25 July 2012

2012 Half Year Trading Update

Petropavlovsk PLC ("Petropavlovsk", the "Company" or, together with its subsidiaries excluding IRC Limited ("IRC"), the "Group") today issues its Trading Update for the period from 1 January 2012 to 30 June 2012 ("the Period" or "H1 2012") in advance of its half-year results, which are expected to be published on 23 August 2012.

HIGHLIGHTS

Total attributable gold production⁽¹⁾for H1 2012

Operations and gold production

n  Total attributable gold production for the Period was 279,100oz, a 27% increase compared to the same period in 2011 (219,100oz) and in line with the Group's increased production target for the full year;

n  Production during the second half of 2012 is expected to be higher than in the first half due to a greater contribution from the Group's seasonal heap-leach and alluvial operations and the expanded processing capacity at Pioneer and Albyn;

n  The Group reiterates its production target of 700,000oz for the full year.

Gold sales and costs

n  Gold sales during the period totalled 286,000oz, an 8% increase on the equivalent period in 2011 (266,000oz);

n  The average realised gold price for the period was US$1,639/oz, a 13% increase compared to H1 2011 (US$1,455/oz);

n  Operating costs for the Period for the Group's hard-rock mines (excluding Albyn) were marginally in line with H1 2011.

1.    Total attributable gold production, as stated throughout this document, is comprised of 100% of production from the Group's subsidiaries. The Group has held a c.1.1% interest in Rusoro Mining Ltd since March 2009; no attributable ounces are included in the Group figures. The Company's direct and indirect interest in JSC "Pokrovskiy rudnik" (the holder of the Group's Pokrovskiy and Pioneer interests) is 98.61%. Cumulative gold production, as stated throughout this document, consists of gold physically recovered and gold in circuit. Accordingly, gold produced in the year consists of gold recovered during the period and adjusted for the movement in gold still in circuit.

Project development: Pioneer and Albyn expansion

n  On 4 June 2012, the fourth processing line at Pioneer mine was commissioned ahead of schedule, increasing the plant's design capacity by c.40% to c.6.6Mtpa;

n  On 10 June 2012, the second processing line was commissioned at Albyn ahead of schedule, doubling the plant's design capacity to c.3.6Mtpa.

POX processing hub

n  Construction work has been progressing according to schedule, with work on the oxygen plant at Pokrovskiy under way and key items of equipment on order;

n  The first delivery of equipment at the Pokrovskiy site is scheduled to take place in Q3 2012.

Exploration

n  The Group successfully continued exploration at and around its operating mines in the Amur region;

n  A new reserves and resource estimate in accordance with JORC Code (2004), including the results of further H1 2012 exploration work is being prepared for release on 23 August 2012, together with the Group's half-year results.

IRC Limited ("IRC")

n  On 12 July 2012, IRC issued its Q2 Trading Update which noted the following highlights:

-     Kuranakh 2012 full year production targets reaffirmed;

-     K&S project construction on track; processing plant foundations underway and electrical substation ready;

-     Garinskoye DSO scoping study announced to realise near-term value for reduced capital expenditure;

-     Molybdenum exploration and Bolshoi Seym transactions announced.

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

"We are delighted to look back on six months of record gold production at our mines, following yet another quarter of strong operational performance. Our track-record of building a successful multi-mine portfolio was strengthened further with the commissioning, ahead of schedule, of the fourth processing line at Pioneer and the second processing line at Albyn. The latter doubles the designed capacity at Albyn eight months after it commenced production. In parallel, our exploration programme is continuing to uncover further non-refractory reserves adjacent to our existing assets, ensuring that our growth trajectory is maintained in the years to come. We look forward to providing a further update on exploration in August.

Our strong performance this quarter supports our upgraded full-year production target of 700,000oz. Work has been progressing well on the pressure oxidisation ("POX") facilities for our planned commissioning at the end of 2013. At the same time, training has been continuing at our in-house facilities for the expert team which will be running the process in the years to come. Our focus for the second half of the year will remain on tight cost control and an increase in operational efficiencies."

ENQUIRIES

OPERATIONS AND PRODUCTION

PIONEER

During H1 2012, Pioneer produced 125,300oz of gold, an increase of 7% on the amount produced during the same period in 2011. This includes production from the seasonal heap-leach facility at Pioneer, which began production in April 2012, contributing 1,300oz of gold.

In Q2 2012, production at Pioneer totalled 59,700oz, a decrease of 25% compared with the same period in 2011 (80,000oz). The decrease was due to a scheduled decrease in ore grades through the plant.

POKROVSKIY

During H1 2012, Pokrovskiy performed well, with total gold production standing at 37,400oz, of which 4,500oz were processed via the mine's heap-leach operations. This was slightly less than the 41,900oz the mine produced during the comparative period in 2011 due to lower ore grades through the mill, as scheduled. The Pokrovka-2 deposit was the primary source of ore mined during H1 2012.

MALOMIR

During H1 2012, Malomir produced 66,100oz, a 74% increase on the same period in 2011 (37,900oz). The increase was due to the expansion of the plant in July 2011 and the sorption circuit at the beginning of 2012.

Mining operations were focused on the non-refractory ore at the Quartzitovoye deposit as well as stripping of the oxidised non-refractory cap from the refractory ore body at the Central pit.

ALBYN

During H1 2012, Albyn was going through a ramp up and expansion period and produced 24,100oz. Following the commissioning of the second processing line at Albyn in June 2012, the mine is expected to work at its full capacity during the second half of the year.

ALLUVIAL PRODUCTION

During the period, the Group produced 26,200oz of gold from its alluvial operations. The majority of alluvial production is expected during H2 2012, given that July to October are the main production months for this seasonal operation.

DEVELOPMENT

Pioneer

In June 2012, the fourth processing line at Pioneer was successfully commissioned ahead of schedule, increasing Pioneer's throughput capacity by c.40%. Following ramp up, the plant is now running at full capacity of c.6.6Mtpa.  

Albyn

The launch of the second line at Albyn in June 2012, doubling designed plant capacity to 3.6Mtpa. The June 2012 commissioning was ahead of schedule and the plant is expected to work at full capacity during the second half of 2012.

POX Hub at Pokrovskiy

Construction work has been progressing as planned during H1 2012 and the project remains on schedule. Work on the oxygen plant at Pokrovskiy is under way and key items of equipment are on order.

The manufacturing of two autoclaves, four flash tanks and four receivers is now complete and quality control tests at the respective factories, under the supervision of Outotec (Finland) Oy, have been completed. The first delivery of equipment to the Pokrovskiy site is scheduled to take place in Q3 2012.

The Group and its in-house experts continue to perform tests at the POX pilot test plant in Blagoveschensk, in order to confirm and further optimize operating parameters and reagent usage.

EXPLORATION

In H1 2012, the Group continued its successful exploration programme at and around its principal assets. Encouraging results were received from extensions at NE Bakhmut (at Pioneer), Elginskoye (adjacent to Albyn) and Zheltunak (near Pokrovskiy).

Pioneer

A new high-grade pay shoot was identified in Q1 2012 at the highly prospective NE Bakhmut trend. The Group's geologists believe that this zone strikes from North to South in an almost perpendicular fashion to the strike of the NE Bakhmut zone and parallel to the Yuzhnaya Zone in the western part of Pioneer. The best intersections received to date include 21..6m at 7.3g/t and 5.9m at 19.7g/t (thickness is apparent). These high-grade intersections represent a pay shoot with a strike length of 150m and true thickness of 3m - 10m with expected average grades of between 4g/t and 6g/t. It is expected that this zone holds resources of both non-refractory (including high-grade) and refractory material.

In addition, two new and previously unknown zones of mineralisation were also discovered south east of Nikolaevskaya and north of Bakhmut. Assay results from these new discoveries to date indicate grades of 1.1g/t - 1.7g/t with apparent thickness of 7m to 29m. Exploration is at an early stage with further results expected later this year.

Albyn

The Group has been successful in its exploration at Elginskoye. Zones of gold mineralisation have been traced by trenching and geochemical surveys over a strike length of 28km. Approximately 1,600m of this strike length has been drilled on a 150m x 80m grid, identifying two shallow dipping structures 5m - 25m in thickness. Both zones are still open in strike and down dip directions. Structural interpretation and computer modelling completed by Group specialists has resulted in an estimate of c.180Koz of Inferred gold resources (c.5.1Mt at 1.1g/t) at a cut-off grade of 0.4g/t. The Group's geologists consider that these resources to be non-refractory.

Since this estimate was produced, further drilling results have been received, including high grade intersections of up to 6m at a grade of 12g/t. Other selected high grade results from trenches include intersections with thicknesses of between 4m - 22m at 5.1g/t - 5.9g/t. The Inferred resource estimate is currently being updated with these most recent exploration results and it will be included in the Mineral Resource update in August 2012.

Pokrovskiy

A high-grade zone was identified at Zheltunak, a satellite deposit near the Pokrovskiy plant. Mineral Resources and Ore Reserves are currently being estimated and it is planned that they will be included in the Group's reserves and resources update, which it intends to publish in August 2012.

Zheltunak remains prospective with further exploration planned for H2 2012.

GOLD SALES AND COSTS

During H1 2012, the Group sold 286,000oz of gold at an average realised gold sales price of US$1,639/oz. This represents an increase of 8% on gold sold during the first six months of 2011 (266,000oz at an average realised gold sales price of US$1,455/oz). The Group's average gold sales price in H1 2012 was 13% higher than in H1 2011.

Operating costs for hard-rock mines (excluding Albyn) during H1 2012 were marginally in line with the same Period in 2011. The average Rouble exchange rate was US$1:RUB31.0 during Q2 2012 compared to US$1:RUB30.2 in Q1 2012. The average Rouble exchange rate during H1 2012 was US$1:RUB30.6, compared to US$1:RUB28.6 in H1 2011.

CORPORATE UPDATE

Following shareholder approval at the Company's Annual General Meeting held on 31 May 2012, the Company will pay a final dividend of ?0.07 per share on 26 July 2012 to shareholders on the register as at close 29 June 2012.

IRC

IRC is a producer and developer of industrial commodities and is the Group's former Non-Precious Metals Division, prior to its listing on the Stock Exchange of Hong Kong Limited. The Group holds a 64.5% stake in IRC with a current market value of US$194m, as at close on 24 July 2012.

FY2012 production targets reaffirmed

On 12 July 2012, IRC issued its Trading Update. It stated that Q2 2012 and interim production numbers are on track, with Kuranakh's production of iron ore for the quarter 19% higher and ilmenite production 95% higher compared to Q2 2011. Annual targets of 820,000 tonnes of iron ore concentrate and 125,000 tonnes of ilmenite concentrate are reaffirmed.

Sales above expectations

Iron ore sales were above IRC management expectations, at 206,332 tonnes in Q2 2012 and 424,021 tonnes for H1 2012. Ilmenite sales were also ahead of management expectations, at 26,996 tonnes for Q2 2012 and 52,966 tonnes for H1 2012.

K&S project construction on track

Performance is ahead of expectations, enabling foundation work to progress rapidly.

The 22kv transformer site is now complete and ready to be connected to the main cross country overhead power supply, before switching over to full national grid power. Full construction works are underway on the processing plant site.

Bolshoi Seym transaction

IRC announced the signing of an agreement to acquire the remaining 51% ownership of the high-grade ilmenite Bolshoi Seym deposit resulting in 100% ownership. Its geology is attractive, with the deposit containing approximately 331.5Mt of reserves and resources and located adjacent to IRC's established Kuranakh mine, suggesting potential for economies of scale and synergies.

Garinskoye Direct Shipment Ore ("DSO") scoping study

Since the DSO opportunity was announced earlier in 2012, progress has continued. The JORC resources model has been updated with new data from recent drilling and a technological mapping of the deposit and a full scale technological sampling for the pilot testing at the Ural Mining Institute of the Russian Academy of Science is underway. During H2 2012, it is anticipated that the JORC report will be completed along with the pit optimisation study and technological study for the primary processing of the high grade ore.

Molybdenum exploration

During Q2 2012, IRC announced the signing of an agreement to acquire a controlling 50% plus one share stake and an option over all remaining shares in a molybdenum exploration project situated in the Amur Region. IRC subsequently announced on 12 July 2012 that this transaction had been completed. This is a low cost entry into a new project with significant exploration upside. The acquisition will provide IRC with an attractive industrial commodity development opportunity whilst enhancing its commodity and regional diversification.

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

Forward-looking statements

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 cannot be relied on as a guide to future performance.