Petropavlovsk PLC : - 2012 Full Year & Fourth Quarter Trading Update

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17 January 2013

2012 Full Year & Fourth Quarter Trading Update

Potential US$238 million Investment in IRC by New Shareholders

Petropavlovsk PLC ("Petropavlovsk" or the "Company" or, together with its subsidiaries, the "Group") today issues its 2012 full year and fourth quarter trading statement as an update and in advance of its Annual Results for the year ended 31 December 2012, which are expected to be issued on or around 27 March 2013.

In addition, the Company announces a potential US$238 million investment in IRC Limited ("IRC") by General Nice Development Limited ("General Nice") and Minmetals Cheerglory Limited ("Minmetals Cheerglory") to fund production growth, in respect of which a separate announcement is being made. Given the implications for the Company of this transaction, the Company has decided to issue its Trading Update concurrently.  

Summary

n  2012 gold production of 710,400oz - a year-on-year increase of c.13% and exceeding the
guidance of 700,000oz

n   Average realised gold sales price up c.3% to US$1,670/oz  

n  2013 production target of between 740,000oz and 780,000oz - a year-on-year increase of
between 4% and 10%

n  Strong operating cash flow during H2 2012 - preliminary unaudited estimates indicating that net
operating cash flowincreased approximately five times in H2 2012 in comparison with H1 2012
to US$230 million

n  The Pressure Oxidation ("P-OX") Hub on schedule for commissioning in Q1 2014

n   Promising results from brownfield exploration conducted around existing mine sites, in
particular from Malomir and areas close to the Albyn plant

n  Announcement of a potential US$238 million investment in IRC by new shareholders to support production growth, which would reduce the Company's holding in IRC to c.40% with the new shareholders holding c.36%, in each case assuming no additional shares in IRC are issued and that all IRC shares are issued in accordance with the subscription agreements. A pro-rata indemnity on the existing guarantee with the Industrial and Commercial Bank of China ("ICBC"), reducing the Company's exposure under the guarantee, will be implemented on full completion of all stages of the investment, which is expected to be in Q3 2013.

Highlights

Gold production
	Q4 2012	Q4 2011	Year ended 31 December 2012	Year ended 31 December 2011
	'000oz	'000oz	'000oz	'000oz
Pioneer	127.6	124.8	333.6	359.1
Malomir	19.1	28.4	103.3	88.5
Pokrovskiy	24.5	21.7	92.1	91.8
Albyn	33.4	1.1	89.3	1.1
Alluvial operations	7.4	6.9	92.1	89.6
TOTAL	211.9	182.9	710.4	630.1

Operational Update

n   In 2012, the Group produced 710,400oz of gold, c.13% more than in 2011 (630,100oz) and

      exceeded its production target of 700,000oz;

n  Total gold sold in 2012 amounted to c.703,000oz, a c.4% increase compared to total gold sold in 2011 (676,000oz);

n  The average realised gold sales price in 2012 was US$1,670/oz, c.3%higher than the average realised gold sales price in 2011 (US$1,617/oz);

n   Estimated total cash costs for the hard rock deposits (including Albyn) for the Group for FY 2012
were approximately 7% higher than in H1 2012 (US$740/oz), largely due to the processing of transitional ore at Malomir during the year which resulted in lower than budgeted recoveries, particularly during H2 2012.

Potential US$238 million Investment in IRC by New Shareholders

n   IRC, a company in which Petropavlovsk holds a 63.1% stake, today announced the entry into
 conditional agreements with General Nice (a member of a group of companies which
 collectively is one of the largest Chinese iron ore importers), and Minmetals Cheerglory (a
 wholly-owned subsidiary of China Minmetals Corporation, one of China's largest state-owned
 international metals and mining corporations) (collectively, the "Investors"), for the Investors to
 invest up to US$238 million in IRC through subscription for new IRC shares to fund production
 growth and an agreement to enter into long-term off-take arrangements;

n   If the transaction is fully implemented, providing no additional IRC shares are issued, the
 Company will hold c.40% of IRC's issued shares. Thus, it is expected that IRC will cease being
 a subsidiary of the Group and will no longer be consolidated in the Group's financial
 statements;

n   A pro-rata indemnity from General Nice in relation to the Company's existing ICBC guarantee 
 will be implemented on full completion of the transaction, reducing the Company's present   
 exposure under the guarantee;

n   The transaction provides IRC with a strategic partnership that aligns its production growth in
 Russia with the trading experience of General Nice and Minmetals Cheerglory in China, 
 reinforcing IRC's position as a Sino-Russian champion;

n   Once completed, the transaction will benefit Petropavlovsk by reducing its potential financial
 requirements in relation to IRC, whilst enabling the Company to share in the upside from IRC's
 strong growth potential;

n   Further information on the transaction, the implementation of which will require, amongst other
 things, the approval of the Company's shareholders, is set out in a separate announcement
 being issued by the Company.

Financial Position 

n  During H2 2012, the Group's operating cash flow was strong, with preliminary unaudited estimates indicating net operating cash flow increasing approximately five times in H2 2012 in comparison with H1 2012 to US$230 million;

n  The net debt* position of the Petropavlovsk Group, excluding IRC, was c.US$1.1 billion at 30 June 2012 and remained c.US$1.1 billion at 31 December 2012. The net debt position of IRC changed from c.US$68 million at 30 June 2012 to an estimated c.US$110 million at 31 December 2012;

n  As at 1 January 2013, the Group had c.US$153 million worth of committed, but undrawn, debt facilities*;

n   During Q4 2012, in line with the Group's strategy, the Group disposed of certain non-core assets through the sale of 65% of the issued shares in CJSC ZRK Omchak ("Omchak"). As previously announced, this transaction, will result in an aggregate cash receipt of US$21.65 million during 2013 and an estimated  non-cash accounting loss of approximately US$30 million, reversing the fair value gain of approximately US$26 million which arose in 2010; 

n  In line with the Group's strategy of focusing on exploration near its producing mines, the Group is reviewing the carrying value of all of its exploration and development assets and this may result in non-cash impairments of an estimated further US$75 million to US$100 million when the accounts for the year ended 31 December 2012 are finalised;

n  During the year, as a result of the potential investment in IRC by the new shareholders, the Group took a decision to support new investment into IRC and to accept the resulting dilution of its holding in IRC to a non-controlling interest and accordingly the Group's investment in IRC will be treated for accounting purposes as "held for sale" as at 31 December 2012.  As a result, the carrying value of the entire IRC net assets will be adjusted to fair value, less any costs to sell. Based on IRC's share price of HK$1.170as at close on 31 December 2012, the estimated net adjustment would be a c.US$225 million non-cash fair-value impairment, to be shown in the financial results for the year ended 31 December 2012, with c.US$147 million allocated to equity holders of Petropavlovsk and c.US$78 million to non-controlling interests.

*Net debt and committed, but undrawn, debt facilities for the Group are not comparable to prior periods because of a change in accounting basis

Development of the P-OX Hub at Pokrovskiy and Malomir Flotation Plant

n  At Pokrovskiy, the construction of the autoclave building and the oxygen plant has been
progressing according to plan with commissioning scheduled for Q1 2014;

n  All major equipment for the autoclave building has arrived on site. The four autoclaves have been installed on their foundations. Work is planned to commence on the construction of maintenance platforms, engineering communications, linings and branch pipes during the remainder of H1 2013;   

n  Following promising exploration results from Malomir, with preliminary estimates showing an approximate additional 240,000oz of oxide resources contained in an ore body parallel to Quartzitovoye, the Group will continue to process non-refractory ore at Malomir during 2013 and has accordingly rescheduled the commissioning of the flotation plant to the start of Q3 2013.

Exploration

n  Throughout 2012, the Group continued to focus on developing a reserves and resources base suitable for processing at its current operational production facilities;

n  During 2012, exploration continued, as in previous years, to extend the oxide mineral base and identified additional oxide material at all operating mines. Further details are set out later in this trading update;

n  The Group has received some promising results from brownfield exploration conducted around existing production facilities, in particular from Malomir, with the discovery of c.240,000oz of additional oxide resources, and from areas close to the Albyn processing plant;

n  The Group intends to publish an updated reserves and resources statement on 28 February 2013.

2013 Outlook and Production Target

n  The Group's gold production target for 2013 is 740,000oz - 780,000oz, an increase of between 4% and 10% on the amount of gold produced in 2012;

n  The 2013 production target reflects:

-     The ramp up of the first and second milling lines at Albyn, which was completed in Q3 2012;

-     The expansion of the processing plant at Pioneer and the incorporation of new reserves discovered at Pioneer in 2012 into the mine plan;

-     The processing of the low-grade stockpiles at Pioneer. This is expected to release
 c.US$90 million in working capital and is expected to affect positively operating cash
 flow during the year; although it will put upward pressure on the total cash cost at
 Pioneer;

-     The planned decline in production from Pokrovskiy as the mine site is being converted
 into the P-OX hub in H2 2013;

-     The exclusion of the gold flotation concentrate scheduled to be produced at the Malomir
 flotation plant from Q3 2013. The Group intends to stockpile the concentrate for later
 processing through its P-OX plant at Pokrovskiy but may market this product
 temporarily if conditions are suitable;

-     The exclusion of any potential upside from recent discoveries of oxide reserves at
 Malomir into the mine plan;

n  As with previous years, production will be weighted to the second half of the year, reflecting the contribution of heap-leach and alluvial operations, which only operate during the warmer months of the year.

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

"Our team has achieved its tenth consecutive increase in annual gold production and has exceeded our production target in spite of 2012 being a challenging year.

Over the past 14 months, the Group brought into production its fourth new mine - Albyn - which went through its ramp-up phase; seven months after the first processing line commenced its work, we commissioned a further milling line, thereby doubling Albyn's processing capacity. In addition, we also commissioned a fourth milling line at Pioneer.

This success helped to mitigate the negative effect of the processing of so-called "transitional" ore at the Malomir mine. As the first stage of Malomir's development, the processing of oxide ores through a conventional resin-in-pulp plant, has been drawing to an end, the shift towards the planned processing of refractory ores through the flotation plant is scheduled for the beginning of Q3 2013. The resultant treatment of transitional material, so called because it is neither fully oxidised nor fully refractory and is what one expects to meet as the transition from oxide to refractory ore takes place, caused a drop in recovery rates at the plant, negatively affecting overall production and cash costs. However, due to the multi-mine nature of our business, we were able to offset this in part by good performances at the Pioneer and Pokrovskiy mines.

I am delighted to report on the potential significant investment in IRC by General Nice and Minmetals Cheerglory, an investment which will provide IRC with additional financing for its flagship K&S project and Garinskoye. It also delivers off-take arrangement, marketing infrastructure and cash-flow security, which are expected to underpin substantially IRC's development. As Petropavlovsk will continue to be a major investor in IRC, this investment will enable the Company to share in the upside of IRC's growth potential. In addition,  I hope that it will allay shareholders' fears about additional financing requirements relating to IRC as, upon the full completion of the investment, the Company will have a pro-rata indemnity from General Nice in respect of the Company's contingent liabilities for IRC bank debt. The first stage of this transaction is expected to complete shortly after Petropavlovsk and IRC shareholder approval is obtained.

Looking ahead into 2013 - which we expect will be a transformational year for the Group - I am confident in the team's ability to manage the goals we have set ourselves this year in an efficient and timely manner. During 2013, we are planning to finalise the construction of our P-OX Hub, with planned commissioning at the beginning of 2014. We believe that the Hub will transform the Group into one of the leaders in the sector, using the tried and tested modern technology to recover gold from refractory ore. The majority of equipment for the future Hub has already been delivered to the Pokrovskiy site. 

Our exploration policy of looking for new sources of gold close to existing production facilities has resulted in the identification of some oxide gold occurrences close to the Malomir plant that may be available for mining in the latter half of the year.We will, as usual, announce our updated reserve and resource numbers in February 2013."

Conference Call

There will be a conference call today to discuss the announcement at 11:00GMT.* 

To access the call, please dial [phone]if calling from the UK or elsewhere.

Please then give the participant pin code 31251561#to be transferred to the call.

IRC's management will also be holding a conference call today at 09:00GMT (17:00 Hong Kong time) to discuss details of the potential investment. *

The number is [phone]and passcode 948554#.

A presentation to accompany the call is available at ircgroup.com.hk.

* The conference calls may include information relating to the shares and convertible bonds

Enquiries

Petropavlovsk PLC	[phone]
Alya Samokhvalova
Rachel Tuft
College Hill	[phone]
David Simonson
Matthew Tyler
Anca Spiridon

Operations and Gold Production: Pioneer

During 2012, Pioneer produced 333,600oz of gold. This was 17% higher than the 286,000oz target set at the start of the year due to the inclusion of new exploration results into the mine plan, and the earlier than planned commissioning of the plant's fourth 1.8Mtpa milling line.

In addition, the heap-leach facility was expanded during the year and processed 946,000 tonnes of ore, an increase of 134% over the amount processed in 2011. The second tailings dam was successfully commissioned in April 2012.

Metallurgical recovery at Pioneer's resin-in-pulp ("RIP") plant was 3% higher compared to 2011, despite the processing of lower-grade material and the commissioning of the new milling line.

The increased capacity of the processing plant will enable the cost-efficient treatment of low-grade stockpiles accumulated on site, which stood at approximately 5.3Mt as at 1 January 2013. It is expected that a significant proportion of the stockpile reserves will be processed during 2013, releasing approximately US$90 million in working capital which will positively affect operating cash flow during the year, although adversely affecting the total cash costs for the mine. The high stripping volumes, required in 2012 to access high-grade oxide material for the plant, are expected to decrease significantly when the mine starts treating refractory ore in 2015, thus reducing the cost of mining operations.

Pioneer mining operations
	Units	Q4 2012	Q4 2011	Year ended 31 Dec 2012	Year ended 31 Dec 2011
Total material moved	m3'000	9,360	8,988	40,826	31,615
Ore mined	t'000	2,271	2,996	9,135	8,473
Average grade	g/t	2.5	1.6	1.8	1.8
Gold content	oz'000	183.1	158.3	532.4	479.3
Pioneer processing operations
	Units	Q4 2012	Q4 2011	Year ended 31 Dec 2012	Year ended 31 Dec 2011
Resin-in-Pulp ("RIP") Plant
Total milled	t '000	1,358	1,147	5,305	4,700
Average grade	g/t	3.2	4.0	2.2	2.8
Gold content	oz'000	141.6	148.3	379.7	421.8
Recovery rate	%	88.8	83.7	86.0	83.2
Gold Recovered	oz '000	125.7	124.0	326.7	351.0
Heap Leach
Ore stacked	t '000	114	0.0	946	405
Average grade	g/t	0.7	n/a	0.6	0.7
Gold content	oz '000	2.4	0.0	19	11
Recovery rate	%	79.2	n/a	37.3	73.6
Gold recovered	oz '000	1.9	0.8	7.0	8.1
Total
Gold recovered	oz '000	127.6	124.8	333.6	359.1

Operations and gold production: Malomir

Malomir produced 103,300oz of gold in 2012. This was an increase of 17% on the amount produced in 2011 (88,500oz), although 12% lower than the Group had anticipated at the start of 2012 due to lower-than-budgeted recoveries.

Malomir has relatively small reserves of the transitional ore situated in contact with the refractory ore body. It has complex morphology which is difficult to model, estimate and mine selectively.  As a result of this complex geology, some of the transitional ore was classified as non-refractory and included in the mine plan with higher estimated recoveries. For the majority of the year, Malomir was mining and processing large quantities of such transitional ore, which had a lower recovery than originally budgeted.

The expansion of the sorption/desorption circuit in February 2012, which increased the plant's processing capacity to 150,000 tonnes per month, partially offset the effect of the lower recoveries resulting from the transitional ore.

During the year, the Group also continued to mine high-grade, oxide ore reserves suitable for processing in the RIP plant. This required the removal of large volumes of waste. The resulting high stripping coefficient, together with the lower-than-budgeted recoveries from the transitional ore, adversely affected cash costs.

The results of Malomir's 2012 exploration program identified c.240,000oz of additional oxide resources in an ore body parallel to the Quartzitovoye pit (internal preliminary estimate). Work is currently being undertaken to outline new reserves for inclusion in the 2013 mine plan. This may significantly improve the current production and cash-cost forecast for the mine for this year.

During 2012, construction continued on the flotation plant, which is currently scheduled to commence concentrate production in Q3 2013. As Malomir refractory ore bodies are shallow and of a bulk nature, they will be mined with a low strip ratio. Therefore, mining costs are expected to decrease when the mine shifts to producing from its refractory reserves.  

Malomir mining operations
		Units	Q4 2012	Q4 2011	Year ended 31 Dec 2012	Year ended 31 Dec 2011
Total material moved		m3'000	4,468	2,758	16,042	9,094
Ore mined		t'000	823	908	3,438	1,981
Average grade		g/t	1.2	2.2	1.7	2.4
Gold content		oz'000	31.3	63.5	191.4	152.5
Malomir processing operations
		Units	Q4 2012	Q4 2011	Year ended 31 Dec 2012	Year ended 31 Dec 2011
RIP Plant
Total milled		t '000	645	309	2,278	925
Average grade		g/t	1.3	3.9	2.0	3.8
Gold content		oz'000	26.7	39.2	149.2	111.6
Recovery rate		%	71.5%	72.5	69.2	79.3
Gold Recovered		oz '000	19.1	28.4	103.3	88.5
Total
Gold recovered	oz '000		19.1	28.4	103.3	88.5

Operations and gold production: Pokrovskiy

Pokrovskiy produced 92,100oz in 2012 (91,800oz in 2011), as the mine draws to the end of its life. Production exceeded the Group's forecast for the year by 35% due to new, good quality reserves identified at the mine as a result of exploration conducted during 2011 and 2012.

The majority of the ore in 2012 came from the Pokrovka-2 deposit together with bulk samples from the Zheltunak satellite deposit as the main pit of Pokrovskiy mine was mining overburden on the south wall.

It is expected that the RIP plant will continue processing the remaining high-grade oxide reserves during the first half of 2013 before the plant is converted for the processing of refractory flotation concentrates.

The Group plans to continue the heap-leach operations at Pokrovskiy until full depletion of the economically viable reserves.

Pokrovskiy mining operations
	Units	Q4 2012	Q4 2011	Year ended 31 Dec 2012	Year ended 31 Dec 2011
Total material moved	m³ '000	2,986	1,662	9,702	6,560
Ore mined	t '000	207	199	1,453	1,076
Average grade	g/t	1.8	1.7	1.7	2.0
Gold content	oz '000	12.2	11.2	78.1	68.1
Pokrovskiy processing operations
	Units	Q4 2012	Q4 2011	Year ended 31 Dec 2012	Year ended 31 Dec 2011
RIP Plant
Total milled	t '000	440	450	1,692	1,782
Average grade	g/t	1.8	1.6	1.7	1.63
Gold content	oz '000	25.7	23.1	94.3	93.3
Recovery rate	%	84.8	80.3	82.8	82.0
Gold recovered	oz '000	21.8	18.7	78.1	76.6
Heap Leach
Ore stacked	t '000	80	57	890	819
Average grade	g/t	0.7	0.8	0.7	0.8
Gold content	oz '000	1.8	1.5	19.9	20.7
Recovery rate	%	n/a	n/a	70.4	73.7
Gold recovered	oz '000	2.7	3.0	14.0	15.2
Total
Gold recovered	oz '000	24.5	21.7	92.1	91.8

Operations and gold production: Albyn

During 2012, Albyn produced 89,300oz of gold.

The mine went through a prolonged ramp-up period during Q1 2012 which was complicated by challenging infrastructure, adverse weather conditions, and in particular, problems with the water and electricity supply. The team successfully overcame these challenges and, by Q3 2012, the plant was working to its design capacity of 3.6Mtpa of ore, following the commissioning of the second processing line in June 2012.  

Albyn mining operations
	Units	Q4 2012	Q4 2011	Year ended 31 Dec 2012	Year ended 31 Dec 2011
Total material moved	m³ '000	3,177	1,608	10,604	1,608
Ore mined	t '000	764	150	2,219	150
Average grade	g/t	1.2	1.5	1.4	1.5
Gold content	oz '000	30.2	7.0	101.7	7.0
Albyn processing operations
	Units	Q4 2012	Q4 2011	Year ended 31 Dec 2012	Year ended 31 Dec 2011
RIP Plant
Total milled	t '000	852	39	2,179	39
Average grade	g/t	1.3	1.1	1.4	1.1
Gold content	oz '000	36.1	1.3	98.2	1.3
Recovery rate	%	92.5	85.6	90.9%	85.6
Gold recovered	oz '000	33.4	1.1	89.3	1.1

Group operations report: Alluvial production

During 2012, the Group produced a total of 92,100oz of gold from its alluvial operations, an increase of 3% on the amount produced in 2011 (89,600oz). As alluvial production is seasonal, with operations typically running from April to November, production in Q4 was lower than in Q3, as expected.

Corporate update

Sale of non-core assets

In Q4 2012, the Company signed a Share Purchase Agreement relating to the transfer of 65% of the issued shares in Omchak  to OJSC Susumanzoloto ("Susumanzoloto"). The total consideration for the sale is US$21,650,000, payable in four equal tranches in the course of 2013.

The Group increased its holding to 90% of the issued shares in Omchak in 2010. Prior to this, Omchak was a joint venture with Susumanzoloto and OJSC Shkolnoe, with the Group originally holding 50%.  As a joint venture, Omchak produced gold from alluvial operations. In 2011, ownership of all the alluvial licences was transferred to another subsidiary of the Group. Omchak now holds five licences to explore and develop hard-rock gold deposits: Bukhtinskaya, Kulinskoye and Verkhne-Aliinskoye in the Chita region of Russia and Birysinskiy and Mirichun in the Irkutsk region, as well as Verkhne-Kaurchakskaya in the Altay region, which is held indirectly via Omchak's wholly owned subsidiary. None of these assets are producing. As at 1 January 2012, Verkhne-Aliinskoye held 0.24Moz of Measured + Indicatedand a further 0.47Moz of InferredMineral Resources. The remaining five assets are greenfield projects at an early stage of exploration.

The prior approval of the Federal Antimonopoly Service of Russia had been obtained for the transaction and the shares were transferred. Petropavlovsk remains a 25% shareholder in Omchak.

The transaction has resulted in an estimated non-cash accounting loss of approximately US$30 million to be recognised in the results for the year ended 31 December 2012, reversing the fair value gain of approximately US$26 million which arose in 2010.

Assets review

In line with the Group's strategy to focus on exploration near its operational facilities, the Group is reviewing the carrying value of all of its exploration and development assets and this may result in non-cash impairments of an estimated further US$75 million to US$100 million when the accounts for the year ended 31 December 2012 are finalised.

IRC

During the year, as a result of the potential investment in IRC by the new shareholders, the Group took a decision to support new investment into IRC and to accept the resulting dilution of its holding in IRC to a non-controlling interest and accordingly the Group's investment in IRC will be treated for accounting purposes as "held for sale" as at 31 December 2012.  As a result, the carrying value of the entire IRC net assets will be adjusted to fair value, less any costs to sell. Based on IRC's share price of HK$1.170 as at close on 31 December 2012, the estimated net adjustment would be a c.US$225 million non-cash fair-value impairment, to be shown in the financial results for the year ended 31 December 2012, with c.US$147 million allocated to equity holders of Petropavlovsk and c.US$78 million to non-controlling interests.

Development of the P-OX Hub

During 2012, significant progress was made towards the commissioning of the P-OX hub, scheduled for Q1 2014.

At Pokrovskiy, the area for the P-OX plant was cleared during H1 2012 and construction of the oxygen plant building was completed by the end of the year. The construction of the autoclave building progressed according to schedule, with the foundations completed and the four autoclaves installed. Work is planned to commence on the construction of maintenance platforms, engineering communications, linings and branch pipes during H1 2013.

At the Malomir site, which will be one of the two suppliers of flotation concentrate to the Hub, construction works continued on the flotation plant to enable production to start in Q3 2013.

The Group intends to stockpile flotation concentrate ahead of the commissioning of the P-OX plant in Q1 2014 but may market this product temporarily if conditions are suitable.

Exploration Update

Pioneer

During 2012, exploration continued at Alkagan-Adamovskaya. A new mineralised zone, Shirokaya, was identified and preliminarily explored. In the selected samples received so far, the best grades are 2.4g/t and 8.5g/t Au, although the average grade of the mineralisation is between 0.88g/t and 2.08g/t Au.

Exploration continued at NE Bakhmut, where economical mineralisation has been further extended along the strike. 

A new zone of gold mineralisation, Perspektivnaya, was identified between the Ulunga River and the Chesnokovskiy stream.  It has been traced for more than 900m along the strike length.  The best intersections received to date include: 3m at 14.28g/t, 8.7m at 3.22g/t and 2.09m at 9.3g/t Au.  Preliminary metallurgical tests indicate that it is an oxide zone to a depth of between 10 and 20.8m. Further positive results were also received from the Zvezdochka zone, where drilling intersected 2.9m at 2.63g/t and 3.2m at 5.93g/t Au.

Malomir

During 2012, the most significant exploration results from Malomir were received from around Quartzitovoye. Several new zones of mineralisation to the west and east of the Quartzitovoye open pit were identified during the year and explored in Q4 2012. The preliminary estimated non-refractory resources of these zones are c.240,000oz of gold. The average grade of the individual zones varies between 1.1g/t and 3.3g/t with the thickness between 5m and 16m. The estimates are being verified and incorporated into the Group's JORC-compliant Mineral Resources and Ore Reserve statement, due to be published on 28 February 2013.

Pokrovskiy and Satellites

At the Borovaya area, which lies 8km north from Pokrovskiy, an 800m-long mineralised zone (Zone No 1) was explored in Q4 2012 by 160m-trench profiles. The average grades of the intersections are between 0.75g/t and 2.11g/t Au with an apparent thickness of 2.5m to 4.0m.  Exploration remains at an early stage and drill core samples are being analysed. Additional promising exploration results include an intersection at the Daktuy prospect within the Borovaya licence area (2.13g/t at 5m thickness), as well as the identification of a new molybdenum-porphyry exploration target.

During 2012, successful exploration continued at the Zheltunak deposit. A new, mineralised zone, Yuzhnaya, was identified and explored south of the Cross zone.  The best intersection identified here so far is 12.9m at 1.88g/t Au (interval 27.9-40.8m). The zone is shallow-dipping and will be suitable for open-pit mining. A preliminary resource estimate suggests c.350,000oz of gold at an average grade of approximately 1.4g/t and a thickness of 5.3m. Mineralisation is non-refractory and will be suitable for processing at the Pokrovskiy or Pioneer RIP plants. The zone is still open in a down-dip direction and along the strike. It is planned that exploration of this area will continue in 2013.

Further positive results were also received from the Sukhoy area to the east of Zheltunak, where grades up to 19.5g/t Au were identified in selected samples. A preliminary, internal resource estimate indicated approximately 7,000oz of ore with an average grade of 3.3g/t Au and an average thickness of 4m.

Taldan

The Taldan licence area is situated 150km north-west by road from Pokrovskiy. As a result of the exploration work conducted in previous years, the Group has already identified c. 340,000oz of Inferredresources within the licence area. During Q4 2012, exploration resumed at the Burinda deposit which is situated within Taldan licence area. A pre-strip was developed in order to facilitate the detailed exploration of the high-grade portion of the deposit which the Group's geologists expect may hold resources potentially suitable for direct shipping for treatment through the Pokrovskiy or Pioneer plants. The results received to date have been very encouraging, with the best intersections being 4m at 13.5g/t and 2.6m at 12.4g/t. 

Albyn

Elginskoye

During Q4 2012, the Group continued to conduct a successful exploration programme at Elginskoye, a highly prospective, 325km2 licence area located 15km from the processing plant at Albyn. Gold mineralisation has been traced further to the west and in a down-dip direction, extending previously reported mineral resources. Exploration commenced on a further prospecting area, Ulgen, by seven trenches, some of which are still in progress. The first results from here are promising, with intersections of 1.8m to 16m at average grade of 0.56g/t to 2.87g/t Au identified. Exploration at Elginskoye will continue into 2013.

New Exploration Areas

In Q4 2012, the Group acquired the following three exploration licences through government auctions:

n  the Afanasevskaya licence west and north of Albyn. This licence area borders both the Albyn
and Elginskoye licence areas and covers a number of promising targets;

n  the Malomirskiy Ore Cluster area east and north-east of Malomir; and

n  the Pogranichniy Ore Cluster west of Malomir.

An exploration programme for these areas is being prepared and the Group will provide updates on their exploration and development in due course. At present, the licence documentation is being finalised.

IMPORTANT INFORMATION

Past performance cannot be relied on as a guide to future performance.

Some figures may be rounded.

Forward-looking statements

This release may include statements that are, or may be deemed to be, "forward-looking statements". Generally, these forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "plans","targets", "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, targets, 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 Russian 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.

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