Petropavlovsk : POX Hub Update

Petropavlovsk PLC POX Hub Update

Petropavlovsk PLC ("Petropavlovsk" or the "Company" or, together with its subsidiaries, the "Group") is pleased to provide a development update on the Pressure Oxidation Hub ("POX Hub"):

• Full scale POX Hub project development from January 2017 following the refinancing of US$430m bank debt

• Construction of the POX Hub is 65% complete and construction of the Malomir flotation plant (Stage

  1) is 90% complete (as at 28 February 2017)

• Commissioning of the POX Hub is scheduled to start in Q4 2018 with production ramping up through 2019

• Completion of the POX Hub potentially doubles the Company's average life of mine plan to greater than 15 years

• The POX Hub is set to add at least an additional 200koz pa to the production profile at a steady rate, with upside potential from exploration, expansion and tolling opportunities

• Including US$32million for the Malomir flotation plant (Stages 1 & 2), total pre production capital expenditure for the POX Hub is US$152million, as at 31 December 2016.

"I am pleased to report that construction activities at our POX Hub have fully resumed. This marks an exciting stage in Petropavlovsk's journey, achieving our vision of being strategically positioned as both a leading refractory and non refractory gold producer.

The POX Hub is 65% complete. The updated project economics, as audited by two independent consultants, mark the culmination of 24 months of project optimisation and balance sheet restructuring, allowing us to further de risk this core growth project.

Refractory gold is the future of the gold sector. The sector is increasingly unable to replace depleted oxide ounces. More than 50% of Russia's defined gold resources are refractory or partially refractory. The POX Hub positions Petropavlovsk as a solution to unlocking this embedded value within the Group and in Russia more broadly."

Defined within Petropavlovsk's substantial 20.2Moz JORC resource (7.2Moz JORC reserve) is 9.3Moz refractory gold resource (4Moz refractory reserve), with under explored resource upside within the highly prospective 3,600km2 license holding.

In 2017, the Company expects to produce between 420,000oz - 460,000oz (2016 - 416,000oz), at US$800/oz

- $900/oz AISC, from the non refractory operations at Pioneer, Albyn, Malomir and Pokrovskiy.

Unlocking the 9.3Moz refractory resource supports Petropavlovsk's long term growth objectives in doubling the average life of mine and sustaining the production profile.

The Company's defined economic refractory ounces are within the Malomir license area (964km2) and Pioneer license areas (1,375km2,). Both licenses sit along or above the Mongolo-Okhotskiy mineralised belt. Refractory mineralisation at both Malomir and Pioneer is hosted mainly within carbonaceous schists and meta alevrolites. This same belt also hosts a number of large deposits, including Sukhoi Log and Teseevskoe-Baley to the west of the Amur region.

• Malomir (of which 62% JORC reserves are refractory) is the only large refractory deposit within the north east part of the Amur Region and remains largely under explored. The area is highly prospective for further resource growth due to favourable geology and large neighbouring alluvial deposits, many of which have unidentified hard rock sources.
• Pioneer (of which 58% JORC reserves are refractory) in addition to the significant non refractory reserves, further refractory resource potential exists within the Pioneer license, particularly along the contact between granitoid and Jurassic host rocks, south and south west of the Pioneer RIP plant.

In 2010, an extensive feasibility study into refractory ore processing solutions was carried out by PHM Engineering, the Company's 100% owned subsidiary. This incorporated a base engineering study prepared by Outotec in cooperation with RDC Hydrometallurgy, the Company's 100% owned subsidiary. The results demonstrated that pressure oxidation (POX), via autoclaves, was the most technically and economically viable and advantageous processing solution, in addition to being the most efficient, safe and environmentally friendly method.

POX is a globally recognised process for treating refractory ore and flotation concentrate, by applying high temperature and high pressure within an autoclave. This allows the gold bearing sulphides to break down, making the gold amendable to cyanide leaching.

In 2011, the Company decided to proceed with the POX Hub development. The final design requires the construction of flotation plants at Malomir (5.4Mtpa) and Pioneer (6.0Mtpa) and a 500ktpa pressure oxidation facility (POX Hub) at Pokrovskiy, utilising four separate autoclave vessels (15m x 4m, each with a volume of 66m3).

This allows operations to be significantly more flexible, as flotation concentrates from Malomir and Pioneer with varying metallurgic properties can be separately processed simultaneously, without compromising productivity or gold recovery. The final design also allowed for a further 30% expansion in processing capacity from 500ktpa to 650ktpa, with the addition of two further autoclaves.

The Pokrovskiy mine, in the Amur region, was identified as the optimal strategic location for the POX Hub, due to the excellent regional and on site infrastructure. The Malomir mine is 670km from site and the Pioneer mine 40km from site via all weather federal roads. The Trans-Siberian Railway is 10km from the site and Blagoveshchensk, the Russia-China trading hub of the Far East, is 450km from site via federal motorway. Furthermore, the region benefits from access to ample, low cost hydropower from four regional hydroelectric stations (c.5GW capacity) and the availability of highly skilled labour.

Pokrovskiy is a mature project with declining production but excellent on site infrastructure (including a 2Mtpa RIP plant). Utilising and adapting this existing infrastructure has a beneficial impact on capital costs, with US$90million gross value of buildings and equipment being incorporated directly into the POX Hub facility. By leveraging our existing mine site, we do not need to increase our environmental footprint.

Ore will first be mined, crushed, ground and put through a flotation circuit at Malomir (and Pioneer from 2023). The resultant high grade flotation concentrate, equating to 5.5% mass of the original ore, will be dried and transported to the POX Hub for autoclave oxidation, neutralisation, filtration and then leached in the existing Pokrovskiy RIP circuit before Doré smelting.

Extensive autoclave test work is regularly carried out at the Company's Blagoveshchensk metallurgical test plant (operating since 2011). This enables the Company to run permutations of the key operating paramters with which to better understand the optimal solutions for autoclave concentrate recovery.

Alongside an independent technical audit, in 2016 the Company conducted an internal review of the 2010 study. As confirmed by RDC Hydrometallurgy, the updated estimates for operating and metallurgical project parameters are set out below:

Capital Costs

As at 31 December 2016, the total project capital spent was c.US$200million.

The total outstanding pre production estimated capex is c.US$120million for the POX Hub, including a contingency allowance. Total outstanding estimated capital expenditure for the Malomir flotation plant is US$32million.

Operating Costs

The updated operating cost estimates are detailed in the table below. These are competitive with other global operating refractory gold producers and also comparable to the Company's non refractory open pit total cash costs. This reflects lower mining costs resulting from a lower strip ratio and materially lower RIP processing costs due to only 3-5.5% of volume of raw ore being treated.

Updated Project Economics

The updated project economics, set out in the table below, account for updated operating and capital costs, assuming a long term average gold price of $1,200/oz and a foreign exchange rate of USD:RUR60.

Refinancing

The Company's successful refinancing of the Group's bank debt totalling c.US$430 million (December 2016) required 100% self funding of the POX Hub from internal cash flow generated by the Group's current non refractory operations. This was modelled based on an average US$1250/oz gold price throughout the construction and ramp up phase.