary items of equipment or
infrastructure.

Group companies, in both open-pit and
underground operations, may encounter
unusual geological formations, including
overly thin ore bodies, incidental deterioration
in ore quality (lower grade) and dilution.

Unexpected interruptions in processing and
technological characteristics of the ore may
result in lower recovery rates than expected.

As a result of these factors, end-product
unit costs may turn out to be considerably
above budget and this might hinder the
implementation of production plans and
cause major losses in the form of impairment
of various assets and goodwill.

The Group faces challenges in developing
major projects, particularly in geographically
remote locations and in technically
challenging areas.

Construction projects require significant
resources and should be executed in
accordance with planned costs and within
defined terms.

Cost overruns and timely execution in projects
directly impact the capital, productivity and
commercial performance of assets across the
Group.

Incorrect capital allocation and poor project
management may result in a decrease in the
profitability of a particular project and affect
the Group’s results.

The Group experiences intense competition
with other companies for the retention and
engagement of mining and production staff,
including geologists, engineers, production
process managers and other mining
specialists.

The loss of key personnel or a failure
to attract, retain and motivate qualified
personnel, could have a materially adverse
effect on the Group’s business, financial state
and operational results.

The Group employs in-house planning experts
who specialise in mine engineering and
design and are responsible for developing
optimal safe and commercially-viable mine
plans. In turn, the in-house mine plans are
reviewed by external consultants and state
authorities.

The mine plans include consideration of
safe open-pit and underground mining
operations, including smoke warning systems,
personal protection kits: gas masks, self-
rescue systems, etc., and mine dewatering
equipment.

The Group implemented a number of
processes to ensure that production is
facilitated by the necessary machinery
and equipment, and that relevant standby
equipment is available. Regular maintenance
is performed by qualified Group employees
and contractors to ensure reliable machinery
and equipment operations. Stocks of spare
parts are maintained for urgent repairs.

Details of the operational performance of
each of the Group’s operations are included in
the Operations section on pages 8-13.

The Group initiates new projects, mine
extensions, etc., based on detailed investment
plans and a review of management resources.
Major projects are subject to external
consultants’ reports and JORC evaluation.

Capital expenditure disciplines and controls
are implemented to deliver on-budget
performance for construction projects.
Widely recognised project management
techniques are employed. The Group applied
a stage-gate process to ensure the cash
generation potential of future growth projects.
Management and the Board closely monitor
the status of new projects, costs incurred and
project issues.

The Group monitors the labour and salary
markets and develops motivation systems
to attract qualified personnel and retain key
employees.

One of the responsibilities of the Group’s
Remuneration Committee is to consider
and approve remuneration for senior
management.

ANNUAL REPORT & ACCOUNTS 2015

PRINCIPAL RISKS AND UNCERTAINTIES

RISK NAME

RISK DESCRIPTION

MITIGATION

TheGroupis
subjecttoextensive
environmental,health
andsafetylawsand
regulations

The Group is focused on health and safety
issues and environmental protection, both of
which are prioritised.

Safety and environmental policies are based
on the applicable legislation. Changes in
legislation are monitored.

The Group purchases the necessary
equipment to prevent fires, flooding, other
accidents and pollution. The Group organises
training and assessment programmes for all
staff and regularly checks their compliance
with HSE rules and regulations. An external
provider of rescue services is contracted in
accordance with legislation.

The Group strives to implement international
best practices, conducts regular internal
and external environmental audits, and
implements remedial actions where required.
In 2014, it completed the certification of all
major production sites under ISO 14001:2004,
and in 2015 successfully completed ISO
14001 recertification audits.

At Board level the Group’s HSE Committee
considers and monitors all key HSE risks.

Group companies are subject to various
environmental, health and safety regulations
stipulated by the relevant regulatory agencies.
The Group’s operations require various
licences/permissions with regard to the
use of industrial explosives, the operation
of flammable, explosive and chemically
aggressive production facilities and the use of
hazardous structures.

Stricter regulations could cause the Group to
incur additional costs in order to comply with
the new regulations.

State environmental agencies supervise
and regulate the Group’s operations in
accordance with applicable laws and
regulations regarding the use of such
contaminants as cyanide-containing reagents.
The Group monitors compliance with
environmental requirements and incurs costs
to achieve compliance, but if environmental
regulations change, Group companies may
face heavy fines and waste removal claims,
which may become a significant burden on
the Group and result in demands to cease
operational activity. The absence of a final
product would lead to a decrease
in profitability.

Inability to deliver appropriate levels of safety
and environmental protection may result in loss
of life, workplace injuries, pollution and lead to
a stoppage of operations, significant fines and
a threat to the Group’s licence to operate.

HIGHLAND GOLD MINING LIMITED

STRATEGIC RISKS

RISK NAME

RISK DESCRIPTION

MITIGATION

Anadequate
resourcebase
needstobe
maintainedfor
futureoperations
andreplacement
ofdepleted
mines

Due to the fact that the life of a mine is limited,
the Group has to strategically seek to replenish
its resource base through the development of
organic projects or through M&A activity.

The Group undertakes exploration projects
to sustain and increase the resource base.
Comprehensive near-mine exploration plans are
developed for all sites.

Mine development from exploration to
production is a prolonged process. There can
be no guarantee that current or prospective
exploration will lead to sustainable production
in the future.

The Group is actively looking for opportunities
around its existing operational assets to create
competitive advantages through synergies within
the Group and with regard to competitors’ projects.

Senior management monitors political
developments and new legislation and assesses
possible implications for the Group.

In addition, the Group has established lines
of communication with various governmental
authorities in order to contribute to the thinking
of such bodies and, when appropriate, to
participate in relevant discussions with political
and regulatory authorities.

In 2014 and 2015, the Group was not directly
affected by any sanctions, although the
macroeconomic situation in Russia resulted in
an increase in the cost of capital for the Group.
The Group monitors further developments on an
ongoing basis.

Regulatory
changesand
government

Risks related to changes in the political and
economic situation and legislative regulation
in the Russian Federation and Kyrgyzstan are
significant for the Group as the Group’s major
operations are located in these jurisdictions.

The Group’s operations in these jurisdictions
are regulated by numerous laws, standards and
guides. The Group’s approach is to strive to
comply with all applicable laws and regulations.

There is a risk that government and government
agencies could perform actions, adopt
new laws, taxes, regulations, rules or other
requirements which could have a negative
impact on the Group’s business and operations.

Recent developments in Ukraine and Crimea
resulted in international economic sanctions
in respect of certain Russian government
officials, other individuals and certain Russian
companies which, together with the decrease in
oil prices on the international market, adversely
affected the Russian economy.

Specifically, there is uncertainty regarding the
reliability of supply chain and the availability
and cost of capital. The geopolitical situation
may have an adverse effect on the Group’s
market value.

Changeinresidualrisklevelassessmentas
comparedtothesimilarriskin2014:

Increased

Decreased

Nochange

ANNUAL REPORT & ACCOUNTS 2015

DIRECTORS’ REPORT

DIRECTORS’ REPORT
THE DIRECTORS OF HIGHLAND GOLD MINING LIMITED ARE PLEASED TO SUBMIT THEIR
DIRECTORS’ REPORT TOGETHER WITH THE AUDITED FINANCIAL STATEMENTS FOR THE
YEAR ENDED 31 DECEMBER 2015.

REVIEW OF ACTIVITIES
Highland Gold Mining Limited (“Highland Gold” or the “Company” or the “Group”) was incorporated in Jersey
on 23 May 2002 for the principal purpose of establishing a portfolio of gold mining operations within the Russian
Federation. The Group’s activities, structure and operating companies are described more fully on pages
80-81 of the Annual Report. The Chairman’s Statement and the Operational Review highlight the Company’s
business developments during 2015 and future prospects. The Company’s shares are quoted on the AIM market
of the London Stock Exchange.

RESULTS AND DIVIDENDS
An overview of the Group’s results for the financial year to 31 December 2015 appears in the Financial
Review on page 14 of the Report. The Group achieved a loss for the year of US$10.0 million (2014: loss of
US$24.8 million).

The Directors recommend the payment of a final dividend on the Ordinary shares of GBP 0.025 (2014: GBP 0.020)
per share payable on 27 May 2016. This continues to reflect the Board’s confidence in Highland Gold’s growth
projections.

ACCOUNTING POLICIES
Highland Gold’s consolidated financial statements are presented in accordance with International Financial
Reporting Standards (IFRS) as adopted by the European Union with the US Dollar as its reporting currency.

DIRECTORS AND THEIR INTERESTS
The interests of the Directors in office, and of persons connected with them, in the Company’s £0.001 ordinary
shares, not previously reported and any subsequent changes up to the date of this report, are shown below:

Director

Duncan Baxter

Eugene Shvidler

Ordinary shares
At 31/12/2015

20,000

36,916,144

Ordinary shares
At 31/12/2014

Available options
At 31/12/2015

20,000

36,916,144

–

Primerod International Limited is the holding vehicle through which certain individual persons, managers and
connected parties of Millhouse LLC, including Valery Oyf, hold a combined 32% interest in the Company.

No other Directors have an interest in the share capital of the Company. All available options expired on 22
September 2014.

The Company has adopted a share dealing code for Directors and relevant employees which prescribes a strict
permissions procedure prior to any trading in the Company’s shares.

CORPORATE GOVERNANCE
The Directors have implemented many of the main principles of good governance under the UK Corporate
Governance Code issued by the Financial Reporting Council in September 2014 having regard to the size and
nature of the Company’s activities. The Board is assisted by a number of Committees with delegated authority to
review key business risks, in addition to the financial risks applicable to the Group in operating its business. The
Board has adopted an Anti-Corruption policy and an Internal Code of Business Conduct and Ethics details of
which can be seen on the website at www.highlandgold.com.

HIGHLAND GOLD MINING LIMITED

THE BOARD
The Board is currently comprised of seven Directors, five of whom are Non-Executives. Eugene Shvidler,
Executive Chairman, and John Mann, Head of Communications, are Executive Directors. Three Non-Executive
Directors – Duncan Baxter, Colin Belshaw and Terry Robinson – bring an element of independence to the Board
and provide a balance to those Directors who cannot be regarded as independent. The Board considers them
as independent in character and judgement and are free from any business or other relationship which could
materially interfere with the exercise of their independent judgement, in compliance with the UK Corporate
Governance Code. Valery Oyf and Olga Pokrovskaya are affiliated with Millhouse LLC which, together with
persons connected to it, owns 32% of the issued share capital of the Company via Primerod, in addition to Mr
Shvidler’s interest of 11.35%.

The Board meets on a regular basis to review the business and performance of the Group, to ensure that
financing needs are appropriate and to consider development and acquisition opportunities. A total of six Board
and Board Committee meetings were held during the year.

Where appropriate the Directors have full access to the Company Secretary and independent professional advice
at the Company’s expense. The Company has in place appropriate Directors and Officers Liability insurance.

In April 2015, the Board appointed Non-Executive Chairman Eugene Shvidler as Executive Chairman. Other
changes to the Board during the year included the appointment of John Mann in April as an Executive Director,
Head of Communications, responsible for IR and PR and the resignation of Alla Baranovskaya, Chief Financial
Officer, and Sergey Mineev, Head of Exploration & Capital Projects Development, both of whom remain with the
Company. Eugene Tenenbaum has also resigned from the Board. In January 2016, Valery Oyf was appointed a
Non-Executive Director having stepped down from CEO on the appointment of Denis Alexandrov as CEO.

The Board undertook a self-assessment review in early 2014 from which no material issues arose. The Board will
continue to undertake such a review on a biennial basis provided there are no major changes to the Board that
would render such a review ineffective. We anticipate the next review will take place during 2016.

Terry Robinson is the Senior Independent Non-Executive Director who is available to meet with major shareholders.

It is a requirement that all Directors retire by rotation at least every three years and new appointments be
confirmed at the following Annual General Meeting. Eugene Shvidler, Terry Robinson and Colin Belshaw who
retire by rotation will offer themselves for re-election at the Annual General Meeting to be held on 25 May 2016.
The Remuneration and Nomination Committee has agreed and recommended these reappointments.

The profiles of the Directors are to be found on page 30 of this Annual Report.

AUDIT COMMITTEE
The Audit Committee in 2015 consisted of two Non-Executive Directors and is chaired by Terry Robinson. The
other members of the Committee during 2015 were Olga Pokrovskaya and Eugene Tenenbaum who resigned
from the Committee in April 2015. Audit Committee members meet with management and the auditors on a
regular basis.

The Audit Committee met three times during 2015 to consider the annual and interim financial statements
and the internal and external audit programme. In April 2016, the Audit Committee considered and reviewed
the 2015 Financial Statements and the Annual Report statements as to the Company’s Principal Risks and
Uncertainties, the Directors’ Report and the Operational and Financial Review.

Management and external auditors are invited to attend Committee meetings as appropriate. There are defined
Terms of Reference for the Audit Committee which are reviewed by the Board on an annual basis and are
available for inspection at the Annual General Meeting; details can also be found on the Company’s website

ANNUAL REPORT & ACCOUNTS 2015

DIRECTORS’ REPORT

at www.highlandgold.com. The Committee is responsible for ensuring that the appropriate financial reporting
procedures are properly maintained and reported upon, reviewing accounting policies, meeting the auditors
and reviewing their reports relating to the accounts and internal control systems. The Audit Committee also
considers budgets and has agreed an authorisation and expenditure policy. The Audit Committee is responsible
for monitoring key risks and has implemented, through the internal audit department, a process for reporting on
and monitoring those risks.

The Audit Committee reviews the annual Internal Audit Plan and Internal Audit’s recommendations in response
to their audit findings. Subsequently, Internal Audit reports to the Audit Committee on management’s delivery of
such audit recommendations. Internal Audit also reviews and reports on the measurement and completeness
of the Risk Register including the detailed management remedial actions. Reports and action on whistleblowing
events to the Audit Committee are also within the remit of Internal Audit.

With regard to the Financial Statements, the Audit Committee’s key considerations were in respect of the
consistency and appropriateness of the inputs for the Impairment review. These inputs: Life of Mine (LOM), Gold
price, annual volumes, cash cost of production and CAPEX, together with the proposed WACC, are the drivers
of the separate mine forward financial models and value in use calculation.

A further consideration of the Audit Committee was the Company’s decision to include in the Company’s UOP/
depletion calculation an element of the Measured and Indicated (M&I) resources that the Company expects to
be converted to reserves, in addition to the previous practice of using only the Proven and Probable reserves in
UOP/depletion calculations. After receiving management’s assurances as evidenced by the increased LOM and
determining the increased CAPEX to bring M&I resources into the LOM calculations, the Audit Committee was
comfortable with the amended UOP/depletion calculations.

The Audit Committee recommended the Interim Half-Year Financial Statements and the 2015 full year audited
Financial Statements to the Board for approval and, with some amendments, the Annual Report segments, as
detailed above, for Board approval.

Finally, the Audit Committee undertook a self-assessment of its own performance, and that of Internal Audit and
an extensive assessment of the external auditors which included input from management’s assessment.

Following the consideration of this assessment the Audit Committee recommended to the Board the
reappointment of Ernst and Young LLP as the Company’s auditors.

REMUNERATION AND NOMINATION COMMITTEE
During 2015, the Committee consisted of three Directors, all of which are non-executive, comprising Duncan
Baxter, as Chairman, Valery Oyf and Terry Robinson. Eugene Tenenbaum resigned from the Committee
in April 2015. The Committee is responsible for reviewing the performance of executive management and,
where appropriate, other senior executives, and for determining their appropriate levels of remuneration.
Recommendations are made, as and when appropriate, with regard to appointments of Directors, the
Chairmanship of Committees, senior management and directors of Group subsidiary companies; the
composition of the Board is monitored on an ongoing basis. The Committee makes recommendations to
the Board, within defined terms of reference, which the Board reviews at least annually. The Committee also
examines fees in relation to non-executive remuneration and committee Chairmen. The Committee held one
meeting during the year. Details of the Directors’ remuneration are given on page 29. The Committee has
considered and recommended to the Board the re-election of Eugene Shvidler, Terry Robinson and Colin
Belshaw respectively as Directors of the Company at the forthcoming AGM. The Committee also discussed
and recommended to the Board the appointment of Denis Alexandrov as CEO with effect from January 2016.

HIGHLAND GOLD MINING LIMITED

HEALTH, SAFETY AND ENVIRONMENTAL COMMITTEE
The Board has established a Health, Safety and Environmental Committee which is chaired by Olga
Pokrovskaya. The other members of the Committee during 2015 were Terry Robinson, Colin Belshaw and
Sergey Mineev, who resigned in April 2015. The Committee considers, in conjunction with management,
development and training requirements and regulatory compliance matters related to health, safety and
environmental issues. The Committee makes recommendations to the Board, within agreed terms of reference,
which the Board reviews at least annually. The Committee met twice during the year. Details of the progress
and performance of the Company in respect of health, safety and the environment are given in the Operations
Review on page 13.

OTHER COMMITTEES
In addition, the Group management company in Russia, OOO Russdragmet ('RDM'), has established a risk and
control platform through regular meetings. The members of the Executive Committee, which meets weekly,
include management from RDM’s functional departments and the General Directors of the mine sites. The
key role of the Committee is to ensure the implementation of decisions taken by the Board and Committees,
to manage the day-to-day operational activities and to make recommendations to the Board. The Committee
delegates part of its duties to three internal RDM committees: the Risk Committee; the Budget Committee and
the Investment Committee.

INTERNAL CONTROLS
The Directors have overall responsibility for the Group’s internal controls and effectiveness in safeguarding
the assets of the Group. Internal controls can provide reasonable, but not absolute assurance against material
misstatements or loss. The processes used by the Board to review the effectiveness of the internal controls
are carried out by the Audit Committee. There is an Internal Audit Charter, which can be seen on the website at
www.highlandgold.com.

RELATIONS WITH SHAREHOLDERS
The Group’s website provides comprehensive information on the Company’s business, results and personnel
and is used to update shareholders and the market in respect of key developments and announcements
(www.highlandgold.com). Shareholders are encouraged to use the Annual General Meeting as a forum at which to
communicate with Directors. Due notice of the Annual General Meeting is provided to all shareholders. The Company
also utilises investor and public relations functions, webinars and road shows through brokers and the Nomad.

Shareholders passed a special resolution at the Annual General Meeting on 27 May 2014 whereby the Directors
were authorised to allot and grant rights to subscribe for, or convert securities into, shares in the Company up
to a maximum nominal amount equivalent to 33% of the nominal amount of the authorised but unissued share
capital of the Company, to such persons at such times and on such terms as they think proper without first
making an offer to each person who holds shares in the Company. Such authority will expire at the conclusion
of the Company’s Annual General Meeting in 2017.

SUBSTANTIAL SHAREHOLDINGS
As at close of business on 31 March 2016, the Company had been notified of the following interests, other than
Directors’ interests, which amounted to 3% or more of the issued share capital of the Company:

Name of holder

Primerod International Limited*

Prosperity Capital Management

J.P. Morgan Asset Management

Ivan Koulakov

Number

Percentage

104,080,000

54,685,994

19,448,593

13,500,000

32.00

16.81

5.98

4.15

Primerod International Limited is the holding vehicle through which certain individual persons, managers and connected
parties of Millhouse LLC, including Valery Oyf, and with others hold a combined 32% interest in the Company.

ANNUAL REPORT & ACCOUNTS 2015

DIRECTORS’ REPORT

GOING CONCERN
Having made relevant enquiries, the Directors believe that it is appropriate to adopt the going concern basis in
the preparation of the 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.

AUDITORS
Ernst & Young LLP have expressed their willingness to continue as auditors of the Company and a resolution for
their reappointment will be proposed at the forthcoming Annual General Meeting.

ANNUAL GENERAL MEETING NOTICE
The Annual General Meeting will be held at 11.00 am on Wednesday 25 May 2016 at 26 New Street, St Helier,
Jersey JE2 3RA. The notice convening the Annual General Meeting is set out on page 83 of the Annual Report.

STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RELATION
TO THE ANNUAL REPORT AND FINANCIAL STATEMENTS
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with
applicable laws and regulations.

Jersey Company law requires Directors to prepare financial statements for each financial period in accordance
with any generally accepted accounting principles. The financial statements of the Company are required by law
to give a true and fair view of the state of affairs of the Company at the period end and of the profit or loss of the
Company for the period then ended. In preparing these financial statements, the directors should:
• select suitable accounting policies and apply them consistently;
• make judgments and estimates that are reasonable;
• specify which generally accepted accounting principles have been adopted in their preparation; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the

Company will continue in business.

The Directors are responsible for keeping accounting records which are sufficient to show and explain its
transactions and are such as to disclose with reasonable accuracy at any time the financial position of the
Company and enable them to ensure that the financial statements prepared by the company comply with the
requirements of the Companies (Jersey) Law 1991. They are also responsible for safeguarding the assets of
the Group and, accordingly, for taking reasonable steps to further the prevention and detection of fraud and
other irregularities.

REPORT ON REMUNERATION POLICY
The overall responsibility for establishing a suitable remuneration policy lies with the Board. The Remuneration
and Nomination Committee has terms of reference to work within and makes recommendations to the Board
designed to provide a framework for Executive Director and senior management remuneration.

The Remuneration Policy for Executive Directors, Non-Executive Directors and senior management is based
on general principles that provide competitive packages designed to attract and retain suitably qualified and
talented individuals who can align themselves with the overall objectives and corporate culture of the Company.

The remuneration of Executive Directors, other than the Executive Chairman and senior management, currently
comprises basic salary and discretionary bonus. The executive management and Executive Directors are
entitled to certain benefits and are eligible to participate in the long-term incentive programme. The Company
does not operate a pension scheme for executive management or Directors. The Executive Chairman’s fees are
set by the Committee.

Basic salary takes into account the performance of the individual, any changes in responsibility and rates of
market remuneration.

HIGHLAND GOLD MINING LIMITED

Discretionary bonuses, currently paid in cash although they could include a share element, are solely
dependent on an overall assessment of the individual’s performance, with both financial and non-financial
options available.

In addition, incentives are available in relation to Executive Directors, senior management and other key
personnel under the unapproved share option scheme, managed by the Committee. No such scheme shares
are currently granted or vested.

The Committee does not operate a ‘clawback’ facility in respect of Directors’ and senior managers’
remuneration; such arrangements being unenforceable under the Russian labour code.

The remuneration of Non-Executive Directors is considered by the Executive Directors, with input from
senior management, and takes into account the nature and risk of the business, time commitment, additional
responsibilities and competitive fee levels. Non-Executive Directors’ fees comprise a base fee and an additional
fee for chairmanship of a committee. Other benefits are not available to Non-Executive Directors.

REPORT ON REMUNERATION
The remuneration paid to the Directors in the financial period to 31 December 2015 was as follows:

US$

Eugene Shvidler

Duncan Baxter

Olga Pokrovskaya

Terry Robinson

Colin Belshaw

Valery Oyf

John Mann

Eugene Tenenbaum*

Alla Baranovskaya*

Sergey Mineev*

Fees and remuneration

Bonus

2015

500,000

160,000

125,000

160,000

100,000

2014

500,000

160,000

125,000

160,000

100,000

1,239,081

1,020,165

80,000

33,333

177,689

101,554

–

100,000

626,893

288,701

2015

2014

–

36,496

3,318

114,256

–

Eugene Tenenbaum, Alla Baranovskya and Sergey Mineev resigned in April 2015. As Company executives,
Ms Baranovskaya and Mr Mineev continued to receive a salary after their resignation from the Board.

No grants of options under the unapproved share option scheme were made during 2015 and management
and employees were incentivised through a bonus scheme, currently of a discretionary nature. There were no
options outstanding as of 31 December 2015 (2014: Nil).

The Group has entered into letters of appointment with both the Executive and Non-Executive Directors. The latter
are reviewed on an annual basis and none of the letters of appointment have an expiry date or notice period of
more than one year. The Executive Directors, other than the Chairman, are governed by their Russian Contracts of
Employment. The Remuneration and Nomination Committee and the Board had agreed not to increase remuneration
or pay any ex-gratia payments for additional work undertaken during the year by the Non-Executive Directors.

Further information on the Remuneration and Nomination Committee can be found on page 26 of this
Annual Report.

ByOrderoftheBoard
19 April 2016

ANNUAL REPORT & ACCOUNTS 2015

BOARD OF DIRECTORS

EUGENE SHVIDLER
EXECUTIVE CHAIRMAN
Eugene Shvidler is a graduate of the I. M. Gubkin Moscow Institute of Oil and Gas
with a master’s degree in applied mathematics, while also holding an MBA in finance
and a MS in international tax from Fordham University. He worked as Senior Vice
President of Sibneft beginning in 1995 and served as President of the company from
1998 through 2005. Mr Shvidler is currently Chairman of Millhouse LLC, and a non-
executive director of the Evraz Group since 2006. He joined the Highland Gold Board
of Directors in January 2008 and was appointed Executive Chairman in April 2015.

DUNCAN BAXTER
INDEPENDENT NON-EXECUTIVE DIRECTOR
Duncan Baxter is a retired banker with over 25 years’ experience in international
banking, latterly as managing director of Swiss Bank Corporation. Since leaving
Swiss Bank in 1998 he has undertaken consultancy projects for international
banks and investment management companies. He is a Jersey resident and holds
a number of other non-executive directorships. He is a Fellow of the Institute of
Chartered Secretaries, the Securities Institute and the Institute of Bankers. He was
a member of the Highland Gold Board of Directors from 2002 until early 2008 and
rejoined the Board in autumn 2008.

COLIN BELSHAW
INDEPENDENT NON-EXECUTIVE DIRECTOR
Colin Belshaw gained a Dip.CSM (1st Class) in 1979 from the Camborne School of
Mines, Cornwall, UK, he is a Fellow of the Institute of Materials, Minerals and Mining
(FIMMM), registered as an Incorporated Engineer (I.Eng) with the Engineering
Council of the United Kingdom, and holds the Mine Managers Certificate of Ghana.
He has held numerous operating and corporate positions, including responsibility for
Kinross Gold’s Kubaka and Birkachan mining operations in Russia, Vice President
Operations of Golden Star Resources in Ghana, and his most recent executive role
was as DRC-based COO of Banro Corporation.

JOHN MANN
EXECUTIVE DIRECTOR
HEAD OF COMMUNICATIONS
John Mann studied political science at Harvard University with a focus on Soviet
history and politics. He is a professional of 20 years in the fields of public relations,
public affairs and investor relations, 18 of which were spent in the CIS region.
Mr Mann consulted some of the world’s largest natural resources, energy and
consumer products corporations before joining Russian listed oil major Sibneft in
2002 as head of international public relations. From 2006, he has served as head of
communications for Millhouse LLC, joining Highland in autumn 2014. He joined the
Board of Directors in April 2015.

HIGHLAND GOLD MINING LIMITED

VALERY OYF
NON-EXECUTIVE DIRECTOR
Valery Oyf is a graduate of the I. M. Gubkin Moscow Institute of Oil and Gas and
worked as Vice President of Sibneft from 1997 through to 2004. From 2004 until
June 2008 Mr Oyf served as a senator representing the Omsk region, a Siberian
constituency, in Russia’s Federation Council, and later as General Director of Millhouse
LLC. He was Chief Executive Officer of Highland Gold from 2008 until 2016.

OLGA POKROVSKAYA
NON-EXECUTIVE DIRECTOR
Olga Pokrovskaya graduated with honours from the State Financial Academy.
Ms Pokrovskaya served as Senior Audit Manager at accountancy firm Arthur
Andersen from 1991 until 1997. She subsequently joined Russian oil major Sibneft,
where she held several key finance positions including Head of Corporate Finance
from 2004. In July 2006, Ms Pokrovskaya became Head of Corporate Finance at
Millhouse LLC, where she currently serves in the role of financial advisor. She joined
the Highland Gold Board of Directors in January 2008.

TERRY ROBINSON
SENIOR INDEPENDENT DIRECTOR
CHAIRMAN OF THE AUDIT COMMITTEE, MEMBER OF THE REMCO,
NOMINATION AND HSE COMMITTEES
Terry Robinson is a qualified chartered accountant and has 40 years’ international
business experience. He spent 20 years at Lonrho PLC, the international mining
and trading group, the last 10 years of which he served as a main board director.
Since 1998 he has been variously occupied with international business recovery
engagements and investment projects including natural resources in the UK, Russia,
the CIS and Brazil. He was elected to the Board of OJSC Raspadskaya, a subsidiary
of Evraz plc, in 2013, and currently serves as Chairman. He is an Independent
Director and Deputy Chairman of Katanga Mining Limited and is also a Fellow of the
Institute of Chartered Accountants of England and Wales. He joined the Highland
Gold Board of Directors in April 2008.

ANNUAL REPORT & ACCOUNTS 2015

INDEPENDENT AUDITORS’ REPORT

INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF HIGHLAND
GOLD MINING LIMITED

We have audited the financial statements of Highland Gold Mining Limited for the year ended 31 December
2015 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated Statement of
Financial Position, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows
and the related notes 1 to 33. The financial reporting framework that has been applied in their preparation is
applicable law and International Financial Reporting Standards as adopted by the European Union.

This report is made solely to the company’s members, as a body, in accordance with Article 113A of the
Companies (Jersey) Law 1991. Our audit work has been undertaken so that we might state to the company’s
members those matters we are required to state to them in an auditor’s report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company
and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for
the preparation of the financial statements and for being satisfied that they give a true and fair view. Our
responsibility is to audit and express an opinion on the financial statements in accordance with applicable
law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the
Auditing Practices Board’s Ethical Standards for Auditors.

SCOPE OF THE AUDIT OF THE FINANCIAL STATEMENTS
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to
give reasonable assurance that the financial statements are free from material misstatement, whether caused by
fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group’s
circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant
accounting estimates made by the directors; and the overall presentation of the financial statements. In addition,
we read all the financial and non-financial information in the annual report to identify material inconsistencies
with the audited financial statements and to identify any information that is apparently materially incorrect based
on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we
become aware of any apparent material misstatements or inconsistencies we consider the implications for
our report.

OPINION ON FINANCIAL STATEMENTS
In our opinion the financial statements:
• give a true and fair view of the state of the group’s affairs as at 31 December 2015 and of its net loss for the year

then ended;

• have been properly prepared in accordance with International Financial Reporting Standards as adopted by the

European Union; and

• have been prepared in accordance with the requirements of the Companies (Jersey) Law 1991.

HIGHLAND GOLD MINING LIMITED

MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION
We have nothing to report in respect of the following matters where the Companies (Jersey) Law 1991 requires
us to report to you if, in our opinion:
• proper accounting records have not been kept, or proper returns adequate for our audit have not been received

from branches not visited by us; or

• the financial statements are not in agreement with the accounting records and returns; or
• we have not received all the information and explanations we require for our audit.

KenWilliamson
for and on behalf of Ernst & Young LLP,
London
19 April 2016

NOTES:
1. The maintenance and integrity of the Highland Gold Mining Limited web site is the responsibility of the
directors; the work carried out by the auditors does not involve consideration of these matters and,
accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial
statements since they were initially presented on the web site.

2. Legislation in Jersey governing the preparation and dissemination of financial statements may differ from

legislation in other jurisdictions.

ANNUAL REPORT & ACCOUNTS 2015

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December

Revenue

Cost of sales

Grossprofit

Administrative expenses

Other operating income

Other operating expenses

Impairment losses

Gain on settlement of contingent consideration

Operatingprofit

Foreign exchange loss

Finance income

Finance costs

Profitbeforeincometax

Current income tax expense

Adjustments in respect of prior year income tax

Deferred income tax expense

Totalincometaxexpense

Lossfortheyear

Totalcomprehensivelossfortheyear

Attributableto:

Equity holders of the parent

Non-controlling interests

Losspershare(US$pershare)
Basic, for the profit for the year attributable to ordinary equity
holders of the parent
Diluted, for the profit for the year attributable to ordinary equity
holders of the parent

Notes

10.1

10.2

5, 17

12.1

12.2

2015
US$000

276,175

(199 365)

76,810

(13,127)

2,882

(8,170)

(35,982)

–

22,413

(4,321)

1,331

(5,529)

13,894

(15,867)

(1,542)

(6,504)

(23,913)

(10,019)

2014
US$000

304,230

(228,518)

75,712

(15,464)

8,634

(7,248)

(11,401)

5,622

55,855

(9,599)

3,457

(4,226)

45,487

(20,677)

(249)

(49,404)

(70,330)

(24,843)

(10,316)

(24,942)

297

(0.032)

(0.077)

(0.032)

(0.077)

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

HIGHLAND GOLD MINING LIMITED

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at

Notes

31 December
2015
US$000

31 December
2014
US$000

ASSETS
Non-currentassets
Exploration and evaluation assets
Mine properties
Property, plant and equipment
Intangible assets
Inventories
Other non-current assets
Deferred income tax asset
Totalnon-currentassets
Currentassets
Inventories
Trade and other receivables
Income tax prepaid
Prepayments
Financial assets
Cash and cash equivalents
Other current assets
Totalcurrentassets
Totalassets
EQUITY AND LIABILITIES
Equityattributabletoequityholdersoftheparent
Issued capital
Share premium
Assets revaluation reserve
Retained earnings
Totalequityattributabletoequityholdersoftheparent
Non-controlling interests
Totalequity

Non-currentliabilities
Interest-bearing loans and borrowings
Liability under finance lease
Long-term accounts payable
Provisions
Deferred income tax liability
Totalnon-currentliabilities

Currentliabilities
Trade and other payables
Interest-bearing loans and borrowings
Income tax payable
Liability under finance lease
Totalcurrentliabilities
Totalliabilities
Totalequityandliabilities

15
15
15
16
20
18
13

20
21

22
31
23

26
27
13

26
25

309,101
318,068
320,986
70,365
16,372
3,845
–
1,038,737

67,758
31,188
3,770
888
21,150
3,058
602
128,414
1,167,151

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

183,000
1,526
223
16,026
135,457
336,232

20,201
70,375
16
749
91,341
427,573
1,167,151

296,739
321,407
359,466
87,119
6,664
3,580
82
1,075,057

77,337
28,889
3,711
2,000
42,957
12,946
899
168,739
1,243,796

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

145,443
–
305
15,699
129,035
290,482

22,134
157,658
3,418
–
183,210
473,692
1,243,796

The financial statements were approved by the Board of Directors on 19 April 2016 and signed on its behalf by:
Denis Alexandrov and Alla Baranovskaya.

ANNUAL REPORT & ACCOUNTS 2015

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December

Attributable to equity holders of the parent

Issued
capital
US$000

Share
premium
US$000

Notes

Asset
revaluation
reserve
US$000

Retained
earnings
US$000

Total
US$000

Non-
controlling
interest
US$000

Total equity
US$000

At31December
2013

Total
comprehensive
(loss)/income for
the year

Dividends paid to
equity holders of
the parent

At31December
2014

Total
comprehensive
(loss)/income for
the year

Novo share
purchase

Dividends paid to
equity holders of
the parent

At31December
2015

585

718,419

832

99,444

819,280

2,471

821,751

–

(24,942)

(24,843)

–

(26,804)

–

(26,804)

585

718,419

832

47,698

767,534

2,570

770,104

–

(10,316)

297

(10,019)

–

869

(1,301)

(432)

(20,075)

–

(20,075)

585

718,419

832

18,176

738,012

1,566

739,578

HIGHLAND GOLD MINING LIMITED

CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 31 December

OPERATING ACTIVITIES
Profitbeforeincometax

Notes

2015
US$000

2014
US$000

13,894

45,487

10.2.3

8
5, 17
10.2.1
10.2
10.2, 15
10.2.2
10.2
12.1
12.1, 31
12.2
12.2
10.1
4
11

Adjustmentstoreconcileprofitbeforeincometaxtonetcashflowsfromoperatingactivities:
72,583
Depreciation of mine properties and property, plant and equipment
35,982
Impairment losses related to cash-generating units
120
Movement in ore stockpiles obsolescence provision
521
Movement in raw materials and consumables obsolescence provision
1,916
Write-off of mine properties and property, plant and equipment
1,698
Individual impairment of property, plant and equipment
172
Loss on disposal of property, plant and equipment
(75)
Bank interest receivable
(1,246)
Bonds fair value movement
3,297
Interest expense on bank loans
2,117
Accretion expense on site restoration provision
(2,104)
Gain on change in estimation – site restoration asset
–
Gain on settlement of contingent consideration
4,321
Net foreign exchange loss
177
Movement in provisions
–
Loss from disposal of an entity
Other non-cash expenses/(income)
983
Workingcapitaladjustments:
(Increase)/decrease in trade and other receivables and prepayments
Decrease in inventories
Increase/(decrease) in trade and other payables
Income tax paid
Netcashflowsfromoperatingactivities
INVESTING ACTIVITIES
Proceeds from sale of property, plant and equipment
Purchase of property, plant and equipment
Capitalised interest paid
Increase in stripping activity assets
Interest received from deposits
Interest received from bonds
Purchase of investments – bonds
Novo shares purchase
Sale of investments – bonds
Netcashflowsusedininvestingactivities
FINANCING ACTIVITIES
Proceeds from borrowings
Repayment of borrowings
Dividends paid to equity holders of the parent
Payment under finance lease, including interest
Interest paid
Netcashflowsusedinfinancingactivities
Net (decrease)/increase in cash and cash equivalents
Effects of exchange rate changes
Cash and cash equivalents at 1 January
Cashandcashequivalentsat31December

673,924
(724,472)
(20,075)
(827)
(3,087)
(74,537)
(10,093)
205
12,946
3,058

98
(42,195)
(12,359)
(9,399)
75
2,534
(3,818)
(432)
24,337
(41,159)

(8,295)
147
839
(21,444)
105,603

5
5, 15
15

31
31
29
31

23
23

59,392
11,401
664
509
393
500
781
(160)
(3,265)
1,871
2,355
(7,535)
(5,622)
9,599
(149)
918
(32)

7,671
950
(2,241)
(19,065)
104,422

330
(65,538)
(10,995)
(5,554)
159
4,058
–
–
6,449
(71,091)

136,560
(140,896)
(26,804)
–
(1,502)
(32,642)
689
4,319
7,938
12,946

ANNUAL REPORT & ACCOUNTS 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS

1. CORPORATE INFORMATION

The consolidated financial statements of Highland Gold Mining Limited for the year ended 31 December 2015

were authorised for issue in accordance with a resolution of the Directors on 19 April 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

The consolidated financial statements have been prepared on a historical cost basis except for financial

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

statement of ComplianCe

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

basis of Consolidation

The consolidated financial statements comprise the financial statements of Highland Gold Mining Limited and

all its subsidiaries as at 31 December each year.

A subsidiary is an entity, including an unincorporated entity such as a partnership, that is controlled by another

entity (known as the parent). Subsidiaries are fully consolidated from the date of acquisition, being the date on
which the Group obtains control, and continue to be consolidated until the date that such control ceases.

The financial statements of the subsidiaries are prepared for the same reporting year as the parent company,

using consistent accounting policies.

All intra-Group balances, transactions, unrealised gains and losses resulting from intra-Group transactions are

eliminated in full.

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

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
business Combinations and goodwill

Business combinations are accounted for using the acquisition method. The cost of an acquisition is
measured as the aggregate of the consideration transferred, measured at acquisition date fair value and
the amount of any non-controlling interest in the acquiree. For each business combination, the Group elects
whether it measures the non-controlling interest in the acquiree at fair value or at the proportionate share of
the acquiree’s identifiable net assets. Acquisition costs incurred are expensed and included in administrative
expenses.

When the Group acquires a business, it assesses the assets and liabilities assumed for appropriate

classification and designation in accordance with the contractual terms, economic circumstances and pertinent
conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by
the acquiree.

If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously

held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss.
Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the
acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to

HIGHLAND GOLD MINING LIMITED

be an asset or liability will be recognised in accordance with IAS 39 either in profit or loss or as a change to
other comprehensive income. If the contingent consideration is classified as equity, it will not be remeasured.
Subsequent settlement is accounted for within equity. In instances where the contingent consideration does
not fall within the scope of IAS 39, it is measured in accordance with the appropriate IFRS.

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred, the
amount recognised for non-controlling interest and the acquisition date fair value of any previously held equity
interest in the acquiree over the net identifiable assets acquired and liabilities assumed. If this consideration is
lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. An impairment
loss on goodwill cannot be reversed under any circumstances. For the purpose of impairment testing, goodwill
acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-
generating units that are expected to benefit from the combination, irrespective of whether other assets or
liabilities of the acquiree are assigned to those units.

Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of,
the goodwill associated with the operation disposed of is included in the carrying amount of the operation when
determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured
based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.

Further information is contained in Note 16.

ForEIgn CurrEnCy and ForEIgn CurrEnCy TranSlaTIon

The Group’s consolidated financial statements are presented in US Dollars, which is also the parent

company’s functional currency. Each entity in the Group determines its own functional currency and items
included in the financial statements of each entity are measured using that functional currency.

Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency
rate of exchange ruling at the reporting date. Foreign exchange gains and losses resulting from the settlement
of foreign currency transactions and from the translation of monetary assets and liabilities into the functional
currency at year-end official exchange rates are recognised in the statement of comprehensive income.
Non-monetary items that are measured at historical cost in a foreign currency are translated using the
exchange rates at the date of the initial transaction. Non-monetary items measured at a revalued amount in
a foreign currency are translated using the exchange rates at the date when the fair value was determined.

The principal exchange rates against US Dollars that were applied are:

Average

RUR
GBP

Closing

RUR
GBP

31 December 2015

31 December 2014

61.319
0.6542

72.883
0.6755

39.038
0.607

56.258
0.644

ProPErTy, PlanT and EquIPmEnT

With the exception of those acquired through business combination, on initial acquisition land and buildings,

plant and equipment are valued at cost, being the purchase price and the directly attributable costs of
acquisition or construction required to bring the asset to the location and condition necessary for the asset to be
capable of operating in the manner intended by management.

In subsequent periods, buildings, plant and equipment are stated at cost less accumulated depreciation
and any impairment in value, whilst land is stated at cost less any impairment in value and is not depreciated.
Property, plant and equipment acquired through business combinations are stated at their acquisition date fair
values on initial recognition.

The net carrying amounts of land, buildings, plant and equipment are reviewed for impairment either

individually or at the cash-generating unit level when events and changes in circumstances indicate that the
carrying amount may not be recoverable. To the extent that these values exceed their recoverable amounts, that
excess is fully provided against in the financial year in which this is determined.

ANNUAL REPORT & ACCOUNTS 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Expenditure on major maintenance or repairs includes the cost of replacement of parts of assets and overhaul
costs. Where an asset or part of an asset is replaced and it is probable that future economic benefits associated
with the item will be available to the Group, the expenditure is capitalised and the carrying amount of the item
replaced is derecognised. Similarly, overhaul costs associated with major maintenance are capitalised and
depreciated over their useful lives where it is probable that future economic benefits will be available and any
remaining carrying amounts of the cost of previous overhauls are derecognised. All other costs, including repair
and maintenance expenditure, are expensed as incurred.

Where an item of property, plant and equipment is disposed of, it is derecognised and the difference between

its carrying value and net sales proceeds is disclosed as a profit or loss on disposal in the statement of
comprehensive income.

Any items of property, plant or equipment that cease to have future economic benefits expected to arise

from their continued use or disposal are derecognised with any gain or loss included in the statement of
comprehensive income in the financial year in which the item is derecognised.

depreCiation and depletion

Depreciation is provided so as to write off the cost, less estimated residual values of buildings, plant and

equipment (based on prices prevailing at the balance date) on the following bases:
• Mineral properties are depreciated using a unit of production method based on the depleted estimated proven

and probable reserves and a portion of resources expected to be converted into reserves.

• Buildings, plant and equipment unrelated to production are depreciated using the straight-line method based on

estimated useful lives.
Where parts of an asset have different useful lives, depreciation is calculated on each separate part. Each

item or part’s estimated useful life has due regard to both its own physical life limitations and the present
assessment of economically recoverable reserves of the mine property at which the item is located, and
to possible future variations in those assessments. Estimates of remaining useful lives and residual values
are reviewed annually. Changes in estimates which affect unit of production calculations are accounted for
prospectively.

exploration and evaluation expenditure

Exploration and evaluation expenditure relates to costs incurred on the exploration and evaluation of potential

mineral reserves and includes costs such as exploratory drilling and sample testing and the costs of pre-
feasibility studies. Exploration and evaluation expenditure for each area of interest, other than that acquired
from the purchase of another mining company, is carried forward as an asset provided that one of the following
conditions is met:
• such costs are expected to be recouped in full through successful development and exploration of the area of

interest or alternatively, by its sale; or

• exploration and evaluation activities in the area of interest have not yet reached a stage which permits a

reasonable assessment of the existence or otherwise of economically recoverable reserves and active and
significant operations in relation to the area are continuing, or planned for the future.
Exploration and evaluation assets contain a mixture of tangible and intangible assets. Purchased exploration
and evaluation assets are recognised as assets at their cost of acquisition or at fair value if purchased as part of
a business combination. Exploration and evaluation assets are not depreciated. General and administrative and
overhead costs directly attributable to the exploration and evaluation activities are included in exploration and
evaluation assets’ cost. The restoration provision cost does not form part of exploration and evaluation assets.
An impairment review is performed, either individually or at the cash-generating unit level, when there are
indicators that the carrying amount of the assets may exceed their recoverable amounts. To the extent that
this occurs, the excess is fully provided against, in the financial period in which this is determined. Exploration
assets are reassessed on a regular basis and these costs are carried forward provided that at least one of the
conditions outlined above is met.

Expenditure is transferred to mine properties once the work completed to date supports the future

development of the property and such development receives appropriate approvals.

HIGHLAND GOLD MINING LIMITED

mine development expenditure

Capitalised mine development costs include expenditure incurred to develop new ore bodies, to define future

mineralisation in existing ore bodies, to expand the capacity of a mine and to maintain production, and also
interest and financing costs relating to the construction of mineral property.

The net carrying amounts of mine development costs at each mine property are reviewed for impairment either
individually or at the cash-generating unit level when events and changes in circumstances indicate that the carrying
amount may not be recoverable. To the extent that these values exceed their recoverable amounts, that excess is
fully provided against the statement of comprehensive income in the financial year in which this is determined.
The depreciation on items of properties, plant and equipment used in the exploration and development
activities is recognised as part of the initial cost of the related assets and is treated on a consistent basis with
the entity’s other exploration and development expenditure.

mine properties

The development costs are transferred to the mine properties category when the asset is available for use; this

is when commercial levels of production are achieved. The restoration provision cost is capitalised within mine
assets. Mine properties contain a mixture of tangible and intangible assets. The cost of acquiring mine assets
after the start of production is capitalised on the statement of financial position as incurred and included in the
mine properties category. The cost of acquiring rights on mineral reserves and mineral resources including
directly attributable expenses is capitalised on the statement of financial position as incurred and included in the
mine properties category. The initial cost of a mine property comprises its construction cost, any costs directly
attributable to bringing the mining property into operation, the initial estimate of the provision for mine closure
cost, and, for qualifying assets, borrowing costs.

The net carrying amounts of mine assets and mineral rights are reviewed for impairment either individually or
at the cash-generating unit level when events and changes in circumstances indicate that the carrying amount
may not be recoverable. To the extent that these values exceed their recoverable amounts, that excess is fully
provided against the statement of comprehensive income in the financial year in which this is determined.

stripping Costs

The Group incurs waste removal costs (stripping costs) during the production phase of surface mining

operations.

During the production phase, stripping costs (production stripping costs) can be incurred both in relation to
the production of inventory in that period and the creation of improved access and mining flexibility in relation
to ore to be mined in the future. The former are included as part of the costs of inventory, while the latter are
capitalised as a stripping activity asset, where certain criteria are met. These criteria are disclosed in Note 4.

ConstruCtion worK in progress

Assets in the course of construction are capitalised in the construction work in progress account. On

completion, the cost of construction is transferred to the appropriate category of property, plant and equipment.

No depreciation is charged on assets in the construction work in progress account. These assets are

depreciated upon their transfer to the appropriate category of property, plant and equipment.

inCidental and non-inCidental inCome

During the construction of an asset, the Group may earn some income.
Income and related expenses of incidental operations that are not, in themselves, necessary to bring the
asset itself to the location and condition necessary for it to be capable of operating in the manner intended by
management, are recognised in profit or loss and included in their respective classifications of income and
expenses. Such incidental income is not offset against the cost of the asset.

Income generated wholly and necessarily as a result of the process of bringing the asset into the location and

condition for its intended use is credited to the cost of asset.

fair value measurement

The Group measures financial instruments at fair value at each balance sheet date. Fair values of financial

instruments measured at amortised cost are disclosed in Note 31.

ANNUAL REPORT & ACCOUNTS 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly

transaction between market participants at the measurement date. The fair value measurement is based on the
presumption that the transaction to sell the asset or transfer the liability takes place either:
• in the principal market for the asset or liability; or
• in the absence of a principal market, in the most advantageous market for the asset or liability.

The principal or the most advantageous market must be accessible to by the Group.
The fair value of an asset or a liability is measured using the assumptions that market participants would use

when pricing the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate
economic benefits by using the asset in its highest and best use or by selling it to another market participant that
would use the asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data
are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of
unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are
categorised within the fair value hierarchy, described as follows, based on the lowest level input that is
significant to the fair value measurement as a whole:

Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value measurement

is directly or indirectly observable.

Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value measurement

is unobservable.

For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group
determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation
(based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each
reporting period.

For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the
basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as
explained above. Further information on fair values is described in Note 31.

impairment

At each reporting date, management assesses whether there is any indication of impairment within the

categories of property, plant and equipment (annual impairment test is performed on cash-generating units to
which goodwill has been allocated irrespective of whether any indications exist). If any such indication exists,
management estimates the recoverable amount, which is determined as the higher of an asset’s fair value
less costs of disposal and its value in use. The carrying amount is reduced to the recoverable amount and an
impairment loss is recognised in the statement of comprehensive income.

An impairment loss recognised for an asset other than goodwill in prior years is reversed if there has been
a change in the estimates used to determine the asset’s value in use or fair value less costs of disposal and if
there is an indication that the impairment loss may no longer exist or may have decreased.

leases
Operating leases

Where the Group is a lessee in a lease which does not transfer substantially all the risks and rewards

of ownership from the lessor to the Group, the total lease payments are charged to the statement of
comprehensive income on a straight-line basis over the period of the lease.

HIGHLAND GOLD MINING LIMITED

Finance lease

Where the Group is a lessee in a lease which transfers substantially all the risks and rewards of ownership
to the Group, the assets leased are capitalised in property, plant and equipment with a corresponding liability
at an amount equal to the lower of the fair value of the leased asset and the present value of the minimum
lease payments, on commencement of the lease. Each lease payment is allocated between the liability and
finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental
obligations, net of future finance charges, are stated separately as finance lease liabilities. The interest cost is
charged to the statement of comprehensive income over the lease period. The assets acquired under finance
leases are depreciated over the shorter of their useful life and the lease term if the Group is not reasonably
certain that it will obtain ownership by the end of the lease term.

finanCial assets and liabilities
Financial instruments classification and recognition

Financial assets and liabilities are recognised when the Group becomes party to the contracts that give rise to

them. The Group determines the classification of its financial assets and liabilities at initial recognition (which in
the case of financial assets existing at the transition date, includes designation at that date) and, where allowed
and appropriate, re-evaluates this designation at each financial year end. When financial assets and liabilities
are recognised initially, they are measured at fair value, being the transaction price plus, in the case of financial
assets not at fair value through profit or loss, directly attributable transaction costs.

Financial assets are classified as either financial assets at fair value through profit or loss, loans and

receivables, held-to-maturity investments or available-for-sale financial assets, as appropriate. Where as a result
of a change in intention or ability, it is no longer appropriate to classify an investment as held to maturity, the
investment is reclassified into the available-for-sale category.

Currently the Group does not have held-to-maturity investments or available-for-sale financial assets.

Financial assets at fair value through profit or loss

Financial assets at initial recognition are designated at fair value through profit and loss. When a group of

financial assets is managed on it performance this is evaluated on a fair value basis in accordance with a
documented risk management strategy.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not
quoted in an active market, do not qualify as trading assets and have not been designated as either fair value
through profit or loss or available for sale. Such assets are carried at amortised cost using the effective interest
method. Gains and losses are recognised in the statement of comprehensive income when the loans and
receivables are derecognised or impaired, as well as through the amortisation process.

Derecognition of financial assets and liabilities

A financial asset is derecognised where:

• the rights to receive cash flows from the asset have expired;
• the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full

without material delay to a third party under a ‘pass-through’ arrangement; or

• the Group has transferred its rights to receive cash flows from the asset and either has transferred substantially

all the risks and rewards of the asset, or has neither transferred nor retained substantially all the risks and
rewards of the asset, but has transferred control of the asset.
Where the Group has transferred its right to receive cash flows from an asset and has neither transferred nor

retained substantially all the risks and rewards of the asset nor transferred control of the asset, it continues to
recognise the financial asset to the extent of its continuing involvement in the asset.

A financial liability is derecognised when the obligation under the liability is discharged or is cancelled or

expires. Gains on derecognition are recognised within finance revenue and losses within finance costs.

Where an existing financial liability is replaced by another from the same lender on substantially different

terms, or the terms of an existing liability are substantially modified, such an exchange or modification is

ANNUAL REPORT & ACCOUNTS 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the
respective carrying amounts is recognised in profit or loss.

inventories

Inventories are recorded at the lower of cost and net realisable value. Cost is determined on a weighted
average basis. The cost of finished goods and work in progress comprises raw material, direct labour, other
direct costs and related production overheads (based on normal operating capacity) but excludes borrowing
costs. Net realisable value is the estimated selling price in the ordinary course of business, less the cost
of completion and selling expenses. Inventory items that represent significant parts of property, plant and
equipment are capitalised as non-current assets and are depreciated separately. An existing part should
be derecognised when it is replaced, with the book value of the replaced part written down through the
depreciation charge.

The inventories are segregated by the following:

• gold in process which is valued at the average total production cost at the relevant stage of production;
• gold on hand which is valued on an average total production cost method;
• ore stockpiles which are valued at the average cost of mining and stockpiling the ore; and
• raw materials and consumables (including fuel and spare parts): materials, goods or supplies to be either
directly or indirectly consumed in the production process which are valued at weighted average costs.

trade and other reCeivables

Trade and other receivables are carried at amortised cost using the effective interest method. A provision

for impairment of receivables is established when there is objective evidence that the Group will not be
able to collect all amounts due according to the original terms of receivables. The amount of the provision
is the difference between the asset’s carrying amount and the present value of estimated future cash flows,
discounted at the original effective interest rate. The amount of the provision is recognised in the statement of
comprehensive income.

Cash and Cash equivalents

Cash and cash equivalents includes cash in hand, deposits held at call with banks, and other short-term

highly liquid investments with original maturities of three months or less.

share Capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares
are shown in equity as a deduction, net of tax, from the proceeds. Any excess of the fair value of consideration
received over the par value of shares issued is taken to the share premium account.

value added tax

Gold production and subsequent sales are not subject to output value added tax. Input VAT is recoverable

through cash, against income tax and other taxes. Where input VAT is not recoverable the VAT provision is created
on the statement of financial position corresponding with the statement of comprehensive income in a relevant
period.

borrowings

Borrowings are initially recognised at fair value, net of transaction costs incurred. Subsequently, borrowings

are carried at amortised cost using the effective interest method. Borrowing costs directly attributable to the
acquisition, construction or production of an asset that necessarily takes a substantial period of time to get
ready for its intended use (a qualifying asset) are capitalised as part of the cost of the respective asset, during
the period of time that is required to complete and prepare the asset for its intended use. All other borrowing
costs are expensed.

trade and other payables

Trade payables are accrued when the counterparty has performed its obligations under the contract; they are

carried at amortised cost using the effective interest method.

HIGHLAND GOLD MINING LIMITED

provisions for liabilities and Charges

A provision is recognised when the Group has a present legal or constructive obligation as a result of a past

event, when it is probable that an outflow of resources will be required to settle the obligation and when a
reliable estimate of the amount can be made.

environmental proteCtion, rehabilitation and Closure Costs

Provision is made for close down, restoration and environmental clean-up costs (including the dismantling
and demolition of infrastructure, removal of residual materials and remediation of disturbed areas), where there
is a legal or constructive obligation to do so, in the accounting period in which the environmental disturbance
occurs, based on the estimated future costs. Where material, the provision is discounted and the unwinding
of the discount is shown as a finance cost in the statement of comprehensive income. At the time of establishing
the provision, a corresponding asset, is capitalised and depreciated on a unit of production basis.

The provision is reviewed on a semi-annual basis for changes in cost estimates or lives of operations.

revenue reCognition

Revenue is recognised at the fair value of the consideration received or receivable to the extent that it is
probable that the economic benefits will flow to the Group and the revenue can be reliably measured and
when all significant risks and rewards of ownership of the asset sold are transferred to the customer. Gold sales
revenue is recognised when the product has been dispatched to the purchaser and is no longer under the
physical control of the producer. At this point the Group retains neither continuing managerial involvement to the
degree usually associated with ownership nor effective control over the product.

Novo as a concentrate producer and seller has contracts where price risk is retained for a specified period after

the sale has occurred. The price payable under the concentrate contract is determined by reference to prices
quoted in an organised market (LME). The title to the commodity passes to the buyer on delivery. At this time a
provisional invoice is generated based on the average price over the previous month. A portion of the provisional
invoice is settled within a few days (85% from January to August 2015, 80% since September 2015). The remaining
amount (15% from January to August 2015, 20% since September 2015), plus or minus any adjustment on 100%
of the value of the sale for movements in price from the price in the provisional invoice and the final price, plus any
volume adjustments resulting from the final assay, is settled in four months after the date of the delivery.

Pricing adjustment features that are based on quoted market prices for a date subsequent to the date of

shipment or delivery of the commodity represent an embedded derivative financial instrument closely related to
the host sales contract and therefore not separated. The derivative has a fair value, based on the pricing formula
set out in the contract, which is based on quoted market prices.

Adjustments for prices are calculated using the best estimate. Adjustments for volumes (metal grades in
concentrates) are based on the available actual test results. No corrections are made in respect of periods
where no final test results are available.

Any adjustments to pricing resulting from the embedded derivative as well as volume adjustments are recognised

in revenue from concentrate sales and accounts receivable when incurred, based on quoted market prices.

employee benefits

Wages, salaries, contributions to the Russian Federation state pension and social insurance funds, paid
annual leave and sick leave, bonuses and non-monetary benefits (such as health services) are accrued in the
year in which the associated services are rendered by the employees of the Group.

share-based payments
Equity-settled transactions

The cost of equity-settled transactions with employees is measured by reference to the fair value at the date
at which they are granted and is recognised as an expense over the vesting period, which ends on the date on
which the relevant employees become fully entitled to the award. Fair value is determined using an appropriate
pricing model. In valuing equity-settled transactions, no account is taken of any vesting conditions, other than
conditions linked to the price of the shares of the Company (market conditions).

ANNUAL REPORT & ACCOUNTS 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

No expense is recognised for awards that do not ultimately vest, except for awards where vesting is

conditional upon a market condition, which are treated as vesting irrespective of whether or not the market
condition is satisfied, provided that all other vesting conditions are satisfied.

At each reporting date before vesting, the cumulative expense is calculated, representing the extent to which
the vesting period has expired and management’s best estimate of the achievement or otherwise of non-market
conditions and of the number of equity instruments that will ultimately vest or, in the case of an instrument
subject to a market condition, be treated as vesting as described above.

The movement in cumulative expense since the previous reporting date is recognised in the statement of

comprehensive income, with a corresponding entry in equity.

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and
any cost not yet recognised in the statement of comprehensive income for the award is expensed immediately.
Any compensation paid up to the fair value of the award at the cancellation or settlement date is deducted from
equity, with any excess over fair value being treated as an expense in the statement of comprehensive income.

Cash-settled transactions

The cost of cash-settled transactions is measured at fair value using an appropriate option pricing model. Fair

value is established initially at the grant date and at each reporting date thereafter until the awards are settled.
During the vesting period a liability is recognised representing the product of the fair value of the award and the
portion of the vesting period expired as at the reporting date. From the end of the vesting period until settlement,
the liability represents the full fair value of the award as at the reporting date. Changes in the carrying amount of
the liability are recognised in profit or loss for the period.

earnings per share

Earnings per share is determined by dividing the profit or loss attributable to equity holders of the Company by

the weighted average number of participating shares outstanding during the reporting year.

dividend distribution

Dividends on equity shares are recognised in the consolidated statement of changes in equity.

inCome taxes

Current tax for each taxable entity in the Group is based on the local taxable income at the local statutory
tax rate enacted at the reporting date and includes adjustments to tax payable or recoverable in respect of
previous periods. The income tax charge/(credit) comprises current tax and deferred tax and is recognised in
the consolidated statement of comprehensive income, except to the extent that it relates to items charged or
credited directly to equity, in which case it is recognised in equity.

Deferred income tax is recognised using the statement of financial position liability method in respect of tax

losses carried forward and temporary differences between the tax bases of assets and liabilities, and their
carrying amounts for financial reporting purposes, except as indicated below.

Deferred income tax liabilities are recognised for all taxable temporary difference except:

• where the deferred income tax liability arises from the initial recognition of goodwill, or the initial recognition of an

asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects
neither the accounting profit nor taxable profit or loss; and

• in respect of taxable temporary differences associated with investments in subsidiaries and interests in joint

ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that
the temporary differences will not reverse in the foreseeable future.
Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused

tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against
which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses
can be utilised, except:
• where the deferred income tax asset relating to the deductible temporary difference arises from the initial
recognition of an asset or liability in a transaction that is not a business combination and, at the time of the
transaction, affects neither the accounting profit nor taxable profit or loss; and

HIGHLAND GOLD MINING LIMITED

• in respect of deductible temporary differences associated with investments in subsidiaries and interests in joint
ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary differences
will reverse in the foreseeable future and taxable profit will be available against which the temporary differences
can be utilised.
The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the

extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred
income tax asset to be utilised. To the extent that an asset not previously recognised fulfils the criteria for
recognition, a deferred income tax asset is recorded.

Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods
in which the asset is realised or the liability is settled, based on tax rates and tax laws enacted or substantively
enacted at the reporting date.

new standards, interpretations and amendments adopted by the group

In the preparation of consolidated financial statements, the Group followed the same accounting policies and

methods of computation as compared with those applied in the previous year, except for the adoption of new
standards and interpretations and revision of the existing standards as of 1 January 2015.

The Group has applied the improvements effective for annual periods beginning on or after 1 January 2015

for the first time in these consolidated financial statements. These amendments issued in course of Annual
Improvements to IFRSs 2010-2012 and Annual Improvements to IFRSs 2011-2013 mostly related to IFRS 3
Business Combinations, IFRS 13 Fair Value Measurement, IFRS 2 Share-based Payment, IFRS 8 Operating
Segments and did not have an impact on the financial position or performance of the Group.

Revised standard with effect on disclosures – 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. Please refer to Note 5 for details. The Group has

presented the reconciliation of segment assets to total assets in previous periods and continues to disclose
the same in Note 5 in these financial statements as the reconciliation is reported to the chief operating decision
maker for the purpose of decision making.

new standards and interpretations not yet adopted

The Group has not early adopted any standard, interpretation or amendment that was issued but is not
yet effective. The list below includes only standards and interpretations that could have an impact on the
consolidated financial statements of the Group:

Standards not yet effective for the financial statements for the year ended
31 December 2015

Effective for annual periods
beginning on or after

Amendments to IAS 1 – Disclosure Initiative
Amendments to IFRS 11 – Accounting for Acquisitions of Interests in Joint
Operations
Annual Improvements to IFRSs 2012-2014 Cycle
Amendments to IAS 7 – Disclosure Initiative
Amendments to IAS 12 – Recognition of Deferred Tax Assets for Unrealised Losses
IFRS 9 Financial Instruments
IFRS 15 Revenue from Contracts with Customers
IFRS 16 Leases

1 January 2016

1 January 2016
1 January 2017*
1 January 2017*
1 January 2018*
1 January 2018*
1 January 2019*

* Subject to EU endorsement.

ANNUAL REPORT & ACCOUNTS 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

IFRS 9 Financial Instruments

The application of IFRS 9 may change the measurement and presentation of many financial instruments,
depending on their contractual cash flows and the business model under which they are held. The impairment
requirements will generally result in earlier recognition of credit losses. The new hedging model may lead to
more economic hedging strategies meeting the requirements for hedge accounting. The Group will monitor the
discussions of the IFRS Transition Resource Group for Impairment of Financial Instruments (ITG).

The Group is currently estimating the potential effect of IFRS 9 on its financial statements for the reporting

periods on and after 1 January 2018.

IFRS 15 Revenue from Contracts with Customers

IFRS 15 is more prescriptive than the current IFRS requirements for revenue recognition and provides more
application guidance. The core principle is that an entity will recognise revenue at an amount that reflects the
consideration to which the entity expects to be entitled in exchange for transferring goods or services to a
customer. The standard also specifies how to account for the incremental costs of obtaining a contract and
the costs directly related to fulfilling a contract. The disclosure requirements are also more extensive. This
standard is applied using either a full retrospective approach, with some limited relief provided, or a modified
retrospective approach.

The Group is currently estimating the potential effect of IFRS 15 on its financial statements for the reporting

periods on and after 1 January 2018.

IFRS 16 Leases

Under the new standard, a lease is a contract, or part of a contract, that conveys the right to use an asset (the

underlying asset) for a period of time in exchange for consideration. To be a lease, a contract must convey the
right to control the use of an identified asset, which could be a physically distinct portion of an asset such as a
floor of a building.

A contract conveys the right to control the use of an identified asset if, throughout the period of use, the

customer has the right to:
• obtain substantially all of the economic benefits from the use of the identified asset; and
• direct the use of the identified asset (i.e., direct how and for what purpose the asset is used).

The lessor accounting is substantially unchanged. The lessees will recognise most leases on their balance
sheets. The new standard permits lessees to use either a full retrospective or a modified retrospective approach
on transition for leases existing at the date of transition, with options to use certain transition reliefs.

The Group is currently estimating the potential effect of IFRS 16 on its financial statements for the reporting

periods on and after 1 January 2017.

4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
IN APPLYING ACCOUNTING POLICIES

The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities.
Estimates and judgements are continually evaluated and are based on management’s experience and other
factors, including expectations of future events that are believed to be reasonable under the circumstances.
Management also makes certain judgements, apart from those involving estimations, in the process of applying
the accounting policies. Judgements that have the most significant effect on the amounts recognised in the
financial statements and estimates that can cause a significant adjustment to the carrying amount of assets
and liabilities within the next financial year include:

judgements
deferred stripping Costs

The Group accounts for stripping costs incurred during the production stage of its open-pit operations on the
basis of the relevant production measure calculated for every identified component of every ore body (volume
of waste to volume of ore extracted).

Production stripping costs are capitalised as part of a non-current stripping activity asset if:
• probable future economic benefits associated with the stripping activity will flow to the Group;

HIGHLAND GOLD MINING LIMITED

• costs can be measured reliably; and
• the Group can identify the component of the ore body for which access has been improved.

Significant judgement is required to distinguish between development stripping and production stripping and
to distinguish between the production stripping that relates to the extraction of inventory and what relates to the
creation of a stripping activity asset.

Once the Group has identified its production stripping for each surface mining operation, it identifies the

separate components of the ore bodies for each of its mining operations. An identifiable component is a specific
volume of the ore body that is made more accessible by the stripping activity. Significant judgement is required
to identify and define these components, and also to determine the expected volumes of waste to be stripped
and ore to be mined in each of these components. These assessments are undertaken for each individual
mining operation based on the information available in the mine plan.

The mine plans and, therefore, the identification of components, will vary between mines for a number of
reasons. These include, but are not limited to, the type of commodity, the geological characteristics of the ore
body, the geographical location and/or financial considerations.

Judgement is also required to identify a suitable production measure to be used to allocate production

stripping costs between inventory and any stripping activity asset(s) for each component. The Group considers
that the ratio of the expected volume of waste to be stripped for an expected volume of ore to be mined for a
specific component of the ore body, is the most suitable production measure.

Furthermore, judgements and estimates are also used to apply the units of production method in determining

the depreciable lives of the stripping activity asset(s).

going ConCern

The Directors consider that the Group will continue as a going concern.
In assessing the going concern status, the Directors have taken account of the Group’s financial position,

expected future trading performance, its borrowings, available credit facilities and capital expenditure
commitments, considerations of the gold price, currency exchange rates and other risks facing the Group.
After making appropriate enquiries, the Directors consider that the Group has adequate resources to continue
in operational existence for at least the next 12 months from the date of signing these consolidated financial
statements and that it is appropriate to adopt the going concern basis in preparing these consolidated financial
statements. Having examined all reasonably possible scenarios, the Group also concluded that no covenants
are breached in any scenarios.

write-off of assets

A fixed asset is written off when it is determined that there is no further use for the asset: it is obsolete or no
longer in use, and there is no resale market for it. Old inefficient equipment that is not expected to provide future
economic benefits to the Group is written off.

gain on settlement of Contingent Consideration

In 2013, the Group acquired a 100% share in ZAO Bazovye Metally (Kekura). Part of contingent consideration
recognised in this business combination was payable upon the completion of various contractual terms. In July
2014 an agreement was signed stating that several contractual terms had not been met.

Therefore, US$5.6 million of the contingent consideration would no longer be payable and was recognised as
a gain on settlement of contingent consideration in the 2014 consolidated statement of comprehensive income.
US$3.8 million was paid in July 2014 with the remaining US$0.4 million to be paid in 2016.

ANNUAL REPORT & ACCOUNTS 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

finanCial assets at fair value through profit or loss

The Group classifies financial assets as 'financial assets at fair value through profit or loss' when this group
of assets is managed and its performance is evaluated on a fair value basis, in accordance with a documented
risk management or investment strategy, and information about them is provided internally on that basis
to the Group’s key management personnel. The Group’s financial assets held at fair value through profit or
loss comprise coupon bonds, which have a carrying value at 31 December 2015 of US$21.2 million (2014:
US$43.0 million). The Group uses quoted market prices to determine fair value for financial assets. The fair value
adjustment on financial assets at fair value through profit or loss is recognised in the consolidated statement
of comprehensive income for the period. The Group does not reclassify financial instruments in or out of this
category while they are held.

inventories

If the ore stockpile is not expected to be processed in 12 months after the reporting date, it is included in non-
current assets. Physical volumes of such ore stockpiles are taken from technical reports, approved annual mine
plans and life-of-mine models.

funCtional CurrenCy

Each entity in the Group determines its own functional currency and items included in the financial statements

of each entity are measured using that functional currency. US Dollar is the functional currency of all entities
both in 2014 and 2015.

estimations and assumptions
impairment of non-Current assets
Non-financial assets (excluding goodwill)

The Group assesses, at each reporting date, whether there is an indication that an asset (or cash-generating
unit (CGU)) may be impaired. If any indication exists, or when annual impairment testing for an asset is required,
the Group estimates the asset’s or CGU’s recoverable amount. The recoverable amount is the higher of an
asset’s or CGU’s fair value less costs of disposal (FVLCD) and its value in use (VIU). The recoverable amount is
determined for an individual asset, unless the asset does not generate cash inflows that are largely independent
of those from other assets or groups of assets, in which case the asset is tested as part of a larger CGU to
which it belongs. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset/
CGU is considered impaired and is written down to its recoverable amount. Management has assessed its
CGUs as being an individual mine, which is the lowest level for which cash inflows are largely independent of
those of other assets.

In calculating the recoverable amount, the estimated future cash flows are discounted to their present value
using a post-tax discount rate that reflects current market assessments of the time value of money and the risks
specific to the asset/CGU. In determining the recoverable amount, recent market transactions (where available)
are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These
calculations are corroborated by valuation multiples and other available fair value indicators. Further details on
how FVLCD is calculated are outlined in Note 17.

The Group bases its impairment calculation on detailed budgets and forecasts, which are prepared separately

for each of the Group’s CGUs to which the individual assets are allocated, based on the life-of-mine plans.
The estimated cash flows are based on expected future production, metal selling prices, operating costs and
forecast capital expenditure.

Impairment losses are recognised in the statement of profit or loss and other comprehensive income in those

expense categories consistent with the function of the impaired asset.

For assets/CGUs excluding goodwill, an assessment is made at each reporting date to determine whether
there is an indication that previously recognised impairment losses may no longer exist or may have decreased.
If such indication exists, the Group estimates the asset’s or CGU’s recoverable amount. A previously recognised
impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s/
CGU’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the
carrying amount of the asset/CGU does not exceed either its recoverable amount, or the carrying amount that

HIGHLAND GOLD MINING LIMITED

would have been determined, net of depreciation, had no impairment loss been recognised for the asset/CGU
in prior years. Such a reversal is recognised in the statement of profit or loss.

Please refer to Note 17 for further details.

Goodwill

Goodwill is tested for impairment annually (as at 31 December) and when circumstances indicate that the
carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of
each CGU (or group of CGUs) to which the goodwill relates. Where the recoverable amount of the CGU is less
than its carrying amount including goodwill, an impairment loss is recognised. Impairment losses relating to
goodwill cannot be reversed in future periods.

Note 17 outlines the significant judgements and estimations made when preparing impairment tests of non-

current assets, including post-tax discount rates.

tax legislation

Russian tax, currency and customs legislation is subject to varying interpretations. Please refer to Note 28 for

details.

The Group establishes provisions, based on reasonable estimates, for possible consequences of audits by
the tax authorities in the countries in which it operates. The amounts of such provisions are based on various
factors, such as experience with previous tax audits and differing interpretations of tax regulations by the
taxable entity and the responsible authority.

deferred inCome tax asset reCognition

Management judgement is required to determine the amount of deferred tax assets that can be recognised,
based upon the likely timing and level of future tax profits together with an assessment of the effect of future tax
planning strategies. Further details are contained in Note 13.

site restoration provision

A provision is recognised for expected close down, restoration and environmental clean-up costs based on the
estimated future costs of such activities. It is expected that most of these costs will be incurred at the end of life of
the operating mine. Assumptions used to calculate the provision for site restoration were based on the government
requirements applicable to sites closure, and assumptions regarding the life of mine (which is assumed to close
in 2018 at MNV, in 2023 at BG, in 2029 at Novo, in 2030 at Klen and in 2029 at Kekura), expected site restoration
activities (removal of waste, restoration of mine sites) and current prices for similar activities.

inventory obsolesCenCe

The Group entities perform a detailed analysis of old items of stock and create a specific provision for them

once determined recovery of value unlikely. Then the Group performs a turnover analysis for the remaining
items of inventory by aging. If the Group identifies impairment indicators, the obsolescence provision is then
recognised at the statement of financial position. The movement in the obsolescence provision is recognised in
the statement of comprehensive income.

determination of ore reserves and resourCes

The Group estimates its ore reserves and mineral resources in accordance with the rules and requirements of

the Russian State Committee for Reserves (GKZ) as well as in accordance with JORC.

Proven and probable reserves and a portion of resources expected to be converted into reserves (as

indicated in the detailed life-of-mine plans) have been used in the units of production calculation for depreciation
since October 2015, as management believes they represent a more accurate approximation of the reserves
that will ultimately be recovered (proven and probable reserves were previously used in the units of production
calculation for depreciation). Had no change in estimate occurred, depreciation provided during 2015 would
have been US$2.4 million higher. The amount of the effect in future periods is not disclosed because estimating
it is impracticable.

ANNUAL REPORT & ACCOUNTS 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

There are numerous uncertainties inherent in estimating ore reserves. Assumptions that are valid at the time of

estimation may change significantly when new information becomes available. Changes in the forecast prices
of commodities, exchange rates, addition to or reduction of reserves as a result of exploration works, production
costs or recovery rates may change the economic status of reserves and may ultimately result in the reserves
being restated.

Mine development expenditure

Mine development costs are, upon commencement of production, depreciated using a unit of production
method based on the estimated proven and probable reserves and a portion of resources expected to be
converted into reserves to which they relate or are written off if the property is abandoned.

Mine properties

Mine assets and mineral rights are amortised using the units-of-production method based on estimated proven

and probable reserves and a portion of resources expected to be converted into reserves.

Note 17 contains information on the life of mines that is in line with the present assessment of the economically

recoverable reserves.

Please refer to the Resources and Reserves section for the detailed information on the mineral resources and

reserves.

exploration and evaluation expenditure

The application of the Group’s accounting policy for exploration and evaluation expenditure requires
judgement in determining whether it is likely that the asset will bring economic benefits in the future, which
may be based on assumptions about future events or circumstances. Estimates and assumptions made may
change if new information becomes available. If, after expenditure is capitalised, information becomes available
suggesting that the recovery of expenditure is unlikely, the amount capitalised is written off in the statement of
comprehensive income in the period when the new information becomes available.

5. 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 stage: 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/(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

HIGHLAND GOLD MINING LIMITED

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 loss after tax for the year.

The finance costs, finance income, income taxes, foreign exchange losses, other non-current assets and

current assets are managed on a Group basis and are not allocated to operating segments.

Transfer prices between operating segments are on an arm’s length basis in a manner similar to transactions with

third parties.

The accounting policies used by the Group in reporting segments internally are the same as those contained in

Note 3 of the financial statements.

Revenue from several customers was greater than 10% of total revenues.
In 2015 the gold and silver revenue reported in the gold production segment was received from sales to

Gazprombank (US$178.1 million) in the territory of the Russian Federation.

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

In 2015 the concentrate revenue reported in the polymetallic concentrate production segment in the amount
of US$97.6 million was received from sales to Kazzinc (2014: US$94.5 million) in the territory of the Republic of
Kazakhstan.

Other third-party revenues in both 2015 and 2014 were received in the territory of the Russian Federation.
Inter-segment revenues mostly represent management services.

ANNUAL REPORT & ACCOUNTS 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Year ended
31 December 2015

Revenue
Gold revenue
Silver revenue
Concentrate revenue
Other third-party
Inter-segment
Totalrevenue
Cost of sales
EBITDA
Othersegmentinformation
Depreciation
Movement in ore stockpiles
obsolescence provision
Movement in raw materials and
consumables obsolescence provision
Impairment losses related to cash-
generating units
Individual impairment of property, plant
and equipment
Finance income
Finance costs
Foreign exchange loss
Profitbeforeincometax
Income tax
Lossfortheyear
Segmentassetsat31December2015
Non-current assets
Capital expenditure*
Goodwill
Other non-current assets
Current assets**
Totalassets

Gold
production
segment
US$000

Polymetallic
concentrate
production
segment
US$000

Development
& exploration
US$000

Other Eliminations
US$000

US$000

Total
US$000

176,625
1,519
–
221
76
178,441
145,201
77,285

–
–
97,602
186
–
97,788
53,202
62,816

–
–
–
22
5
27
873
(4,558)

–
–
–
–
11,639
11,639
89
(2,226)

–
–
–
–
(11,720)
(11,720)
–
–

(51,276)

(21,185)

(37)

(85)

(120)

(518)

–

(3)

–

(35,982)

(1,698)

–

210,489
22,253
18,959
83,545

170,688
5,134
387
26,101

566,426
42,978
544
4,098

552
–
327
28,656

–
–
–
(13,986)

176,625
1,519
97,602
429
–
276,175
199,365
133,317

(72,583)

(120)

(521)

(35,982)

(1,698)

1,331
(5,529)
(4,321)
13,894
(23,913)
(10,019)

948,155
70,365
20,217
128,414
1,167,151

Capitalexpenditure–additionsin
2015***,including:
Stripping activity assets
Capitalised bank interest
Unpaid/(settled) accounts payable
Cash capital expenditure

31,907

9,399
–
733
21,775

6,801

–
–
1,924
4,877

28,309

–
12,359
557
15,393

–
–
(64)
150

–

–
–
–
–

67,103

9,399
12,359
3,150
42,195

* Capital expenditure is the sum of exploration and evaluation assets, mine properties and property, plant and equipment.
** Current assets include corporate cash and cash equivalents of US$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
inter-company accounts receivable.

*** Capital expenditure – additions in 2015 – includes additions to property, plant and equipment of US$54.5 million (Note 15),

capitalised interest of US$12.4 million (Note 15) and prepayments made for property, plant and equipment of US$0.2 million.
Non-current assets for 2015 are located in the Russian Federation (US$995.7 million) and in the Kyrgyz Republic (US$43.0
million). Current assets for 2015 are located in the Russian Federation.

HIGHLAND GOLD MINING LIMITED

Year ended
31 December 2014

Revenue
Gold revenue
Silver revenue
Concentrate revenue
Other third-party
Inter-segment
Totalrevenue
Cost of sales
EBITDA
Othersegmentinformation
Depreciation
Movement in ore stockpiles
obsolescence provision
Movement in raw materials and
consumables obsolescence provision
Impairment losses related to cash-
generating units
Individual impairment of construction
in progress
Gain on settlement of contingent
consideration
Loss from disposal of an entity
Finance income
Finance costs
Foreign exchange loss
Profitbeforeincometax
Income tax
Lossfortheyear
Segmentassetsat31December2014
Non-current assets
Capital expenditure*
Goodwill
Other non-current assets
Current assets**
Totalassets

Gold
production
segment
US$000

Polymetallic
concentrate
production
segment
US$000

Development
& exploration
US$000

Other Eliminations
US$000

US$000

Total
US$000

207,326
1,571
–
314
107
209,318
166,925
78,291

–
–
94,521
265
–
94,786
60,338
50,661

–
–
–
233
673
906
1,172
(2,396)

–
–
–
–
13,032
13,032
83
(2,939)

–
–
–
–
(13,812)
(13,812)
–
–

(39,024)

(20,246)

(47)

(75)

(664)

(605)

–

(11,401)

(500)

–

231,553
22,253
8,060
111,555

185,696
5,134
357
35,225

559,811
59,732
1,446
7,216

552
–
463
50,327

–
–
–
(35,584)

207,326
1,571
94,521
812
–
304,230
228,518
123,617

(59,392)

(664)

(509)

(11,401)

(500)

5,622

(918)
3,457
(4,226)
(9,599)
45,487
(70,330)
(24,843)

977,612
87,119
10,326
168,739
1,243,796

Capitalexpenditure–additionsin
2014***,including:
Stripping activity assets
Capitalised bank interest
Settled accounts payable
Cash capital expenditure

38,368

5,554
1,714
(2,161)
33,261

7,829

–
–
(132)
7,961

25,256

–
9,281
(8,197)
24,172

106

–
–
(38)
144

–

–
–
–
–

71,559

5,554
10,995
(10,528)
65,538

* Capital expenditure is the sum of exploration and evaluation assets, mine properties and property, plant and equipment.
** Current assets include corporate cash and cash equivalents of US$12.9 million, investments of US$43.0 million, inventories
of US$77.3 million, trade and other receivables of US$28.9 million and other assets of US$6.6 million. Eliminations relate to
inter-company accounts receivable.

*** Capital expenditure – additions in 2014 – includes additions to property, plant and equipment of US$67.7 million (Note 15)
and capitalised interest of US$11.0 million (Note 15) less prepayments previously made for property, plant and equipment
of US$7.1 million. Non-current assets for 2014 are located in the Russian Federation (US$1,032.4 million) and in the Kyrgyz
Republic (US$42.7 million). Current assets for 2014 are located in the Russian Federation.

ANNUAL REPORT & ACCOUNTS 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

6. AUDITORS’ REMUNERATION
The Group accrued the following amounts in respect of the audit of the financial statements and other services
provided to the Group.

Audit of the Group financial statements
Local statutory audits for subsidiaries

Ernst & Young
2015
US$000
575
18
593

2014
US$000
673
19
692

Others

Total

2015
US$000
–
75
75

2014
US$000
–
94
94

2015
US$000
575
93
668

2014
US$000
673
113
786

7. REVENUE
The Group operates in one principal area of activity, that of production of gold and concentrates.

Gold sales
Concentrate sales*
Silver sales
Other sales
Totalrevenue

2015
US$000

176,625
97,602
1,519
429
276,175

2014
US$000

207,326
94,521
1,571
812
304,230

Concentrate sales include the positive fair value movement of an embedded derivative in the amount of US$1.3 million
(2014: a negative fair value movement of US$0.4 million).

8. COST OF SALES

Operating costs
Movement in ore stockpiles and gold in progress
Movement in finished goods
Capitalised to stripping activity assets
Employee benefits expense
Depreciation, depletion and amortisation
Raw materials and consumables used
Taxes other than income tax*
Totalcostofsales

* Other taxes include mineral extraction tax, property tax, transport tax, etc.

9. ADMINISTRATIVE EXPENSES

Management company administrative expenses
Minimum lease payments recognised as an operating lease expense
Salaries and wages of parent company
Auditors’ remuneration (Note 6)
Legal and professional fees
Bank charges
Travel expenses of parent company
Allowance for doubtful receivables
Other administrative expenses
Totaladministrativeexpenses

2015
US$000

35,022
(4,159)
813
(9,399)
40,448
72,583
48,127
15,930
199,365

2015
US$000

8,716
819
1,158
668
842
374
359
177
14
13,127

2014
US$000

42,990
14,808
(1,543)
(6,084)
52,101
59,392
47,403
19,451
228,518

2014
US$000

11,203
1,131
1,145
786
726
265
192
–
16
15,464

HIGHLAND GOLD MINING LIMITED

10. OTHER OPERATING INCOME AND EXPENSES
10.1 other operating inCome

Other operating income
Reversal of allowance for doubtful debts
Accounts payable write-off
Change in estimation – site restoration asset (Note 15)
Totalotheroperatingincome

10.2 other operating expenses

Movement in ore stockpiles obsolescence provision (Note 20)
Mine properties and property, plant and equipment write-off
Individual impairment of property, plant and equipment
Donations to local communities
Loss on disposal of property, plant and equipment
Loss on disposal of inventory
Movement in raw materials and consumables obsolescence provision
Loss on disposal of an entity
Other taxes relating to prior periods
Other operating expenses
Totalotheroperatingexpenses

10.2.1

10.2.2

10.2.3

2015
US$000

2014
US$000

762
–
16
2,104
2,882

831
146
122
7,535
8,634

2015
US$000

2014
US$000

120
1,916
1,698
832
172
397
521
–
–
2,514
8,170

664
393
500
1,239
781
–
509
918
617
1,627
7,248

10.2.1 Movement in ore stockpiles obsolescence provision

Stock-piled low grade ore at BG is tested for impairment annually. The balance of ore stockpiles in the amount

of US$0.1 million was written down in 2015 (2014: US$0.7 million).

10.2.2 Individual impairment of property, plant and equipment

The recoverable amount of several property, plant and equipment items determined as at 31 December 2015

was lower than their carrying amount because the Group does not expect to derive future cash flows from the
assets. The assets were considered impaired and were written down to their recoverable amount.

10.2.3 Disposal of an entity

In 2013 the Group sold Trade House Mnogovershinnoye (TH MNV) to a non-related party. Loss on disposal of

TH MNV of US$0.9 million in 2014 represents the allowance made for doubtful accounts related to the sale.

11. FOREIGN EXCHANGE GAINS AND LOSSES

The total amount of foreign exchange loss for the year ended 31 December 2015 was US$4.3 million
(2014: loss of US$9.6 million) resulting from the settlement of foreign currency transactions and from the
translation of monetary assets and liabilities denominated in foreign currencies such as Russian Roubles and
British Pounds into the functional currency.

12. FINANCE INCOME AND COSTS
finanCe inCome

Bonds fair value movement (Note 31)
Bank interest
Other finance income
Totalfinanceincome

2015
US$000

1,246
75
10
1,331

2014
US$000

3,265
160
32
3,457

ANNUAL REPORT & ACCOUNTS 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

finanCe Costs

Accretion expense on site restoration provision (Note 27)
Interest expense on bank loans
Interest expense on finance lease
Totalfinancecosts

2015
US$000

2,117
3,297
115
5,529

2014
US$000

2,355
1,871
–
4,226

13. INCOME TAX
The major components of income tax expense for the years ended 31 December 2015 and 2014 are:

Consolidatedstatementofcomprehensiveincome
Current income tax:
Current income tax charge
Adjustments in respect of prior year tax
Adjustments in respect of prior year withholding tax

Deferredincometax:
Relating to origination of temporary differences
Incometaxexpensereportedinthestatementofcomprehensiveincome

2015
US$000

2014
US$000

15,867
804
738

17,409

6,504
23,913

20,677
249
–

20,926

49,404
70,330

The majority of the Group entities are Russian tax residents. A reconciliation between the actual tax expense
and the expected tax expense based on the accounting profit multiplied by Russian statutory tax rate of 20% for
the year ended 31 December 2015 and 2014 is as follows:

Accountingprofitbeforeincometax
At Russian statutory income tax rate of 20%
Non-deductible expenses
Effect of translation of tax base denominated in foreign currency
Adjustments in respect of prior year tax
Adjustments in respect of prior year withholding tax
Lower tax rates on overseas losses
Unrecognised losses
Loss/(gain) from other unrecognised temporary differences
Losses arising from goodwill impairment
Incometaxexpenseattheeffectivetaxrateof172%(2014:155%)
Incometaxexpensereportedintheconsolidatedstatementof
comprehensiveincome

2015
US$000

2014
US$000

13,894
2,779
2,748
8,758
804
738
3,218
1,305
212
3,351
23,913

23,913

45,487
9,097
2,143
52,204
249
–
2,293
4,874
(530)
–
70,330

70,330

HIGHLAND GOLD MINING LIMITED

Deferred income tax
Deferred income tax at 31 December relates to the following:

Deferredincometaxliability
Property, plant and equipment
Inventory
Accounts receivable and other debtors
Deferred financing costs

Deferredincometaxassets
Accounts receivable and other debtors
Finance lease obligations
Trade accounts and notes payable
Tax losses

Netdeferredincometaxliabilities

Consolidated statement of financial
position
2014
US$000

2015
US$000

Consolidated statement of
comprehensive income
2014
US$000

2015
US$000

(146,570)
(9,384)
(710)
(25)
(156,689)

(60)
212
772
20,308
21,232
(135,457)

(142,271)
(9,880)
(803)
(58)
(153,012)

664
–
1,093
22,302
24,059
(128,953)

4,299
(496)
(93)
(33)
3,677

724
(212)
321
1,994
2,827
6,504

36,639
6,641
644
(34)
43,890

376
–
(251)
5,389
5,514
49,404

Entity-specific deferred tax positions are presented below:

Deferred income tax assets
Deferred income tax liabilities
Deferredtaxliabilitiesnet

2015
US$000

–
(135,457)
(135,457)

2014
US$000

82
(129,035)
(128,953)

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

The amount of the deductible temporary differences for which no deferred tax asset has been recognised in

respect of the site restoration provision at 31 December 2015 is US$15.3 million (31 December 2014: US$14.9 million).
No deferred tax benefit is recognised in relation to the provision for obsolete inventory. These materials are

unlikely to be used for production purposes in the future and therefore future tax relief is not assumed. The
amount of the deductible temporary differences for which no deferred tax asset has been recognised in respect
of the obsolescence provision at 31 December 2015 is US$15.9 million (31 December 2014: US$15.3 million).
The amount of the deductible temporary differences for which no deferred tax asset has been recognised in
respect of the tax losses at 31 December 2015 is US$32.5 million (31 December 2014: US$32.2 million). The non-
recognition of tax losses is due to insufficient expected future income against which these losses could be offset.

According to Russian tax legislation, tax losses expire if not utilised within ten years of accruing.
The temporary differences associated with investments in subsidiaries, for which deferred tax liability
in respect of withholding tax on dividends has not been recognised aggregate to US$298.2 million (2014:
US$321.8 million). No deferred tax liability has been recognised in respect of these differences because
the Group is able to control the timing of the reversal of the temporary differences and it is probable that the
temporary differences will not reverse in the foreseeable future.

The total deferred tax liabilities arising from these temporary differences should be between US$0 and
US$14.9 million (2014: US$0 and US$16.1 million), depending on the manner in which the investments are
ultimately realised.

Profits arising in the Company for the 2015 and 2014 years of assessment will be subject to the Jersey tax at

the standard corporate income tax rate of 0%.

ANNUAL REPORT & ACCOUNTS 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

14. EARNINGS PER SHARE

Basic earnings per share amounts are calculated by dividing profit for the year attributable to ordinary equity

holders of the parent by the weighted average number of ordinary shares outstanding during the year.

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 year plus the weighted
average number of ordinary shares that would be issued, for no consideration, on the exercise of share options into
ordinary shares. There is no effect of dilution in 2015 (2014: none) as the remaining share options expired in 2014.

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

Net loss attributable to ordinary equity holders of the parent

Weighted average number of ordinary shares

2015
US$000

(10,316)

Thousands

325,222

2014
US$000

(24,942)

Thousands

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.

HIGHLAND GOLD MINING LIMITED

15. MINE PROPERTIES, EXPLORATION AND EVALUATION
ASSETS, AND PROPERTY, PLANT AND EQUIPMENT
Reconciliation of fixed assets on a period-by-period basis
for the period ending 31 December 2015

Exploration
and
evaluation
assets
US$000

Mine
properties
US$000

Stripping
activity
assets
US$000

Freehold
building
US$000

Plant and
equipment*
US$000

Construction
in progress
US$000

Total
US$000

Cost

At31December2014

296,739

438,385

36,032

202,881

204,545

77,835

1,256,417

Additions

Transfers

Write-off**

Disposals
Capitalised
depreciation
Capitalised interest***
Change in estimation
– site restoration
asset****
At31December2015

9,526

(833)

–

5,326

12,359

–

6,892

14,746

9,399

–

(140)

(28,206)

(72)

732

–

160

–

2,850

(406)

(48)

–

4,004

18,686

(8,427)

(371)

–

24,638

(36,897)

(709)

(72)

2,548

–

54,459

(1,448)

(37,888)

(563)

8,606

12,359

160

323,117

460,703

17,225

205,277

218,437

67,343

1,292,102

Depreciationandimpairment
At31December
2014
Provided during the
year
Transfers

Write-off**
Impairment of
property, plant and
equipment
Disposals
Capitalised
depreciation
Change in estimation
– site restoration
asset****
Kekura Impairment

Reclass to inventory

–

124,372

28,638

43,209

82,013

573

278,805

25,068

8,300

14,891

1,971

(117)

–

(28,206)

–

(70)

(172)

–

(441)

(112)

1,565

(7)

3,953

–

2,572

305

24,324

(2,978)

(7,037)

–

72,583

(1,448)

(500)

(35,972)

129

1,698

(216)

4,577

–

1,271

607

–

(293)

8,606

(172)

1,369

19,228

–

912

14,016

–

At31December2015

14,016

151,128

8,732

65,935

102,565

1,571

343,947

Netbookvalue:

At31December2014

296,739

314,013

At31December2015

309,101

309,575

7,394

8,493

159,672

139,342

122,532

115,872

77,262

65,772

977,612

948,155

Net book value of plant and equipment in the amount of US$2.5 million at 31 December 2015 relates to assets under finance
lease at MNV and Novo: cost of US$3.0 million less accumulated depreciation of US$0.5 million.
** Write-off for 2015 in the amount of US$1.9 million relates to retirement of old inefficient equipment.
*** Capitalised interest for 2015 includes US$12.4 million of borrowing costs capitalised at Kekura at interest rates between

4.0% and 7.0%.

**** During 2015 there was a reduction in the rehabilitation estimate (Note 27) which exceeded the corresponding net book value

in fixed assets by US$2.1 million. This excess was recognised in other operating income.
No plant and equipment has been pledged as security for bank loans in 2015.
Mine properties in the consolidated statement of financial position comprise mining assets and stripping

activity assets.

Property, plant and equipment in the consolidated statement of financial position comprise freehold building,

plant and equipment and construction in progress.

ANNUAL REPORT & ACCOUNTS 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Reconciliation of fixed assets on period-by-period basis
for the period ending 31 December 2014

Exploration
and
evaluation
assets
US$000

Mine
properties
US$000

Stripping
activity
assets
US$000

Freehold
building
US$000

Plant and
equipment
US$000

Construction
in progress
US$000

Total
US$000

Cost

At31December2013
Reclassification
Additions
Transfers
Write-off*
Disposals
Capitalised
depreciation
Capitalised interest**
Change in estimation
– site restoration
asset***
At31December2014
Depreciationandimpairment
At31December2013
Reclassification
Provided during the
year
Transfers
Write-off*
Impairment of
construction in
progress
Disposals
Capitalised
depreciation
Change in estimation
– site restoration
asset***
Impairment
Capitalised to
inventory
At31December2014
Netbookvalue:
At31December2013
At31December2014

443,270
–
10,199
5,133
(383)
–

1,370

1,714

–

(22,918)

270,287
(2,202)
14,742
(1,188)
–
–

5,819

9,281

296,739

28,701
–
5,554
–
–
–

1,777

–

99,736
2,060
–
101,179
–
(94)

–

154,777
(2,290)
1,308
53,406
(2,175)
(481)

–

197,608
857
35,893
(161,333)
(192)
(896)

1,194,379
(1,575)
67,696
(2,803)
(2,750)
(1,471)

5,898

14,864

–

10,995

(22,918)

–
–

–

–
–

–

438,385

36,032

202,881

204,545

77,835

1,256,417

110,516
–

23,448
–

25,171
(777)

22,945

4,881

12,066

(1,095)
(368)

–

–
–

–

(479)
–

–

(8)

654

309

7,236

(9,476)

1,196

–

59,391
(798)

19,500

(1,229)
(1,989)

73
–

–

–
–

218,599
(1,575)

59,392

(2,803)
(2,357)

–

500

(352)

6,665

–

825

–

(360)

14,864

(9,476)

1,196

825

124,372

28,638

43,209

82,013

573

278,805

332,754
314,013

5,253
7,394

74,565
159,672

95,386
122,532

197,535
77,262

975,780
977,612

270,287
296,739

* Write-off for 2014 in the amount of US$0.4 million relates to retirement of old inefficient equipment.
** Capitalised interest for 2014 includes US$9.3 million of borrowing costs capitalised at Kekura and US$1.7 million of

borrowing costs capitalised at BG at interest rates between 4.2% and 5.0%.

*** During 2014 there was a reduction in the rehabilitation estimate (Note 27) of US$21.0 million which exceeded the

corresponding net book value in fixed assets by US$7.5 million. This excess was recognised in other operating income.
No plant and equipment has been pledged as security for bank loans in 2014.
Mine properties in the consolidated statement of financial position comprise mining assets and stripping

activity assets.

Property, plant and equipment in the consolidated statement of financial position comprise freehold building,

plant and equipment and construction in progress.

HIGHLAND GOLD MINING LIMITED

The following amounts in relation to exploration and evaluation activities have been recognised in the
consolidated statement of comprehensive income or the consolidated cash flow statement as applicable:

Operating expenses
Net cash from operating activities
Net cash used in investing activities

16. INTANGIBLE ASSETS

Cost
At31December2013
Additions
At31December2014
Additions
At31December2015
Impairment
At31December2013
Provided during the year
At31December2014
Provided during the year
At31December2015
Netbookvalue:
At31December2014
At31December2015

2015
US$000

(1,113)
–
15,107

2014
US$000

(328)
–
19,738

Goodwill
US$000

97,324
–
97,324
–
97,324

–
10,205
10,205
16,754
26,959

87,119
70,365

Goodwill arises principally because of the following factors:
• The ability to capture unique synergies that can be realised from managing a portfolio of both acquired and

existing mines in our regional business units; and

• The requirement to recognise deferred tax assets and liabilities for the difference between the assigned values
and the tax bases of assets acquired and liabilities assumed in a business combination at amounts that do not
reflect fair value.
At 31 December 2015 intangible assets represented goodwill arising from the Barrick transaction (US$65.2

million) and from acquisition of Novo (US$5.1 million). Goodwill from acquisition of Kekura in the amount of
US$16.8 million was impaired in full in 2015. Goodwill allocated to Klen in the amount of US$10.2 million was
impaired in full in 2014.

Goodwill is allocated to a single or group of cash-generating units as appropriate, representing the lowest
level at which it is monitored for management purposes. Goodwill is allocated to the following groups of cash-
generating units:

Goodwill allocated to the operating gold mining company (MNV)
Goodwill allocated to the operating gold mining company (BG)
Goodwill allocated to the polymetallic mining company (Novo)
Goodwill allocated to the group of development and exploration assets (excluding
Klen and Kekura)
Goodwill allocated to development and exploration company (Kekura)
Balanceat31December

2015
US$000

9,690
12,563
5,134

42,978

–
70,365

2014
US$000

9,690
12,563
5,134

42,978

16,754
87,119

ANNUAL REPORT & ACCOUNTS 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

17. IMPAIRMENT TESTING OF NON-CURRENT ASSETS

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

Management has determined the recoverable amounts in 2015 and 2014 using fair value less costs of

disposal (FVLCD) calculations. FVLCD is determined at the cash-generating unit level, in this case being the
separate gold production and development and exploration assets, by discounting the expected cash flows
estimated by management over the life of the mine:
• MNV till 2018;
• BG – 2023;
• Novo – 2029;
• Klen – 2030;
• Kekura – 2029;
• Taseevskoye – 2029;
• Unkurtash – 2036; and
• Lubov – 2027.
The calculation of the FVLCD is sensitive to the following assumptions:
• Recoverable reserves and resources;
• Production volumes;
• Real discount rates;
• Metal prices;
• Capital expenditure; and
• Operating costs.

Recoverable reserves and resources are based on the proven and probable reserves and a portion of

resources expected to be converted into reserves in existence at the end of the year.

Estimated production volumes are based on detailed life-of-mine plans and take into account development

plans for the mines approved by management as part of the long-term planning process.

Metal prices are based on management judgement with reference to well-known analysts forecasts.
Operating costs are based on management’s best estimate over the life of the mine.
Discount rates represent the current market assessment of the risks specific to each project, taking into

consideration the time value of money and individual risks of the underlying assets that have not been
incorporated in the cash flow estimates.

The table below shows the key assumptions used in the fair value calculation at 31 December 2015 and 2014.

Post-tax discount rate for cash flows in the operating gold mining company (MNV), %
Post-tax discount rate for cash flows in the operating gold mining company (BG), %
Post-tax discount rate for cash flows in the polymetallic mining company (Novo), %
Post-tax discount rate for cash flows in the gold mining company being at development stage
(Klen), %
Post-tax discount rate for cash flows in the gold mining company being at development stage
(Taseevskoye), %
Post-tax discount rate for cash flows in the gold mining company being at exploration stage
(Kekura), %
Post-tax discount rate for cash flows in the gold mining company being at exploration stage
(Unkurtash)*, %
Post-tax discount rate for cash flows in the gold mining company being at exploration stage
(Lubov), %
Gold price, US$ per ounce in the future year
Gold price, US$ per ounce in the year after the next
Silver price, US$ per ounce in the future periods
Lead price, US$ per tonne in the future periods
Zinc price, US$ per tonne in the future periods

* No income tax in Kyrgyzstan since 2012.

2015

7.54
8.54
7.54

2014

9.35
10.35
10.35

9.54

11.35

9.54

11.35

9.54

11.35

9.54

11.35

9.54

11.35

1,050
1,150
15
1,700
1,700

1,200
1,200
16
2,200
2,200

HIGHLAND GOLD MINING LIMITED

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

Goodwill
Exploration and evaluation assets
Property, plant and equipment
Mine properties
Totalimpairmentlosses

2015
US$000

16,754
14,016
5,212
–
35,982

2014
US$000

10,205
–
–
1,196
11,401

An impairment loss was recognised in 2015 in relation to the Kekura project. The triggers for the impairment

loss recognition were primarily the effect of lower gold price assumption and changes to the mine plan
which resulted in postponing the development activities at Kekura. As part of the Group’s annual impairment
assessment, it was determined that due to the changes in estimates of the mine plan, the carrying amount of
goodwill and exploration and evaluation assets exceeded their recoverable amounts. The carrying amount
of goodwill allocated to Kekura has been reduced to Nil via the recognition of an impairment loss of US$16.8
million during the year ended 31 December 2015. US$14.0 million was recognised as an impairment loss in
respect of exploration and evaluation assets at Kekura and US$5.2 million was recognised as an impairment
loss in respect of property, plant and equipment at Kekura.

Any rise in the post-tax discount rate, any decrease in gold prices below US$1,150 per ounce or any increase

in operating or capital costs at Kekura would result in a further impairment of mine properties and equipment.

An impairment loss was recognised in 2014 in relation to the Klen project. The triggers for the impairment test

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

For impairment of property, plant and equipment and intangible assets, fair value less costs of disposal are

determined by discounting the post-tax cash flows expected to be generated from future gold production
net of selling costs taking into account assumptions that market participants would typically use in estimating
fair values. These estimates are categorised within Level 3 of the fair value hierarchy. Post-tax cash flows are
derived from projected production profiles for each asset taking into account forward market commodity prices
over the relevant period and where external forward prices are not available the Group’s Board approved life-
of-mine model assumptions are used. As each asset has different reserve and resource characteristics and
contractual terms, the post-tax cash flows for each asset are calculated using individual economic models
which include assumptions around the amount of recoverable reserves, production costs, life of mine/licence
period and the selling price of the gold produced. Refer to Note 31 for fair value disclosures in respect of assets
carried at fair value.

18. OTHER NON-CURRENT ASSETS

Non-current prepayments*
Other non-current assets
Totalothernon-currentassets

2015
US$000

3,517
328
3,845

2014
US$000

3,177
403
3,580

The portion of prepayments and accounts receivable that will be realised in a period greater than 12 months from the
reporting date is classified as non-current assets. Non-current prepayments include advances given to suppliers for
equipment and construction works.

ANNUAL REPORT & ACCOUNTS 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

19. SHARE-BASED PAYMENT PLANS
employee share option plan

Options for 25,000 shares were forfeited in 2014 because of the retirement of certain participants. Options for

450,000 shares expired in 2014. Currently there are no participants of the scheme.

20. INVENTORIES
non-Current*

Ore stockpiles

Ore stockpile obsolescence provision
Totalinventories

2015
US$000

21,101
21,101
(4,729)
16,372

2014
US$000

11,273
11,273
(4,609)
6,664

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.
Stockpiled low-grade ore at BG is tested for impairment semi-annually. Movement in ore stockpile

obsolescence provision amounted to US$0.1 million in 2015 (2014: US$0.7 million).

Current

Raw materials and consumables
Ore stockpiles
Gold in progress
Finished goods

Raw materials and consumables obsolescence provision
Totalinventories

2015
US$000

66,195
6,661
5,195
896
78,947
(11,189)
67,758

2014
US$000

68,771
12,821
4,704
1,709
88,005
(10,668)
77,337

Movement in raw materials and consumables obsolescence provision amounted to US$0.5 million in 2015

(2014: US$0.5 million). No inventory has been pledged as security.

21. TRADE AND OTHER RECEIVABLES

VAT receivable
Other taxes receivable
Related party receivables (Note 29)
Trade receivables*
Other receivables

2015
US$000

15,563
454
35
13,480
1,656
31,188

2014
US$000

18,548
94
104
7,895
2,248
28,889

As at 31 December 2015, a positive price and volume adjustment was booked to trade receivables in the amount of
US$1.5 million (2014: a negative adjustment in the amount of US$2.4 million).
The Group’s trade customers have no history of default. Other receivables are non-interest-bearing and are

generally on 30-90 days-term.

HIGHLAND GOLD MINING LIMITED

As at 31 December, VAT receivable was provided for as follows:

At 1 January
Utilisation
At31December

2015
US$000

45
(25)
20

2014
US$000

242
(197)
45

The VAT provision is recognised to reflect the risk of non-receipt of input VAT refund which is subject to

approval by local tax authorities and other amounts expected to expire after the three-year statutory period. The
movement in the VAT provision is recognised within other administrative expenses.

All trade and other receivables are not past due and are not impaired. The Group does not expect any

problems with recovering this amount.

22. PREPAYMENTS

Prepayments

2015
US$000

888
888

2014
US$000

2,000
2,000

Prepayments include advances given to suppliers for raw materials and consumables.

23. CASH AND CASH EQUIVALENTS

Cash at bank earns interest at fixed rates based on daily bank deposit rates. The fair value of cash and cash

equivalents is equal to the carrying value.

Cash in hand and at bank
Short-term deposits

24. ISSUED CAPITAL AND RESERVES
a) Issued share capital

Authorised

Ordinary shares of £0.001 each

Ordinary shares issued and fully paid

At 31 December 2013
Ordinary shares issued
At 31 December 2014
Ordinary shares issued
At 31 December 2015

b) Nature and purpose of other reserves
asset revaluation reserve

2015
US$000

3,058
–
3,058

2014
US$000

12,759
187
12,946

2015
Shares

2014
Shares

750,000,000

Shares
325,222,098
–
325,222,098
–
325,222,098

Amount US$000
585
–
585
–
585

The asset revaluation reserve is used to record increases in the fair value of land and buildings and decreases

to the extent that such decrease relates to an increase on the same asset previously recognised in equity.

ANNUAL REPORT & ACCOUNTS 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

25. INTEREST-BEARING LOANS AND BORROWINGS

Current
Gazprombank loan (1)
Gazprombank loan (2)
Gazprombank loan (3)
Sberbank loan (4)

Non-current
Gazprombank loan (1)
Gazprombank loan (2)
Gazprombank loan (3)
Sberbank loan (4)
Gazprombank loan (5)
UniCredit loan (6)
Alfa-bank loan (7)

Total

Effective interest rate %

Maturity

2015
US$000

2014
US$000

4.0, 7.0 from 18 March 2015
5.0, 7.0 from 18 March 2015
4.8
4.2

June 2015
August 2015
March 2017
September 2016

4.0, 7.0 from 18 March 2015
5.0, 7.0 from 18 March 2015
4.8
4.2
6.5
5.4
5.9

June 2015
August 2015
March 2017
September 2016
December 2018
December 2018
December 2018

–
–
33 000
37,375
70,375

–
–
22,500
–
80,000
50,000
30,500
183,000
253,375

88,714
19,111
–
49,833
157,658

22,179
7,963
77,926
37,375
–
–
–
145,443
303,101

(1) In March 2015 the interest rate was changed to 7.0%. The loan was repaid in June 2015.
(2) In March 2015 the interest rate was changed to 7.0%. The loan was repaid in August 2015.
(3) 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 loan is secured by future gold sales at market prices at the time of sale. The drawn down payable balance
obtained under the agreement at 31 December 2015 is US$55.5 million (2014: US$77.9 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.

(4) In September 2013 the Group signed a new financing agreement with Sberbank for a US$100.0 million facility 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 payable balance under the agreement
at 31 December 2015 is US$37.3 million (2014: US$87.2 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.

(5) In November 2015 the Group secured a revolving facility with Gazprombank at a 6.5% interest rate with the draw period set

till 18 February 2016. The interest rate is set for every instalment separately. The loan is repayable in instalments between
April 2017 and December 2018. The loan is secured by future gold sales at market prices at the time of sale. The drawn
down payable balance obtained under the agreement at 31 December 2015 is US$80.0 million (2014: Nil). 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 July 2017 and December 2018. The drawn
down payable balance obtained under the agreement at 31 December 2015 is US$50.0 million (2014: Nil). 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 payable balance obtained
under the agreement at 31 December 2015 is US$30.5 million (2014: Nil). 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.
The total outstanding bank debt of the Group at 31 December 2015 is US$253.4 million (2014: US$303.1 million). There
were no covenant breaches as at 31 December 2015.

HIGHLAND GOLD MINING LIMITED

26. TRADE AND OTHER PAYABLES
Non-current

Non-current portion of pension liabilities

Current

Contingent consideration liability
Trade payables
Salaries payable
Other taxes payable
Other current payables

2015
US$000

223
223

2015
US$000

400
10,366
5,814
3,166
455
20,201

2014
US$000

305
305

2014
US$000

400
10,220
6,735
4,367
412
22,134

Terms and conditions of current financial liabilities included above:

• Salaries payable are non-interest-bearing and are normally settled on 30-day terms. Outstanding vacations are

also included in this line.

• Trade and other payables are non-interest-bearing and are normally settled on 30-60 day terms.
• Other taxes payable include mineral extraction tax, property tax, social taxes and VAT. These are non-interest-

bearing and are normally settled within 30-60 days.

• For terms and conditions regarding contingent consideration, refer to Note 4.

27. PROVISIONS

At31December2013
Accretion
Disposal
Utilisation of provision
Effect of changes in the discount and inflation rates
Effect of changes in estimated costs
Effect of exchange rate changes
At31December2014
Accretion
Utilisation of provision
Effect of changes in the discount and inflation rates
Effect of changes in estimated costs
Effect of exchange rate changes
At31December2015
Current 2014
Non-current 2014

Current 2015
Non-current 2015

Site restoration
provision
US$000

Legal provision
US$000

34,402
2,355
–
(81)
(4,362)
1,307
(17,922)
15,699
2,117
(18)
1,613
2,599
(5,984)
16,026
–
15,699
15,699
–
16,026
16,026

18
–
(18)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–

Total
US$000

34,420
2,355
(18)
(81)
(4,362)
1,307
(17,922)
15,699
2,117
(18)
1,613
2,599
(5,984)
16,026
–
15,699
15,699
–
16,026
16,026

ANNUAL REPORT & ACCOUNTS 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

site restoration provision

In 2015 the Group performed a re-assessment of the site restoration provision at MNV. The assessments

were based on government requirements applicable to similar sites that have closed recently, and assumptions
regarding the life of mine (which is assumed to close in 2018), site restoration activities expected to be carried
out in 2018 (removal of waste, restoration of mine sites), current prices for similar activities and risk-free Russian
Rouble (RUR)-denominated government bonds discount rate of 10.2% (2014: RUR-denominated government
bonds rate of 13.4% for 2016 and 15.4% for 2017).

A risk-free RUR-denominated government bonds discount rate of 11.5% (2014: RUR-denominated government
bonds rate of 14.9%) has been used to calculate the site restoration liability at Novo assuming its closure in 2029.
A risk-free RUR-denominated government bonds discount rate of 9.7% (2014: RUR-denominated government
bonds rate of 14.4%) has been used to calculate the site restoration liability at BG assuming its closure in 2023.
A risk-free RUR-denominated government bonds discount rate of 11.9% (2014: RUR-denominated government
bonds rate of 13.3%) has been used to calculate the site restoration liability at Klen assuming site closure in 2030.
A risk-free RUR-denominated government bonds discount rate of 9.6% (2014: RUR-denominated government
bonds rate of 13.3%) has been used to calculate the site restoration liability at Kekura assuming site closure in 2029.
The decrease in site restoration liability in the amount of US$6.0 million was due to devaluation of RUR against

the US Dollar (USD) in 2015 (2014: decrease of US$17.9 million).

The total change in estimation of site restoration liability amounts to US$1.8 million in 2015 (2014: US$21.0 million).

legal provision

The legal provision represents management’s best estimate of the amounts required to settle various claims

against the Group.

28. COMMITMENTS AND CONTINGENCIES
operating lease Commitments – group as lessee

The Group has renewed a commercial lease on its office premises in March 2015. This lease has a life of 3
years. There are no restrictions placed upon the Group by entering into this lease. The operating lease charge
for the year ended 31 December 2015 was US$0.8 million (2014: US$1.1 million).

Future minimum rentals payable under non-cancellable operating leases as at 31 December are as follows:

Within one year
After one year but not more than five years

Capital Commitments

2015
US$000

935
1,209
2,144

2014
US$000

815
2,144
2,959

At 31 December 2015 the Group had commitments of US$5.8 million (2014: US$9.8 million) principally relating

to development assets and US$1.9 million (2014: US$1.6 million) for the acquisition of new machinery.

HIGHLAND GOLD MINING LIMITED

finanCe lease and hire purChase Commitments

The Group has finance leases contracts for various items of plant and equipment at MNV and Novo at interest
rates between 7.9% and 9.9%. Future minimum lease payments under finance lease and present value of the net
minimum lease payments are presented below:

Minimum payments

Present value of payments

2015
US$000

2014
US$000

2015
US$000

2014
US$000

Within one year
After one year but not more than five years
Totalminimumleasepayments
Less amounts representing finance charges
Presentvalueofminimumleasepayments

917
1,735
2,652
(400)
2,252

–
–
–
–
–

845
1,407
2,252
–
2,252

–
–
–
–
–

Contingent liabilities

Management has identified possible tax claims within the various jurisdictions in which the Group operates
totalling US$2.3 million as at 31 December 2015 (at 31 December 2014: US$3.1 million). In management’s view
these possible tax claims will likely not result in a future outflow of resources, consequently no provision is
required in respect of these matters.

In addition, because a number of fiscal periods remain open to review by the tax authorities, there is a risk that
transactions and interpretations that have not been identified by management or challenged in the past may be
challenged by the authorities in the future, although this risk significantly diminishes with the passage of time. It is
not practical to determine the amount of any such potential claims or the likelihood of any unfavourable outcome.
Notwithstanding the above risks, management believes that its interpretation of the relevant legislation is

appropriate and that the Group has complied with all regulations, and paid or accrued all taxes and withholdings
that are applicable. Where the risk of outflow of resources is probable, the Group has accrued tax liabilities
based on management’s best estimate.

ANNUAL REPORT & ACCOUNTS 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

29. RELATED PARTY DISCLOSURES

Details of the investments in which the Group holds 20% or more of the nominal value of any class of share

capital are as follows:

Name

Subsidiaryundertakings
Heldbytheultimateparent
Stanmix Investments Limited
Stanmix Holding Limited
Highland Exploration Kyrgyzstan LLC (Unkurtash)
Heldindirectlyviasubsidiaries
AO Mnogovershinnoye (MNV)
OAO Novo-Shirokinsky Rudnik (Novo)
OOO Belaya Gora (BG)
OOO Lubavinskoye (Lubov)
OOO Taseevskoye
OOO Klen
ZAO Bazovye Metally (Kekura)
OOO Russdragmet (RDM)
OOO BSC
OOO Zabaykalzolotoproyekt (ZZP)
OOO RDM-Resources – till 11 November 2014

Country of
incorporation

Effective
shareholding
%

Cyprus
Cyprus
Kyrgyzstan

Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia

100
100
100

100
98.85*
100
100
100
100
100
100
100
100
100

Direct shareholding in OJSC Novo-Shironkinsky Rudnik is 97.9%. In 2015 OJSC Novo-Shirokinsky Rudnik acquired treasury
stock equal to 0.95% of outstanding shares for cash consideration of US$0.4 million, which resulted in a decrease in non-
controlling interest of US$1.3 million. Effective control is therefore equivalent to a 98.85% shareholding in the enterprise.
There are no restrictions imposed by non-controlling interest on our ability to use assets and settle liabilities of Novo.

entity with signifiCant influenCe over the group

Following the Second Subscription on new ordinary shares in Highland Gold Mining Limited on 15 January

2008 by Primerod International Limited, Primerod held 32% of Highland Gold at 31 December 2015.

Persons connected with Eugene Shvidler, Non-Executive Director of the Company, have acquired 26,020,000

ordinary shares of £0.001 per share in the capital of the Company on 7 May 2008 at a price of US$3.048 per
share. Eugene Shvidler, together with the persons connected with him, own 36,916,144 ordinary shares of
£0.001 per share in the capital of the Company representing 11.35% of the total issued share capital of the
Company.

Prosperity Capital Management held 16.28% of Highland Gold at 31 December 2015.

terms and Conditions of transaCtions with related parties

There were no related party transactions in 2015. The sales to and purchases from related parties are
generally made at normal market prices and arm’s length terms. There are no outstanding balances at
31 December 2015 (2014: Nil). There have been no guarantees provided or received for any related party
receivables or payables. For the year ended 31 December 2015, the Group has not recorded any impairment
of receivables relating to amounts owed by related parties (2014: Nil). This assessment is undertaken each
financial year through examining the financial position of the related party and the market in which the related
party operates.

HIGHLAND GOLD MINING LIMITED

Compensation of key management personnel of the Group

Short-term employee benefits
Totalcompensationpaidtokeymanagementpersonnel

2015
US$000

5,537
5,537

2014
US$000

5,131
5,131

The amounts disclosed in the table are the amounts recognised as an expense during the reporting period
related to key management personnel, the Directors of the parent company and subsidiaries, including social
security contributions. For detailed Directors’ compensation refer to report on Directors’ remuneration.

direCtors’ interests in an employee share inCentive plan

Share options held by members of the Board of Directors to purchase ordinary shares expired in 2014.

30. FINANCIAL RISK MANAGEMENT OBJECTIVES
AND POLICIES

The Group’s principal financial liabilities comprise bank loans and trade payables. The main purpose of these
financial liabilities is to raise finance for the Group’s operations. The Group has various financial assets such as
trade receivables and cash and short-term deposits, which arise directly from its operations.

gold priCe risK

In year 2015 as well as in prior years, the Group continued its no hedge policy in relation to the gold price.

embedded derivative

Novo as a concentrate producer and seller has long-term sale contracts with Kazzinc where price risk is
retained for a specific period after the sale has occurred. The price payable under the concentrate contract
is determined by reference to prices quoted in an organised market (LME). The title to the commodity passes
to the buyer on delivery. At this time a provisional invoice is generated based on the average price over the
previous months. A portion of the provisional invoice is settled within a few days (85% from January to August
2015, 80% since September 2015). The remaining amount (15% from January to August 2015, 20% since
September 2015), plus or minus any adjustment on 100% of the value of the sale for movements in price from
the price in the provisional invoice and the final price, plus any volume adjustments resulting from the final
assay, is settled in four months after the date of the delivery.

Pricing adjustment features that are based on quoted market prices for a date subsequent to the date of

shipment or delivery of the commodity represent a derivative financial instrument once the commodity has been
delivered. The derivative has a fair value, based on the pricing formula set out in the contract, which is based on
quoted market prices.

foreign CurrenCy risK

Taking into account that gold prices are formed in the international markets and denominated in US Dollars,

the Group seeks to mitigate the foreign currency risk by raising its debt facilities and most part of its trade
liabilities denominated in US dollars. However as a result of investing and operating activities in Russia the
Group’s statement of financial position can still be affected by movements in the RUR/USD exchange rates.
Besides, the Group also has transactional currency exposures connected with operations denominated in GBP.
The following table demonstrates the sensitivity to a reasonably possible change in the Euro (EUR), RUR and

GBP exchange rates, with all other variables held constant, of the Group’s profit before tax (due to changes in
the fair value of monetary assets and liabilities).

ANNUAL REPORT & ACCOUNTS 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2014

2015

Increase/
decrease in
RUR rate

Effect on profit
before tax
US$000

Increase/
decrease in
GBP rate

Effect on profit
before tax
US$000

17%
-17%
10%
-10%

(447)
447
758
(758)

6%
-6%
5%
-5%

2,714
(2,714)
1,106
(1,106)

There is no other foreign currency impact on equity.

Credit risK

Maximum exposure to credit risk is represented by carrying amount of financial assets. Credit risk arises from

debtor’s inability to make payment of their obligations to the Group as they become due (without taking into
account the fair value of any guarantee or pledged assets); and by non-compliance by the counterparties in
transactions in cash, which is limited to balances deposited in banks and accounts receivable at the reporting
dates. To manage this risk, the Group deposits its surplus funds in highly rated financial institutions, establishes
conservative credit policies and constantly evaluates the conditions of the market in which it conducts its activities.
The Group sells the produced gold to recognised, creditworthy banks. The sold gold is being paid for in advance,
or immediately after the sale. Therefore, there are no trade receivables associated with the gold trade.

With respect to credit risk arising from the other financial assets of the Group, which comprises bank coupon

bonds, the Group’s exposure to credit risk arises from default of the counterparty, with a minimum exposure
equal to the carrying amount of these instruments. The Group limits its counterparty credit risk on these assets
by dealing only with reputable financial institutions.

liquidity risK

The Group monitors its risk to a shortage of funds using a recurring liquidity planning tool. This tool considers

the maturity of both its financial investments and financial assets (e.g. accounts receivables, other financial
assets) and projected cash flows from operations.

The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of

bank overdrafts, bank loans, finance leases and hire purchase contracts.

Please refer to Note 25 for the information on the financial covenants the Group is bound by.
The table below summarises the maturity profile of the Group’s financial liabilities at 31 December 2014 and

31 December 2015 based on contractual undiscounted payments.

Year ended 31 December 2014

Interest-bearing loans and
borrowings
Trade and other payables
Contingent consideration
liability

Year ended 31 December 2015

Interest-bearing loans and
borrowings
Trade and other payables
Liability under finance lease
Contingent consideration
liability

On demand
US$000

<1 year
US$000

1-2years
US$000

2-5 years
US$000

>5 years
US$000

Total
US$000

–

245,182

68,587

17,265

400

–

262,847

68,587

–

On demand
US$000

<1 year
US$000

1-2years
US$000

2-5 years
US$000

>5 years
US$000

–

–
–

–

112,139

94,444

66,608

16,327
917

400

–
852

–

–
883

–

129,783

95,296

67,491

–

–
–

–

313,769

17,265

400

331,434

Total
US$000

273,191

16,327
2,652

400

292,570

Interest-bearing loans and borrowings for the year ended 31 December 2015 with maturity of less than one

year include revolving facilities secured with Gazprombank and Alfa-bank: the amount of US$29.5 million

HIGHLAND GOLD MINING LIMITED

outstanding at 31 December 2015 has been presented as non-current liabilities in the consolidated statement
of financial position. Refer to Note 25 for further details.

Capital management

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going
concern in order to provide returns for shareholders, benefits for other stakeholders and to maintain an optimal
capital structure to reduce the cost of capital. Capital comprises equity and debt financing. For information
related to equity refer to consolidated statement of changes in equity. For information on debt financing
refer to Note 25. In order to ensure an appropriate return for shareholders’ capital invested in the Company,
management thoroughly evaluates all material projects and potential acquisitions and has them approved by
the Board where applicable.

interest rate risK

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because

of changes in market interest rates. The exposure to the risk of changes in market interest rates relates primarily
to long-term debt obligations with floating interest rates. The Group mitigates this risk through signing financing
arrangements mostly at fixed rates. The Group’s treasury function performs analysis of current interest rates
and in case of changes in market fixed or floating interest rates management may consider the refinancing of a
particular debt on more favourable terms. As at 31 December 2015 the Group has outstanding bank debt in the
amount of US$253.4 million.

marKet priCe risK

Market price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate

because of changes in market prices. Financial instruments affected by market price risk include the Group’s
investments in bonds and shares and embedded derivatives.

The following table demonstrates the sensitivity of investments in bonds and shares to a reasonably possible

change in market prices:

Bonds
Bonds

Effect on profit before tax

Increase/decrease in
prices, %
5%
-5%

2015
US$000

1,084
(1,084)

2014
US$000

2,240
(2,240)

The following table demonstrates the sensitivity of the embedded derivative to a reasonably possible change

in metal prices:

Lead

Zinc

Gold

Silver

Increase/decrease in
prices, %
5%
-5%
5%
-5%
5%
-5%
5%
-5%

Effect on derivative

2015
US$000

133
(133)
25
(25)
304
(304)
124
(124)

2014
US$000

91
(91)
35
(35)
253
(253)
85
(85)

ANNUAL REPORT & ACCOUNTS 2015

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

31. FINANCIAL ASSETS AND LIABILITIES

The Group’s financial instruments comprise borrowings, investments, cash, deposits and various items, such

as trade debtors, embedded derivatives, trade creditors and contractual provisions arising in the ordinary
course of its operations.

fair values

Set out below is a comparison by category of carrying amounts and fair values of all of the Group’s financial

instruments.

Financialassets
Cash and cash equivalents
Financial instruments at fair value through
profit or loss (coupon bonds)
Trade receivables (including embedded
derivative)
Other receivables
Financialliabilities
Interest-bearing loans and borrowings
Trade and other payables
Liability under finance lease
Contingent consideration

Carrying amount

Fair value

2015
US$000

2014
US$000

2015
US$000

2014
US$000

3,058

21,150

13,480

1,691

253,375
16,635
2,275
400

12,946

42,957

7,895

2,352

303,101
17,367
–
400

3,058

21,150

13,480

1,691

253,375
16,635
2,275
400

12,946

42,957

7,895

2,352

303,101
17,367
–
400

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, interest-bearing loans and borrowings and other current liabilities approximate their
fair value.

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

Coupon bonds

During 2015 the Group received US$24.3 million as a result of selling some bonds (2014: US$6.5 million) and

US$2.5 million of coupon interest (2014: US$4.1 million).

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.

At1January
Fair value gain
Foreign exchange loss
Coupon interest income accrued
Bonds fair value movement
Coupon interest income received
Bonds sold
Bonds purchased
At31December

2015
US$000
42,957
14
(1,271)
2,503
1,246
(2,534)
(24,337)
3,818
21,150

2014
US$000
50,199
2,013
(2,512)
3,764
3,265
(4,058)
(6,449)
–
42,957

HIGHLAND GOLD MINING LIMITED

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

Coupon bonds
Trade receivables (embedded derivative)

Liabilities measured at amortised cost

Interest-bearing loans and borrowings

31 Dec 2014
US$000

42,957
(383)

31 Dec 2015
US$000

21,150
1.261

Level 1
US$000

42,957
–

Level 1
US$000

21,150
–

31 Dec 2014
US$000

303,101

31 Dec 2015
US$000

253,375

Level 2
US$000

–
(383)

Level 2
US$000

–
1.261

Level 3
US$000

303,101

Level 3
US$000

253,375

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

32. DIVIDENDS

The Group paid an interim dividend of GBP0.020 per share (2014: an interim dividend of GBP0.025 per share)
which resulted in an aggregate interim dividend payment of US$10.0 million (2014: US$13.1 million). The interim
dividend was paid on 12 October 2015.

The final dividend for the year ending 31 December 2014 in the amount of US$10.1 million was paid on

21 May 2015.

The Board has recommended a final dividend of GBP0.020 per share which, taking into account the interim
dividend paid in October 2015, gives a total dividend of GBP0.040 per share for the year (2014: GBP0.045 per
share). The final dividend will be paid on 29 May 2016 to shareholders on the register at the close of business on
1 May 2016 (the record date). The ex-dividend date will be 30 April 2016.

33. EVENTS AFTER THE REPORTING PERIOD

No events occurred after the reporting date that had a material impact on the financial position or financial

performance of the Group.

ANNUAL REPORT & ACCOUNTS 2015

RESERVES AND RESOURCES

MINERAL RESOURCES AS AT 31 DECEMBER 2015
REPORTED IN ACCORDANCE WITH JORC METHODOLOGY

Project Name

Classification

Ore, tonnes

Gold, g/t

Contained
gold, ounces

Highland’s
interest (%)

MNOGOVERSHINNOYE

TASEEVSKOYE

UNKURTASH

NOVOSHIROKINSKOYE

BELAYA GORA

KLEN

KEKURA

LYUBAVINSKOYE

TOTAL

Total

15,082,032

31,063,000

66,185,000

6,340,702

10,587,941

3,870,000

10,350,000

11,247,230

Total

154,725,905

3.4

5.1

1.7

7.6

2.3

5.0

8.7

1.3

3.4

1,653,989

5,088,353

3,696,757

1,539,851

783,369

627,261

2,891,767

484,287

16,765,633

Gold ounces
attributable to
Highland

1,653,989

5,088,353

3,696,757

100%

98.9%

1,522,143

100%

783,369

627,261

2,891,767

484,287

16,747,926

1. MNV, Taseevskoye, Belaya Gora, Unkurtash, Klen and Lyubavinskoye resource estimations do not include a silver

assessment.

2. MNV, Novoshirokinskoye and Belaya Gora Mineral Resources are inclusive of Mineral Reserves.
3. MNV Mineral Resources are undiluted and based upon a gold price of US$1,200 per ounce. Resources were evaluated with

specific cutoff grade > 1.0 g/t.
MNV Mineral Resources for Deep are undiluted and based upon a gold price of US$1,100 per ounce. Resources were
evaluated with specific cutoff grade > 1.5 g/t.
Taseevskoe Mineral Resources are undiluted and based upon a gold price of US$1,000 per ounce. Resources were
evaluated with specific cutoff grade > 1.8 g/t.
Unkurtash Mineral Resources are undiluted and based upon a gold price of US$1,600 per ounce. Resources were evaluated
with specific cutoff grade > 0.8 g/t.
Belaya Gora Mineral Resources are undiluted and based upon a gold price of US$850 per ounce. Resources were
evaluated with specific cutoff grade > 0.7 g/t.
Klen Mineral Resources were evaluated with specific cutoff grade > 1.0 g/t.
Kekura Mineral Resources were evaluated with specific cutoff grade > 0.8 g/t.
Lyubavinskoye Mineral Resources were evaluated with specific cutoff grade > 0.5 g/t.

4. Resource estimates for MNV (Deep), Taseevskoye, and Belaya Gora deposits were confirmed by Micromine Consulting,

2010 – 2011.
Resource estimates for MNV were confirmed by CSA Global Pty., 2012.
Resource estimate for Novoshirokinskoye was confirmed by Wardell Armstrong International (WAI), 2011.
Resource estimate for Lyubavinskoye was confirmed by IMC Montan, 2012.
Resource estimate for Unkurtash was reconfirmed by IMC Montan, 2013.
Resource estimate for Klen and Kekura was confirmed by Micon International, 2012.

5. The Novoshirokinskoye resource estimate is performed for gold equivalent calculated as follows: Pb*0.510496+Zn*0.430005

+Ag*0.01723 (WAI coefficients).

HIGHLAND GOLD MINING LIMITED

ORE RESERVES AS AT 31 DECEMBER 2015
REPORTED IN ACCORDANCE WITH JORC METHODOLOGY

Project Name

MNOGOVERSHINNOYE*

NOVOSHIROKINSKOYE

BELAYA GORA

TOTAL

Classification
Proven +
Probable
Proven +
Probable
Proven +
Probable
Proven+
Probable

Ore, tonnes

Gold, g/t

Contained
gold, ounces

Highland’s
interest (%)

Gold Ounces
attributable to
Highland

2,306,779

4.00

296,848

100%

296,848

4,152,626

3,400,971

9,860,376

9.1

3.2

5.9

1,211,593

98.9%

1,197,660

346,916

100%

346,916

1,855,358

1,841,424

1. MNV, TAS and BG reserve estimate does not include a silver assessment.
2. MNV Mineable Reserves are undiluted and based upon a gold price of US$1,200 per ounce and marginal cut-off 1.45 g/t.
3. MNV Mineable Reserves for Deep are undiluted and based upon a gold price of US$1,100 per ounce and marginal cut-off

> 1.5 g/t.

4. The Belaya Gora values shown are based upon a gold price of US$850 per ounce.
5. Mineral reserves at MNV, Novo and Belaya Gora have been estimated in accordance with JORC guidelines and include

adjustments that have been made to reconcile the reserves with annual production.
MNV JORC figures do not reflect ongoing reserve recalculations being conducted by the Company on all targets within
the MNV licence area, based on updated geological information and recent exploration results. An updated JORC audit is
planned for 2016 and is expected to confirm additional mineable reserves.

ANNUAL REPORT & ACCOUNTS 2015

PRINCIPAL GROUP COMPANIES

HIGHLAND GOLD MINING LIMITED

100%

HIGHLAND

EXPLORATION LLC

STANMIX INVESTMENT

STANMIX HOLDING

LIMITED

100%

*
97.9%

100%

BSC

RDM

NOVO-SHIROKINSKY

RUDNIK

KLEN

100%

BELAYA GORA

MNOGOVERSHINNOYE

(MNV)

TASEEVSKOYE

LUBAVINSKOYE

100%

BAZOVIYE METALLY

ZABAYKAL-

ZOLOTOPROYEKT

HIGHLAND GOLD MINING LIMITED

highland gold mining limited holds the equity share Capital of the following Companies:

Name

Stanmix Holding Limited

Stanmix Investments Limited

Highland Exploration LLC

100

Country of
incorporation

Cyprus

Principal activity and place
of business

Holding Company, Cyprus

Finance Company, Cyprus

Kyrgyzstan

Holder of Unkurtash and Kassan licences

stanmix holding limited holds the equity share Capital of the following Companies:

Name

Russdragmet (RDM) (OOO)

Mnogovershinnoye (MNV) (AO)

Taseevskoye (OOO)

Zabaykalzolotoproyekt (OOO)

100

Country of
incorporation

Russia

Principal activity and place
of business

Management company

Russia

Holder of MNV and Blagodatnoye licences

Russia

Holder of Taseevskoye, ZIF-1 and
Sredne-Golgotayskoye licences

Project engineering, Russia

Novo-Shirokinsky Rudnik (Novo) (OAO)

97.9

Russia

Holder of Novo licence

Belaya Gora (OOO)

Lubavinskoye (OOO)

Klen (OOO)

BSC (OOO)

Bazoviye metally (ZAO)

100

Russia

Holder of Belaya Gora licence

Holder of Lubavinskoye licence

Holder of Klen licence

Service company, Russia, ChAO

Russia

Holder of Stadukhinsky Area licence

ANNUAL REPORT & ACCOUNTS 2015

DIRECTORS, COMPANY SECRETARY AND ADVISERS

Current direCtors
Eugene Shvidler
Executive Chairman
(appointed Executive Chairman
on 22 April 2015) (previously
Non-Executive Chairman)

Terry Robinson
Non-Executive Director***

Olga Pokrovskaya
Non-Executive Director**

Valery Oyf
Non-Executive Director
(appointed 15 January 2016)
(previously Chief Executive Officer
and Director)

Duncan Baxter
Non-Executive Director*

Colin Belshaw
Non-Executive Director

John Mann
Head of Communications
(appointed 9 April 2015)

past direCtors
Sergey Mineev
Head of Exploration & Capital
Projects Development
(resigned 9 April 2015)

Alla Baranovskaya
Chief Financial Officer
(resigned 9 April 2015)

Eugene Tenenbaum
Non-Executive Director
(resigned 9 April 2015)

All of:
26 New Street
St Helier
Jersey
JE2 3RA

* Chairman of the Remuneration and Nomination Committee; ** Chairman of the Health, Safety and Environmental
Committee; *** Chairman of the Audit Committee

HEAD OFFICE AND
REGISTERED OFFICE
26 New Street
St Helier
Jersey JE2 3RA

COMPANY SECRETARY
Bedell Secretaries Limited
26 New Street
St Helier
Jersey JE2 3RA

NOMINATED ADVISER
AND BROKER
Numis Securities Limited
The London Stock Exchange
Building
10 Paternoster Square
London
EC4M 7LT

JOINT BROKER
Peat & Co
118 Piccadilly
London
W1J 7NW

AUDITORS TO THE
COMPANY AND GROUP
Ernst & Young LLP
1 More London Place
London SE1 2AF

SOLICITORS TO THE
COMPANY
astoRussianLaw
PricewaterhouseCoopers
Kosmodamianskaya Nab.
52 Bld. 5,
115054 Moscow, Russia

astoJerseyLaw
Bedell Cristin
PO Box 75
26 New Street
St Helier
Jersey JE4 8PP

REGISTRARS
Capita Registrars (Jersey) Limited
12 Castle Street
St Helier
Jersey
JE2 3RT

TRANSFER AGENT
Capita Registrars
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU

FINANCIAL CALENDAR
Ex-Dividend Date:
28 April 2016

Record Date:
29 April 2016

Post 2015 Annual Report:
6 May 2016

Annual General Meeting:
25 May 2016

Dividend Payment Date:
27 May 2016

Listing Sector/Ticker Reuters:
HGM.L

Number of Shares in Issue:
325,222,098

HIGHLAND GOLD MINING LIMITED

NOTICE OF ANNUAL GENERAL MEETING

HIGHLAND GOLD MINING LIMITED (THE “COMPANY”)
(INCORPORATED AND REGISTERED IN JERSEY UNDER THE COMPANIES (JERSEY) LAW 1991,
WITH REGISTERED NUMBER 83208)

NOTICE OF ANNUAL GENERAL MEETING
Notice is hereby given that the Annual General Meeting of Highland Gold Mining Limited (the Company) will be
held on Wednesday 25 May 2016 at 26 New Street, St Helier, Jersey JE2 3RA at 11.00 am to consider and if
thought fit, pass the following ordinary resolutions;

ORDINARY BUSINESS (ORDINARY RESOLUTIONS)
1. To receive and adopt the Report of the Directors, the Audited Financial Statements and Auditors’ report for

the year ended 31 December 2015.

2. That a final dividend of £0.025 for each ordinary share of £0.001 in the Company be declared.

3. That Eugene Shvidler who retires by rotation as a Director of the Company be re-elected.

4. That Terry Robinson who retires by rotation as a Director of the Company be re-elected.

5. That Colin Belshaw who retires by rotation as a Director of the Company be re-elected.

6. That Ernst & Young LLP be re-elected as Auditors of the Company, to hold office until the conclusion of the

next Annual General Meeting.

7. That the Directors be authorised to fix the Auditors’ remuneration.

ByOrderoftheBoard
06 May 2016

NOTES
1. Any member entitled to attend and vote at the above meeting may appoint one or more proxies to attend and, on a poll,
to vote instead of him. A proxy need not also be a member of the Company. A form of proxy is enclosed with this notice
to members.

2. A form of proxy is enclosed which, to be effective, must be completed and deposited at Capita Asset Services, PXS 1,

34 Beckenham Road, Beckenham, BR3 4ZF not less than 24 hours before the time fixed for the meeting (or any adjournment
of such meeting).

3. Completion and return of a form of proxy does not preclude a member from attending and voting in person.
4. Only those shareholders registered in the register of members of the Company as at 24 hours prior to the time fixed for the
meeting (or, in the cause of an adjournment, as at 24 hours before the time of the adjourned meeting) shall be entitled to
attend or vote at the meeting in respect of the number of shares registered in their name at that time. Pursuant to Article
40(2) of the Companies (Uncertificated Securities Jersey) Order 1999, changes to entries on the register of members after
such time shall be disregarded in determining the rights of any person to attend and vote.

5. Directors’ Service contracts and register of Directors’ interests in the Share Capital of the Company are available at the

registered office of the Company for inspection during usual business hours on weekdays from the date of this notice until
the date of the meeting and at the meeting until the conclusion of the meeting.

ANNUAL REPORT & ACCOUNTS 2015

NOTES

HIGHLAND GOLD MINING LIMITED

26 NEW STREET

ST. HELIER, JERSEY JE2 3RA

REGISTERED NO 83208