Following our 24 June 2005 production update where we advised that the full year production for the group will fall significantly below earlier expectations, Highland Gold Mining Limited (“Highland Gold”, or the “Company”) announces its operating results for the 2005 first half ended 30 June 2005. Full financial results for the period and a complete update on our development projects will be released on 20 September 2005.

Highland Gold will hold a conference call hosted by Dmitry Korobov, Managing Director and Scott Yelland, Chief Operating Officer to discuss this production update at 10:00 am (UK time) on Friday, 5 August 2005. Participants may access the call at +44 (0) 1452 561 263.

FIRST HALF HIGHLIGHTS: produced 63,749 ounces of gold, MNV implemented actions to address short-term operating issues that limited the availability of ore for the mill, planned modifications completed on the Darasun mill, strengthened operating management team.

MNV MINE

The MNV mine produced a total of 51,979 ounces of gold during the first half of 2005, down from 96,986 ounces in the same period of 2004. The major short-term operating factors contributing to the lower gold output for the period were reduced ore deliveries to the mill and reduced gold grade. These factors were the result of inadequate development in both the open pit and underground operations with a consequential reduction in the availability of high grade ore sources. This situation was exacerbated by adverse weather conditions experienced in the first quarter.

To respond to the current problems, the Company strengthened the management team, welcomed the recommendations of independent international experts, started to implement new planning and control procedures and provided new or additional equipment where necessary. Highland Gold is confident that these actions are properly addressing the development issues at MNV.

DARASUN MINE

Having been commissioned at the end of the first half of 2004, the Darasun mine produced a total of 4,870 ounces of gold in its first half year to December 2004 and 11,770 ounces in the first half of 2005. Notable improvements were made in underground mining that raised the average mined grade to 10.94 g/t for the first half of 2005 and to 13.21 g/t for the second quarter. In addition, open pit mining at the Talatui deposit intensified during the second quarter and the beginning of the third quarter with the commissioning of two new excavators.

Whilst the processing plant has been experiencing sub standard performance in terms of throughput and recovery, the high grade ore from underground has been stockpiled and the mill feed has been from lower grade sources. Once the plant performance is optimised the high grade stockpile will be treated. This optimisation process has been proceeding according to schedule, and recently included a planned shut-down for the installation of new mill motors, improvements to the circulation process, a re-construction of the sorption columns and the implementation of new sampling procedures. We expect to begin processing higher grade ores in mid-August and to achieve design capacity in September.

EMPLOYEE STOCK OPTION PLAN

The Company advises that in line with the statement made at the time of Admission to the Alternative Investment Market in December 2002, it has now implemented an employee share option scheme. There are no participants at present and it will run in conjunction with the Company's Share Appreciation Rights scheme to allow flexibility when considering the employment incentives for executives. The scheme will be managed by the Remuneration Committee. At any one time no more than 10% of the issued Share Capital of the Company may be the subject of unexercised subscription options in aggregate and the total value of unexercised subscription options which an executive may hold at any one time must not exceed four times their remuneration package.

The Company also announces that the Board have agreed that as part of James Cross's remuneration as non-executive Chairman he will be granted an option over 500,000 new ordinary shares in the Company exercisable at par after 9 December 2005 and a further 500,000 new ordinary shares in the Company at a price based on their current market value and exercisable after 9 December 2007.

Commenting on today’s announcement Dmitry Korobov, Managing Director, said: “This first half of 2005 does not reflect the performance our assets are capable of delivering. The combination of short-term operating issues at MNV and remaining start-up issues at the new Darasun mill have severely impacted our results. While we are addressing these issues and making steady progress, I am not satisfied with our current performance and fully appreciate how difficult it has been for our shareholders. I am, however, confident that our efforts will soon translate into improved operating results.”