Petropavlovsk : Q3 Production Report and IMS

22 October 2014

Production Report for Q3 2014 and Interim Management Statement

Petropavlovsk PLC ("Petropavlovsk" or the "Company", or together with its subsidiaries "the Group") today issues its interim management statement for the period from 1 July 2014 to the date of this release (the "Period"). 

Q3 Highlights and FY 2014 Outlook

·      150,100oz of total gold production in Q3 2014 - increase of 2% on Q2 2014 (147,200oz)

·      Total gold production and sales for the first nine months of the year at 456,500oz and 460,900oz respectively. This is lower than the corresponding period in 2013 following the sale of high-cost alluvial operations in the Magadan region 

·      Average realised gold price of US$1,329/oz during Q3 2014, including a US$59/oz contribution from the hedging programme

·      FY 2014 production expected to be in line with the Group's previously-stated guidance of 625,000oz of gold

·      Total cash costs ("TCC") for the year expected to be below US$900/oz, benefiting from the cost-cutting programme and rouble devaluation (previous guidance US$900/oz-US$950/oz)

·      Net debt of c.US$902 million as at 30 September 2014, down by c.US$46 million since 31 December 2013. The Group remains on track to reduce further its net debt by the end of the year, as per the guidance in its half-year report

·      Cash balance as at 30 September 2014 of c.US$80 million

·      New promising exploration results from Malomir and Pioneer:

o     New high-grade, non-refractory mineralisation established at Malomir

o     Extensions of the high-grade Andreevskaya and Vostochnaya zones at Pioneer identified

o     New findings expected to result in additions to the Group's non-refractory JORC Reserves and Resources

·      Continued detailed discussions with senior lenders, bondholders, other stakeholders and third-parties with regards to refinancing the Group's outstanding 4% Convertible Bonds due  February 2015. A further announcement will be made in due course .

Commenting on the announcement, Peter Hambro, Chairman, said:

"I am pleased to report that ,during the last quarter ,our team hitour operational targets , keeping us on track to deliver our plan for the year.

We nowexpect our full -year totalcash costs per ounce of gold produced ("TCC/oz") will decrease tobelow US$900/oz ,compared with the initially -planned cUS$900/oz-US $950/oz . This reduction in costs is expected to be achieved due to operational efficiencies and the significant devaluation of the rouble relative to the US dollar which we have been experiencing in the second half of the year.  Our geological team expects that the recent exploration work will result in additions of new ,high -grade material to our non-refractory Mineral Resource base at Pioneer and Malomir. The team is now working to convert these new findings into JORC Mineral Resources and to upgrade some of our existing Mineral Resources into Ore Reserves for our next statement, which is due to be published in H1 2015. It is hoped that this work will improve our short to medium term production output.

We continue to make progress in our discussions with senior lenders, bondholders, other stakeholders and third parties about securing a refinancing for the Group and expect to make a further announcement in due course.

Finally, I would like to welcome back Dr Pavel Maslovskiy who will be re-joining the Board as a Director and Chief Executive with effect from 5 November 2014. I, and my fellow Board colleagues, consider his extensive knowledge and experience will be of great assistance during this transformational time for the Group."  

Detailed operational update

Pioneer

During Q3 2014, Pioneer produced approximately 58,900oz of gold, in line with the comparative period in 2013 (59,400oz).

Mining was concentrated on Pits 6.1 and 6.2 during Q3. Mining at Pit 1 was completed in August 2014 and the equipment was transferred to Pit 7 in order to open a new ore body. At Alexandra, work continued on preparing the area for bulk sampling. The Group currently anticipates that Alexandra will come into full production in 2015.

Head grades through the Pioneer plant averaged 1.3g/t in Q3 and are expected to average 1.6g/t in Q4.

Pokrovskiy

During Q3 2014, Pokrovskiy produced approximately 16,900koz of gold, down on the comparative period in 2013 but in line with the Group's plans as this project draws towards the end of its mine life.

The extension to the north western part of the main pit continued throughout Q3. A small extension to the northern pit wall in Pokrovka 3 was completed in September. These two areas produced the majority of the ore mined in Q3 and were blended together for processing with some ore from existing low-grade stockpiles. A small amount of high-grade ore for processing was delivered to the Pokrovskiy site from the satellite pit at Burinda.

During Q3 2014, the plant processed 475,500 tonnes of ore at recovery rates of 83%.

Malomir

During Q3 2014, Malomir produced approximately 13,000oz of gold in line with the Group's schedule. The year-on-year decrease was due to the transition of operating activities to a new non-refractory area, Magnetitovoye, discovered by the Group in 2013.

The vast majority of the work during Q3 took place at the Quartzitovoye 2 pit, which supplied the majority of ore to the plant. Some ore was recovered and processed from existing stockpiles. 

Albyn

During Q3 2014, production at Albyn continued to be higher than in 2013, with the mine producing 44,300oz of gold, 27% more than in the comparative period in 2013 (34,900oz).

The ore mining work at Albyn was concentrated on the Central zone of the mine following the stripping works that took place in that area in H1. The Central zone, which typically produces higher grades than the Eastern zone, will remain the source of ore for the remainder of the year. Recovery rates remained high during the quarter at 95%.

The average grade through the processing plant in Q4 is expected to be 1.6g/t.

Alluvial Operations

In Q3 2014, the Group's alluvial operations produced 17,000oz of gold, 69% less than the amount produced in the comparative period in 2013 (54,600oz). This decrease in production was expected due to the sale in Q4 2013 of high-cost alluvial operations operated by the Group's former subsidiary Berelekh.

Q3 Exploration report

Q3 2014, exploration remained concentrated on areas in the vicinity of the Pioneer and Malomir RIP plants with the aim of identifying further high-quality non-refractory reserves suitable for processing at these plants.

Malomir Area

In Q3 2014, at Berezoviy, an area 10km west of the Malomir RIP plant, gold mineralisation with grades of up to 61.3g/t Au was established by drilling, trenching and a pre-stripping. The thickness varies between 5m and 30m with the grades  up to 18g/t at intersections. As the mineralised zone dips southwards at a 35-40° angle, it would be suitable for low-cost, open-pit mining. The total length of the zone could be up to 1km.

The best intersections include: 19.5m at 1.69g/t (drill hole 122-7), 4.6m at 5.32g/t (drill hole 121-8), 8.4m at 12.87 g/t (pre-strip), 8.0m at 13.63g/t. The amount of exploration completed at this area is sufficient for inclusion in the Group's next JORC Mineral Resource and Ore Reserve estimate.

A further three promising zones of gold mineralisation were discovered at the Malomir area during the period and one exploration target area, Pogranichiny, was identified. Exploration of these areas is ongoing.

Pioneer Area

At Andreevskaya - a high-grade, non-refractory zone extensively mined by the Group in previous years - further drilling discovered extensions of the high-grade mineralisation. This mineralisation is situated between 80m and 150m from surface and is expected to be suitable for open pit extraction and processing at the Pioneer RIP plant.  The best intersections in this area include 2.9m at 60.62g/t (C-5414), 7.0m at 91.7g/t (C-5400), 6.5m at 34.3g/t (C-5410).

A further 280m extension of mostly non-refractory mineralisation was established at the Vostochnaya zone, which is situated only 1.5km from the Pioneer processing plant. The best intersections from this area include: 14.2m at 1.44g/t (C-5370), 6.8m at 28g/t (C-5199) and 8.0m at 1.82g/t (C-5404). 

It is expected that these results will be included in the next JORC Mineral Resource and Ore Reserve update.

Project development

Pressure oxidation (POX) Hub

During Q3 2014, the Group continued its approach of only carrying out essential maintenance work on the POX Hub or fulfilling existing contracts. This approach is designed to preserve immediate capital expenditure but enable the Group to commission the project at a later date.

Corporate Update

Following the acceptance of his retirement as a Member of the Federation Council (Upper House of the Russian Parliament), Dr Pavel Maslovskiy, co-founder of the Group, indicated that he would be available to re-join the Board of Directors and the executive management team with effect from 15 October 2014. The Board considers Dr Maslovskiy to possess significant knowledge, experience and understanding not only of the Group, but also of the Russian mining industry and the Russian business environment. Consequently, on 21 October 2014, as already announced, the Board voted for Dr Maslovskiy to re-join as Chief Executive Officer and as a Director of the Company with effect from 5 November 2014. Mr Sergey Ermolenko, Chief Executive Officer from December 2011 to October 2014, will retire as a Director of the Company on 5 November 2014, at which time he will revert to the role of General Director of Management Company Petropavlovsk, a position he held prior to December 2011. The Board thanks Mr Ermolenko for his hard work and dedication in leading the Group as CEO since December 2011.

The Group continues to make progress in detailed discussions with senior lenders, bondholders, other stakeholders and third parties regarding securing a refinancing of the 4% Convertible Bonds due February 2015, as outlined in the Company's statement dated 16 September 2014. A further announcement will be made in due course.

IRC

IRC is a producer and developer of industrial commodities and was the Group's former Non-Precious Metals Division, prior to its listing on the Stock Exchange of Hong Kong Limited (stock code 1029). The Group has a majority stake of 45.39% stake in IRC.

On 16 October 2014, IRC issued its third quarter trading update for the three months ended 30 September 2014, which noted the following highlights:

·      Third quarter production exceeds annualised target    

·      Kuranakh cost-cutting and strategic review ongoing

·      K&S project 83% complete

·      Sale of Amur/Heilongjiang River Bridge to progress construction and transport cost savings announced

·      General Nice and Minmetals Cheerglory investment commitment re-affirmed

Further information may be obtained from the IRC website,www.ircgroup.com.hk.

Enquiries 

This release may include statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "plans", "projects", "anticipates", "expects", "intends", "may", "will" or "should" or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this release and include, but are not limited to, statements regarding the Group's intentions, beliefs or current expectations concerning, among other things, the Group's results of operations, financial position, liquidity, prospects, growth, strategies and expectations of the industry.

By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. Forward-looking statements are not guarantees of future performance and the development of the markets and the industry in which the Group operates may differ materially from those described in, or suggested by, any forward-looking statements contained in this release. In addition, even if the development of the markets and the industry in which the Group operates are consistent with the forward-looking statements contained in this release, those developments may not be indicative of developments in subsequent periods. A number of factors could cause developments to differ materially from those expressed or implied by the forward-looking statements including, without limitation, general economic and business conditions, industry trends, competition, commodity prices, changes in law or regulation, currency fluctuations (including the US dollar and Rouble), the Group's ability to recover its reserves or develop new reserves, changes in its business strategy, political and economic uncertainty. Save as required by the Listing and Disclosure and Transparency Rules, the Company is under no obligation to update the information contained in this release.

Past performance is not a guide to future performance.

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