BGD Barrick Gold

RNS Number:3523M
Highland Gold Mining Limited
20 November 2006





Increased participation by Barrick Gold Corporation in Highland Gold Mining
Limited



Summary



20 November 2006, London - Highland Gold Mining Limited ("Highland", or the "
Company") announces that it has signed a Share Exchange Agreement with Barrick
Gold Corporation ("Barrick") in relation to the transaction announced in
principle on 2 November 2006, the terms of which have not changed materially
since then.



A Circular to shareholders, including a letter from the Chairman with details of
the increased participation by Barrick, a summary of the main terms of the Share
Exchange Agreement and an outline of the arrangements for co-operation between
the two parties following completion, together with notice of an Extraordinary
General Meeting to be held on Wednesday 13 December, 2006, is being posted to
shareholders today.



The Circular will be available for information to the public as of today via
Highland's website at www.highlandgold.com.



Further detail



1.         Introduction



Barrick is a leading international gold mining company, with a portfolio of 27
operating mines and seven advanced exploration and development projects located
across five continents, and a large land position on the world's best
exploration belts.  It is listed in Canada and has an equity market
capitalisation of c. 28 billion Canadian dollars.



Barrick is to increase its shareholding in the Company to approximately 34 per
cent. in exchange for shares of certain Barrick subsidiaries which hold:



*        Barrick's 50 per cent. interest in all existing joint ventures with the
Company; and

*        four further gold exploration interests owned by Barrick.

In addition, following completion of the transaction, certain Barrick personnel
will be appointed to the Board and further senior personnel of Barrick will join
Russdragmet, Highland's management company in Russia.



Completion is subject to, amongst other things, the approval of shareholders by
way of passing the special resolution granting the necessary authority to the
Directors for the issue of 34,492,305 ordinary shares to certain companies in
the Barrick group.



The Company is also reviewing its financial options to raise up to US$50 million
to continue the development of its business.



2.         Background to and reasons for the transaction



Barrick has had a long collaborative relationship with the Company and in
October 2003 it first acquired a holding of shares equivalent to 10 per cent. of
the Company's then issued share capital.  In January 2004, Barrick and the
Company entered into agreements under which Barrick subscribed for further
shares in the Company, taking its holding to approximately 17 per cent.. These
agreements also provided mutual back-in rights to equity participation in
acquisitions in Russia.  In July 2005, Barrick subscribed for a further 11.4
million shares taking the holding to approximately 20 per cent. of the then
issued share capital of the Company.



The Company has received technical support and advice from Barrick since its
initial subscription and Barrick has exercised its back-in rights over three
properties acquired by the Company since 2004.  Alex Davidson, Barrick Executive
Vice President, Exploration and Corporate Development, sits on the Board as a
non-executive director, and, in addition, the executives of the Company and
Barrick's employees based in Moscow have developed a close working relationship.



The Company and Barrick believe that it is in the interests of both companies to
develop this relationship further and to combine the ownership of the mining
interests which have been acquired by the Company since 2002 with the technical
skills of Barrick.  The Company's mining interests include the producing mines
at MNV and Darasun, the gold prospect at Mayskoye (at pre-feasibility stage), 50
per cent. of the polymetallic prospect at Novoshirokinskoye ("Novo") (for which
a joint development with Kazzinc has been announced) and 50 per cent. of the
gold prospect at Taseevskoye (at pre-feasibility study stage).



The Company believes that the combination will provide a stronger platform to
develop and grow its mining business in the former Soviet Union. The Directors
believe that the Company will significantly benefit from Barrick's
industry-leading expertise in mining operations, extensive worldwide exploration
experience, up-to-date technology and access to capital markets.



3.         Information on the assets



Pursuant to the Share Exchange Agreement, the Company will acquire Barrick's
interests in the following companies which hold the interests described below:



*        100% of Barrick's shares in Taseevskoye Netherlands B.V., and Barrick's
rights and interests in the Taseevskoye licence;

*        100% of Barrick's shares in HB Ventures Netherlands B.V., and Barrick's
rights and interests in the Sovinoye, Belaya Gora and Malo Fedorov licences;

*        100% of the shares in Barrick Resources LLC, the holder of the Lyubov,
Maya-Inikan, and Sarasa licences; and

*        100% of the shares in Barrick Gold Kyrgyzstan LLP, the holder of the
Unkurtash and Kassan licences in Kyrgyzstan.

4.         Principal terms and conditions of the transaction



Pursuant to the Share Exchange Agreement, the Company has agreed to acquire
these interests in consideration for the issue to certain companies in the
Barrick group of 34,492,305 ordinary shares.  Completion of the transaction is
subject to certain conditions, including the passing by shareholders of the
special resolution authorising the Directors to issue such ordinary shares at
the EGM.  Pursuant to the Share Exchange Agreement, all existing arrangements
between Barrick and the Highland group are to be terminated.



The Company and Barrick have also signed a co-operation agreement (the "
Co-operation Agreement") to address the ongoing relationship between the parties
following completion of the transaction, the purpose of which is to ensure that
Highland is able to carry on its business independently of Barrick.



5.         Board appointments



Following completion, Barrick will have the right to appoint two additional
directors to the Board and a further announcement will be made upon such
appointments.  It is expected that all of the current Directors will remain on
the Board until the Board structure is reviewed to take account of independence,
experience and other compliance considerations.  Henry Horne will remain as
Managing Director of the Company.  The Co-operation Agreement provides that the
Board shall consist of at least nine members.



6.         Senior management and operational changes



As part of the transaction, it is proposed that Rene Marion, currently Barrick's
Regional Vice President, Russia and Central Asia, will join Russdragmet as Chief
Operating Officer and Scott Perry, currently Barrick's Director of Finance,
Russia and Central Asia, will join Russdragmet as Chief Financial Officer.  It
is also proposed that other Barrick personnel will be engaged by Russdragmet to
fill exploration, technical and other strategic roles.



As part of an ongoing strategy, the offices and operations of both Barrick and
Russdragmet are being combined. By combining the offices, Barrick's technical
skills and exploration experience in Russia will be merged with Russdragmet's
expertise and know-how relating to the operation of assets within Russia.



7.         Related party



Given its existing shareholding, Barrick is a related party for the purposes of
the AIM Rules.  As at 17 November 2006, Barrick was interested in 31,742,959
ordinary shares representing 19.8 per cent. of the issued share capital of the
Company at that date.  Barrick has undertaken to vote in favour of the
resolutions to be proposed at the EGM in respect of its holding of ordinary
shares. Following Completion, Barrick will own approximately 34 per cent. of the
Company's issued share capital.



In view of Alex Davidson's position with Barrick as Executive Vice President,
Exploration and Corporate Development, he has taken no part in the Board's
consideration of the transaction.



The Independent Directors (being the Directors of the Company other than Alex
Davidson) consider, having consulted with JPMorgan Cazenove, the Company's
nominated adviser, that the terms of the transaction are fair and reasonable in
so far as shareholders are concerned.  In providing advice to the Company,
JPMorgan Cazenove has taken into account the Independent Directors' commercial
assessments.



8.         Darasun mine tragedy



Since the tragic events at Darasun, the Company has taken practical steps to
mitigate its effect on the families involved and the inevitable disruption in
its mining activities.  The Company continues to support the management and
personnel involved.  As part of the ongoing investigations, one Darasun employee
has been criminally charged with breach of safety rules.



9.         Current trading



At MNV, given the recent unusual extreme weather conditions, the Company expects
to be at the lower end of its target production range for 2006 of 150,000 to
160,000 ounces of gold.



Underground production at Darasun has not re-started because it has not yet been
possible for management to gain access underground.  Darasun management has
applied to the authorities for the necessary approvals for underground access to
assess the damage caused by the fire to the central shaft.  Open pit production
is, however, slowly coming back on stream, although grades are below
expectations.



The first phase of the drilling programme at Taseevskoye is now complete and
almost 100 per cent. of the assay results have been received.  These results are
in the process of being interpreted and early indications are encouraging. At
Mayskoye, good progress is being maintained and the bankable feasibility study
is on track to be completed by the end of the first quarter 2007.  Initial
metallurgical test work at this stage is in line with our expectations and more
results are expected soon.



In October 2006, Stanmix Holdings Limited (a wholly owned subsidiary of the
Company) entered into an agreement whereby Kazzinc is to acquire an interest of
48.3 per cent. in the mine at Novo for US$36 million.  This agreement is subject
to the parties entering into a joint venture agreement which is now in the
course of being agreed and is expected to be finalised by the end of November
2006.  The agreement is also subject to certain Russian and Kazakh regulatory
requirements.  The Directors believe that the appropriate approvals will be
obtained during the course of December 2006.



10.       Funding requirements



On the basis that the transaction is completed, the Company is projecting total
capital expenditure to the end of 2007 on the Highland group's mines and
projects to amount to approximately US$90 million and other capital requirements
to the end of 2007 to amount to approximately US$3 million.  Outstanding loans
which are currently repayable between now and the end of 2007 amount to
approximately US$22 million.  Accordingly, the funding requirements of the
enlarged Highland group to the end of 2007 are expected to amount to a total of
approximately US$115 million.



The Company expects to have the following sources of funding available in order
to meet this funding requirement:



*        the Highland group's operating resources;

*        proceeds of US$36 million from the sale to Kazzinc of 50 per cent. of
the Company's interest in Novo. Kazzinc will also contribute approximately US$13
million which represents 50 per cent. of the capital expenditure budget for Novo
to the end of 2007;

*        a new debt facility the details of which are currently under
discussion; and

*        the proceeds of an equity placing.  The timing and level of such
placing will ultimately depend upon market conditions.

The Board currently considers that it is appropriate to raise approximately
US$50 million through an equity placing.  Barrick has undertaken in the
Co-operation Agreement that, if an equity placing of up to US$50 million is
launched, it will participate to maintain its shareholding in the Company at
approximately 34 per cent.; the balance of the cash to be raised pursuant to the
equity placing will then be raised from the subscription for ordinary shares by
institutional investors.  Authority for the Directors to issue ordinary shares
pursuant to such a placing and generally is to be sought at the EGM.



11.       Takeover Code



Although the Company has its registered office in Jersey, the place of central
management and control of the Company is currently located outside the UK, the
Channel Islands or the Isle of Man.  Accordingly, the Takeover Panel has
confirmed that the Company is not subject to the City Code on Takeovers and
Mergers (the "Code") and shareholders will not be afforded any protections under
the Code.



If circumstances change, including if further changes to the Board are made, the
Company will consult with the Takeover Panel to ascertain whether this will
affect the central management and control of the Company.  If the Takeover Panel
determines that, as a result of such changes, the place of central management
and control of the Company is located in the UK, the Channel Islands or the Isle
of Man, such that the Code then becomes applicable to the Company, an
announcement will be made.



As the Company is not currently a company subject to the Code, investors should
be aware that shareholders (including Barrick) are currently able to increase
their interests in voting rights in the Company to 30 per cent. or more without
having to make a mandatory offer under the Code.




For further information please contact:


 Highland Gold                                          Moscow: +7 (495) 777 5529
                                                        E-mail: info@highlandgold.com
                                                        Henry Horne, Managing Director
                                                        Dmitry Yakushkin, Director of Communications

JPMorgan Cazenove                                       London: +44 (207) 588 2828
                                                        Michael Wentworth-Stanley
                                                        Sam Critchlow







           26 New Street, St Helier, Jersey, Channel Islands JE2 3RA
              Tel: +44 (0) 1534 814202 fax: +44 (0) 1534 814815
                          http://www.highlandgold.com


                      This information is provided by RNS
            The company news service from the London Stock Exchange
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