Petropavlovsk : Annual Results

26 April 2017

Annual Results for the Year Ended 31 December 2016

Petropavlovsk PLC ("Petropavlovsk" or the "Company" or, together with its subsidiaries, the "Group") today issued its audited annual results for the year ended 31 December 2016.

Peter Hambro, Chairman, comments: "2016 has been a transformative year for Petropavlovsk as we returned to profitability, refinanced our debt with our Russian lenders and proceeded with several major production initiatives, including our POX Hub and underground mining at Pioneer and Malomir. Looking ahead the Group is well positioned to execute on its long term corporate strategy and to create value through organic growth and delivering sustainable cash flow."

Financial Highlights

• Underlying EBITDA of US$200.1m, a 16% improvement on 2015 primarily due to contribution from mines as a result of higher realised gold price achieved and improvement in TCC.

• Group total cash costs (TCC) of US$660/oz, outperformed guidance and was a 12% improvement on 2015, due to cost optimisation measures and positive effect of Rouble depreciation.

• Group all in sustaining cash costs (AISC) were in line with guidance at US$807/oz, an 8% improvement on 2015.

• Average realised gold price of US$1,222/oz (including US$(21)/oz effect from hedging), an increase of 4% on 2015. Gold sales of c.400,000oz, 17% lower than 2015.

• The Group had forward contracts to sell 50Koz of gold at an average price of US$1,303/oz and 547Koz of gold at an average price of US$1,253/oz as at 31 December 2016 and 26 April 2017, respectively.

• Net profit of US$31.7m (EPS: US$0.01), compared to a net loss of US$297.5 million for 2015, which reflects improvement in underlying EBITDA, substantially lower losses from IRC Limited (IRC) and deferred tax credit (mostly due to Rouble devaluation).

• Capital expenditure of US$29.4m, a reduction of 10% from 2015.

• Successful refinancing of c.US$430 million of the Group's bank debt, including a revised maturity profile until September 2022 subject to certain conditions being satisfied. US$100m commodity linked loan facility remains on schedule for completion of final documentation, effective May 2017.

• Reduction in the year end Net Debt to US$598.6m vs US$610m as at 31 December 2015. Bringing a 15% improvement in the Net Debt/ EBITDA ratio to 3:1 in comparison with the full year 2015.

  Operational Highlights

• Gold production of 416,300oz in line with revised 2016 guidance, a 17% reduction from 2015. This was predominantly due to a strategic focus on production of profitable ounces and the impact of extreme weather conditions on the mining schedule.

• Commenced development of our maiden underground mine at Pioneer's high grade NE Bakhmut in Q2 2016. First production scheduled for Q2 2017.

• Total of 20.2Moz Mineral Resource, including 8Moz Ore Reserves. Ore Reserves primarily impacted by mining depletion and the strategic disposal of non-core assets, while partially offset by additions of 1Moz reserves from Albyn's Elginskoye deposit and 370koz maiden underground reserve.

  units		Year ended 31 Dec 2016	Year ended 31 Dec 2015
  Total gold produced (koz)	koz	416.3	504.1
  Gold sold (oz)	oz	399.9	481.9
  TCC (US$/oz)	US$/oz	660	749
  AISC (US$/oz)	US$/oz	807	874
  Average realised gold price (US$/oz)	US$/oz	1,222	1,178

  Revenue	US$m	540.7	599.9
  Underlying EBITDA(1)	US$m	200.1	172.8
  Profit/ (loss)	US$m	31.7	(297.5)
  Basic earnings/ (loss) per share	US$/share	0.01	(0.09)
  Capital expenditure	US$m	29.4	32.6
  Net debt(2)	US$m	(598.6)	(610.0)

  Notes

• Note 34 to the Consolidated Financial Statements

• Note 29 to the Consolidated Financial Statements

Development Highlights

• Pressure Oxidation Hub (POX Hub)

  • US$430m debt refinancing allows 100% self-funding of the POX Hub from internal cash flow generated by the Group's current non-refractory operations assuming an average US$1250/oz gold price throughout the construction and ramp up phase.

  • Updated project economics (assuming US$1,200/oz gold and USD:RUR 60)

    • NPV: US$603m (post tax 10%)

      ▪ IRR: 65%

  • In 2016, key contracts were executed, namely industry leader, Outotec, were reinitiated as the project managers. All orders for long lead items were placed.

  • POX Hub 65% construction complete, as at 31 December 2016. Full scale construction was resumed in January 2017. Staged commissioning from Q4 2108.

  • Malomir Flotation Plant (Stage 1: 3.6Mtpa) 90% construction complete. Scheduled to complete and commission from Q4 2017. Production, trucking and stockpiling throughout 2018 ensuring a steady autoclave staged ramp up.

• Pioneer Underground

  • Increased underground Mineral Resource and defined first underground Ore Reserve

    • Total 460koz Resource, an increase of 194% from 2015.

    • Including 165koz Reserve @ 4.46 g/t.

  • NE Bakhmut Underground

    • 100% of the defined 165koz Reserve is within NE Bakhmut, sustaining a viable 6 year life of mine.

    • 2016 drill programme results in a 300% uplift in Mineral Resource to 299Koz

    • Underground potential remains open in multiple directions, offering further potential for high grade mine life expansion.

    • Appointed underground contractor for immediate mobilisation of personnel and equipment.

    • Development and ventilation portals completed in H2 2016, with development decline progressing well, totalling 675m at 31 December 2016. First production schedule for Q2 2017.

• Malomir (Quartzitovoye) Underground

  • Increased underground Mineral Resource and defined first underground Ore Reserve

    • Total 283koz @ 6.58 g/t resource including 207koz @ 5.85 g/t reserve, sustaining a viable 6 year life of mine.

    • Orebody remains open in multiple directions, offering further potential for high grade mine life expansion.

  • Appointed underground contractor for mobilisation of personnel and equipment in Q1 2017.

    First production scheduled for H2 2017.

    2017 Targets

• Gold production for 2017 is forecast between 420,000-460,000oz per annum, predominantly from open pit operations as underground production is scheduled to commence at Pioneer and Malomir in Q2 and H2, respectively, and ramp up gradually.

• Total cash cost (TCC/oz) guidance of US$600-700/oz and all in sustaining cash costs (AISC/oz) of US$800-900/oz

• Commence and ramp up underground production at Pioneer's high grade NE Bakhmut, with ongoing development. Further enhance understanding of high grade underground zones with reserve and resource infill and exploration underground drill programme.

• Commence and ramp up underground production at Malomir's high grade Quartzitovoye, with ongoing development.

• Complete construction of Malomir flotation plant (Stage 1) in preparation for refractory concentrate production and stockpiling at the POX Hub throughout 2018, ahead of commissioning in Q4 2018.

• Capital expenditure for 2017 is expected to be c.US$100m-US$110m including c.US$15-20mln exploration capex and US$85-90mln development and maintenance capex. Development capex is predominantly comprised of POX Hub and Malomir flotation plant expenditures.

  Corporate Strategy

  Petropavlovsk remains focused on optimising its current asset base. The Company continues to maximise cash generation from its four operating mines, Pioneer, Albyn, Malomir and Pokrovskiy, while creating value for equity investors by growing sustainable cash flows via expansion due to successful exploration and development of the POX Hub and underground operations at Pioneer and Malomir. It is based on the quality of our assets, our focus on operational and development excellence, and our experience, demonstrated by management's track record of driving meaningful organic growth.

  IRC Limited (POG 31.10% equity shareholder)

  Petropavlovsk is a shareholder (31.1%) of IRC and is the guarantor of the US$340m project finance facility (US$234m principal outstanding, as at 31 December 2016). IRC is a vertically integrated iron ore producer and developer in the Russian Far East and North Eastern China. IRC is listed on the Hong Kong Stock Exchange (Ticker: 1029.HK).

  IRC Annual Results for the year ended 31 December 2016:

• Financials

  • Net loss reduced by 96% to US$18.2 million (31 December 2015: US$509.0 million)

  • Underlying results excluding impairment charges reduced by 37% to US$18.2 million (31 December 2015: US$28.9 million)

  • Overall cost reduced by 67% to US$35.2 million (31 December 2015: US$106.7 million)

• Corporate

  • Successfully completed equity fundraising of US$25 million with a core investor

  • Amicable settlement with CNEEC, received cash compensation of US$4.5 million and outstanding construction payment liability reduced by US$3.9 million

• Operations

  • K&S began shipments to customers in China - products well received with good market demand

  • Care and maintenance process satisfactory in Kuranakh, assessing feasibility of re-opening and other options

    IRC Q1 for the three months ended 31 March 2017:

• Produced 316,770 tonnes of iron ore concentrates (Up 120% compared to Q4 2016)

• Sold 321,886 tonnes of iron ore concentrates (Up 168% compared to Q4 2016)

• Cash flow positive operations from K&S for the first full quarter

• Operated at peak of c. 75% plant capacity in March, after repair of ball mill, with steady c.50% capacity achieved

• Full processing operations now estimated to reach full capacity in 2H 2017.

Q1 2017 Production Results and Conference Call

Petropavlovsk will be publishing their Q1 2017 Production Results tomorrow, Thursday 27 April 2017, at 0700 BST.

There will be a conference call hosted after the results at 09.00 BST. Please find details below:

Call Details

UK toll free number 0800 368 0649

UK Local number 020 3059 8125

International participant + 44 20 3059 8125

To join the call, please use:

Participant Password: Petropavlovsk