Petropavlovsk : REPORT ON PAYMENTS TO GOVERNMENTS

PETROPAVLOVSK PLC

REPORT ON PAYMENTS TO GOVERNMENTS FOR THE YEAR ENDED 31 DECEMBER 2015

Introduction

This Report provides an overview of the payments to governments made by Petropavlovsk PLC and its subsidiary undertakings (hereinafter referred to as 'Petropavlovsk') during the year ended 31 December 2015 as required under the UK's Report on Payments to Governments Regulations 2014 (as amended) (the 'UK Regulations'). The UK Regulations apply to large UK incorporated companies like Petropavlovsk that are involved in the exploration, prospection, discovery, development and extraction of minerals. This Report is also intended to satisfy the requirements of the Disclosure and Transparency Rules of the Financial Conduct Authority in the United Kingdom.

This Report has been submitted to the UK Listing Authority and will shortly be available for inspection from the National Storage Mechanism in accordance with Listing Rule 9.6.1. This information is also available on the Company's website.

This Report is prepared on the basis set out below.

1.1. Basis of preparation

Reporting entities

This Report includes payments to governments made by Petropavlovsk PLC and its subsidiary undertakings (hereinafter, 'Petropavlovsk group'). Payments made by joint ventures and associates of Petropavlovsk group are excluded from this Report.

Scope of the Report

Disclosure of payments to governments is required in respect of payments arising from the exploration, discovery, development and extraction of minerals (extractive activities). The payments included in this Report relate to gold exploration and mining activities (presented as continuing operations) and iron ore exploration and mining activities (presented as discontinued operations) and exclude payments made by corporate head office function and in-house service companies. When payments cover both extractive and processing activities, such payments have been disclosed in full.

Government

'Government' means any national, regional or local authority of a country, and includes a department, agency or undertaking that is a subsidiary undertaking where the authority is the parent undertaking.

Project

Payments are reported at project level, except for payments that are not attributable to a specific project which are reported at entity level. Under the Regulations, project is defined as operational activities, which are governed by a single contract, license, lease, concession or similar legal agreement and form the basis for payment liabilities with a government. If agreements of this kind are substantially interconnected in operational and geographical terms and are with substantially similar terms that are signed with a government, those agreements are treated for the purposes of this Report as a single project.

Reporting currency

This report is presented in US Dollars which is the presentation currency for Petropavlovsk group. Payments made in currencies other than US Dollars are translated based on the average foreign exchange rates for the year ended 31 December 2015.

Materiality

Under the Regulations, a payment, whether made as a single payment or as a series of related payments below £86,000 (US$131,431) or an equivalent in another currency arrived to by using relevant average exchange rate for the year ended 31 December 2015, does not need to be disclosed. This de minimusmateriality level has been applied when preparing this Report, however, in some circumstances payments below the aforementioned threshold may be voluntarily included.

Type of payments

The payments to governments are required to be reported in the following categories:

- Production entitlements.

- Taxes levied on income, production or profits of companies (Taxes):

This includes corporation tax payable on taxable profits earned by the legal entity, mining tax payable based on production volume and the gold price realised and withholding tax where payable in respect of income transferred by operating entities to other group entities.

In accordance with the Regulations, payments made in relation to taxes on consumption, including Value Added Tax, employer payroll taxes and tax payments made on behalf of employees of Petropavlovsk group, are not disclosed in this Report.

- Royalties.

- Dividends.

- Signature, discovery and production bonuses.

- Fees:

This represents licence fees, rental fees, entry fees and other considerations for licences or concessions.

- Infrastructure improvements:

This represents payments made in respect of infrastructure expenditure other than in circumstances where the infrastructure is expected to be primarily dedicated to operational activities throughout its useful life. The Regulations do not require reporting social or community payments, such as payments to build a hospital or a school.

Other

Payments are reported net of refunds and net of offsets against another payment liability. Payments to governments resulting from imposition of penalties, fees or interest are not disclosed in this Report.

1.2. Payments made by country and level of government.

(a) Discontinued operations represent IRC Limited and its subsidiaries (hereinafter, 'IRC group'). On 7 August 2015, IRC group ceased being a subsidiary for Petropavlovsk group and became an associate. Payments are reported for the period from 1 January 2015 until 7 August 2015.

1.3. Payments made by project.

(b) Pioneer mine and Pokrovskiy mine are operated under the legal entity JSC Pokrovskiy Rudnik. Where reasonable basis of allocation is available, payments were allocated between Pioneer mine and Pokrovskiy mine. Corporation tax is reported as entity level payment.

(c) Alluvial operations represent JSC Koboldo, an alluvial operation in the Amur Region of Russia, which was disposed in 22 April 2015.